The NRA Blocked An Assault Weapons Ban in Boulder Last Week. But Wait, Aren’t They in Bankruptcy?
Inside the effort by the NRA to avoid Armageddon at the hands of New York Attorney General Letitia James
Just last week the NRA-ILA, the legislative lobbying arm of the NRA, scored a legal victory in Boulder, Colorado with a judge striking down that city’s ordinance banning assault-style weapons on grounds of state law preemption. Many were surprised to hear that the NRA is still quite active around the country hoping to shape or strike legislation relating to gun violence prevention, despite its recent bankruptcy filing. Isn’t the NRA out of money?
Not at all. While donations to the organization have fallen off sharply during the pandemic and it faces a host of legal woes, the organization appears to still have plenty of resources, enough so its assets exceed its liabilities. So how is it they filed for bankruptcy in the first place?
The NRA is desperate to fend off an action by the New York Attorney General, Letitia James, who is seeking to dissolve the organization under the laws of New York where it first incorporated. While the NRA calls this nothing more than a political witch hunt, James has charged the organization with financial fraud and abuses, highlighting massive irregularities and excessive spending by its Executive Committee, chief among them Wayne LaPierre. The bankruptcy filing, LaPierre admits, is an effort to free itself from the “toxic political environment of New York” but is intended also to “streamline costs and expenses, proceed with pending litigation in a coordinated and structured manner, and realize many financial and strategic advantages” according to a January letter to members that he penned.
This is a curious gambit, and one that could seriously backfire. Most organizations come into bankruptcy court because they are financially insolvent, but the NRA has $203 million in assets and only $153 million in liabilities, according to a report by USA Today. Indeed, on the same day the NRA filed for bankruptcy, it insisted that the move “comes at a time when the NRA is in its strongest financial condition in years,” according to a Q&A post by the organization.
As Professor Anthony J. Casey, a bankruptcy specialist at the University of Chicago Law School, told The Trace, “It needs some bankruptcy purpose—usually the debtor tells a story about a perfect storm of financial distress or the breakdown of negotiations among creditors.” He noted, “The NRA seems to claim the opposite—that they are financially doing great. They are filing just to dump New York. So they have announced that they are using bankruptcy for an improper purpose: just to avoid this state law. That is a strange way to start. And it could end up with the case getting kicked out.”
The real reason for the bankruptcy indeed could be to protect the group’s officers from the investigation and financial abuse claims brought by the New York Attorney General, which include using NRA funds for personal travel such as private jets, yacht trips, safaris and swanky meals. Financial abuse could be grounds for the dissolution of the entire “non-profit” organization, just as the Trump Foundation learned when James’s office forced that corrupt organization to shutter due to self-dealing. The bankruptcy filing, LaPierre no doubt hopes, could hamper these effort while fending off legal claims and buying time for him and others to reorganize in Texas.
There have been many cases of organizations in big legal trouble successfully filing for bankruptcy (for example, Purdue Pharmaceuticals in anticipation of the opioid case liability or the Boy Scouts of America for its mountain of sexual abuse claims), but the NRA hasn’t come forward with any evidence that it actually faces financial ruin. Instead, it merely wishes to “restructure” some of its operations and have a central place to litigate all the claims.
That’s not really what bankruptcy courts were set up to do, and so far the move isn’t helping the NRA much. LaPierre was hoping the bankruptcy filing would automatically stay pending litigation, which is what normally happens in a Chapter 11. But the Superior Court in New York ruled in January that Attorney General James’s suit against it could continue even as the bankruptcy was litigated. That is because bankruptcies generally do not halt government police or regulatory actions against the entity claiming protection. As Professor Casey noted, “You can’t use bankruptcy to get around prohibitions on pollution, selling illegal goods, running a criminal enterprise, or committing fraud.”
Professor Adam Levitin, a bankruptcy expert at Georgetown University Law Center, was less charitable. He told ABC News that the NRA’s bankruptcy protection plan is little more than a “Hail Mary” pass: “If the alternative is that the New York attorney general shuts down the NRA, what do they have to lose with this strategy?” Levitin said. “They are out of ammo.”
Attorney General James has filed a motion to have the bankruptcy dismissed, claiming it was made in bad faith. To prove this, she is submitting evidence that the NRA Board was not even properly informed of the intention to file bankruptcy. As reported in NRA Watch, James showed in a court filing that the board renewed LaPierre’s contract on January 7, 2021, just days before the bankruptcy filing occurred. A key witness from the NRA’s Board, Judge Phil Journey, confirmed that no notice of the pending bankruptcy was provided to the board, even as it considered the contract renewal. James minced no words in describing this to the bankruptcy court:
“[T]he NRA apparently informed its 75 member Board of its intention to put the NRA into bankruptcy by inserting an ambiguous sentence into an Employment Contract which gave the employee duties “for purposes of cost-minimization” of the organization. Hiding a monumentally important provision into an Employment Contract with no discussion of the impending bankruptcy and then to attempt to cover up the entire scenario under the cloak of attorney/client privilege is nothing less than shocking. Mr. LaPierre was conveniently not present at the time that Employment Contract was discussed, and there appears to have been no discussion of a bankruptcy filing because none of the 75 Board Members figured out that they were being asked to approve the massively important corporate event of a Chapter 11 bankruptcy filing.”
Even if the bankruptcy is somehow allowed to proceed, legal experts have pointed out that the move could also backfire in unexpected ways. An independent trustee could be appointed who would have the power to look into all of the claims of malfeasance.
“The first thing a trustee would do would be to, in effect, take over control of the organization, all of the assets, and all of the records,” Jay Westbrook, a bankruptcy scholar at the University of Texas-Austin, told ABC News. “That would be a very undesirable development from the point of view of the people now controlling the NRA.” Creditors could use the bankruptcy to oust leadership, including LaPierre. That has led experts to question whether anyone really thought this bankruptcy thing through.
“What is it possibly thinking with the bankruptcy filing? If there’s a clear strategy, I cannot deduce it,” Professor Levitin wrote in a bankruptcy blog. “Maybe I'm missing something and the NRA is crazy like a fox, but it really looks like a move done out of desperation.”
The NRA is also now learning that it’s quite a pain in the neck to be under the jurisdiction of the bankruptcy court. Every expenditure above a certain level has to receive pre-approval from the court. Indeed, this week the NRA had to file a petition with the court to spend money to have its roof repaired, noting with some obvious symbolism that the NRA “previously patched the roof and performed other routine maintenance to prolong the life of the roof. However, the lifespan of the roof has expired and the roof is now in critical need of replacement.”
It is also rather beautifully ironic that the name of the repair shop is “Progressive Roofing.”
Thank you. I have been wondering about this.