Attorney General James Wins Dismissal of NRA’s Fraudulent Bankruptcy, Fight for Dissolution to Continue in New York
NRA’s Scheme to Avoid Accountability Fails in Federal Court
AG James to Hold Press Call on Decision Shortly, Information to Follow
NEW YORK – New York Attorney General Letitia James today scored a major victory in her case against the National Rifle Association (NRA) when a federal bankruptcy court in Texas rejected the organization’s claims of bankruptcy after the NRA sought to reorganize in Texas, stating, “that the NRA did not file the bankruptcy petition in good faith.” Despite its attempts to escape New York’s jurisdiction, Attorney General James will now continue to pursue her enforcement action against the NRA, in addition to seeking a number of other forms of relief she requested when initially filing her lawsuit last summer.
“Weeks of testimony have demonstrated that the NRA and Wayne LaPierre simply filed chapter 11 bankruptcy to avoid accountability,” said Attorney General James. “This trial underscored that the NRA’s fraud and abuse continued long after we filed our lawsuit. Without a doubt, the board was deceived when bankruptcy language was hidden in Mr. LaPierre’s contract earlier this year. Today’s order reaffirms that the NRA does not get to dictate if and where it will answer for its actions. The rot runs deep, which is why we will now refocus on and continue our case in New York court. No one is above the law, not even one of the most powerful lobbying organizations in the country.”
Last August, Attorney General James filed a lawsuit against the NRA and four of the organization’s current or former top executives for failing to manage the NRA’s funds; failing to follow numerous state and federal laws, as well as the NRA’s own bylaws and policies; and contributing to the loss of more than $64 million in just three years. The suit was filed against the NRA as a whole, as well as Executive Vice-President Wayne LaPierre, former Treasurer and Chief Financial Officer Wilson “Woody” Phillips, former Chief of Staff and the Executive Director of General Operations Joshua Powell, and Corporate Secretary and General Counsel John Frazer.
This past January, in an effort to avoid accountability, the NRA filed for chapter 11 bankruptcy even though the organization still claimed to have healthy financial reserves. Over the course of the bankruptcy trial, LaPierre and other senior leaders admitted that the bankruptcy was simply a way of avoiding New York's enforcement action, yet still stated that they believed that New York courts and judges could be trusted to fairly and impartially oversee the case.
In today’s decision, U.S. Bankruptcy Judge Harlin Hale of the Northern District of Texas condemned the NRA’s attempts to avoid accountability, making clear that the organization’s actions were “not an appropriate use of bankruptcy.”
Specifically, Judge Hale said, “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. The Court believes it is not. For the reasons stated herein, the Court finds there is cause to dismiss this bankruptcy case as not having been filed in good faith both because it was filed to gain an unfair litigation advantage and because it was filed to avoid a state regulatory scheme. The Court further finds the appointment of a trustee or examiner would, at this time, not be in the best interests of creditors and the estate.”
Judge Hale also went on to specifically lay blame for the fraudulent bankruptcy at LaPierre’s feet: “What concerns the Court most though is the surreptitious manner in which Mr. LaPierre obtained and exercised authority to file bankruptcy for the NRA. 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.”
The case against the NRA will proceed in the New York County State Supreme Court, where Attorney General James will continue to fight for the organization’s dissolution; for removal of two of its top leaders, LaPierre and Frazer; for full restitution of tens of millions of dollars from LaPierre, Phillips, Powell, and Frazer; for penalties; and for the four individuals to never be able to serve on the board of a charity in New York state again.
Lead trial counsel for the Office of the Attorney General (OAG) in this proceeding was Special Counsel for the Litigation Bureau Monica Connell, along with Bureau Chief James Sheehan, Bureau Co-Chiefs of the Enforcement Section Emily Stern and Yael Fuchs, and Assistant Attorneys General William Wang, Sharon Sash, Jonathan Conley, and Stephen Thompson — all of the Charities Bureau; with additional assistance from Legal Assistant Nyna Sargent and Assistant Attorneys General Peggy Farber of the Charities Bureau and Lucas McNamara of the Environmental Protection Bureau. The OAG was also represented in the bankruptcy proceeding by co-counsel Gerrit Pronske, Eric Van Horn, and Jason Kathman of Spencer Fane LLP. The Charities Bureau is a part of the Division for Social Justice, which is supervised by Chief Deputy Attorney General Meghan Faux and First Deputy Attorney General Jennifer Levy.