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If this other group is recognized as a chapter by their nationals and therefore has liability protection, I don't think risk mgmt is a problem. It sounds more like the council is trying to screw this group over and wants to punish anyone who doesn't share that mindset. They are using liability and risk mgmt as excuses when actually the reason is "we don't like this new fraternity and we want them to fail."
I also agree with Brandi's post. You guys both need to get your nationals involved.
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It is all 33girl's fault. ~DrPhil
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