J & G Sales Ltd v. Carl J. Truscott, Director, Bureau of Alcohol, Tobacco, Firearms and Explosives

Citations: 473 F.3d 1043; 2007 U.S. App. LEXIS 862; 2007 WL 92895Docket: 04-16976

Court: Court of Appeals for the Ninth Circuit; January 16, 2007; Federal Appellate Court

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The Ninth Circuit Court of Appeals reversed a district court's summary judgment that had found the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) lacked authority to require certain licensed firearms dealers to submit parts of their records on secondhand firearms. The court ruled that the ATF acted within its statutory authority under 18 U.S.C. § 923(g)(5)(A). However, the court upheld the district court's conclusion that the ATF's decision on which dealers to contact was not arbitrary or capricious.

Under the Gun Control Act of 1968, individuals must obtain a license from the ATF to engage in firearms commerce and are designated as federal firearms licensees (FFLs). These FFLs are required to maintain detailed transaction records at their premises due to restrictions preventing the establishment of a national firearms registry. Specific reporting obligations exist: FFLs must report sales of multiple firearms to unlicensed individuals within five business days and submit records to the ATF when going out of business. The ATF can also access FFL records without a warrant under certain conditions, particularly during bona fide criminal investigations.

The Bureau utilizes Federal Firearm License (FFL) records to trace firearms upon request from law enforcement. A trace initiates when a firearm is recovered, leading the law enforcement agency to submit a request to the Bureau's National Tracing Center (NTC). The NTC first searches records of out-of-business FFLs and sales records using the firearm's serial number. If these efforts fail to identify the initial retail transaction, the NTC then contacts the manufacturer or importer and follows the distribution chain to the retail dealer, who must check records to identify the first retail purchaser.

Tracing becomes problematic when the initial purchaser no longer possesses the firearm, as federal law does not mandate unlicensed sellers to keep transfer records. Consequently, tracing a secondhand firearm relies on time-consuming investigative methods, which are rarely undertaken due to their resource intensity and low success rate. While FFLs are required to maintain records of secondhand transactions, the traditional tracing method does not capture this data due to the lack of connections between transactions.

A significant portion of firearms sold each year are secondhand. A report published by the Bureau on February 4, 2000, indicated that a small percentage of FFL dealers accounted for most trace requests. It highlighted that the average time from sale to recovery—referred to as "time-to-crime"—is six years, with many traces occurring within three years, indicating rapid diversion to illegal markets.

To improve tracing of secondhand firearms, the Bureau sent demand letters to approximately 450 FFL dealers linked to ten or more trace requests with a time-to-crime of three years or less. These dealers, representing only 0.6% of all FFLs, were required to provide specific information about secondhand firearms acquired, excluding details about the transferor or transferee.

On August 4, 2003, the Bureau issued a demand letter to J. G Sales, Ltd., an FFL dealer, following records indicating the tracing of 15 or more firearms with a time-to-crime of three years or less. The letter noted challenges in tracing secondhand guns and suggested that J. G's high number of traces of new crime guns indicated potential sales of secondhand guns used in crime. J. G was instructed to submit its 2002 secondhand firearms acquisition report to the NTC within thirty days and to continue quarterly reporting. On November 18, 2003, J. G filed a complaint for declaratory judgment and injunctive relief, arguing that the demand letter exceeded the Bureau's authority, was arbitrary and capricious, and violated due process. J. G sought to prevent penalties for non-compliance and demanded the destruction of any previously submitted records. The Bureau responded on January 26, 2004, with a motion that the district court interpreted as a motion for summary judgment. The court found the demand letter unlawful due to the Bureau's lack of statutory authority and enjoined its enforcement. However, the court upheld the Bureau's targeting method for issuing demand letters as not arbitrary or capricious. The case was appealed, with the appellate court applying a de novo review standard for the summary judgment and statutory interpretation. Previous assessments by the Fourth Circuit had upheld the Bureau's authority to issue demand letters under 18 U.S.C. § 923(g)(5)(A) when addressing uncooperative FFLs.

In Blaustein, Reich v. Buckles, the Fourth Circuit upheld the Bureau's authority to issue demand letters to Federal Firearms License (FFL) dealers for information on secondhand firearm acquisitions, ruling against Bob's Gun Shop's challenges, which mirrored those of J. G Sales in the current case. The authority to issue such demand letters is grounded in 18 U.S.C. § 923(g)(5)(A), established when Congress amended the Gun Control Act. This provision mandates that licensees must submit required record information upon receiving a Bureau-issued letter. J. G disputes this interpretation, arguing that § 923(g)(5)(A) must be viewed in conjunction with § 923(g)(1)(A), which limits the Bureau's ability to request information. However, the Fourth Circuit clarified that § 923(g)(5)(A) includes a condition that only requires submission when a demand letter is issued, reaffirming its validity without conflicting with § 923(g)(1)(A). The Bureau's targeted approach, based on data indicating that a small number of dealers accounted for most traced firearms, involved sending demand letters to a limited number of FFLs for specific information. The court concluded that this demand letter is well within the Bureau's authority and does not infringe upon the prohibition against establishing a national firearms registry.

The demand letter in question seeks specific information from Federal Firearm License (FFL) dealers to address issues related to tracing secondhand firearms. The authority granted by section 923(g)(5)(A) is not unlimited, but it should not be disregarded entirely. J. G argues that the Bureau's interpretation of section 923(g)(5)(A) would undermine two other provisions of the Gun Control Act, specifically: 1) § 923(g)(1)(B), which allows the Bureau to inspect FFL records without a warrant in certain situations; and 2) § 923(g)(7), which mandates that FFLs respond to the Bureau within 24 hours regarding firearms in criminal investigations. J. G claims these provisions indicate that the Bureau can only request records during bona fide criminal investigations. However, the demand letter process does not involve physical entry into FFL premises, distinguishing it from the inspections described in § 923(g)(1)(B). Furthermore, § 923(g)(7) does not restrict the Bureau's authority to issue demand letters; instead, it outlines FFL responsibilities in response to trace requests.

J. G also contends that if § 923(g)(5) is interpreted as the Bureau suggests, it would make provisions § 923(g)(3)(A) and (g)(4) redundant, as they impose specific reporting requirements on FFLs. Nonetheless, the existence of other provisions does not preclude the Bureau from seeking additional record information via demand letters. The statute does not limit the Bureau's authority strictly to the provisions J. G acknowledges. The analysis concludes that the text of § 923 is clear enough to render further examination of its legislative history unnecessary.

J. G argues that the Bureau's issuance of a demand letter violates Congress's prohibition on new regulations concerning Federal Firearm License (FFL) records as outlined in 18 U.S.C. § 926(a). This statute prohibits any new rules after the enactment of the Firearm Owners Protection Act (FOPA) from requiring changes to how FFL records are maintained or transferred, and from establishing systems for firearm registration. J. G claims that the demand letter represents a new regulation since the Bureau had not issued such letters in this manner before. However, it is determined that § 926(a) does not restrict the Bureau's authority to issue demand letters under § 923(g)(5)(A) or 27 C.F.R. § 478.126(a) because § 926(a) pertains only to rules or regulations and not to statutes. Furthermore, 27 C.F.R. § 478.126(a) is not affected by § 926(a) since it predates the 1986 cutoff. 

J. G also contends that the demand letter constitutes arbitrary and capricious agency action under 5 U.S.C. § 706(2)(A), asserting that it lacks a factual basis. The court emphasizes that it does not substitute its judgment for that of the agency and reviews agency actions with deference, provided the agency articulates a rational connection between the facts and its decisions. J. G presents four arguments supporting his claim of arbitrary action, notably that the Bureau incorrectly asserted that firearms traced to him were "crime guns." However, the court notes that "crime guns" is a term of art used by the Bureau, which refers to any firearm subject to a trace request, indicating that J. G's challenge does not undermine the Bureau's categorization.

The Bureau conducts firearms tracing at the request of law enforcement, which implies that such actions are not taken lightly. The Bureau's choice to request a limited set of information from Federal Firearms Licensees (FFLs) associated with a significant number of traced firearms is deemed reasonable, despite potential linguistic imprecision in defining "crime gun." J.G argues the Bureau should consider the sales volume of FFLs when determining the threshold for issuing demand letters; however, the Bureau's reliance on an absolute number of traces instead of a percentage does not constitute arbitrary action. Additionally, J.G objects to the increase of the trace threshold from ten to fifteen in 2002, but since J.G had enough traced guns to receive a letter under either threshold, the challenge lacks merit. The Bureau's data supported both thresholds, and J.G failed to show that the fifteen-trace threshold was irrational. Finally, J.G's contention that the Bureau improperly extrapolated from data on new firearms to secondhand firearms is dismissed; the Bureau's reasoning that dealers with many traced new firearms would likely also deal in traced used firearms is upheld. Consequently, the district court's grant of summary judgment is reversed, affirming the Bureau's authority to issue the demand letter to J.G regarding secondhand firearms transactions while confirming that the action taken was not arbitrary or capricious. The decision is affirmed in part and reversed in part.