A federal judge in Dallas deems the nonprofit’s Chapter 11 filing as an attempt at getting around the New York attorney general’s lawsuit to dissolve the NRA.
DALLAS (CN) — A federal judge dismissed the National Rifle Association’s bankruptcy case Tuesday for bad faith, ending the gun rights group’s plans to reorganize in Texas to escape New York regulators’ lawsuit seeking to dissolve it for alleged mismanagement.
U.S. Bankruptcy Judge Harlin Hale in Dallas granted a motion to dismiss by New York Attorney General Letitia James, concluding the NRA’s Chapter 11 filing is “less like a traditional bankruptcy in which a debtor is faced with financial difficulties” and more likely “filed to gain an unfair advantage in litigation” or to avoid regulation.
“The purpose of this bankruptcy filing may not have been to end the NY AG enforcement action immediately, but it was to deprive the NY AG of the remedy of dissolution, which is a distinct litigation advantage,” the 38-page ruling states. “This court does not know what specific mechanism the NRA plans to use, but its intention is clearly to ‘take dissolution off the table.’”
The NRA filed for bankruptcy in gun-friendly Texas in January — it has been based in New York since 1871. It is headquartered in Fairfax, Virginia.
Executive Vice President Wayne LaPierre said at the time it declared bankruptcy that it intended to reincorporate in Texas due to James’ lawsuit last August in New York County Supreme Court. James — a Democrat — accuses four NRA executives of looting the nonprofit out of millions of dollars over several years. She accuses LaPierre in particular of using the group’s donor money as his “personal piggy bank” for private jet trips to the tropics and African safaris.
Judge Hale saved his heaviest criticism for LaPierre, noting that a phone call he made resulted in the resignation of the NRA’s former chief financial officer and treasurer Craig Spray two weeks before the bankruptcy filing.
“What concerns the court most though is the surreptitious manner in which Mr. LaPierre obtained and exercised authority to file bankruptcy for the NRA,” Hale writes. “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.”
Hale noted the “odd twist” of the NRA being financially healthy and that the nonprofit’s creditors are likely to be paid sooner out of bankruptcy than in it.
Within days of declaring bankruptcy in Dallas, the NRA tried and failed to have James’ lawsuit in New York state halted. Justice Joel Cohen declined to issue an automatic stay because of the bankruptcy filing, agreeing that it does not apply to a regulatory matter like dissolution.
LaPierre expressed disappointment with “some aspects” of the judge’s ruling Tuesday but stated the NRA’s commitment to the direction of the group or its advocacy for the Second Amendment.
“We remain an independent organization that can chart its own course, even as we remain in New York to confront our adversaries,” he said in a statement. “The NRA will keep fighting as we’ve done for 150 years.”
James applauded the dismissal of the case, blasting the NRA and LaPierre for filing bankruptcy “to avoid accountability” in her lawsuit.
“Without a doubt, the board was deceived when bankruptcy language was hidden in Mr. LaPierre’s contract earlier this year,” she said in a statement. “Today’s order reaffirms that the NRA does not get to dictate if and where it will answer for its actions. The rot runs deep, which is why we will now refocus on and continue our case in New York court. No one is above the law, not even one of the most powerful lobbying organizations in the country.”