Westlaw News

Board member says NRA in 'survival mode,' trying to avoid 'criminal prosecution'

A National Rifle Association board member criticized the gun rights organization’s internal governance and culture and said he believes the NRA may face a criminal investigation in light of “inappropriate payments” as he testified in Texas bankruptcy court on Tuesday.

The board member, Phillip Journey, who is also a Kansas state judge, has been a vocal opponent of the way in which the NRA filed for bankruptcy in January. His testimony came during the fifth day of a trial in Dallas bankruptcy court over efforts by New York Attorney General Letitia James and the NRA’s former ad agency to have its Chapter 11 case dismissed on the grounds that it was not filed for legitimate purposes under bankruptcy law.

Journey said during his testimony on Tuesday that he believes the NRA is in “survival mode” as it tries to “avoid criminal prosecution that could go hand-in-hand following this case.” With the disclosure to the Internal Revenue Service of “inappropriate payments” in 2019, he said, “it’s obvious to me that the next step is criminal investigation.”

Journey did not expand further on that statement during the testimony. Representatives for the NRA did not immediately respond to a request for comment, nor did NRA lawyers Patrick Neligan of Neligan LLP and Gregory Garman of Garman Turner Gordon.

Journey has urged U.S. Bankruptcy Judge Harlin Hale to appoint an examiner to investigate the NRA’s management, saying it violated the organization’s own bylaws by failing to seek authorization from the board to file for Chapter 11. The board ratified the bankruptcy during a March 28 meeting, more than two months after the case began. Journey said he had no idea CEO Wayne LaPierre planned to place the organization into bankruptcy until after the fact.

The bankruptcy was filed about five months after James sued the NRA in New York state court, accusing it of financial misconduct and aiming to dissolve the organization. The lawsuit accuses the NRA of diverting millions of dollars from the organization to pay for luxurious trips for officials, no-show contracts for associates, and other questionable expenses.

The NRA denies the allegations and says the lawsuit was politically motivated.

LaPierre testified last week that he would not have had to place the organization into bankruptcy if not for the James lawsuit.

The attorney general’s team argues that the NRA can’t use the bankruptcy process to escape regulatory oversight in New York, pointing to the alleged financial improprieties to support its position.

Journey testified on Tuesday that he discovered after reading the attorney general’s lawsuit that the NRA’s corporate structure was “worse than I ever imagined” and that the NRA “essentially operates as a kingdom rather than a corporation.” When asked by his attorney, Jermaine Watson of Bonds Ellis Eppich Schafer Jones, whose “kingdom” he was referring to, Journey said, “Wayne’s kingdom.”

LaPierre says he obtained authority to place the organization into bankruptcy when the board approved his employment contract during a Jan. 7 meeting. The contract contained a provision that gave him power to take actions related to the reorganization of the NRA.

Journey has maintained that it was not clear when he read the contract, which the board received for the first time at that Jan. 7 meeting, that it would give LaPierre authority to file the bankruptcy.

Still, Journey said, he does not want to see the bankruptcy dismissed. Without Chapter 11 protection, he said, he fears the NRA “would probably die the death of a thousand cuts.”

On the stand last week, LaPierre admitted that it was a mistake not to disclose yacht trips provided by the owner of a company that has done business with the NRA. However, he maintains that the organization has strengthened its internal controls in recent years.

The case is In re National Rifle Association of America, U.S. Bankruptcy Court, Northern District of Texas, No. 21-30085. For the NRA: Patrick Neligan, Douglas Buncher and John Gaither of Neligan and Gregory Garman, Dylan Ciciliano, Gabrielle Hamm and Teresa Pilatowicz of Garman Turner Gordon

For the New York Attorney General: James Sheehan, Emily Stern, Monica Connell, Yael Fuchs and Stephen Thompson of the Office of the Attorney General and Gerrit Pronske, Eric Van Horn and Jason Kathman of Spencer Fane

For Ackerman McQueen: G. Michael Gruber, H. Joseph Acosta and Brian Mason of Dorsey & Whitney

For Journey: M. Jermaine Watson, Joshua Eppich, H. Brandon Jones, Clay Taylor and J. Robertson Clarke of Bonds Ellis Eppich Schafer Jones