Notes On The NRA’s New York Hearing

I was able to follow the hearing in the NRA’s New York case in its entirety today thanks to being provided a link to Microsoft Teams. The hearing started at approximately 11am and ran until 12:58pm.

Judge Joel Cohen started the hearing by having the participants introduce themselves. Representing the NY Attorney General’s Office were Stephen Thompson and Monica Connell. Meanwhile, the NRA was represented by Sarah Rogers and Noah Peters of Brewer, Attorneys and Counselors, with NRA President Bob Barr and Chief Compliance Officer Bob Mensinger there as well. Finally, P. Kent Correll was there to represent Wayne LaPierre.

Judge Cohen divided the hearing into seven areas for discussion. These include issues regarding Board elections, the appointment of a compliance consultant, Board committees, protection for the Chief Compliance Officer position, a referendum on reducing the Board size, the “Commitment to Members” document, and then a catchall for remaining miscellaneous issues. He noted that he was pleased with how the process worked between his interim decision and now. The parties’ meetings and proposed final judgments isolated the areas of agreement and disagreement.

First up in the hearing was a discussion of issues related to Board of Directors elections. The NYAG started out by saying that Judge Cohen has indicated he wanted to reduce the “hegemony of the Nominating Committee” but that it remains the “same old, same old”. Stephen Thompson noted the issues with the secrecy of how the Nominating Committee works and said they want to take the subjectivity out of the process. The judge then said vetting of candidates is legitimate and he wasn’t good with selection at random. Sarah Rogers for the NRA tried to blame the problems in the past on Wayne LaPierre and Millie Hallow to which the judge responded that “yes, there were problems.”

This led into a discussion of the petition process which Judge Cohen found “very 20th Century.” He didn’t see why it couldn’t be done online with an electronic signature rather than candidates having to scramble to get physical signatures and then having to mail them into the Secretary’s Office. In response to a question from Rogers asking what the judge would like to see, Judge Cohen responded that it should be broadened, made more open, made more easy, and more accessible to members. This led Rogers to say it can’t be changed due to the bylaws and she went on to say that the judge could not meddle with the process. This was a bit of a red flag for the judge who responded he can indeed make changes with an order. He went on to say that he saw a number of what I’d call the cabal still there going into NRA 2.0. He said there needs to be a measured way to remove the impediments, it needs to be more transparent, and that the current petition process is “antiquated.”

The next item on the judge’s agenda was the advisory compliance consultant. In their Proposed Final Judgment, the NRA had specified that Fox Rothschild, LLP to act as the consultant. Daniel Kurtz of the firm had been an expert witness for the NRA during the trials. The NYAG’s Thompson objected to this on the grounds that Kurtz is a governance expert and, more importantly, that Kurtz had served as an expert witness for the NRA. Sarah Rogers tried to make the case that Bob Mensinger had interviewed many for this role and he was the best. Judge Cohen sided with Thompson on this saying that he would have a problem with former expert witnesses for either side in this role. He wanted a fresh look and the person would be court approved – not AG approved. He also noted in response to a question from Rogers that he would retain authority to name a replacement if the person or firm appointed left before the end of three years.

Moving forward, the court then moved to board committees and how they were populated. This proved more contentious. In addition to the Audit Committee, Thompson said the Ethics, Finance, Legal Affairs, and Bylaws and Resolutions Committees were areas of concern. He said they were still led by directors who had been on the Board for years. After the judge said he was not sure of a criteria that would be either over or under inclusive of new blood, Thompson stated that David Coy, Charles Cotton, Joel Friedman, Curtis Jenkins, Bob Barr, and Sandy Froman all must be removed from these key committees. Rogers moved to defend both Jenkins and Froman and then said committee composition had changed. When Thompson objected, Rogers replied that Barr had been elected by the same Board that had elected Bill Bachenberg and Mark Vaughan.

Judge Cohen noted that both sides agree that the Audit Committee will be a Committee of the Board. Rogers said the NRA only wanted the Audit Committee as a Committee of the Board and that they wanted to avoid more 12-hour Board meetings. This led to Thompson saying how Audit Committee members are nominated doesn’t meet New York law which Rogers disagreed with. Judge Cohen wondered if the proposal to have the President nominate members takes discretion from the Board. Rogers replied the President nominates and then the Board votes on them but they didn’t take nominees from the floor. I’m not sure how Judge Cohen will rule on board committees but it will probably have something for each side.

The next item on Judge Cohen’s agenda was protection for the Chief Compliance Officer position. In this case, both sides have come to an agreement to use a severance agreement that would provide two years salary if the person was terminated without “Good Reason”.

On the issue of a referendum on the size of the Board, Thompson noted that it would generous to say the parties have agreed to study the issue. He objected to David Keene being on the Committee on Organization noting the jury had found Keene had engaged in a related party transaction not properly approved by the Audit Committee. The NYAG’s Office also noted they had not addressed the final size of the Board. Judge Cohen then gave his thoughts about governing versus advisory board members noting both could call themselves “Board members”. He was “not offended by thinking about it.” Thompson replied that the rank and file members should have a say and they want the size issue done sooner than later.

The NRA’s response was that they now have a Committee on Organization studying the issue, that there would mediation on the size of the Board, and that the Board grew over time as areas of interest expanded. Rogers then said that the Board was elected in a democratic process and that the will of the Board on the issue would reflect this. This led Judge Cohen to wonder how to assess that the issue doesn’t “die a quiet death in committee.” Rogers then replied that the “world is watching” and it would be difficult and expensive to do now as ballots are in the process of being printed.

The next to last issue was how to frame the order based upon the NRA’s Compliance Commitment to Members. This document was submitted to the court at the beginning of the bench phase of the trial and was composed by the members of the Audit Committee. This led to a discussion that centered around the internal audit reports and the signing of the Form 990 by the EVP and CFO. Thompson said the AG’s Office wants the external audit reported to the members. Neither side had any objection to the audit firm Aprio going forward. The discussion about the signing of the Form 990 centered around what it signified. Thompson said it should attest to the adequacy of the internal controls to which Rogers objected. Judge Cohen said it was really not a matter of who signs but that the signers are attesting that the Form 990 is accurate to the best of their knowledge. He went on to say the required signer must make some assessment that it is accurate.

The final issues discussed were a miscellany including protection for whistleblowers, the Special Litigation Committee, an independent internal control audit, and how the NRA was to recover the funds from LaPierre, Wilson, and Powell. There was quite a bit of back and forth about whether Judge Phil Journey and Dennis Fusaro could be considered whistleblowers. Judge Cohen said he’d take it under advisement as it appears to be a new claim. With regard to the Special Litigation Committee’s status, Thompson made the argument that a majority vote of the Board should have done away with it under New York law. Rogers argued it was not necessary as the Board will vote on it in January 2025 as it had now been noticed. Judge Cohen was not sure whether to dissolve it or not as he thought it a new claim and he doubted his authority in the matter.

LaPierre’s attorney P. Kent Correll then entered the discussion regarding how payments should be made to the NRA. Judge Cohen said sending money to the state is easy while sent money out is hard. He thought the payment probably should be made directly to the NRA which Thompson of the NYAG’s Office had no issue with. Rogers then said they had not received the $100,000 that Josh Powell was supposed to pay and they want some assurance that they can enforce the judgment. Here is where it starts to get interesting. It appears Correll wants the ability to negotiate the actual settlement amount on behalf of LaPierre. He wondered if the Attorney General’s Office would settle for a presumably lesser amount than the jury-assessed $4.3 million if LaPierre didn’t appeal or would it drag out for five years. There was a back and forth on who controlled the settlement and it got into derivative payees. Finally, Judge Cohen said the plaintiff, i.e., the Attorney General’s Office on behalf of the State of New York, controls the settlement.

Judge Cohen concluded the hearing at 12:58pm after saying each side assumes his own cost in the trial and that he would work with Correll on Wayne LaPierre’s home address being in the judgment order. Correll was worried that publishing LaPierre’s address could put him in danger.

Nine current members of the Board were on the Microsoft Teams feed listening in as were myself, some Brewer attorneys, and Stephen Gutowski. I have been told by another Board member that many others on the Board were being informed of what was happening by text.

If I had to hazard a guess, the Final Judgment will have items that will please both sides and items that will disappoint as well. There will be nothing dealing with the SLC and perhaps little regarding whistleblowers. The only thing I know for sure is that the severance agreement for the CCO will be in the Final Judgment.