Wayne LaPierre
He The National Rifle Association is about to find out what happens when the unrestricted embrace of the Second Amendment faces the U.S. Bankruptcy Code.
The group is trying to evade New York regulators and the state’s fraud lawsuit by filing for bankruptcy in Dallas and moving to Texas, an arms-friendly country, citing support for the right to bear arms. But the case filed last week could face a host of legal challenges at a first court hearing Wednesday that could undermine the NRA’s plan or even add to it.
Opponents could call for the case to be launched completely, as the ANR says it is not really bankrupt. If the case progresses, the usual disclosures could expose more of the ANR’s internal affairs to the scrutiny of critics, including Letitia James, the New York Attorney General. James has been suing to dissolve the organization and accusing leader Wayne LaPierre and three other people of fleeing. LaPierre has answered New York’s allegations.
“I looked at this and just laughed,” said Thomas J. Salerno, a Phoenix-based partner specializing in corporate bankruptcies with law firm Stinson LLP. Texas may have a favorable reputation for guns, but bankruptcy judges are designated federals who will follow the law, not local politics, Salerno said. At best, the ANR can only slow down the New York investigation, he said.
The ANR will appear today before U.S. bankruptcy judge Harlin D. Hale in Dallas. While he is unlikely to make a final decision during the hearing, the judge could decide to dismiss the case, as the ANR has said it is not insolvent or bankrupt and has informed members that the group is in “the its strongest financial situation in years ”.
Court documents show assets of about $ 203 million, mostly in cash, investments, accounts receivable and headquarters, against liabilities of $ 153 million. Revenue in 2020 fell 7% from the previous year; the ANR said it reduced spending by 23% and asked employees to continue working to receive pay.
Political environment
In a statement announcing the filing, the ANR said it filed for bankruptcy to escape “the toxic political environment of New York” and regroup in Texas, while allowing it to “rationalize costs and expenses.”
“If you have in mind what the ANR says, present a strong argument for the case to be dismissed for lack of good faith,” said Robert Lawless, a professor at the University of Illinois Law School. “They will have to present some financial reasons for doing so.”
The ANR gave a slightly different explanation in court documents. “To be clear: the ANR does not seek to escape regulatory oversight,” the group said. “However, he cannot allow his constitutional rights to be trampled on or his existence destroyed by political revenge.” He said the Constitution guarantees people the right to freedom of expression, to bear arms for self-defense “and to seek a new beginning in a bankruptcy court, if necessary. The success of the reorganization of the ANR in Texas will affirm and advance all these rights.
Under the U.S. Bankruptcy Code, a reorganized company can leave behind legal responsibilities linked to a civil lawsuit. This would require Hale to approve a reorganization plan that frees the newly reorganized NRA and its executives from the legal claims New York is filing in its lawsuit. These results 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 ANR has more important business ties. The organization filed for bankruptcy in Dallas, despite having its headquarters in Virginia and joining New York, citing a small Texas-based subsidiary that was created in November. It is a common maneuver in Chapter 11 cases, but can still be challenged by creditors or the judge.
“ANR applications have most of the hallmarks of bad faith filing and present almost manual reasons for the transfer of the site,” said Bruce Markell, a former judge and current bankruptcy professor at Northwestern Pritzker. School of Law.
Read more: NRA seeks to escape pressure from New York by filing for bankruptcy in Texas
Still, layoffs of large business failures are extremely rare. And, oddly enough, the ANR’s claim that it is “insolvent” does not invalidate its bankruptcy, according to Kevin Carey, a retired bankruptcy judge in Delaware who is now a partner in Hogan Lovells. The bankruptcy code “is designed to help companies alleviate financial distress,” regardless of what caused it, he said.
Whether bankruptcy will help the ANR resolve pending lawsuits and investigations is a separate issue. Typically, filing a Chapter 11 stops most lawsuits, but there is an exception for regulatory and law enforcement powers. In a letter Wednesday, the New York Attorney General said that exception applies to his lawsuit against the ANR and urged the judge overseeing the case to allow it to proceed.
The ANR’s bankruptcy filing is not intended to stop or transfer the New York case, said William A. Brewer III, an ANR attorney, in an emailed statement. “Rather, it seeks to streamline and organize the legal and financial affairs of the ANR and, with court approval, also allow the ANR to rejoin the state of Texas,” he said.
More data
If the lawsuit is suspended due to the so-called automatic stay, the New York case would simply become part of the bankruptcy, which could give New York new legal tools to extract information, Salerno said.
This is because, under the 2004 bankruptcy rule, creditors or other parties can often access more information than they would get in another forum, Salerno said. In that sense, the failure of the ANR could turn out to be a self-inflicted wound, he said.
“Honestly, I just shook my head,” Salerno said. “It may be as if the NRA pointed a gun at its own head and said, ‘Stop me before I shoot again.’
The case is the National Rifle Association of America, 21-30085-11, U.S. Bankruptcy Court for the North District of Texas (Dallas).
(Michael R. Bloomberg, founder of Bloomberg LP, mother of Bloomberg News, is a donor of candidates and groups that support gun control, including Everytown for Gun Safety).
– With the assistance of Laura Francis
(Updates with comments from the New York Attorney General and the ANR Attorney, beginning in paragraph 14)