ISC vs NSN Case Files #2 – NSN Objection

I have been trying for several months to find somebody – anybody – who is willing to articulate the International Storytelling Centers position on the Chapter 11 Bankruptcy Court filing and the breaking of the contract with the National Storytelling Network. I have failed to find anyone who is willing to write an editorial on the ISC perspective. I have decided to present the two court filings from the ISC and NSN on the matter. Heavily edited to leave out the sections that deal with the more legal technical arguments and just include the core values expressed.

I could easily find someone to write a editorial defending NSN – but it seemed one sided – so I am posting both perspectives in the organizations own words.

The Following is the NSN’s objection to the ISC request for termination of contract with the 50% that deals with the legality of ending this form of contract removed. It is importnat to note that NSN board has withdrawn this objection from the court after being told that they would have to fight it up the appeals court process. Probably win after two years and a half a million dollars – most likely destroying both organizations and ending the National Festival as we know it.

All the best

Eric Wolf
Read on
Case No. 2:10-bk-53299

Comes now National Storytelling Network (“NSN”) and files this objection to Debtor’s Motion to Reject Executory Contracts (“Motion”)

After more than twenty-five years as a single organization developed to foster and promote the National Storytelling Festival (“Festival”), the National Storytelling Association (formerly known as the National Association for the Preservation and Perpetuation of Storytelling “NAPPS”) split into two separate 501c3 non-profit organizations in 1998; what are now known as the International Storytelling Center, (“ISC”) the Debtor in this case, and the National Storytelling Network (“NSN”). The reasons for the split will form part of the basis for NSN’s objection to Debtor’s Motion, but essentially the ISC, under the guidance of Jimmy Neil Smith, granted to pursue investment in and construction of a brick and mortar headquarter facility in the town of Jonesborough. The NSN felt that available resources should be directed toward the membership ideals and development of the storytelling movement as opposed to taking on debt in the form of mortgages and construction.

As a result, the ISC and NSN entered into a series of agreements which spelled out the responsibilities of each organization as related to the National Storytelling Festival (“Festival”) which the founding organization (NAPPS) owned and produced. The Restructuring Agreement divided the assets, liabilities, and revenue sources for each entity, defined the sharing of databases, resource sales and accounting practices, and essentially defined the roles ISC and NSN would play in continuing the work of promoting the Festival.

The Festival Agreement provides in plain terms that the National Storytelling Festival “shall be equally co-owned” by the ISC and NSN. It likewise sets out a revenue sharing arrangement in which NSN claims 18% of the gross proceeds which equates to 50% of the net profit. The Agreement further has a fail safe provision which triggers certain budgetary and financial oversight conditions if NSN’s share of the proceeds were to fall below $120.000.00

The Debtor claims it is in the best interest of he bankruptcy estate to sever NSN’s relationship with the National Storytelling Festival by rejection of the Agreements which give rise to NSN’s commitment to the Festival. Debtor and NSN are equal owners and guarantors of the success of the National Storytelling Festival. NSN provides membership support in the form of its national membership attendance at the Festival, advertising and promotion of the Festival in the NSN national magazine, inclusion of festival information in emails to membership, providing the mailing list to ISC for promotional mailings, etc. NSN’s activities during the

Festival in the form of StoryNight, StoriesWork, and NSN’s tent on the grounds are but a few examples of the integral role NSN fulfills in the Festival. The proof will show that the success the Festival has enjoyed is due to the efforts of the NSN in encouraging participation and attendance at the Festival. Although the ISC maintains exclusive rights to book the actual storytellers for the festival, the vast majority of those storytellers are members of NSN. NSN would show the Court that it is not NSN’s rightful 18% share of the gross proceeds that has hampered Debtor’s business operations but Debtor’s own financial management.

Further, the Debtor must show that its decision to reject the Agreements is made as part of an impartial business decision. The initial question is whether Jimmy Neil Smith of the ISC has a personal interest in the decision to reject the Agreements such that his loyalty to the corporation and its shareholders could be called into question? If such a personal interest exists, then the business judgment rule requires ISC to establish that every aspect of its decision to reject the Agreements is equitable. hi. NSN will show the Court that such a personal interest on the part of Jimmy Neil Smith does exist and that the best chance of success the management of the Festival has is NSN’s continued involvement in the Festival pursuant to the Agreements.

Finally, if Debtor’s Motion is granted and the Agreements are rejected, the Agreements will be treated as breached by Debtor and NSN will be entitled to an unsecured claim against the estate for the amount of the breach. The Festival Agreement has thirty-seven (37) years remaining of its fifty year term. NSN will therefore have a claim of approximately five million dollars ($5,000,000.00) against the estate. In applying the business judgment test, one element to be considered is the size of the claim flowing from the breach caused by rejection.

The result of Debtor’s rejection of the Agreements will be the Storytelling Center teetering on the brink of foreclosure, the loss of a significant portion of its audience for the Festival, the potential loss of a significant portion of the actual storytellers at the Festival, the loss of its promotional, advertising and goodwill generated by NSN, and a $5,000,000.00 claim against its estate. In exchange, ISC will presumably lay claim to its business partners’ $140,000.00 annual ownership share. NSN contends that the rejection of the agreements is not in the best interest of the estate and asks the Court, after discovery and an evidentiary hearing, to examine the Agreements and the surrounding circumstances and apply its best business judgment to determine whether it would be beneficial or burdensome to ISC to jettison NSN from the Festival.

Conclusion

NSN objects to ISC’s Motion to Reject the Re-Structuring Agreement, the Festival Agreement, and the Settlement Agreement as executory contracts on the grounds that under the analysis provided by the Sixth Circuit, the Agreements do not qualify as executory contracts. Moreover, breach of the Agreements would not benefit the estate as it would create a $5,000,000.00 claim against the estate and would effectively silence and estrange the most vital aspect of the Storytelling Festival – its participants and its patrons.

The National Storytelling Network respectfully requests that the Court deny Debtor’s Motion to Reject Executory Contracts.

Original unedited document.
Case No. 2:10-bk-53299