Monday, February 12, 2024

NRA update by the New York Times

A few weeks ago, I wrote a post entitled "The NRA Saga Continues... wayne LaPierre Takes the Stand,"  in which I discussed the continuing downfall of the organization that once embodied nonprofit political power.    I just wanted to flag that the today's New York Times email news letter, The Morning, (Sub required) has a write up of the current status of the NRA.  Here's a quote and a link:

Today, the N.R.A. has shed hundreds of thousands of members and large sums of money. It is standing trial for fraud and self-dealing in New York. “The N.R.A. is little more than a shell of itself after hemorrhaging hundreds of millions in legal fees,” Joshua Powell, a former top N.R.A. official who settled with the state before the trial, told The Times. The organization’s fall is not a death knell for Second Amendment advocates, but it is a blow.

Today’s newsletter will explain what went wrong with the group.


With the updates! eww

February 12, 2024 in In the News, State – Executive, State – Judicial | Permalink | Comments (0)

Wednesday, February 7, 2024

Washington Post: "Luxury spending, internal strife leave NRA staggering into 2024 election"

National_Rifle_Association_official_logo.svgAs the NRA trial continues in New York state court, with the Attorney General ending the presentation of her case last Monday and closing arguments scheduled for February 15th, the Washington Post has a lengthy story on what has come to light during the trial and its effects on the NRA's still significant political clout. The details that have emerged so far appear to provide a case study for what can happen when a single, highly successful leader is able to operate with little effective board or other oversight for years. Not surprisingly, revenues have slumped by about 50 percent since 2018 (from about $160 million to $83 million in 2022) and legal fees have skyrocketed to about $40 million per year from 2019 to 2022. And former president Wayne LaPierre resigned just days before the trial began and may end up owning the NRA millions of dollars depending on the trial's result.

Lloyd Mayer

February 7, 2024 in In the News, State – Judicial | Permalink | Comments (0)

Wednesday, January 31, 2024

The NRA Saga Continues ... Wayne LaPierre Takes the Stand

In the continuing saga of everything not to do as a nonprofit organization, the trial of the NRA and some of its top executives is in full swing.

If you haven't been keeping track, in 2020, New York Attorney General Letitia James brought suit against the NRA alleging correcption and misuse of assets under a variety of New York statutes, including "New York’s Estates, Powers & Trusts Laws; New York’s Not-for-Profit Corporation Law; the New York Prudent Management of Institutional Funds Act; and New York’s Executive Law." Around that time, we also found out that the NRA owed the IRS roughly $3.4 million in taxes and penalties as detailed more fully here, complete with commentary from Nonprofit Law Prof Blog's own Phil Hackney.  And of course,  as detailed in this NPR article, the NRA tried to file for bankruptcy, but it petition was dismissed on the basis that the" group had not filed the case in good faith" and was "using the bankruptcy case to address a regulatory enforcement problem."

Late last week and into this week, Wayne LaPierre, now ex-CEO of the NRA (apparently, his resignation is effective today, accoring to the New York Times), took the stand in the New York law suit against the NRA and some of its top executives, including LaPierre.  In an interesting turn, LaPierre is ... sort of... testfying for the NRA.  And sort of... against... the NRA.   It's confusing for sure.  He's an individual defendent and the NRA is also a defendant as an organization.  According to the Times and other outlets, LaPierre admitted to poor management and personal use of NRA assets under the questioning of the NRA's lawyers (not the state's lawyers) in an effort to blame the organization's issues on LaPierre personally and not on the institution.   The organization is taking the position that subsequent changes to its expense reimburement plan and other governance reforms are sufficient to show that it shouldn't be liabile institution

New York can penalize the organization and can also ask for restitution to the organization from the executives that misued its assets.   The resulting blamefest is an interesting watch.    Having watched the rise of the NRA as a political force in the gun rights movement (see Matthew Lacombe's book, Firepower: How the NRA Turned Gun Owners into a Political Force), it is interesting to watch the once formidable organization fall from those heights.   It will be interesting to see what remains when all is said and done.

With popcorn, eww


January 31, 2024 in Current Affairs, In the News, State – Judicial | Permalink | Comments (0)

Tuesday, January 16, 2024

Expert Testimony in NY NRA Case

I’m a little late to the party, but last week attorney Jeffrey Tenenbaum gave expert testimony about nonprofit law in the ongoing civil trial in New York against the NRA, its CEO Wayne La Pierre, and other executives. The summary by NRA Watch explains that, as an expert, Mr. Tenenbaum was not asked to evaluate particular conduct by the NRA or its executives, but to explain to the jury “what is regular and customary in the nonprofit sector.” It then goes on to summarize some of his observations of the sector, including (i) that he has “rarely seen” nonprofit organizations authorizing private jet travel for their executives, except when they need to access remote parts of the world for relief missions, (ii) that he believes that it is “very rare” for nonprofits to retroactively “ratify” conflicts of interest between the organization and individuals, and (iii) that “best practices” counsel against boards of more than 30 members because large boards make it “impossible [for individual board members] to fulfill their duties.” 

I’m all for explaining nonprofit law to juries, since it is weirdly hard for nonexperts to understand. And, obviously, I only know what I’ve read in the press about the ways that Wayne La Pierre was enriched by his decades-long leadership of the NRA (leadership that I personally believe has contributed to hundreds of needless firearm deaths in the US). But I hope the jury will not be overly influenced by whether particular actions by the NRA board and its executives are legal and/or legitimate based on how “rarely” any particular expert has seen them or whether they are considered “best practices” in the sector. Nonprofit boards should be educated about best practices in the field, of course, and should consider them when making decisions about governance structure (how many directors to have on the board, for example), policies (whether the conflict of interest policy should ever permit retroactive ratification of a potential conflict), and particular travel policies (under what circumstances private jet travel by executives could be justified). But neither New York law nor the law of any other state requires that boards adopt best practices for the field. There is no per se rule in any state (that I’m aware of) that boards never exceed 30 members, that boards may not review and approve past actions that failed to go through the conflict-of-interest process prior to occurring, or that the organization never fly its executives by private jet.

Like nonprofit boards, juries should also be educated about regular and customary practices, and it’s a good thing that the judge permitted Mr. Tenenbaum to educate this jury about them. But ultimately the jury will have to consider the specific evidence about whether the NRA and its executives violated New York law. And while it will not surprise me at all if they conclude that it did in this case, it will not be because the NRA and its executives did things that are “very rare” in the sector. It will be because they violated the public trust.

Benjamin Leff

January 16, 2024 in In the News, State – Judicial | Permalink | Comments (0)

Wednesday, January 3, 2024

NRA, Wayne LaPierre go on Trial in New York Jan 8

The NRA, Wayne LaPierre and three other NRA leaders go on trial on Monday January 8 based on the lawsuit filed by New York State Attorney General Letitia James back in August 2020.

A New York state appeals court affirmed a decision by Justice Joel Cohen from June 2022 rejecting the NRA's effort to dismiss the suit on First Amendment retaliation and selective enforcement grounds.

Judge Cohen had previously dismissed the effort by James to dissolve the NRA in a March 2022 ruling.

From the New York Times:

"But now, Mr. LaPierre, 74, faces his gravest challenge, as a legal showdown with New York’s attorney general, Letitia James, goes to trial in a Manhattan courtroom. Ms. James, in a lawsuit filed amid an abrupt effort by the N.R.A. to clean up its practices, seeks to oust him from the group after reports of corruption and mismanagement.

Much has changed since Ms. James began investigating the N.R.A. four years ago. The organization, long a lobbying juggernaut, is a kind of ghost ship. After closing its media arm, NRATV, in 2019, it has largely lost its voice, and Mr. LaPierre rarely makes public pronouncements. Membership has plummeted to 4.2 million from nearly six million five years ago. Revenue is down 44 percent since 2016, according to its internal audits, and legal costs have soared to tens of millions a year.

When the N.R.A. filed for bankruptcy in Texas nearly three years ago, the step was part of a strategy to move to the state amid the New York investigation. But a Texas judge dismissed the case, saying the N.R.A. was using the filing “to address a regulatory enforcement problem, not a financial one.” Now, longtime insiders say, the organization may be reaching a point where a legitimate bankruptcy filing is necessary."

Philip Hackney

January 3, 2024 in In the News, State – Judicial | Permalink | Comments (0)

Tuesday, August 15, 2023

Barnes Foundation Back in Court

Last week, the Philadelphia Inquirer and New York Times (and then the Philadelphia Inquirer again) reported on the decision by a Pennsylvania court to permit the Barnes Foundation to make some modest changes in how they display their art: specifically permitting temporary loans of art to other institutions or temporary displays of art in other locations in the museum.

Anyone who has followed the Barnes Foundation case(s) over the years knows that Albert Barnes amassed a truly incredible collection of art during his lifetime, and left it to the Barnes Foundation with unusually precise instructions on how it should be displayed. Over the years the trustees of the Barnes Foundation have returned to court over and over to try to alter those precise instructions, successfully winning the right to move the paintings from their original location in Merion, Pennsylvania, into Philadelphia, among other limited changes. The museum in Philadelphia is truly one of my favorite art museums in the world, and (despite really liking art museums) I was always too lazy to visit the museum in Merion before the courts permitted the Foundation to move the collection. So, I’m a direct beneficiary of the court’s permissiveness. On the other hand, this case is often used in Nonprofit Law classes (including mine) to illustrate the potential for conflict between philanthropists and the charitable institutions they create or fund, especially after their deaths. Barnes illustrates this conflict so well because he was so clearly mistrustful of the art establishment in Philadelphia, and worked so hard to direct his philanthropic vision after his death. So, even the most modest and reasonable alterations to the rules that bind the Foundation are viewed by some as a betrayal of Barnes and his legacy. I’m sympathetic to that instinct. If you want to get yourself worked up on Barnes’s behalf, I recommend the movie Art of the Steal (2009), which can be streamed from Amazon for a fee.

I’m also sympathetic to how difficult it is for a court to balance the competing interests in cases like these. Yesterday, I wrote about director standing, and my co-blogger Darryll Jones pointed out in a comment how annoying (and expensive!) it can be for a charity when a single person brings vexatious litigation. In the Barnes case, the Foundation brought an action to deviate from the terms of the trust indenture and the Pennsylvania Attorney General filed a “no objection letter,” leaving the judge with no party genuinely taking a position adverse to the Foundation. The judge did conduct a “site visit,” and probably did not really need an adverse party to make the case against deviation, but the fact that nonprofit standing is generally so limited does reduce the likelihood that the interests of a deceased donor will be fully represented. Again, I think that’s probably on balance a good thing, but it’s a hard balance to get perfect.

Benjamin M. Leff

August 15, 2023 in Film, In the News, State – Judicial | Permalink | Comments (1)

Monday, August 14, 2023

More Thoughts About Director Standing in Turner v. Victoria

A couple of Fridays ago, fellow Nonprofit Law blogger Darryll Jones wrote about the California Supreme Court’s recent decision in Turner v. Victoria. The holding is clear, and for anyone who has thought about these matters, it shouldn’t have been controversial. California state law gives directors of a nonprofit corporation standing to sue the other directors to enforce their fiduciary duties. As Professor Jones noted, Director Debra Turner sued the other directors, arguing that they breached various duties when they agreed to pay $15 million of assets destined to the Foundation to settle a dispute with a spurned heir. All the directors of the Foundation re-elected themselves to the board in the meeting following the lawsuit, but did not elect Turner, thereby removing her from the board. They then moved to dismiss the lawsuit on the grounds that Turner, who was no longer a director, ceased to have standing to pursue the lawsuit. Turner lost at the trial court and appellate court level. The California Supreme Court reversed, holding that the language of the nonprofit standing statute does not seem to require a “continuous directorship requirement.” More importantly, it held that denying standing to a removed director would defeat the purpose of the standing statute, since it would “permit gamesmanship by directors accused of wrongdoing [since] [d]irectors who are sued would be able to terminate the litigation by removing the plaintiffs from office[.]” 

My initial response to the holding was “duh.” Of course it doesn’t make sense to permit the kind of gamesmanship described so well by the court. So, why did the litigation get all the way to the California Supreme Court before this reading of the statute prevailed?  One possibility is that the Supreme Court’s understanding of the law benefited from an exceptionally clear and persuasive amicus filed by Nonprofit Law Professors Jill Horwitz (who is also the Reporter on the recent ALI Restatement on Charitable Nonprofit Organizations) and Nancy McLaughlin (who is an Associate Reporter). Their brief points out that there was significant discussion at the ALI advisers’ meeting about the issue of director standing. Because of the concern that whistle-blowing directors would likely lose their position on the board, the Restatement permits standing by former directors, if they lost their position because of their attempt to address the alleged harm. California law does not go that far, according to Turner v. Victoria. It just holds that once a director brings a lawsuit against the organization, the director may continue to pursue the lawsuit even if they are removed from the board. Therefore, California law creates a sort of race to courthouse, since directors have standing while they are still directors, but lose it as soon as they are removed from office.  If they can file their lawsuit before the board removes them, the lawsuit can proceed.

Of course, if an organization wants to prevent its directors from having standing to bring a derivative action on behalf of the organization, it can always incorporate in a state with less permissive standing rules. Apparently, there aren’t many states that don’t permit director standing, but (according to a recent symposium piece by our own Lloyd Mayer) Indiana is one of them. Honestly, if you’re interested in nonprofit standing, I highly recommend this recent piece by Professor Mayer.

Benjamin M. Leff

August 14, 2023 in Current Affairs, In the News, State – Judicial | Permalink | Comments (3)

Wednesday, August 2, 2023

State Appellate Court Reinstates in Part Methodist Conference's Claims Against SMU

Logobluetype2xOne of the consequences of theological divisions within denominations over hot button issues such as same sex marriage, female pastors, and other doctrinal disputes is an increasing body of case law relating to control of church property and institutions. Cases involving Episcopal churches have been particularly prominent, as noted by the Pew Research Center more than 10 years ago and illustrated by a 2021 set of certiorari denials by the U.S. Supreme Court as mentioned at the end of this SCOTUSblog post.

One of the ongoing such disputes is between the South Central Jurisdiction Conference of the United Methodist Church and Southern Methodist University (SMU). SMU's Board of Trustees voted 34-1 in 2019 to remove all references to the Conference from its Articles of Incorporation, including removing the Conference's right of approval over amendments to SMU's articles of incorporation and its authority to elect members of the Board. The Conference promptly filed a lawsuit in Texas state court challenging the amendments, but SMU prevailed at the trial court level against all of the Conference's claims through a combination of dismissals and summary judgment.

Now the Court of Appeals of Texas, Fifth District has weighed in, reinstating many of the the Conference's claims and directing that they be tried. Here is the court's conclusion:

We conclude that the Conference, as SMU's controlling parental entity, had standing to challenge the 2019 Amendments under the 1996 Articles, which are lawful provisions pursuant to [Texas Business Organizations Code (TBOC)] § 22.207. We further conclude the trial court erred in granting summary judgment on the Conference's TBOC § 4.007 claim [relating to allegedly filing a materially false certificate of amendment] and in dismissing the Conference's claims for breach of contract and declaratory-judgment claims (a), (b), (c), and (f).

We partially sustain the Conference's first and third issues and conclude the trial court erred in dismissing the Conference's claim for breach of contract and for declaratory judgment asserted in paragraph 64, subparagraphs (a), (b), (c), and (f) of the Conference's second amended petition. We also sustain the Conference's sixth issue and conclude the trial court erred in granting summary judgment against the Conference on its claim under § 4.007 of the TBOC. In all other respects, we affirm the trial court's judgment.

We remand this cause to the trial court for further proceedings consistent with this opinion.

It is worth noting that the appellate court found the dispute did not turn on a dispute over church doctrine, but instead over the proper application of relevant corporate documents, and so was proper for the court to resolve.

Lloyd Mayer

August 2, 2023 in Religion, State – Judicial | Permalink | Comments (0)

Friday, May 26, 2023

Former Governor Sues Middlebury College Over Removal of Donor's Name

Download (6)In one of the latest disputes over attempts to remove the names of past donors, WCAX reports that former Vermont Governor Jim Douglas is suing Middlebury College for the removal of a donor's family name from the school's chapel. The donor, former Governor John Mead, allegedly gave the funds for the chapel in 1914 on the condition that it bear his family's name. But in 2021 the school removed the name because of Governor Mead's "role in advancing eugenics policy." Governor Douglas filed the lawsuit on behalf of the Mead family, seeking to have the name restored and compensation for the litigation costs.

Additional coverage: AP NewsWall Street Journal (subscription requried).

Lloyd Mayer

May 26, 2023 in In the News, State – Judicial | Permalink | Comments (0)

Friday, April 7, 2023

Interesting Cy Pres Case Seeking University Scholarship Modification

GeorgianCourtU_fullcrestThe Superior Court of New Jersey, Chancery Division, recently issued an unpublished opinion (In the Matter of the Eleanor M. Weisbrod Endowed Scholarship) remanding a cy pres case for further consideration by the New Jersey Chancery Court. The grounds for the remand are relatively pedestrian - the initial judge considered and relied information outside the record. But the case is unusual in that the judge rejected two of the three requested modifications even though the state Attorney General did not object to Georgian Court University (GCU)'s request, and it is not clear that on remand (to a different judge) that the modifications will be permitted.

At issue is a scholarship that as of June 2020 had an endowment of $4.1 million and over the previous ten years had been unable to award $1.3 million in available funds because of the restrictions from the original Gift Agreement and a related Final Trust Agreement. The restrictions GCU sought to remove were that the recipients be limited to Catholic, full-time resident students majoring in mathematics. GCU asked instead that the scholarship be available to students of all religious faiths, commuting students as well as resident students, and students pursuing any math-based or science-based majors. (GCU did not seek to remove or modify restrictions limiting recipients to women with financial need and at least a 3.0 GPA.) The inability to award all of the available funds arose from the fact that the changing demographics and major choices of GCU's student body meant relatively few students satisfied the original criteria. GCU also agreed to a condition imposed by the Attorney General on not objecting to the modifications, which is that the modified criteria only be used in any year where applying the original criteria would result in all of the available funds not being awarded.

The relevant New Jersey statutes (N.J.S.A. 3B:31-29(a) and N.J.S.A. 15:18-30(c)) provide in relevant part that a modification of such restrictions is permissible only if the restriction "becomes unlawful, impracticable, impossible to achieve, or wasteful." If that is the case, then the first statue (applicable to charitable trusts) provides that "the court may modify or terminate the trust by directing that the trust property be applied or distributed, in whole or in part, in a manner consistent with the settlor's charitable purpose." Similarly, the second statue (applicable to gift instruments) provides that the court "may modify the purpose of the fund or the restriction on the use of the fund in a manner consistent with the charitable purpose of the institution or charitable intent of the donor."

It will be interesting to see what happens on remand, including given that the information from outside of the record improperly relied on by the first judge to consider this matter apparently related to the settler/donor's intent.

Lloyd Mayer

April 7, 2023 in State – Judicial | Permalink | Comments (0)

Thursday, April 6, 2023

For-Profit Thrift Store Secures First Amendment Dismissal of Deceptive Marketing Claims Relating to Nonprofits

DownloadThe Supreme Court of Washington unanimously agreed with TVI Inc., doing business as Value Village, that claims brought by the state's attorney general for alleged deceptive advertising and marketing had to be dismissed because they infringed on the organization's First Amendment right to solicit contributions on behalf of nonprofit organizations.

According to the opinion, TVI operates about 20 for-profit thrift stores in Washington. It contracts with nonprofit organizations that either independently collect donations that they give to TVI or allow TVI to collect donations on their behalf at TVI's locations. What is in it for both parties? As the court summarized:

By working with charity partners, TVI obtains inventory at a lower price than it would pay a for-profit supplier. The charity partners, in turn, receive a predictable source of unrestricted funding, as well as publicity from TVI's marketing.

The attorney general raised concerns about "deceptive net impressions" in violation of the state's Consumer Protection Act. By the time the case reached the state supreme court, only three such impressions were still at issue: "(1) 'that [TVI] is itself a nonprofit or charitable organization,' (2) 'that in-store purchases . . . provide a financial benefit to [TVI's] charity partners,' and (3) 'that donations accepted at [TVI's] retail stores in the Spokane, Washington, market benefitted The Rypien Foundation' from January 2014 to February 2015." 

Applying the U.S. Supreme Court's charitable solicitation cases and other First Amendment precedents, the Washington Supreme Court held that TVI's marketing had full First Amendment protection as it inextricably intertwined charitable solicitations and commercial speech. Given the state's claims imposed content-based restrictions, the court further held the claims must survive exacting scrutiny. The court concluded they did not because "[t]wo of the State's claims are not based on properly tailored allegations, and the third is not supported by exacting proof."

Coverage: Seattle Times.

Lloyd Mayer

April 6, 2023 in In the News, State – Judicial | Permalink | Comments (0)

Tuesday, March 7, 2023

Stanford's Suit Re Property Tax Exemption Keeps Palo Alto Rich, White and Very Exclusive

That's not how this works | Know Your Meme

Property tax exemption should help not hurt the poor.

Stanford University owns more charitably exempt property, by value, than any other owner in California. 

Stanford University recently surpassed the Getty Museum in Los Angeles as the largest recipient of property tax exemptions in California. The university received more than $16.8 billion in tax exemptions last year for its various campus properties, nearly half of the $35.2 billion of property tax exemptions in the county, according to the Santa Clara County Assessor.  

William H. Neukom Building, Stanford Law School - Project - Architype

Stanford Law School

Dude, have you ever tried to rent a place in Palo Alto?  Thirty five hundred bucks for 800 square feet, probably above a well-patronized restaurant too, with plenty of cats and dogs hissing and howling all night long.  And racoons dumpster diving. Property tax exemption, if consumed in mass quantities, excludes the poor by driving up prices scarcely affordable to even middle income earners.  Good grief.  Palo Alto's population is 53% White, 34% Asian, and 2% black; the median family income in Palo Alto is very near $200,000.  

Still, Stanford's suit for a refund for taxes paid on faculty residences should probably win.  Stanford grants long term leases to faculty in a 450 acre subdivision "tucked away" on campus.  But it retains certain rights, primarily to restrict transfer of the leases to people who don't teach at Stanford.  Stanford very sensibly wants the value of the retained interest to be exempt from taxation, arguing that the retained interest is necessary and conducive to its charitable mission because it ensures faculty can obtain affordable housing in Palo Alto.  Without Stanford and taxpayer subsidized housing, the argument goes, faculty would not be able to work at Stanford. I just think the argument inadvertently admits a whole lot, implicitly if not explicitly.  

Stanford's suit doesn't explicitly admit that "faculty will not be able to afford housing because our tax exemption helps keep prices higher than almost every other place on earth."   I mean is it just me or do you see the irony too!  Faculty cannot afford housing, as in other college towns, because the Stanford has removed so many properties from the tax rolls that unaffiliated homeowners living, and businesses operating in the whole county must shoulder a huge tax burden -- nearly $17 billion annually - and that burden is invariably reflected in the cost of housing, goods, and services in Palo Alto and surrounding communities.

So Stanford is suing under a law that increases the cost of housing because faculty cannot afford housing in an unnaturally inflationary market that Stanford's tax exemption helps keep inflationary!  Well, thank you sir may I have another?  The law seems on their side but this should not be how any of this works!

darryll jones

March 7, 2023 in State – Judicial | Permalink | Comments (0)

Thursday, March 2, 2023

Steve Bannon's Zombie Charity

Zombie Charity ? Welcome To Zombieville ? ALT INDIE CD RARE | eBay

Put a Stake in “Zombie Charity.” Philanthropy Is for the Living.

"The human beings involved in We Build the Wall have all resigned."  That is what Steve Bannon and We Build The Wall's attorney said about the 501(c)(4) Bannon allegedly used to defraud donors, as he explained why he [the attorney] sought leave to withdraw.  The media is having fun declaring "We Build the Wall is officially a zombie charity."   I am not sure the description is apt.  To be a zombie charity, the organization would have had to have been a real charity at some point.  Before being bit or infected by another zombie, I mean.  And only then morphing from a real charity to a shell of itself looking to bite other living charities.  I don't think We Build the Wall was ever a real charity, is all.  

You might recall that Bannon and his boys were indicted in federal court, but that indictment dissolved when Bannon received a last minute pardon from President Trump.  Turns out the President can't pardon someone for state crimes. Who knew!?   Here is a snippet from the now dismissed federal indictment:

  1. BRIAN KOLFAGE, STEPHEN BANNON, ANDREW BADOLATO, and TIMOTHY SHEA, the defendants, collectively received hundreds of thousands of dollars in donor funds from We Build the Wall, which they each used in a manner inconsistent with the organization's public representations. In particular, KOLFAGE covertly took more than $350,000 in funds that had been donated to We Build the Wall for his personal use, while BANNON, through a non-profit organization under his control ("Non-Profit-111),  received over $1,000,000 from We Build the Wall, which BANNON used to, among other things, secretly pay KOLFAGE and to cover hundreds of thousands of dollars in BANNON's personal expenses. To conceal the payments to KOLFAGE from We Build the Wall, KOLFAGE, BANNON, BADOLATO, and SHEA devised a scheme to route those payments from We Build the Wall to KOLFAGE indirectly through Non-Profit-1 and a shell company under SHEA's control, among other avenues. They did so by using fake invoices and sham "vendor11 arrangements, among other ways, to ensure, as KOLFAGE noted in a text message to BADOLATO, that his pay arrangement remained "confidential11 and kept on a "need to know11 basis.

The shenanigans only get better.  Read the indictment for more chuckles.  Meanwhile Bannon declared outside of a New York State Court yesterday -- where he is learning all about "separate sovereigns" -- that ain't no way in hell I am going to jail!  This, even as his co-defendants have pleaded guilty to charges the sentencing guidelines for which call for a 48 to 60 month "short course," as we used to call it back in my Army JAG days.  Those state charges, by the way, pretty much mirror the federal indictment, even labeling one nonprofit an "unindicted co-conspirator entity.  

One such intermediary was Unindicted Co-Conspirator Entity 1, which was a non-profit controlled by Bannon. WeBuildTheWall, Inc., Unindicted Co-Conspirator 1, Bannon, and others, in furtherance of the conspiracy, agreed to use Unindicted Co-Conspirator Entity 1 to accept money from WeBuildTheWall, Inc., and to use a portion of that money to pay Unindicted Co-Conspirator 1. On or about January 11, 2019, Bannon was informed in a text message from Unindicted Co-Conspirator 2 that Unindicted CoConspirator 1 would be stating publicly that he would not be taking a penny from the donations. Bannon responded “[Unindicted Co-Conspirator Entity 1] can pay him.” On or about January 15, 2019, Bannon wrote in a text message to Unindicted Co-Conspirator 2 that there would be “[n]o deals I don’t approve; and I pay [Unindicted Co-Conspirator 1] so what’s to worry.” On or about January 18, Bannon wrote an email to Unindicted Co-Conspirator 2 clarifying that “You want $100k to [Unindicted Co-Conspirator 1.]” Unindicted Co-Conspirator Entity 1 was not using its own money to pay Unindicted Co-Conspirator 1; instead, Unindicted Co-Conspirator Entity 1 paid Unindicted Co-Conspirator 1 using money that it received from WeBuildTheWall, Inc.

I hardly think there is a tax lesson in any of this boneheaderie, to be honest.  But its like a very bad train wreck, isn't it.  Just can't look away.


darryll jones

March 2, 2023 in State – Judicial | Permalink | Comments (0)

Tuesday, February 14, 2023

Four PA Hospitals Lose Property Tax Battle

Four formerly for-profit hospitals in Pennsylvania purchased in 2017 by an LLC recognized as a charitable organization by the IRS just lost appeals regarding whether they were exempt from property tax under Pennsylvania law.  

From the Bloomberg story:

"The “eye popping” compensation paid to executives at four hospitals owned by Tower Health LLC disqualifies the nonprofits from charitable tax-exempt status, a Pennsylvania appeals court ruled in four related cases. . . . 

The Pennsylvania Commonwealth Court ruled Friday that the hospitals failed to prove they’re entitled to the tax exemption. It reversed the ruling in favor of Pottstown Hospital, finding that Tower Health’s large executive salaries and 40% bonus incentives tied to the hospital’s financial performance show that the hospital had a private profit motive rather than a charitable purpose."

Pennsylvania requires charities to be "institutions of purely public charity" to qualify for exemption. The PA SCT in Hospital Utilization Project v. Commonwealth adopted what is known as the HUP test, which has 5 criteria:1. Advances a charitable purpose; 2. Donates or renders gratuitously a substantial portion of its services; 3. Benefits a substantial and indefinite class of persons who are legitimate subjects of charity; 4. Relieves the government of some of its burden, and 5. Operates entirely free from private profit motive.

The cases involved are:  Pottstown Sch. Dist. v. Montgomery Cty. Bd. of Assessment Appeals , Pa. Commw. Ct., No. 1217 C.D. 2021, 2/10/23 ; Phoenixville Hosp., LLC v. Chester Cty. Bd. of Assessment Appeals , Pa. Commw. Ct., No. 1281 C.D. 2021, unpublished 2/10/23 ; Brandywine Hosp., LLC v. Chester Cty. Bd. of Assessment Appeals , Pa. Commw. Ct., No. 1279 C.D. 2021, 2/10/23 ; and Jennersville Hosp., LLC v. Chester Cty. Bd. of Assessment Appeals , Pa. Commw. Ct., No. 1286 C.D. 2021, unpublished 2/10/23 .

Philip Hackney

February 14, 2023 in Current Affairs, State – Judicial | Permalink | Comments (0)

The Ghost of Bob Jones: Maine Invokes "Public Policy" To Deny Property Tax Exemption

Court House,Courthouse,Belfast,Waldo County,Maine,ME,1961,Entrance Front - Picture 1 of 1   

Waldo County Courthouse, Belfast Maine 1961


In Belfast last month, the Waldo County [Maine] Superior Court issued a split decision in Peach Ridge Sanctuary v. Town of Brooks.  The Court held that the Town of Brooks could not deny property tax exemption to an admittedly charitable organization because the Town disapproved of the organization's animal rescue philosophy and the manner that it legally operated its animal rescue center.  On the other hand, the Court held that the Town could deny tax exemption with respect to Peach Ridge Sanctuary's unused vacant land devoted to conservation.  The latter holding, surprisingly, relied on the "public policy" exception we all know about, but don't think will ever be applied again.  Without ever mentioning Bob Jones University, the Court considered whether a 501(c)(3)'s land held for conservation was entitled to property tax exemption: 

PRS's charitable activities of rescuing and sheltering abused or neglected animals occurs on the [first set of] lots it owns. The structures used for housing animals and staff housing are located on these lots, as are the fenced in pastures for livestock. Though not all these lots are developed, all are used to walk dogs or are necessary as buffers from other human activity. Any other use of this property in the years in question for wood harvesting or recreation by PRS staff was de minimis and did not interfere with PRS' major purpose.  PRS lessens the burden on state and local government by accepting and caring for abused and neglected animals that are rescued by government officials. There are few facilities in Maine licensed to take the types of livestock that are housed by PRS and there are no other facilities that have the space and resources to take the large number of animals that are housed by PRS. Due to the nature of the animals housed by PRS, and the trauma that many have experienced, a certain amount of land is needed as a buffer from other activities. 

The other lots owned by PRS, Map 7, Lot 85 and Map 7, Lot 50, were used during the years in question almost exclusively for land conservation and/ or as a private game preserve with no  meaningful public access allowed. The property is not held in trust and is not held with a conservation easement.    

Brooks sought to deny property tax exemption for the first lots because it thought the organization's methods could be achieved with less land, and apparently far less impact on the City budget:

The Town now argues that PRS's use of the property is not unmistakably charitable because of the way that PRS chooses to conduct its animal rescue operations.  Essentially, the Town concedes that animal rescue is a charitable use but argues that the way that PRS operates and the philosophy that PRS espouses make its actual operations not unmistakably charitable. The Town takes issue with PRS's policy of housing rescued animals for the rest of their natural lives and not making efforts to adopt out animals to suitable homes. The apparent significance of this argument is that animals could be rescued on a smaller property if PRS followed a different philosophy or operated differently.

PRS is a true believer organization, and once it rescues an abused or neglected animal, it seeks to provide the poor creature with peaceful sanctuary for the rest of the animal's life.  It lets the rescued animals room over a large piece of property.  The Town thought that the organization would not need so much land (and therefore would not cost the town so much lost tax revenue) if it rehabilitated animals and then sought to have them adopted.  Here is what the Court said about the Town's disapproval of these tree hugging animal lovers:

It is [not] the role of the taxing authority or a court to question the philosophical basis for the way the charitable entity conducts its operations or to determine if the operations could be conducted in a more efficient manner. Though one may reasonably disagree with the philosophy espoused by PRS, the record is clear that those involved in the organization have a good faith belief in that philosophy and that PRS's activities are conducted in a way that PRS believes is in the best interest of the animals. The fact that an organization may hold beliefs that are not held by the majority of the population does not mean that the organization's activities are not charitable and benevolent.

I swear this judge must have read Bob Jones, because Justice Powell said the same thing using many more words:

Even more troubling to me is the element of conformity that appears to inform the Court's analysis. The Court asserts that an exempt organization must "demonstrably serve and be in harmony with the public interest," must have a purpose that comports with "the common community conscience," and must not act in a manner "affirmatively at odds with [the] declared position of the whole Government." Taken together, these passages suggest that the primary function of a tax-exempt organization is to act on behalf of the Government in carrying out governmentally approved policies. In my opinion, such a view of §501(c)(3) ignores the important role played by tax exemptions in encouraging diverse, indeed often sharply conflicting, activities and viewpoints. As JUSTICE BRENNAN has observed, private, nonprofit groups receive tax exemptions because "each group contributes to the diversity of association, viewpoint, and enterprise essential to a vigorous, pluralistic society." Far from representing an effort to reinforce any perceived "common community conscience," the provision of tax exemptions to nonprofit groups is one indispensable means of limiting the influence of governmental orthodoxy on important areas of community life. 

Alas, the Court's holding that PRS's conservation land violated state public policy, suggests that maybe the Court didn't cite Bob Jones because the Court hasn't heard of it.  Here's is how the Court justified denial of property tax exemption for the second lot, used for conservation:

Land conservation may be a permissible charitable purpose, so long as it furthers the conservation policy of the State of Maine. As PRS correctly notes, "the Legislature has enunciated a strong public policy in favor of the protection and conservation of the natural resources and scenic beauty of Maine." Francis Small Heritage Trust, 2014 ME 102, [ 21, 98 A.3d 1012. This public policy is not simply an incidental by-product of a public policy in favor of ensuring access to recreational activities, as the Legislature has specified the preservation of wildlife habitat as a specific and distinct goal from recreational opportunities associated with that habitat. See 30-A M.R.S. § 4312(3)(F) (identifying the protection of "critical natural resources, including without limitation, wetlands, wildlife and fisheries habitat, sand dunes, shorelands, scenic vistas and unique natural areas" as a state goal). The Legislature recognizes conservation organizations as an important part of achieving this goal. See 5 M.R.S. § 6200. However, as Holbrook shows, this does not mean that private organizations may claim that they are providing a public benefit by pursuing any project that they label as conservation efforts. To claim a property tax exemption, PRS must show that they are furthering the state's conservation goals.

. . .   

An organization that operates a closed wildlife preserve, the purpose of which is only to benefit wild animals without any benefit to the public, is contrary to the public policy favoring state-regulated game areas . . . Importantly, the regional game biologist of the Fish and Game Department inspected the wildlife sanctuary under scrutiny and concluded that the way the organization was maintaining the preserve was not consistent with the state's preferred way of managing wildlife populations. Accordingly, the game 7 preserve was deemed to be no benefit to public, as it was contrary to the state's conservation policy. 

Another curiosity, by the way, is that the Court distinguished this case from conservation easements because the land was not forever dedicated to conservation.  Without such a dedication, the Court ruled, the charity was no different than an ordinary owner of vacant land.  We wouldn't give that owner property tax exemption!  Well, first, PRS is required to devote its assets, forever and ever, to charitable use; its whole existence must be charitable, in perpetuity.  Anyway, why would a charity grant a conservation easement in land it already holds for charity?  I guess a downtown hospital might grant an easement to another organization that wants to plant an urban garden on the hospital's property.  But either way, the property is held in charitable trust forever.  Second, if PRS decided to sell the land to a for-profit business -- a possibility the Court thought sufficient to deny property tax exemption for the preserved land in the absence of forever dedication -- the property tax exemption would lapse.  Property tax exemption is presumably a year to year determination.  The land's appreciation would still be owned by the charity or its charitable successors because PRS may only sell for FMV, and the proceeds go to the Charity.  It must be real cold up there in Maine.


darryll jones

February 14, 2023 in State – Judicial | Permalink | Comments (0)

Thursday, January 26, 2023

Minnesota Appeals Court Upholds Removal of Otto Bremer Trust Trustee

Obt-logo-lt-bgIn this space we have previously reported on first the Minnesota Attorney General seeking to replace the trustees of the Otto Bremer Trust, and then on the decision by a Minnesota trial court to remove one trustee but not two others. That decision led to an appeal by the removed trustee, and last week the Minnesota Court of Appeals upheld the removal.

Applying an abuse of discretion standard, the appellate court found that the district court had properly removed the trustee for a "serious breach of trust" arising from self-dealing in the form of misuse of the Trust's assets, violations of his duty of loyalty for allowing his personal interests to significantly and negatively impact his decisions and behavior as a trustee in the form of inappropriate and abusive behavior, and a violation of his duty of information by refusing to disclose his designated successor's identity to the Attorney General until forced to do so while testifying at trial. The appellate court further found that the district also properly removed the trustee because it was in the best interest of the Trust and its beneficiaries given these continual breaches of his duties that rendered the removed trustee unfit to administer the Trust.

Media Coverage: Minnesota Lawyer; Pioneer Press; Star Tribune

January 26, 2023 in In the News, State – Judicial | Permalink | Comments (0)

Tuesday, November 22, 2022

Politics & Money: Hundreds of Millions from Philanthropists or to DAF Sponsor; Donor Lawsuit (Mostly) Fails

DownloadA previous post reported on billions of dollars flowing to section 501(c)(4) organizations with at least partially political agendas, and related critical commentary. The recent midterm elections have now sparked two stories about philanthropists, nonprofits, hundreds of millions of dollars, and politics. We also have the latest court decision in a frustrated donor lawsuit arising out of the 2020 election.

First, the Chronicle of Philanthropy reported in "A Half-Billion Dollars of Influence: Big Philanthropists and the MidtermElections" that 32 of the 100 biggest political donors are also major philanthropists by one measure or another, and that collectively these philanthropists made political contributions in the 2021-22 election cycle of at least half a billion dollars based on federal campaign finance reports. As the article notes, this almost certainly understates their political spending since it does not capture contributions to organizations not subject to public disclosure of donors or spending that is reported under state campaign finance laws. George Soros leads the pack with at least $125 million contributed to a super PAC, but 14 others have given at least $10 million.

Second,  Politico reported in "Two anonymous $425 million donations give dark money conservative group a massive haul" that the section 501(c)(3) DonorsTrust received two enormous gifts, sources unknown. Since DonorsTrust is a sponsoring organization for donor-advised funds, presumably the donors can advise as to the ultimate recipients of their largesse even though ultimate control rests with the 501(c)(3). One of the 2021 donations (for $427 million) was apparently in cash, while the other (for $426 million) was in the form of "closely held common stock in a C-corporation."

Third and finally, the fate of a donor's lawsuit shows the risks of large donations since they do not always obtain the desired results and the donor may not have legal recourse. In Eshelman v. True the Vote, a Texas appellate court affirmed the dismissal of a multi-million dollar donor's lawsuit agains the named nonprofit and its leaders on standing grounds. It did so based on the failure of the plaintiff to provide evidence that the gift was conditional on certain uses of the gifted funds (to challenge alleged voter fraud in the 2020 elections), which failure meant that the plaintiff lacked an injury sufficient to grant him standing. (The court reversed the dismissal of the lawsuit as against the nonprofit's law firm and lawyer because it found they had not raised the evidentiary issue but relied solely on alleged deficiencies in the plaintiff's complaint, which the court found did not exist; presumably those defendants will raise the evidentiary issue on remand.) The lower court's dismissal was without prejudice, however, so the donor may still attempt to correct the standing issue so as to pursue his lawsuit against the nonprofit and its leaders.

Lloyd Mayer

November 22, 2022 in In the News, State – Judicial | Permalink | Comments (0)

Monday, November 21, 2022

Steve Bannon Associate Convicted For We Build The Wall Fraud

WBTWx_8235eThe N.Y. Times reports that a federal jury has convicted Timothy Shea, who was charged along with former advisor to President Trump Stephen K. Bannon (since pardoned) and two others for federal crimes relating to raising funds for the section 501(c)(4) We Build the Wall, Inc. Mr. Bannon currently faces state charges, not forestalled by the pardon, relating to the same facts. The other two defendants pled guilty to federal crimes.

According to the original federal indictment, the crimes stemmed from the defendants' promises to donors not to use any funds raised for salary or compensation. Instead, they promised that all of the millions of dollars raised would be used for private efforts to build a border wall. These promises were made as part of an effort to convince donors to an initial crowdfunding effort to permit their donations to be redirected to the new nonprofit, once it became clear the crowdfunding campaign was not legally allowed to donate the funds raised to the U.S. government for construction of a border wall. But the defendants allegedly instead directed hundreds of thousands of dollars in donor funds toward compensation of themselves and personal expenses. 

Lloyd Mayer

November 21, 2022 in Federal – Judicial, In the News, State – Judicial | Permalink | Comments (0)

Wednesday, October 12, 2022

F̶a̶m̶i̶l̶y̶ Radio Drama Network

Service-pnp-anrc-15200-15260vLast time I blogged here, I spent several days talking about the family drama surrounding the Newman's Own Foundation. (Here, here, here, and here to be precise.)

Yesterday, the New York Times dropped a story about another family nonprofit drama, this one concerning the Himan Brown Charitable Trust and the aptly named Radio Drama Network (which is also a tax-exempt organization).

Himan Brown created, produced, wrote, and directed radio dramas, starting in roughly the golden age of radio dramas and continuing throughout his long life. While he passed away in 2010 (just shy of his 100th birthday), he, like many, established a legacy: a charitable foundation. That foundation, organized as a trust, provides funds to charitable organizations that further Mr. Brown's legacy.

Continue reading

October 12, 2022 in Current Affairs, State – Judicial | Permalink | Comments (1)

Friday, August 19, 2022

"Casa Ruby bank accounts frozen as D.C. investigates nonprofit's collapse"

Logo-completo_NEW09The Washington Post reports that a District Columbia court has granted the request of the D.C. Attorney General to temporarily freeze the bank accounts of nonprofit Casa Ruby, an LGBTQ rights and support organization.  A pop-up announcement on the group's webpage says that the group is still open and all of its services are available. But the August 3rd article states that the group shut down most of its operations in July.

The attorney general's request came after an earlier Washington Post article reporting that the group's last board member had resigned in April and numerous bills, including wages owed to several employees, had not been paid. The group's founder and executive director resigned last fall, but according to these news reports maintained control over the group's funds and now is in her home country of El Salvador. The resignation followed shortly after a decision by the D.C. Department of Human Services not to renew an $850,000 grant to the nonprofit, which presenting a significant portion of the group's multi-million dollar a year budget. 

Lloyd Mayer 

August 19, 2022 in In the News, State – Executive, State – Judicial | Permalink | Comments (0)