Bankruptcy blocked, NRA bucks at effort to dissolve it

MANHATTAN (CN) — Months after losing its bid to secure bankruptcy protection, an attorney for the National Rifle Association argued in court Friday that the bankruptcy proceedings still prevented the New York attorney general from pursuing her suit alleging its top executives engaged in fraud.

New York Attorney General Letitia James brought the suit in August 2020, saying NRA CEO Wayne LaPierre and other executives used the nonprofit as a “personal piggy bank” to pay for private jet rides and trips, among other expenditures.

The 150-year-old gun-rights advocacy organization has since reincorporated in Texas, but a federal bankruptcy judge in Texas rejected the request to declare Chapter 11 bankruptcy in May. NRA attorney Svetlana Eisenberg noted that the proceedings in Texas were lengthy and involved 16 depositions.

Friday morning in a New York courtroom, Eisenberg attempted for a second time to dismiss the suit that, if successful, would doom the organization to dissolution.

Eisenberg said the bankruptcy judge found LaPierre backs the organization’s self-correction, that a once-whistleblower is now acting chief financial officer, for instance. Because the New York attorney general had intervened and participated in the bankruptcy proceedings, collateral estoppel precluded her attempts to dissolve the nonprofit in New York.

But New York Judge Joel Cohen was skeptical.

“You see the irony of your approach?” Cohen said.

The whole reason the judge in Texas rejected NRA’s bankruptcy bid, Cohen said, was because he determined it was a bad-faith attempt to side-step the litigation in New York and granting bankruptcy would be inappropriate.

 “Your honor, there is certainly irony,” Eisenberg said, “but there is nothing here that is unfair.”

Assistant Attorney General Jonathan Conley had a different set of words to describe the NRA’s argument: “Fundamentally flawed and deeply cynical.”

The proceedings in Texas were carried out on an accelerated schedule with truncated discovery, Conley said, and the scope of the bankruptcy court was different than the court in New York County. The attorney general did not litigate the 18 claims she brought against the NRA in New York, the assistant AG said.

The NRA’s arguments were “plucked from the bankruptcy court decision,” Conley said, and did not take into account the comments by the Texas judge about how he concerns about the organization’s transparency and disclosure.

In its brief, the attorney general office wrote: “To preclude the Attorney General from pursuing this state enforcement action because of judicial findings that expressly rejected the NRA’s improper attempt to evade this case would not only be unjust, but would incentivize similar maneuvers by targets of state enforcement actions.”

The NRA’s Eisenberg, of the firm Brewer, Attorneys & Counselors, said the AG’s attempt to dissolve the organization with 5 million members was “nothing short of draconian” because the NRA did not carry out its mission of advocating for its ideas about the Second Amendment, promoting hunter safety and training law enforcement in marksmanship in a fraudulent or illegal way.

“Nowhere does the attorney general even talk about these things,” Eisenberg said.

In its September motion to dismiss, the NRA said the allegations against the organization come down to the actions of five board members and two of the organization’s executives.

But none of the NRA’s arguments mattered, said Assistant Attorney General Jonathan Conley. New York courts have a one-motion rule, Conley argued. The organization had already asked the court to dismiss the suit and the court said no.

But Cohen saved the tough questions for Conley.

“Isn’t the hard question here,” Cohen said, “is whether the conduct you allege is proportionate and justifies the relief you’re requesting?”

The NRA, started in the years following the Civil War, is one of the nation’s largest and oldest social welfare organizations, Cohen said. The judge asked whether it would be better to remove the leadership who allegedly engaged financial malfeasance rather than undo “an entity of this vintage.”

It’s a question that would be there at the end of the case, even if the attorney general spent two years proving her claims, Cohen said.

“Why not use a scalpel rather than a sledgehammer?” he said.

Conley said that after years of investigations, the “entrenched leadership” at the NRA continued its conduct. It has squashed dissention and retaliated against people who attempted to reform it, the assistant attorney general said.

The case against the NRA, Conley said, has no close comparison given the size of the organization and the scope of the wrongdoing.

Dissolution, he said, is in the public interest to ensure charities cannot engage in that kind of conduct in New York state.

As the hearing transitioned into a status conference, Conley said he would take the arguments under submission.

Attorney General James released a statement Friday that calls the NRA’s arguments against her suit a “blatant attempt to avoid transparency.” She said the organization has tried tactic after tactic in search of delaying accountability.

Attorney William Brewer III said in a statement that Friday’s hearing emphasized that the New York attorney general “pushed a contrived narrative about the NRA” to improperly bring her suit seeking the organization’s dissolution.

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