The National Rifle Association has filed for Chapter 11 bankruptcy protection in Texas, as part of an attempt to restructure the organization.
A federal judge on Tuesday rejected the National Rifle Association’s Chapter 11 bankruptcy filing, forcing the nonprofit to defend itself against the state of New York’s lawsuit against the organization – a case that could result in the group’s dissolution.
U.S. Bankruptcy Judge Harlin Hale of Dallas ruled that the pro-gun-rights group did not file its bankruptcy petition “in good faith” but instead did so “to gain an unfair litigation advantage” and “to avoid a state regulatory scheme.”
Those purposes are not a proper use of the bankruptcy code, the judge ruled.
Judge Hale also said he had concerns about the “manner and secrecy” in which the case was filed. The NRA is facing allegations of corruption, including misuse of member funds to support a lavish lifestyle for leaders, among them CEO Wayne LaPierre.
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The dismissal of the case comes after bankruptcy watchdogs questioned the legitimacy of the NRA’s bankruptcy filing, saying the organization did not qualify as an organization in need of debt reduction and that a federal bankruptcy court should not infringe on a state legal dispute.
When it filed for bankruptcy Jan. 15, the pro-Second Amendment group said it was in “its strongest financial condition in years.”
But the NRA said it faced a potentially existential crisis due to legal challenges by the New York Attorney General Letitia James. The group said it was hoping to use bankruptcy to restructure its operations and shift its nonprofit registration from New York to Texas, where it believed its mission would be more welcome.
The NRA faces accusations that its leaders misused funds for personal reasons. The group and LaPierre have denied those allegations.
The NRA did not immediately respond to a request seeking comment after Tuesday’s ruling.
But in a 12-day, 23-witness trial to determine whether the case should be allowed to continue, LaPierre testified that the case was filed “because the New York State attorney general is seeking dissolution of the NRA and (seizure of its) assets, and we believe it’s not a fair, level playing field.”
Although headquartered in Fairfax, Virginia, the NRA is registered as a 501(c)(4) not-for-profit corporation in New York. In a lawsuit seeking to recoup millions and close the NRA for good, James has accused the organization of enabling executives to use NRA funds for personal travel, including private jets and swanky meals.
New York’s attorney general Tuesday hailed the judge’s decision.
“The reality is the rot runs deep,” James said. “There are ongoing and lingering issues of secrecy and lack of transparency.”
She said her attempts to dissolve the NRA have “nothing to do with the Second Amendment.”
Judge Hale did not rule on whether James’ accusations were truthful, but he cited “concerns about disclosure, transparency, secrecy (and) conflicts of interest of officers.”
He noted that during the trial, the evidence showed that LaPierre authorized the Chapter 11 bankruptcy filing without telling the organization’s board of directors, chief financial officer or general counsel.
The case was not filed to deal with financial issues or to streamline costs but instead to dodge the James lawsuit, Hale determined.
And that, he said, is not an appropriate use of bankruptcy court.
Anti-gun-rights groups celebrated the judge’s ruling on Tuesday.
“Today’s decision is a historic win for the rule of law and a sure sign of defeat for the NRA and its corrupt leadership,” said Kris Brown, president of the anti-gun-violence group Brady, in a statement. “The NRA’s bankruptcy was deemed to be bad faith, much like every promise and statement the organization has made for decades. The NRA cannot escape justice.”
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