NRA's Bankruptcy Tossed Out in Setback for Gun Group's Planned Move to Texas -- 2nd Update
By Jonathan Randles
A Dallas judge has thrown the National Rifle Association out of
bankruptcy court, calling into question the gun-rights group's plan
to reincorporate in Texas as it faces allegations of spending
abuses and mismanagement in New York.
Judge Harlin Hale of the U.S. Bankruptcy Court in Dallas
dismissed the NRA's chapter 11 case, ruling that NRA CEO Wayne
LaPierre filed the January bankruptcy "to gain an unfair litigation
advantage" and "to avoid a state regulatory scheme."
Tuesday's ruling follows arguments by New York Attorney General
Letitia James and the NRA's former ad agency Ackerman McQueen Inc.
that the bankruptcy was filed in bad faith and didn't have a valid
Ms. James sued to dissolve the NRA in August, accusing Mr.
LaPierre and other executives of corruption and financial
mismanagement, which Mr. LaPierre and the NRA have denied. The New
York lawsuit has continued while the NRA has been in chapter 11.
Ms. James has oversight of the NRA, which has its headquarters in
Virginia but was founded in New York in 1871 and is officially
Ms. James said in a press conference after Tuesday's ruling that
her office continues to pursue its enforcement action against the
NRA and that the group can't reorganize in Texas without approval
of the New York state attorney general.
In his ruling, Judge Hale said, "The NRA is a solvent and
growing organization using this bankruptcy as a tool to win its
dissolution lawsuit, and that is not an appropriate use of
Mr. LaPierre said that while the NRA is disappointed in some
aspects of the ruling, the organization will continue its mission
defending the Second Amendment.
"We remain an independent organization that can chart its own
course, even as we remain in New York to confront our adversaries,"
Mr. LaPierre said.
The NRA said when it filed for bankruptcy that it was doing so
to "to exit what it believes is a corrupt political and regulatory
environment in New York." The NRA said it intended to use
bankruptcy to reincorporate in the friendlier jurisdiction of
Judge Hale's dismissal of the NRA's chapter 11 case, which has
cost the organization millions of dollars in legal fees, puts in
jeopardy the group's strategy to battle the New York attorney
general lawsuit and litigation with its former ad agency.
In dismissing the case, Judge Hale didn't prohibit the NRA from
filing for bankruptcy a second time. But he said if the NRA did
refile, he could appoint an independent trustee to oversee the
group, which essentially would strip Mr. LaPierre and other
managers of control.
The judge's ruling comes after a trial that scrutinized Mr.
LaPierre's decision to put the 150-year-old gun-rights group into
chapter 11 bankruptcy in January. A lawyer for the NRA said before
the trial that an unfavorable ruling disrupting Mr. LaPierre's
leadership could spell the end of the organization. The NRA has
defended Mr. LaPierre and argued that his fundraising is the
group's most valuable asset.
Testimony by NRA employees pointed to internal problems at the
nonprofit, including a failure of Mr. LaPierre to disclose
conflicts of interest with top vendors. Testimony also revealed
that the NRA's leader kept his decision to file the bankruptcy case
from top executives and the group's board of directors.
Mr. LaPierre, some board members and lawyers for the NRA said in
bankruptcy court that the organization has strengthened its
compliance controls in recent years and largely blamed past
internal failures on former Chief Financial Officer Wilson "Woody"
Philips, who left that position in 2018. Mr. Phillips has denied
wrongdoing. He declined to testify during a deposition related to
the NRA's chapter 11, invoking the Fifth Amendment. The NRA
submitted a proposed reorganization plan last week that would open
a new position for a chief compliance officer.
Lawyers for the New York attorney general's office and the NRA's
former ad agency Ackerman McQueen challenged claims that the group
corrected its problems during cross-examination and documents
presented at trial. In closing arguments, a U.S. Justice Department
bankruptcy lawyer said Mr. LaPierre failed to provide the NRA with
Among the key testimony during the trial was Mr. LaPierre's
concession that he made mistakes by not disclosing on NRA
conflict-of-interest forms repeated stays on a 108-foot-yacht owned
by one of the NRA's largest vendors.
The trial also included testimony from Mr. LaPierre's former
travel consultant, who said she was instructed by Mr. LaPierre to
omit certain of his flight stops in invoices sent to the NRA for
his private jet travel. The omitted destinations included flights
to the Bahamas and to airports in Nebraska, where NRA-paid jets
frequently landed to pick up or drop off Mr. LaPierre's relatives,
Mr. LaPierre also testified that he didn't inform the full NRA
board, the organization's top lawyer or then CFO Craig Spray before
he put the NRA into chapter 11. Mr. Spray also testified that he
wasn't comfortable signing the NRA's tax filing for 2019, because
he wasn't provided materials for certain key disclosures. The
filing was ultimately signed by Mr. LaPierre. Mr. Spray left the
NRA shortly after it filed for chapter 11.
Judge Hale also heard from an NRA board member who had sought
the appointment of an independent examiner to investigate the New
York attorney general's allegations. Phillip Journey, a sitting
Kansas state judge who was elected to the NRA board last year, said
he was shocked when he learned the organization had filed for
bankruptcy and said the New York complaint indicated the checks and
balances within the group were nonexistent.
On the witness stand, Mr. Journey described the NRA as "Wayne's
kingdom" and said the NRA membership deserves to know if the
allegations brought in New York are true.
Mark Maremont contributed to this article.
Write to Jonathan Randles at Jonathan.Randles@wsj.com
(END) Dow Jones Newswires
May 11, 2021 18:02 ET (22:02 GMT)
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