The National Rifle Association's bankruptcy in Texas may throw a wrench into New York attorney general Letitia James's (D.) push to shut down the group and seize its assets.
William Brewer, the NRA's leading outside counsel, said a federal bankruptcy judge will have the final say over what happens to the Second Amendment group's assets. James is pursuing a case in state court to dissolve the NRA and reallocate its assets to other nonprofits over accusations of financial impropriety. James will now have to take an extra step in federal court to achieve her goal, according to Brewer.
"In order to dissolve the association, the NRA believes that James would have to seek that relief from the bankruptcy court," Brewer told the Washington Free Beacon.
James successfully blocked a recent attempt by the NRA to move the case from a Manhattan court to one in Albany. James's office declined to comment on the looming bankruptcy. It directed the Free Beacon to a statement in which the attorney general said, "The NRA does not get to dictate if and where they will answer for their actions."
Brewer disputed James's assertion, saying the NRA is confident it would win on the merits in a New York court and there would be no attempt "to try to stop that case or move it out of New York courts." Brewer said the NRA is solvent and using bankruptcy primarily to reorganize itself—with the same leadership and program offerings—in a state where officials are less likely to target the group for its political beliefs. The success or failure of the NRA's legal strategy will determine what the leading Second Amendment advocacy group looks like in the future—or if it even exists at all.
Experts said bankruptcy protections may complicate the issue for James, but successfully blocking her in the long term could prove difficult.
Sidney Scheinberg, a bankruptcy lawyer in Texas, said the move was "highly unusual" but also "clever." Texas has strong bankruptcy protections and a more favorable political atmosphere than New York, making it an optimal destination for the NRA, according to Scheinberg.
"It's an aggressive move," Scheinberg said. "It may or may not work. If anything, I think they will get a more balanced playing field here in Texas."
Matthew Bruckner, a bankruptcy expert at Howard University, said a bankruptcy judge is unlikely to move NRA assets to Texas if it conflicts with what the judge in the New York case rules. He called it a legal "Hail Mary" that carries risks. A bankruptcy judge could not only appoint a trustee to replace NRA management but demand an independent audit to probe—at the NRA's expense—how the group ended up in bankruptcy. The NRA may be forced to pursue the same claims of financial impropriety that spurred James's lawsuit.
"This seems to create real risks for the NRA," Bruckner said. "There are real risks to the organization, to the officers and directors."
Brewer said the accusations being pursued by James should not trigger a trustee appointment because they are "old news" that the organization dealt with appropriately by filing suit in 2019 against a top vendor accused of mismanagement and requiring some NRA leaders such as Wayne LaPierre to repay money spent on personal expenses last year. James claims NRA leaders spent millions more on personal expenses including luxury suits, private flights, and lavish vacations. Brewer said the attorney general has created a "false narrative" about the group's oversight that will not stand up in any court.
"That's always a possibility when you go into bankruptcy ... [but] the NRA is well managed by its board," Brewer said of a potential trustee appointment. "If you're doing something sneaky, don't go into bankruptcy. Don't do it. But the NRA doesn't have that fear."
Brewer said the bankruptcy filing and relocation—which will include a new physical office for leadership in Texas—demonstrates financial prudence and the proper stewardship of member dues. The move allows the NRA to avoid what it sees as political persecution from New York's anti-gun politicians while also becoming more efficient in operations and in dealing with its other legal concerns—particularly civil suits stemming from its management of expenses. While standing by earlier assertions that the NRA is in a strong financial position, Brewer said the group would take advantage of bankruptcy to shed old contracts that "no longer serve a useful purpose" after "paying them out fairly."
"The Bankruptcy Code enables you to streamline operations," Brewer said. "Bankruptcy enables you to get a timeout, get everybody recognizing that the path forward is to settle all of this litigation in an organized and efficient way."
The next hearing in the bankruptcy case is scheduled for Feb. 10.