For some reason, NRA’s attorney would not or could not clearly state his position, but I think I understand it.
Bottom line is, the entire purpose of the bankruptcy is to escape the NY Attorney General’s suit, the suit that the leadership has claimed is just an empty political ploy. They know it is not, and that beating it honestly would be too painful. That would require genuine reform, beginning (but not ending) with finding a new Executive Vice President.
Instead, they need to relocate their state of incorporation to Texas. Then her lawsuit will be useless, since NY cannot revoke the charter of a Texas corporation. Relocation involves more than just moving (NRA moved out of NY long ago) because a corporation is an artificial person, it can only do person-things like make contracts and own property because a state, NY, created it by its laws. You relocate a corporation’s state of creation to Texas by creating a Texas corporation (Sea Girt), merging NRA and Sea Girt, and making sure that the new corporation created by combining the two is a Texas corporation. BUT NY law says a nonprofit cannot merge without the permission of the NY Attorney General or a NY court. You get around that by using the power of a bankruptcy court in chapter 11 reorganization to allow a merger of the debtor corporation. That is a long shot. A bankruptcy attorney told me that it is unclear that a bankruptcy court can allow a merger forbidden by state law. Maybe so, maybe not.
That brings up the whole issue of bad faith filing, which may lead to the bankruptcy case being thrown out. The judge posed a vital question, and nobody clearly answered it. The NRA protests that it is perfectly solvent (not true, as LaPierre admitted, every employee is still under a 20% salary cut). What is a financially secure corporation doing in bankruptcy? Is using the power of a bankruptcy court to escape a state enforcement action, not as incidental to resolving financial problems but as the whole purpose of the bankruptcy, a proper use of the court’s powers or a bad faith filing? That’s what the judge wanted answered.
In bankruptcy, one test of bad faith is that the debtor is trying to gain a ‘litigation advantage,” and NRA’s attorney insisted it was not seeking such advantage in the NY litigation. But if not, then why file this bankruptcy suit? Isn’t that the whole idea of it? He said, correctly, that bankruptcy does not stop a state regulatory enforcement action, anymore than it would stop a state criminal prosecution. Then why file for bankruptcy?
The answer is his argument that goes something like this (I am NOT saying this is a good argument at all, it’s a horribly weak one)– in a chapter 11, if a state was seeking fines against the debtor, those have to be taken care of in the debtor’s reorganization plan. The NY suit to dissolve NRA is sort of like a fine. (This isn’t skating on thin ice, it’s trying to skate on water). So the suit to dissolve should be taken care of as part of the plan and, since that will require a trial to determine, the bankruptcy court should hold that.
So what’s the difference? Bankruptcy or not, the NY suit to dissolve has to go to trial. The difference would be, without bankruptcy, the suit would be tried in NY, with it, if the above argument works, which is not likely, it’d be tried in Texas.
The litigation advantage consists of that, simply that. Move the trial to Texas. And that only happens if the court buys the very, very weak argument that couldn’t even be clearly stated.
I just realized something. If the NY suit is going to be tried during the bankruptcy, and the move to Texas will occur when the reorganization plan is confirmed at the end of the bankruptcy, that means the NY suit will have to be finished BEFORE the NRA is allowed to move to Texas. So this litigation advantage means that the original purpose, moving to Texas legally before the NY Attorney General can revoke the NY charter, has been abandoned.
I can’t believe what a, we want to keep this family-friendly so I can’t use the words, but what an unspeakable mess this has become. NRA started in, planning to escape the NY Attorney General, and has to push that hope to the ditch and blunder onward. The blundering is now the long-shot hope that the NY suit will at least be tried in Texas. Paying millions in legal fees (it will have to pay its own attorneys AND those for the creditors’ committee to get a plan approved) along the way.
The NY Attorney General doesn’t have to kill the NRA, it’s more like an assisted suicide now.