NRA’s Bankruptcy Filing Tossed, Putting Gun Group in Peril

The National Rifle Association’s bankruptcy filing was rejected by a Texas judge, leaving it vulnerable to a New York attorney general who is seeking to dissolve the powerful gun group.

After a weekslong trial, U.S. Bankruptcy Judge Harlin “Cooter” Hale on Tuesday dismissed the Chapter 11 case and halted a proposal to reincorporate the New York-based association in Texas. New York officials claimed the filing was a bad-faith effort to use the protections of bankruptcy to avoid its lawsuit.

The decision means that New York Attorney General Letitia James should have an easier time seizing the NRA’s assets if she wins her court case. James claims that NRA head Wayne LaPierre and others so badly mismanaged the group that it should be shut down.

NRA’s Bankruptcy Filing Tossed, Putting Gun Group in Peril

The NRA’s case foundered in part because the gun lobby acknowledged that it wasn’t having financial difficulty. The judge wrote that he agreed with the New York attorney general that “the NRA is using this bankruptcy case to address a regulatory enforcement problem, not a financial one.”

James, a Democrat, rejected the NRA’s claim that she targeted the organization for “nefarious” political purposes, including her stance on stricter gun control.

“Despite the personal attacks, this has nothing to do with the Second Amendment,” she said on a call with reporters. “This is about accountability.”

The NRA remains committed to its members and its plan for the future, LaPierre said in a statement, following the ruling. He said the group was disappointed in some aspects of the decision.

“We remain an independent organization that can chart its own course, even as we remain in New York to confront our adversaries,” LaPierre said. “The NRA will keep fighting, as we’ve done for 150 years.”

The ruling raises the prospect that the NRA may be severely hobbled or completely disappear from the U.S. political landscape, where it has held enormous sway for years, beating back repeated attempts at stricter federal gun laws after mass shootings and building a fervent following closely tied to the Republican Party. It has spent millions of dollars to back candidates for president and Congress and on Supreme Court confirmation fights, and was the largest financial backer of Donald Trump’s successful 2016 campaign.

”Given the broad publicity, and specifically what appears to be total disregard for corporate governance in filing for bankruptcy, including not giving notice to its own board of directors, all this is going to come back to haunt current management and the organization,” said Robbin Itkin, a partner at Sklar Kirsh LLP, who wasn’t involved in the case.

The NRA filed for bankruptcy in January, several months after James sued in state court seeking to dissolve the organization for the alleged misuse by senior executives of tens of millions of dollars that belonged to the nonprofit.

Before he ruled, Hale had offered few clues to how he was leaning. One came after testimony ended, when he posed a question: Can a financially healthy organization file for bankruptcy to protect itself from the risk that another court will find its dissolution “in the best interest of the public?”

He answered his own question in his order.

“The NRA is a solvent and growing organization using this bankruptcy as a tool to win its dissolution lawsuit, and that is not an appropriate use of bankruptcy,” he wrote.

The case now moves back to New York where the state and the NRA will exchange evidence, a process that will last through next year, James said on the call with reporters. She added that the NRA will not be able to incorporate in another state without her approval.

Hale issued the ruling after listening to testimony for more than two weeks, which included palace intrigues, shredded notes and excessive personal spending at the NRA. One of the groups allied with New York is the gun lobby’s former ad agency, Ackerman McQueen Inc., which claimed the bankruptcy filing was made in bad faith and should be dismissed.

The argument over its financial viability became a central point in the debate over whether the case was properly filed, since bankruptcy is typically reserved for people, companies and other entities that can’t pay their bills. Even the U.S. office that monitors bankruptcies said at the end of the trial that the NRA doesn’t belong in Hale’s court.

“At various times in this case, the NRA has provided the Court with several -- and at times slightly different -- reasons for why this bankruptcy case was filed,” the judge wrote. The group’s treasurer and its chief financial officer only learned about the bankruptcy after it was filed.

NRA’s Bankruptcy Filing Tossed, Putting Gun Group in Peril

LaPierre acknowledged in video testimony recent lapses in oversight of payments to himself and other insiders. But he also said that a “course correction” he launched in 2017 had fixed many governance problems.

The judge didn’t buy that.

“Some of the conduct that gives the court concern is still ongoing,” Hale wrote. “Mr. LaPierre is still making additional financial disclosures. There are also lingering issues of secrecy and a lack of transparency.”

The case is National Rifle Association of America, 21-bk-30085, U.S. Bankruptcy Court, Northern District of Texas (Dallas).

(Michael R. Bloomberg, founder of Bloomberg News parent Bloomberg LP, is a donor to candidates and groups that support gun control, including Everytown for Gun Safety.)

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