A Federal Judge Denied NRA's Bid For Bankruptcy. What Happens Next?

AP Photo/Seth Perlman, File

The NRA’s attempt to file bankruptcy and reorganize in the state of Texas has been denied by a federal judge in the Lone Star State, who issued a ruling on Tuesday afternoon that the Second Amendment organization’s move was not “filed in good faith both because it was filed to gain an unfair litigation advantage and because it was filed to avoid a state regulatory scheme.”

The judge’s decision means that New York Attorney General Letitia James’ attempt to dissolve the organization can continue in New York, where the National Rifle Association has been chartered since 1871.

The NRA was quick to release a statement following the judge’s decision, in which the organization vowed to “continue to fight on all fronts in the interests of its mission and its members.” Here’s the text of the full statement.

In response to today’s dismissal of a prior bankruptcy filing, the National Rifle Association of America (“NRA”) announced that it will continue to fight on all fronts in the interests of its mission and its members.

The New York Attorney General and others had aligned against the NRA in opposition to the NRA’s reorganization plan announced on January 15, 2021. They sought to dismiss the NRA’s bankruptcy filing with prejudice or, in the alternative, appointment of a court-appointed trustee, to take control of the Association’s business and financial affairs. Importantly, a United States Bankruptcy Court in Dallas did not appoint a Trustee or examiner, even as it ruled the Association may not proceed with the chapter 11 case. The court dismissed the bankruptcy filing without prejudice, meaning the NRA does have the option to file a new bankruptcy case.

During a 12-day hearing that occurred over approximately four weeks, the NRA established that it had adopted new policies and accounting controls, displaced many “insiders” who had allegedly abused the Association, and accepted reparations for costs voluntarily determined to be excess benefits. The hearing proceedings focused on the NRA’s compliance efforts, and the organization’s renewed commitment to good governance.

In an opinion, dated May 11, 2021, the Hon. Harlin D. Hale, U.S. Bankruptcy Judge, Northern District of Texas, wrote, “In short, the testimony…suggests that the NRA now understands the importance of compliance. Outside of bankruptcy, the NRA can pay its creditors, continue to fulfill its mission, continue to improve its governance and internal controls, contest dissolution in the NYAG Enforcement Action, and pursue the legal steps necessary to leave New York.”

Underscoring the importance of the proceedings, Judge Hale previously said the NYAG motion contesting the NRA’s Chapter 11 filing was “the most important motion I’ve ever heard as a judge.”

The NRA remains determined to further streamline its legal and business affairs in the best interests of its constituents and members.

NRA CEO & EVP Wayne LaPierre said today’s decision – and the ongoing independence of the NRA – empowers the Association’s approximately 5 million members.

“The NRA remains committed to its members and our plan for the future,” says NRA CEO & EVP Wayne LaPierre. “Although we are disappointed in some aspects of the decision, there is no change in the overall direction of our Association, its programs, or its Second Amendment advocacy. Today is ultimately about our members – those who stand courageously with the NRA in defense of constitutional freedom. We remain an independent organization that can chart its own course, even as we remain in New York to confront our adversaries. The NRA will keep fighting, as we’ve done for 150 years.”

The NRA remains determined to confront NYAG Letitia James in her attempt to dissolve NRA. The NYAG seeks such remedies as part of a lawsuit she filed on August 6, 2020. In summer 2018, then NYAG candidate James called the NRA a “criminal enterprise” and “terrorist organization.” Her subsequent pursuit of the NRA has been characterized by many legal experts and constitutional scholars as a gross weaponization of legal and regulatory power.

“The NRA will continue to defend the interests of the Association in New York,” says William A. Brewer III, counsel to the NRA. “Our client has faith in its leadership, and its demonstrated commitment to good governance.”

“The record reflects the NRA undertook a ‘course correction’ with respect to its management,” says NRA President Carolyn Meadows. “The Association is strong and secure – once again moving forward above the objections of its adversaries and those who oppose Second Amendment freedoms.”

The NRA can still pursue establishing business operations in Texas, and the organization will continue to explore moving its headquarters there from Virginia. Texas is home to more than 400,000 NRA members.

The bankruptcy hearing became the nation’s highest -profile legal proceeding of its kind. The virtual proceedings, involving more than 20 witnesses, explored novel issues that define the roles and responsibilities of legal defendants subjected to the threat of dissolution. The NRA has maintained it is financially viable, following its current pathway, in part, to escape a toxic political environment in New York. The NRA was incorporated in New York in 1871.

The legal proceedings revealed the NRA’s commitment to good governance and efforts to follow the “principled path” with respect to its management practices, board oversight, and member obligations under Mr. LaPierre’s leadership. Mr. LaPierre remains at the helm of the organization, directing political affairs, grassroots activities and other functions essential to the defense of the Second Amendment.

“The record establishes that NRA members can have great confidence in this institution and its plans for the future,” says NRA First Vice President Charles Cotton. “The Association will work with members, vendors, and other constituents to continue the fight for freedom.”

“Our NRA is pressing forward with its plans, and remains determined to promote constitutional freedoms,” says NRA Second Vice President Lt. Col. Willes K. Lee, USA (Ret). “We will never shrink from the tough and principled stands we take on behalf of our law-abiding 5 million members.”

The NRA is putting as positive a spin as they can on the judge’s decision, but Judge Hale had some harsh words for the group, describing the attempt to file bankruptcy without informing the NRA’s chief financial officer, general counsel, and a majority of the board of directors as “nothing less than shocking.”

Hale also warned that while the bankruptcy case was dismissed without prejudice, which means the organization could refile, any future attempt to do so would open up a whole new can of worms.

The judge wrote that if the case is refiled, he would immediately take up “concerns about disclosure, transparency, secrecy, conflicts of interest” between NRA officials and their bankruptcy legal team. He said that the lawyers “unusual involvement” in the NRA’s affairs raised concerns that the group “could not fulfill the fiduciary duty” and might lead him to appoint a trustee to oversee it.

As the NRA notes, it could still move its headquarters from northern Virginia to Texas, but that was never at issue. What the organization was hoping to do was re-organize as an entity outside of New York, and with the judge’s decision, any attempt to move out of the state must first be approved by Letitia James. I’m not saying that couldn’t happen, but Wayne LaPierre stands a better chance of winning the Powerball than getting New York’s AG to give up her pursuit of the organization he helms.

All in all, not a great day for the NRA’s leadership. The organization’s escape hatch from New York was slammed shut by the bankruptcy judge, and as Gun Talk’s Tom Gresham reminds us, the week-and-a-half of testimony during the bankruptcy proceeding may very well pop up again when Letitia James’ case against the organization goes to trial, likely in 2022.