February 23, 2024 – A jury verdict in a high-profile New York trial confirms what the National Rifle Association of America (NRA) contended all along – that it was victimized by certain former vendors and “insiders” who abused the trust placed in them by the Association. The jury found no cause to remove NRA General Counsel and Secretary John Frazer, the remaining NRA employee who is an individual defendant in the action.
NRA officials set a confident tone today following the verdict in the New York Attorney General v. NRA lawsuit. In August, 2020, the NYAG filed a “dissolution lawsuit” against the NRA, along with claims against four individual defendants: former EVP Wayne LaPierre; Frazer; former CFO Wilson Phillips; and former Chief of Staff Joshua Powell.
The NYAG originally sought to put the NRA out of business. She had claimed the actions in question led “to the loss of more than $64 million in just three years.” But the allegations by the NYAG that survived to the jury-verdict stage were starkly diminished relative to their complaint: as jury deliberations approached, the government was forced to drop half of its whistleblower allegations for lack of evidence, along with a number of conflict-of-interest claims.
During a 24-day jury trial, the NRA established the NYAG cannot prove self-dealing or bad faith by the NRA Board of Directors. The NRA disputed key allegations in the NYAG’s complaint – namely, that any governance issues at the NRA are “persistent.” As importantly, the NRA established that it adopted new policies and accounting controls, displaced vendors and “insiders” who abused the Association, and accepted reparations for costs determined to be excess benefits. Most of these corrective measures – part of an internal investigation ignited by the NRA Board – were adopted before the NYAG filed her lawsuit.
The NRA’s commitment to good governance was on full display during the trial proceedings.
“We appreciate the service of the jury and the opportunity to present evidence about the positive direction of the NRA today,” says NRA President Charles Cotton. “NRA members should be heartened by the NRA’s commitment to best practices, and we will continue to amplify our compliance record in the pivotal next phase of these proceedings. To the extent there were control violations, they were acted upon immediately by the NRA Board beginning in summer 2018.”
Of particular importance, the six-person jury found that of 10 related-party transactions of which the NRA was accused, the NRA Audit Committee was found to have properly reviewed and ratified 8 of them. However, the six-person jury found that many of the business arrangements in which the NRA entered were appropriate and did not qualify as improper related party transactions. However, the six-person jury rendered a verdict that found the NRA failed to properly administer the organization and its assets, and that it violated whistleblower protections of New York Nonprofit Law.
With respect to other individual defendants, the jury found Mr. LaPierre and Mr. Phillips violated their statutory obligations to discharge the duties of their position in good faith and with care. The jury found the monetary harm suffered by the NRA for each individual was $5.4 million and $2 million, respectively. (Defendant Powell reached a settlement with the NYAG prior to the start of the jury proceedings.)
The jury decision paves the way for the second phase of the proceedings – a bench trial before Justice Joel M. Cohen where the judge is expected to rule on any final remedies against defendants.
In the final analysis, individual defendants could face financial awards payable to the NRA. No money damages will be awarded against the Association.
The NRA’s case focused on its compliance efforts and the organization’s commitment to good governance following summer 2018 whistleblower complaints and the substantial evidence that it was the victim of fraud by a number of its vendors. When the NRA Board was alerted to these facts, it led an investigation into spending allegations and determined that certain individuals participated in transactions that ran afoul of NRA policies and procedures. Trial testimony confirmed the NRA Board was unaware of the arrangements in question.
In furtherance of its governance reforms, the NRA terminated a string of vendors, including Ackerman McQueen/Mercury Group, Associated Television, International, Under Wild Skies, and a travel consultancy. It cancelled consulting arrangements with certain NRA board members, adopted a new whistleblower policy in 2020, and recently hired a new compliance manager.
“A parade of NRA witnesses and independent experts established that the NRA was the victim of actions that were pursued in secrecy and not in the interests of the Association – by former vendors and fiduciaries,” says NRA counsel William A. Brewer III. “In any event, the NYAG’s case focused on the past and the NRA lives in the present. It was the NRA that ultimately established the record being pursued by the NYAG. Our client looks forward to phase two of these proceedings – emboldened by its record of good governance.”
Although it was not a matter before the jury, the NRA effectively demonstrated that the NYAG’s lawsuit was motivated by political animus. As a candidate for NYAG in summer 2018, Letitia James called the NRA a “terrorist organization” and “criminal enterprise.” She vowed to pursue the NRA if elected, and quickly did so upon taking office in 2019.
Other New York Actions: Defending Free Speech
Against the backdrop of the NYAG trial, the NRA is preparing for another case involving New York government officials. On March 18, 2024, the U.S. Supreme Court will hear arguments in the NRA’s First Amendment case against former financial regulator Maria T. Vullo.
In a May 2018 lawsuit, the NRA alleged that Vullo, at the behest of former New York Governor Andrew Cuomo, took aim at the NRA and conspired to use the regulatory power of the New York Department of Financial Services (DFS) to “financially blacklist” the NRA – coercing banks and insurers to cut ties with the Association to suppress its pro-Second Amendment speech. The NRA argues that Vullo’s actions as DFS superintendent were meant to silence the NRA – using “guidance letters,” backroom threats, and other measures to cause financial institutions to “drop” the Association.
The NRA's First Amendment claims withstood multiple motions to dismiss. But in 2022, after Vullo appealed the trial court’s ruling, the Second Circuit struck down the NRA’s claims.
On February 7, 2023, the NRA petitioned the U.S. Supreme Court, seeking review of the Second Circuit decision. On November 3, 2023, the Court granted review on the following question: Does the First Amendment allow a government regulator to threaten regulated entities with adverse regulatory actions if they do business with a controversial speaker, as a consequence of (a) the government’s own hostility to the speaker’s viewpoint or (b) a perceived “general backlash” against the speaker’s advocacy?
Since that time, more than 190 individuals and organizations have filed 22 amicus briefs in support of the NRA’s legal position. If successful, the NRA ultimately aims to prove Vullo, Cuomo and others conspired with James to penalize the NRA for its protected speech. Such developments could help the Association resurrect First Amendment claims against James, as well as unseal materials from an earlier discovery phase of the case.
“The NRA is eager to break the seal on facts surrounding an unprecedented weaponization of power against the NRA and its speech,” says Brewer. “There is little question former and current public officials were conspiring with Everytown and others to financially damage and politically suppress the NRA. Their actions harmed democracy and the rule of law – and letting relevant facts and documents remain secret does, too.”
