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The National Rifle Association’s plan to counter a New York lawsuit hit a major setback on Tuesday after its bankruptcy case was dismissed.
Federal Judge Harlin Hale ruled the gun group’s attempt to relocate to Texas in response to litigation by New York Attorney General Letitia James (D.) targeting the group could not go through. Judge Hale agreed with James in her argument the NRA, whose leaders repeatedly publicly touted the financial strength of the organization during the case, was not trying to address legitimate financial concerns. Instead, the judge concluded, the group was inappropriately trying to use the bankruptcy court to avoid government oversight.
“The Court agrees with the NYAG that the NRA is using this bankruptcy case to address a regulatory enforcement problem, not a financial one,” he said in the ruling.
The ruling deals a significant blow to the NRA’s legal strategy for dealing with James’ suit over accusations that NRA leaders, including CEO Wayne LaPierre, diverted tens of millions of dollars from the group for personal use over several decades. It likely ends the attempt to move the venue for hearing James’ claims from New York state court to a federal bankruptcy court in Texas. It also makes her effort to completely shut down the group, a political opponent she described as a “terrorist organization” during her campaign for AG, more likely to succeed.
The NRA’s bankruptcy strategy was conceived by CEO Wayne LaPierre and outside counsel Bill Brewer, without input from the NRA’s full board, as a way to protect the group from dissolution by James. But it was considered a long shot by experts from the beginning with many, including Howard University bankruptcy expert Matthew Bruckner, explicitly calling it a “Hail Mary” maneuver. After a drawn-out trial that lasted several weeks beyond its initial schedule, Judge Hale ultimately decided the case was filed in bad faith, and a host of questions about the NRA’s management and controls remained. Judge Hale said the group did not have the needed oversight to prevent or punish impropriety carried out by its executives.
“The mission and function of the NRA is focused on gun safety, and the NRA asserts it is ‘the nation’s foremost defender’ of the Second Amendment of the United States Constitution,” he wrote in his ruling. “In recent years, however, it has become apparent that the NRA was suffering from inadequate governance and internal controls.”
Judge Hale pointed to numerous specific concerns with the NRA’s case.
“There are several aspects of this case that still trouble the Court, including the manner and secrecy in which authority to file the case was obtained in the first place, the related lack of express disclosure of the intended Chapter 11 case to the board of directors and most of the elected officers, the ability of the debtor to pay its debts, and the primary legal problem of the debtor being a state regulatory action,” he said.
LaPierre said the NRA is “disappointed with some aspects of the decision” but will not change the “overall direction” of the group or its programs.
“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 over 150 years.”
James said the ruling protects the rule of law and prevents the NRA from being able to “dictate if and where it will answer for its actions” and promised to continue her suit against them in New York.
“No one is above the law,” she tweeted. “We sued the NRA to put an end to its fraud and abuse, and now we will continue our work to hold the organization accountable.”
Hale left open the possibility that the NRA could refile the case again in the future but said the group risked having a court-appointed official take over its operations if it did not correct the remaining problems he identified.
“Should the NRA file a new bankruptcy case, this Court would immediately take up some of its concerns about disclosure, transparency, secrecy, conflicts of interest of officers and litigation counsel, and the unusual involvement of litigation counsel in the affairs of the NRA, which could cause the appointment of a trustee out of a concern that the NRA could not fulfill the fiduciary duty required by the Bankruptcy Code for a debtor in possession,” he said.
UPDATE (5/11/2021 at 5:06 pm): This story was updated to include further details from Judge Hale’s ruling and comments from Attorney General Letitia James and NRA CEO Wayne LaPierre.