DC Court Rejects NRA Attempt to Dismiss Charities Case
In a victory for D.C. Attorney General Karl Racine, D.C. Superior Court Judge Jose M. Lopez issued a 23 page opinion allowing the Attorney General’s enforcement action against the NRA Foundation and NRA to proceed. The NRA Foundation and NRA had each sought to dismiss the action and discovery will now proceed in this case.
The DCAG’s complaint contains five causes of action against the defendants NRA and NRA Foundation, including that the NRA Foundation exceeded and abused the authority of the charity, and that the Foundation acted contrary to the non-profit purpose of the NRA Foundation. The DCAG alleges that the NRA controlled the Board of Directors of the NRA Foundation and caused the Foundation to undertake actions not in the best interest of the NRA Foundation. The crux of the allegations by the DCAG are that “in recent years, the NRA has experienced financial problems related, in large part, to low membership and the NRA’s decision to continue to waste funds on improper, lavish spending. To plug holes caused by its own poor management, the NRA turned to the Foundation’s funds.”
- In a December 21, 2020 decision, the Court rejected the NRA Foundation’s attempt to dismiss Counts I and II (violating the Nonprofit Corporations Act by exceeding its authority and acting contrary to non-profit purposes, respectively). In addition to other allegations sufficient to make out a viable cause of action, the Court noted the Attorney General’s allegations about “unwarrantedly [relying] on a study approving the management fee increase, which led to unreasonable compensation” and that such facts, if proven at trial, would “not [be]in furtherance of charitable, educational, and scientific purposes” associated with a nonprofit corporation (p.19).
- The Court also rejected the NRA Foundation’s argument that the Attorney General did not have the authority to appoint a receiver over the Foundation (p.20).
- The Court also allowed Count III, alleging violations of the common law against the NRA Foundation, to proceed in the litigation writing that the Court “finds that this action is within the Attorney General’s common law enforcement authority” and that “the District brings the action to enforce the public interest to ensure that charitable funds are used for a proper purpose….” (p.22-23).
- In addition, the Court rejected the NRA’s arguments that the Attorney General had not pled facts establishing a basis for a constructive trust over funds paid by the Foundation to the NRA (p.11-15). The Court also found that the NRA’s reliance on the business judgment rule was not applicable in this matter (p.15-16) and that the Attorney General need not even plead wrongdoing to support a claim for a constructive trust (p.16-17).
- The Court did rule with the NRA on one technical matter: that the request for a constructive trust should not be a standalone cause of action as the Attorney General initially pled (p.10-11); however, this is a pyrrhic victory as the Court allowed the Attorney General to add the request for a constructive trust to Counts I – III. The Attorney General’s Office did exactly this in a December 21, 2020 “Precipe Regarding its Claims Against the National Rifle Association of America, Inc.” And as noted above, the Court specifically held that the Attorney General did allege facts establishing a basis for a constructive trust in the Complaint.
- Following this ruling against the NRA and NRA Foundation, on December 28, 2020, the Court issued a scheduling order that directed fact discovery in the matter to be completed by May 4, 2021 and expert discovery to be completed by July 22, 2021.