United States v. Rare Breed Triggers, LLC

669 F.Supp.3d 169

UNITED STATES of America, Plaintiff, v. RARE BREED TRIGGERS, LLC;Rare Breed Firearms, LLC; Lawrence DeMonico; and Kevin Maxwell, Defendants.

23-cv-369 (NRM) (RML)

United States District Court, E.D. New York

Signed April 18, 2023

Joseph Anthony Marutollo, Michael S. Blume, U.S. Attorney's Office, Brooklyn, NY, Paulina Stamatelos, DOJ-USAO, Brooklyn, NY, for Plaintiff.

Caleb Kruckenberg, Pro Hac Vice, Jonathan Morgan Houghton, Steve Simpson, Pro Hac Vice, Pacific Legal Foundation, Arlington, VA, for Defendants.

MEMORANDUM & ORDER

NINA R. MORRISON, United States District Judge

Pending before the Court is Defendants' motion to transfer venue to the Western District of Texas. The Court has considered the parties' briefs on Defendants' motion to transfer, as well as, when relevant, the parties' briefs on Defendants' motion to dismiss for lack of personal jurisdiction and statements made at oral argument on that motion on March 17, 2023. For the reasons outlined herein, Defendants' motion to transfer this action to the Western District of Texas is DENIED.

FACTUAL AND PROCEDURAL BACKGROUND

Defendant Rare Breed Triggers LLC ("RBT") is a corporate entity which was formed in Florida in April 2020, re-incorporated in North Dakota, and currently operates out of Texas. ECF No. 23 at 1; ECF No. 23-1 ¶ 5; ECF No. 39 ¶¶ 3-11.¹ Defendant Lawrence DeMonico, who lives in Texas, serves as RBT's president, and Defendant Kevin Maxwell, who lives in Florida, is RBT's owner. ECF No. 23 at 1-2; ECF No. 23-1 ¶ 6; ECF No. 39 ¶¶ 1, 12. Defendant DeMonico is also the president of defendant Rare Breed Firearms ("RBF"). ECF No. 25-3 at 6.

RBT's flagship product is the FRT-15, a "forced reset trigger" that gun owners can install on AR-15-style rifles to replace the gun's original trigger. ECF No. 25-1 ¶¶ 4, 6. RBT also sells the Wide Open Trigger ("WOT"), a mechanism very similar to the FRT-15 which RBT acquired in a patent dispute against Big Daddy Enterprises, a company which formerly served as RBT's exclusive distributer of the FRT-15 and which launched the WOT in an apparent attempt to compete with its one-time business ally.² ECF No. 1, Ex. R at 1; ECF No. 25-1 ¶¶ 12-13, 16-19, 23. The Government alleges that, since selling its first FRT-15 in December 2020, RBT has made roughly $30 million in revenue from both retail sales to individual gun owners and wholesale sales to third-party distributors. ECF No. 7 ¶ 85. According to defendant Maxwell, RBT sells 1,000 to 3,000 FRT-15s every week when the product is in stock. ECF No. 1, Ex. Q ¶ 11. In addition, Defendants have brought multiple lawsuits in various federal district courts since 2021 in an attempt to protect RBT's exclusive patent over the FRT-15 design. ECF No. 24 at 24 n.17.

Although the parties disagree over how the FRT-15 should be legally categorized, all parties agree that, once installed, the FRT-15 increases the speed at which a gun can fire successive rounds. ECF No. 1 ¶ 6; ECF No. 25-1 ¶ 5. Defendants describe the FRT-15 as a "fun and entertaining" device that allows gun owners to rapidly " 'plink[ ]' targets at a shooting range." ECF 25-1 ¶ 5. Plaintiff United States ("the Government"), however, describes the FRT-15 as a device that converts legal rifles into illegal machineguns and dramatically increases the lethality of these weapons once installed. ECF No. 1 ¶¶ 3, 6, 87. The Bureau of Alcohol, Tobacco, and Firearms ("ATF") classified the FRT-15 as a "machinegun" on July 15, 2021, ECF No. 1, Ex. F, and reaffirmed its conclusion on October 20, 2021.³ ECF No. 1, Ex. M. The ATF similarly classified the WOT as a "machinegun" on October 21, 2021. ECF No. 1, Ex. P.

In the wake of these classifications, the Government served Defendants with a series of letters ordering them to cease and desist from manufacturing and selling FRT-15s. See ECF No. 1, Exs. L; N. Defendants, believing the ATF's classification of the FRT-15 as a machinegun to be legally erroneous, sued the ATF in the United States District Court for the Middle District of Florida. See Rare Breed Triggers, LLC v. Garland, No. 21-cv-1245, 2021 WL 4750081 (M.D. Fla. Oct. 12, 2021). That Court denied Defendants' request for a preliminary injunction and thereafter dismissed the case. Id.

Defendants disagree with the Government's classification of the FRT-15—so much so, according to the Government, that Defendants have repeatedly told their customers that the FRT-15 is not a machinegun, and that purchasers of an FRT-15 need not be concerned about the legality of possessing one. For example, the Government alleges that, as of January 17, 2023, Defendants informed their customers on the RBT website that " 'in spite of what you may have heard, seen, or understood,' the FRT-15 'is not a machinegun' " under relevant law, ECF No. 1 ¶ 168; that ATF's cease-and-desist letters have "zero relevance to anyone that may have purchased and currently possesses an FRT-15," id. ¶ 172; that ATF lacks the authority to "address FRTs that are currently in circulation," id. ¶ 174; and that customers should still purchase Defendants' products because Defendants will in turn use that revenue to fund litigation against ATF, see id. ¶ 178. The Government further alleges that Defendants took a series of steps to evade detection of their FRT-15 sales by the United States, for example by labeling their packages with the false company name "Red Beard Treasures," rather than "Rare Breed Triggers," in an alleged attempt to conceal the packages' contents from the United States Postal Service. Id. ¶ 182.

On January 19, 2023, the Government filed an ex parte motion with this Court seeking a temporary restraining order and preliminary injunction under 18 U.S.C. § 1345 and Rule 65(b) of the Federal Rules of Civil Procedure. See ECF No. 5-1. The Government argued that Defendants' statements regarding the legality of the FRT-15 had induced, or would imminently induce, gun owners to purchase FRT-15s under the false impression that possession of this product was legal, thereby enriching Defendants while exposing their customers to the risk of criminal liability and fines. ECF No. 5 at 5, 8, 12, 17, 28-34. By way of example, the Government averred that multiple people who had purchased FRT-15s voluntarily divested when they learned that it was illegal to own one. Id. at 17. For this reason, the Government argued, there was probable cause⁴ to believe that Defendants were engaging or would imminently engage in mail and wire fraud under 18 U.S.C. §§ 1341 and 1343, and conspiracy to commit mail and wire fraud under 18 U.S.C. § 1349. ECF No. 5-1 ¶¶ 2-5, 8. The Government further argued that Defendants' repeated attempts to evade Government detection and regulation constituted fraud against the United States under 18 U.S.C. § 371, and warranted the rare step of an ex parte TRO to prevent Defendants from destroying the records of their alleged fraud and causing other irreparable harm. Id. ¶¶ 1, 8-vii.

After holding an expedited oral argument on January 24, 2023, this Court granted the Government's motion in part and denied it in part. See ECF No. 11. The Court concluded that Defendants' statements and activities created significant risk that legal gun owners have paid or would pay for an FRT-15 which they could not legally own.⁵ Id. ¶ 9. Although the RBT website listed the FRT-15 as "sold out" on the date that the Court issued the temporary restraining order, a host of factors alleged by the Government in its motion and the exhibits submitted along with its motion supported the inference that Defendants' alleged fraud and the related harms asserted by the Government could quickly resume once the FRT-15 was back in stock. These included the facts that Defendants maintained a waitlist to inform their customers when the FRT-15 was once again available for purchase, ECF No. 14 at 3-4, that defendant Maxwell stated that RBT sold 1,000 to 3,000 FRT-15s per week, ECF No. 1, Ex. Q ¶ 11, and that RBT's website assured customers that it would re-stock the FRT-15 in a matter of "days," ECF No. 11 ¶ 9. The Court therefore issued an order temporarily prohibiting Defendants from selling forced reset triggers and requiring Defendants to preserve any and all documents related to the manufacture and sale of Defendants' force reset triggers. Id. ¶ 10. The Court denied the Government's request, however, to generally enjoin Defendants from engaging in mail fraud, wire fraud, and conspiracy, since such a vague "obey the law" injunction would not adequately put Defendants on notice of the specific activities in which they may not engage. ECF No. 14 at 19-20, 52. The Court scheduled a preliminary injunction hearing for February 2, 2023, at 2:30 p.m. EST. ECF No. 11 at 5.

On February 1, 2023, Defendants, through counsel, entered an appearance before this Court. See ECF No. 15. At the parties' joint request, the Court converted the February 2, 2023 preliminary injunction hearing into a status conference, see ECF Order dated February 1, 2023, at which Defendants informed the Court that they intended to file a motion to dismiss this action for lack of personal jurisdiction, and that they consented to an extension of the TRO while that motion remained pending. ECF Minute Entry and Order dated February 3, 2023. The Court set an expedited briefing schedule for Defendants' motion to dismiss. Id.

The Court also ordered jurisdictional discovery. Id. On February 9, 2023, Defendants filed a motion to quash the Government's subpoena of Defendants' records with J.P. Morgan Chase ("Chase"). See ECF No. 17. The Court heard argument on Defendants' motion on February 14, 2023. At that conference and in its response brief to Defendants' motion, the Government argued that Defendants' communications with Chase may bear on the question of personal jurisdiction, since Chase is headquartered in New York and processes all wire transfers through New York. ECF No. 18 at 1-2; ECF No. 22 at 12-13. The...