A federal bankruptcy judge rejected the National Rifle Association’s Chapter 11 petition on Tuesday, finding that the cash-flush gun group brought their case in bad faith to avoid a lawsuit by the New York attorney general which seeks to dissolve the organization.
“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,” U.S. Bankruptcy Judge Harlin Hale found in a 33-page ruling on Tuesday.
“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 added.
New York Attorney General Letitia James (D) celebrated the ruling in a scathing statement.
“Weeks of testimony have demonstrated that the NRA and Wayne LaPierre simply filed chapter 11 bankruptcy to avoid accountability,” James wrote. “This trial underscored that the NRA’s fraud and abuse continued long after we filed our lawsuit. Without a doubt, the board was deceived when bankruptcy language was hidden in Mr. LaPierre’s contract earlier this year. 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.”
Judge Hale’s decision follows a roughly monthlong trial featuring blockbuster testimony by the NRA’s executive vice president and CEO Wayne LaPierre and several other current and former executives, some of whom testified that the gun group chief’s decision to form a Texas entity and file for bankruptcy there blindsided them.
That trial brought up some “cringeworthy facts,” the NRA’s lawyer Greg Garman acknowledged.
Judge Hale did not disagree, noting that the record is incomplete because group’s treasurer asserted his Fifth Amendment right against self-incrimination.
“Some of the conduct that gives the Court concern is still ongoing,” the ruling states. “The NRA appears to have very recently violated its approval procedures for contracts in excess of $100,000. Mr. LaPierre is still making additional financial disclosures. There are also lingering issues of secrecy and a lack of transparency.”
The ruling glosses over some of the more sensational revelations of the trial, including LaPierre’s testimony about having received gratis yacht trips to the Bahamas from a Hollywood producer and NRA donors. The excursions, on the vessels the Illusions and the Grand Illusions, began after the Sandy Hook massacre, which LaPierre insisted were for security reasons.
LaPierre also justified his exclusive travel on private jet for security concerns and conceded that he went on a $300,000 shopping spree for Italian suits at a Beverly Hills Zegna, on the dime of the NRA’s former public relations firm, Ackerman McQueen.
The attorney general has made those facts a focal point of her lawsuit alleging improper gifts and payments.
But Judge Hale appeared more concerned in his ruling with the NRA’s unusual path to bankruptcy court, which apparently blindsided many of their high-ranking executives.
“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 wrote in his ruling. “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.”
The NRA filed a federal bankruptcy petition in Texas earlier this year to avoid a lawsuit that Attorney General James filed to shut down the organization for allegedly using the company as a “piggy bank” in violation of charity law. The NRA boasted at the time that it is “in its strongest financial condition in years,” and it justified the maneuver on the grounds that it was “dumping New York” and “utilizing the protection of the bankruptcy court” in order to organize its “legal and regulatory matters in efficient forum.”
Claiming the attorney general had a political vendetta, the NRA pointed to James’s comments on the campaign trail calling it a “terrorist organization,” but Hale found that the U.S. bankruptcy code was not created to avoid the type of lawsuit that she filed.
The attorney general’s office and the NRA’s former public relations firm Ackerman McQueen sought to dismiss the petition as filed in “bad faith,” and Hale appeared to agree.
“The Court finds that the NRA did not file the bankruptcy petition in good faith because this filing was not for a purpose intended or sanctioned by the Bankruptcy Code,” the judge wrote.
In an effort to avoid the Empire State, where the NRA formed some 150 years ago, LaPierre sought a more favorable forum in the Lone Star State by forming a company Sea Girt LLC. Regulators called that entity a “wholly owned shell company” designed to manufacture jurisdiction in Texas.
The judge questioned whether escaping New York’s attorney general was the only reason for LaPierre’s bankruptcy gambit.
“The Court understands that the NRA wants to leave New York for a variety of reasons, not least of which being what it perceives to be a generally hostile environment,” the ruling states. “While the Court does not find that reincorporating in Texas was the true purpose of the bankruptcy filing, the Court would have concerns even if it were.”
“Reincorporating in Texas could be accomplished outside of bankruptcy pursuant to applicable regulations for New York not-for-profit organizations, which begs the question of what the bankruptcy code is being used for,” it continues. “If the goal is moving to Texas, the purpose of the bankruptcy would still appear to be avoidance of the regulatory scheme in New York that would be required for such a transition outside of bankruptcy, or at least avoidance of the New York regulators. While the Court also does not find potential adverse judgments in litigation other than the NYAG enforcement action to have been a purpose for filing bankruptcy, the court notes that based on the evidence, the NRA is financially healthy and potentially adverse litigation outcomes are too attenuated to justify a good faith bankruptcy filing.”
Celebrating the ruling on Twitter, Attorney General James wrote: “The NRA does not get to dictate if and where it will answer for its actions, and our case will continue in New York court.”
The NRA, which did not immediately respond to an email requesting comment, has the option to re-file its bankruptcy petition. The attorney general’s case seeking the group’s dissolution remains pending.
Listen to clips of Wayne LaPierre’s testimony on Law&Crime’s podcast: “Objections: With Adam Klasfeld” below:
Read the ruling below:
[Image via SAUL LOEB/AFP/Getty Images]
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