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NY Attorney General Responds To Second, No, Third Motion To Dismiss

The 35 page response takes a time to read. It argues that NY can properly sue to have a compliance monitor (a receiver, by another name, to monitor the organization’s use of its members’ money) and a governance expert (to keep an eye on things generally). Major points follow:

“In doing so, the Court acknowledged that “[t]he Attorney General’s allegations in this case, if proven, tell a grim story of greed, self-dealing, and lax financial oversight at the highest levels of the National Rifle Association.”

“With respect to Defendant LaPierre, the Court explained, “[i]n several hundred paragraphs of specific factual allegations, the Amended Complaint describes, in meticulous detail, LaPierre’s exploitation of the NRA for his financial benefit, his abuse of power, and his general disregard for corporate governance.” (Id. at 28.) With respect to Defendant Frazer, the Court noted, “ten paragraphs of the Amended Complaint are spent describing his allegedly incompetent supervision of the NRA’s compliance with New York law, and his failure to ensure the accuracy of the NRA’s annual filings with the Attorney General. Frazer’s alleged misconduct regarding supervision of the NRA’s conflict-of-interest and related-party transaction policies, his failure to appropriately handle related party transactions, and his failure to follow proper procedures regarding procurement, are also detailed in the Complaint.””

“Under the NRA’s strained reading of the statute, the Attorney General would not be permitted, pursuant to EPTL § 8-1.4(m), to pursue claims against those that fail to administer charitable assets properly. However, the NRA does not, because it cannot, cite a single case or other authority in support of such reading. (See id at 3-9.) Contrary to the NRA’s unsupported argument, it is well established that EPTL § 8-1.4 imposes a duty on trustees to administer charitable assets properly, which the Attorney General can enforce.”

“Indeed, the NRA makes no effort to explain how a monitor to ensure compliance with applicable laws by, for example, ensuring that it files accurate reports and satisfies statutory requirements for related party transactions, addressing conflicts of interests and responding to whistleblowers, could somehow interfere with its First Amendment rights. And, of course, the Court can tailor the scope of any monitorship to ensure that it does not do so.”

“LaPierre and Frazer also argue that the Attorney General is not entitled to seek the forfeiture of back salary under N-PCL § 720.15 (NYSCEF 690 at 9; NYSCEF 697 at 15). LaPierre argues that the relief permitted under that section is limited to having him explain what he did wrong (NYSCEF 697 at 7, 15), while Frazer argues that his salary was authorized by the Board and, thus, protected by the business judgment rule. (NYSCEF 690 at 9). Both arguments are without merit. Section 720 gives the Attorney General authority to hold directors, officers and key persons that breach their fiduciary duties to not-for-profit organizations accountable. . . . A fiduciary that breaches his duty of loyalty forfeits his right to compensation during the time that he breaches that duty. . . . “

“Here, the Complaint alleges breaches of the duty of loyalty by LaPierre and Frazer. As to LaPierre, the Complaint alleges that he breached his duty of loyalty to the NRA by using his powers as an officer and ex officio director of the organization to obtain illegal compensation and benefits, to convert NRA funds for his own benefit, and to dominate, control, and direct the NRA to obtain private benefit for himself, his family members and certain other insiders. (NYSCEF 646 at ¶ 645). As to Frazer, the Complaint alleges that he failed to discharge his duty as an officer of the NRA, both as General Counsel and as Secretary, with the degree of care, skill, prudence, diligence and undivided loyalty required. (Id. at ¶ 650.) Accordingly, the Complaint clearly states a claim for return of salary under the faithless servant doctrine during the time of their breaches.”

It will be among the greatest of ironies if the NRA, despite corrupt (and not even competently corrupt) leaders and its spineless board, was saved by the New York Attorney General. If she succeeds in having the court remove LaPierre and Frazier, and force them to refund their salaries, she will have become one of the most successful fundraisers the organization has ever had. If she reforms the place, NRA might regain a million members, so she’d be the top recruiter as well. Too had she’d turn down an invitation to speak at the next annual meeting.

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