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First Lawsuit Filed In Wake of Non-Profit Fiasco

Indiewire By Indiewire | Indiewire December 19, 1997 at 2:0AM

By Maud KersnowskiThe first in a number of expected lawsuits against the now defunct MediaNetwork corporation was filed in New York Civil Court last month. Claimingthat Media Network illegally spent restricted funds, filmmaker Neal Goodwinis suing the corporation for access to the over $100,000 he claims he has onaccount there. For its part, Media Network admits it spent some of thefilmmakers money but claims it did so legally under a corporate law whichallows an organization to spend restricted funds to stay afloat.Media Network closed its doors in October. Filmmakers were notified byletter of the unexpected closure and told to expect to receive only 80% offunds they had on account with the corporation. ("Media Network Dissolves" -- iW 11/11/97) At the time of closure, MediaNetwork showed an operating loss of $150,000. indieWIRE has since confirmedthat the corporation did spend approximately 20% of the money contractuallyearmarked for film projects on administrative expenses. Dissolution papersfiled by Media Network requested a retroactive a legal term forthe right to spend restricted money when in dire need.All with good reason, according to the corporation’s lawyer, Pamela Mann."It was impossible or impractical for Media Network to comply with therestrictions because they didn’t have enough in administrative fees to payfor their project (Media Network)," she said. "The money went to generalMedia Network tax-exempt purposes, not to anybody’s private purposes."But that's not good enough for most filmmakers who had money on account atMedia Network. As counsel for several of the filmmakers, David Lubell (whoused to be Media Network's attorney, and ia a former board member) believesthe law was broken. "There is no way restricted funds can be used for otherthan what they were donated for," he told indieWIRE. "That is not proper;it's definitely a violation of fiduciary obligation, a violation ofnon-profit law."And at least one high profile supporter of Media Network agrees with him.Marc Weiss, who founded Media Network and the highly successful PBS series,POV, agrees that the filmmakers should take some kind of legal action."Basically, they spent the filmmakers' money. They (the filmmakers) aregoing to have to sue to get their money back."Not unexpectedly, both Mann and Media Network’s executive director T. AndrewLewis are trying to discourage any further lawsuits. Lewis claims that thefiling of lawsuits will only lengthen the dissolution process. Mann pointsout that "its self defeating to bring another lawsuit which will depleteMedia Networks limited coffers."And for filmmakers who have only small amounts on account at Media Network,litigation may be a losing proposition. A filmmaker with only $3,500 ondeposit, Yannis Nookas says, "For me and a number of other sponsoredproducers the amount of money it would cost to bring a lawsuit far outweighsthe amount of money we’ve already lost."But Weiss, who is informally involved in the dissolution process of MediaNetwork, has some advice for the filmmaker with small amounts of money owedto them. “There is an insurance company,” he says. "A class action suit...that's what I would do."Media Network’s influence in the film community arose from its role in thefunding of film and video projects. Federal law prohibits tax-deductiblecontributions to non tax-exempt entities. As a fiscal sponsor, Media Networkallowed individual filmmakers to receive tax-deductible contributions fortheir projects. Checks from foundations, corporations, or the governmentwere made out jointly to Media Network (which is tax-exempt) and thefilmmaker. The money was then re-granted to the film project and was thenconsidered a tax-exempt contribution. In return for this and otheraccounting services Media Network received a fee of 5-7% and all accruedinterest from the money while it was held by them. Over the years, MediaNetwork played a role in the funding of hundred of films, and was - by far -the largest non-profit of its kind.
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By Maud Kersnowski




The first in a number of expected lawsuits against the now defunct Media
Network
corporation was filed in New York Civil Court last month. Claiming
that Media Network illegally spent restricted funds, filmmaker Neal Goodwin
is suing the corporation for access to the over $100,000 he claims he has on
account there. For its part, Media Network admits it spent some of the
filmmakers money but claims it did so legally under a corporate law which
allows an organization to spend restricted funds to stay afloat.


Media Network closed its doors in October. Filmmakers were notified by
letter of the unexpected closure and told to expect to receive only 80% of
funds they had on account with the corporation. ("Media Network Dissolves
" -- iW 11/11/97) At the time of closure, Media
Network showed an operating loss of $150,000. indieWIRE has since confirmed
that the corporation did spend approximately 20% of the money contractually
earmarked for film projects on administrative expenses. Dissolution papers
filed by Media Network requested a retroactive a legal term for
the right to spend restricted money when in dire need.


All with good reason, according to the corporation’s lawyer, Pamela Mann.
"It was impossible or impractical for Media Network to comply with the
restrictions because they didn’t have enough in administrative fees to pay
for their project (Media Network)," she said. "The money went to general
Media Network tax-exempt purposes, not to anybody’s private purposes."


But that's not good enough for most filmmakers who had money on account at
Media Network. As counsel for several of the filmmakers, David Lubell (who
used to be Media Network's attorney, and ia a former board member) believes
the law was broken. "There is no way restricted funds can be used for other
than what they were donated for," he told indieWIRE. "That is not proper;
it's definitely a violation of fiduciary obligation, a violation of
non-profit law."


And at least one high profile supporter of Media Network agrees with him.
Marc Weiss, who founded Media Network and the highly successful PBS series,
POV, agrees that the filmmakers should take some kind of legal action.
"Basically, they spent the filmmakers' money. They (the filmmakers) are
going to have to sue to get their money back."


Not unexpectedly, both Mann and Media Network’s executive director T. Andrew
Lewis are trying to discourage any further lawsuits. Lewis claims that the
filing of lawsuits will only lengthen the dissolution process. Mann points
out that "its self defeating to bring another lawsuit which will deplete
Media Networks limited coffers."


And for filmmakers who have only small amounts on account at Media Network,
litigation may be a losing proposition. A filmmaker with only $3,500 on
deposit, Yannis Nookas says, "For me and a number of other sponsored
producers the amount of money it would cost to bring a lawsuit far outweighs
the amount of money we’ve already lost."


But Weiss, who is informally involved in the dissolution process of Media
Network, has some advice for the filmmaker with small amounts of money owed
to them. “There is an insurance company,” he says. "A class action suit...
that's what I would do."


Media Network’s influence in the film community arose from its role in the
funding of film and video projects. Federal law prohibits tax-deductible
contributions to non tax-exempt entities. As a fiscal sponsor, Media Network
allowed individual filmmakers to receive tax-deductible contributions for
their projects. Checks from foundations, corporations, or the government
were made out jointly to Media Network (which is tax-exempt) and the
filmmaker. The money was then re-granted to the film project and was then
considered a tax-exempt contribution. In return for this and other
accounting services Media Network received a fee of 5-7% and all accrued
interest from the money while it was held by them. Over the years, Media
Network played a role in the funding of hundred of films, and was - by far -
the largest non-profit of its kind.





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