Judicial Verdict in NRA Trial: Accountability, Governance, & Future Implications

Opinion

The trial in New York, pitting the New York Attorney General against the National Rifle Association, is over, and the judge has issued a partial decision.

At the end of that decision, Judge Joel Cohen asked that the NRA and the AG sit down and try to cobble together a plan for remediation of some aspects of the Association’s governance going forward.  If they can’t agree on a workable plan, the judge will evaluate their various suggestions and devise a plan of his own.  In the end, agreed-to plan or not, the final decision rests with the judge, and he expressed his intention to issue that decision within a couple of weeks.

Rather than try to offer a synopsis of the judge’s ruling, with my own editorial spin and possible errors, I’ve decided to provide you with the whole thing as accurately as possible.  The only editorializing I will do is to “bold” highlight and bring attention to the judge’s words or sections I see as particularly important. As you read this, again, note that any added emphasis (BOLDING) is my doing, not the judge’s.

I encourage you to read the entire thing embedded below, as there are many important nuggets scattered throughout. The full transcript of the trial, including the judge’s preliminary decision, can be found here.

~ Jeff

Preliminary Decision of Judge Joel M. Cohen, New York Supreme Court:

This trial was the last chapter in a long and hard-fought litigation commenced by the Attorney General, asserting violations of New York law by the NRA and several of its high-ranking officers. After a six-week jury trial resulting in a verdict finding for the Government on most but not all claims, the only remaining issues before me concern the non-monetary remedies, if any, necessary and appropriate to remedy and prevent the recurrence of the violations determined by the jury.

It is well-established that equitable relief is a matter of discretion for the Court. In a case brought by the New York Attorney General under other statutes giving her enforcement authority; that is, People v. Greenberg, 27 N.Y.3d 490, from 2016, the Court of Appeals observed that “The attorney general may obtain permanent injunctive relief upon a showing of a reasonable likelihood of a continuing violation based upon the totality of the circumstances.”

In a similar vein, the U.S. Supreme Court has noted that “the function of equity is not to punish but merely to take such action as the court in its discretion deems necessary to prevent the recurrence of the improper conduct.” A number of cases stand for that proposition, one of which is Hartford-Empire v. United States, 323 U.S. 386.  And as the Second Department has noted, “‘[A] court of equity has an obligation to go no further than absolutely necessary to protect the rights of the complaining parties.'” That’s Zutt v. State, 80 A.D.3d 758, Second Department [2011], quoting the Antinelli case. I believe those common-sense principles apply equally under the statute at issue here, the Not-For-Profit Corporation Law and the EPTL (Estates, Powers, and Trusts Law).

In considering the relief requested by the State and the NRA’s objections to that relief, I have considered the NRA’s conduct as revealed by evidence admitted during the jury trial as well as the changes that have occurred in the past several months, so I’m starting with the relief against the NRA and I’ll deal with the relief against the individual defendants after that.

This is a difficult decision because the evidence regarding the NRA’s conduct, including that of its employees, executives and board members, is decidedly mixed.

I have first considered the fact that NRA leaders have failed to fully acknowledge the jury’s findings against the NRA and thus have not taken full responsibility for their or their predecessors’ failure to discharge their oversight obligations. 

The NRA’s apparent view that the jury’s verdict against the NRA was solely based on the conduct of rogue individuals is contrary to the jury’s findings. There’s even a statement in their materials that the NRA was not found liable at all, which is absolutely untrue. The jury was instructed that the NRA generally operates through its designated agents and employees, including the board of directors. It was also instructed that even if the officers and employees acted against the interests of the entity, the NRA may still be liable under the statutes. And under New York law, when the verdict can be reconciled with a reasonable view of the evidence, the unsuccessful party, here the Attorney General, is entitled to the presumption that the jury adopted that view. So there are multiple pathways to finding the NRA liable, which the jury did.

And I will say, as someone who oversaw every second of the jury trial, I can state plainly that the NRA leadership’s spin, and specifically the testimony here of Mr. Cotton and Mr. Barr, that the NRA prevailed or was otherwise vindicated by the jury’s verdict is simply false and demonstrates a stunning lack of “accountability,” which is a word I saw and heard many times at trial, this week, and is supposed to be a hallmark of the new NRA.

In fact, the NRA was the lead defendant at the jury trial. Its counsel dominated the proceedings from the defense side, both in substance and in time and expended great effort to try to persuade the jurors that they should not hold the NRA liable for the acts of a few rogue executives and vendors. The jury rejected those arguments.

The fact that the verdict form, which all parties had a role in crafting, by the way, did not require separate verdicts on the dozens, if not more, allegations of specific mismanagement of charitable funds, as well as the evidence of board-level support for the wrongdoers, attacks against whistleblowers and overall lax oversight on financial matters does not make the verdict any less damning as to the NRA as an entity nor does it support the NRA’s post-trial declamations of vindication, which apparently drew derisive laughter and objections from members at the NRA’s annual meeting, that the NRA or, more particularly, its senior leadership was a hapless victim of a few bad apples in management. Moreover, the NRA’s press release discussing the jury’s verdict was misleading and, at times, wholly inaccurate. 

In my view, the record showed not only misconduct by individual officers and employees, but also failures by the board of directors and its committees to properly supervise the expenditure of the NRA’s charitable assets and to react quickly and decisively once questions about financial management arose, which really began as early as the 1990s, though more specifically and pointedly in 2018.

This is not the first case in which that type of long-term entrenchment of management and directors has created blind spots in oversight. The evidence showed that a number of prominent board members reacted principally with the goal of protecting Mr. LaPierre and his team rather than with protecting the NRA itself against financial mismanagement. 

I recognize the NRA operated, at the time and today, in a sometimes hostile political environment, and there thus may be an initial instinct to protect an otherwise very effective and popular Executive Vice President from attack, regardless of the merits. That instinct is particularly acute when both the Executive Vice President and the leaders of the Board have been in place and mutually supporting each other for many years. In doing so, however, the NRA, through its board and senior management, abandoned the basic blocking and tackling of ensuring that the financial resources of the association are being responsibly spent. Here, instead, management and certain leading board members, when called to account for the NRA’s problems, went on the attack, including against legally protected whistleblowers. As the saying goes, “If all you have is a hammer, everything looks like a nail.”

That said, the principal question is not whether mistakes have been made in the past but, instead, whether they are likely to recur absent the specific relief requested by the Attorney General; principally, the imposition of a court-appointed monitor or consultant.

The fact that the NRA still seems to find it difficult to take accountability for its past problems is concerning but not dispositive. 

First, although the reforms instituted by the NRA since 2018 are far from perfect and remain a work in progress, they are meaningful. I was persuaded that the employees now in charge of compliance efforts – in particular, Executive Vice President Hamlin; the Treasurer, Ms. Rowling; the Compliance Officer, Mr. Mensinger; the Internal Auditor, Mr. Medrano – are serious, independent, skilled people with a spine to stand up to power, as Ms. Rowling and her brave colleagues so clearly demonstrated as effective and undaunted whistleblowers. I was also impressed by the testimony of Mr. Bachenberg and Mr. Vaughan, two new board officers that I believe will be watchful for any backsliding on compliance with internal controls. 

Other changes I find encouraging are: The NRA Compliance Commitments to Members document that Mr. Cotton has suggested be implemented going forward, some personnel changes in key committees, and the progress on resolving internal-control issues identified by the independent auditor, Aprio, whose most recent management letter showed that prior issues had been resolved and no new issues had been identified.

Is that a perfect record that gives the Court a hundred percent confidence? No. The NRA was slow to reform, despite warning signs as early as 2003. There remain leaders on key board committees who, while they do seem smart and earnest, are difficult to disentangle from their role as overseers while long-running and blatant violations of NRA policy and New York law was rampant at the highest levels of the organization and who were also intimately involved, in some cases, in ill-considered and wasteful efforts to avoid accountability, including the disastrous decision to pursue bankruptcy to avoid accountability rather than simply righting the ship as best they could. 

So where does that leave us? Taking all of the evidence into account, I find that the State’s principal requested relief of a court-appointed monitor or consultant to oversee the NRA and report back to the Court and the Attorney General is not the correct result in this case.

Again, the principal question is whether such relief, which is undoubtedly expensive and disruptive, is necessary to avoid a recurrence of illegal conduct. Here, most of the defalcations were specific to personal spending, reimbursement and vendor relationships. While these violations are serious and not to be taken lightly, they are also severable from the core activities of the organization and, frankly, easier to fix and simpler.

On top of that, it cannot be ignored that the environment surrounding the NRA has changed significantly and, in my view, unalterably since the events that led to this litigation and the jury’s verdict have come to light. From a financial perspective, the NRA is under a microscope, not only from the Attorney General and from the Court, but also from its own members and its donors. The notion that the NRA would simply lapse back into the – in the absence of ongoing court supervision – to a place where internal controls are routinely overridden by entrenched leaders immune from scrutiny by a compliant and equally entrenched board of directors, with executives and their families jetting off on private planes to lavish locales, seems wildly unrealistic; possible but not probable.

I’m also persuaded that a monitor or consultant, despite best intentions, will be time-consuming, disruptive and will impose significant costs on the NRA without corresponding benefits. Moreover, such relief would result inevitably in a long, awkward and potentially speech-chilling governmental intrusion on the affairs of the organization, despite the Attorney General’s best efforts to carve sensitive topics out of the monitor’s remit.

To echo a similar point made in my dissolution decision earlier in the action, while First Amendment concerns would not necessarily foreclose imposing a monitor in appropriate circumstances, they are a legitimate concern to be taken into account in making the discretionary decision whether to impose a court-appointed monitor. It should be, in my view, the last resort, not the first. 

A note of caution, however, for any who view this as, sort of, a green light:

In the event of future wrongdoing, which likely would come back to this Court in some form, the NRA’s failure to police itself in the future will be viewed in the very unfavorable light of this case, with a potentially grim result for those involved and the NRA itself. 

But the monitorship is not the end of the remedy story, however. I remain open to considering specific and targeted changes to the NRA that may be necessary to provide reasonable assurance, in the absence of a monitor, against lapses once the bright lights of this litigation have dimmed.

As to the NRA itself, the evidence presented at trial suggests that there remain vestiges of the regime that presided over the period of unlawful behavior, that still do not recognize their role in failing to identify and rectify the wrongdoing. While the NRA members recently flexed their democratic muscles to promote reform efforts, current NRA leadership continues to place decisive authority in the hands of those who did not take a strong hand against improper behavior and chose instead to close ranks behind a leader, despite ample evidence of extraordinary misconduct. 

Among the specific reforms of relief that I am considering and seek post-trial briefing on and, hopefully, negotiation, since many of these really should be viewed as in the NRA’s interest in any event, are the following:

1. 1. Incorporating some or all of the “NRA Compliance Commitments to Members” document into a court order.
   2. Expanding, for at least three years, the path to candidacy for board elections; specifically, limiting the hegemony of the Nominating Committee for enough board cycles to cover all 76 board members. The events of the most recent election suggest that NRA members are looking for new voices but that the current rules erect barriers to getting on the ballot. While those rules generally make sense in a well-functioning organization, here the evidence suggests they have led to significant and unhealthy entrenchment of both management and the board, making it exceedingly difficult for new voices to have any impact except in very small numbers. One option would be to mandate that, for the next three elections at least, any proposed candidate who meets certain minimum qualifications would be on the ballot, full stop, with no need to rally for hundreds or thousands of signatures.
   3. Retaining a compliance consultant for three years to work with the NRA’s in-house Compliance Officer and staff to make recommendations to the board. This consultant, unlike the one sought in this case, would be selected by the NRA and would not report to the Court or the Attorney General. The consultant would be advisory only and would provide an independent perspective to the board for implementing the Court’s directives as well as best practices.
   4. Changing the Audit Committee so that it would not include people, at least not – at the very least not –  as chair or co-chair, that served on the committee during the violations found in this action. Despite the changes in some of the members, there is an argument that there needs to be a sharp break with the past – sharper break with the past – than is reflected in the most recent committee appointments. Similar decisions could be made with respect to other key committees, as well.
   5. Creating more protections for the Compliance Officer position recently created. One option would be to provide that the position be for a term of three years, at least initially, subject to removal only for good cause upon a vote of the board.

And finally, a bylaw referendum for members to consider at the next annual meeting on whether to reduce the size of the board or reorganize it to create a smaller, more focused group to oversee the key operations and finances of the organization. I’ve seen references to other nonprofit boards that have a very large advisory section and then a much smaller, tighter group that focuses on the core operational and financial aspects of the company. I think I’ve heard from a number of experts in this case that a board of this size, while it may make sense for fund-raising in some ways, is just not a manageable group to make decisions on micro issues and, also, to provide close oversight.

Those are the types of the remedies I have considered. However, since this trial was really not focused on that and has focused almost entirely on the monitor remedy, I would like to give the parties an opportunity to discuss this, to consider it carefully, and any other ideas they might have for what I hope would be a consent order, but if not a consent order, their arguments back and forth on the various things that I’ve suggested or proposed or thought about. Ultimately, it will be up to me whether to order them and what to do, but I would like more precise guidance on the points that I’ve made.

[END]

Concluding comments by Jeff Knox

Judge Cohen went on to bar Wayne LaPierre from any official position within the NRA for ten years and agreed with the jury that there was not sufficient cause for him to force the removal of Secretary John Frazer.

The parties are supposed to meet over the next week to discuss remedies like those suggested by the judge and present their results to him to help him reach his final decision, hopefully by the middle of August.

While I never saw the idea of a court-appointed monitor looking over our shoulder as a particularly egregious proposition, I also have been confident that the financial chicanery is under control and the organization is on a good path.  My biggest concerns have been with the failure of many Directors to recognize that there really was financial chicanery going on to begin with. Also, so many of the people who were tasked with detecting and preventing that chicanery have remained in leadership and retained the respect of their fellow Directors.  These people failed in their obligations to the Association, its members, and their fellow Directors.  They have never apologized for those failures, have actively misled and misdirected, and somehow still hold significant sway within the Board.  That’s a problem that apparently only the membership can correct going forward.

I find it ironic that the establishment’s press release about the end of the trial paints the judge’s decision as a huge win for the Association, still characterizing the suit as just a “politically motivated attack,” even after the judge criticized them for their misleading spin in their previous press releases regarding the jury trial.  While avoiding a monitor can be considered a victory of sorts, the decision itself points to significant failures on the part of Board leadership and was highly critical of the way this whole thing has been handled.  The “victory” is particularly hollow when you realize that, as the judge pointed out, this could have been largely avoided had the leadership simply acknowledged the problems when they first became apparent and taken significant corrective actions at that time.

They didn’t, and that failure has cost us some $200 million in legal fees, not to mention the hundreds of millions in lost revenue and incalculable cost in lost trust.

Let’s hope the worst is over; we can dispense with the outrageously overpriced attorneys, and we can get back to the business of promoting the shooting sports and protecting the Second Amendment.

People of the State of New York v. The National Rifle Association of America, et al. July 29, 2024

About Jeff Knox:

Jeff Knox is a second-generation political activist and director of The Firearms Coalition. His father Neal Knox led many of the early gun rights battles for your right to keep and bear arms. Read Neal Knox – The Gun Rights War.

The Firearms Coalition is a loose-knit coalition of individual Second Amendment activists, clubs and civil rights organizations. Founded by Neal Knox in 1984, the organization provides support to grassroots activists in the form of education, analysis of current issues, and with a historical perspective of the gun rights movement. The Firearms Coalition has offices in Buckeye, Arizona, and Manassas, VA. Visit: www.FirearmsCoalition.org.