Answer to Complaint

STATE OF NEW MEXICOCOUNTY OF CHAVESFIFTH JUDICIAL DISTRICT COURT

NEW MEXICO MILITARY INSTITUTE,

Plaintiff,

vs. No. D-504-CV-2013-00339

NMMI ALUMNI ASSOCIATION, INC., aNew Mexico non-profit corporation,

Defendant.

DEFENDANT NMMI ALUMNI ASSOCIATION’S ANSWER TO PLAINTIFF’S COMPLAINT FOR RECEIVERSHIP, CONSTRUCTIVE TRUST, MANDATORY

INJUNCTION AND ACCOUNTING

COMES NOW the Defendant NMMI Alumni Association, Inc., by and through its

attorneys of record, Keleher & McLeod, P.A. (Jeffrey A. Dahl, Michael G. Smith, and Julia

Maccini), and for its Answer to Plaintiff’s Complaint for Receivership, Constructive Trust,

Mandatory Injunction and Accounting (“the Complaint”), states as follows:

FIRST DEFENSE

Plaintiff’s Complaint fails to state a cause of action upon which relief can be granted.

I. Introduction

Since 1966, the NMMI Alumni Association (hereafter “the Association”) has maintained

the proud and honorable tradition of promoting and assisting the New Mexico Military Institute

(hereafter “the Institute”) through a variety of fund raising endeavors and scholarship

opportunities to cadets, as well as reaching out and serving the needs of NMMI alumni

throughout the country and liaising affairs between NMMI alumni and the Institute. At all times

material hereto, the Association has maintained its status as a private, stand-alone charitable

institution pursuant to federal law and IRS regulations. The Institute alleges throughout its

Complaint that the Association exists solely for the benefit of the Institute. Nothing could be

further from the truth, and the Institute’s continual insistence on this point demonstrates the

desperate need for the Association to remain separate and independent from the Institute.

This lawsuit is the culmination of a concerted and wrongful attempt by the Institute to

gain governance of the Association and to exercise control over the considerable assets of the

Association which the Association uses for the benefit of its Alumni, as well as for funding

scholarships for cadets of the Institute. These assets exceed $5 million. The Institute has

engineered a series of events with the goal of changing the Association from a stand-alone 26

U.S.C. § 509(a)(2) private charitable organization to a "Supporting Organization" under 26

U.S.C. §509(a)(3), which would allow the Institute access to the Association’s funds. When the

Association did not accede to these attempts, the Institute banished the Association from its

offices on Institute premises and sequestered the Association’s database, containing, among other

things the financial records and membership lists of the Association, all of which were kept on

servers at the Institute, and filed the present lawsuit.

Despite the claims of the Institute of financial mismanagement, negligence and

malfeasance, the Association has maintained appropriate financial records, has filed all tax

returns required, has undergone audits of its accounting procedures, and has otherwise properly

managed the corporate affairs of the Association. The allegations of the Plaintiff to the contrary

are misinformed and/or a further attempt to create a fiction that would allow the Institute to

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conduct a take-over of the Association. Given the above facts, the Institute's Complaint herein

fails to state a claim upon which relief may be granted

SECOND DEFENSE

As to the specific allegations of Plaintiff’s Complaint, the Defendant Association states as

follows:

1. Defendant denies the allegations set forth in Plaintiff’s “Introduction” (paragraph

I. of Plaintiff’s Complaint), in their entirety.

II. Parties

1. Defendant admits the allegations in paragraph 1 of the Complaint.


III. Jurisdiction and Venue


4. While Defendant does not contest the allegations of venue of paragraph 4 of the

Complaint, Defendant is informed and believes that all available judges in Chaves County have

recused themselves from this case and that venue now properly lies in Eddy County, New

Mexico. Defendant does not contest venue in Eddy County, New Mexico.

IV. Statement of Facts

A. The Association’s Corporate Documents

5. Defendant admits the allegations in paragraph 5.

6. Defendant states that the Association’s Articles of Incorporation speak for

themselves. To the extent that any allegation of paragraph 6 of the Complaint is contrary to or

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incomplete with respect to the actual language of the Association’s Articles of Incorporation,

Defendant denies such allegations.

7. Defendant states that the Association’s By-Laws speak for themselves. To the

extent that any allegation of paragraph 7 of the Complaint is contrary to or incomplete with

respect to the actual language of the Association’s By-Laws, Defendant denies such allegations.

8. Defendant states that the Association's Articles of Incorporation speak for

themselves. To the extent that any allegation of paragraph 8 of the Complaint is contrary to or

incomplete with respect to the actual language of the Association's Articles of Incorporation,

Defendant denies such allegations. Defendant further states that the Association has not

dissolved, nor does it plan to dissolve, absent a vote of its entire membership conducted in a full,

fair, and complete manner and as provided for by state law.

9. Paragraph 9 of the Complaint is a legal conclusion to which no response is

necessary. To the extent that paragraph 9 requires a response to any factual allegation or

otherwise by Defendant, it is denied. Defendant affirmatively states that at all times material

hereto, it has been an independent organization, separate and apart from the Institute and that it

has never been a "Supporting Organization" as that term is defined by law. Moreover, as has

always been the case since its inception, the Association serves and supports alumni of the

Institute as its primary purpose and focus.

10. Defendant denies that the Association's sole purpose is to serve as the Institute's

alumni resource. Defendant states that it is a private, stand-alone charitable organization and not

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an arm of the Institute. The Association serves and supports alumni of the Institute as its primary

purpose and focus.

11. Defendant admits that it solicited funds for the benefit of the Institute and on

behalf of the Institute, as well as for its own scholarships and funding. The remainder of

paragraph 11 of the Complaint is a legal conclusion to which no response is necessary. To the

extent that paragraph 11 requires a response to any factual allegation or otherwise by Defendant,

it is denied.

12. Defendant admits that alumni have made monetary contributions, however the

term "substantial" is imprecise and Defendant cannot admit or deny whether the contributions

were "substantial", nor can Defendant divine whether the allegation refers to donations made

individually or in the aggregate. Defendant cannot state whether all such contributions were

conditionally made as set forth in Plaintiff's allegations and therefore denies that allegation.

Defendant affirmatively admits that some contributions are intended for specific purposes, but

not all. Defendant denies that all such contributions were made on condition that said

contributions directly benefit NMMI, to the exclusion of the Association.

13. Paragraph 13 of the Complaint is a legal conclusion to which no response is

necessary. To the extent that paragraph 13 requires a response to any factual allegation or

otherwise by Defendant, it is denied.

B. The Association’s Assets

14. Defendant admits that it maintains three separate accounts entitled "Permanently

Restricted", "Temporarily Restricted", and "Unrestricted" but denies the characterization of the

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accounts set forth by the Plaintiff in paragraph 14 of the Complaint and the sub-paragraphs

therein.

15. Defendant does not know what the Plaintiff considers the "majority of the funds"

and therefore denies the allegations in paragraph 15 of the Complaint. Defendant affirmatively

states that the alleged restricted funds are to benefit cadets at the Institute through scholarships.

16. Defendant admits that the Association solicits tax deductible as well as non-tax

deductible donations from alumni and friends, and distributes those funds in accordance with the

donor's intent, if one is communicated to the Association, in accordance with its position as a

stand-alone charitable organization under 26 U.S.C. § 509(a)(2). The Defendant denies the

remainder of allegations of paragraph 16 of the Complaint.

17. Defendant is without sufficient information to form a belief as to the allegations

of paragraph 17 of the Complaint and therefore denies same. Defendant affirmatively states that

number of dues paying members and life members in relationship to the total number of alumni

of the Institute is irrelevant with respect to donations made to the Association.

18. Defendant denies the allegations in paragraph 18 of the Complaint.

C. Financial Management of the Association

19. Defendant is without sufficient information to form a belief as to the allegations

in paragraph 19 of the Complaint and therefore denies same.

20. In response to the allegations in paragraph 20, Defendant incorporates its response

to paragraph 19 herein and further denies the allegations in paragraph 20. Defendant states that

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the investment account that funds the scholarship fund is and has been managed by Wells Fargo

Bank at all times material hereto.

21. Defendant admits the allegations in paragraph 21 of the Complaint. Defendant

affirmatively states that it proactively hired Tardy & Co. to conduct an internal review of its

operation toward improving, streamlining and otherwise making its operations more efficient. At

all times material, the purpose of retaining Tardy & Co. was to identify areas of improvement in

the management of the Association. The Tardy Report was not intended nor should it be

intended to be a formal audit of Association finances.

22. Defendant states that the Tardy Report speaks for itself. To the extent that any

allegation of paragraph 22 of the Complaint is contrary to or incomplete with respect to the

actual language of the Tardy Report, Defendant denies such allegations.



actual language of the Tardy Report, Defendant denies such allegations. Defendant affirmatively

states that the language quoted by Plaintiff lacks context and contains opinion to which no

response is required. To the extent such language constitutes any factual allegation or otherwise

addressed to Defendant, it is denied.



actual language of the Tardy Report, Defendant denies such allegations.

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actual language of the Tardy Report, Defendant denies such allegations. Defendant further

objects to the characterization of the language of the report by the Plaintiff as "alarming".



actual language of the Tardy Report, Defendant denies such allegations. Defendant affirmatively

states that the language quoted by Plaintiff lacks context, contains opinion and therefore no

response is required. To the extent such language is a factual allegation or otherwise directed to

Defendant, it is denied.

27. Defendant denies the allegations of Paragraph 27 of the Complaint. The

Plaintiff's reaction to the alleged findings of the Tardy Report is not an allegation directed to the

Defendant and is not relevant or material to the issues in the lawsuit.

28. Defendant admits that in July 2010, Mr. Franklin was hired as NMMI athletic

director and therefore resigned his position with the Association. Defendant admits that it then

hired Mr. Lee Jones.

29. Defendant admits that MG Jerry Grizzle requested to meet with the Association

and the Foundation in September 2010 but denies the remainder of the allegations of paragraph

29 of the Complaint.

30. Defendant admits the allegations of the first clause of paragraph 30 but denies that

the agreement reached was a response to correct alleged deficiencies regarding financial

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solvency and compliance. Defendant affirmatively states that it has never been financially

insolvent.


32. Defendant admits that Dr Randy Brown resigned as stated in paragraph 32 of the

Complaint, however Defendant is without sufficient knowledge to form a belief as to the basis

for his resignation and therefore denies same.

33. Defendant admits that Mr. John Phinizy took over as the Association's Board

President as stated in paragraph 33 of the Complaint, but specifically denies that Mr. Phinizy

increased staff in contravention of the Tardy Report. Defendant denies that Mr. Phinizy directed

that the management of endowed scholarships be transferred back to the Association.

34. Defendant denies that Mr. Jones was terminated as stated in paragraph 34 of the

Complaint. Upon information and belief, Mr. Jones did not want to serve as a full time

employee; therefore his contract was not renewed. Defendant admits that it hired Mr. David

Romero.



37. Defendant admits that Institute representatives met with Association

representatives. Defendant objects to the use of the phrase "financial discrepancies" and denies

the balance of the allegations in paragraph 37 of the Complaint.

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38. Defendant denies the allegations in paragraph 38 of the Complaint. Defendant

affirmatively states that the Association agreed to address management matters but denies claims

of mismanagement.

39. Defendant denies the allegations in paragraph 39 of the Complaint. Upon

information and belief, Mr. Romero hired the accounting firm of May-Taylor to handle the

accounting of the scholarships, the investment management of which has been and remains under

the control of Wells Fargo Bank.



42. Defendant is without sufficient information to form a belief as to what Mr. Lowe

"discovered" or did not "discover" and therefore denies the allegations pertaining to that issue in

paragraph 42 of the Complaint. Defendant denies the remainder of the allegations of paragraph

42.



affirmatively states that the Foundation, an arm of the Institute, had exercised control over the

financials beginning in November of 2011. All information regarding Association accounts was

held on the Institute's servers at these relevant times.

45. Defendant admits that it requested and received an extension from the IRS so that

it could timely file its tax return. Defendant affirmatively states that there is nothing improper or

wrong in filing for extensions to file tax returns.

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46. Defendant admits that May-Taylor prepared a year-end financial state for the

fiscal year ending June 30, 2012, but denies the allegations in paragraph 46 of the Complaint.


48. Defendant admits that James Lowe and perhaps Jock Brownfield met with the

Foundation and Institute representatives in January of 2013 to develop a budget for the fiscal

year 2013. Defendant affirmatively states that the Foundation had the financial information of

the Association at all times material. Defendant affirmatively states that it had developed a

budget for fiscal year ending 2013. The 2013-14 fiscal year budget has not been developed.


50. Defendant admits the allegations in paragraph 50 of the Complaint. Upon

information and belief, during this time frame, James Lowe, Executive Director of the

Association, was actively working with the Foundation to resolve these issues.


further objects to the phrase "grim financial situation" as it is a characterization of the Defendant

and not a factual allegation.


affirmatively states that the Institute had determined, even before February 11, 2013, that it

would take steps to exercise complete dominion and control over the Association,

notwithstanding the Association's long-standing status as a separate and stand-alone entity.

D. The Memorandum of Agreement and Its Termination

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53. Defendant states that NMSA 1978 6-5A-1(B) speaks for itself. Defendant

affirmatively states that this section is inapplicable to the Association and any duties imposed by

the statute do not apply to Defendant.

54. Defendant admits that it entered into a Memorandum of Agreement with Plaintiff

but denies the remainder of the allegations of paragraph 54 of the Complaint. Defendant

affirmatively states that the MOA was drafted by Institute and its Administration and any

ambiguities in the document should be resolved in favor of the Defendant. Defendant further

states that pursuant to the then existing by-laws of the Association, the telephonic vote on the

MOA was required to be ratified by the Board of Directors of the Association at the next regular

meeting and it was not so ratified.

55. Defendant states that the MOA speaks for itself. To the extent that any allegation

of paragraph 55 of the Complaint is contrary to or incomplete with respect to the actual language

of the MOA, Defendant denies such allegations.







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60. Defendant admits that the Institute elected to terminate the relationship between

the Association and the Institution but denies the remainder of the allegations of paragraph 60 of

the Complaint. Defendant objects to the phrase "seemingly insurmountable difficulties" and

affirmatively states that it is a characterization of the Plaintiff and not a factual allegation.








affirmatively states that it was diligently working on the financial matters which form the basis

of Plaintiff's Complaint and would have resolved such issues but for the Institute's concerted

effort to evict the Association and render it powerless and ineffective.

64. Defendant admits that the Institute delivered a final notice of termination to the

Association on April 22, 2013 but denies the remainder of the allegations contained in paragraph

64 of the Complaint.

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66. Defendant denies the allegations that it ever engaged in a plan to dissolve and

distribute its assets as stated in paragraph 66. Defendant admits that the Institute did continue to

provide working space and personnel support to the Association.






also objects to the characterization that the Association's funds are "in jeopardy" as it is a

characterization and opinion and not a factual allegation.

72. Paragraph 72 of the Complaint contains a legal conclusion to which no response

is required. To the extent paragraph 72 contains factual allegations or otherwise against the

Association, they are denied by Defendant. The Defendant also objects to the use of the term

"long term financial mismanagement" as it is a characterization and opinion and not a factual

allegation.

73. Defendant admits the allegations in paragraph 73 of the Complaint that the

Institute made demand upon the Association to transfer Association funds to the Foundation, but

denies the remainder of the allegations of paragraph 73.


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75. Defendant admits the allegations in paragraph 75 of the Complaint. Defendant

affirmatively states that it was under no obligation, legal or otherwise, to respond to the demands

of the Institute.

76. Defendant admits that the Association President called a Board of Directors

meeting for May 17, 2013. Defendant denies the remaining allegations in paragraph 76.


affirmatively states that while disagreements arose regarding certain items on its agenda, such

disagreements are not uncommon and the Board acted on a majority vote of the Directors

regarding all items.

78. Defendant admits that a board meeting was called for May 16, 2013. Defendant

denies that the meeting was called in response to the meeting set for May 17, 2013 and denies all

further allegations set forth in paragraph 78 of the Complaint.


80. Defendant admits that four board members attended the meeting on May 17,

2013. Defendant denies that the remaining members boycotted the meeting. Defendant

affirmatively states upon information and belief, several board members informed the President

that they were not available to meet on May 17, 2013 at 1:00 p.m.


objects to the characterization of "two splintered boards." There was a quorum of the board

present at the May 16, 2013 meeting, while there was no quorum established on May 17, 2013.

As such, any action taken at the May 17, 2013 board meeting had no legal force or effect.

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objects to the statement that the funds in the custody of the Association are in "serious question"

as it is a characterization and opinion and not a factual allegation.

E. The Alliance Agreement


84. Defendant states the Alliance Agreement speaks for itself. To the extent that any


actual language of the Alliance Agreement, Defendant denies such allegations.












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91. Defendant admits the allegations in paragraph 91 of the Complaint. The

Association believes, upon information and belief, that Jock Brownfield was charged with

preparation of the budget and had failed to do so. Since that time, the Association has been

denied access to financial records by the Institute which would allow it to develop a budget and

any failure to develop a budget is the direct result of the actions of the Institute. Defendant

affirmatively states that it had arranged for an accounting firm to develop a budget for 2013 but

was unable to execute a proposed development since the Institute evicted the Association from

its offices and denied the Association access to its database on Institute servers.

. 92. Defendant denies the allegations in paragraph 92 of the Complaint.

93. Defendant admits that the Institute terminated the Alliance Agreement but denies

the remainder of the allegations of paragraph 93 of the Complaint.

94. Paragraph 94 of the Complaint contains a legal conclusion to which no response

is required. To the extent a response is required to any factual allegations or otherwise by

Defendant, it is denied.

95. Paragraph 95 of the Complaint appears to be a prayer to the court for relief for

which no answer is required. To the extent a response is required to any factual allegations or

otherwise by Defendant, it is denied.

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V. Causes of Action

A. Claims for Receivership

96. Defendant incorporates by reference its response to paragraphs 1-95 of Plaintiff's

Complaint as though fully set forth herein.

97. Paragraph 97 of the Complaint appears to be a prayer to the court for relief, and as

such no response is required. To the extent a response is required to any factual allegation or

otherwise by Defendant, it is denied. Defendant affirmatively states that it objects to the

appointment of a receiver.

98. NMSA 1978 § 44-8-3 is a definitional statute and speaks for itself. Defendant

affirmatively states that said statute provides no guidance for the determination of what funds

may be properly placed in a receivership estate. Defendant further states that no receivership

estate is justified or mandated in this case.

99. Defendant admits that the Alumni Association's accounts are held and managed

by Wells Fargo Bank.

100. Defendant denies the allegations in paragraph 100 of the Complaint and objects to

the legal characterization that the Association is an agent for, on behalf of and for the benefit of

the Institute.

101. Defendant denies the allegations of paragraph 102 of the Complaint. Defendant

affirmatively states that no receivership is justified or mandated in this case.

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102. Paragraph 102 of the Complaint is a legal conclusion and therefore no response is

required. To the extent a response is required to any factual allegation or otherwise by

Defendant, it denies same.

103. Defendant asks that the Court deny Plaintiff's request for a receiver.

B. Constructive Trust

104. Defendant incorporates its response the allegations in paragraphs 1-103 of

Plaintiff's Complaint as if fully set forth herein.

105. Defendant asks that the court deny Plaintiff's request for a constructive trust over

any Association funds. Defendant further objects to the Institute’s continual characterization of

the Association as existing solely to benefit the Institute and denies such allegations.


further states that this allegation is vague and seeks opinion rather than factual information.


further objects to the Institute’s continual characterization of the Association as existing solely to

benefit the Institute and denies such allegations.

108. Paragraph 108 of the Complaint is a legal conclusion which requires no response

from the Defendant. To the extent a response is required to any factual allegations or otherwise,

Defendant denies same. Defendant further objects to the characterization that the Association is

"retaining " any funds and denies same.

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further objects to the Institute’s continual characterization of the Association as existing solely to

benefit the Institute and denies such allegations.

110. Paragraph 110 of the Complaint is a legal conclusion which requires no response

from the Defendant. To the extent a response is required to any factual allegations or otherwise,

Defendant denies same.


112. Paragraph 112 of the Complaint appears to be a prayer for relief which requires

no response from Defendant. Defendant affirmatively states that a constructive trust is not

warranted herein and respectfully asks that the Court deny such relief.

C. Claim for Mandatory Injunction

113. Defendant incorporates its response to the allegations in paragraphs 1-112 of


114. Paragraph 114 of the Complaint appears to be a prayer for relief which requires

no response from Defendant. To the extent a response is required to any factual allegations or

otherwise, Defendant denies same.


also is unclear about Plaintiff's description of "the Board" and "one Board". Defendant also

objects to the allegation that the Association cannot manages its own affairs as opinion and not a

factual allegation.

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116. Paragraph 116 appears to be a prayer for relief which requires no response from

Defendant. Defendant affirmatively states that an injunction is not warranted herein and

respectfully requests that the Court deny such relief.

D. Claim for an Accounting

117. Defendant incorporates its response to the allegations in paragraphs 1-116 of



further denies and objects to Plaintiff’s characterization of the Association as an "arm" of the

Institute. Defendant is a private charity, organized as a 509(a)(2) corporation, independent and

apart from the Institute.

119. Defendant admits that is has solicited and received funds from third parties but

denies the remainder of the allegations in paragraph 119 of the Complaint.

120. Paragraph 120 of the Complaint appears to state a legal conclusion to which no

response is required. To the extent a response is required to any factual allegations or otherwise

by Defendant, the same are hereby denied.

121. Paragraph 121 of the Complaint appears to state a legal conclusion to which no

response is required. To the extent paragraph 121 contains factual allegations against the

Defendant, same are hereby denied.

AFFIRMATIVE DEFENSES

As separate and alternative affirmative defenses, Defendant raises the following;

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1, No agency relationship now exists or has ever existed between Plaintiff and

Defendant as a matter of law due to the legal structure of the Defendant.

2. No agency relationship now exists or has ever existed between Plaintiff and

Defendant as a matter of fact due to failure and/or lack of consideration.

3. Any contractual relationship between Plaintiff and Defendant has been voided due

to failure and/or lack of consideration on the part of the Plaintiff.

4. Plaintiff's claims for equitable relief are barred by the doctrine of unclean hands.

5. Plaintiff stands in pari delicto, and as such, its claims for equitable relief are

barred.

6. Defendant is entitled to rely on its legal status as a private charitable organization.

7. To the extent Plaintiff alleges any negligence on the part of Defendant, Defendant

denies such negligence and states that Plaintiff's claims are barred by the doctrine of pure

comparative fault.

8. Plaintiff has not suffered any damage or injury, factually or legally, as a result of

any alleged acts or failure to act by Defendant.

9. Defendant affirmatively states that it acted in good faith at all material times

hereto. To the extent Plaintiff alleges a lack of good faith on the part of the Defendant,

Defendant states that there is no duty of good faith, express or implied, owed from Defendant to

Plaintiff.

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10. Plaintiff has failed to show that it has suffered any irreparable damage or that it

will materially prevail at any trial on the merits in this matter and its claims for injunctive relief

are therefore barred.

11. Plaintiff's claims are barred by the doctrine of waiver.

12. Plaintiff's claims are barred by the doctrines of legal and equitable estoppel.

13. Plaintiff's claims are barred by the doctrine of laches.

14. Plaintiff's claims are barred by its failure to mitigate any alleged damages herein,

which damages are denied by Defendant.

15. Defendant owes no fiduciary duty to the Plaintiff.

16. Plaintiff's claims arising from the Memorandum of Agreement referenced in its

Complaint are barred as the Memorandum of Agreement was void or voidable.

17. Defendant reserves the right to assert such additional affirmative defenses as may

be available or discovered during the course of this matter.

CONCLUSION

WHEREFORE Defendant, having fully answered Plaintiff's Complaint, respectfully

requests that this court deny Plaintiff's Complaint and dismiss each cause of action with

prejudice, and for such other and further relief as the Court deems just and necessary.

Respectfully submitted,

KELEHER & McLEOD, P.A. Electronically filed on 07/31/2013

By: /s/ Jeffrey A. Dahl Jeffrey A. Dahl

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Michael G. Smith Julia Maccini P.O. Box AA Albuquerque, NM 87103 (505) 346-4646 telephone Attorneys for Defendant

I hereby certify that on July 31, 2013, I filed the foregoing electronically through the Odyssey File & Serve System, which caused all parties or counsel to be served by electronic means; and a true and correct copy of the foregoing was mailed to all counsel of record as follows:

Richard E. Olson, Esq.Parker B. Folse, Esq.HINKLE, HENSLEY, SHANOR & MARTIN, LLPP.O. Box 10Roswell, NM [email protected]@hinklelawfirm.comAttorney for Plaintiff

/s/ Jeffrey A. Dahl JEFFREY A. DAHL00193451 / 012973-001

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Answer to Complaint

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