United States v. Morgan

1

UNITED STATES OF AMERICA, Plaintiff, v. JAMES MORGAN, Defendant.

No. 24-cr-6-jdp

United States District Court, W.D. Wisconsin

June 5, 2024

REPORT AND RECOMMENDATION

STEPHEN L. CROCKER U.S. MAGISTRATE JUDGE

The grand jury returned a one-count indictment against defendant James Morgan, charging him with unlawfully possessing destructive devices (homemade shrapnel grenades) not registered to him in the National Firearms Registration and Transfer Record. Dkt. 10. Morgan has filed a motion to dismiss the indictment (dkt. 22) and a motion to suppress evidence seized in this district pursuant to a search warrant issued in the Eastern District of Wisconsin (dkt. 23).

In support of his dismissal motion, Morgan contends that the charging statute is an unconstitutional extension of Congress's taxing power. (Dkt. 22). In support of his motion to suppress, Morgan contends that this was not a qualifying investigation of domestic terrorism that would have permitted inter-district execution of the warrant pursuant to F.R. Crim. Pro. 41(b)(3). Morgan requested a Franks hearing,^[1] contending that the search warrant affiant intentionally or recklessly omitted facts from his affidavit that would have established the inapplicability of Rule 41(b)(3). The government opposes both motions and has objected to holding a Franks hearing.

I have declined to hold a Franks hearing (see February 21, 2024 text-only order, dkt. 27). and I am recommending that the court deny both motions.

Dkt 22: Motion To Dismiss the Indictment

Morgan is charged with violating 26 U.S.C. § 5861(d) of the National Firearms Act (NFA), which is part of the federal tax code. Morgan contends that § 5861 is unconstitutional because its prohibitions and penalties exceed Congress's taxing power. Dkt. 22 at 1. The government disagrees, citing Supreme Court and Seventh Circuit precedent that have found § 5681 constitutional. Dkt. 33 at 8. In reply, Morgan is left to argue that, given how the Supreme Court has analyzed tax statutes in other types of cases, “the NFA's constitutional basis must be reexamined.” Dkt. 41 at 4. Even if this were so-and there is good reason to doubt that it is-“in a hierarchical system, decisions of a superior court are authoritative on inferior courts. Just as the court of appeals must follow decisions of the Supreme Court whether or not we agree with them, . . . so district judges must follow the decisions of this court whether or not they agree.” Reiser v. Residential Funding Corp., 380 F.3d 1027, 1029 (7^th Cir. 2004); see also Burke v. Amedisys,___ F.Supp.3d___, 2022 WL 3226797 at *13 (N.D. Ill., Aug. 10, 2022) (“when it comes to updating Seventh Circuit case law, the Seventh Circuit is in the driver's seat.”). Current binding precedent dooms Morgan's motion to dismiss.

In 1934, Congress enacted the NFA, 26 U.S.C. § 5801 et seq. The NFA imposes a federal tax on the manufacture sale and transfer of “firearms,” which the NFA defines as short-barreled shotguns and rifles, machine guns, silencers, and “destructive devices,” such as bombs, grenades, rockets, missiles and mines. See § 5845. The NFA quickly was challenged as a pretext to regulate certain firearms that otherwise could not be regulated. In 1937, the Supreme Court upheld the NFA as a valid exercise of Congress's taxing power. Sonzinsky v. United States, 300 U.S. 506 (1937). The Court found that the NFA “on its face . . . is only a taxing measure” that “contains no regulation other than the mere registration provisions, which are obviously supportable as in aid of a revenue purpose.” Id. at 513. The NFA's regulatory provisions did not amount to a penalty resorted to as a means of enforcing the regulations, and it did not treat the subject of the tax as criminal. Noting that the annual tax was “productive of some revenue” the Court stated that “we are not free to speculate as to the motives which moved Congress to impose it, or as to the extent to which it may operate to restrict the activities taxed.” Id. at 514.

As the government points out in its opposition brief, all nine federal circuit courts that have addressed subsequent challenges to the NFA have upheld the Act as constitutional. See dkt. 33 at 3. The Seventh Circuit has done so twice, first in United States v. Copus, 93 F.3d 269, 276 (7^th Cir. 1996), a case out of this court involving a silencer and an IED, then in United States v. Lim, 444 F.3d 910 (7^th Cir. 2006), another case out of this court involving a sawed-off shotgun. The court rejected Lim's argument that § 5861(d) exceeded Congress's taxing power because the purpose of the statute is not to tax, but instead to prohibit the possession of certain firearms:

Congress under the taxing power may reasonably impose a penalty on possession of an unregistered firearm . . . Attaching criminal consequences to the possession of an unregistered weapon is thus a rational way of discouraging the transfer of untaxed firearms. Section 5861(d) in this way encourages registration and reinforces the revenue-generating purpose of the Act. This is a constitutional exercise of Congress's taxing power.

United States v. Lim, 444 F.3d at 913.

The courts in Copus and in Lim both distinguished United States v. Dalton, 960 F.2d 121 (10^th Cir. 1992) in which the court found §5861(d) unconstitutional because it taxed machine guns, which no longer could be legally owned pursuant to 18 U.S.C.§922(o). Copus was not faced with any ban on the outright possession of silencers or making IEDs, 93 F.3d at 276; similarly Lim faced no such Catch-22 because he could legally own a sawed-off shotgun as long as he paid the required tax. 444 F.3d at 913-14.^[2]

Morgan replies that none of the precedent cited by the government applies to his motion because none of them addressed the Court's reasoning in Dep't of Revenue of Mont. v. Kurth Ranch, 511 U.S. 767 (1994) and Nat'l Fed. of Ind. Bus. v . Sebelius, 567 U.S. 519 (2012). According to Morgan, “the NFA is no longer justifiable as an exercise of the taxing power since the factual underpinnings of Sonzinsky have eroded away.” Dkt. 41 at 3.

Relying primarily on Kurth and Sebelius (which relied heavily Child Labor Tax Case, 259 U.S. 20 (1922)), Morgan argues that (1) the NFA's “tax” is not administered by the IRS, but by the USDOJ, which has displaced the Treasury Department as the NFA's sole enforcer; (2) the penalty for violating the NFA is grossly disproportionate to what is normally lodged against a tax violation; and (3) today, as opposed to when the Court upheld the NFA in Sonzinsky, “the law is designed to prevent payment of the tax in as many instances as possible. Yet real taxers do not operated in this fashion.” Dkt. 41 at 6. According to Morgan, the NFA “is not the same ‘tax' as the one the Supreme Court upheld almost a century ago.” Over time, the NFA has transmogrified into “a pure regulation, wrapped in the guise of a tax.” Dkt. 41 at 7.

But as the government points out, Kurth Ranch was decided before the Seventh Circuit decided either Copus or Lim, yet neither of these decisions by the Seventh Circuit invoked Kurth Ranch as authority to find the NFA unconstitutional. To the same effect, after deciding Sebelius, the Supreme Court has twice denied petitions for certiorari where one of the issues raised was whether § 5861 was within Congress's taxing authority. See United States v. Bolatete, 977 F.3d 1022 (11^th Cir. 2020), cert. denied, ___U.S.___, 141 S.Ct. 1754 (2021); United States v. Cox, 906 F.3d 1170 (10th Cir. 2018), cert. denied,___ U.S.___ 139 S.Ct. 2690 (2019).

In Bolatete, an undercover detective sold a silencer to the defendant. Upon being charged under §5861(d), Bolatete moved to dismiss, contending that the NFA exceeded Congress's power to tax. 977 F.3d at 1030. Bolatete raised the same arguments advanced by Morgan in the instant case; the court rejected them, based on its own precedent. See 977 F.3d at 1031-34. The court's only reference to Sebelius was favorable to upholding the NSA. Id. at 1032 (“Taxes that seek to influence conduct are nothing new.”)

In Cox, the two defendants were charged under § 5861(d) with manufacturing and selling unregistered silencers, among other things. In challenging the constitutionality of the statute, they raised the same arguments Morgan raises here, similarly contending that in the eight decades since the Sonzinsky opinion, the statute “has morphed . . . to the point that the current NFA registration system bears virtually no resemblance to a measure designed to collect revenue.” 906 F.3d at 1180. The court disagreed, distinguishing the Child Labor Tax case (on which Morgan also is relying) while noting that “only six years ago, Sebelius reaffirmed the NFA's constitutional legitimacy.” Id. at 1181, citing Sebelius, 567 U.S. at 567.

If, as Morgan posits, the NFA actually is in need of reexamination, then one would have expected the Supreme Court to have granted certiorari in either Bolatete or Cox. But it didn't. The most logical inference to draw from this is that Sonzinsky remains good law, and the NSA remains a valid exercise of Congress's power to tax. That is the current law of this circuit, which this district court is obliged to follow. Therefore, I am recommending that the court deny Morgan's motion to dismiss the indictment.

Dkt. 23: Motion To Suppress Evidence

On December 19, 2023, the FBI applied to Magistrate Judge Stephen Dries in the Eastern District of Wisconsin for a warrant to search the person of James Morgan, his pickup truck, his travel trailer, and his rented storage locker in Whitewater, Wisconsin. The applicant/affiant was Special Agent Justin Mosiman. The FBI was looking for evidence of violations of statutes prohibiting the making or use of destructive...