I I I A: IN THE CIRCUIT COURT FOR THE CITY OF ALEXANDRIA NATIONAL RIFLE ASSOCIATION OF AMERICA, Plaintiff, v. Civil CaseNo. 02-19 00/75 7 I ACKERMAN MCQUEEN, IN C., and - MERCURY GROUP, INC. E3 1" Defendants. :1 ff" OMPLAIN COMES NOW the Plaintiff, the National Ri?e Association of America (the and ?les this Complaint against Defendants Ackerman McQueen, Inc. (?Ackerman?) and Mercury Group, Inc. (?Mercury? and, collectively with Ackerman, based on personal information as to its own actions and on information and belief as to all other matters, as follows: PRELIMINARY STATEMENT The NRA seeks speci?c performance of an unambiguous books-and-records inspection right contained in a longstanding contract with one of its most important third-party vendors: the advertising agency Ackerman McQueen. Page 1 The NRA and Ackerman have collaborated fruitfully for decades. Together, the parties crafted iconic, impact?il Second Amendment messaging that featured Charlton Heston (?from my cold, dead hands?) and other important constitutional rights advocates. The impasse between them which gives rise to this lawsuit is simple, and baf?ing: the NRA requested access to material, readily available records that Ackerman and Mercury are contractually obligated to provide. Defendants re?ised to provide them. For the better part of a year, the NRA has negotiated with and appeased its demands in an effort to coax compliance with the parties? contract. However, the patience has run out. Confronting escalating concerns about AMc?s activities and accounting practices, the NRA seeks access to basic business records?including budgets purportedly approved by the NRA, copies of material contracts for which the NRA is purportedly liable, and readily available performance data?all to inform the judgment of its ?duciaries. The NRA has an undisputed contractual right to examine these documents. Indeed, its contract with entitles the NRA, upon ?reasonable notice,? to examine any and all ??les, books, and records? of both Ackerman and Mercury which pertain to matters covered by the parties? contract. Since July 2018, the NRA has provided more?than-reasonable notice of its desire to View key items. In some instances, has affected partial compliance with the requests?in other cases, it has rebuffed or baldly ignored the letters. This situation cannot continue. There is no adequate remedy at law which would compensate the NRA for the risks and burdens posed by AMc?s concealment of material business records. Fortunately, there is a straightforward remedy at equity: speci?c performance by Ackerman and Mercury of their obligation to furnish documents. This is the relief the NRA seeks. Page 2 PARTIES 1. Plaintiff NRA is a not-for-profit corporation organized under the laws of the State of New York with its principal place of business located in Fairfax, Virginia. The NRA is America?s leading provider of gun-safety and marksmanship education for civilians and law enforcement. It is also the foremost defender of the Second Amendment of the United States Constitution. A 501(c)(4) tax-exempt organization, the NRA has over ?ve million members? and its programs reach many millions more. 2. Defendant Ackerman is a nonresident for-pro?t business corporation organized under the laws of the State of Oklahoma with its principal place of business in Oklahoma City, Oklahoma. Ackerman is an advertising and public relations agency that has counted the NRA among its largest clients for more than thirty years. 3. Defendant Mercury Group, Inc. (?Mercury? and, collectively with Ackerman pursuant to the Services Agreement, is a nonresident for-pro?t business corporation organized under the laws of the State of Oklahoma with its principal place of business in Alexandria, Virginia. Mercury is a wholly owned subsidiary of Ackerman which specializes in public-communications strategy, including on behalf of advocacy groups such as the NRA. At all relevant times, Ackerman has acted on behalf of both itself and Mercury pursuant to the Services Agreement (de?ned below) between Ackerman and the NRA. RELEVANT NON PARTIES 4. The NRA Foundation, Inc. (the Foundation?) is a 501(c)(3) tax-exempt organization that raises tax-deductible contributions in support of a wide range of ?rearm-related public interest activities of the NRA and other organizations that defend and foster the Second Page 3 Amendment rights of law-abiding Americans. Over the course of its contractual relationship with the NRA, Ackerman has occasionally performed services for the bene?t of the NRA Foundation and issued corresponding invoices to the NRA Foundation. Because of its 501(c)(3) designation, the NRA Foundation is permitted to engage in, and fund, a narrower range of activities and communications than the NRA. JURISDICTION AND VENUE 5. The Court has jurisdiction over the claims in this matter as the claims are subject to a court of general jurisdiction. 6. This Court has jurisdiction over Ackerman and Mercury pursuant to Virginia Code 801?328. 1 because Ackerman and Mercury have both transacted business in the Commonwealth of Virginia and contracted to supply services in the Commonwealth of Virginia. 7. Venue is proper in this Court pursuant to Virginia Code 8.01-262 because Mercury?s principle place of business is located in Alexandria, there exists a practical nexus to this forum, and/or a part of this cause of action arose in Alexandria. 8. Additionally, jurisdiction and venue are proper in this Court because Ackerman and Mercury have both contractually consented with the NRA to exclusive jurisdiction and venue of courts sitting within Virginia and Waived any objection to venue in Alexandria, Virginia regarding the matters presented herein. FACTUAL BACKGROUND A. For More Than Thirty Years. the NRA Has Relied on AMC to Provide Public-Affairs Advice and Services Under Carefullv Negotiated Contracts. 9. For decades, and the NRA have collaborated closely regarding public affairs and messaging. Over that time, the NRA vested extensive trust and con?dence in relying Page 4 upon the agency to perform work including: public relations and strategic marketing; planning and placement of media; management of digital media and websites; and, the operation of NRATV, a digital-media platform managed by but frequently perceived by the public as the ?voice? of the NRA.1 10. Since at least 1999, AMc?s work on behalf of the NRA has been governed by successive incarnations of a Services Agreement containing detailed speci?cations for how various types of work performed by for the NRA should be budgeted and billed. The Services Agreement between the NRA and dated May 1, 1999 (the ?Previous Services Agreement?) as well as the current, operative Services Agreement dated April 30, 2017 (as amended May 6, 2018, the ?Services Agreement?) provide that certain categories of services, such as Owned Media and Internet Services, are compensated with an agreed annual fee, while others are required to be invoiced on an ad hoc basis based on estimates ?irnished by and approved by the NRA. 11. Both the Previous Services Agreement and the current Services Agreement have obligated to adjust its pricing based on the ?fair market value? or ?fair market price? of the services performed. For example, the Previous Services Agreement contained the straightforward assurance by ?we will charge you a fair market price for the work performed.? Similarly, the Previous Services Agreement and the current Services Agreement require to provide cost quotations for art concepts, design layouts, and similar items ?based on the fair market price of the work as determined by 12. Anticipating that would, from time to time, incur out-of?pocket expenses in the course of its work, but mind?il of the mandate to steward its funds in the interest of its 1 See, e. g. Jeremy W. Peters Katie Benner, Where The NRA. Speaks First and Loudest, THE NEW YORK TIMES, February 21, 2018, Page 5 public mission, the parties bargained for an expense?reimbursement protocol whereby travel and related expenses incurred by could be paid by the NRA?but only upon prior written approval from the NRA in accordance with the expense-reimbursement procedures. 13. The collaboration with has generated important, iconic Second Amendment advocacy. In recent years, the trust and con?dence it placed in led the NRA to invest in an expanding suite of services which were?according to AMc?s assurances?fairly priced. For example, the NRA agreed to experiment with an ?owned media company,? NRATV, a concept fervently pitched by By 2017, the aggregate payments to Ackerman and Mercury totaled nearly $40 million annually. 14. As the scope of AMc?s work for the NRA grew, represented to the NRA that it was required to hire a substantial number of personnel, as well as incur obligations to third-party contractors, for the exclusive purpose of servicing the account. Accordingly, when the parties renegotiated a new services agreement in 2017, insisted upon?and the NRA agreed to provide?certain ?nancial assurances in the event that the NRA terminated the Services Agreement. Among other things, upon the termination, the Services Agreement requires that the NRA compensate for outstanding liabilities to both third-party contractors and employees. Speci?cally, the NRA must: pay the balance of any compensation owed under ?non-cancellable contracts entered into between and third parties for the bene?t of the (as de?ned under the Services Agreement, the ?AMc-Third Party NRA Contracts?); and (ii) pay a termination fee to cover severance payments owed to employees who are ?dedicat[ed] . to provide services [to the and need to be laid off if the Services Agreement is terminated (the ?NRA?Dedicated Personnel?). Page 6 B. The NRA Bargained for Transparent Insight Into AMe?s Books and Records. 15. The NRA bargained for transparency into AMc?s ?les, books and records to ensure that the NRA, a not-for-pro?t, could appropriately monitor the use of its ?inds. Both the Previous Services Agreement and the current Services Agreement incorporate records-examination clauses that require to open its ?les for the inspection upon reasonable notice. The ?ill text of the Records-Examination Clause in the Services Agreement appears below: Services Agreement 1 - Bene?t-1130 2017(asamendedMay6 281.3) 1 I EXAMINATION OF RECORDS During the term of this Services Agreement, authorizes NRA, upon reasonable notice, to examine and Mercury 3 ?les, books and records, with respect to matters covered under this Services Agreement 16. For years, the NRA conducted annual audits of certain ?les pursuant to the Records-Examination Clause. Frequently, the audited records consisted of ?samples? assembled in advance by During 2018, the NRA sought to expand its insight into AMc?s activities and its spending?including ?ill access to certain categories of records rather than sample subsets gathered by Surprisingly and unfortunately, that effort ignited the parties? current dispute. C. In Resnogse to Concerns From NRA Employees and Stakeholders, the NRA Attempts to Exercise [ts Contractual Record-Examination Right?But Is Rebu?'ed. 17. In late 2016, the State of New York amended its Not-for?Pro?t Corporation Law (the to clarify requirements for director independence and the rati?cation of related- party contracts, among other items. After updating its internal policies and controls to comply with the New York amendments, the NRA decided to strengthen its procedures for documentation and veri?cation of compliance with vendor contracts. Beginning in August 2018, the NRA sent letters to hundreds of vendors?including AMc?that set forth updated invoice-support Page 7 requirements and provided detailed guidance regarding, for example, expense reimbursement procedures. 18. During the course of this process, the NRA developed concerns that AMc?s expenses and activities required closer oversight. Speci?c concerns that the NRA sought to investigate included: 0 ?Out of pocket? expenses that lacked meaningful documentation of NRA approvals, receipts, or other support, despite the requirements set forth in the Services Agreement; - Lack of transparency regarding AMc?s annual budgets under the Services Agreement, as well as its adherence to those budgets; - Lack of transparency regarding ?fair market value? determinations; - Concerns that was invoicing the NRA for the entire salaries attributable to NRA-Dedicated Personnel, despite certain NRA-Dedicated Personnel allocating substantial time to non-NRA clients; 0 Re?Jsal to provide certain requested data ?in writing? (such as unique visitors, viewership numbers, rates, or related performance metrics) that enable the NRA analyze the return on its investment in NRATV.2 19. During early? and mid?2018, the NRA sought information from pursuant to the Records-Examination Clause on a common-interest basis to advance the parties? mutual interests in connection with an ongoing lawsuit. However, after the NRA began to request access to records that would shed light on the above topics, AMc?s responses became evasive and hostile. In fact, in September 2018, for the ?rst time in the parties? decades-long course of dealing, demanded that its outside counsel supervise any document review conducted under the Records- Examination Clause, then demanded payment of outside counsel?s legal fees as a precondition for delivery of video footage for which had already invoiced the NRA. During a telephone call 2 In addition, certain NRA stakeholders were also concerned that messaging?on topics far a?eld of the Second Amendment?deviated from the core mission and values. Page 8 on September 19, 2018, after AMc?s counsel insisted that the NRA pay AMc?s legal fees without any insight into why the fees had been incurred, the counsel observed that AMc?s posture seemed more consistent with an adverse than a common-interest relationship. AMc?s counsel replied: ?Ackerman views the relationship as adverse.? 20. Therea?er, strenuously resisted the efforts to enforce the Services Agreement, including embarking on a campaign to ?kill the messenger? when the NRA sought access to documents or proposed reductions in AMc?s budget. At ?rst, scapegoated the outside counsel. However, over ensuing months, also re?ised to respond to basic information requests from NRA executives. A?er the NRA retained a third-party forensic accounting ?rm to interface with in an effort to appease and gain its compliance in January 2019, indicated it would cooperate. Unfortunately, that pledge of cooperation was short-lived as forbid the accountants from disclosing simple, material information to the NRA?including copies of annual budgets that the NRA allegedly approved. When the General Counsel sought additional information in follow?up to the forensic audit, ignored his letters. D. AMC 15 Concealing Material Information From the NRA. Including a Large Related- Party Contract. 21. The NRA brings this action not only because has ?agrantly disregarded its contractual obligations, but because the NRA has recently grown concerned that the records is withholding include information material to the not-for?pro?t governance and its stewardship of its members? donations. 22. Lieutenant Colonel Oliver North (Ret) (?Col North?) is a veteran of the United States Marine Corps and the Reagan administration, a longstanding advocate for the Second Amendment, and a member of the NRA Board of Directors. During May 2018, the NRA Page 9 announced that Col. North was slated to serve as its next President?a largely ceremonial but high? pro?le position famously occupied by Charlton Heston during the late 1990s As Col. North prepared to assume the presidency of the NRA, he separately discussed a potential engagement by as the host of an NRATV documentary series. On May 6, 2018, the NRA and amended the Services Agreement to af?rm that any contract between and Col. North would be considered an AMc-Third Party NRA Contract, for which outstanding compensation would be owed by the NRA to if the Services Agreement was terminated. Importantly, the amendment treated Col. North as a third-party contractor?but not, necessarily, an employee?of 23. New York law requires that the NRA Board of Directors, or an authorized committee thereof, review and approve ?any transaction, agreement, or any other arrangement in which [a director or of?cer of the has a ?nancial interest and in which the or an af?liate] is a participant.?3 Guidance published by the New York Attorney General notes that a board of directors may de?ne additional restrictions on transactions giving rise to potential con?icts of interest;4 and, consistent with best practices, the Con?ict of Interest Policy requires disclosure of contracts between NRA leadership and vendors, like that receive ?nds from the NRA. 24. Aware that Col. North entered into a contract with (the ?North Contract?), the NRA diligently sought to comply with its obligations concerning analysis and approval of the North Contract. During September 2018, the Audit Committee of the NRA Board of Directors (the ?Audit Committee?) reviewed a purported summary of the material terms of the North 3 See N.Y. N-PCL 715. 4 Con?icts of Interest Policies Under the Not-for-Pro?t Corporation Law, CHARITIES BUREAU, N.Y. STATE OFFICE OF THE ATTORNEY GENERAL (2018), at 3. Page 10 Contract and rati?ed the relationship pursuant to New York law?subject to care?Jlly drawn provisos designed to avoid any con?icts of interest. 25. At the time it rati?ed Col. North?s continued service as an NRA director and President given his relationship with the Audit Committee was assured that the counsel would review the North Contract in full. But thereafter, continued to refuse to provide the North Contract pursuant to the Records-Examination Clause. Meanwhile, Col. North indicated via counsel that he could only disclose a copy of the contract to the NRA subject to AMc?s consent. This back-and-forth persisted for nearly six months. 26. Eventually, in February 2019, acceded to a brief, circumscribed, ?live? review of the North Contract (but no retention of any copies) by the General Counsel of the NRA. This review raised concerns about whether the previous summary of the North Contract which was provided to the Audit Committee had been complete and accurate. Among other things, the brief, limited review of the North Contract gave rise to questions regarding: whether Col. North was a third-party contractor of or, conversely, a full-time employee with ?duciary duties to that supersede his duties to the (ii) whether the previously disclosed costs borne by the NRA in connection with the North Contract were complete and accurate, and whether the contract imposed obligations on Col. North that prevent him from communicating ?illy and honestly with other NRA ?duciaries about Against the backdrop of escalating concerns about AMc?s compliance with the Services Agreement and applicable law, the NRA became determined to resolve these issues. 27. By letters dated March 25-26, 2019, the General Counsel again sought visibility regarding the North Contract and other material business records pursuant to the Services Agreement. Speci?cally, the NRA requested: Page 11 0 Information about any additional costs relating to AMc?s engagement of Col. North, to the extent that such costs were being ?passed through? to the - Copies of any additional AMc-Third Party NRA Contracts currently in existence; II Information about which personnel purportedly constituted ?NRA-Dedicated Personnel,? such that their salaries or severance were alleged to be reimbursable by the NRA, and business records suf?cient to show whether these personnel were in fact dedicated to NRA projects; and Copies of the annual budget documents provided to the forensic accountants. 28. The NRA made clear that it sought the above information ?in whatever form [wa]s most convenient? for and hoped to obtain access to ordinary-course business records as contemplated under the Records-Examination Clause. immediately acknowledged receipt of the letters and promised to respond. has not done so. Put simplyits rope. E. AMc?s Disregard of Its Contractual Obligations Will Continue to Damage the NRA. 29. AMc?s breach of the Services Agreement has damaged?and threatens to imminently and irreparably harm?the legitimate operational interests as a not?for-pro?t organization. By denying the NRA access to basic information regarding the nature of the services being performed, the putative budgets for these services, and the material terms of third-party contracts for which the NRA is purportedly liable, is interfering with the ability to steward its funds in pursuit of its public mission. Moreover, AMc?s baseless refusal to permit a fulsome review of the North Contract threatens to impede the corporate governance process. 30. If the NRA is denied access to material business records regarding its largest vendor relationship?records which it speci?cally bargained to access, under the Services Agreement? the ?duciaries will be forced either to exercise their business judgment based on Page 12 incomplete information or defer resolution of pressing matters. There is no adequate remedy at law for the risks that would arise in either scenario. The NRA is America?s oldest civil rights organization and an advocate for millions of law-abiding gun owners. Its compliance with not- for-pro?t law cannot be permitted to be held hostage by a recalcitrant advertising agency. DEMAND FOR JURY TRIAL 31. Plaintiff hereby demands a trial by jury regarding all issues of fact in this case. FIRST CAUSE OF ACTION BREACH OF CONTRACT AND REQUEST FOR SPECIFIC PERFORMANCE (Against All Defendants) 31. Plaintiff incorporates by reference and realleges each and every allegation in the foregoing paragraphs as if fully set forth herein. 32. The Services Agreement is a legally enforceable contract. The Records- Examination Clause is unambiguous. 33. The NRA has performed all of its obligations under the Services Agreement, including its obligation to provide reasonable notice pursuant to the Records-Examination Clause. 34. Ackerman and Mercury have breached the Records-Examination Clause of the Services Agreement. Speci?cally, Ackerman?acting at all times on behalf of both itself and Mercury, pursuant to the Services Agreement?has repeatedly failed or re?ised to permit the NRA to examine speci?ed categories of books and records with respect to matters covered under the Services Agreement. 35. There is no adequate remedy at law for AMc?s re?isal to permit examination of records (whether they reside at Ackerman or Mercury) pursuant to the Services Agreement. The information sought by the NRA pursuant to the Records?Examination Clause resides uniquely Page 13 within the possession of Ackerman and/or Mercury, and cannot be acquired by the NRA on the open market for any sum of money. 36. The nature of the obligation imposed by the Records-Examination Clause makes speci?c performance equitable and practical because the Court need only order to furnish to the NRA: copies of any AMc-Third Party NRA Contracts; and (ii) business records, in whatever form they were generated in the ordinary course of AMc?s business, which are suf?cient to convey the information sought by the NRA as described in Paragraph 27 hereof. 37. Defendants? breaches of the Services Agreement have damaged?and threaten to imminently, irreparably harm?the legitimate operational interests as a not-for-pro?t organization. By denying the NRA access to basic information regarding the nature of the services being performed, the putative budgets for these services, and the material terms of third-party contracts for which the NRA is purportedly liable, Defendants have jeopardized the ability to steward its {?nds in pursuit of its public mission. Moreover, AMc?s continued and baseless re?isal to permit a ?ilsome review of the North Contract threatens to impede the corporate governance. 38. By reason of the foregoing, the NRA requests that this Court order speci?c performance by Defendants of their obligations pursuant to the Records-Examination Clause of the Services Agreement. REQUEST FOR RELIEF Wherefore, for all the foregoing reasons, Plaintiff requests relief as follows: a. A judgment against each of Ackerman and Mercury for breach of contract; b. An award of speci?c performance to the NRA requiring that: Page 14 ?irnish copies of all AMc?Third Party NRA Contracts to the NRA within three (3) business days of the entry of such order; and Within ten (10) business days of the entry of such order, ?ll?l?llSh to the NRA: Copies of annual budgets for the years 2016-2018, which alleges were approved by the NRA and were previously provided to the forensic accountants; A list of all current NRA-Dedicated Personnel (as de?ned in the letter correspondence) and, for each such employee, copies of business records sufficient to show the amount or percentage of the employee?s time that was dedicated to NRA projects during the period from January 1, 2018, to present; Copies business of records sufficient to show the extent of any costs invoiced to the NRA or the NRA Foundation, during the period from January 1, 2018, to April 1, 2019, which costs were incurred by reason of: 1) The production of the NRATV documentary series ?American Heroes;? or (2) Cash or non-cash compensation to Col. North or North?related Staff; or (3) Office space or other perquisites provided to C01. North or North-related Staff; and (4) Whether each item was billed specifically to the NRA, the NRA Foundation, or both entities, and Page 15 Such other and ?lrther relief to which the NRA may be entitled at law or in equity. Respect?illy submitted, M274 James W. Hundley (VA Bar No. 30723) Robert H. Cox (VA Bar No. 33118) Amy L. Bradley (VA Bar No. 80155) BRIGLIA HUNDLEY, P. C. 1921 Gallows Road, Suite 750 Tysons Corner, VA 22182 jhundley@brigliahundley.com rcox@brigliahundley.com abradley@brigliahundley.com Phone: 703-883-0880 Fax: 703?883?0899 ATTORNEYS FOR THE NATIONAL RIFLE ASSOCIATION Page 16