Div. 80 v. Garland
| Decision Date | 23 August 2022 |
| Docket Number | 3:22-cv-148 |
| Parties | DIVISION 80, LLC, PLAINTIFF, v. MERRICK GARLAND, ET AL., DEFENDANTS. |
| Court | U.S. District Court — Southern District of Texas |
Division 80, LLC, located in Galveston County, began selling partially complete firearm receivers in November 2021. It now seeks a nationwide injunction to suspend a proposed rule interpreting the Gun Control Act, 18 U.S.C. §§ 921, et seq. (“the Act”). Dkt. 11. Because Division 80 has failed to show that it will suffer irreparable harm absent an injunction or that the balance of equities favors preliminary relief, the motion is denied.
In May 2021, Attorney General Merrick Garland published a new Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) proposed rule in the Federal Register. See Proposed Rule, Definition of “Frame or Receiver” and Identification of Firearms, 86 Fed.Reg. 27,720 (May 21, 2021) (“the Proposed Rule”). The Proposed Rule would, among other things, alter the Act's definition of a firearm's “frame or receiver” to include frames or receivers that have “reached a stage in manufacture where [they] may readily be completed, assembled, converted, or restored to a functional state.” Id. at 27,729. The current rule defines “frame or receiver” as “[t]hat part of a firearm which provides housing for the hammer, bolt or breechblock, and firing mechanism, and which is usually threaded at its forward portion to receive the barrel.” 27 C.F.R. § 478.11 (2021).
Under the Proposed Rule, partially complete frames or receivers that may be readily completed would be considered “firearms” under the Act. 86 Fed.Reg. at 27,736. It follows that they would then be subject to the Act's requirement that a firearm have a serial number engraved or cast upon it. Id. at 27,720-21; 18 U.S.C. § 923(i). Additionally, vendors selling partially complete frames or receivers would be required to have a federal firearms license (“FFL”). 18 U.S.C. § 922(a)(1)(A).
Division 80 began operations on November 29, 2021, about six months after the publication of the Proposed Rule. See Dkt. 16-3, Exhibit 3 at 2. The following April, after the Proposed Rule's notice-and-comment period had passed, the Attorney General published the final rule that would take effect on August 24, 2022. Final Rule, Definition of “Frame or Receiver” and Identification of Firearms, 87 Fed.Reg. 24,652 (April 26, 2022) (“the Final Rule”). The Final Rule largely tracks the language of the Proposed Rule concerning frames or receivers that may readily be completed. Id. at 24,739.
Division 80 asks the court to set aside the Final Rule as unlawful under the Administrative Procedure Act. Dkt. 1. A month after filing its initial complaint, Division 80 moved the court for a nationwide preliminary injunction and asked that it be issued no later than August 24, 2022-the date that the Final Rule takes effect. Dkt. 11 at 63-65. On July 12, 2022, the court granted the Government's[1] motion to conduct jurisdictional discovery. Dkt. 52. Nearly a month later, on August 9, the court convened an oral hearing on the motion for a preliminary injunction. The Government averred at that hearing that, for the time being, it does not contest subject-matter jurisdiction. Dkt. 68, Hrg. Tr. 7:1-9. Having no reason at the moment to believe it lacks subject-matter jurisdiction, the court now considers Division 80's request for injunctive relief.
A preliminary injunction is “an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 22 (2008). “A plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.” Id. at 20. The analysis of the third and fourth factors merge when the federal government is the opposing party. Nken v. Holder, 556 U.S. 418, 435 (2009).
A court's authority to issue a preliminary injunction is one of “equitable discretion.” Winter, 555 U.S. at 32. Because injunctive relief is extraordinary and finds its roots in equity, “a federal judge sitting as chancellor is not mechanically obligated to grant an injunction for every violation of law.” Weinberger v. Romero-Barcelo, 456 U.S. 305, 313 (1982).
To obtain a preliminary injunction, a plaintiff must show “that irreparable injury is likely in the absence of an injunction.” Winter, 555 U.S. at 22. “Speculative injury is not sufficient; there must be more than an unfounded fear on the part of the applicant.” Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992, 997 (5th Cir. 1985). The plaintiff must demonstrate that the harm is substantial, neither purely conjectural nor “merely trifling,”[2] and that any legal remedy would be inadequate.[3]
i. Has Division 80 met its burden?
Division 80 suggests that its irreparable harm is a simple matter of logic. See Dkt. 11 at 58. Its deductive reasoning goes like this: “Division 80's principal business is the distribution of frame and receiver blanks, jigs, and tools to build frames and receivers[.]” Dkt. 11-26, Exhibit 26, Padilla Decl. (First Padilla Decl.) at 2. Thus, “it will be illegal for Division 80 to continue doing business because Division 80 does not have a [FFL].” Id. at 3. And even if it does get an FFL, “the regulatory costs, bureaucratic red tape, and extensive recordkeeping requirements would cause a dramatic reduction in consumer demand for frame and receiver blanks.” Id. It then “follows logically that without consumer demand, [the] manufacturers [that supply Division 80] will cease operations.” Dkt. 11 at 58. Thus, “Division 80's business will be completely wiped out, causing irreparable harm.” Id.
But this reasoning leaves much to be desired, including a record to support it. Division 80 may worry that “its business will be completely wiped out,” but it has not shown that its demise is “likely.” In a supplemental affidavit attached to Division 80's reply brief, Brandon Padilla, Division 80's sole owner, claims that after completing its first sale earlier this year, Division 80 has since had “over $200,000 in sales.” Dkt. 55-1, Exhibit 35, Padilla Decl. (Second Padilla Decl.) at 3. But from there, Division 80 merely speculates that its business would be forced to close unless the court grants immediate relief. It likewise offers no evidence that its suppliers “will cease operations.” These predictions are just Padilla's conjecture; the court has heard from not even one of Division 80's customers or suppliers.[4]
Division 80 has likewise failed to disprove that obtaining an FFL would save its business. Padilla attests summarily: “If the Final Rule takes effect, I will have no choice but to dissolve my business.” Second Padilla Decl. at 4. But he does have a choice-he can get a license. ATF estimates that an FFL would cost Division 80 $408 to initially obtain and $194 every three years to renew[5]-certainly not cost-prohibitive for a company that purports to enjoy better than $200,000 in annual sales. Padilla suggests that even if Division 80 were to get licensed, “the regulatory costs, bureaucratic red tape, and extensive recordkeeping requirements” would destroy consumer demand for its products. First Padilla Decl. at 3. But Division 80 neither presents Padilla as an expert in the market dynamics of gun-component sales nor offers any other evidence to support such a conclusion.
Instead, Division 80 points to the “Regulatory Impact Analysis” ATF conducted as part of proposing the new rule. In it, “ATF estimates it will be unlikely that a significant number of [non-FFL holders] will opt to become [FFL holders],” and non-FFL holders will instead “end up dissolving their businesses.” Regulatory Impact Analysis, Dkt. 11-3, Exhibit 3 at 32. This analysis was based on comments received during the notice-and-comment period-a required step in the rulemaking process. See id. But this does not suggest that those without licenses could not obtain one and maintain their businesses-just that they would not wish to do so.
Division 80 relies on two cases for the idea that the threat of severe economic harm to a business is enough to show irreparable injury. The first is Atwood Turnkey Drilling, Inc. v. Petroleo Brasileiro, S.A., 875 F.2d 1174 (5th Cir. 1989). In Atwood, Petrobras-the national oil company of Brazil- contracted with Atwood-a drilling company-to drill wells off the Brazilian coast. Id. at 1175. As security for the payments it would owe, “Petrobras furnished Atwood a letter of credit issued by an American bank and guaranteed by the Export Import Bank of the United States (EXIM).” Id. When Petrobras later balked at paying, Atwood sued it for breach of contract. Id. As the letter of credit and EXIM's guarantee were set to expire, Atwood sought injunctive relief “maintaining them in effect.” Id. The district court ordered “Petrobras to extend or reinstate the letter of credit and to request EXIM to extend its guarantee.” Id. at 1176. The Fifth Circuit held that the injunction was proper because Atwood would lose most of its financing without the letter of credit. Id. at 1178-79.
The second case is Jiao v. Xu, 28 F.4th 591 (5th Cir. 2022). In Jiao, four investors agreed to jointly acquire the Crowne Plaza Hotel in Houston. Id. at 595. One of the four, Xu, was contractually obligated to make a $3 million capital contribution for a 50.02% membership interest. Id. Instead, he...
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