NRA Case Positive Spin: NRA

Like New York Attorney General Letitia James, the NRA is also putting a positive spin on Judge Joel Cohen’s ruling yesterday. Indeed, the headline on their release states, “NRA Prevails Over NYAG”.

The NRA’s release includes comments from NRA President Charles Cotton, former NRA President Carolyn Meadows, 1st VP Willes Lee, and, of course, outside counsel William Brewer III. Missing, however, from the comments on the ruling was anything from defendants Wayne LaPierre and John Frazer.

Charles L. Cotton
Charles Cotton – NRA Official Photo

“This is a resounding win for the NRA, its 5 million members, and all who believe in this organization,” says NRA President Charles Cotton. “The message is loud and clear:  the NRA is strong and secure in its mission to protect constitutional freedom.”

The release says the NRA will continue to defend the remaining causes of action brought but that Letitia James can’t shut down the NRA.

While it appears that most of the heavy lifting before the court was done by William Brewer’s partner Svetlana Eisenberg, Brewer is still the one who gets quoted.

William A. Brewer III
William Brewer – Brewer, Attorneys and Counselors bio photo

“We applaud the court’s recognition that dissolution is neither appropriate nor justified,” says William A. Brewer III, partner at Brewer, Attorneys & Counselors and counsel to the NRA. “We look forward to continuing the defense of the NRA – and proving that it acts in the best interests of its members and the Second Amendment freedoms in which they believe.”  

I’m sure Mr. Brewer is look forward to continuing the defense of the NRA as legal fees now are reportedly 20% of the NRA’s total budget and it seems his firm is getting the majority of that.

Brewer who probably wrote the NRA’s over the top release goes on to say:

Brewer adds, “Today’s developments underscore the simple truth that since taking office in 2019, the Attorney General has pushed a contrived narrative about the NRA in her attempt to support a dissolution claim that is improper. This is a victory for not only the NRA, but all who believe in the right to free speech and association.”

Other comments came from Carolyn Meadows and Willes Lee:

“I’ve always said that the dissolution case was part of a political vendetta to take down the NRA,” says NRA Past President Carolyn Meadows. “I want to thank NRA members for helping us confront this abuse of power. They deserve an enormous amount of credit.”

NRA First Vice President Willes K. Lee said, “As an NRA member, this decision gives me great pride. It reaffirms an important belief:  the NRA continues to serve as the greatest voice in the fight to protect Second Amendment freedom.”   

The key things to remember about Judge Cohen’s ruling is that the remaining 14 causes of action will go to trial, that included in those are allegations of unjust enrichment and breach of fiduciary duty, and that he took a dim view of the current management of the NRA including that of Wayne LaPierre and John Frazer. Moreover, the ruling still could be appealed by James who has indicated she is pondering her legal options. I do doubt that it will be appealed as it was as much of a win for the Attorney General’s Office as it was for the NRA.

NRA Case Positive Spin: Letitia James

Both sides of the dissolution lawsuit involving the New York Attorney General and the NRA are trying to put a positive spin on Judge Joel Cohen’s ruling yesterday. Below is the spin put on it by NY Attorney General Letitia James.

Letitia James in New York City on 19 November 2019.
Reuters photo

NEW YORK – New York Attorney General Letitia James today released the following statement after Justice Joel Cohen of the New York County State Supreme Court rejected a second round of motions brought forward by the National Rifle Association (NRA), Executive Vice-President Wayne LaPierre, and Corporate Secretary and General Counsel John Frazer as they sought to dismiss a lawsuit filed by Attorney General James against the organization in August 2020:

“Today, the court affirmed my office’s right to pursue its long-standing claims that fraud, abuse, and greed permeate through the NRA and its senior leadership. While we’re heartened that the judge rejected the NRA’s attempts to thwart most of the claims in our case against the NRA, we are disappointed that the judge ruled against the dissolution portion of the case. We are considering our legal options with respect to this ruling. We remain committed to enforcing New York law regardless of how powerful any individual or organization may be.”

In today’s decision, the court let stand all of the Office of the Attorney General’s (OAG) claims of self-dealing, abuse, and unlawful conduct by LaPierre, who has been at the helm of the NRA for three decades. Similarly, the court rebuked the efforts by Frazer to dismiss him from the case, finding that OAG’s allegations that Frazer violated his obligations as the NRA’s General Counsel for failing to address conflicts of interest and respond to whistleblowers who alerted the NRA to systemic financial wrongdoing were valid. The court also held that OAG’s claims against the NRA for false regulatory filings and failing to address conflicts of interest will proceed. 

As an attorney friend mentioned to me yesterday, Judge Cohen’s ruling could be appealed. James is acknowledging this in her statement where she says they “are considering our legal options”. That said, I’d be a little surprised if they do appeal it. A partial win is better than no win at all.

NRA Will Not Be Dissolved

Judge Joel Cohen issued a ruling today in the New York Attorney General’s dissolution suit against the National Rifle Association. He dismissed four of the 18 causes of action in the amended complaint brought by Attorney General Letitia James but allowed the remain 14 to continue. Specifically, Judge Cohen dismissed the first, second, 16th, and 18th causes of actions.

The first and second causes of action sought the dissolution of the NRA. In the first cause of action, the NRA was said to have “conducted its business in a persistently illegal manner and abused its powers contrary to the public policy of the State of New York by operating without effective oversight or control by its officers and directors” which was grounds for dissolution under N-PCL § 1109(b)(1). The second cause alleged that “directors or members in control of the NRA have looted or wasted the corporate assets, have perpetuated the corporation solely for their personal benefit, or have otherwise acted in an illegal, oppressive or fraudulent manner.” This would be grounds for dissolution under N-PCL § 1109(b)(1).

He wrote in dismissing those two causes of action:

In arguing for dissolution, the Attorney General’s allegations fail to delineate between the NRA, on the one hand, and its leaders on the other, who acted “without regard to the NRA’s best interests” (see id. ¶ 143 [“LaPierre, together with his direct reports, including Defendants Phillips, Frazer and Powell, instituted a culture of self-dealing, mismanagement, and negligent oversight at the NRA . . . without regard to the NRA’s best interests.”]; id. ¶ 646 [“Despite a conflict of interest and his lack of authority to do so, LaPierre unilaterally determined to place the NRA into bankruptcy to evade a regulatory action in which he was named as a defendant . . . cost[ing] the NRA tens of millions of dollars”]). Conflating the Individual Defendants with the NRA writ large for purposes of dissolution is inappropriate here for the reasons discussed supra. It also ignores the allegations that the wrongdoers in control of the NRA do not necessarily speak for other NRA members, some of whom have tried to instigate reform within the organization but have been met with resistance from entrenched leadership (see, e.g., id. ¶ 491). (emphasis mine)

The 16th cause of action involved the prudent management of institutional funds. This cause of action was dismissed by Judge Cohen as it didn’t properly distinguish between “program-related funds” and “institutional funds”.

The 18th cause of action was specifically against LaPierre, Frazer, Phillips, and Powell. It accused them of common law “unjust enrichment” and sought to recover monies paid to them that were “excessive, unreasonable, and/or unauthorized.” Judge Cohen based his dismissal of this cause of action as it ran afoul of earlier NY Court of Appeals rulings about unjust enrichment. In other words, this was only dismissed due to a technicality.

While the NRA will not be dissolved, this is not to say that the NRA, Wayne LaPierre, and the others are in the clear. The third and fourth causes of action against LaPierre and John Frazer allege breach of fiduciary duty. This was allowed to proceed onwards. Likewise, Judge Cohen found that the allegations contained in the seventh and eighth causes of action which accuse both LaPierre and Frazer of failing to properly administer charitable assets were sufficient to proceed.

The 11th and 14th causes of action were against LaPierre and the NRA respectively. These accuse LaPierre and the NRA of engaging in “unlawful related party transactions.” Judge Cohen found that both claims were sustained.

The 15th cause of action which was allowed to go forward involved violation of the New York whistleblower protections. Judge Cohen said there was sufficient evidence to show that the NRA, Powell, and LaPierre retaliated against whistleblowers and that Frazer was incompetent in carrying out the whistleblower policy. The retaliation against Oliver North as well as the freezing out of directors such as Tim Knight and Esther Schneider from committee assignments is coming back to haunt the NRA.

The final cause of action sustained against the moves by LaPierre and Frazer to have them dismissed is the 17th. That cause of action stated that the NRA and Frazer “made materially false and misleading statements and omissions in the annual reports the organization filed with the Attorney General.” Judge Cohen said that the NRA didn’t contest the falsity of the filings for now and the allegations against Frazer were specific enough that they should continue.

It should be noted that neither Josh Powell nor Woody Phillips sought to have the specific causes of action against them dismissed.

If after all the court proceedings are finished, it could result in the all four of the individual defendants being being barred from the NRA or other New York non-profits and forced repayment of their ill-gotten gains. Moreover, I can foresee a forced restructuring of the NRA in such a way as to prevent the abuses we have seen and are now seeing.

The bottom line is while the NRA has escaped dissolution this is not the end of things.

You can read the full 42-page opinion by Judge Cohen below. It makes for interesting reading.

451625 2020 People of the State of v People of the State of DECISION ORDER on 611 by jpr9954 on Scribd

Intervention By Rocky Marshall Denied

Former NRA Director Rocky Marshall had filed a motion to intervene in the NRA dissolution case. His motion was filed in September 2021. He was still a director when he filed the motion to intervene. New York Not-for-Profit Corporation Law § 720 b (1) gave him the statutory right to intervene.

Today a hearing was held on this motion in New York County Supreme Court. Unfortunately, Judge Joel Cohen denied Mr. Marshall’s intervention motion. I did not have an opportunity to listen to the hearing.

However, Stephen Gutowski of The Reload did cover the hearing and posted a series of tweets about it.

He wrote:

The hearing over former board member Rocky Marshall’s attempt to intervene in the New York suit against the NRA is happening. Marshall and others are trying to intervene as a way of providing an alternative representation of members. 

The judge seems skeptical of letting Marshall intervene without evidence he was illegitimately pushed off the NRA board. 

Marshall’s lawyers are noting they have different claims against the NRA than what New York has brought. They note that a big one is potentially trying to recover legal fees that the interveners believe are excessive. 

The judge says that sort of claim isn’t at issue in the New York suit and wouldn’t be decided there. So, an intervention isn’t necessary. Marshall’s lawyers counter that the NRA could be dissolved in this suit and they wouldn’t be able to make any claims at that point. 

The interveners argue NRA leadership, such as CEO Wayne LaPierre, has acted against the interests of NRA membership. They argue leadership has harmed the organization and they should be able to intervene on behalf of NRA members. 

The NRA’s lawyers are arguing, basically, what the judge had argued earlier. They say Marshall doesn’t have standing to intervene since he isn’t a director anymore. 

The NRA is arguing that because Rocky Marshall ran for NRA president during last year’s board meeting he has a conflict of interest in trying to invene (sic) in the case. 

The NRA is also arguing Marshall filed his intervention too late. The New York AG’s office also don’t want Marshall to intervene. They also argue he has no standing. 

The judge has denied former board member Marshall’s motion to intervene in New York’s case against the NRA. 

The judge says he does value the input of NRA members who don’t agree with how NRA leadership has run the organization, though. 

Judge says Marshall lacks standing because he is no longer an NRA board member. 

It will be interesting to see whether the judge has to decide this same intervention question for a third time if Frank Tait, who is another one of the interveners, is able to get on the NRA board. 

Well, crap! I thought Mr. Marshall had a chance to become an intervenor. As things stand now – and I hate to say it – the closest thing we as members have to someone representing our interests in the case is the NY Attorney General’s Office. That sucks.

Frank Tait noted in a post today:

Rocky’s attorneys made the point that the NRA is being bled dry and that this helps achieve the NY AG’s intent of dissolving the NRA.

That correlates with reporting in The Reload that analyzed the NRA’s finances and found that 20% of the budget is now going for legal expenses. Moreover, Wayne’s attorney Phillip Correll has billed the NRA approximately $175,000 in legal fees as of this past August.

One last thing that came out in the hearing today is that Susan LaPierre is also being represented by Phillip Correll. That leads to the obvious question is who is paying him to represent her – the NRA or the LaPierres?

Marshall Moves To Intervene In NRA Dissolution

In September, NY Supreme Court Judge Joel Cohen ruled that Frank Tait and Mario Aguirre did not have standing to bring a Motion to Intervene in the New York Attorney General’s case asking for dissolution of the NRA. Among the things he mentioned at the time in ruling against them was the timeliness issue and that 5% of the members were not part of the Motion. At the time of the hearing, it was mentioned in court that a director of the NRA would be joining the Motion to Intervene but Judge Cohen said he could only rule on what was in front of him

Today, Rocky Marshall, a NRA Director, filed a Motion to Intervene in the case as a defendant, claimant, and counter claimant. New York Not-for-Profit Corporation Law § 720 b (1) gives a director the statutory right to seek relief against a defendant for neglect, mismanagement, or “other violation of his duties in the management and disposition of corporate assets committed to his charge.” A director can also seek relief against a defendant for the loss or waste of corporate assets due to the defendant’s negligence, failure to perform, or other violations of his duties. New York CPLR § 1012 states that Mr. Marshall has an absolute right to intervene based upon NPCL § 720 b (1)

Remember that not only is the NRA a defendant in this case but so are Wayne LaPierre, Woody Phillips, Josh Powell, and John Frazer.

One of the grounds for seeking the Motion to Intervene is:

The Proposed Intervenor seeks to assure that the NRA as an entity has independent, conflict-free counsel. The law firm presently representing the NRA is irreconcilably conflicted and the NRA is alleged by the Attorney General to be controlled by one or more of the individual defendants. Thus no present party or law firm can adequately protect the NRA’s rights as an entity separate from the individual defendants.

The Memorandum of Law that accompanies the Motion to Intervene is quite interesting. It starts out by saying that Letitia James is wrong when she asserts that the NRA cannot be rehabilitated and dissolution is the only answer. It continues to say that the NRA and its leadership are wrong when they say it is nothing more than a political attack and everything is fine. It goes on to say that James cannot prove that dissolution of the NRA would be “beneficial to the NRA’s members”. It continues:

On the other hand, to rule for the Defendants merely requires that the Court hold its nose and swallow their claims that the NRA Board has investigated the Attorney General’s allegations and found nothing wrong, disregarding abundant evidence of the Individual Defendants’ serious breaches of duty and conflicts of interest, some of which is already before the Court.

Mr. Marshall goes on to say that the Board has failed in its fiduciary duties to the NRA and to its members. Problems have been presented to the Board and they have ignored them while also taking no action against the named individuals (LaPierre, Powell, Phillips, and Frazer).

Thus, the Memorandum states the Board should be dissolved because they are not independent of LaPierre and that a receiver be appointed. Mr. Marshall suggests he would be willing to serve as a temporary receiver to get a proper accounting and to elect a new independent board.

As to the old Board and leadership, it must go:

As his proposed Answer says, Mr. Marshall recognizes and appreciates that without this action no meaningful change in the NRA’s governance will likely occur due to Defendant LaPierre’s total control of the executive leadership and his dominance of the Board. To the extent possible Mr. Marshall will work with the Attorney General to reform the NRA’s
leadership for the benefit of all rank-and-file NRA members. Mr. Marshall will pursue recovery of all NRA funds wrongfully paid to the third parties implicated but not sued by the AG, while vigorously opposing the AG’s dissolution claim.

Accompanying the Motion and the Memorandum are 12 exhibits which consist of a proposed answer, numerous emails, NRA Board minutes, Marshall’s bio and resume (which is very impressive), and a compilation of Form 990 data. Rather than go through each of these, I am just going to put the links to them below.

Proposed Answer

Liptak Email

North-Childress Letter

Brewer legal bills

NRA Board Minutes 1/7/2021

Email to Board, 3/15/2021

Email to Board, 3/17/2021

Compilation of Form 990 data

NRA Board Minutes, 3/28/2021

Email to Board re Brewer, 3/18/2021

Email to Board, 7/1/2021

Email to Board, 8/27/2021

Bio and Resume

I would be remiss to not mention that Attorney General Letitia James released a statement today on Mr. Marshall’s Motion to Intervene. The only really relevant part was this:“While we continue to review this motion, we are glad to hear that Mr. Marshall agrees that Wayne LaPierre and his top lieutenants must be removed from the NRA. Our fight for transparency and accountability from the NRA and its leadership will continue because no organization is above the law.”

The Wall Street Journal reports that Willes Lee issued the official response from the NRA.

“It is unfortunate that Mr. Marshall aligns himself with those who continually attempt to intervene in the handling of NRA’s matters by its elected leadership. The NRA is a well-managed, actively engaged membership organization. We will continue on our current course of action—in the interests of our five million members and their Second Amendment freedoms.”

Any one who has read my blog for the last couple of years knows my opinion of Willes Lee. My biggest regret is that I endorsed him for the Board not once but twice. I was taken in by him like so many others. That someone of his ilk is in a leadership position at the NRA says everything you need to know about why Mr. Marshall’s Motion to Intervene must be granted.

Giving The NYAG More Ammo

The saga of the Directors and Officers liability insurance for the NRA Board of Directors continues. As I wrote almost two months ago, Lloyds of London refused to renew the existing policy. In the interim, the board voted to set up a $5 million contingency fund. The inadequacy of this fund was the impetus for Buzz Mills’ resignation from the board.

Now there are reports that that NRA leadership said that they have a policy which leads us to the latest controversy. It was based upon an email sent in early August to board members from Secretary and General Counsel John Frazer saying that they had obtained Directors and Officers liability coverage.

The blog NRA In Danger reports that board member Rocky Marshall has been asking Frazer for a copy of the new policy that supposedly protects them. He has been stonewalled despite making five or more requests for a copy of the policy in both writing and verbally.

From NRA In Danger:

August 17, director Marshall writes a rebuttal, repeating that a director’s right of inspection is absolute, and no employee-officer has a right to proclaim the corporation’s records “confidential” against a director. Frazer in a phone call said that bloggers would write negative articles if the policy were released. Marshall answers, “To use this as an excuse for not releasing information that I have requested is creating an artificial barrier that prevents me from performing proper oversight. This also increases the risk for the NRA because the NYAG lawsuit continues to highlight the lack of oversight from the NRA Board of Directors.”

 Marshall adds, inspection at Fairfax HQ is hardly feasible for a director a thousand miles away., at a time of Covid-19. Inspection at the Houston meeting is insufficient; he wants his attorney to look it over.

“This email is another demand for a copy of the Declaration page of the D&O policy. I would be grateful to receive this copy via email or a hard copy mailed to my physical address. Failure to provide a copy of the D&O policy is unacceptable regardless of the contrived reasons that you have outlined in your email.’

Yesterday, August 27, Marshall sent the entire email exchange to the board, after waiting ten days for a reply that never came.

Damn bloggers. We are the bane of both Tara Chipman’s and John Frazer’s existence.

Now to the core of the issue. Does a director have a right of inspection of corporate records which would include the D&O policy in question?

The answer is unequivocally yes according to the NY Court of Appeals which is the highest court in New York. Given that the NRA is a non-profit incorporated under New York law, these rulings control.

That court said in 1955 in Matter of Cohen v. Cocoline Products (309 N.Y. 119 (Ct of Apps 1955)) that it was an “absolute, unqualified right, having its roots in the common law, to inspect their corporate books and records” More recently, in Matter of Brenner v. Hart Systems (493 N.Y.S.2d 881, 114 A.D.2d 363 (Ct of Apps 1985)), the Court of Appeals found that directors had the absolute and and unqualified right to “inspect and examine corporate books and records.” It then went on to say that Brenner would suffer irreparable harm if denied this right. This case centered on Brenner’s demand to see the accounting records to determine whether they were inadequate and whether there were irregularities and/or improprieties. In the context of the NRA, that makes that case highly relevant!

In some ways I do feel for John Frazer. He has been named as a co-defendant by the New York Attorney General in the dissolution complaint for “negligence”, was called “unprepared to manage the legal and regulatory affairs of the NRA”, was said to be ignorant of New York non-profit law, and has been accused of many other failures to adequately do his job. To add insult to injury, he was paid about half of what Josh Powell was paid by the NRA. This despite Powell’s reputation for being incompetent, a sexual harrasser, and really kind of dumb except when it came to his own self-preservation.

That said, Frazer’s loyalty to Wayne and Wayne’s wishes will be his and the NRA’s undoing. If Frazer’s refusal to provide a copy of the insurance policy to Marshall when Marshall has an absolute right to see it doesn’t come up in court, I’d be very surprised. You know the NY Attorney General’s Office is already watching every action or inaction by the NRA, its officers, and the board like a hawk. This is just one more thing to add to the argument for dissolving the NRA.

One last comment. Thanks to the postponement of the NRA Annual Meeting, Rocky Marshall remains a director of the NRA with all its rights, privileges, and obligations because his term of office does not end until the Annual Meeting takes place.