Tag: NRA

Their Aim Wasn’t True – The NRA and Bad Faith Bankruptcy Filings

Bankruptcy offers a temporary sanctuary for parties seeking relief from a variety of problems – financial crisis, lawsuits, collection actions, repossessions, foreclosure, and pandemics.

Filing bankruptcy before a money judgment is entered or on the eve of a foreclosure sale is – often to the consternation of creditors – perfectly valid.  Creditors often complain that the debtor is acting in bad faith, and the bankruptcy court should toss the case.  Those arguments almost always fail.

But not all bankruptcy cases survive long enough for a debtor to reorganize.  When a case is truly filed in “bad faith,” the bankruptcy court can and often will dismiss it.  So when a Bankruptcy Court in Texas recently dismissed the Chapter 11 case filed by the National Rifle Association, it provided an opportunity to look at what constitutes a bad faith filing under the Bankruptcy Code.

The NRA was sued by the New York Attorney General, who alleged the NRA had committed a variety of illegal acts in violation of New York’s laws governing not-for-profits.  The New York Attorney General has the power to bring enforcement actions against charities like the NRA and, if successful, one of the potential remedies is the dissolution of the charity.  The NRA sought to avoid the enforcement action – and particularly the specter of dissolution – by filing bankruptcy and moving to Texas.

When a party files a bankruptcy petition, it must do so for a valid bankruptcy purpose; otherwise, it is a bad faith filing.  Valid bankruptcy purposes include avoiding foreclosure, avoiding having to shutter operations, reducing operating costs, addressing burdensome contracts and leases, streamlining and consolidating litigation, attempting to preserve a business as a going concern, or simply obtaining a breathing spell to deal with creditors.  A petition filed merely to obtain a tactical litigation advantage is a bad faith filing.

To determine good faith versus bad faith, the courts must consider the totality of the circumstances based on the debtor’s financial condition, motives, and the local financial realities.  No single factor is dispositive.  Since the court must evaluate and decide the issue, witness testimony – particularly from the parties who decided to file the case – is a critical factor.  The burden is on the party seeking dismissal to prove bad faith by the debtor.  If that party can muster enough evidence to suggest bad faith, then the burden shifts to the debtor to prove that it was acting in good faith.

After a 12-day trial with 23 witnesses, the Bankruptcy Court found that the NRA’s bankruptcy petition was not filed in good faith based on the totality of the circumstances. The NRA was not in financial distress and had funds to pay all their creditors in full.   The NRA filed their petition to gain an unfair litigation advantage in the New York Attorney General enforcement action.  New York might still be able to get a money judgment, but the NRA wanted to take dissolution off the table.  The enforcement action was different than a lawsuit by a disgruntled vendor.  It was to enforce New York’s regulatory scheme for charities, and the NRA was using bankruptcy to try to avoid that regulatory scheme.  This was not a legitimate bankruptcy purpose.

The lesson for creditors is that, although infrequent, there are circumstances when a bankruptcy court will dismiss a case.  If the debtor has filed a case for a patently improper purpose, you may get it dismissed.  But to pursue dismissal and succeed, you need to be prepared to go to trial and present compelling evidence of bad faith to the court through documents and witness testimony.

© 2021 Ward and Smith, P.A.. All Rights Reserved.
For more articles on bankruptcy, visit the NLR Bankruptcy & Restructuring section.

Why does it Matter if the NRA Used Russian Money to help Donald Trump’s Election?

The old saying goes, that “when you have a hammer, everything looks like a nail.” And as a campaign finance lawyer, I have to remind myself that not every story is a money in politics story. But the more I look at the 2016 election and what transpired, campaign finance is at the heart of the scandal.

To wit, this January, McClatchy reported that the FBI is allegedly investigating whether a Russian banker named Aleksander Torshin (who’s also wanted on criminal charges in Spain for unrelated matters) may have funneled money into the National Rifle Association (NRA) for the benefit of the candidacy of Donald Trump in 2016. At this point, all this is just a press report. We don’t have confirmation of this investigation.

In March, Politico reported that the Federal Election Commission (FEC) is investigating whether there really was any Russian money running through the NRA in the 2016 presidential election. This comes on the heels of Oregon Democratic Senator Ron Wyden asking similar questions to the NRA.

Illegal Political Sources

But why would this be so significant if the story of rubles flowing through the NRA is correct? For one, such spending by a foreigner in an American election is totally illegal under American law. Indeed foreign electoral spending has been barred since 1966 amendments to the Foreign Agents Registration Act (FARA). And with a Special Counsel actively indicting people for their roles in the 2016 election, this could become part of that criminal probe.

We Were Warned

Second, if the NRA-Russia-Trump nexus is borne out by the facts, then it will vindicate warnings from Supreme Court Justices and campaign finance reformers who said inviting secretive corporate money into our politics would provide cover for illegal foreign spending in American elections.

This caution was part of Justice John Paul Stevens’ dissent in Citizens United. He was leery of the possibility that inviting corporations into U.S. elections could invite foreign influence. As he wrote, “[u]nlike voters in U.S. elections, corporations may be foreign controlled.” He also noted the absurdity of giving equal protection to foreign speakers in this context: it would be like “accord[ing] the propaganda broadcasts to our troops by ‘Tokyo Rose’ during World War II the same protection as speech by Allied commanders.”

This warning that dark money could hide foreign money was particularly pronounced from transparency advocates among campaign finance reformers. In 2016, the FEC tried to promulgate new rules to clarify reporting requirements. But the FEC deadlocked and no new rules were finalized.

Without Clear Transparency Rules Dark Money Flourished

In the absence of new clear rules from the FEC, or Congress for that matter, dark money has increased. As I described in the law review article Dark Money As a Political Sovereignty Problem, since 2010, over $800 million in “dark money” has been spent in federal elections. Because of the dark money problem, often we don’t know what we don’t know about corporate money in politics—including whether it is from an illegal foreign source.

There is a data chart showing $183.8 million in dark money in 2016; $177.7 million in dark money in 2014; $308.6 million in dark money in 2012 and $135.6 million in dark money in 2010.

The growth of dark money is often blamed on the Supreme Court’s 2010 decision, Citizens United v. FEC. Paradoxically, Citizens United upheld the constitutionality of disclosure of the underlying sources of money in politics by a vote of 8 to 1. But regulators did not take up the Supreme Court’s open invitation to improve disclosure laws after Citizens United, thereby allowing dark money to metastasize like a cancer on our democracy.

How Dark Money Gets Dark

Here’s how dark political money works. Say you have a company that wants to exercise its Citizens United rights, but it doesn’t want to tell the public. That company gives the money to a politically active 501(c)(4) social welfare organization or 501(c)(6) trade association. Then that nonprofit buys political ads in a federal election. The FEC doesn’t require the nonprofit to reveal where it got the money. Even if the company is publicly traded, there is no SEC rule that requires the company to tell investors that they are spending money in politics. For even more secrecy, money can also be routed through a shell corporation like an LLC to make tracing the money even more difficult.

The Allegation

The reporting by McClatchy (and others) alleges that NRA’s Institute for Legislative Action (ILA), a 501(c)(4) arm of the NRA, that does not disclose its donors, received money from the Russian banker Torshin. We don’t know if that happened.

We do know how the NRA spent its money. In 2016, the NRA expended $54,398,558 in outside political spending. The NRA spent $31 million of that money to support Mr. Trump’s candidacy. According to Open Secrets.org, showing $183.8 million in dark money in 2016; $177.7 million in dark money in 2014; $308.6 million in dark money in 2012 and $135.6 million in dark money in 2010.

It is outlandish to think that the NRA would wittingly or unwittingly violate American campaign finance law? At this point we don’t know if they have done anything wrong. However, the NRA has a long history of fighting campaign finance regulations. In 2010 when the Congress was on the verge of passing the DISCLOSE Act which would have brought transparency to money in politics post-Citizens United, lobbyists for the NRA got a legislative carve out so that new disclosure would not apply to them.

The NRA was also center stage in litigation against the last big federal campaign law, the Bipartisan Campaign Reform Act (better known as BRCA or McCain-Feingold). In 2002, the NRA and one its PACs, National Rifle Association Political Victory Fund were plaintiffs challenging the constitutionality of BRCA. This case was consolidated into the case that became McConnell v. FEC, a case that ended up upholding the constitutionality of BRCA, including its campaign finance disclosure requirements. Moreover, in 2001 the NRA was held liable for campaign finance violations from the 1978 and 1982 elections.

Conclusion

Like so many aspects of the multiple investigations into what really happened in the 2016 election, the public has no idea what will ultimately be revealed. Reading the news has become like a live action spy novel. It is possible further investigation will only exonerate the NRA and the Russian banker. But one strain to keep an eye on is whether any foreign money helped elect a U.S. president. Did I mention that’s completely illegal?

 

© Copyright 2018 Brennan Center for Justice at New York University School of Law