Preliminary ruling in favor of charities for the California AG’s cease and desist order for GIK valuation – part 3

Image courtesy of Adobe Stock.

Introduction to this series of posts explained the Administrative Law Judge (ALJ) hearing the appeal of the California AG’s Cease and Desist order against three charities has decided in favor of the charities.

The basis for his decision, as mentioned yesterday, was that the charities’ expert witnesses were more persuasive than the government’s expert witness.

Are the charities’ appeals misleading?

The remaining issue in the case is whether the charitable solicitations were misleading to donors.

The state alleged that the financial statements did not comply with GAAP and as a separate matter that solicitations to donors were misleading.

The ALJ ruled that resolution of the GAAP valuation issue does not resolve the separate issue of misleading solicitations.

A new word I learned is ‘dispositive’, which means

relating to or bringing about the settlement of an issue or the disposition of property.

The ALJ explained that the two issues needed to be resolved separately as follows:

The remaining question is whether this determination resolves the entire case such that I can end the hearing now and proceed to prepare a proposed decision or decisions that addresses all issues.· My tentative ruling is that it does not because the issue of whether the solicitation materials at issue in this case were misleading is not resolved by a determination of GAAP compliance as to these valuations.· GAAP compliance is a  piece of evidence on that issue, but the solicitations are not statements that are viewed solely through the lens of GAAP compliance. (page 1908-1909)

An exchange between the AG and ALJ:

Ms. C:· Thank you, your Honor.· The Complainant agrees with your tentative regarding the solicitations; that they’re independent of the GAAP issue.· These —

ALJ:· I wouldn’t say independent, but they’re not — GAAP is not dispositive of it.· Anyway, go ahead. (page 1914)

Why attorneys quibble

Definition of quibble, from Google:

Noun

A slight objection or criticism about a trivial matter

Verb

Argue or raise objections about a trivial matter

You might wonder why attorneys get stubborn about specific nouns and exact verb tense. If you have ever so wondered, you can see a superb illustration why attorneys quibble so much on pages 1993 to 2001, where two of the charities’ attorneys try to change the prohibition in the state statute from “misleading” to “misled.”

It is a quite a different matter to prohibit misleading charitable solicitations than to prohibit financial statements which actually misled donors. One attorney moved for dismissal because there was a massive failure of evidence in the case since there was no wide survey showing donors had been mislead, and in fact not even one individual donor testified at trial of having been mislead.

This change in verb tense was corrected quite strongly by the ALJ who said:

Isn’t the word “misleading,” not “misled”? Where are you getting the piece of the puzzle that they have to show proof that somebody is actually misled or bring out the person who was allegedly misled? (page 1997)

Immediate response from the challenged attorney was to change the subject instead of answering the question. Then another charity attorney agreed the standard is “misleading”, then immediately said there ought to be evidence of someone having been misled.

The AG finally closed the door on that strategy by citing the state code which does not require reliance by any individual and does not require any specific injury (page 2000-2001).

That is why attorneys quibble. Merely changing the tense of one verb would have ended the state’s case.

Next post: Is GAAP part of the real world and where does the case go from here?

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