Tuesday’s ruling means the NRA will not have bankruptcy protection, which it says is necessary to protect against a “barrage of litigation” the organization faces.
The decision by North Texas District Judge Harlin Hale came after a month-long trial in which lawyers and NRA officials argued their bankruptcy case should go ahead in Texas. New York Attorney General Letitia James’s office intervened in the case and asked to dismiss the petition, saying the NRA’s decision to file for bankruptcy in Texas and apply to be reincorporated was a way to ” remove the NRA from regulatory oversight ”.
Hale agreed with James’ office’s argument in its decision released Tuesday.
“The Court considers that this bankruptcy case should be dismissed as not having been filed in good faith both because it was filed to obtain an unfair litigation advantage and because it was filed to avoid a state regulatory scheme, ”Hale wrote in her ruling.
CNN has contacted an NRA spokesperson for comment.
In a statement posted on Twitter, James said, “The NRA cannot dictate whether and where it will answer for its actions, and our case will go to court in New York. No one is above the law. “
Hale declined to dismiss the case with prejudice, meaning the NRA could still decide to file a bankruptcy petition elsewhere, but Hale warned that if the NRA chooses to file a new bankruptcy case, his court would immediately take into account some of his concerns regarding “disclosure, transparency, secrecy, conflicts of interest of litigation lawyers”, among others, which could lead to the appointment of a trustee to oversee the affairs of the organization . An NRA spokesperson did not respond to CNN’s request for comment on whether the organization plans to file for bankruptcy elsewhere.
Brian Mittendorf, an accounting professor at Ohio State University who has followed NRA finances for several years, said the decision had implications for the various lawsuits facing the NRA, as well as for its financial future.
“In many ways, it was a risky gamble to think that a bankruptcy court would allow them to bypass some of these disputes,” Mittendorf told CNN. “The ruling simply clarifies that this litigation will continue and that there is no such recourse which involved a third party effectively managing the organization in the meantime. “
Allegations of financial misconduct
The virtual lawsuit in a North Texas bankruptcy court included testimony from current and former senior NRA officials, including CEO Wayne LaPierre, who testified on April 7 that he had heard news of the impending bankruptcy filing the General Counsel of the NRA, Chief Financial Officer. officer and other salaried officials of the NRA.
Hale called LaPierre’s decision to file for bankruptcy without informing the board of directors of the NRA and others “troubling” in his decision.
“The court agrees with the NYAG that the NRA is using this bankruptcy case to resolve a regulatory enforcement issue, not a financial issue,” Hale wrote.
Texas attorney Gerrit Pronske, who represents James’ office in court, argued in closing argument on May 3 that the bankruptcy filing should be dismissed for being filed in “bad faith,” indicating a letter to members of the NRA on the day the organization filed for bankruptcy in which LaPierre wrote: “The NRA is not ‘bankrupt’ or ‘bankrupt’. “
“We are as strong financially as we have been for years,” read the letter signed by LaPierre.
Gregory Garman, an attorney for the NRA, argued last week that the organization had $ 40 million in “unfunded future litigation.” But Pronske countered that the financial statements showed the NRA had “a lot of cash on hand.”
“I would say that as part of a good faith filing, you must be having issues with your financial situation and you must be having debt issues now or for the foreseeable future,” Pronske said. “The NRA doesn’t have a debt problem… it has a regulatory problem. ”
The NRA’s headquarters are in Fairfax, Virginia, but it was incorporated into New York State shortly after the Civil War.
In January, the NRA filed for bankruptcy and, as part of its petition, sought reincorporation in Texas, a move that came five months after James’ office filed a complaint to dissolve the organization.
James’ office alleged that the organization violated New York City laws governing nonprofits by routinely bypassing the organization’s internal controls to participate in expenses that constituted “improper and unnecessary use of corporate assets. charity ”.
The lawsuit alleges that the NRA leadership used millions of dollars from the group’s reserves to fund lavish private jet trips, meals and other personal expenses and that money was siphoned off to benefit insiders from the NRA and preferred suppliers, which LaPierre handpicked to “facilitate its misuse of charitable assets” and that the NRA board did not follow an appropriate process to determine the “reasonable” compensation of the executives of the NRA, including LaPierre.
LaPierre testified during the 12-day bankruptcy lawsuit that he currently earns $ 1.3 million after taking a 20% pay cut “voluntarily” when the organization had to cut the wages of other employees l ‘last year.
“I think my compensation has always been reasonable,” LaPierre testified last month.
He also said he believed the NRA “is in a much better place today”.
“I think it’s stronger. I think the controls are stronger, ”said LaPierre. “I think the ability to override the controls is not going to happen. The protections are in place. I feel very good where we are. “
This story has been updated with additional details and context.