On Jan. 15, the National Rifle Association — a New York corporation headquartered in Virginia — filed for bankruptcy protection in the Northern District of Texas.
Money wasn’t a problem. The venue they chose for filing bankruptcy, however, may well be.
Despite a deteriorating public image and on-going accusations of profligate spending, insider contracts and outright theft, the organization isn’t anywhere near insolvent. The NRA has 5 million dues-paying members, hundreds of millions of dollars in assets, relatively few debts and an estimated $72 million in liquid assets, the NRA was — and still is — a prosperous nonprofit corporation.
That’s not the kind of balance sheet that a request for bankruptcy protection normally implies.
Judge Harlin DeWayne Hale has promised to rule sometime this week on a motion to dismiss the NRA bankruptcy petition. Critics argue that the organization has no legitimate reason to be in bankruptcy court and that it was filed in bad faith. If he chooses to dismiss — one of several plausible options — the NRA could be sent packing back to New York and Virginia and Washington D.C., venues where they claim a plethora of lawsuits is threatening the organization, the fate of its current management and the exercise of the organization’s First Amendment rights.
For more than a month, creditors and critics have been sparring in Judge Hale’s court over the need to be in bankruptcy. Critics note that the NRA has more than enough money to fight its legal battles and has also shown a willingness to do so, regardless of venue. One law firm, the Dallas-based firm of Bill Brewer, has received more than $72 million to represent the organization over the past three years.
But one thing both sides can agree on is the reason for the NRA’s fast-track filing in Texas. And her name is Letitia James.
Letitia James is the attorney general of New York. She is also the de facto regulator of the National Rifle Association, an organization created in 1871 specifically by the New York legislature and governed as a “charity” — a “nonprofit” in most states.
In August 2020, James filed a lawsuit against the NRA, an action that could result — among other possibilities — in the appointment of a court-ordered receiver or a court-ordered dissolution of the corporation. The New York action came after several years of investigation begun by her predecessor. That investigation came after several years of internecine squabbling inside the NRA that evolved into private lawsuits and public charges of misconduct by the NRA’s controversial executive vice president, Wayne LaPierre.
By choosing to file in Texas — and, in effect, move their corporate-being to Texas — the NRA removes itself and LaPierre’s embattled management from New York regulatory control.
The NRA insists that the filing is strategic and in good faith, part of a long-contemplated plan not only to relieve itself of the extremes of New York regulation but to take the organization where its actions best resonate with its members.
“We needed to take dissolution, the equivalent of foreclosure, off the table,” said Greg Garman, a Las Vegas-based attorney explaining the NRA position before Judge Hale. “We needed to take receivership off the table and stay in control of our assets. And we did, in fact, file because we believe there are legal ways to get out of New York and find ourselves where our members are, where — this [Texas] is not only the state with the most members, this is the state with the most firearms. This is the state in which our work is done most effectively and efficiently.”
But according to NRA critics, more than a few of whom spoke during the last month’s proceedings, that NRA position makes no sense. The organization has more than enough money to handle the lawsuits against it and more than enough political influence to assure its continued existence.
What it may not be able to do is to protect Wayne LaPierre. The appointment of a receiver in New York — or even a trustee in the bankruptcy — could mean the end to LaPierre’s grip on the NRA’s $300 million per year budget. The organization, they argue, is simply demonizing New York to avoid accountability for the misfeasance in LaPierre’s ranks.
“Wayne’s kingdom, Wayne’s sole proprietorship, Wayne’s world,” said attorney Brian Mason of Dorsey & Whitney, describing to the court terms used by employees, vendors and other insiders to characterize LaPierre’s grip on the management of an organization accused of poor management: vendors without contracts, conflicts of interest, chaotic financial control.
“At the end of the day, Mr. LaPierre, regardless of what he says to this Court, does what he wants,” said Mason, who represents a creditor involved in major litigation with the NRA.
According to evidence presented in Hale’s court, LaPierre’s controlling influence is evident, even in the bankruptcy filing. The NRA’s board was not consulted about the filing of bankruptcy and the intent to move to Texas; neither the NRA’s chief financial officer nor the organization’s general counsel was consulted; a “special litigation committee” created eight days before the filing was apparently consulted after the decision to file had already been made.
However, on Jan. 7, the same day the board created the special litigation committee, the board considered a new, modified contract for Wayne LaPierre. Although it contained a few changes meant to mollify his critics, it also contained language giving him the authority to “exercise corporate authority in furtherance of the mission and interest of the NRA, including …to reorganize or restructure the affairs of the Association.” And when the bankruptcy was filed, it was that language in LaPierre’s contract that was cited as authority for the filing, not language from the special litigation committee or the NRA board.
The NRA board did formally approve the bankruptcy filing Jan. 20 — five days after bankruptcy had been filed.
Then there is the matter of Sea Girt LLC, a wholly owned Texas subsidiary of the NRA. When the NRA filed for bankruptcy, they also filed for Sea Girt; and the existence of that Texas subsidiary — named, perhaps ironically, for a New Jersey seaside township that once hosted NRA shooting championships — allowed them to choose a Texas bankruptcy court as their venue.
But Sea Girt, formed Nov. 24, 2020, was a shell company. Its only asset, according to court testimony, was $51,000 transferred to it by the Brewer Firm. It had no employees and no officers. It held no meetings. And soon after it filed for bankruptcy, even that money was apparently transferred back to the NRA, despite the absence of any court authorization for such a transfer of its only assets.
And during the 90 days before the Texas filing, the Brewer Firm was paid $17.5 million. According to court testimony, the firm has received $72.6 million in three years of litigation on behalf of the NRA.
“Its formation was pure forum shopping,” said Gerrit Pronske of Spencer Fane, the firm representing the New York Attorney General’s office. Arguing for dismissal, Pronske said the very creation and use of Sea Girt to gain venue in Texas was evidence of a bad faith filing.
“The whole creation of Sea Girt and the initial deposit of money was nothing more than a ruse and an abuse of this court and an abuse of the bankruptcy process,” Pronske told the court last week.
But no matter what Judge Hale decides, the last month of argument and testimony has been brutal on the reputation of the NRA and its allies.
“At the end of the day, these are systematic issues that are symptomatic of an ingrained culture at the NRA which won’t truly be corrected until new management is in place,” Mason said.