National Rifle Association Files For Bankruptcy Seeking To Escape New York Lawsuit
By , Jonathan Stempel
3 Min Read
– The National Rifle Association on Friday filed for bankruptcy, a sudden development that could help the gun rights group escape a lawsuit by New Yorks attorney general seeking its dissolution.
The NRA filed for Chapter 11 protection in federal bankruptcy court in Dallas, and said it plans to reincorporate in Texas to escape a corrupt political and regulatory environment in New York, where it is now incorporated.
Texas values the contributions of the NRA, celebrates our law-abiding members, and joins us as a partner in upholding constitutional freedom, Chief Executive Wayne LaPierre said in a letter to members. We seek protection from New York officials who illegally abused and weaponized the powers they wield against the NRA and its members.
The NRA was sued in August by New York Attorney General Letitia James, who accused LaPierre and other senior leaders of self-dealing and mismanagement, and said the groups activities violated state laws governing nonprofits.
James said NRA officials diverted millions of dollars to fund luxury lifestyles, including vacations and private jets, and to buy the silence and loyalty of former employees, costing the group $64 million over three years.
The NRAs claimed financial status has finally met its moral status: bankrupt, James said in a statement on Friday. We will not allow the NRA to use this or any other tactic to evade accountability and my offices oversight.
Federal Judge Denies Nra Attempt To Declare Bankruptcy In Win For New York State Attorney General
A federal judge Tuesday denied an effort by the National Rifle Association to file for bankruptcy protection, ruling that the gun rights group had filed the case in a bad-faithattempt to fend off a lawsuit by the New York attorney general.
The Court finds, based on the totality of the circumstances, that the NRAs bankruptcy petition was not filed in good faith but instead was filed as an effort to gain an unfair litigation advantage in the NYAG Enforcement Action and as an effort to avoid a regulatory scheme, Judge Harlin Hale wrote in a 37-page decision.
The decision was a victory for New York Attorney General Letitia James, who filed a far-reaching civil suit against the group last August accusing top officials of fraud and self-dealing. NRA chief Wayne LaPierre and his legal team had contended that the lawsuit was a political act intended to destroy the organization.
The NRA does not get to dictate when and where it will be held accountable, James told reporters after the ruling. This decision sends a loud and clear message that no one is above the law not even one of the most powerful lobbying organizations in the country.
LaPierre acknowledged the loss in a statement posted to the groups Twitter account, but the embattled NRA leader vowed the group would continue to confront our adversaries.
How Did The Judge Explain His Rationale
In his analysis, Judge Harlin Hale followed the process required , the provision that addresses dismissal.
First, he looked at all available evidence, including depositions, court filings and the many days of testimony from various witnesses to determine what the NRAs primary purpose was for filing bankruptcy. Though the NRA gave a variety of different explanations, the court found that the nonprofit organizations main driving force for filing Chapter 11 was avoiding dissolution in the pending action it faces in New York.
Next, Hale determined that the NRAs use of bankruptcy to avoid dissolution was not a good faith filing and should be dismissed because it sought an unfair advantage in the New York litigation. Finally, he found that appointing a Chapter 11 trustee or examiner, instead of dismissing the case, was not in the best interests of the NRAs creditors or the nonprofit itself.
In making this conclusion, Hale noted that changes the NRA has recently made such as additional disclosure and reporting mechanisms show the groups officials understand how important compliance is going forward. He also observed that the NRA has the financial means to resolve its legal and organizational issues outside of bankruptcy.
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Nra In The News: Is Bankruptcy Justified
Concurrent with its bankruptcy filing, the NRA stupidly made a public statement that it isnt insolvent or bankrupt saying it is in its strongest financial condition in years. This was not a very smart thing to do, as the US Bankruptcy Code is to help insolvent people and companies. That is just begging for a bankruptcy dismissal.
In Canada, in order to do a traditional bankruptcy filing under the Bankruptcy and Insolvency Act , the debtor must be insolvent. The BIA defines an insolvent person as an individual or company who:
- is not bankrupt
- who lives, carries on business or has assets in Canada
- whose debts owing to creditors that are provable claims total at least one thousand dollars, and also:
- for any type of reason unable to pay their debts when due
- has stopped paying liabilities in the regular course as they usually come due or
- the aggregate of the property is not, at a fair assessment, enough, if sold at a properly conducted sale, to pay off all debts currently or about to become due.
A licensed insolvency trustee should not accept an assignment in bankruptcy from anyone filing bankruptcy from a party whose Statement of Affairs shows they are not insolvent and if accepted, should not be allowed by the Office of the Superintendent of Bankruptcy. A court would certainly not make a Bankruptcy Order in such a situation.
Nra In The News: How Might Bankruptcy Help The Nra Reincorporate
When a person or company makes insolvency filing, that generally stops actual or pending litigation while giving more time to analyze exactly how to manage the financial difficulties. In Canada, the stoppage of lawsuits is called a stay of proceedings. However, in Canada, the stay of proceedings just relates to lawsuits for the collection of a debt.
Litigation, such as the pending lawsuit of the New York attorney general against the NRA, has nothing to do with proving or collecting on a debt. Rather, it is to prove that laws have been broken. My view is that in Canada, if the insolvency filing was not thrown out entirely, such as it was in this case, for sure the government would be able to get leave of the court to either begin or continue its litigation.
So the powerful gun-rights group thought that if it filed its voluntary Chapter 11 bankruptcy petition for bankruptcy protection, it could buy itself the time it needed to dissolve, stop the New York State legal action and then reincorporate in the gun-friendly state of Texas.
NRA in the news
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Nra Bankruptcy: Us Judge Dismisses Case
A US judge has dismissed a bankruptcy case involving the National Rifle Association , leaving it to face a lawsuit that could see the powerful organisation dissolved.
In a written statement, the judge said gun-rights group did not file for bankruptcy in good faith.
Last year, New York’s attorney general Letitia James filed a lawsuit accusing the NRA of financial mismanagement.
The NRA described the move as a “baseless, premeditated attack”.
It declared bankruptcy in January.
Tuesday’s hearing focused on whether the group should be allowed to establish itself legally in Texas instead of New York, where it faces the lawsuit.
Although its headquarters are in Virginia, the NRA was chartered in New York in 1871 as a non-profit organisation and it is incorporated in the state.
“The court believes the NRA’s purpose in filing bankruptcy is less like a traditional bankruptcy case in which a debtor is faced with financial difficulties or a judgment that it cannot satisfy and more like cases in which courts have found bankruptcy was filed to gain an unfair advantage in litigation or to avoid a regulatory scheme,” Judge Harlin Hale wrote.
“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 judge added.
Judge Dismisses Nra Bankruptcy Case In Blow To Gun Group
DALLAS A federal judge dismissed the National Rifle Associations bankruptcy case Tuesday, leaving the powerful gun-rights group to face a New York state lawsuit that accuses it of financial abuses and aims to put it out of business.
The judge was tasked with deciding whether the NRA should be allowed to incorporate in Texas instead of New York, where the state is suing in an effort to disband the group. Though headquartered in Virginia, the NRA was chartered as a nonprofit in New York in 1871 and is incorporated in the state.
Judge Harlin Hale said in a written order that he was dismissing the case because he found the bankruptcy was not filed in good faith.
The Court believes the NRAs purpose in filing bankruptcy is less like a traditional bankruptcy case in which a debtor is faced with financial difficulties or a judgment that it cannot satisfy and more like cases in which courts have found bankruptcy was filed to gain an unfair advantage in litigation or to avoid a regulatory scheme, Hale wrote.
His decision followed 11 days of testimony and arguments. Lawyers for New York and the NRAs former advertising agency grilled the groups embattled top executive, Wayne LaPierre, who acknowledged putting the NRA into Chapter 11 bankruptcy without the knowledge or assent of most of its board and other top officers.
LaPierre pledged in a statement to continue to fight for gun rights.
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Nra Files For Bankruptcy
The National Rifle Association has filed for chapter 11 bankruptcy protection.
The gun rights advocacy group announced the news Friday, stating the move was part of a restructuring plan that will come with “many financial and strategic advantages.” The statement goes on to say that the association will leave New York, which it describes as a “corrupt political and regulatory environment,” for Texas, where there are more than 400,000 NRA members.
“This strategic plan represents a pathway to opportunity, growth and progress,” NRA CEO and EVP Wayne LaPierre said in a press release. “Obviously, an important part of this plan is dumping New York. The NRA is pursuing reincorporating in a state that values the contributions of the NRA, celebrates our law-abiding members, and will join us as a partner in upholding constitutional freedom. This is a transformational moment in the history of the NRA.”
The NRA also claims it’s experiencing “its strongest financial condition in years,” and that there will be no immediate changes to its operations or workforce.
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National Rifle Association Files For Bankruptcy Announces Move From New York To Texas
The National Rifle Association filed for bankruptcy on Friday.
In a letter to members, Wayne LaPierre, the head of the notorious gun lobby group, wrote, The plan aims to streamline costs and expenses, proceed with pending litigation in a coordinated and structured manner, and realize many financial and strategic advantages.
The group will apparently relocate from the toxic political environment of New York, where it is now registered as a nonprofit, to Texas. It is physically headquartered in Fairfax, Virginia. For his part, LaPierre referred to the bankruptcy filing and reincorporation in the Lone Star State as a restructuring plan.
The virulently pro-gun organization has been plagued by infighting among its executive ranks and legal troubles over the past year and was sued for fraud by New York Attorney General Letitia James in August. The attorney general alleges senior executives used millions in NRA funds for personal purchases like private jets and is seeking to dissolve the organization. The NRA has countersued. Washington, D.C. Attorney General Karl Racine has also sued the NRAs charity arm over alleged misuse of donations.
James responded to the Friday news in a statement, The NRAs claimed financial status has finally met its moral status: bankrupt.
LaPierre wrote on Friday that Texas appreciates the contributions of the NRA, where it boasts 400,000 members.
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Nra In The News Summary
I hope you enjoyed the NRA in the news Brandon Blog post. A bad faith insolvency filing is luckily rare in Canada. However, something like the NRA filing could happen. Canadian courts have the ability to either annul or set aside a filing by a non-insolvent debtor filed for a fraudulent purpose or to misuse the Canadian insolvency system.
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nra in the news
Nra Files For Bankruptcy Says It Will Reincorporate In Texas
- The National Rifle Association filed for bankruptcy protection as part of a restructuring plan aimed at moving the influential gun rights group to Texas.
- The filing comes six months after New York state’s attorney general filed a lawsuit seeking to dissolve the NRA for allegedly misappropriating funds.
- AG General Letitia James accuses the organization’s leadership of diverting millions for their own personal use, resulting in a $64 million loss to the NRA.
WASHINGTON The National Rifle Association on Friday filed for bankruptcy protection as part of a restructuring plan aimed at moving the influential gun rights group to Texas.
The filing comes six months after New York state’s attorney general filed a lawsuit seeking to dissolve the NRA for allegedly misappropriating funds.
The advocacy group said that it would restructure as a Texas nonprofit to exit from what it described as “a corrupt political and regulatory environment in New York,” where it is currently registered
The NRA, which said it was not financially broke, filed for protection under Chapter 11 in U.S. Bankruptcy Court in Dallas.
In its filing, the group said it has assets of between $100 million and $500 million, and liabilities in the same dollar range.
The NRA’s largest unsecured creditor was its former ad agency Ackerman McQueen, which is owed $1.27 million, according to the filing. The gun group and the ad company have filed contentious lawsuits against one another.
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In Rebuke To Nra Federal Judge Dismisses Bankruptcy Case
The N.R.A. filed for bankruptcy this year as it sought to end run regulatory action in New York, but a judge rejected the strategy.
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By Danny Hakim
The National Rifle Associations attempt to evade a legal challenge from New York regulators was tossed out by a federal bankruptcy judge on Tuesday, in a ruling that cast further doubt on whether the groups embattled chief executive, Wayne LaPierre, would remain at the helm after three decades in power.
The ruling was a victory for Letitia James, the New York attorney general, whose office is seeking to remove Mr. LaPierre and shut down the gun rights group amid a long-running corruption investigation.
Mr. LaPierre, the face of the American gun lobby, now battered by the N.R.A.s internecine warfare and revelations of extravagant personal spending, had sought to end-run Ms. James by relocating to Texas and filing for bankruptcy there. But the gambit instead proved a strategic blunder: The testimony over a 12-day trial only buttressed Ms. Jamess contentions of corruption, and led the judge, Harlin D. Hale, to declare, The N.R.A. is using this bankruptcy case to address a regulatory enforcement problem, not a financial one.
An appeal could be difficult.
But the future for the N.R.A. itself, and in particular Mr. LaPierre, will become more uncertain.
Bankruptcy Court Orders Dismissal Of Nra Chapter 11 Cases
May 26, 2021
On May 11, 2021, the United States Bankruptcy Court for the Northern District of Texas issued a decision dismissing the chapter 11 cases of the National Rifle Association of America and its affiliate for cause pursuant to section 1112 of the Bankruptcy Code. In so ruling, the Court found that the pending New York attorney generals lawsuit seeking the NRAs dissolutionwhich the NRA alleged was an existential threat to its existencewas not the type of threat that the Bankruptcy Code protects against. The Court further found that the NRA filed bankruptcy to gain an unfair litigation advantage and to avoid New Yorks regulatory scheme, objectives that did not constitute good faith for bankruptcy filing purposes and which were cause to dismiss the cases.
Background
The Courts Decision
While the NRA facts are unusual, the ruling is a useful reminder that a bankruptcy case filed solely for the purpose of obtaining an unfair litigation advantage risks being dismissed as not filed in good faith. The Bankruptcy Code remains a powerful tool for corporate reorganizations and to respond to financial pressuresincluding litigation judgments. However, bankruptcy filings must be supported by sound corporate governance processes and a valid purpose for seeking bankruptcy relief.
* * *
Order Granting Motions to Dismiss , In re National Rifle Association of America and Sea Girt LLC, Case No. 2130085 .
See N-PCL § 1101 Order, p. 28 ).).
See N-PCL § 1102.
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