February 10, 2021 – Ackerman McQueen, the Debtors’ largest unsecured creditor (“AMc”) filed a motion to dismiss (or in the alternative, appoint a Chapter 11 Trustee) the Debtors’ Chapter 11 cases [Docket No. 131] arguing that the Debtors have not filed for bankruptcy protection "with a legitimate goal of reorganizing." The admittedly solvent Debtors, AMc continues, are instead engaged in an effort to manipulate the Texas bankruptcy Court by asking it to assist in the validation of a "sham" Texas entity established to escape liability for fraudulent activity in the State of New York.
In an entertaining motion that will be read with interest by a much wider audience of lawyers than those currently involved in the Debtors' bankruptcy filing, AMc notes "NRA’s rampant mismanagement, corruption, and embezzlement by insider executives and board members, fraud, breaches of fiduciary duties, and a vexatious litigation as exposed by the NYAG" as supporting (at the very least) the need for a Chapter 11 Trustee.
AMc saves special ire for the Debtors' counsel (Brewer Attorneys & Counselors, or the “Brewer Firm”) who AMc accuses of being the self-dealing power behind the NRA's "rampant self-dealing" Executive Vice President, Wayne LaPierre, commenting: "…the NRA’s self-imposed, wasteful, and destructive litigation largely stems from claims intentionally initiated by the NRA to deflect the spotlight off its own malfeasance. This Rambo-style 'litigation strategy' has done nothing more than enrich the NRA’s counsel and public relations firm (the Brewer Firm) (millions in legal fees per month since 2018) and forced the NRA into its latest round of litigation roulette with this bankruptcy."
What AMc neglects to mention is its formerly prominent role as the Debtors' longtime advertising agency, effectively the predecessor of the Brewer Firm in respect of the latter's PR role, in the unerringly dysfunctional NRA family. In 2019, the NRA sued AMC demanding an accounting in respect of $40.0mn in annual fees. AMc, credited (or discredited) with ramping up the NRA's aggressive tone in recent years (it takes a Rambo to know a Rambo), largely through its television channel NRATV, is run by William Brewer III (William Brewer IV also working at the firm). The elder Brewer is also the the son-in-law of Angus McQueen, a former co-chief executive of Ackerman (died July 2019), and the brother-in-law of Revan McQueen, its chief executive (now that is an interesting family tree).
To get an idea at just how involved AMc was with the Debtors (and the Brewer firm) and just what a threat the NRA faces in what has turned into a no-hold bars, steel cage match amongst entities and families that were inseparable for 40 years, see the excellent coverage by the NYT here and here.
As to Wayne LaPierre, who AMc (once the employer of LaPierre's wife) now accuses of a litany of fraudulent actions, the NYT comments that he "had previously been a steadfast champion of the Ackerman relationship." Not anymore.
The AMc Motion to Dismiss
The AMc motion explains, “The U.S. Supreme Court and virtually every Federal Circuit, including the Fifth Circuit, have held that companies that forthrightly claim they are solvent cannot manipulate the Bankruptcy Code for an illicit purpose, but rather must file a petition in good faith with a legitimate goal of reorganizing. This preliminary requirement is necessary to protect the integrity and equity of the bankruptcy courts. In this case, the National Rifle Association of America (‘NRA’) did not file this bankruptcy for a legitimate goal of reorganization.
Simultaneously with its bankruptcy filing, the NRA released a host of carefully crafted, politically motivated messages, presumably to assuage any concerns from its membership, representing that it is as financially healthy as ever. By its own admission, the NRA filed this bankruptcy solely to escape the civil prosecution of claims by the New York Attorney General (‘NYAG’) that the NRA’s management team, starting with Executive Vice President, Wayne LaPierre (‘LaPierre’), among other things, engaged in rampant self-dealing, breached their fiduciary duties, filed fraudulent tax returns with the state and federal government, had virtually no internal controls and if the controls interfered with the enrichment of executives, ignored best practices, actively obtained and improperly misspent trusted funds, and committed fraud on the public.
As part of this plan, the NRA formed a sham entity in Texas less than two months before filing for bankruptcy to manufacture venue, and is asking this Court to assist with its reincorporation in Texas. However, this bankruptcy cannot achieve the NRA’s illicit goal of dissolving in New York and reincorporating in Texas, as the NRA lacks the requisite approval from the NYAG or NY Supreme Court to dissolve, merge into, or consolidate with a foreign nonprofit incorporated in another state.
The NRA further contends that it needs the protections of the bankruptcy court to consolidate litigation. However, the NRA’s self-imposed, wasteful, and destructive litigation largely stems from claims intentionally initiated by the NRA to deflect the spotlight off its own malfeasance. This Rambo-style ‘litigation strategy’ has done nothing more than enrich the NRA’s counsel and public relations firm (the Brewer Firm) (millions in legal fees per month since 2018) and forced the NRA into its latest round of litigation roulette with this bankruptcy. Unfortunately for the NRA, the law does not allow the NRA to reap the equitable protections of the bankruptcy courts to escape the litigation web it has spun.
The NRA’s acts and omissions mandate the dismissal of this bankruptcy on the grounds that the filing was made in bad faith. It should also be dismissed for cause pursuant to section 1112 of the Bankruptcy Code because it exposes the NRA to bankruptcy fraud under 18 U.S.C. § 157, which proscribes a scheme or artifice to defraud innocent parties with the use of the bankruptcy system.
In the event the Court is not ready to dismiss this bankruptcy, AMc requests the Court appoint an independent chapter 11 trustee. The bankruptcy estate is held in trust for the benefit of creditors, and the debtor-in-possession holds fiduciary duties towards the creditors. It is impossible for the current NRA officers and its private counsel to competently or truthfully serve as a fiduciary to AMc (or its other litigation opponents) in light of the allegations of mismanagement against the NRA and its executives in the NYAG Enforcement Action, and in light of the wasteful and destructive litigation path the NRA has taken. Thus, if dismissal is not appropriate at this time, AMc respectfully requests the Court appoint such a trustee.”
Further Background
Goals of the Chapter 11 Filing
In a press release announcing the Chapter 11 filings, the Debtors provide: "The NRA….will restructure the Association as a Texas nonprofit to exit what it believes is a corrupt political and regulatory environment in New York.
To facilitate its strategic plan and restructuring, the NRA and one of its subsidiaries filed voluntary chapter 11 petitions in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division.
The restructuring plan aims to streamline costs and expenses, proceed with pending litigation in a coordinated and structured manner, and realize many financial and strategic advantages….The NRA will propose a plan that provides for payment in full of all valid creditors’ claims. The Association expects to uphold commitments to employees, vendors, members, and other community stakeholders."
“Under this plan, the Association wisely seeks protection from New York officials who it believes have illegally weaponized their powers against the NRA and its members,” says William A. Brewer III, counsel to the NRA in those cases.
Transfer from New York and NYAG Lawsuit
The press release continues: “The NRA plan, which involves utilizing the protection of the bankruptcy court, has the Association dumping New York and organizing its legal and regulatory matters in an efficient forum. The move comes at a time when the NRA is in its strongest financial condition in years.
The Association will seek court approval to reincorporate the Association in the State of Texas – home to more than 400,000 NRA members and site of the 2021 NRA Annual Meeting in Houston.
By exiting New York, where the NRA has been incorporated for approximately 150 years, the NRA abandons a state where elected officials have weaponized the legal and regulatory powers they wield to penalize the Association and its members for purely political purposes.
In the summer of 2018, then New York Attorney General candidate Letitia James vowed that, if elected, she would use the powers of her office to investigate the 'legitimacy” of the NRA.
Without a shred of evidence to support the claim, she called the Association a 'terrorist organization' and a 'criminal enterprise.' As promised, she commenced an 'investigation' upon being elected to the Office of NYAG and, predictably, filed a lawsuit seeking to dissolve the NRA just prior to the November 2020 national election."
The Debtors’ CEO & EVP Wayne LaPierre commented: “Obviously, an important part of this plan is ‘dumping New York.’ The NRA is pursuing reincorporating in a state that values the contributions of the NRA, celebrates our law-abiding members, and will join us as a partner in upholding constitutional freedom. This is a transformational moment in the history of the NRA."
NRA Suit Against NYAG and New York State
Again, the press release: "The NRA filed a lawsuit in August 2020 against the NYAG similar to its lawsuit against New York Governor Andrew Cuomo and the New York State Department of Financial Services, filed in 2018. The NRA pursues the defendants for attempting to 'blacklist' the organization and its financial partners in violation of their First Amendment rights. The NRA will continue those legal actions.
About the Debtors
According to the Debtors: “Established in 1871, the National Rifle Association is America’s largest and oldest civil rights organization. Approximately five million members strong, NRA continues its mission to uphold Second Amendment rights and is the leader in firearm education and training for law-abiding gun owners, law enforcement and the military."
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