The National Rifle Association's bankruptcy filing should be dismissed because it was part of a brazen attempt to escape legitimate oversight in the NRA's home state of New York, a lawyer for the state said Monday during closing arguments in a trial.
Its Chapter 11 filing in January is a "poster child of bankruptcy filed in bad faith" that the court should reject to "prevent bankruptcy from becoming a haven for wrongdoers," attorney Gerrit Pronske told a federal bankruptcy judge in Dallas. The judge is weighing requests to dismiss the gun rights group's filing, appoint a trustee to run the NRA while it's in bankruptcy or install an examiner to look into New York Attorney General Letitia James's allegations of corruption and mismanagement.
In its Jan. 15 filing, the NRA said that its finances were strong but that the restructuring would help it exit "a corrupt political and regulatory environment in New York."
The trial threatens the reign of Wayne LaPierre, who has overseen the group since 1991 and faces accusations of mismanagement and lavish personal spending while leading the NRA's battle over Second Amendment rights. The group has enjoyed great influence in Washington for its defense of the firearms industry, but internal rifts and James's claims have dented its image of invulnerability, and Donald Trump's election loss has cost it an important ally.
New York says the bankruptcy filing is illegitimate on a number of grounds.
They include filing to gain advantage in the separate fraud lawsuit James has brought against the NRA in New York, a lack of financial duress to justify a Chapter 11 case, a bid to seek a sympathetic venue and an internal process in which NRA management violated its own governance requirements, "intentionally deceiving" its board by keeping it in the dark about its plans for the filing.
The NRA says many of its problems have been resolved through a "course correction" begun in 2017. But it also outlined a plan on Monday to hire an expert to advise on nonprofit corporate governance and add a chief compliance officer.
The association never hid its desire to emerge from bankruptcy free of its New York home of 150 years and with a new charter in Texas, Pronske told U.S. Bankruptcy Judge Harlin Hale. On the day it filed for reorganization, it posted a letter on its website announcing that it was "DUMPING" the state.
As further evidence, Pronske noted that the group set up a partnership called Sea Girt as part of its efforts to reincorpoate in Texas, which he likened to "Decoy Duck LLC."
In his own testimony earlier in the trial, LaPierre cited what he said were legitimate reasons for some of the trips and expenses. As for other items, he said the actions taken since 2017 had resolved a number of governance problems and that "the controls are strong."
Brian Mason, a lawyer for the NRA's former ad agency, Ackerman McQueen, also argued for dismissal of the case.
Mason said there's an "overwhelming amount of evidence" that the NRA is financially healthy. He told the court that the bankruptcy was fraudulently filed, without approval of the full board as required by the NRA's bylaws.
He said the board had amended LaPierre's employment agreement just before the filing, in an ambiguous way that allowed him to deceive it and claim he had the authority to file.
An attorney for the U.S. Trustee in the bankruptcy, Lisa Lambert, said the NRA lacked a legitimate reason to file. She told the court the group hadn't properly informed its board, general counsel and chief financial officer ahead of time.
She said LaPierre's personal expenses, including $225,000 in apparel and charter flights for his family, were made to look like business costs and decried the NRA's internal controls. A member of the staff charged $40,000 for her son's wedding and after reimbursing the organization, faced no consequences, Lambert testified.