Reyes v. Sessions

          MEMORANDUM OPINION

          JOHN D. BATES UNITED STATES DISTRICT JUDGE.

         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 18 U.S.C. § 922(d)(1) and (g)(1), which prohibit the transfer of firearms to and possession of firearms by individuals convicted of a “crime punishable by imprisonment for a term exceeding one year.” This category of crimes, however, is statutorily defined to exclude “offenses pertaining to antitrust violations, unfair trade practices, restraints of trade, or other similar offenses relating to the regulation of business practices.” 18 U.S.C. § 921(a)(20)(A). Because the Court finds that Reyes's convictions fall within this exception, the Court will deny the government's motion to dismiss.

         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 violence, ” which was statutorily defined to include offenses such as murder, rape, mayhem, and burglary. See Federal Firearms Act, Pub. L. No. 75-785, §§ 1(6), 2(d), (f), 52 Stat. 1250, 1250- 51 (1938). In 1961, Congress expanded the scope of these prohibitions to sweep in non-violent criminals, amending the prohibited class to include any person convicted of a “crime punishable by imprisonment for a term exceeding one year.” See An Act to Strengthen the Federal Firearms Act, Pub. L. No. 87-342, 75 Stat. 757, 757 (1961).

         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, 82 Stat. 1213 (1968). The Act, as amended and codified in part at 18 U.S.C. § 922(g)(1), prohibits any individual who has been convicted of “a crime punishable by imprisonment for a term exceeding one year” from transporting or receiving “any firearm or ammunition which has been shipped or transported in interstate or foreign commerce.” A corollary provision, 18 U.S.C. § 922(d)(1), makes it unlawful “to sell or otherwise dispose of any firearm or ammunition to any person” who “has been convicted in any court of[] a crime punishable by imprisonment for a term exceeding one year[.]”

         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 18 U.S.C. § 921(a)(20)(A) to exclude “certain commercial-type crimes, ” S. Rep. No. 90-1097, at 112-13 (1968), reprinted in 1968 U.S.C.C.A.N. 2112, 2202. Specifically, the Gun Control Act provided that the term did not include “Federal or State offenses pertaining to antitrust violations, unfair trade practices, restraints of trade, or other similar offenses relating to the regulation of business practices as the Secretary [of the Treasury] may by regulation designate.” Pub. L. No. 90-618, § 921(a)(20)(A), 82 Stat. 1213, 1216 (1968). Ultimately, the Secretary never designated any “similar offenses” as excluded, and in 1986 Congress eliminated from the definition the phrase, “as the Secretary may by regulation designate.” See Firearms Owners' Protection Act, Pub. L. No. 99-308, 100 Stat. 449, 449 (1986). All “other similar offenses relating to the regulation of business practices” were thus excluded from the definition of a “crime punishable by imprisonment for a term exceeding one year, ” and it was left to the courts to identify which offenses fell within this “business practices” exception. See S. Rep. No. 98-583, at 7 (1984) (noting that the Firearm Owners' Protection Act “makes the court, rather than the Secretary, the final arbiter as to what constitutes a ‘similar offense relating to the regulation of business practices'”).

         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, 660 F.3d 454, 459-60 (9th Cir. 2011). The company offered stock options to new and existing employees that gave them the right to purchase Brocade stock at a fixed (strike) price on or after a particular date. Id. at 459. Brocade backdated these options, recording the grant date retroactively so that the strike price was below the stock's then-current market value and thus was instantly profitable to the option-holder. Id. Although this practice was not illegal in and of itself, the company was required to record these employment benefits as non-cash compensation expenses in the company's financial records. Id. But Brocade failed to account for these expenses, and Reyes was subsequently charged with various violations of the Exchange Act. Id.

         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 17 C.F.R. § 240.10b-5; (2) falsifying corporate books and records in violation of 15 U.S.C. §§ 78m(b)(2)(A) and 78ff, and 17 C.F.R. § 240.13b2-1; and (3) making false statements to auditors in violation of 15 U.S.C. § 78ff and 17 C.F.R. § 240.13b2-2. Id. Each of these crimes carries a maximum prison sentence of twenty years. 15 U.S.C. § 78ff. Reyes ultimately was sentenced to eighteen months in prison, two years of supervised release, and was fined $15 million. Reyes, 660 F.3d at 460.

         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 18 U.S.C. § 922(g)(1). Id ¶¶ 30, 32-34. Reyes thus claims he is effectively barred from acquiring a firearm.

         III. Procedural History

         In August 2017, Reyes filed the instant action bringing as-applied statutory and constitutional challenges to 18 U.S.C. § 922(d)(1) and (g)(1). He first claims that he is statutorily exempted from § 922(d)(1) and (g)(1) because his convictions constitute business practices offenses excluded under § 921(a)(2)(A) (Count I). Compl. ¶¶ 4, 36-37. In the alternative, he asserts two claims under the Equal Protection Clause of the Fifth Amendment, alleging that the statute creates two impermissible distinctions: first, between federal offenders convicted, like him, of securities and accounting offenses who are barred from possessing firearms and federal offenders convicted of “business practices” offenses who are excepted from the felon-in-possession statute (Count II), id ¶¶ 5, 39-41; and second, between citizens convicted of nonviolent crimes who do not “pose[] any greater risk to public safety[] than a typical law-abiding citizen” but are disqualified from firearm possession and other citizens not subject to § 922(d)(1) and (g)(1) (Count III), id ¶¶ 6, 43-45. Reyes also claims in the alternative that the firearms disability fails heightened judicial scrutiny under the Second Amendment because he was convicted of non-violent offenses (Count IV). Id ¶¶ 7, 47-49. For all counts, he seeks declaratory and injunctive relief barring the government from enforcing § 922(d)(1) and (g)(1) against him based on his 2010 convictions. Id at 14-15.

         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 Id. at 9-10; (2) his predicate convictions do not fall within the statutory exception to the firearms disability, see Id. at 10-16; (3) Reyes is not within the scope of the Second Amendment's protections because he was convicted of serious crimes and, even if the Second Amendment does apply, the statutory restrictions satisfy intermediate scrutiny, see Id. at 16-26; and (4) his Equal Protection claims fail because the felony classification, including its exception for certain business practices offenses, satisfies both rational basis and heightened scrutiny, see Id. at 26-28. Also pending before the Court is Reyes's motion for leave to file a surreply addressing one of the government's Equal Protection arguments. See Pl's Mot. to File a Surreply in Opp'n to Defs.' Mot. to Dismiss [ECF No. 16]. The government's motion to dismiss and Reyes's related motion for leave to file a surreply are now fully briefed and ripe for decision.

         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, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). To survive a motion to dismiss for lack of standing under Rule 12(b)(1), a plaintiff must demonstrate that he has standing by pleading facts that, taken as true, render it plausible that the Court has subject-matter jurisdiction. See Humane Soc'y of the U.S. v. Vilsack, 797 F.3d 4, 8 (D.C. Cir. 2015). For motions brought under both Rules, the Court must accept as true all facts stated in the complaint, but it is not bound to “legal conclusions] couched as . . . factual allegation[s].” Iqbal 556 U.S. at 678.

         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 18 U.S.C. § 922(d)(1). To establish standing, a plaintiff must allege three elements: (1) an “injury in fact, ” which is “concrete and particularized” and “actual or imminent”; (2) that the injury is fairly traceable to the challenged provision and (3) that the injury is likely to be redressable by the court. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992).

         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 the first element of standing-an injury in fact-to assert his § 922(d)(1) claims.

         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., 425 U.S. 748, 757 (1976) (finding prospective consumers had standing to bring constitutional challenge to restrictions on drug advertisers); Roe v. Wade, 410 U.S. 113, 124-25 (1973) (holding pregnant woman had standing to challenge statute prohibiting the administration of ...