In Rebuke to N.R.A., Federal Judge Dismisses Bankruptcy Case

[maestrob]

The N.R.A. filed for bankruptcy this year as it sought to end run regulatory action in New York, but a judge in Texas rejected the strategy.


By Danny Hakim
May 11, 2021

The National Rifle Association’s 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 group’s 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 luxuriant 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. James’s 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.”

Judge Hale, the chief of the federal bankruptcy court in Dallas, also said Mr. LaPierre’s move to file for bankruptcy without telling the group’s board of directors, or his own chief counsel or chief financial officer, was “nothing less than shocking.”

And he warned that any effort to revive the case was likely to lead to another unpalatable outcome: the appointment of an outside trustee to take control of the organization and its finances.

When Mr. LaPierre began bankruptcy proceedings in January, it was not because his organization was in dire financial straits. He conceded in testimony that it was because of a complaint Ms. James’s office filed last year seeking to shut down the N.R.A. and claw back millions of dollars in funds allegedly misspent by him and three other current or former executives.

While the N.R.A. argued in court that it was already undertaking a regime of self-auditing and reform and had cleaned up its practices, Judge Hale wrote that “some of the conduct that gives the Court concern is still ongoing,” adding that the group appeared “to have very recently violated its approval procedures” for large contracts, and that “Mr. LaPierre is still making additional financial disclosures.” He also mentioned continuing “issues of secrecy and a lack of transparency.”

Ms. James, in a teleconference after the decision, said that “the rot runs deep,” and noted that the decision cited “ongoing and lingering issues.” In a statement, she added, “The N.R.A. does not get to dictate if and where it will answer for its actions.” She also said the organization “cannot reorganize in Texas” without her office’s approval, which would not be granted amid a regulatory action.

Mr. LaPierre, in a statement, said that “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.” The N.R.A. was noncommittal about whether it would appeal, but noted in a statement that “the court dismissed the bankruptcy filing without prejudice, meaning the N.R.A. does have the option to file a new bankruptcy case.”

The ruling brings the N.R.A. to a crossroads 150 years after its founding in New York. It now faces a legal reckoning in the state, where Ms. James’s office will have to convince a court of what the appropriate remedy for its alleged actions might be. The same office succeeded in shutting down the troubled charitable foundation started by former President Donald J. Trump.

The bankruptcy filing itself will become one of the latest issues to raise questions about the N.R.A.’s spending. The organization has set aside $5 million for bankruptcy-related expenses thus far, and has paid its lead outside lawyer, William A. Brewer III, $72.6 million over three years as its legal bills have skyrocketed.

An appeal could be difficult.

“They will not be back anytime soon,” said John A. E. Pottow, who teaches bankruptcy at the University of Michigan Law School, adding that the judge’s warning about a trustee was “not just a shot across the bow” but “a full volley.”

Adam J. Levitin, a professor specializing in bankruptcy at Georgetown Law, said an appeal “could result in a trustee being appointed to run the N.R.A.”

“That’s the scenario the N.R.A. most wants to avoid, and the bankruptcy court strongly signaled that it is open to appointing a trustee if the case comes back,” he added. “Given that, I’m guessing that the N.R.A. will not file an appeal.”

The case was also a victory for Ackerman McQueen, the N.R.A.’s former longtime advertising firm, which is now locked in a legal battle with the organization and joined the attorney general in seeking to dismiss the bankruptcy case.

“This decision underscores the incompetence and failure of the N.R.A. leadership and its legal team,” said Bill Powers, an Ackerman executive and former N.R.A. spokesman.

The trial underscored myriad concerns about Mr. LaPierre’s oversight. During his testimony, Mr. LaPierre said that he had kept the bankruptcy filing secret from his top lieutenants, including the organization’s general counsel, and most of its board.

He also testified that he didn’t know his former chief financial officer had received a $360,000-a-year consulting contract after leaving under a cloud, or that his personal travel agent, hired by the N.R.A., was charging a 10 percent booking fee for charter flights on top of a retainer that could reach $26,000 a month for Mr. LaPierre’s globe-trotting travel to places like the Bahamas and Lake Como in Italy. Mr. LaPierre’s close aide, Millie Hallow, a felon, was even kept on after being caught diverting $40,000 in N.R.A. funds for her son’s wedding and other personal expenses.

There have also long been questions raised about lavish spending by the N.R.A. or its contractors on tailored Zegna suits for Mr. LaPierre, meals at a fancy Tuscan restaurant in Northern Virginia and charter flights for his family, as well as a plan that was drawn up to buy a multimillion-dollar house for the use of Mr. LaPierre and his wife that was ultimately abandoned.

Gun control groups cheered the news, though it is unlikely to fundamentally shift the gun debate, since Mr. LaPierre has already succeeded in embedding gun rights in the firmament of the Republican Party. Despite waves of mass shootings in recent years, there has been no indication that Republicans will support gun control legislation in the closely divided Senate. On the state level, a movement to allow people to carry guns without permits continues to gain ground in red states.

But the future for the N.R.A. itself, and in particular Mr. LaPierre, will become more uncertain.

“This bankruptcy was a Hail Mary attempt by the N.R.A. to avoid accountability, but the court saw right through it,” said Nicholas Suplina, a former senior adviser and special counsel in the New York attorney general’s office who now works for Everytown, the gun control group.

“The N.R.A.’s bankruptcy was unprecedented, and the court properly dismissed it for lack of merit,” he said, adding, “The road ahead for the N.R.A. just got much harder.”

https://www.nytimes.com/2021/05/11/us/n ... uptcy.html