By Jonathan Stempel

NEW YORK (Reuters) – A New York state judge on Thursday rejected the National Rifle Association’s bid to dismiss or move a lawsuit by New York Attorney General Letitia James seeking to dissolve the gun rights group.

Justice Joel Cohen of Manhattan Supreme Court ruled six days after the NRA filed for Chapter 11 bankruptcy to protect itself from lawsuits, and said it would reincorporate in the more gun-friendly Texas after 150 years in New York.

James had sued the NRA, Chief Executive Wayne LaPierre and others last August.

She accused the group of violating state laws governing nonprofits by diverting millions of dollars to fund luxurious trips for its officials, no-show contracts for associates, and other suspect expenses.

The NRA argued that if the case continued it belonged in the state capital of Albany, where it had its only New York office, and perhaps in federal court, where it has filed a countersuit accusing James of violating its members’ First Amendment rights.

“This is a case of historic constitutional importance,” the group’s lawyer Sarah Rogers argued.

The judge said accepting the NRA arguments would be “elevating form over substance,” and that it was a “big lift” to tell James she could not sue in state court.

“It would be inappropriate in these circumstances to find that the attorney general cannot pursue her claims in state court just because one of the defendants would prefer to proceed in federal court,” Cohen said.

The NRA has said it was “dumping” New York to escape its “toxic political environment.”

It accused James, a Democrat, of suing for political gain and because she dislikes what the group stands for.

Bankruptcy filings normally halt existing litigation, but the attorney general believes her lawsuit deserves an exemption because she is enforcing her “police and regulatory power.”

James Sheehan, a lawyer for James, told the judge a trial could occur early next year.

The case is New York v. National Rifle Association et al, New York State Supreme Court, New York County, No. 451625-2020.

(Reporting by Jonathan Stempel in New York; Editing by Bill Berkrot)