Before the Court is [10] the government's motion to dismiss the as-applied statutory and constitutional challenges brought by plaintiff Gregory Reyes to certain provisions of the federal criminal prohibition on possession of firearms by felons. Eight years ago, Reyes was convicted of violations of the Securities Exchange Act of 1934 (the "Exchange Act") and sentenced to eighteen months in prison. He now wishes to obtain a firearm but has been prevented from doing so by
BACKGROUND
I. STATUTORY BACKGROUND
Enacted in 1938, the first federal firearm disqualification statute initially prohibited the sale of firearms to and possession of firearms by felons and misdemeanants convicted of a "crime of
Seven years later, Congress passed the Gun Control Act and again redefined the class of individuals disqualified from possessing firearms. See Pub. L. No. 90-618,
Under the Gun Control Act, however, not all individuals convicted of a felony are disqualified from acquiring or possessing firearms. The term "crime punishable by imprisonment for a term exceeding one year" is defined statutorily by
II. FACTUAL BACKGROUND
Eight years ago, Reyes came within the potential ambit of the felon-in-possession statute when he was convicted of certain offenses punishable by more than one year of imprisonment. From 1998 to 2005, Reyes was the Chief Executive Officer of Brocade Communications Systems, Inc. ("Brocade"), a publicly traded company. United States v. Reyes,
In 2010, Reyes was convicted of (1) securities fraud and making false filings with the Securities and Exchange Commission ("SEC") in violation of 15 U.S.C. §§ 78j(b) and 78(ff), and
Reyes now wishes "to acquire and possess ... firearms for defense of himself and his family and for hunting." Compl. [ECF No. 1] ¶ 28. Although his right to possess a firearm has been restored under the laws of his home state of Montana, he alleges that the government's interpretation and application of the federal felon-in-possession statute effectively prevents him from purchasing a firearm. Id. ¶¶ 27, 29-34. Because the government instructs firearms dealers not to sell to anyone who has "been convicted in any court of a felony, or any other crime for which the judge could have imprisoned [him] for more than one year," Reyes asserts that sellers are unable to provide him with a firearm. Compl. ¶¶ 25-26, 31 (quoting U.S. Dep't of Justice, Bureau of Alcohol, Tobacco, Firearms & Explosives ("ATF"), Firearms Transaction Record: ATF E-Form 4473 (Oct. 2016) ). Indeed, Reyes alleges that two merchants specifically informed him that they would be unwilling to make such a sale to him due to his felony convictions. Id. ¶¶ 31-32. Moreover, even if Reyes could obtain a firearm from a licensed federal firearms dealer or a private party, he asserts that he has refrained from attempting to do so because he believes the government would subject him to criminal penalties under
III. PROCEDURAL HISTORY
In August 2017, Reyes filed the instant action bringing as-applied statutory and constitutional challenges to
The government now moves to dismiss Reyes's claims. See Defs.' Mot. to Dismiss ("Gov't's Mot.") [ECF No. 10]. It argues that: (1) Reyes does not have Article III standing to challenge § 922(d)(1), see
LEGAL STANDARD
Defendants have moved to dismiss this case for failure to state a claim under Rule 12(b)(6) and, in part, for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1). To survive a motion to dismiss under Rule 12(b)(6), a complaint must "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal,
DISCUSSION
I. REYES HAS STANDING TO CHALLENGE § 922(D)(1)
As a preliminary matter, the Court addresses the government's assertion that Reyes does not have standing to challenge
Reyes alleges that § 922(g)(1), which prohibits firearm possession by certain felons, and § 922(d)(1), which prohibits the sale and transfer of firearms to certain felons, together prevent him from acquiring a firearm. The government disputes only whether Reyes has suffered a cognizable injury from the application of § 922(d)(1), arguing that only an individual transferring or selling a firearm--not a would-be purchaser or recipient-suffers a potential injury in fact from the application of the seller provision. See Gov't's Mot. at 9-10. Because Reyes does not allege that he wishes to transfer or sell a firearm, the government contends that he cannot satisfy
But the government's position is inconsistent with both common sense and longstanding precedent. Even if Reyes successfully challenged § 922(g)(1) and was deemed able lawfully to possess a firearm, it would be a hollow victory if others were legally prohibited from providing him with one. As courts have long recognized, restrictions on providers can cause cognizable injuries to would-be recipients who are prevented from accessing goods and services in which they have a legally protected interest. See, e.g., Va. State Bd. of Pharm. v. Va. Citizens Consumer Council, Inc.,
Well-settled law supports this finding. In Dearth v. Holder, for instance, the D.C. Circuit held that a would-be purchaser suffered a "sufficiently real and immediate" injury from two provisions of § 922 that prohibited the sale of firearms to and purchase of firearms by individuals residing outside the United States.
Having found that Reyes has standing to challenge
The government argues that the business practices exception only encompasses those offenses that possess the same quality that, it asserts, unites the enumerated offenses: proof of direct economic harm to competition or consumers. Gov't's Mot. at 11. To determine whether a predicate conviction is "similar" to an enumerated offense, the government suggests the Court adopt the "elements test" employed by some circuits.
In determining the scope of the business practices exception, the Court begins, as it must, with the text of the statute. See Kingdomware Techs., Inc. v. United States, --- U.S. ----,
The statutory question before the Court, then, is twofold: (1) what factors evince that a commercial offense statute addresses economic harm to competition or consumers and (2) do Reyes's predicate offenses
A. Identifying the Business Practices Exception Test
Although application of the business practices exception is a matter of first impression in this Circuit, this Court does not write on a blank page. The elements test, which the government proposes this Court adopt, originated in the Second Circuit in United States v. Meldish,
Since then, Circuits applying the business practices exception have split in their use of the elements test. The Seventh Circuit relies exclusively on the elements test, only excluding offenses from the felon-in-possession statute if "the government would have been required to prove, as an element of the predicate offense, that competition or consumers were affected." United States v. Schultz,
The Eighth Circuit has taken a more holistic approach to the business practices exception inquiry, considering both the primary purpose of the violated statute and the elements of the predicate offense in determining whether the predicate offense constitutes an excluded offense. In United States v. Stanko, the Eighth Circuit considered whether a violation of the Federal Meat Inspection Act ("FMIA") pertained to unfair trade practices or other similar offenses. It concluded that "Congress intended to exclude from § 922(g)(1)'s prohibition those felons convicted under criminal statutes addressing only economic harm to competition or consumers, but not to exclude those felons convicted under criminal statutes designed primarily to address other societal concerns." Stanko,
The government urges the Court to adopt the narrow "elements test" used by the Seventh Circuit or, at the very least, to adhere to the Fifth Circuit's approach by subordinating any consideration of purpose to an examination of the elements of the offense. See Gov't's Mot. at 11-12. In doing so, it suggests that "the only underlying offenses that may be excluded from the 922(g)(1) [and (d)(1) ] firearms prohibition[s] are convictions for 'business practices' that require proof of direct competitive harms." Id. at 12 (emphasis added).
However, any strict application of an elements requirement would be inconsistent with the explicit terms of the business practices exception. The three enumerated offenses are not generic common law offenses reducible to specific elements that comprise the crime. Cf. Taylor v. United States,
The common thread between the enumerated offenses is that they are commercial crimes intended to address economic harm to competitors or consumers--not that they require proof of such harm as an element of the offense. Most criminal antitrust violations, for example, are considered to be per se harmful to competition and consumers and require no actual proof of injury. See, e.g., United States v. Socony-Vacuum Oil Co.,
This is not to say that the elements test is not a useful tool in a court's statutory interpretation arsenal. Should a predicate offense relating to the regulation of business practices satisfy this test, it would be clear that the violated statute intends to address economic harm to consumers or competition. But it would be incongruous to require a predicate offense to pass a test that the enumerated offenses themselves do not meet.
The Court therefore finds persuasive the Eighth Circuit's approach in Stanko and adopts its method of examining both the primary purpose and the elements of the predicate business practices offense to determine whether an offense "pertain[s] to antitrust violations, unfair trade practices, restraints of trade, or other similar offenses."
B. Examination of Reyes's Predicate Offenses
Finally, then, the Court turns to whether Reyes's three predicate offenses constitute offenses excluded by § 921(a)(20)(A) from the felon-in-possession statute. All three, the Court concludes, do.
1. Examination of the Elements
The Court begins its analysis by examining whether Reyes's predicate business practices offenses have as an element economic harm to competition or consumers. Reyes was convicted of (1) securities fraud, (2) falsifying corporate books and records, and (3) making false statements to accountants--none of which required the government
2. Primary Purpose
This failure is not fatal, however, so long as the violated statute has the requisite primary purpose. The Court therefore proceeds to the second prong of its business practices exception analysis: discerning the primary purpose of the laws and regulations Reyes violated. Because an analysis of the primary purpose of the overarching statute may illuminate the more specific purpose of the provisions Reyes violated, the Court will begin with the Exchange Act.
i. The Securities Exchange Act of 1934
"Examination of purpose is a staple of statutory interpretation[.]" McCreary Cnty. Ky. v. Am. Civil Liberties Union of Ky.,
Here, the history and stated purpose of the Exchange Act clearly indicate that the statute was primarily intended to prevent economic harm to investors. Following rampant abuses in the sales of securities and the subsequent crash of the stock market in 1929, Congress enacted the first federal laws specifically regulating securities. The Securities Act of 1933 was enacted "[t]o provide full and fair disclosure of the character of securities sold in interstate and foreign commerce, and through the mails, and to prevent frauds in the sale thereof, and for other purposes."
This new statutory scheme was intended not only to redress actual economic harm to investors, but also proactively to prevent the occurrence of such harm in the future. To do so, the Exchange Act imposed disclosure requirements, which
Although not determinative,
The statute's text and history, as well as its placement within the U.S. Code, thus reflect only one singular purpose: the Exchange Act "was intended principally to protect investors against manipulation of stock prices through regulation of transactions upon securities exchanges." Koch v. SEC,
ii. Reyes's Predicate Convictions
Although it is apparent that the federal securities statutory scheme as a whole is intended to protect investors, Reyes's specific predicate convictions must themselves qualify as excluded offenses under the business practices exception. See Miller,
Reyes was convicted of securities fraud and making false filings with the SEC in violation of 15 U.S.C. § 78j(b) and
The explicit text of 15 U.S.C. § 78j(b) and the materiality requirement of the securities fraud offense together demonstrate that the securities fraud and false filing statute that Reyes violated was primarily intended to protect investors from economic harm. The text of 15 U.S.C. § 78j(b) provides that regulations under that provision are limited to those made "for the protection of investors" or "in the public interest." 15 U.S.C. § 78j(b) (emphasis added). To the extent that provisions "made 'in the public interest' " could, in theory, be distinguishable from those made "for the protection of investors," the Court need not and does not express an opinion; here, the materiality element of SEC Rule 10b--5 confirms that the regulation Reyes violated was made "for the protection of investors." A fact is only "material if there is a substantial likelihood that a reasonable investor would consider it important in making a decision" by "alter[ing] the 'total mix' of information made available." Reyes,
Similarly, Reyes's convictions for making false statements to auditors under
Finally, Reyes was convicted of falsifying corporate books and records, which required a finding that he knowingly failed to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." 15 U.S.C. § 78m(b)(2)(A) ; see also
To provide even greater protection to investors, the SEC rejected the imposition of a materiality standard for the bookkeeping provision. Id. at *9 (noting the SEC's "concern that a limitation concerning 'material' falsity would unduly narrow the scope of the rule and result in an unwarranted diminution of investor protection"). Thus, issuers are required to provide all information in reasonable detail, even if such information would not be considered important by a reasonable investor. Because violations of the bookkeeping provision could lead "to the concealment of material information that should be disclosed in periodic reports or to purchasers and sellers of the issuer's securities," the SEC imposed the bookkeeping requirement as a separate, antecedent measure to ensure that investors remained fully informed and able to minimize the economic risks associated with overvalued stock. Id. at *10. Hence, it is clear that the primary purpose of the bookkeeping provision was to protect investors from economic harm.
Each of Reyes's predicate business practices offenses, then, possesses the requisite primary purpose under the business practices exception. There may be instances in which a statutory provision's primary purpose is not so easily divined. See Sissel v. U.S. Dep't of Health and Human Servs.,
* * *
The Court concludes that each of Reyes's predicate offenses satisfies the primary purpose prong of the business practices exception test and therefore is excluded from the definition of "crime[s] punishable by imprisonment for a term
Because the Court concludes that § 922(d)(1) and (g)(1) are not applicable to Reyes, the Court will not consider the constitutional challenges he raises in the alternative. The Court will also deny Reyes's motion for leave to file a surreply. A separate order has been issued on this date.
Notes
The government attempts to distinguish Dearth by highlighting the court's analysis of whether a would-be purchaser must first be denied a firearm permit to be injured. See Defs.' Reply in Supp. of Mot. to Dismiss ("Gov't's Reply") [ECF No. 15] at 3 n.1. But the D.C. Circuit ultimately held that a permit denial was not required because the would-be purchaser's injury stemmed from " 'statutory classifications' that bar him from acquiring a firearm." Dearth,
Given the D.C. Circuit's clear holding in Dearth, this Court need not consider opinions from courts in other Circuits. In any event, the government misreads two of the cases it cites in opposition. See Gov't's Mot. at 10 (first citing Lane v. Holder,
The government also argues that the fact that federal securities laws were enacted prior to the Gun Control Act weighs against finding that securities violations fall within the business practices exception. See Gov't's Reply at 12. Under the government's theory, any non-enumerated offense that existed prior to the enactment of the Gun Control Act cannot fall within the business practices exception because Congress chose not to identify the offense explicitly in § 921(a)(20)(A). See
Similarly, the government suggests that the specific exclusion of antitrust violations, which were not federal felonies at the time, demonstrates that Congress did not intend to exclude other offenses that were federal felonies at the time. See Gov't's Reply at 22 n.22. But the very purpose of the business practices exception was to except certain felonies-i.e. "crimes punishable by imprisonment for a term exceeding one year"-from the statutory definition. Moreover, § 921(a)(20)(A) excludes both "Federal or State offenses," suggesting that Congress contemplated that some federal offenses could fall within the business practices exception.
Reyes suggests that the Court should apply the rule of lenity to resolve any ambiguity in the statute in his favor. See Pl.'s Opp'n at 16-17. Here, however, Congress "has spoken in clear and definite language." Scheidler v. Nat'l Org. for Women, Inc.,
The government suggests that the "primary consideration" in Stanko was its analysis of the elements of the predicate offenses. See Gov't's Reply at 10. Although the Eighth Circuit does note that, "[e]ven more significantly, none of the provisions of the FMIA require the Government to prove an effect on competition or consumers," it does so only within an extensive review of the statute's primary purpose. See Stanko,
Reyes specifically argues that his offenses "pertain to unfair trade practices or, at a minimum, are similar to such offenses." Pl.'s Opp'n at 11, 16. But the Eighth Circuit's approach applies to analyses of both offenses that "pertain to unfair practices" and offenses that are "similar to antitrust violations, unfair trade practices, or restraints of trade collectively." Stanko,
The United States Code is prepared and published by the Office of the Law Revision Counsel of the U.S. House of Representatives, not by Congress. See Preface, United States Code, at v. (1934 ed.) (explaining that the U.S. Code is a compilation of the law prepared by a committee of the House of Representatives). Hence, while a statute's placement in a particular title may indicate it is generally thought to share common qualities with other statutes in that title, it is not determinative of whether Congress itself viewed the statutes as similar.
Because the Court finds that Reyes's predicate offenses fall within the business practices exception, the Court will not consider Reyes's additional argument that any distinction between § 921(a)(20)(A)'s enumerated offenses and his securities violations would pose constitutional problems. See Pl.'s Opp'n at 17.