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Litigation Highlight: Federal Judge Denies New York’s Motion for Remand of State-Law Claims Against “Ghost Gun” Manufacturers

By on December 16, 2022 Categories: ,

On December 8, District Judge Jesse Furman of the Southern District of New York denied New York state’s motion for remand in New York v. Arm or Ally, LLC et al., a case brought by the state against manufacturers of “‘unfinished’ firearm frames and receivers that can be quickly and easily converted into functional firearms.”  Former Center research assistant Sarah Lim previously summarized the lawsuits brought by New York state and city against “ghost gun” manufacturers, and a number of settlements reached by the city with certain defendants.  As Sarah described, the claims are brought under state statutes prohibiting fraud and deceptive business practices, and under a new provision passed in 2021 that bans “gun industry member[s] [from] knowingly or recklessly creat[ing], maintain[ing] or contribut[ing] to a condition in New York state that endangers the safety or health of the public” and requires gun industry members to “establish and utilize reasonable controls and procedures to prevent [] qualified products from being possessed, used, marketed or sold unlawfully” in the state.  The city and state allege that the defendants violated these provisions by illegally selling and marketing unserialized firearm component parts to New York residents.

While the city has already settled claims against four of the five defendants in its case, the state’s case was mired in a procedural dispute: New York initially sued in state court, the defendants removed the case to federal court under federal-question jurisdiction, and New York then moved to remand the claims back to state court.  In a 19-page order, Judge Furman sided with the defendants and found that the case should remain in federal court. 

The judge decided the remand motion solely by reference to the complaint’s fourth cause of action, which asserts claims under New York’s new gun-industry liability statute.  Because the New York law borrows the definition of “qualified product” from 15 U.S.C. § 7903 (a provision of the Protection of Lawful Commerce in Arms Act, or PLCAA), the defendants argued that the state is required to demonstrate that their products in fact meet the federal definition, thus raising a substantial federal question.  In this specific instance, the state will have to prove that products sold by the defendants are firearms or “component part[s] of a firearm or ammunition,” as defined by other federal statutes. 

Applying the four-part test from Grable & Sons Metal Prods., Inc. v. Darue Eng’g & Mfg, 545 U.S. 308 (2005), Judge Furman found that the federal issue of whether defendants’ products qualify as “firearms” or “component parts” is “(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.”  First, because the state must prove that the products meet the federal definition to prevail on its claims, the judge found that the issue is necessarily raised.  While the state invoked cases holding that mere definitional borrowing does not automatically raise a federal question, the court distinguished those cases because the federal definition of a firearm or component part remains unsettled.  Second, the issue is actually disputed because the definitional “terms are central to the federal scheme embodied in the Gun Control Act of 1968” and to the ATF’s regulatory ambit.  Third, the issue is actually disputed because the defendants argue that, despite the ATF’s recent “frame or receiver” rule, their products are either not covered by the federal “qualified product” definition or—if they are covered—that the state’s claims are precluded by PLCAA.  Fourth, the judge noted that concern about the federal-state balance was “the State’s strongest argument,” because the state is bringing claims under state law to protect its own citizens.  However, Judge Furman ultimately found that the state’s choice to “piggyback[] on federal law” and the strength of the federal interest in firearms regulation outweighed any state sovereignty concerns.

The Arm or Ally defendants also made an alternative argument that “a federal law claim is necessarily raised because the Second Amendment confers a ‘right to possess and sell unserialized, unfinished frames and receivers’” and the Second Amendment issue is necessary to resolve the state’s misrepresentation claims.  At least one court has already found such a right under Bruen: in Rigby v. Jennings, a federal judge in Delaware struck down provisions of Delaware’s new “ghost gun” ban because “the right to keep and bear arms implies a corresponding right to manufacture arms.”  Judge Furman did not reach the issue in Arm or Ally because he determined that claims under the state gun-industry liability statute necessarily raised a federal question, apart from the Second Amendment.  But it would not be surprising to see similar arguments in future cases regarding self-manufactured firearms where the forum is a contested issue.  In general, a federal question must appear on the face of the complaint and “it is [] settled law that a case may not be removed to federal court on the basis of a federal defense.”  Caterpillar Inc. v. Williams, 482 U.S. 386, 393, 107 S. Ct. 2425, 2430, 96 L. Ed. 2d 318 (1987).  However, the Arm or Ally defendants argued in their opposition brief that:

Put simply, New York alleges that Defendants have misrepresented the legality of their products because City, State, and federal statutes render these products unlawful.  But for that to succeed, the State must establish that Defendants’ alleged statements were false—and thus that the United States Constitution does not render the statutes upon which the State relies inoperative.

The defendants cite to a number of defamation cases where courts held that a federal question was involved because the veracity of the alleged defamatory statement turned on the substantive content of a federal statute—for example, a case where the plaintiff sued for slander alleging that the defendant made a false statement about his rights under certain federal railway statutes.  This is a creative legal argument, but also one that threatens to swallow state sovereignty whole if construed broadly.  In Arm or Ally and similar cases the connection to a federal statute or constitutional provision is more attenuated, especially where states do not adopt federal definitions wholesale.  All state statutes must pass constitutional muster, but that alone does not make each and every constitutional provision necessary to a claim for violating the state law.  Under this line of reasoning, it’s difficult to imagine that a lawsuit brought under a state law passed pursuant to PLCAA’s predicate exception could ever remain in state court.

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