United States v. Rare Breed Triggers, LLC

690 F.Supp.3d 51

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 September 5, 2023

David Allen Cooper, Joseph Anthony Marutollo, Michael S. Blume, United States 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, David Warrington, Pro Hac Vice, Alexandria, VA, Jacob Roth, Pro Hac Vice, Dhillon Law Group, West Palm Beach, FL, Josiah Contarino, Dhillon Law Group Inc., Newark, NJ, Michael A. Columbo, Pro Hac Vice, Dhillon Law Group, Inc. Political Law, San Francisco, CA, for Defendants.

MEMORANDUM & ORDER

NINA R. MORRISON, United States District Judge:

Now pending before this Court is the United States of America's motion for a preliminary injunction against Defendants Rare Breed Triggers LLC, Rare Breed Firearms LLC, Lawrence DeMonico, and Kevin Maxwell. The Court has considered the parties' pre-hearing briefs; the evidence presented during a two-day preliminary injunction hearing held on August 1 and 2, 2023; the parties' post-hearing proposed findings of fact submitted on August 13, 2023; the statements made at oral argument held on August 15, 2023; and the parties' supplemental briefs submitted on August 18, August 23, August 28, and August 31, 2023.

On the present record, the Court concludes that the Government is likely to succeed on the merits of its claims. The evidence before this Court establishes that since December 2020, Defendants have sold approximately 100,000 illegal machinegun conversion devices (known as "FRT-15" triggers) throughout the United States, taking in $39 million dollars from their customers in under two years. Defendants fraudulently induced their customers to buy a product that is illegal to possess—falsely representing that the FRT-15s was "absolutely" legal, while withholding material information in their possession that revealed otherwise. In the process, Defendants placed tens of thousands of their customers at risk of criminal prosecution and the loss of their right to own firearms. And even after Defendants were notified by federal officials that they were engaged in the sales of illegal firearms, they used deceptive means to continue to sell thousands of FRT-15s and obstruct law enforcement's legitimate efforts to track and recover these devices.

For the reasons outlined herein, the United States of America's motion for a preliminary injunction is GRANTED.

PROCEDURAL HISTORY

Defendant Rare Breed Triggers ("RBT") is a limited liability company incorporated in North Dakota and operated out of Austin, Texas by its president, Defendant Lawrence DeMonico. See Preliminary Injunction Hearing Transcript ("Tr.") 421:6-21, 517:4-8; ECF No. 124-1 at 12:11-16, 106:21-107:1. Though previously co-owned by four managing members, RBT is currently owned exclusively by Defendant Kevin Maxwell, who also serves as the company's general counsel. Tr. 420:3-421:18, 529:20-22; ECF No. 124-3 at 61:15-19; Defs. Ex. A. DeMonico is also the president of a design company, Defendant Rare Breed Firearms ("RBF"). Tr. 468:20-469:11, 485:17-18.

RBT's flagship product is a device called the FRT-15, a "forced-reset trigger" that gun owners can install on an AR-15-style rifle to accelerate the weapon's rate of fire.¹ In the present action, the parties primarily dispute whether or not the FRT-15 is a device which can convert a semi-automatic weapon into a "machinegun" as defined under federal law. See 26 U.S.C. § 5845(b). Defendants contend that the FRT-15, though capable of making a weapon fire successive rounds extremely rapidly, is a perfectly legal semi-automatic trigger. The United States of America ("the Government"), on the other hand, contends that the FRT-15 is an illegal machinegun conversion device which Defendants, despite having received a cease-and-desist letter from the Bureau of Alcohol, Tobacco and Firearms ("ATF") on July 27, 2021 informing them to that effect, have continued to sell.

On January 19, 2023, the Government brought the present action against Defendants seeking an ex parte temporary restraining order and a preliminary injunction under 18 U.S.C. § 1345, a statute known as the Fraud Injunction Act. See ECF No. 1 ¶ 18. The Fraud Injunction Act authorizes the Government to bring an action to enjoin a suspected criminal fraud scheme in order "to prevent a continuing and substantial injury to the United States or to any person or class of persons for whose protection the action is brought." 18 U.S.C. § 1345(b).

In short, the Government alleges that Defendants have conspired to use deceitful means to evade and obstruct the lawful jurisdiction of the ATF to regulate and confiscate a device that the agency has determined to be a machinegun, constituting a conspiracy to defraud the United States under 18 U.S.C. § 371. ECF No. 1 ¶¶ 195-99. The Government further alleges that Defendants have repeatedly misled their customers to believe that the FRT-15 is a legal, semi-automatic trigger, despite the ATF's formal classification of the FRT-15 as a machinegun and Defendants' knowledge that the ATF and the courts have classified similar devices as machineguns, which constitutes mail fraud, wire fraud, and conspiracy to commit mail and wire fraud under 18 U.S.C. §§ 1341, 1343, and 1349. ECF No. 1 ¶¶ 200-215.

After the Court heard argument on the Government's motion for an ex parte temporary restraining order on January 24, 2023, it granted the Government's motion in part and denied it in part and directed the Government to serve a copy of the order on Defendants, which the Government did on January 27, 2023. See ECF No. 11.

On February 1, 2023, Defendants appeared through counsel. See ECF No. 15. On consent of both parties, the Court adjourned the preliminary injunction hearing scheduled on February 2, 2023, see Order dated February 1, 2023, extended the temporary restraining order, and set a briefing schedule for Defendants' anticipated motion to dismiss this action for lack of personal jurisdiction. Minute Entry dated February 3, 2023; see ECF No. 15 ¶¶ 5-10, ECF No. 16 at 1.

The parties fully briefed Defendants' motion to dismiss for lack of personal jurisdiction by March 2, 2023, and the Court held oral argument on the motion on March 17, 2023. See ECF Nos. 23, 24, 29; Minute Entry dated March 17, 2023. Because RBT has a nearly national presence in the firearm accessories market, Defendants "readily agree[d]" at oral argument that personal jurisdiction existed in "any of those states where[ ] [RBT's] customers [or] dealers are located." March 17, 2023 Oral Argument Tr. 50:5-7. However, Defendants asserted that they had specifically built the RBT website to prohibit any customer with a New York billing or shipping address from purchasing an FRT-15, with similar prohibitions on sales to customers in a handful of other states and territories. See ECF No. 23-1 ¶ 13. Defendants also submitted affidavits, including from former RBT co-owner Cole Leleux, stating that, although Defendants did sell the FRT-15 through third-party distributors, they never sold an FRT-15 to a distributor that stated an intention to sell in New York. ECF No. 23-1 ¶ 14, ECF No. 29-1 ¶ 9. Defendants further argued that Defendant RBF should be dismissed from this action because it simply had no connection with the FRT-15: although it is also run by DeMonico, Defendants represented to the Court that RBF is a design company that sells "swag" like t-shirts and hats, not firearms. ECF No. 23 at 29-30; ECF No. 29 at 14-15. Thus, although RBF indeed delivered packages to customers in New York, Defendants maintained that those packages had nothing to do with the FRT-15.

The Government conceded that, as far as it could tell, Defendants had never directly sold an FRT-15 to a customer in New York. However, the Government nonetheless asserted two theories of personal jurisdiction in this Court. First, the Government argued that 18 U.S.C. § 1345, despite not mentioning service of process, implicitly authorizes nationwide service of process by permitting the Government to bring an anti-fraud injunctive action in "any Federal court," thus conferring personal jurisdiction over Defendants in this court pursuant to Rule 4(k)(1)(C) of the Federal Rules of Civil Procedure. ECF No. 24 at 14-18. Second, the Government argued that Defendants have sufficient contacts with the state of New York to satisfy both the statutory and constitutional requirements for a New York court to exercise personal jurisdiction over them because (1) Defendants, while in Florida, opened up a bank account with J.P. Morgan Chase, which is incorporated in New York and processed Defendants' wire transfers through its New York headquarters, and (2) gun owners have purchased FRT-15s through RBT's third-party distributors, and the ATF has recovered FRT-15s in New York. ECF No. 24 at 18-30.

On March 22, 2023, the Court entered an order directing the parties to show cause as to why this action should not be transferred to one of the numerous districts in which Defendants had conceded that there would be no dispute as to personal jurisdiction. See ECF No. 36. On March 29, 2023, Defendants responded to the Court's order and asserted that dismissal, rather than transfer, was warranted, but argued that the Western District of Texas, the Middle District of Florida, and the District of North Dakota were "appropriate" venues. ECF No. 38 at 2. Two hours later, the Government filed its response, informing the Court that it had conducted an investigation in coordination with the ATF in the preceding week and discovered that, in fact, Defendants had sold FRT-15 parts directly to customers in New York. ECF No. 40. In support of its letter, the Government filed an...