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Is the NRA Board Shooting Itself in the Foot By Doing Nothing?

posted by Adam Levitin

In my previous blog post on the NRA bankruptcy, I was focused on the bankruptcy implications of the incredible examiner motion filed by an NRA board member against the NRA. But as I think about it more, it's also got some important corporate governance implications: did the NRA board violate its fiduciary duties?  

The NRA's board owes fiduciary duties to the NRA, which means to the NRA bankruptcy estate. Those duties include a duty of good care (basically do your homework, pay attention, and examine red flags) and a duty of loyalty (no self-dealing). 

The examiner motion alleges that the NRA's board did not approve the bankruptcy filing and learned about it through the media. Moreover, my understanding is that the NRA board has not convened since the bankruptcy filing. If the filing was in fact an unauthorized freelance project of the special litigation committee, shouldn't the board be doing... something? If the filing wasn't authorized, then the failure to convene and be briefed strikes me as a pretty glaring violation of a duty of care. The duty of care is a pretty forgiving standard in general, but doing nothing is not going to suffice when care requires at least an inquiry. While the NRA directors are indemnified except for acts not in good faith, which normally sounds in the duty of loyalty, NY nonprofit law actually treats good faith as a matter of duty of care in some circumstances ("Persons shall not be considered to be acting in good faith if they have knowledge concerning the matter in question that would cause such reliance to be unwarranted.")

Now this question does put the cart before the horse a bit—was the bankruptcy filing in fact authorized? If it was, then there's no issue. But I real have trouble seeing so given the authorizing language quoted. Maybe all the board (except for Judge Journey) truly believe the filing was authorized. But if there's any doubt, this seems like the sort of thing the board should be convening to address, even if only to ratify the filing after being briefed. (I don't think it's possible to take inaction as implicit ratification, as there are many reasons any individual board member might not act.)

Now two practical issues: who could bring a breach of fiduciary duty claim here and what would damages be? The fiduciary duties are owed to the NRA bankruptcy estate. That means they could be pursued by a trustee if one is ultimately appointed. It might also be possible for the Official Creditors Committee to pursue them derivatively. It might be possible for individual NRA members could bring such a claim, although this goes beyond my knowledge of nonprofit law. And then there's possibility of the NYAG seeking to enforce such duties. 

I'm not sure what damages would be for a breach of fiduciary duty here—perhaps the NRA's legal bills in the bankruptcy?  What is clear to me is that this is a situation where the board itself needs its own separate, independent counsel: if the special litigation committee has potentially gone rogue, the rest of the board needs its own lawyers to help it navigate these waters. 

 

Comments

It is my understanding from another Board member that neither they nor the CFO knew that a bankruptcy filing was coming before the fact. The BOD and Spray were told of it in an email dated 4:01pm on January 15th. The filing was 10-15 minutes earlier.

From that email:

"I am pleased to announce some exciting news about the NRA.

The NRA announced it will reorganize the Association as a Texas nonprofit to abandon the corrupt political and regulatory environment in New York. This action will ensure our continued success as the nation’s leading advocate for constitutional freedom.

To facilitate the reorganization, the NRA and one of its subsidiaries filed voluntary chapter 11 petitions in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division. As you may know, chapter 11 proceedings are often utilized by businesses, nonprofits and organizations of all kinds to streamline legal and financial affairs. "

The NRA Board has 76 members and meets 3 or 4 times a year. There is an Executive Committee of about 20 that is empowered for most things between regular Board meetings. I've been a Life member for over 40 years and my father was 1st VP. I don't think I've ever heard of a special meeting of the Board being called. The Special Litigation Committee is comprised of the President, 1st VP, and 2nd VP. AS stated in the bankruptcy filing, the authority to file was claimed by LaPierre and supported by the Special Litigation Committee. I've spoken with a number of Directors, and friends have spoken with several more, and none of them have said that they knew about the bankruptcy filing in advance. Sea Girt was created last November, just days after the Annual Meeting of Members and a Board meeting. Nothing was mentioned in the Members' Meeting or the Board meeting about Sea Girt or bankruptcy. Then the Board met again on January 7, and again, nothing was mentioned, either in the meeting or in side chats, about any plan to declare bankruptcy or relocate to New York. At that meeting, a new contract was approved for LaPierre, with the emphasis on the fact that they replaced his diamond encrusted, platinum parachute with a basic gold one. He had a severance guarantee of full salary for life. They changed that to $500k for two years. That's all the Directors were looking at when they scanned the new contract, but buried in the Duties and Responsibilities boilerplate was some language about LaPierre having authority to reorganize, if he saw fit. They had Directors sign a statement that they'd read the contract, and have thrown that in Journey's face in response to his claim that he wasn't aware of giving that authority to Wayne and the officers.
The Board was kept in the dark on purpose and Wayne and company intentionally duped them. Any that aren't furious are idiots.

Oh... And the "Board's Counsel" serves at the pleasure of Wayne LaPierre. They had a different Board Counsel when all of the accusations of self-dealing and sweetheart deals broke back in 2019, but Wayne fired him and hired the current guy. Several of the Directors who resigned after that, mentioned the lack of counsel representing the Board, as one of their major concerns.

In order to induce them to "pay up" the NRA has made some clear PROMISES to the potential Life Members to get their money. Fewer as time went on but REAL promises in the '80s and '90s. That sounds like a CONTRACT which creates right in a class of those members.

The ads, letters, and term of those offers should be available (unless Wayne has them burned the a parking lot fire tomorrow).

I smell another group of creditors.

There are numerous ways to contact the NRA here, including anonymously on a form at the bottom the page:
https://contact.nra.org/
Anyone who complains about LaPierres corruption should tell the NRA you will not renew or donate until he is GONE.

Money talks and BS walks.
Leave the comment “Wayne Must Go!” on that NRA page, and forward to other likeminded people, or please STHU and stop complaining.

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