Judge dismisses NRA bankruptcy case in blow to gun group

Keywords Bankruptcy / Law

A federal judge dismissed the National Rifle Association’s bankruptcy case Tuesday, leaving the powerful gun-rights group to face a New York state lawsuit that accuses it of financial abuses and aims to put it out of business.

The judge was tasked with deciding whether the NRA should be allowed to incorporate in Texas instead of New York, where the state is suing in an effort to disband the group.

Though headquartered in Virginia, the NRA was chartered as a nonprofit in New York in 1871 and is incorporated in the state.

Judge Harlin Hale said in a written order that he was dismissing the case because he found the bankruptcy was not filed in good faith.

“The Court believes the NRA’s purpose in filing bankruptcy is less like a traditional bankruptcy case in which a debtor is faced with financial difficulties or a judgment that it cannot satisfy and more like cases in which courts have found bankruptcy was filed to gain an unfair advantage in litigation or to avoid a regulatory scheme,” Hale wrote.

His decision followed 11 days of testimony and arguments. Lawyers for New York and the NRA’s former advertising agency grilled the group’s embattled top executive, Wayne LaPierre, who acknowledged putting the NRA into Chapter 11 bankruptcy without the knowledge or assent of most of its board and other top officers.

“Excluding so many people from the process of deciding to file for bankruptcy, including the vast majority of the board of directors, the chief financial officer, and the general counsel, is nothing less than shocking,” the judge added.

Phillip Journey, an NRA board member and Kansas judge who had sought to have an examiner appointed to investigate the group’s leadership, was concise about Hale’s judgment: “1 word, disappointed,” he wrote in a text message.

LaPierre pledged in a statement to continue to fight for gun rights.

“Although we are disappointed in some aspects of the decision, there is no change in the overall direction of our Association, its programs, or its Second Amendment advocacy,” LaPierre said via the NRA’s Twitter account. “Today is ultimately about our members — those who stand courageously with the NRA in defense of constitutional freedom. We remain an independent organization that can chart its own course, even as we remain in New York to confront our adversaries.”

Lawyers for New York Attorney General Letitia James argued that the case was an attempt by NRA leadership to escape accountability for using the group’s coffers as their personal piggybank. But the NRA’s attorneys said it was a legitimate effort to avoid a political attack by James, who is a Democrat.

LaPierre testified that he kept the bankruptcy largely secret to prevent leaks from the group’s 76-member board, which is divided in its support for him.

Hale dismissed the NRA’s case without prejudice, meaning the group can refile it. However, he warned that in doing so the NRA’s leaders would risk losing control.

The judge wrote that if the case is refiled, he would immediately take up “concerns about disclosure, transparency, secrecy, conflicts of interest” between NRA officials and their bankruptcy legal team. He said that the lawyers “unusual involvement” in the NRA’s affairs raised concerns that the group “could not fulfill the fiduciary duty” and might lead him to appoint a trustee to oversee it.

Hale noted the NRA could still pursue other legal steps to incorporate in Texas, but James said such a move would require her approval — and that seems unlikely.

In a tweet, Republican Gov. Greg Abbott said: “Texas stands with the @NRA and we look forward to working with the Association on their plans to move to Texas.”

The NRA declared bankruptcy in January, five months after James’ office sued seeking its dissolution following allegations that executives illegally diverted tens of millions of dollars for lavish personal trips, no-show contracts and other questionable expenditures.

James is New York’s chief law enforcement officer and has regulatory power over nonprofit organizations incorporated in the state. She sued the NRA last August, saying at the time that the “breadth and the depth of the corruption and the illegality” at the NRA justified its closure. James took similar action to force the closure of former President Donald Trump’s charitable foundation after alleging he used it to advance business and political interests.

During a news conference after the ruling, James said she read transcripts of LaPierre’s testimony, which was “filled with contradictions.” She reiterated that she intends to see the NRA dissolved, which ultimately would be decided by a judge, not the attorney general.

The discovery process in her lawsuit is ongoing, James said, and she expects a trial to happen sometime in 2022.

“There are individuals and officers who are using the NRA as their personal piggy bank and they need to be held accountable,” James said.

Shannon Watts, who founded Moms Demand Action for Gun Sense in America, said in a series of tweets that the bankruptcy dismissal “comes at the worst possible time for the NRA: right as background checks are being debated in the Senate.”

“It will be onerous if not impossible for the NRA to effectively oppose gun safety and lobby lawmakers while simultaneously fighting court battles and mounting debt,” said Watts, whose organization is part of the Michael Bloomberg-backed Everytown for Gun Safety.

The NRA’s financial standing has been upended by the coronavirus pandemic, but there was consensus during the bankruptcy trial that it remains financially sound.

Last year, the group laid off dozens of employees, canceled its national convention and scuttled fundraising. The NRA’s bankruptcy filing listed between $100 million and $500 million in assets and the same range in liabilities. In announcing the case, it trumpeted being “in its strongest financial condition in years.”

Adam Skaggs, chief counsel at the Giffords Law Center to Prevent Gun Violence, said that even a weakened NRA will likely continue to shape America’s gun debates.

“I think the question is, despite those self-inflicted wounds and despite the fact that they’re in some ways a shadow of their former self, can they continue to exert influence and try and keep the opponents of even the most modest reforms to increase gun safety toeing the line?” he said.

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7 thoughts on “Judge dismisses NRA bankruptcy case in blow to gun group

  1. If these AG’s would go after both sides equally I would have a lot more respect for them because I think a lot of NP’s don’t have enough accountability and their executives take advantage of their positions. It just seems like these are usually politically motivated and going after your political enemies. Go after all crime regardless of political affiliations and people will begin to respect the process more.

    1. Another great reason to move to publicly funded elections. That and the replacement of primary voting with something along the lines of jungle primaries or ranked choice voting would go a long way to encouraging representative government that actually represents the will of the majority of voters.

    2. Joe, I’m starting to understand the value of governments in countries that have to build coalitions to be elected over our system where the winners get to do whatever they want. It wasn’t a big deal when we were more of a center left and right country, but now with our extreme differences it doesn’t seem to work so well. You can’t have a system that only represents half of the people depending on who’s in power for a particular term with each side looking to undo everything the other side did during their term. How do you accomplish any lasting sensible policy in that type of environment.

    3. I don’t think American democracy was designed with political parties in mind, and changes that diminish the importance and power of political parties would be helpful.

      The winner take all nature of elections and the electoral college also does not help. It’s a balance between making sure different parts of America feel they have a voice … versus voters in some parts of the country having more of a say than others. Even allocating electoral college votes by percentage of vote won, as opposed to winner take all, would help.

      But then part of the purpose of the electoral college was to make sure the people elected only suitable men to the office … and a high number of states that have eliminated that ability from the electors, they must vote for who they’re told to or else they face consequences. I get the perspective of the states, but I think it’s clear that it runs counter to why we have an electoral college in the first place.

    4. I agree with you that changes that diminish the importance and power of political parties would help because I think as a whole we wouldn’t be as far apart as we seem to be. The system with two senators in each state of course makes sure that everyone has a say and I’m reluctant to support elimination of the electoral college because as an example we in Indiana would have zero say in anything, but your point of electoral college allocation is a valid one. Yes, people in a more populous state should have more voice, but I think of areas like Illinois where Chicago runs the entire State and I don’t like that either. When I look at the shift of the power center to the Presidency it’s simply too much power concentrated in one branch of government and I wish that could change. The office of the President seems to control everything and the controlling legislature never disagrees anymore.

    5. The legislature also doesn’t appear do have any ability to do anything but stonewall. I’m sure it was bad during Clinton and GWB but it reached a new low during the Obama administration; the GOP had nothing to offer but resistance they were rewarded with control of Congress. Then the roles swapped during the Trump administration… and swapped back again.

      I think it’s largely because the legislators do what the extremes want so they don’t get primaried by the extreme voters who vote in primaries. Make it so that (example) all they have to do is finish in the top two in a primary open to all voters, or that they have to get 50% of the vote in the primary to skip the general election, or however ranked choice works, and many of them will make different choices.

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