Oh, You Mean Financial Bankruptcy

NRA Chapter 11 Bankruptcy Petition

WC was initially confused when news media reported the National Rifle Association had filed bankruptcy. The gun nut club had been morally bankrupt for decades; seriously, “Guns don’t kill people, people kill people”? It doesn’t get much more morally bankrupt than that.

But the news was about financial bankruptcy, about the NRA’s Chapter 11 bankruptcy petition. The NRA was broke was going to reorganize itself. The bankruptcy filing was an inescapable consequence of the convergence of declining membership, completely over the top legal fees and indefensibly high salaries to senior management. It’s driven by the NRA’s ridiculously expensive fight with its former advertising vendor and the long-overdue policing action by the New York Attorney General, Tish James. When your legal fees are your largest single expense, you’re headed for bankruptcy.

The bankruptcy is a Chapter 11, meaning that the NRA proposes to reorganize itself and, in a new, financially sounder form, proceed onwards. But the plan of arrangement, at least as revealed so far, appears to be a non-starter.

First, it has the appearance of a hasty decision. Most large Chapter 11s are as tightly scripted as a Shakespeare play: the plan of arrangement, the method by which the bankrupt will revive itself, is often filed with the petition. In NRA’s case, however, only the barest minimum was filed. It smacks of an empty bank account, a crisis of some kind. Can’t make mortgage payment, or can’t pay lawyers? Usually extensive schedules, revealing what is owed to whom, and an extended statement of its financial affairs, are filed. The NRA didn’t have them ready. So, yeah, a flavor of panic, of haste, of a failure to anticipate.

Second, the bankruptcy petition was filed in Texas. It’s certainly true that there are more NRA friendlies in Texas than in New York, where the NRA is chartered, or in Fairfax, Virginia, where it has its headquarters. But Texas? That’s forum shopping with a vengeance. There are laws and cases that control where you can file your Chapter 11.

A bankruptcy case (except a case under chapter 15) may be filed in any federal district court containing the debtor’s “domicile, residence, principal place of business . . . or principal assets in the United States . . . for the one hundred and eighty days immediately preceding” the filing of the case. 

28 U.S. Code §1408

All of the statutory criteria point to New York (“domicile”) or Washington, D.C. (“residence, principal place of business”). It looks like the NRA is trying to invent jurisdiction. There’s a wholly owned subsidiary of the NRA called “Sea Girt.” It’s tiny, with assets of less than $50,000. The NRA claims it does business in Texas. Using Sea Girt as an excuse, the NRA is trying to assert “affiliate” jurisdiction for the immeinsely larger NRA. The tail wagging the dog, as it were. The law is intended to allow a big organization to get its distant affiliates in the same courtroom; the NRA is trying to use the tiny affiliate to get the NRA is a remote courtroom. Seems pretty dubious to WC. You can be certain more than one NRA creditor is going to be pressing a motion to change the Chapter 11 location – the venue – to New York or Virginia.

But filing in Texas appears to be key to the NRA’s plan to reoganize itself. Essentially, the reported strategy is to “move everything to Texas and tell New York’s attorney general to pound sand.” The thinking, such is it is, seems to be to move everything out of New York in an effort to avoid the State of New York’s lawsuit. By filing in Texas, the NRA hopes to make any trial that it does have to face take place in front of a bankruptcy judge in Texas. WC thinks that’s not likely to happen.

But, in the meantime, unless the New York AG can persuade a court otherwise, trials and preparation for trials against the NRA are temporarily stopped.

NRA says it isn’t about money. That’s a lie. If you’re in bankruptcy court, it’s always about money.