EXPLAINER: With bankruptcy tossed, what's next for the NRA?

A judge has rejected the National Rifle Association’s bankruptcy bid, blocking its plan to reincorporate in Texas

NRA Bankruptcy Trial (Copyright 2020 The Associated Press. All rights reserved)

Now that a judge has rejected the National Rifle Association’s bankruptcy bid, blocking its plan to reincorporate in Texas the gun rights group is back to fighting New York regulators in a lawsuit that threatens to put it out of business.

Harlin Hale, a federal bankruptcy judge in Dallas, dismissed the NRA s case on Tuesday. He ruled that the organization's leadership sought Chapter 11 protection in bad faith — without informing most of its 76-member board — and did so to gain an “unfair advantage” in its fight with New York Attorney General Letitia James

What does that mean for the NRA and America's long-running battle over guns? Here's a look at where things go from here.

NEW YORK'S LAWSUIT GOES FORWARD

Hale’s ruling dismissing the NRA’s case ensures that James’ lawsuit seeking the organization’s dissolution can continue unimpeded. James, a Democrat, said Tuesday that discovery is ongoing and that the case is expected to go to trial next year.

“Today’s order reaffirms that the NRA does not get to dictate if and where it will answer for its actions,” James said. “The rot runs deep, which is why we will now refocus on and continue our case in New York court.”

James sued the NRA in August 2020, alleging top executives illegally diverted tens of millions of dollars for lavish personal trips, no-show contracts for associates and other questionable expenditures. NRA chief Wayne LaPierre and three other people who have worked for the organization were also named as defendants.

The NRA countersued James, alleging her actions were motivated by hostility toward its political advocacy, including her comments in 2018 that the NRA is a “terrorist organization.” That case is pending.

In filing for bankruptcy protection in January, the NRA made clear it was seeking to escape regulatory oversight in New York, where it was charted as a nonprofit in 1871 and remains incorporated. James is the state’s chief law enforcement officer and has regulatory power over nonprofit organizations incorporated there.

The NRA sought to “get all the litigation in a place where we’ve got an even shake,” board member Charles Cotton said at the time of the bankruptcy filing.

Aside from putting the NRA out of business, James also wants LaPierre and the other defendants removed from its leadership, banned from serving on the boards of New York-based charities and ordered to pay full restitution and penalties for money they are accused of illegally spending.

“Clearly the NRA is in need of oversight and reform, if not dissolution,” James said Tuesday.

An NRA lawyer said it filed for bankruptcy in part because it feared New York's and other lawsuit would result in “death by 1,000 cuts.”

Washington, D.C., Attorney General Karl Racine is suing the NRA’s foundation, seeking to have a court-appointed monitor supervise its finances. The organization is also embroiled in ongoing litigation with its former advertising agency.

NRA CHIEF'S SELF-DEALING ALLEGATIONS

James’ lawsuit highlights misspending and self-dealing claims that have in recent years plagued the NRA and LaPierre — from hair and makeup for his wife to a $17 million post-employment contract for himself.

“There are individuals and officers who are using the NRA as their personal piggy bank and they need to be held accountable,” James told reporters on Tuesday.

LaPierre, who's led the NRA’s day-to-day operations since 1991, is accused of spending millions of dollars on private travel and personal security, and accepting expensive gifts such as African safaris and use of a 107-foot (32-meter) yacht from vendors.

The lawsuit said LaPierre, 71, spent NRA money on travel consultants, luxury car services and private jet flights for himself and his family, including more than $500,000 on eight trips to the Bahamas over a three-year span.

LaPierre has defended some of his actions, testifying last month at the bankruptcy hearing that cruising the Bahamas on a yacht was a “security retreat” because he was facing threats in the wake of mass shootings.

He conceded not reporting the trips on conflict-of-interest forms, which the New York’s lawsuit contends violated NRA policy, testifying: “It’s one of the mistakes I’ve made.”

Phillip Journey, an NRA board member who's skeptical of LaPierre's leadership, said prosecutors could use the information revealed at trial to pursue a criminal case. At the least, testimony about the organization’s operations could be fresh ammunition for James’ lawsuit.

“They were just waiting for all of these transcripts to be completed, all of these exhibits to be admitted," said Journey, a Kansas judge. “I figure they're going to go throw them in front of a grand jury and see what pops out.”

NRA STILL HAS ITS SIGHTS SET ON TEXAS

The NRA remains interested in moving to Texas and it has powerful allies in the Lone Star State who'd be happy to see it set up shop there. But doing so through another attempt at bankruptcy would be fraught with risk for the NRA's leadership, and James says she has the authority to block other efforts to abandon its New York incorporation.

Hale dismissed the NRA’s case without prejudice, meaning the organization can refile — but he warned that a second bankruptcy petition would prompt him to take a hard look at the NRA's lawyers “unusual involvement” in the group's affairs.

The judge wrote that the lawyers' actions raised concerns that the group couldn't fulfill its fiduciary duty, which he said might lead him to appoint a trustee to oversee it. That would hand the organization's reins to an outside official selected by the Biden administration's Justice Department.

Hale also noted the NRA could still pursue other legal steps to incorporate in Texas, where the group claims to have about 400,000 of its 5 million members. Texas Gov. Greg Abbott, a Republican, said on Twitter that he looks forward to working with the NRA on the move.

But neither Abbott's office, nor that of Texas Attorney General Ken Paxton, who's voiced support for the prospect in past, responded to questions about the NRA's possible path to Texas. Meanwhile, in New York, James said the NRA would need her approval to pull its incorporation from the state, and that seems unlikely.

THE FUTURE OF THE NRA AND AMERICA'S GUN DEBATE

Even as it filed for bankruptcy protection four months ago, the NRA claimed it was in “its strongest financial condition in years,” but the COVID-19 pandemic and mounting legal costs ongoing lawsuits have upended its financial standing.

The organization, which in January reported total assets of about $203 million, liabilities of about $153 million, and $31 million in bank loans, said in court papers that it saw revenues drop about 7% because of the pandemic. To cut costs, it laid off dozens of employees, canceled its national convention and scuttled fundraising.

Gun-control groups have seized on the NRA’s troubles and a recent spate of mass shootings as a prime opportunity to advance new legislation while one of their most powerful adversaries is tied up in court.

Yet, the NRA has promised to “continue to fight on all fronts.” And even with Democrats in control of Congress and the White House, longtime observers of America's gun debates caution that the first major gun control legislation in more than two decades face barriers.

“The fact that the NRA is a shadow of its former self doesn’t mean all of a sudden the nation’s gun-violence problem is going to solve itself,” said Adam Skaggs, chief counsel at the Giffords Law Center to Prevent Gun Violence. “Addressing that issue and passing meaningful policy is still a difficult thing to do. But certainly, the days where the NRA could wield power and exert unprecedented influence in our legislatures and our political system, I think those days are numbered.”

In March, the House passed two bills to require background checks on all firearms sales and transfers and to allow an expanded 10-day review for gun purchases — measures supported by President Joe Biden. But they're confronting potentially insurmountable questions in the Senate, where some Republican support is required for passage, over what rules should govern private sales and transfers, including those between friends and extended family.

Meanwhile, Journey, the NRA board member who requested that a court-appointed examiner investigate LaPierre, worries about what will become of the group's non-lobbying work. He’s particularly concerned that James dismantling the organization will mean the end of national programs to support law enforcement and to train hunters and other gun owners in firearms safety.

“I think some organizations may be able to pick up some of the pieces," he said, “but most of it will simply go away.”

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Bleiberg reported from Dallas.

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