J & G Sales Ltd. v. Truscott

• Decision Date: 16 January 2007
• Docket Number: No. 04-16976.,04-16976.
• Citation: 473 F.3d 1043
• Parties: J & G SALES LTD, Plaintiff-Appellee, v. Carl J. TRUSCOTT, Director, Bureau of Alcohol, Tobacco, Firearms and Explosives, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

473 F.3d 1043

J & G SALES LTD, Plaintiff-Appellee, v. Carl J. TRUSCOTT, Director, Bureau of Alcohol, Tobacco, Firearms and Explosives, Defendant-Appellant.

No. 04-16976.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 20, 2006.

Filed January 16, 2007.

Peter D. Keisler, Assistant Attorney General, Paul K. Charlton, United States Attorney, Michael S. Raab and Lewis S. Yelin (argued), Civil Division, United States Department of Justice; Joel J. Roessner, Deputy Associate Chief, Peter W. Mickelson and Rebekah Holman, Office of the Chief, Bureau of Alcohol, Tobacco, Firearms & Explosives, Washington, DC, for the appellant.

Richard E. Gardiner, Fairfax, VA, for the appellee.

Appeal from the United States District Court for the District of Arizona; Paul G. Rosenblatt, District Judge, Presiding. D.C. No. CV-03-02263-PGR.

Before SANDRA DAY O'CONNOR, Associate Justice (Ret.),^* and RYMER, and THOMAS, Circuit Judges.

O'CONNOR, Associate Justice (Ret.).

The Bureau of Alcohol, Tobacco, Firearms, and Explosives appeals from the district court's grant of summary judgment holding that the Bureau lacks authority to issue a letter requiring a small percentage of licensed firearms dealers to submit portions of their records relating to secondhand firearms. Because we find that the Bureau acted within its statutory authority under 18 U.S.C. § 923(g)(5)(A), we reverse the district court's grant of summary judgment. We affirm, however, the district court's determination that the Bureau did not act in an arbitrary and capricious fashion in deciding which dealers should receive the disputed letter.

I.

The Gun Control Act of 1968, 18 U.S.C. § 921 et seq., requires persons wishing to "engage in the business of importing, manufacturing, or dealing in firearms" to apply for and obtain a license from the Bureau of Alcohol, Tobacco, Firearms, and Explosives.¹ 18 U.S.C. § 923(a). Successful applicants known as federal firearms licensees ("FFLs"), must create and maintain detailed records documenting the firearms transactions that they conduct. When FFL dealers receive a firearm they must record "the date of receipt, the name and address or the name and license number of the person from whom received, the name of the manufacturer and importer (if any), the model, serial number, type, and the caliber or gauge." 27 C.F.R. § 478.125(e). After selling a firearm, FFL dealers must further record the name and address of the purchaser along with the date of sale. See id.

Rather than submitting all of their transaction records to the Bureau, FFLs keep their records on their own premises. This arrangement exists at least in part because the Firearm Owners' Protection Act of 1986 ("FOPA"), see 18 U.S.C. § 926(a), and a rider that has been attached to every Bureau appropriations bill since 1978, see, e.g., Appropriations, 2000 — Treasury, Postal Service, Executive Office of the President, and General Government, 114 Stat. 2763, 2763A-129 (2000), forbid the Bureau from establishing a national firearms registry. Despite this ban on creating a centralized registration system, Congress has authorized the Bureau to maintain at least two sets of transaction records. First, FFLs must submit a report to the Bureau when they sell an unlicensed person two or more of certain firearms within a span of five consecutive business days ("multiple sales"). See 18 U.S.C. § 923(g)(3)(A). Second, FFLs that go out of business must submit their records to the Bureau within thirty days. See 18 U.S.C. § 923(g)(4). In addition, the Bureau is authorized to access FFL records in some instances. See, e.g., 18 U.S.C. § 923(g)(1)(B)(iii) (permitting the Bureau to examine FFL records without reasonable cause or obtaining a warrant when doing so "may be required for determining the disposition of one or more particular firearms in the course of a bona fide criminal investigation").

The Bureau relies upon FFL records when it seeks to trace a firearm at the behest of a law enforcement officer. "A crime gun trace begins when a law enforcement official recovers a firearm, usually from a crime scene or from the possession of a suspect, felon or other prohibited person, and the law enforcement agency having jurisdiction of the case submits a trace request to [the Bureau's] National Tracing Center (NTC)." See Bureau of Alcohol, Tobacco, and Firearms, Department of the Treasury, Commerce in Firearms in the United States 19 (2000) ("Commerce in Firearms"). Using the distinguishing characteristics of the firearm, including its serial number, the NTC begins by searching the records of out-of-business FFLs and by searching multiple sales records. See id. at 20. "If these steps do not identify the first retail transaction, the NTC contacts the manufacturer or importer, and tracks the recovered crime gun through the distribution chain (wholesaler and retailer) to the retail dealer, requesting the dealer to examine his records to determine the identity of the first retail purchaser." Id.

This tracing system works adequately when the initial retail purchaser of a firearm retains possession of the firearm. If that first purchaser should sell or otherwise transfer the firearm, however, it is "generally impossible" to conduct a trace because "[f]ederal law does not require unlicensed sellers to preserve transfer records." Id. at 26. In order to trace a secondhand firearm, authorities must resort to an "investigative trace," which requires time-consuming interviews and the use of informants. See id. Because investigative traces are resource intensive and seldom succeed, the Bureau infrequently undertakes such measures in order to trace a secondhand firearm. See id. Consequently, while FFLs must maintain records documenting their secondhand firearm transactions, see 27 C.F.R. § 478.125(e), the standard trace fails to uncover this information because there is no link between the first transaction and subsequent transactions. See Commerce in Firearms at 26. This gap in the tracing system is important because a large percentage of the firearms sold annually are secondhand firearms.

On February 4, 2000, the Bureau published a comprehensive report that analyzed some of the data regarding trace requests on firearms. See Commerce in Firearms (2000). The report noted that in 1998 a small percentage of FFL dealers accounted for the majority of firearms for which traces were conducted. See id. at 23.² The report further noted that, although the average amount of time between when a firearm is initially sold and when a gun is recovered at a crime scene or when a trace is requested ("time-to-crime") is six years, many traces on firearms occurred within three years of sale or less. See id. at 25. "Time-to-crime of three years or less is considered an important trafficking indicator because it suggests that the firearm was rapidly diverted to the illegal market." Id. at 21 n. 33.

In order to combat the difficulties of tracing secondhand firearms, the Bureau decided to send demand letters seeking a limited amount of information to the approximately 450 FFL dealers who in 1999 had been linked to ten or more trace requests with a time-to-crime of three years or less. The demand letters obligated members of this select group, who comprised just 0.6% of FFL dealers, to provide the following information regarding secondhand gun acquisitions: the name of the manufacturer and/or importer; the acquisition date; the model; the caliber or gauge; and the serial number. Recipients of the demand letters were expressly directed not to provide either the name of the person from whom the secondhand firearm was acquired or to whom the firearm was transferred.

On August 4, 2003, the Bureau sent J & G Sales, Ltd. ("J & G") such a demand letter because tracing records indicated that 15 or more firearms with a time-to-crime of three years or less had been traced to J & G, an FFL dealer. Letter from the Bureau to J & G at 1 (Aug. 4, 2003). The demand letter explained the difficulties of tracing secondhand guns and suggested the fact that J & G "had a high number of traces of new crime guns with a short `time-to-crime' may mean that [J & G is] also selling a commensurate number of secondhand guns used in crime." Id. The demand letter further instructed J & G to submit its report for 2002 secondhand firearms acquisitions to the NTC within thirty days, and quarterly reports thereafter until it was informed otherwise. See id. at 2-3.

On November 18, 2003, J & G opted against releasing the information requested in the demand letter and instead filed a complaint seeking declaratory judgment and injunctive relief against the Bureau. See J & G Sales, Ltd. v. Domenech, No. CV 03-2263-PCT-PGR, Order at 3 (D.Ariz., Aug. 5, 2004). With respect to its request for declaratory judgment, J & G asserted that the demand letter exceeded the Bureau's statutory authority, constituted an arbitrary and capricious agency action, and violated due process of law. See id. With respect to its request for injunctive relief, J & G sought to prohibit the Bureau from penalizing it for its refusal to comply with the demand letter and to require that the Bureau destroy any records that J & G had already submitted. See id. On January 26, 2004, in response to J & G's complaint, the Bureau filed a document it styled a "Motion to Dismiss or for Summary Judgment," which the district court construed as a Motion for Summary Judgment. See id. at 4.

The district court found that the demand letter represented an unlawful request for J & G's records because it fell beyond the scope of the Bureau's statutory authority. See id. at 29. Accordingly, the district court enjoined the Bureau from seeking to enforce the letter that it issued to J & G. Despite determining that the Bureau lacked authority to issue the demand letter, the district court granted summary judgment to the Bureau on all other grounds, including that the Bureau's method...