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The History Behind The NRA’s Attempt To File For Bankruptcy In Texas, And Its Dismissal

May 13, 2021

By Charlotte Spencer

On Wednesday, we ran a short article going over the basics of the recent court decision in the Northern District of Texas which granted a motion to dismiss the National Rifle Association’s (NRA) attempt to file bankruptcy. This article gives a more in depth look at the history behind this litigation. The NRA has over the past few years been involved in a large amount of litigation. This article, and accompanying graphic, do not cover all litigation in recent years, only the litigation relevant to yesterday’s dismissal of the NRA’s attempt to file Chapter 11 bankruptcy.

Why Is This Important?

The dismissal of this bankruptcy case in Texas means that the NRA will not be able to use bankruptcy and reorganization in Texas as a means of avoiding trouble in New York. If the the New York Attorney General (NYAG) wins the case against the NRA, which the NRA was hoping to get out of, the NRA could cease to exist. In addition, high ranking NRA and former NRA officials could face repercussions for financial crimes. This could also provide a template, moving forward, for how states can crack down on charities and political organizations for financial misdeeds and misreporting. In other words, in addition to legal consequences this could impact charities and politics moving forward.

What Happened on Tuesday, May 11, 2021?

On Tuesday, May 11, 2021 a Texas Judge granted a motion to dismiss the NRA’s attempt to file for Chapter 11 bankruptcy, reasoning that “the NRA did not file the bankruptcy petition in good faith because this filing was not for a purpose intended or sanctioned by the Bankruptcy Code.” Specifically, the NRA seems to have filed for bankruptcy in an attempt to avoid legal trouble in New York. The U.S. Bankruptcy Court in the Northern District of Texas stated in its conclusion “The Court agrees with the NYAG [New York Attorney General] that the NRA is using this bankruptcy case to address a regulatory enforcement problem, not a financial one.”

The case was dismissed without prejudice, meaning that the NRA can file again, however, the court strongly cautioned them on this matter. The court pointed out several areas of concern including lack of transparency, secrecy, lack of disclosure, conflicts of interest, and “unusual involvement of litigation counsel in the affairs of the NRA…” The court further warned that it would immediately take up these concerns should the NRA file again. In other words, they would be wise not to press their luck.

What Was the History Behind This Decision?

The NRA’s current legal troubles involving alleged financial mismanagement first began to surface in 2017, although the alleged actions underlying these troubles began earlier than that. In mid-2017, the NYAG called an NRA board member to inform him that they were opening an investigation into the NRA. The NRA responded by hiring a law firm in 2017, and another in 2018, along with a new CFO in 2018.

In April 2018, the New York Department of Financial Services (NY DFS) sent letters to financial institutions and insurers warning them that their involvement with the NRA posed a potential danger to their reputation and to public safety. The NRA subsequently filed a complaint against NY DFS and the Governor of New York in May of 2018 alleging that they had defamed the NRA and had targeted the NRA together based on politics and the viewpoints of their speech, using law enforcement action as a pretext.

In July 2018, whistleblowers within the NRA presented the NRA audit committee with a “Whistleblower Memo” outlining concerns including conflicts of interest, financial mismanagement, deceptive practices, and management making decisions against the best interest of the NRA. The NRA took measures to address this warning, including renegotiating and cancelling certain vendor contracts of concern. This led to litigation between the NRA and vendor Ackerman McQueen, Inc in Texas and Virginia, as well as litigation involving other vendors.

In August 2018, the NYAG filed a motion to dismiss the NRA’s complaint against NY DFS and the Governor, which the Judge granted in part and denied in part in a ruling on November 6, 2018.

In February 2020, NY DFS served a statement of charges against the NRA for violations of New York Insurance Law.

In August 2020, following a 15 month investigation that had been conducted while all this was going on, the NYAG filed a complaint and summons. The complaint alleged that Executive Vice President, Wayne LaPierre, and his associates had exploited the NRA financially, punished those who raised concerns, hired unqualified individuals whose real purpose was to help them maintain control, and entered excessive post-employment payment agreements. On the same day as this filing, Aug. 6, 2020, the NRA filed a complaint against the NYAG alleging that the NYAG had targeted the NRA based on politics and the viewpoints of their speech, using law enforcement as a pretext.

In November 2020, the NRA and NY DFS reached a settlement agreement, in which the NRA agreed to pay $2.5 million and was banned from the New York insurance market for 5 years.

In January 2021, the NRA filed for Chapter 11 bankruptcy in the Northern District of Texas. This is the case that the court dismissed on Tuesday, May 11.

What Happens Now?

The case in New York is still ongoing. This involves alleged misuse of assets by LaPierre, and others close to him, for personal benefit. In the summons dated Aug. 6, 2020, the NYAG alleged that LaPierre and his associates exploited the NRA financially, punished those who raised concerns, hired unqualified individuals whose real purpose was to help them maintain control, and entered excessive post employment payment agreements. In the same complaint, the NYAG further accused other associates of diverting charitable assets, billing the NRA for millions of dollars in travel and entertainment, wasting charitable assets, concealing and misreporting information, and causing the NRA’s reports filed with the NYAG to be materially false.

If the NYAG wins, this could result in the NRA being dissolved. It could also result in LaPierre and these associates being banned from acting as fiduciaries for New York charities, and the voiding of transactions in question, many of which were for large amounts of money. Shortly after the May 11 decision in Texas, the NYAG posted a statement on the matter stating that the fight for dissolution of the NRA will continue in New York.

What Other Litigation Is The NRA Involved In?

This is not a complete list of litigation, but an overview of other recent litigation involving the NRA over the past few years that was happening at the same time as the cases discussed above. This also does not include the many cases in which the NRA argues on behalf of other parties. This list is constantly changing. For the most recent cases check the news or a legal research service.

  • Linlor v. Nat’l Rifle Ass’n of Am. (S.D. Cal., 2017)
  • Kalmbach v. Nat’l Rifle Ass’n of Am. (W.D. Wash., 2017)
  • Estate of Tabler v. Nat’l Rifle Ass’n of Am. (Md. App. 2017)
  • Kapoor v. Nat’l Rifle Ass’n of Am., 343 F.Supp.3d 745 (N.D. Ill., 2018)
  • Kalmbach v. Nat’l Rifle Ass’n of Am. (W.D. Wash., 2018)
  • Estate of Tabler v. Nat’l Rifle Ass’n, 457 Md. 144, 177 A.3d 75(Table) (Md. App., 2018)
  • Nat’l Rifle Ass’n of Am. v. Cuomo, 350 F.Supp.3d 94 (N.D. N.Y. 2018)
  • Nat’l Rifle Ass’n of Am. v. James, 2019 NY Slip Op 81329(U) (N.Y. App. Div., 2019)
  • Nat’l Rifle Ass’n of Am. v. City of L. A., 441 F.Supp.3d 915 (C.D. Cal. 2019)
  • Nat’l Rifle Ass’n of Am. v. Cuomo (N.D. N.Y. 2020)
  • Nat’l Rifle Ass’n of Am. v. North, 69 Misc.3d 1201(A), 130 N.Y.S.3d 925(Table) (N.Y. Sup. Ct. 2020)
  • Nat’l Rifle Ass’n of Am. v. Ackerman McQueen, Inc. (N.D. Tex. 2020)
  • Ackerman McQueen, Inc. v. Nat’l Rifle Ass’n (W.D. Tex. 2020)
  • RSUI Indem. Co. v. Nat’l Rifle Ass’n of Am. (W.D. Okla. 2020)
  • McEwen v. Nat’l Rifle Ass’n of Am. (D. Me. 2021)
  • Nat’l Rifle Ass’n of Am. v. Cuomo (N.D. N.Y. 2021)
  • McEwen v. Nat’l Rifle Ass’n of Am. (D. Me. 2021)

This is one of a series of articles that we are doing on gun law. Check back for more on this case as it continues. This article was last updated May 12, 2021.

The information provided in this article should not be considered legal advice or a substitute for legal advice. Biometrica is not a law firm and cannot offer legal advice.