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Judge allows NY lawsuit to dissolve NRA to move forward

Hubbard Snitchler & Parzianello

In America’s current corporate landscape, lawsuits can generate complex legal questions about where and when a case should be tried. One of the most complex of such lawsuits is the suit by the state of New York seeking to dissolve the National Rifle Association for allegedly violating the state’s laws regulating non-profit corporation. The NRA filed a case in bankruptcy court in Texas in an attempt to stop or at least delay the New York case. A New York judge recently ruled that the NRA’s efforts should be rejected.

The beginning

New York Attorney General Letitia James commenced a lawsuit against the NRA in August 2020 seeking to dissolve the organization. The grounds for the lawsuit were the alleged illegal diversion of the NRA’s assets to pay personal expenses of the organization’s executives. The NRA responded by filing a bankruptcy petition in bankruptcy court in Texas. The NRA’s lawyers then filed a motion in the New York case asking the lawsuit be dismissed or transferred to the Texas bankruptcy court.

The court’s ruling

The judge in the New York case recently ruled that the New York case against the NRA can proceed. The court ruled that ““It would be inappropriate to find that the attorney couldn’t pursue her claims in state court just because one of the defendants wants to proceed in federal court.” In other words, the plaintiff in the case has the right to choose the venue for the case unless the defendant can demonstrate an important reason why that choice should be rejected. No such reason was presented, and the case in New York State court will now proceed.

The NRA cited a filing glitch in the state’s original filing to support its claim that the state’s claim was filed in an untimely manner. The error was swiftly repaired, and the court said that the error has no effect on the substantive issues in the case.

Now what?

Without offering an explanation, the NRA chose not to exercise the automatic stay provision of the Bankruptcy Code, which automatically stops all pending litigation involving the bankruptcy petitioner.  This provision is often the most important motivating reason that corporations seek bankruptcy protection.

Any business that gets caught in bankruptcy court or complex litigation involving the alleged misuse of corporate funds will want to consult an experienced corporation litigation firm for advice.

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