NRA eyes bankruptcy as an escape from NY regulators

Not long after the National Rifle Association declared bankruptcy Jan. 15, one of its board members wanted to set the record straight.

“It has nothing to do with the NRA’s financial posture, which is very, very strong,” Bob Barr, a former Republican congressman from Georgia, said in a televised interview. “It simply is a legal vehicle to move under protection of federal laws, to escape the abuse by the New York authorities.”

The organization’s audacious bankruptcy filing, in which it is not actually claiming to be insolvent, seeks to use the bankruptcy process to circumvent regulators in New York, where the NRA has been chartered for a century and a half.

The state’s attorney general, Letitia James, sued the association in August, seeking to shutter it amid claims of mismanagement and corruption. The NRA said in its legal filings that New York officials had long sought to “weaponize the state government’s regulatory powers against it” and that the association now wanted to reincorporate in Texas.

But the claims of corruption have not come just from New York, or the political left. They are echoed in accusations leveled by former senior NRA officials, including its onetime president Oliver North, some of its own donors and board members who departed amid a civil war within the association. What’s more, the organization disclosed in its most recent tax filings that Wayne LaPierre, its embattled chief executive, had repaid it hundreds of thousands of dollars.

Legal experts said the bankruptcy filing was likely to either be rejected or lead to a leadership purge, and was a sign that the organization and LaPierre were cornered by regulators.

“I see it as a Hail Mary for them,” said Adam Levitin, a professor specializing in bankruptcy at Georgetown University. “They may know they’re dead in the water if they don’t get out of the AG’s grasp.”

The NRA is not financially underwater; this week, it reported having assets roughly $50 million greater than its debts. Although there is some precedent for organizations that are not bankrupt to declare bankruptcy — Texaco’s 1987 case led the way, when the company sought to evade a more than $10.5 billion Texas court judgment against it — judges screen cases to make sure the company is acting in good faith, as required by the Bankruptcy Code. A judge who finds bad-faith behavior can throw out the case.

“There’s only one rule for a good-faith bankruptcy filing,” said David Skeel, a professor of corporate and bankruptcy law at the University of Pennsylvania Law School. “You can’t say: ‘I don’t need bankruptcy. I’m really only here because I’ve got this other problem.’ ”

During the NRA’s first hearing Wednesday in federal bankruptcy court in Dallas, the organization’s lead bankruptcy counsel, Patrick Neligan, took issue with the view that the filing was an end run around James, the New York attorney general.

“The NRA is not in any way attempting to escape regulatory supervision of the New York attorney general,” he said. In explaining the rationale, Neligan said the NRA “needed both the breathing spell that Chapter 11 offers and an ability to centralize this litigation and deal with it in an organized fashion.”

Legal experts are dubious about the NRA’s chances of success.

Jay Westbrook, a professor who specializes in bankruptcy at the University of Texas, called the judge handling the case, Harlin D. Hale, a “very steady, no-nonsense judge.” While he had not yet studied the case, he said, generally speaking there was “an excellent chance one of two things will happen — either the case will be dismissed or, maybe more likely, it will be sent to New York” or perhaps Virginia, where the NRA has its headquarters.

That would interfere with the NRA’s plan to emerge from bankruptcy with gun-friendly Texas as its legal domicile.

And even if the NRA is allowed to remain under court protection, the judge would be cautious about using federal authority to thwart a state regulatory action, experts said.