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NRA Bankruptcy Petition Dismissed

posted by Adam Levitin

The NRA's bankruptcy petition was dismissed as filed in bad faith. I'm predicting that the court's opinion will be in the next edition of every bankruptcy textbook as the case really is a textbook example of bad faith.  The court found that there was substantial evidence in the record that the NRA filed for bankruptcy for the purpose of gaining an advantage in its litigation with the NY Attorney General, namely depriving the NY Attorney General of the remedy of dissolution, rather than for any other purpose.  

So what does this mean?

In the short term, not much. The NRA is just in status-quo pre-bankruptcy, other than being out some legal fees and some embarrassment (but the filing might well have helped the NRA's fundraising). That means that the NRA is still going to have to face off with the NY Attorney General in a New York state court regarding the NY Attorney General's attempt to dissolve the NRA for gross mismanagement of a charity.

In some ways, the NRA (or at least Wayne LaPierre, its Executive Vice-President), should be counting themselves as lucky, as the court did not appoint a trustee (which would have left Mr. LaPierre waving in the wind). And the dismissal was without prejudice, although with a stern warning from the court that it will looking closely at any subsequent petition. I would be surprised if the NRA refiles. 

I suppose it's possible that the NRA will appeal the dismissal, but I think that would be a fool's errand. The court's opinion was very firmly grounded in Fifth Circuit precedent and based on a rich evidentiary record that includes what the NRA's counsel called "cringeworthy facts".  

I'm curious to see if the dismissal is followed with a sanctions motion (against either the NRA or its counsel) by creditors' counsel seeking recovery of their litigation costs. Given the "bad faith" finding, I would think there's good grounds for such a motion. 

The outcome—which was pretty easy to predict from the get-go—also tees up the question of "what the hell were they thinking?" The NRA's bankruptcy strategy—and implementation—always seemed remarkably hare-brained. If you're going to do a sketchy filing, the lesson from SGL Carbon was don't tell everyone that you're solvent and doing the filing to stiff a single creditor in your press release. Yet, that's exactly what the NRA did. Additionally, the pre-filing governance moves were really iffy (never telling the board of directors!), the creation of a forum-shopping sub completely blatant, and the NRA and its counsel never had their story straight about why they were filing. I doubt there will be any sort of malpractice claim here (and the problems might have been as much from the NRA-side as from the counsel-side), but if the NRA does file again subsequently, such a claim would, of course, be an asset of the estate.  

Comments

What were they thinking?

Well, if I had to make an educated guess, William A. Brewer III saw an opportunity to make even more money from the NRA by persuading Wayne LaPierre to file bankruptcy. Brewer is like LaPierre's Svengali (or Rasputin, in my opinion) who merely needs to whisper "I can keep you out of prison" in Wayne's ear to get him to do as suggested. Without being a bankruptcy attorney himself, he pitched it to Wayne as a quick and easy way to get out of New York and head to Texas.

That said, as someone said to me yesterday, if you can't win in Texas with a judge named Cooter, your case was really bad.

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