The NRA Just Lost Bigly in Texas. So What Happens Next?

A federal judge in Texas just threw out the NRA’s bankruptcy case, holding that “the NRA's bankruptcy petition was not filed in good faith but instead was filed as an effort to gain an unfair litigation advantage in the NYAG Enforcement Action and as an effort to avoid a regulatory scheme." This ruling sounds great, but what exactly does it mean?

Wayne LaPierre of the NRA. Photo Credit: Joe Skipper / Reuters

Let’s review. Last August, New York Attorney General Letitia James filed suit to dissolve the NRA and cancel its charter and non-profit status, citing extensive fraudulent activity and self-dealing by its executive members, primarily its longtime Chief Executive Wayne LaPierre. (The NRA was established as a non-profit corporation in the state of New York some 150 years ago, meaning New York has authority over whether it is a valid non-profit organization in good standing.) The activity at issue totaled over $64 million in “expenses” in just three years, including private jets, luxury hotels and fine dining. It even included trips to the Bahamas aboard a 108-foot yacht on a “security” retreat for LaPierre and others after the Parkland school massacre. There were also suspicious no-bid contracts for associates of LaPierre.

The NRA had sought to evade AG James’s jurisdiction by filing the Texas bankruptcy action. How might they have achieved this? A bankruptcy filing often stays (meaning suspends) all other pending actions while the bankruptcy is under review. The NRA lawyers didn’t do this right away, but rather declared they were reserving the right to seek a stay from the bankruptcy court at a later date. Given this stance, and the fact that the NRA was actually not financially insolvent or otherwise unable to meet its debts and obligations, the filing was at its core a way to complicate and delay the New York action. In fact, as the New York Times reported, LaPierre was forced during the 12-day trial in Texas to concede that the reason they had filed for bankruptcy was not because his organization was in dire financial straits, but was in direct response to the complaint that Attorney General James had filed.

After reviewing the record, including the surreptitious way the bankruptcy was initiated without any input from the Board, Judge Hale in Texas was having none of it. As Reuters reported, Hale wrote, “Excluding so many people from the process of deciding to file for bankruptcy, including the vast majority of the board of directors, the chief financial officer and the general counsel, is nothing less than shocking.” Hale continued. “The question the court is faced with is whether the existential threat facing the NRA is the type of threat that the Bankruptcy Code is meant to protect against.” Hale added, “The court believes it is not.”

Without the bankruptcy action in place, there is nothing that can halt the suit in New York from moving ahead. While Judge Hale’s dismissal of the bankruptcy action was without prejudice—meaning in theory LaPierre could attempt to refile elsewhere— that is highly unlikely, as any subsequent court would almost certainly hit him with sanctions for bad faith. Judge Hale also warned that any subsequent bankruptcy filing would probably result in an outside trustee appointed to oversee the entire organization and its finances.

It now appears the NRA is resigned to defending the suit in New York. Said LaPierre, “We remain an independent organization that can chart its own course, even as we remain in New York to confront our adversaries.” But in a twist of irony, LaPierre’s attempted end-run to the bankruptcy court may wind up being a costly blunder because it further exposed the corrupt nature and lack of safeguards within the organization. The trial in Texas bankruptcy court added mountains of evidence to support Attorney General James’s allegations of corruption, all of which is now admissible before the New York court. This has significantly increased the chances that the judge will agree with James and order the entire organization dissolved, its charter revoked, and the millions that were improperly siphoned away by LaPierre and others clawed back.