Experts Paint Grim Picture for NRA After Bankruptcy Gamble Goes Bust :: 05/13/2021

America’s largest, most influential gun group is facing down a dark future.

The NRA is likely out of options in federal bankruptcy court after a Texas judge dismissed its case on Tuesday, experts told The Reload. The move, concocted by CEO Wayne LaPierre and outside counsel Bill Brewer, was meant to keep New York Attorney General Letitia James (D.) from getting at the group’s assets in her case in state court. But the strategy may have backfired.

“Bottom line, the gambit failed miserably, and I think it actually made dissolution more likely,” Philip Hackney, an expert on non-profits at University of Pittsburgh’s law school, told The Reload.

He said Judge Harlin Hale’s ruling made clear the NRA still has serious problems, and the details of malfeasance that came out in open court will strengthen James’s case against the group.

“To actually have a judge laugh at you, essentially, and say that you are filing this in bad faith,” Hackney said. “That’s a really bad fact for them. That’s not something I’d want on my record if I’m defending this organization against dissolution.”

Matthew Bruckner, a Howard University professor and bankruptcy expert, told The Reload bad-faith dismissals are rare, and the NRA has little room to appeal.

“It’s pretty hard to get a case dismissed as a bad-faith filing, but this always seemed to satisfy the hard-to-satisfy standard,” he said. “The decision seems well-grounded in the Fifth Circuit’s legal precedent, and the facts were admittedly ‘cringeworthy.'”

The bad-faith ruling also opens the NRA to new claims against the organization for the legal fees of the other parties in the case.

Among those now planning to ask for the group to pay upwards of $300,000 in costs is dissenting NRA board member Phillip Journey. He had strongly criticized LaPierre and Brewer for not informing the board before filing for bankruptcy and filed a motion to have the court appoint an examiner to go through the group’s finances. Now he and the three other board members who joined the motion want the group to carry the litigation costs.

“The judge has the authority under the statute to impose sanctions, like attorney’s fees, for misbehavior in filings,” Journey told The Reload. “So, we’re hoping NRA pays the bills.”

Professor Adam Levitin, a bankruptcy expert at Georgetown University, described the NRA’s bankruptcy strategy as “remarkably hare-brained” that raised the question, “what the hell were they thinking?” He pointed to several specific problems in the NRA’s case that led to the bad-faith determination.

“If you’re going to do a sketchy filing, the lesson from SGL Carbon was don’t tell everyone that you’re solvent and doing the filing to stiff a single creditor in your press release,” he wrote on Tuesday. “Yet, that’s exactly what the NRA did. Additionally, the pre-filing governance moves were really iffy (never telling the board of directors!), the creation of a forum-shopping sub completely blatant, and the NRA and its counsel never had their story straight about why they were filing.”

Levitin said the dismissal means claims for legal fees like the one Journey plans to pursue are likely to succeed.

“Given the “bad-faith” finding, I would think there’s good grounds for such a motion,” he said.

In addition to the fight over legal fees, the NRA will have to head back to court in Manhattan to battle James. The NRA said in a statement the bad-faith dismissal “empowers” its members, and LaPierre promised the group would “keep fighting.” The group said it is shifting its attention to fight James back in New York.

“The NRA will continue to defend the interests of the Association in New York,” Brewer said. “Our client has faith in its leadership, and its demonstrated commitment to good governance.”

Bruckner said that’s the only realistic option left for the group at this point, but their own actions suggest it isn’t a good one.

“The NRA’s effort to relocate the locus of decision-making to Judge Hale’s courtroom was motivated, in their own words, by their expectation that they’re going to lose in NY,” he said.

The NRA hung its hat on the judge’s decision not to dismiss the case with prejudice and left open the possibility the group could refile bankruptcy down the line. Bruckner said that might happen if the New York case continues to go poorly for the group, and the NRA may choose that path as a last resort. But it would likely mean dumping LaPierre.

“If it seems certain that they’re going to lose, then refiling becomes a real possibility,” he said. “But if LaPierre is as indispensable as they’ve claimed, refiling isn’t a good option either, as the Judge signaled that he’d likely appoint a trustee upon refiling.”

The experts agreed that dissolution is still a heavy lift as no group of the NRA’s size and scope has ever been shut down even in cases where the group’s leadership was proven to be corrupt. Dissolution is generally used against small non-profits where it is not possible to fix the group’s problems.

“You’d have to find some sense that it’s impossible to reform this organization, and it just needs to stop,” Hackney said. “If this was a smaller organization of some sort, I think it gets dissolved. I think the only thing that kind of saves it is its larger purpose.”

The added specter of a politician such as James using her position to shut down a political rival she campaigned against during her election complicates things further. Hackney said the most likely outcome is still a lesser sanction even though all of the evidence of malfeasance brought into public view during the bankruptcy trial puts them in a worse spot than if they had done nothing at all.

“Removing officers and directors who are problematic would be a very likely outcome,” he said.

James announced during a press conference on Tuesday her case against the NRA will start up again next year. So, the NRA has some time to formulate a new strategy to save the group and LaPierre alike. Ultimately, experts said, the group may have to decide between its longtime leader and its own survival.

“If it comes to choosing between dissolution and ditching LaPierre, perhaps the NRA will choose the latter,” Bruckner said.

https://thereload.com/experts-paint-grim-picture-for-nra-after-bankruptcy-gamble-goes-bust/