The International Civil Rights Center and Museum refilled a lawsuit against the News & Record for libel and unfair and deceptive trade practices on Nov. 30.
The lawsuit was filed on behalf of Sit-In Movement Inc., Hurley Derrickson, Earl Jones, Richard Koritz and Skip Alston against the News & Record, BH Media Group and Allen Johnson for over $25,000.
The suit is based on a series of articles, editorials and columns that began on Nov. 20, 2014, with the front-page headline, “Museum debt close to $26 M.”
The lawsuit notes that, later, Editorial Page Editor Allen Johnson wrote an editorial using the same inaccurate information about the museum’s debt.
Johnson is the only individual named in the lawsuit and, according to the suit, he is being sued, “in his official capacity as the Editor of the News & Record.”
Johnson is not “the editor” of the News & Record, but is the editorial page editor. As the editorial page editor, Johnson would not control what articles went on the front page or the headlines for those articles. Johnson did write for the editorial page based on the information in the article, so he is in effect being sued for believing what was published in the News & Record.
At issue are the tax credits that the sit-in museum used to finance turning the Woolworth building into the museum and getting it open. The museum ended up with about $25 million in funds from tax credits and it was an extremely complicated process.
Tax credits themselves are complicated, but in this case the degree of difficulty was raised considerably by the fact that the museum was a nonprofit and, as a nonprofit, wasn’t eligible for tax credit financing. So in order for the museum to use tax credit financing, first it had to become a for-profit organization.
The whole reason that the museum had five different corporations involved in its ownership structure was to create a for-profit entity that would be eligible for tax credits that were then sold to finance the museum. It all worked and the final payments to the tax credit financing entity were paid last summer.
So the tax credit financing worked and the museum had about $25 million from the tax credits to finish the work on the museum.
The sit-in museum is claiming that the reporter who wrote the article and Johnson who wrote the editorial understood tax credit financing to the point that they knew the museum didn’t owe $25 million and wrote the articles and editorial anyway.
Although it is true that tax credits are not paid back in terms of interest or principal, there were payments that had to be made to the tax credit entity. The answer to the question, “What would happen if those payments were not made,” was varied. The museum is adamant there was no way that in November 2014 the museum could have been liable for $25 million in debt. If the court can establish exactly what the liability would have been if the museum had stopped payment, that in itself would be an accomplishment.
The lawsuit notes that sit-in museum Chief Financial Officer John Swaine had met “with the News & Record representative and explained how tax credits worked and explained that they were not debt by any normal understanding of debt, but instead, the money was essentially free and neither principal or interest were repaid.”
It’s hard to argue that the money was free when the sit-in museum went to the city in 2014 and asked for a $1.5 million loan in order to make its tax credit payments. It is true that interest and principal are not paid back like a loan, but it also isn’t true that the money is free when a payment of $62,000 a quarter was required.
Also, it’s going to be devilishly hard to prove that just because Swaine explained tax credit financing to so me representative of the News & Record that that unnamed person understood it and then explained it to the reporters and editors at the News & Record so that they understood it.
Greensboro Mayor Nancy Vaughan is on the board of directors of Sit-In Movement Inc. As part of an agreement, in order for the museum to get the $1.5 million loan from the city, the museum agreed to give seats on its board to both the mayor and city manager of Greensboro.
Although she is a member of the Sit-In Movement board and the board is suing the News & Record, when asked about the suit Vaughan said, “I am not suing the News & Record and I don’t support the decision to sue the News & Record.”
Vaughan added, “I think in some ways suing is very short sighted. There is something called discovery in lawsuits. Suing the News & Record means you’re going to have to open your books to them to prove that there was a negative impact on fundraising.”
Vaughan said the local daily was not going to accept the word of the Sit-In Movement that their fundraising totals were down and that it was attributable to the articles in the News & Record. They would want documented proof.
Vaughan said that she thought the museum made a mistake when the last tax credit payment was made in August or September. She said the museum should have had a big party, like a mortgage burning party, to celebrate, but instead the final payment went largely unnoticed.
Vaughan said the reason for the suit was that the majority of board members felt that the museum had been libeled by the reporting on the debt and the inaccurate reporting on the number of visitors.
The museum has in the past not been very open about its business dealings. The City Council gained access to the museum’s audit only because it was a condition of the contract with the city for the $1.5 million loan.
The News & Record may be celebrating this lawsuit because it will give the newspaper access to the financial records of the museum at a relatively low cost.
The lawsuit also claims that the News & Record misreported the facts in the audit of the museum, which was released to the public because of the loan agreement with the city. However, Greensboro Internal Audit Director Len Lucas went over the sit-in audit and his report on the finances of the museum was not good. Lucas reported that the museum had lost over $2 million during the past three years and “has no working capital or contingency reserves.”
Lucas and the City of Greensboro are not being sued, but all of that information about the financial situation of the sit-in museum is going to come to light if this lawsuit goes forward.
The lawsuit was first filed in November 2015 and then withdrawn. Sit-In Movement Inc. had a year in which it could refile the lawsuit, and it did.