New York v. Arm or Ally, LLC

644 F.Supp.3d 70

The State of NEW YORK, Plaintiff, v. ARM OR ALLY, LLC, et al., Defendants.

22-CV-6124 (JMF)

United States District Court, S.D. New York

Signed December 8, 2022

James Martin Thompson, Matthew Lawrence Conrad, Monica Hanna, Abigail Katowitz, New York State Office of the Attorney General, New York, NY, for Plaintiff.

Steven Jay Harfenist, Harfenist Kraut & Perlstein, LLP, Lake Success, NY, for Defendant Arm or Ally, LLC.

Scott Charles Allan, Renzulli Law Firm, LLP, White Plains, NY, for Defendant Blackhawk Manufacturing Group, Inc.

Brian W. Barnes, David H. Thompson, Cooper & Kirk, PLLC, Washington, DC, for Defendants Salvo Technologies, Inc., Brownells, Inc., Primary Arms, LLC, Rock Slide USA, LLC.

Ryan Lawrence Erdreich, Pisciotti Lallis Erdreich, Florham Park, NJ, for Defendant GS Performance, LLC.

Christian Waugh, I, Mary Alexis Norberg, Waugh Grant PLLC, Orlando, FL, for Defendant Indie Guns, LLC.

Eric James Snyder, Tobias Jacob Fischer, McGuireWoods LLP, New York, NY, Matthew D. Fender, McGuirewoods LLP, Richmond, VA, Jason Cowley, McGuire Woods LLP, Charlotte, NC, Jean Paul Bradshaw, II, Lathrop Gpm LLP, Kansas City, MO, for Defendant KM Tactical.

Christopher Adams, Greenbaum Rowe Smith & Davis, Red Bank, NJ, Jessica Maria Carroll, Greenbaum Rowe Smith & Davis, Roseland, NJ, for Defendant Rainier Arms, LLC.

OPINION AND ORDER

JESSE M. FURMAN, United States District Judge:

In this case, the State of New York (the "State") sues ten Defendants allegedly involved in the manufacture or sale of "unfinished" firearm frames and receivers that can be quickly and easily converted into functional firearms.¹ Such firearms are commonly known as "ghost guns" because they are not stamped with serial numbers or otherwise registered and, thus, "are untraceable when recovered by law enforcement in connection with a crime." ECF No. 1-5 ("Am. Compl."), ¶ 3. The State contends that Defendants' products are illegal and contribute "significant[ly]" to "a public health and safety crisis caused by gun violence." Id. ¶¶ 1, 4. It alleges various violations of New York State law and seeks damages, injunctive relief, restitution, and disgorgement on behalf of the People of the State of New York.

At this stage of the case, however, the merits of the State's claims are not at issue. Instead, the question is where the parties' disputes should be resolved. The State originally filed suit in New York State court. Defendants removed the case to this Court on the ground that one or more of the State's claims, although nominally brought under state law, presents a "substantial federal question," most notably whether the products at issue qualify as "firearms" or "component parts"² thereof within the meaning of a federal law that is incorporated, in turn, into the relevant New York law. The State now moves to remand the case back to state court, arguing that there is no disputed federal question raised by its claims and, in any event, that adjudication of the case in federal court would disturb the balance of federal and state judicial responsibilities. See ECF No. 42.

For the reasons that follow, the Court concludes that this case falls within the special and small category of cases subject to removal pursuant to what is known as the "substantial federal question doctrine." In particular, whether the products at issue are "firearms" or "component parts" thereof within the meaning of federal law is a substantial question that is necessarily raised by at least one of the State's claims and actually in dispute. And given the longstanding and strong federal interest in regulating the manufacture and sale of firearms in interstate commerce, the exercise of federal jurisdiction would not disrupt the federal-state balance approved by Congress. Accordingly, the State's motion to remand is DENIED.

BACKGROUND

The following background is taken from the State's Amended Complaint and Defendants' Notice of Removal. Because the Court has an independent obligation to determine if it has subject-matter jurisdiction over the case, the facts alleged in the Amended Complaint are accepted as true for purposes of this motion, but no inferences are drawn in either side's favor; the parties asserting jurisdiction — here, Defendants — must show it affirmatively. See, e.g., Shipping Fin. Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998).

A. Ghost Guns

Defendants are in the business of selling "nominally unfinished frames and receivers" that can easily be converted into ghost guns. Am. Compl. ¶ 3; see id. ¶ 1. A "frame" is the core part of a handgun or pistol, and a "receiver" is the core part of a rifle, shotgun, or other long gun. Id. ¶ 31. An "unfinished" frame or receiver requires an extra step to be rendered usable: usually drilling of a few required holes or filing of excess plastic. Id. ¶¶ 30-31. But that extra step of converting an "unfinished" frame or receiver into a finished firearm is, according to one of the Defendants, "ridiculously easy" and can be done by an amateur in an hour with only basic tools. Id. ¶¶ 36, 61.³ And Defendants make it even easier by shipping their products in a "jig," a plastic setting that enables a customer to follow basic instructions to convert an unfinished frame or receiver into a firearm. Id. ¶¶ 63-68. As one Defendant put it to customers when linking to an instructional video: "There's no complicated setup because the jig that came with your slide keeps everything properly aligned as you make simple cuts with the included drill bits. Wait, it can't be that simple? Yes, it is. Watch this video." Id. ¶ 70.

Although Defendants market their products for the "sole purpose of being converted into a working firearm, [they] do not follow the fundamental federal law requirements enacted by Congress to curtail gun crime." Id. ¶ 3. For example, Defendants do not serialize their products, as required for firearms under federal law. Id. ¶ 3, 42-43; see 18 U.S.C. § 923(i); 26 U.S.C. § 5842(a) Nor do Defendants conduct the background checks generally required by federal law in connection with the sale of firearms — namely, a query of the National Instant Criminal Background Check System, which flags "convicted felons, fugitives from justice, persons who have been committed to a mental institution, or persons subject to protective orders relating to domestic violence." Am. Compl. ¶¶ 3, 41, 43; see 18 U.S.C. § 922(t). Defendants also do not undergo the rigorous investigation and review process required to become a registered Federal Firearms Licensee. Am. Compl. ¶¶ 40, 43; see 18 U.S.C. § 923. Finally, Defendants do not keep records of all their sales, which federal law requires of firearm "manufacturers" and "dealers." Am. Compl. ¶¶ 3, 42-43; see 26 U.S.C. § 5843. Evading these and other requirements is not an accidental byproduct of Defendants' business; it appears to be the point. That is, Defendants market unfinished frames and receivers to consumers as "specifically designed to circumvent these federal laws." Am. Compl. ¶ 43.

B. This Lawsuit

On June 29, 2022, the State filed this lawsuit in New York State Supreme Court. See ECF No. 1-1. In its Amended Complaint, also filed in state court, the State alleges that it seeks to address a "public health and safety crisis" caused by gun violence, a "significant part" of which is attributable to "ghost guns." Am. Compl. ¶ 1. More specifically, the State pleads eleven causes of action, which can be roughly grouped into three categories:

• Four claims (the First, Second, Third, and Eleventh Causes of Action) brought pursuant to New York Executive Law Section 63(12), which targets "any person . . . engag[ing] in repeated fraudulent or illegal acts or otherwise demonstrat[ing] persistent fraud or illegality in the carrying on, conducting, or transaction of business." These claims allege violations of multiple New York State and federal laws, including the bans on shipping unfinished frames and receivers into New York State, see N.Y. Penal Law §§ 265.63-64; possession of a firearm by a person convicted of a crime, see N.Y. Penal Law § 265.02, 18 U.S.C. § 922(g)(1); possession of a firearm without a valid license, see N.Y. Penal Law §§ 265.0, 265.20(3); and possession of unserialized frames or receivers, see N.Y. Penal Law § 265.07.5, 26 U.S.C. §§ 5842(b), 5861(c).

• Two claims (the Fourth and Fifth Causes of Action) brought pursuant to New York General Business Law Section 898-b, which provides liability for gun industry members that either "create, maintain or contribute to a condition in New York state that endangers the safety or health of the public," N.Y. Gen. Bus Law § 898-b(1), or fail to "establish and utilize reasonable controls and procedures to prevent [their] qualified products from being possessed, used, marketed or sold unlawfully in New York state," id. § 898-b(2).

• Five claims (the Sixth, Seventh, Eighth, Ninth, and Tenth Causes of Action) that allege false advertising and misrepresentations, in violation of New York General Business Law Sections 349 and 350, and New York Executive Law Section 63(12). These claims allege that Defendants misrepresented "that it is legal to sell and possess the firearms [they] sold . . . in the State of New York and/or the City of New York," "that it is legal to sell or possess unfinished frames, unfinished receivers, and/or ghost guns in the State of New York and/or the City of New York," and that that federal gun laws did not apply to their products. Am. Compl. ¶ 504.

All of the State's claims are brought under New York State law. See Am. Compl. ¶¶ 465-538.

On July 19, 2022, Defendants removed the case to this Court. See ECF No. 1 ("Notice of Removal"). In their Notice of Removal, Defendants accused the State of "artful[ly] pleading" only state-law claims in an effort to "avoid removal by declining to plead necessary federal questions." Id. ¶ 17 (internal quotation marks omitted). Invoking the "substantial federal question doctrine," Def...