The National Assn. of Theater Owners is hailing a decision by the U.S. Small Business Administration to exempt an exhibitor from the rule that prohibits SBA loans to some entertainment concerns.
In an out-of-court settlement of a test case in U.S. District Court, the SBA agreed to waive its Opinion Molding Rule in considering a loan application from the operator of the Magic Lantern Cinema, a 200-seat, singlescreen theater in Ketchum, Idaho.
Under the rule, loans are denied to any communications or entertainment company that has the potential to influence public opinion.
Terms of the accord were hailed as a sweeping victory for the exhibition industry at last week’s three-day spring board meeting in Toronto of NATO, which supported and helped fund the litigation by Magic Lantern owner Rick Kessler.
“I think it will be very helpful to any exhibitor who wants to use SBA funding,” NATO president Willam Kartozian said.
But any celebration based on the presumption that the Kessler settlement automatically liberates other exhibitors who have been excluded from SBA loans under the Opinion Molding Rule since 1976 will have to be put on hold.
SBA officials in Washington, D.C., April 30 insisted the rule has been waived solely in Kessler’s case and still applies to other theater operators seeking SBA loans.
Kartozian responded, “Without regard to what they say, I would think that the Idaho situation is terrific precedent for any theater owner.”
Mary E. Keane, trial attorney in the Kessler case, declared the exemption granted Kessler is not ipso facto being extended to all applicants from exhibition.
She and SBA public affairs officer Mike Stamler said SBA is considering a proposal to modify the Opinion Molding Rule.
Kessler said the SBA has sent him written confirmation of the settlement guaranteeing that his new loan bid will not be disqualified under the Opinion Molding Rule and informing him that his exemption is being authorized under a change in administrative law.
The SBA began applying the rule to theatrical exhibition in 1976. It has been under industry fire ever since as discriminatory and a violation of exhibition’s First Amendment rights.
SBA loans have been available to bookstores, videostores and cable tv operators – all of whom, like motion pictures, make available product containing a smorgasbord of opinion but are not engaged in advocacy.
NATO has been fighting the OMR since it was first invoked against exhibitors in 1976. It made a vigorous but unsuccessful run at repeal in 1983. With the backing of NATO, Kessler filed suit against the SBA in September 1990.
Kessler in 1974 obtained – and since has repaid – a $25,000 SBA loan. His application for a $500,000 loan was rejected four years ago on the basis of the Opinion Molding Rule.
Under terms of the settlement, he is preparing a new application for a SBA loan so that he may proceed with construction of a 550-to 580-seat fourplex a block from the Magic Lantern. He had sought the first $500,000 loan to fund the same project.
He plans to apply for a bank loan covering 60% of the cost of the project, and a regional development corporation loan representing the remaining 40%. SBA would guarantee 60% of the bank loan, and all of the second loan.