Wayne LaPierre
O The National Rifle Association is about to find out what happens when its unrestricted adoption of the Second Amendment clashes with the United States Bankruptcy Code.
The group is trying to circumvent New York regulators and the state’s fraud process by filing for bankruptcy in Dallas and moving to Texas, which is gun-friendly, claiming support for the right to bear arms. But the case opened last week could face a series of legal challenges at an initial hearing on Wednesday, which could undermine the NRA’s plan or even compound its problems.
Opponents may ask for the case to be dismissed entirely, as the NRA says it is not really bankrupt. If the case goes ahead, the usual disclosures could expose more internal NRA matters to the scrutiny of critics, including Letitia James, New York attorney general. James is suing to dissolve the organization and accusing leader Wayne LaPierre and three others of stealing it. LaPierre contested the New York allegations.
“I looked at it and just laughed,” said Thomas J. Salerno, a Phoenix-based partner who specializes in corporate bankruptcy with the law firm Stinson LLP. Texas may have a pro-gun reputation, but bankruptcy judges there are appointed federals who will follow the law, not local politics, said Salerno. At best, the NRA can only delay the New York investigation, he said.
The NRA will be presented to the court today before US bankruptcy judge Harlin D. Hale in Dallas. Although he is unlikely to make any final decisions during the hearing, the judge may decide to dismiss the case, as the NRA said it is not insolvent or bankrupt and told members that the group is in “its best financial condition in years” .
The court documents show assets of about $ 203 million – mostly in cash, investments, accounts receivable and its headquarters – against liabilities of $ 153 million. The revenue in 2020 fell 7% in relation to the previous year; the NRA said it cut expenses by 23% and asked employees who stayed on the job to accept cut wages.
Political environment
On a statement announcing the request, the NRA said it had filed for bankruptcy to escape “the toxic New York political environment” and regroup in Texas, allowing “to simplify costs and expenses”.
“If you take what the NRA is saying at face value, it makes a strong case for the case to be dismissed for lack of good faith,” said Robert Lawless, a professor at the University of Illinois School of Law. “They will have to provide some financial reasons for doing so.”
The NRA gave a slightly different explanation in court documents. “To be clear: the NRA is not trying to escape regulatory oversight,” said the group. “However, he cannot allow his constitutional rights to be trampled on or his existence destroyed by political vengeance.” He said that the Constitution guarantees people the right to freedom of expression, to carry weapons for self-defense “and to seek a new start in the bankruptcy court, when appropriate. The successful reorganization of the NRA in Texas will assert and promote all of these rights. “
According to the United States Bankruptcy Code, a company that reorganizes can leave behind legal liabilities linked to civil proceedings. This would require Hale to approve a reorganization plan that would free the newly reorganized NRA and its executives from the lawsuits New York is taking in its lawsuit. These conclusions can be challenged by creditors and appealed to a higher court.
One possibility is that the judge may send the case to another state where the NRA has more substantive business ties. The organization filed for bankruptcy in Dallas – despite being headquartered in Virginia and incorporated in New York – citing a small Texas-based subsidiary that was created in November. It is a common maneuver in Chapter 11 cases, but it can still be contested by creditors or the judge.
“NRA lawsuits have most of the hallmarks of a bad faith process and have almost manual grounds for transferring the forum,” said Bruce Markell, a former judge and current bankruptcy professor at Northwestern Pritzker School of Law.
Read more: NRA seeks to escape New York pressure by declaring Texas bankruptcy
Still, layoffs from large bankrupt companies are extremely rare. And as unusual as it may seem, the NRA’s claim that it is not “insolvent” does not invalidate your bankruptcy, according to Kevin Carey, a retired Delaware bankruptcy judge who is now a partner in the Hogan Lovells. The bankruptcy code “was designed to help companies alleviate financial difficulties”, regardless of what caused them, he said.
Whether bankruptcy will help the NRA resolve pending lawsuits and investigations is a separate problem. Typically, a Chapter 11 process interrupts most processes, but there is an exception for regulatory and police powers. In a letter on Wednesday, the New York attorney general said that this exception applies to his case against the NRA, and asked the judge who oversaw the case to let him proceed.
The NRA’s bankruptcy filing is not intended to interrupt or transfer the New York case, said William A. Brewer III, an NRA attorney, in an e-mailed statement. “Instead, it aims to streamline and organize the NRA’s legal and financial affairs and, with the approval of the court, also allow the NRA to reincorporate in the state of Texas,” he said.
More Data
If the case is suspended by the so-called automatic suspension, the New York case will simply become part of the bankruptcy – which could give New York new legal tools to extract information, said Salerno.
That’s because, under the 2004 Bankruptcy Rule, creditors or other parties can generally gain access to more information than in another forum, said Salerno. In that sense, NRA bankruptcy could end up being a self-inflicted wound, he said.
“Honestly, I just shook my head,” said Salerno. “It could be as if the NRA were 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 North Texas District (Dallas).
(Michael R. Bloomberg, founder of Bloomberg News, father of Bloomberg LP, is a donor to candidates and groups that support gun control, including Everytown for Gun Safety.)
– With the help of Laura Francis
(Updates with comments from the New York Attorney General and NRA attorney, starting with the 14th paragraph)