Wayne LaPierre
The National Rifle Association is on the verge of finding out what will happen if its unrelenting embrace of the Second Amendment violates the US Bankruptcy Code.
The group tries to bypass New York regulators and the state’s fraud case by filing for bankruptcy in Dallas and moving to gun-friendly Texas, supporting the right to bear arms. But the case filed last week could face a host of legal challenges in an initial court hearing Wednesday that could undermine or even aggravate the NRA’s plan.
Opponents could ask for the case to be thrown out entirely, as the NRA says it isn’t actually bankrupt. As the case progresses, the usual revelations could expose more of the NRA’s internal affairs to criticism, including Letitia James, the Attorney General of New York. James has filed a lawsuit to dissolve the organization, accusing leader Wayne LaPierre and three others of corrupting the organization. LaPierre has disputed New York’s allegations.
“I looked at this and I just had a laugh,” said Thomas J. Salerno, a Phoenix-based partner specializing in corporate bankruptcy at the Stinson LLP law firm. Texas may have a pro-gun reputation, but the bankruptcy judges there are federal appointees who will follow the law, not local politics, Salerno said. At best, the NRA can only slow down the New York investigation, he said.
The NRA will come to court today before US bankruptcy judge Harlin D. Hale in Dallas. While unlikely to make any final verdicts at the hearing, the judge could rule to dismiss the case as the NRA has said it is not insolvent or bankrupt and has told members that the group is in “the strongest financial condition in years “.
Court documents show assets of approximately $ 203 million – primarily in cash, investments, receivables and corporate headquarters – against liabilities of $ 153 million. The turnover in 2020 was 7% lower than a year earlier; the NRA said it has cut costs by 23% and has asked employees who stayed in employment for pay cuts.
Political environment
In a statement announcing the filing, the NRA said it had filed for bankruptcy to escape “New York’s toxic political environment” and regroup in Texas while “streamlining costs and expenses.”
“If you take what the NRA says at first glance, that is a strong argument to dismiss the case for lack of good faith,” said Robert Lawless, a professor at the University of Illinois College of Law. “They will have to come up with a number of financial reasons for this.”
The NRA gave a slightly different explanation in court documents. “To be clear, the NRA is not trying to escape regulatory oversight,” the group said. “However, it cannot allow its constitutional rights to be trampled upon or its existence to be destroyed by a political vendetta.” It said that the constitution guarantees people the right to free speech, to bear arms for self-defense and to seek a fresh start in bankruptcy court where necessary. The successful reorganization of the NRA in Texas will affirm and advance all of these rights. “
Under the US bankruptcy code, a company that reorganizes can leave legal obligations related to a civil lawsuit. That would require Hale to approve a reorganization plan that releases the newly reorganized NRA and its executives from the legal claims New York is making in its lawsuit. Such findings can be challenged by creditors and can be appealed to a higher court.
One possibility is that the judge could transfer the case to another state where the NRA has more material business connections. The organization filed for bankruptcy in Dallas – despite being headquartered in Virginia and incorporated in New York – citing a small Texas subsidiary that was founded in November. It’s a common maneuver in Chapter 11 cases, but one that can still be challenged by creditors or the courts.
“The NRA filings have most of the hallmarks of a bad faith filing and are almost a textbook ground for the site transfer,” said Bruce Markell, a former judge and current professor of bankruptcy at Northwestern Pritzker School of Law.
Read more: NRA Tries to Escape NY Pressure by Filing for Bankruptcy in Texas
Still, layoffs from major bankruptcies are extremely rare. And, as unusual as it may seem, the NRA’s claim that it is “not insolvent” does not invalidate its bankruptcy, said Kevin Carey, a retired Delaware bankruptcy judge who is now a partner at Hogan Lovells. The bankruptcy code “is designed to help businesses alleviate financial distress,” regardless of the cause, he said.
Whether bankruptcy will help the NRA resolve pending lawsuits and investigations is a separate issue. Typically, a Chapter 11 filing will stop most lawsuits, but there is an exception for regulatory and police powers. The Attorney General of New York said in a letter Wednesday that this exception applies to his lawsuit against the NRA, urging the judge overseeing that case to continue it.
The NRA’s bankruptcy filing is not intended to stop or transfer the case in New York, William A. Brewer III, counsel for the NRA, said in an emailed statement. Rather, it is intended to streamline and organize the legal and financial affairs of the NRA and, with court approval, also allow the NRA to re-instate in the state of Texas, ”he said.
More data
If the lawsuit is suspended by the so-called automatic suspension, the New York case would simply become part of the bankruptcy – which could give New York new legal tools to extract information, Salerno said.
That’s because under Bankruptcy Rule 2004 creditors or other parties are often given access to more information than on any other forum, Salerno said. In that sense, the NRA’s bankruptcy could turn out to be a self-inflicted wound, he said.
“Honestly, I just shook my head,” Salerno said. “It could be like the NRA is pointing a gun at its own head and saying, ‘Stop me before I shoot again.’ ‘
The case is National Rifle Association of America, 21-30085-11, US Bankruptcy Court for the Northern District of Texas (Dallas).
(Michael R. Bloomberg, founder of Bloomberg News mother Bloomberg LP, is a donor to gun control candidates and groups, including Everytown for Gun Safety.)
– With the help of Laura Francis
(Updates with comments from the New York Attorney General and the NRA attorney, beginning in paragraph 14)