Clues To NRA’s Legal Strategy

Attorney Sarah Rogers of Brewer, Attorneys and Counselors, filed a “Notice of Suggestion” before the US Judicial Panel on Multidistrict Litigation yesterday. It was in regard to the NRA and Sea Girt LLC’s filing for Chapter 11 bankruptcy in the US Bankruptcy Court for the Northern District of Texas.

From the Notice of Suggestion:

Section 362(a) (Automatic Stay) of the Bankruptcy Code automatically prohibits, inter alia, the following:
* the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
* the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
* any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.

I think that tells you exactly what the legal strategy formulated by William Brewer III is for the NRA. It is to use bankruptcy as a means to stop or put a hold on the cases involving Ackerman McQueen, David Dell’Aquila, and the State of New York. That is, at least in Federal court.

It gets more interesting according to a book put out by the American Bankruptcy Institute entitled, Bankruptcy Issues for State Trial Court Judges Third Edition.

Federal law allows the removal of civil actions from state court to federal district court if jurisdiction exists under 28 U.S.C. §1334 (the federal jurisdictional provision that creates a bankruptcy case). The petition for
removal must be filed in the district court to which the matter is removed. Removal is to the federal district court for the jurisdiction in which the state court matter is pending, not to the district in which the bankruptcy case is pending. Consequently, if the bankruptcy case is in a different federal district, a motion for change of venue to that district may be filed after the matter is removed.

The book goes on to say that this applies to all courts, state and Federal. However, if you examine the case against the NRA by the Attorney General of New York Letitia James, it probably is might be stayed against the NRA but not against Wayne LaPierre, Woody Phillips, John Frazer, or Josh Powell. That is because a §362 stay applies to the property of the estate, property of the debtor, and the debtor. The individuals named by James in the dissolution lawsuit are not debtors in a bankruptcy filing.

However, there is an exception to a §362 that I’m sure the State of New York will seek to use:

The commencement or continuation of an action or proceeding by a governmental unit to enforce its police or regulatory power. Examples would be prosecution under a rubbish ordinance, an action to close a restaurant for health code violations, or litigation to determine the debtor’s liability for consumer protection violations and liquidation of the amounts owed for those violations. The exception extends to enforcement of a judgment, other than a money judgment, obtained by a governmental unit to enforce its police or regulatory power. Section 362(b)(4)

The regulatory power involving the NRA would be that of New York’s ability to regulate charities which is the basis of the dissolution suit. It will be up to the judge hearing the dissolution lawsuit to decide whether the stay resulting from the bankruptcy filings apply. I’m sure that New York will argue that it doesn’t just as the NRA’s lawyers will argue that it does.

I should remind the reader that I’m not a lawyer and that case law usually is of greater importance than the how the law is written. In other words, how a law is interpreted by the courts trumps how the legislature wrote the law.

2 thoughts on “Clues To NRA’s Legal Strategy”

  1. The stay is powerful.

    It’s generally a very bad idea to file for bankruptcy while criminal proceedings are pending (I don’t recall off hand if the NY or IRS issues had a criminal component).

    I imagine WLP will have to testify at the 341 meeting of creditors for the NRA as the executive, and if he refuses to answer questions there, at any 2004 exam, or at any hearing on 5th amendment grounds, that’s going to be bad for him and for the org. Bankruptcy court is civil, so adverse inferences can be made on refusal to testify, and furthermore, refusal to testify can jeopardize the discharge (though that works slightly differently in an 11).

  2. ” In other words, how a law is interpreted by the courts trumps how the legislature wrote the law.”

    Or to be more accurate, the stuff judges make up to justify their political decisions trumps how the legislature wrote the law.

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