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UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF TENNESSEE
IN RE: INTERNATIONAL STORYTELLING CENTER, Debtor
* * * * *
CASE NO. 2:10-bk-53299 Chapter 11
MOTION TO REJECT EXECUTORY CONTRACTS
NOTICE OF OPPORTUNITY TO OBJECT AND FOR HEARING
Pursuant to Local Rule 9013-1(h), the Court may consider this matter without further notice or hearing unless a party in interest files an objection. If you object to the relief requested in this paper, you must file with the clerk of the Court at James H. Quillen United States Courthouse, 220 West Depot Street, Greeneville, Tennessee 37743 within twenty-one (21) days from the date this paper was filed and serve a copy on Mark S. Dessauer, Esq., Attorney for Movant; and Patricia Foster, Attorney for United States Trustee. If you file and serve an objection within the time permitted, the Court will schedule a hearing and you will be notified. If you do not file an objection within the time permitted, the Court will consider that you do not oppose the relief requested in this paper and may grant the relief requested without further notice or hearing.
The Debtor, International Storytelling Center (the "Debtor" or "ISC"), pursuant to 11 U.S.C. § 365(a) and Fed. R. Bankr. P. 6006(a), seeks the Court's approval to reject certain executory contracts between ISC and the National Storytelling Network ("NSN"). Specifically, the Debtor seeks to reject Restructuring Agreement dated November 6, 1998 between ISC and NSN (the "Restructuring Agreement"), a copy of which is attached hereto as Exhibit No. 1; Festival Agreement dated November 1, 1998 (the "Festival Agreement"), a copy of which is attached hereto as Exhibit No. 2; and Settlement Agreement dated October 3, 2004 (the "Settlement Agreement"), a copy of which is attached hereto as Exhibit No. 3. In support of this Motion, the Debtor states as follows.
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ISC filed a voluntary Chapter 11 petition in bankruptcy on December 31, 2010.
It continues to own and operate its properties as a debtor-in-possession pursuant to 11 U.S.C. §§ 1107 and 1108.
This Court has jurisdiction over this action pursuant to 28 U.S.C. § 157(a).
Venue is proper in this Court pursuant to 28 U.S.C. § 1409(a). This is a core proceeding pursuant to 11 U.S.C. § 157(b)(2)(O).
In 1973, Jonesborough resident Jimmy Neil Smith founded and staged the first
National Storytelling Festival under the sponsorship of the Jonesborough Civic Trust. This event generated a storytelling revival in America. In 1975, Smith founded and formed the National Association for the Preservation and Perpetuation of Storytelling, Inc. ("NAPPS"), a not-for-profit entity organized for the purpose of continuing and perpetuating the revival of the art of storytelling.
NAPPS later received tax exempt status from the Internal Revenue Service and
thereafter operated as an entity exempt from federal income taxes pursuant to Section 501(c)(3) of the Internal Revenue Code.
On approximately November 17, 1994, NAPPS' name was changed to the
National Storytelling Association ("NSA").
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From its inception, through approximately 1998, NAPPS and NSA created a
national and international following that served a growing membership who were engaged in advancing the tradition and art of storytelling.
In 1997, a division of opinion developed among the members of the board of
directors of NSA regarding the future growth and vision of storytelling and the role of NSA in that process. A contingent of the board desired to develop a substantial Jonesborough presence including the building of the storytelling center in order to enhance Jonesborough's recognition on a national and international basis, while another contingent on the board felt that NSA should focus solely on serving membership.
As a result, two separate entities emerged from the NSA, ISC and NSN.
NSA continued to operate as an entity exempt from federal income taxes under
the original NAPPS Charter. NSA elected a new board of directors. NSN was formed as a separate entity by certain of the former board of directors of NSA. NSA's name was changed to Storytelling Foundation Center and, on June 5, 2003, NSA again changed its name to the "National Storytelling Center," the name under which it operates today. NSA also, in 2005, obtained authority to operate under the assumed names of "National Association for the Preservation and Perpetuation of Storytelling" and "National Storytelling Foundation." ISC
rarely operates under or uses such assumed names but continues to place value on the names and the ability to use them in the future.
As part of the separation of NSA into ISC and NSN, NSA (ISC) and the National
Storytelling Membership Association (NSN) entered into two agreements, the Restructuring Agreement and the Festival Agreement.
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The purpose of the Restructuring Agreement was to define the roles of the two
entities and to set forth the continuing obligations of ISC to NSN and of NSN to ISC. These continuing obligations included, without limitation, the development of plans and programs; the obligation of ISC to not solicit or encourage any person to become a member of ISC; the obligation of NSN to not build or construct a storytelling center similar to that built and contemplated to be built by ISC; the granting of a license by ISC to NSN of the copyright and production rights then owned by NSA and in potential copyrights and production rights to archived materials; the right of both ISC and NSN to approve either party's transfer or granting of a license to a third party of the copyright and production rights then shared by ISC and NSN; ISC's right to access the database of NSN; the obligation of each party to share the name, address and telephone number of any independent data basis developed by either party; the exclusive right granted to ISC to operate the retail sales shop at the National Storytelling Center located in Jonesborough; the requirement of ISC to provide twenty (20) hours of accounting services to NSN for $500.00 per month; and ISC's right to the grant awarded annually by the Tennessee Arts Commission.
ISC contends that the Restructuring Agreement is an executory contract which
ISC is entitled to reject pursuant to § 365(a) of the Bankruptcy Code.
The purpose of the Festival Agreement was to set forth the respective obligations
and responsibilities of ISC and NSN with respect to the annual Festival and a mechanism to generate funds for NSN so that it could continue as an independent entity and share in the history and tradition of storytelling. The Festival Agreement likewise created numerous
continuing obligations of ISC and NSN including, without limitation, the creation and continued participation by ISC and NSN in the Production Advisory Committee, and the division of income
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from the annual Festival whereby NSN was to receive a "guaranteed eighteen percent (18%) of the gross income from the Festival each year."
ISC contends that the Festival Agreement is an executory contract which ISC is
entitled to reject under § 365(a) of the Bankruptcy Code.
Subsequent to the execution of the Restructuring Agreement and Festival
Agreement, disputes arose between ISC and NSN regarding the interpretation and responsibilities of each party under the Restructuring Agreement and the Festival Agreement. ISC and NSN then engaged in a mediation through a third party mediator that resulted in the parties entering into the Settlement Agreement.
The purpose of the Settlement Agreement was to resolve the parties' differences
by further defining their respective obligations and, similar to the Restructuring Agreement and the Festival Agreement, the Settlement Agreement created numerous continuing obligations of ISC and NSN. These continuing obligations include, without limitation, the creation and
continued participation by ISC and NSN in a Sponsorship Committee and related activities; the right of NSN to conduct an audit of the annual Festival; the continuation of the Festival Advisory Committee in a revised format; an annual joint meeting of the Executive Committee of ISC and NSN; ISC's granting to NSN the use of ISC's facilities and staff at various times and for various purposes during the annual Festival; and NSN's obligation to include one (1) full page advertisement for the Festival in four (4) issues of NSN's bi-monthly magazine and one (1) full page advertisement in NSN's conference programs.
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Paragraph 10 of the Settlement Agreement states in pertinent part:
Effect of Settlement Agreement. This Settlement Agreement constitutes a modification of the Restructuring Agreement and Festival Agreement according to the terms set forth herein . . .
ISC, therefore, contends that the Restructuring Agreement, Festival Agreement and Settlement Agreement each remain separate and independent agreements, except to the extent the Restructuring Agreement and Festival Agreement are modified by the Settlement Agreement.
ISC contends that the Settlement Agreement is an executory contract which ISC
is entitled to reject under § 365(a) of the Bankruptcy Code.
RIGHT TO REJECT RESTRUCTURING AGREEMENT, FESTIVAL AGREEMENT AND SETTLEMENT AGREEMENT
Section 365(a) of the Bankruptcy Code states in pertinent part that: . . . the trustee,1 subject to the court's approval may assume or reject any executory contract or unexpired lease of the debtor.
"The Bankruptcy Code does not explicitly define the term 'executory contract.'
The legislative history, however, indicated that Congress intended the terms to be defined as a contract 'on which performance remains due to some extent on both sides'." In re Pro Page Partners, LLC, 270 B.R. 221, 226, 227 (Bankr. E.D. Tenn. 2001) (quoting Terrell v. Albaugh (In re Terrell), 892 F. 2d 469, 471 (6th Cir. 1989) (quoting S. Rep. No. 95-989, a 58 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5844)).
ISC, as a debtor-in-possession, has all the rights of a trustee under the Bankruptcy Code. See 11 U.S.C. § 1107(a).
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In Terrell, the Sixth Circuit also stated that:
Congress apparently had in mind the definition of executory contracts set forth in Countryman, Executory Contracts in Bankruptcy: Part 1, 57, Minn. L. Rev. 439, 460 (1973). Professor Countryman defined an executory contract for the purposes of the Bankruptcy Code as 'a contract under which the obligation of both the bankrupt and the other party are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other.' Pro Page Partners, at 227, citing In re Terrell, 892 F.2d at 471, n. 2.
ISC contends that the Restructuring Agreement, the Festival Agreement and the
Settlement Agreement are executory contracts under Terrell and/or under the Countryman definition in that each agreement contains numerous provisions that, if remain unperformed or if either party fails to complete performance, would constitute a material breach. These provisions include, without limitation, those referenced in Paragraphs 11, 13 and 16 hereof.
The decision as to whether to reject an executory contract is left to the sound
business judgment of the debtor. Lubigol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1046-47 (4th Cir. 1985); Phar-Mor, Inc. v. Strauss Building Associates, 204 B.R. 948, 954 (Bankr. N.D. Ohio, 1977); In re Level Propane Gases, Inc., 2007 WL 1821723 (N.D. Ohio, June 22, 2007).
Under the business judgment rule, the Court should "presume that the debtor
acted prudently, on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the bankruptcy estate." In re Pomona Valley Med. Group, 476 F.3d 665, 670 (9th Cir. 2007) (citations omitted). The Court should thus approve the requested rejection unless the decision is so manifestly unreasonable that it could not be based on sound business judgment, but only on bad faith, or whim or caprice. Id. (citations omitted).
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Here, the requested rejections are in the business judgment of the Debtor and in
the best interests of its bankruptcy estate. Under the Festival Agreement, the Debtor is required to pay NSN eighteen percent (18%) of the gross revenue of the Festival without NSN having any accompanying obligations and without NSN being responsible for the expenses of the organization or production of the Festival. The continuing obligation to make this payment was a major contributing factor in the Debtor seeking Chapter 11 relief. This continuing financial obligation to NSN also creates a substantial hardship on ISC's ability to profitably produce the Festival. In addition, this financial obligation is inequitable to ISC and its bankruptcy estate and creates a material barrier to ISC's ability to reorganize. It is, therefore, in the best interests of ISC to reject the Festival Agreement.
The continued association or relationship of ISC to NSN through the
Reorganization Agreement, Festival Agreement and Settlement Agreement are no longer of benefit to ISC and, in fact, harm and hinder ISC's growth and influence in the storytelling community. From the date of the signing of these agreements, NSN has steadily declined in size, scope, stature and influence. NSN's membership has declined from approximately 5,500 in 1998 to approximately 1,500 in 2011 while, at the same time, ISC is precluded from soliciting members which hinders ISC's growth and fundraising abilities. NSN chose to only service its members, but has apparently failed in its mission as membership has declined by some seventy-five percent (75%) since NSN's inception. NSN no longer supplies all the talent for the Festival as ISC has independent relationships with the storytellers and storytelling community. This membership decline has occurred despite the growth of interest in the art and application of storytelling across America and internationally and the generous funding from ISC. In other words, NSN continues to share in the revenues of the annual Festival, but has failed in its mission to enhance ISC through its membership and related services. It is, therefore, also in the best interests of ISC to reject the Reorganization Agreement and Settlement Agreement.
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ISC has and plans to continue to plan, produce and conduct and produce the
Festival, but desires to remove the burdensome and unproductive relationship with NSN in the form of the Restructuring Agreement, Festival Agreement and Settlement Agreement.
WHEREFORE, ISC requests that the Court grant this motion and authorize and approve ISC's rejection of the Reorganization Agreement, the Festival Agreement and the Settlement Agreement.
HUNTER, SMITH & DAVIS, LLP By: _/s/Mark S. Dessauer_______________ Mark S. Dessauer, Esq. (TN BPR NO. 010421) Attorney for Debtor Post Office Box 3740 Kingsport, Tennessee 37664 (423) 378-8840; Fax: (423) 378-8801 email@example.com
CERTIFICATE OF SERVICE The undersigned hereby certifies that on February 11, 2011, the (1) Motion to Reject Executory Contracts, and (2) Proposed Order were filed electronically. All parties on the attached Service List will receive copies of this filing. Notice of this filing will be sent by operation of the Court's electronic filing system to all parties indicated on the electronic filing receipt. All other parties, if any, have been served by hand delivery, overnight delivery, facsimile transmission, or by mailing a copy of same by United States Mail, postage prepaid. HUNTER, SMITH & DAVIS, LLP
/s/ Mark S. Dessauer
Mark S. Dessauer
DESSAUER: I-J INTERNATIONAL STORYTELLING CENTER NSA.86822
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RE: International Storytelling Center; Case No. 2:10-bk-53299
Capital Bank and Trust American Funds Service Company P.O. Box 6164 Indianapolis, Indiana 46206
Bank of America, N.A. c/o M. Craig Smith, Esq. Miller & Martin PLLC Suite 1000, Volunteer Bldg. 832 Georgia Avenue Chattanooga, TN 37402-2289 Blackburn, Childers & Steagall P. O. Box 3745 Johnson City, Tennessee 37602-3745 Mark Carrier 231 Madison Walk Piney Flats, Tennessee 37686 Hillhouse Graphic Design, LLC c/o Edward T. Brading, Esq. P.O. Box 1160 Johnson City, TN 37605-1160 City of Johnson City P.O. Box 2150 Johnson City, TN 37605 Main Street Cafe 117 West Main Street Jonesborough, Tennessee 37659 New Peoples Bank c/o Dave B. Jordan, Esq. P.O. Box 5215 Kingsport, Tennessee 37663 Paramore Redd 124 12th Avenue, S., Suite 510 Nashville, Tennessee 37203 Rural Development 214 N. College Street, No. 300 Greeneville, Tennessee 37744 Spears Services 3300 Browns Mill Road Johnson City, Tennessee 37604 Patricia Foster, Esq. Attorney for the U. S. Trustee 800 Market St., Suite 114 Howard Baker U. S. Courthouse Knoxville, Tennessee 37902 AmericInn of Jonesborough 376 East Jackson Blvd. Jonesborough, TN 37659 Brentwood Professional Center, Inc. 104 East Park Drive, Suite 300 Brentwood, TN 37027 Central Paper and Supply Co. P.O. Box 1158 Johnson City, TN 37604
Capital One P. O. Box 71083 Charlotte, North Carolina 28272-1083 Chattanooga Tent P. O. Box 3098 Chattanooga, Tennessee 37404 First Tennessee Bank c/o Walter N. Winchester, Esq. P.O. Box 2428 Knoxville, TN 37901-2428 Jonesborough Insurance 806 East Jackson Blvd., Suite 3 Jonesborough, Tennessee 37659 Richard McClain 1029 Whittling Wood Drive Johnson City, Tennessee 37601 NSN P.O. Box 795 Jonesborough, Tennessee 37659 Pulp Printing 1706 W. State Street Bristol, Tennessee 37620 Jimmy Neil Smith 107 Spring Street Jonesborough, Tennessee 37659 Horton Sports d/b/a American Screen Design Co. 3007 Industrial Drive Johnson City, TN 37604 Tennessee Department of Revenue Andrew Jackson State Office Building 500 Deaderick Street Nashville, Tennessee 37242-0700 FIA Card Services P.O. Box 15710 Wilmington, DE 19886-5710 Central Heating and Air Co., LLC 1619 1/2 W. Market Street Johnson City, TN 37604 Terry Countermine 101 East College Street Jonesborough, TN 37659
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Dell Business Credit Payment Processing Center P.O. Box 5275 Carol Stream, IL 60197-5275 East Tennessee Rent-Alls P.O. Box 3856 Johnson City, TN 37602 Everything Gifts, LLC P.O. Box 5291 Deltona, FL 32728 Gryphon House, Inc. P.O. Box 10 Lewisville, NC 27023 Historic Jonesborough Visitors Center 117 Boone Street Jonesborough, TN 37659 Mail Works, Inc. 320 Wesley Street Johnson City, TN 37601 HSBC P.O. Box 5239 Carol Stream, IL 60197-5239 Penguin Putnam, Inc. 4920 Collection Center Drive Chicago, IL 60693 Rae Dunn 1332 Powell Emeryville, CA 94608 Ramesh Singh, Financial Controller Recovery Management Systems Corp. Agent for Sam's Club (GE Money Bank) 25 SE 2nd Ave., Suite 1120 Miami, FL 33131-1605 SimplexGrinnel Dept. CH 10320 Palatine, IL 60055-0320 Washington County Trustee P.O. Box 215 Jonesborough, TN 37659 Saratoga 101 Med Tech Parkway, Suite 307 Johnson City, TN 37604 William Kennedy 400 West Main Street Jonesborough, TN 37659 James Powell 250 Urbana Rd. Limestone, TN 37681
Digital Fridge Kyle Long 115 Mountain Laurel Unicoi, TN 37692 Eureka Hotel 127 West Main Street Jonesborough, TN 37659 Fresh Air Photographics 2114 East Fairview Avenue Johnson City, TN 37601 Independent Publishers Group 814 North Franklin Street Chicago, IL 60610 Jonesborough City Tax Collector 123 Boone Street Jonesborough, TN 37659 Tami Moore 201 West Main Street Jonesborough, TN 37659 Peachtree Publishers, Ltd. 1700 Chattahoochee Avenue Atlanta, GA 30318-2112 Pitney Bowes Purchase Power P.O. Box 371874 Pittsburg, PA 15250-7874 River City Publishing, LLC 1719 Mulberry Street Montgomery, AL 36106 Smithsonian Institution AR Clearing Acct. 24133 Network Place Chicago, IL 60673-1241 United Elevator Services P.O. Box 1301 Knoxville, TN 37901 VAR Resources P.O. Box 6434 Carol Stream, IL 60197-6434 Lynda Wexler 1030 Hunters Lake Drive Johnson City, TN 37604 Rab Summers 119 Chestnut Ridge Drive Jonesborough, TN 37659