People v. The Nat'l Rifle Ass'n of Am.

2023 NY Slip Op 06819

People of the State of New York etc., Plaintiff-Respondent, v. The National Rifle Association of America, Defendant-Appellant, Wayne Lapierre et al., Defendants.

Appeal Nos. 1026, 1028, Index No. 451625/20, Case Nos. 2022-03159, 2022-05187, 2023-00156

Supreme Court of New York, First Department

December 28, 2023

Defendant The National Rifle Association of America appeals from the order of the Supreme Court, New York County (Joel M. Cohen J.), entered June 10, 2022, which granted the NYAG's motion to dismiss its First Amendment retaliation and selective enforcement counterclaims.

Brewer, Attorneys & Counselors, New York (Noah Peters William A. Brewer III, and Joshua M. Dillion of counsel), for appellant.

Letitia James, Attorney General, New York (Judith N. Vale, Matthew W. Grieco, Philip J. Levitz and Barbara D. Underwood of counsel), for respondent.

Sallie Manzanet-Daniels, Jeffrey K. Oing Saliann Scarpulla Julio Rodriguez III John R. Higgitt

Scarpulla, J.

This appeal arises from a suit commenced by plaintiff People of the State of New York, by Attorney General Letitia James (NYAG), in August 2020, against defendant The National Rifle Association of America (NRA), a New York-domiciled not-for-profit corporation, and four of its executives and directors - Wayne LaPierre, Wilson Phillips, John Frazier, and Joshua Powell. NYAG's second amended complaint extensively details, among other things, widespread and longstanding executive malfeasance. For example, the complaint alleges that the NRA regularly paid for enormous expenses incurred by LaPierre and his family members for personal travel to the Bahamas, often via private jet, and to other destinations. The NYAG alleges that the NRA utilized a pass-through arrangement whereby millions of dollars in entertainment and travel expenses incurred by NRA executives were billed to the NRA as purported disbursements paid to the advertising firm Ackerman McQueen for advertising and public relations services. This arrangement allegedly allowed the NRA to evade its own accounting and expense-reimbursement procedures, as well as IRS requirements.

Additionally, defendants and other NRA officers and directors failed properly to disclose alleged conflicts of interest and related party transactions to the NRA's Board of Directors, and failed to secure the Board's approval for those conflicts and transactions. In one instance, the NYAG alleges that the NRA paid $1.4 million to an information technology company, HomeTelos, whose chief executive had a longstanding personal relationship with Phillips. Another alleged unlawful related party transaction involved a highly lucrative agreement between the NRA and LaPierre wherein the former guaranteed the latter income for years after he leaves the NRA at a rate exceeding his employee compensation, enabling LaPierre to retain influence over the NRA even if he were removed from office.

Another type of malfeasance alleged in the complaint is that the NRA and the individual defendants retaliated against whistleblowers who attempted to raise concerns about financial misconduct within the NRA. Also, according to the complaint, between 2015 and 2019, the NRA, LaPierre, Phillips, and Frazer made materially false and misleading statements and omissions in the NRA's yearly CHAR500 filing with the NYAG. Based on its investigation, the NYAG asserted claims against defendants for violations of provisions applicable to not-for-profit charitable corporations under the Estates, Powers and Trusts Law, the Not-for-Profit Corporation Law, and the Executive Law.

As relevant here, the NRA asserted counterclaims against the NYAG for First Amendment retaliation and selective enforcement. Specifically, the NRA alleged that while the NYAG was campaigning for her current position, she displayed animus towards the NRA by promising to "take down the NRA" using her power as attorney general to regulate charities. James allegedly called the NRA a "terrorist organization" and "criminal enterprise." The NRA further alleged that the NYAG, rather than working with the NRA to fix issues, as it has done in other cases involving not-for-profit corporations, instead sought dissolution, an extreme remedy not frequently pursued by the NYAG.

The NYAG moved to dismiss the NRA's counterclaims, and the motion court granted the motion. With respect to the First Amendment retaliation counterclaims, the court found that these claims lacked the necessary causal element. The motion court dismissed the selective enforcement counterclaims on the ground that: 1) the NRA failed to allege that it received different treatment than "similarly situated charitable organizations" based on inappropriate considerations; and 2) the NYAG demonstrated that it previously sought dissolution against other charities and that the NRA was not the only organization against which this remedy was sought. Lastly, the court held that, on account of its earlier decision and order which dismissed the NYAG's dissolution claims, "to the extent the counterclaims seek declaratory and injunctive relief stemming from the dissolution claims, those claims are moot." This appeal ensued.

As an initial matter, two types of relief sought by the NRA in its counterclaims need not be addressed on this appeal. First, it is undisputed that the counterclaims' money damages demands were abandoned on appeal. Second, the portion of the NRA's counterclaims that seek declaratory and injunctive relief in connection with the NYAG's dissolution claims are moot. This category of the demand for declaratory and injunctive relief was mooted, as the motion court properly determined, by that court's prior dismissal of the NYAG's dissolution claims. ^[1] Nevertheless, we address the counterclaims to the extent that the NRA seeks relief other than money damages or a declaration/injunction prohibiting dissolution.

In four of its counterclaims, the NRA alleges First Amendment retaliation. Under the First Amendment, government officials are prohibited from retaliating against those who are engaging in protected speech (Hartman v Moore, 547 U.S. 250, 256 [2006]). Government agencies, however, are presumed to act in good faith in their pursuit of investigations, prosecutions, and enforcement proceedings for alleged misconduct (see id. at 263). To state a claim for First Amendment retaliation, a plaintiff must allege (1) that the speech or conduct at issue was protected, (2) that the defendant took adverse action against the plaintiff, and (3) that there was a causal connection between the protected speech and the adverse action (Dolan v Connolly, 794 F.3d 290, 294 [2d Cir 2015][internal quotation marks omitted]). On this appeal, the only element of the NRA's retaliation counterclaims at issue is causation, and the parties dispute what must be pleaded to support those counterclaims.

The NYAG asserts, and the motion court found, that the "no probable cause" causation standard articulated in Hartman v Moore (547 U.S. at 259-266) and Nieves v Bartlett (587 U.S. __, __, 139 S.Ct. 1715, 1721-1725 [2019]) is the appropriate standard under which to view the NYAG's conduct. In Hartman, the United States Supreme Court held that, in the retaliatory prosecution context, a plaintiff must plead and prove "the absence of probable cause" for the prosecution (Hartman, 547 U.S. at 265-266). The Supreme Court reasoned that, "[d]emonstrating that there was no probable cause for the underlying criminal charge will tend to reinforce the retaliation evidence and show that retaliation was the but-for basis for instigating the prosecution, while establishing the existence of probable cause will suggest that prosecution would have occurred even without a retaliatory motive" (id. at 261).

In Nieves, the United States Supreme Court held that because retaliatory arrest claims contain the same causal complexities as those noted in Hartman, the no probable cause standard should apply in the context of retaliatory arrest cases as well (Nieves, 139 S.Ct. at 1723-1725). Although Hartman and Nieves both involved claims for money damages, their holdings were not limited to such claims.

The NRA, in contrast, argues that the appropriate causation standard to be applied to First Amendment retaliation claims is the burden-shifting framework articulated in Mt. Healthy City Sch. Dist. Bd. of Educ. v Doyle (429 U.S. 274, 287 [1977]). Under this standard, a plaintiff must first show that retaliation was a "substantial" or "motivating factor" underlying the decision at issue (id. at 287). Then, the burden shifts to the defendant to show the decision would have been made even absent any protected conduct (id.). The NRA further argues that the no probable cause standard is inapplicable and whether the NYAG had probable cause to commence this action is "irrelevant at this stage."

On this issue of first impression, we hold that the proper legal standard applicable to First Amendment retaliation claims in civil enforcement proceedings such as this one is the no probable cause standard articulated in Hartman and Nieves (see generally DeMartini v Town of Gulf Stream, 942 F.3d 1277, 1304-1306 [11th Cir 2019] cert denied __ U.S. __, 141 S.Ct. 660 [2020]; McBeth v Himes, 598 F.3d 708, 717-720 [10th Cir 2010]) . Civil enforcement proceedings involve many of the same factors considered by the Supreme Court when it adopted the no probable cause standard applicable to alleged retaliatory criminal prosecutions and arrests. These factors include: the involvement of legal counsel whose decisions are subject to a presumption of regularity; sometimes multiple decisionmakers; a complex chain of causation involving investigation, recommendation, and filing of an enforcement proceeding;...