Afternoon arguments

The attorney observer was back, and says,

Louis Strubeck spoke for the Unsecured Creditors Committee, and spoke very well. He opposed the motion to dismiss, pointing out that the NY Attorney General’s dissolution suit involves looking backward to past misconduct, while a bankruptcy chapter 11 involves looking forward, to how the debtor can be changed to prevent future problems.

He opposed appointment of a trustee, saying the proper solution is to negotiate governance changes in the reorganization plan. Very high standard of proof to appoint trustee. He’d micromanage a complex organization involved in controversial functions. At least, it would have a very steep learning curve, and delay. NRA is already under careful scrutiny by UCC, court, and others.

He argued a trustee should not be appointed, but if so, he should be limited in powers.

He also opposed appointment of an examiner, who would investigate fraud and abuse but not have the ability to run the NRA. This opposition was not very convincing. He suggested that hiring of a chief restructuring officer would be enough, when that’s been heavily criticized and has nothing to do with investigating past abuses.

Greg Garman then spoke for the NRA.

He denied that there was proof of tens of millions of NRA money being siphoned off for benefit of LaPierre and his circle, as the other parties had promised they would prove. The vacation yacht use was at the expense of a vendor. There were “excess benefits” to Lapierre, but that is a tax term, not a matter of morality.

Trustee motion must prove misconduct after rather than before filing for bankruptcy.

He argues that the board is independent and strong-willed.

He argued that NRA is properly in bankruptcy court. He argues that the bankruptcy does not stop the NY lawsuit to dissolve the NRA. (Yes, this is NRA’s attorney). Bankruptcy does not even stay the NY lawsuit, it does not affect state use of its police or regulatory powers. Reorganization plans must see distribution of debtor assets to pay a fine, penalty or forfeiture, to extent they are not damages. The plan moves us to Texas, pays off creditors in full, improves our governance. NY Attorney General suit will be treated as a claim. (but she isn’t seeking a fine, but trying to dissolve NRA, she seeks money only from LaPierre, Phillips and others, money payable to NRA. He doesn’t deal with this.) Court should deny motion for trustee and instead examine the reorganization plan and let the parties fight that out.

This case is “out of the box,” but that is no bar. He seems to argue that since a state fine would be paid as part of the reorganization plan, so should a suit for dissolution. This is a big stretch, and sounds like his argument runs in a circle, the bankruptcy case won’t stop the NY lawsuit, and yet it will. Or maybe he is arguing the NY suit will stay alive but be argued in the Texas bankruptcy court. Hard to tell.

In opening argument, he’d said the court will hear cringeworthy evidence, and court heard NRA’s former treasurer plead the Fifth Amendment, and so on, but we’ve changed, those are cold, stale issues.

He opposed appointment of a trustee. A trustee may not be dedicated to NRA’s mission. Members might stop contributing.

Apologizes for “dump NY” language, says it doesn’t mean bankruptcy was meant to evade NY lawsuit. In 2017, NY regulatory agencies were opposed to NRA, based on its positions, not upon any misconduct. NY government became hostile, that was motive to move to Texas. NY letter to banks, targeting NRA.

IRS form 990. Craig Spray said he was on the “outs” after he refused to sign it. But evidence doesn’t show he was fired over it. 990 shows LaPierre refunded over $300,000 in excess benefits, for travel on LaPierre vacations billed to NRA, but that doesn’t mean it was improper. No criminal charges were brought.

August 6, 2020, NY AG sues for dissolution. Other side claims our only reason for bankruptcy is to escape this. But what litigation advantage do we get, if this filing does not stop that? (Again, his argument seems self-contradictory. If bankruptcy doesn’t give NRA an advantage in the dissolution action, why did it file for bankruptcy?)

Video from NY AG press conference announcing dissolution suit. AG is asked is that unfair? She replies NRA is already in deficit, now being looted by four leaders. Donors didn’t donate so that it could be looted. Will she freeze its assets? She says will investigate. He argues this might have caused NRA to fear she’d try to appoint a receiver.

Special litigation committee was named because LaPierre and Frazer are conflicted out, because they too were sued. No reason to appoint a trustee. Maybe Frazer was not told of bankruptcy, but he knew about the issue months earlier. Claims are made that board was misled, but NY Attorney General claimed board didn’t take up issues of executive compensation, but then when board did review his contract, they complain of that, too. (Argument makes no sense). Only one member of board claims he was misled by LaPierre employment contract (which supposedly authorized him to file the NRA bankruptcy).

They argue Brewer and bankruptcy attorneys were paid current to day before bankruptcy. Always done in bankruptcy.

No evidence of fraud or incompetence after bankruptcy was filed. Any before it is not relevant to motion for trustee. LaPierre is great fundraiser. NRA did something hard and brave by filing for bankruptcy. How can it be a litigation strategy, if it gives us no advantage? NY can still sue us to dissolve us, as part of this lawsuit and plan.

Gerrit Pronske speaks for the NY Attorney General.

Insolvency isn’t a requirement for chapter 11, but good faith is. Solvency is part of that determination. Solvency plus trying for litigation advantage equals bad faith. No insolvency, indeed NRA claims it has strong financial position. NRA claims litigation may create money problems, but NRA has counterclaims and may come off ahead. Ackerman McQueen cases, no evidence about them. NRA’s own schedules filed in this court are contrary. Says Ackerman claims of unknown amount, and NRA claims $140 million against Ackerman. Also mortgage liability, but asset value far above debt.

NRA’s problem isn’t financial but regulatory. What other issue have you heard about, issue that this case is meant to solve? This court can’t solve. Cites case of funeral plan operator who filed for bankruptcy, with state government moving to appoint a receiver, got dismissed because of bad faith even though the operator did have financial problems.

NY law says when AG sues to dissolve, the interest of the public is paramount.

Brian Mason speaks for Ackerman

NRA only proposed CRO because of creditor’s committee. They could hire a CRO even if bankruptcy is dismissed. Garman claimed LaPierre just accepted some excess benefits. But LaPierre told many people that Brewer was the only person who could keep him out of jail. Claim that Oliver North contract kept secret is false. LaPierre negotiated it, and the Audit Committee approved.

Garman asked what is the litigation tactic, but it’s clearly to take dissolution off the table. Bankruptcy was filed for improper purpose. Garman says SLC formed because LaPierre was conflicted out. But that means LaPierre didn’t follow those standards, he was heavily involved in the bankruptcy suit.

Garman said there was no evidence of dissenters being pushed out. Board members were removed from committees, Col. North pushed out, Mr. Hart fired, Cox suspended, all without consulting board.

Sea Girt was sham entity, created just to get venue.

Chris Taylor, for Journey. Most important case in country today. Five million members, important NRA programs.

Judge says, you all have strong feelings, thanks for keeping heat down, only a few skirmishes. Awfully hard issues, not the longest trial I’ve ever had, nor the most complex, but it’s hard on everyone. Case is at the top of importance of my judicial career, I’m toward end of that, will be retiring next year. I’m putting this at the top of importance. I’ll try for a ruling in approximately a week, around beginning of next week.

One thought on “Afternoon arguments

  1. “NRA…argues that the board is independent and strong-willed.” LOL.

    Why should unsecured trade creditors want an examiner who will find corrupt sweetheart vampire deals, perhaps leading to disgorgement or worse?

    Chris Taylor: Thanks, Captain Obvious.

    Like

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