Dropped 3rd strike

[JRSooner]

Our league plays by NFHS rules, OK there's a 2-2 count with one out, runners at 1st(R1) and 3rd(R2). The pitch is thrown and the batter swings and misses, the catcher doesn't catch the ball however, and the batter runs to first and R1 goes to second, while the catcher just held R2 at 3rd as he thought the batter-runner going to first was out anyway as first base was occupied. The umpires called the batter-runner at first base safe, saying first base wasn't occupied as R1 left on the pitch and was stealing second. My contention is that until R1 occupies another base by touching it and taking possesion of it he still officially "occupies" first base, so the batter should be called out on strikes. These umpires said I was wrong and they were told by the head of the umpires at our organization that a base isn't occupied if you go on the pitch to steal a base. Who is right? And could you give me the rule # where this might be referenced? I want this to get corrected if I'm right like I think I am. Thanks in advance!