A Cleveland-based charity seeks to buy Mosdos Ohr Hatorah, the Orthodox Jewish day school in Cleveland Heights that has gone into receivership, and continue the school’s operation.
Irv Berliner, an attorney for Yeshiva Derech HaTorah, said YDT was formed in early July and has applied to be a
501(c)(3), a tax-exempt nonprofit organization. He said YDT is interested in bidding on Mosdos’ buildings and assets when they go up for sale.
“The goal of the charity is to keep the 508 kids (at Mosdos) in school and to allow the kids to get the Jewish education they have been getting,” Berliner said.
Berliner, whose Cleveland law firm, Taft Stettinius & Hollister, is representing YDT, said he was not in a position to comment on whether the school would be renamed Yeshiva Derech HaTorah if the entity buys Mosdos.
“We’re not focused on the name at this time,” he said.
Lawyers for Mosdos requested that the Cuyahoga County Common Pleas Court authorize the school to enter into a credit agreement with YDT, which would provide loans to Mosdos via an interim financing order from the court.
Harry Brown, a partner at Benesch, Friedlander, Coplan & Aronoff, the Cleveland-based law firm that represents Mosdos, said the court has authorized Mosdos to borrow up to $700,000 under the interim financing order. The loan of that amount would come from YDT, pending approval of a sale, he said.
Mosdos’ boys’ school at 1508 Warrenville Center Road opened as scheduled on Aug. 18. Its girls’ school, at 1700 S. Taylor Road, is to open Sept. 1.
“We’re working very hard to try to ensure that the kids have a place to study and go to school,” Brown said. “We’re really pleased (Common Pleas Judge Maureen Clancy) has arranged for the opening of school.”
Mosdos, which is about $14 million in debt, applied for judicial dissolution of two corporations – Mosdos Ohr Hatorah and Congregation Mosdos Ohr Hatorah – in late July in the common pleas court.
Unable to cover its budget via tuition and fundraising, the school covered its debt primarily through debt financing, mostly from people associated with the community and parents, Brown said.
The accumulated debt to community lenders is likely between $10 million and
$11 million, Brown said. A bank loan or mortgage of about
$2.6 million on the school’s buildings increases the total debt to about $14 million.
Claims process to begin
On July 31, the court appointed Billy Frazier, principal and managing director of Raintree Capital Partners in Cleveland, to serve as receiver to administer the dissolution case. Frazier will operate the school’s fiscal affairs and put all of its assets up for sale.
On Aug. 17, Clancy approved the receivership order, the interim financing order and a claims procedure, as well as a stay of all litigation against Mosdos, Brown said.
“Even though the judge appointed a receiver, that does not stop people who want to from filing lawsuits,” he said. “So we have requested that thejudge order all lawsuits against Mosdos be stayed during the period of the receivership, and all of that will be consolidated into the claims process.”
Via that process, Brown said, Frazier will send a notice to about 800 people with some connection to Mosdos requesting that, if they believe they have a claim against the school, they fill out a form with proof of the claim and send it back. Frazier will then determine which claims are legitimate.
In late July, Brown’s law firm sent a letter to everyone on this list of about 800 possible creditors or lenders on behalf of Mosdos to notify them that the school had filed for receivership and that there would be court hearings, Brown said.
On Aug. 17, Clancy ordered a report from Frazier to the court every two weeks with updates on the claims process. Mosdos’ cash flow will be part of the report, Brown said, adding the school’s teachers will be paid from the $700,000 Mosdos is borrowing.
“(Clancy) is looking for good, continuing oversight of this case,” Brown said. “I think she recognizes how important this is to the children and the future of the school.”
No date has been set for the sale of the school’s assets.
“I think we’ll see the sale process go forward reasonably quickly,” Brown said. “The more difficult piece, I believe, is going to be the claims process, as that timeline will take a while. The receiver has to get the notice out to everybody and then take that information and look at Mosdos’ books to check if it is accurate.
“The critical issue for us is to make sure the school is able to continue, and that involves the sale process and being able to have the necessary working capital to operate the school.”
Brown noted the money from the $700,000 loan can be used only for the current school year and to keep the school functioning, not to pay off old debt.
‘Books not in ideal form’
Brown said he is not sure how many people are owed money by Mosdos, but the receiver will determine a number of valid creditors.
“The books of Mosdos were not in ideal form,” he said. “We have a lot of work that needs to be done in terms of making sure there are accurate records.”
Dissolution of the Mosdos corporations would likely happen at the end of the process, Brown said.
“When the receiver sells the buildings and payment is issued, the corporate entityceases to exist,” he said. “The debt continues to exist, but there’s no way to collect it; the debt dies along with the entity.
“Very often in bankruptcy proceedings, creditors do not get paid in full, and some do not get paid at all. That may happen in this case.”
Mendy Klein, chairman of RIK Enterprises in Cleveland and a longtime Mosdos supporter, did not indicate in an email whether he is interested in bidding on the Mosdos buildings when they go up for sale.
“It is well known in the community that Mosdos is near and dear to my heart,” Klein said in the email. “Despite the fact that I am one of those owed money by Mosdos, I have walked away from that debt.
“If things continue to go well with the court, I hope to be one of the first to support the new owner.”
The Mosdos boys’ school, at the former Warrensville Center Synagogue, houses students in preschool through eighth grade. The girls’ school, which opened in 1993, is for students in preschool through 12th grade.