Division 80 LLC v. Garland

In the United States District Court August 23, 2022

Nathan Ochsner, Clerk

for the Southern District of Texas

GALVESTON DIVISION

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No. 3:22-cv-148

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DIVISION 80, LLC, PLAINTIFF,

v.

MERRICK GARLAND, ET AL., DEFENDANTS.

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MEMORANDUM OPINION AND ORDER

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JEFFREY VINCENT BROWN, UNITED STATES DISTRICT JUDGE:

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.

FACTUAL BACKGROUND

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”

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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

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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.

II. PROCEDURAL BACKGROUND

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! 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.

1 The defendants are the Attorney General, the Department of Justice, the

director of the ATF, and the ATF. For simplicity, the court refers to the defendants

collectively as “the Government.”

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Ill. LEGAL STANDARD

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).

IV. ANALYSIS

A. Irreparable Harm

Acourt’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

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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

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

2 Consol. Canal Co. v. Mesa Canal Co., 177 U.S. 296, 302 (1900), quoted in

Weinberger, 456 U.S. at 311–12.

3 Weinberger, 456 U.S. at 312 (“The Court has repeatedly held that the basis

for injunctive relief in the federal courts has always been irreparable injury and the

inadequacy of legal remedies.”); see also Cavanaugh v. Looney, 248 U.S. 453, 456

(1919) (holding that an injunction should issue only when it “is essential in order

effectually to protect property rights against injuries otherwise irremediable”),

quoted in Weinberger, 456 U.S. at 312.

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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

4 Division 80 relies on two manufacturers for its sales stock: 80 Percent

Arms and 5D Tactical. Dkt. 55 at 15. Neither has joined the lawsuit, sought to

appear as an amicus curiae, or submitted any evidence that it would close its doors

in the absence of an injunction in this case.

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would cost Division 80 $408 to initially obtain and $194 every three years to

renew5—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.

5 Regulatory Impact Analysis, Dkt. 11-3, Exhibit 3 at 35.

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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 contributed just $867,889.11. Id. The district court declared Xu’s unit

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certificates invalid and ordered the investment group to provide him “with

new certificates reflecting the ownership interest derived from the amount

[he] had actually paid.” Id.

On appeal, Xu argued the district court had abused its discretion

because his fellow investors had failed “to establish a substantial threat of

irreparable injury.” Id. at 598. The Fifth Circuit upheld the injunction:

In holding that Plaintiffs faced irreparable injury, the district

court found that Plaintiffs were in imminent danger of losing the

hotel’s IHG franchise and even the hotel itself. The district

court’s findings are supported by the record, including testimony

of both fact and expert witnesses, and are not clearly erroneous.

Accordingly, the district court did not abuse its discretion by

concluding that Plaintiffs established a substantial threat they

would suffer irreparable injury if an injunction was not granted.

Id.

Division 80 relies on Atwood and Jiao for the notion that “the mere

fact that economic damages may be available does not always mean that

remedy at law is ‘adequate.’” Janvey v. Alguire, 647 F.3d 585, 600 (5th Cir.

2011), quoted in Jiao, 28 F.4th at 598. “[A]n exception exists where the

potential economic loss is so great as to threaten the existence of the

movant’s business.” Atwood, 875 F.2d at 1179.

But there are evident differences between Jiao and Atwood on the one

hand and this case on the other. In both Jiao and Atwood the threatened

economic harm was shown to be significant, tangible, and likely. Division 80,

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by contrast, fears an injury that is amorphous, unsubstantiated, and

speculative. Moreover, both Atwood and Jiao involved the clearly imminent

collapse of momentous financial deals through the unexpected malfeasance

of parties with whom the deals had been made. Here, on the other hand,

Division 80 has cryptically surmised that its fledgling business model will

evaporate with the implementation of a regulatory rule change that was

already under proposal when the company was created.

In its reply brief, Division 80 appends an additional argument,

suggesting that any cost it may incur by complying with the Final Rule would

amount to irreparable harm. It cites Texas v. EPA for the idea that

“complying with [an agency order] later held invalid almost always produces

the irreparable harm of nonrecoverable compliance costs.” 829 F.3d 405,

433 (5th Cir. 2016) (quoting Thunder Basin Coal Co. v. Reich, 510 U.S. 200,

220–21 (1994) (Scalia, J., concurring in part and in the judgment)). And the

Government has not argued that Division 80 will ever be able to recover such

costs. “That’s probably because federal agencies generally enjoy sovereign

immunity for any monetary damages.” Wages & White Lion Invs., L.L.C. v.

U.S. Food & Drug Admin., 16 F.4th 1130, 1142 (5th Cir. 2021).

But equating the compliance costs expected in Texas v. EPA to those

Division 80 might experience makes little sense. In that case, the petitioners

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showed that compliance with the final rule “would impose $2 billion in costs

on power companies, businesses, and consumers.” Texas, 829 F.3d at 433. It

also was demonstrated that the regulated companies at issue would have to

construct extensive emission controls to comply with the EPA’s final rule—a

process that would take years to complete, raise rates for millions of

consumers, and severely impair ERCOT’s reliability. Id. By contrast, the only

quantified compliance costs we know Division 80 will face is a few hundred

dollars in licensing fees.6

It remains that in this circuit, a “preliminary injunction is not

appropriate where the potential harm to the movant is strictly financial,

unless the potential economic loss is so great as to threaten the existence of

the movant’s business.” Andritz Sundwig GmbH v. United States, No. CV

4:18-2061, 2018 WL 3218006, at *10 (S.D. Tex. July 2, 2018) (citing Atwood,

875 F.2d at 1179). Division 80 insists that it is staring just such a threat in the

face. But insisting is not enough. Division 80 has neither shown that it is

likely to suffer irreparable harm absent preliminary relief nor that any injury

6 Of course, Division 80 has also alleged more nebulous compliance costs—

“regulatory costs, bureaucratic red tape, and extensive recordkeeping

requirements”—without attempting to quantify them with any specificity. First

Padilla Decl. at 2.

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it might endure would be so great as to compel the court to intervene before

reaching a final decision on the merits.

Is Division 80’s harm self-inflicted?

Division 80 was formed on November 29, 2021—a full six-months after

the Proposed Rule was published in the Federal Register. Compare Dkt. 16-

3, Exhibit 3 at 2, with, 86 Fed. Reg. at 27,720. It now indignantly complains

that a regulation already coming down the pike before it was created—and

its business model was chosen—will soon lead to its destruction. This brings

to mind the old tort-law doctrine of “coming to the nuisance,”7 though the

more appropriate term is “self-inflicted harm” when speaking of injunctive

relief: “[A] party may not satisfy the irreparable harm requirement if the

harm complained of is self-inflicted.” 11A Charles Alan Wright et al., Federal

Practice and Procedure § 2948.1 (3d ed. Apr. 2021 update); see also Texas v.

Biden, 10 F.4th 538, 558 (5th Cir. 2021) (per curiam) (self-inflicted injuries

“do not count” as irreparable harm); Second City Music, Inc. v. City of

Chicago, 333 F.3d 846, 850 (7th Cir. 2003) (“[S]elf-inflicted wounds are not

7 Though “[t]he fact that the plaintiff in a nuisance action moved into an area

affected by an existing nuisance has never been a complete defense to an action

seeking to abate a nuisance[,]” Prosser and Keeton have explained that it is a

“factor to consider while weighing the equities in an abatement action[.]” Shore v.

Maple Lane Farms, LLC, 411 S.W.3d 405, 417 n.13 (Tenn. 2013) (citing W. Page

Keeton et al., Prosser & Keeton on the Law of Torts § 88B, at 635 (5th ed.1984)).

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irreparable injury.”); Caplan v. Fellheimer Eichen Braverman & Kaskey, 68

F.3d 828, 839 (3d Cir. 1995) (“If the harm complained of is self-inflicted, it

does not qualify as irreparable.”).

That said, the fatal flaw in Division 80’s irreparable-harm argument is

not that it came to the alleged injury on its own, but that—as set out above—

it has failed to convince the court of its likelihood and substantiality.

3. What is the scope of the harm?

Finally, Division 80 argues that it “cannot continue operations without

a nationwide injunction.” Dkt. 11 at 62 (emphasis added). For support, it

simply notes that “most of its customers are out of state.” Jd. at 61 (citing

First Padilla Decl. at 2). Again, Division 80 offers no details and no

substantiation. It names no customers and lists no states. Does the court

really need to immediately halt the Final Rule in Hawaii to save Division 80

from going under? Even if Division 80 had shown itself entitled to an

injunction, it has failed to explain why that relief must be nationwide in

scope.

B. Balance of Equities

Division 80 spends very little of its briefing—just three short

paragraphs—addressing the balance of the equities. It suggests that, so long

as the court determines that Division 80 is likely to succeed on the merits,

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the court need not consider the broader public interest because the

Government has “no legitimate interest in implementing an unlawful rule.”

Dkt. 11 at 63. But showing both that the balance of equities tips in the

movant’s favor and that an injunction is in the public interest remain

essential requirements for obtaining injunctive relief. The Supreme Court

has criticized lower courts for “address[ing] these considerations in only a

cursory fashion.” Winter, 555 U.S. at 26. A preliminary injunction “does not

issue as of course.” Amoco Prod. Co. v. Vill. of Gambell, 480 U.S. 531, 542

(1987). Rather, “a court must balance the competing claims of injury and

must consider the effect on each party of the granting or withholding of the

requested relief.” Id.

Division 80 relies on two cases for the idea that the court need not truly

balance the equities to issue an injunction: BST Holdings, L.L.C. v.

Occupational Safety & Health Administration, 17 F.4th 604 (5th Cir. 2021),

and New York Progress & Protection PAC v. Walsh, 733 F.3d 483 (2d Cir.

2013). But both are distinguishable from this case for the same reason—they

both involved concrete violations of individual constitutional rights. In BST

Holdings, the Fifth Circuit vindicated individuals’ liberty interests, including

the right to free religious exercise, when it stayed the OSHA rule mandating

that employers require their employees to either get vaccinated against

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COVID-19 or test on a regular basis. 17 F.4th at 609–10, 618 n.21, 618–19.

Likewise, the Second Circuit held in Walsh that core First Amendment rights

were at stake when the state of New York imposed limits on political

contributions. 733 F.3d at 485–89.

Here, on the other hand, Division 80 has not shown that individual

constitutional liberty interests are at stake. It does not argue that the Final

Rule would amount to a violation of the Second Amendment. Instead, it

maintains that the Government’s interpretation runs afoul of the Act’s plain

language—a statutory argument, not a constitutional one.

Division 80 briefly raises two constitutional issues with the Final Rule,

but neither implicates a concrete individual liberty interest. One is a void-

for-vagueness challenge to the Final Rule. Dkt. 11 at 33–37. The other

concerns the nondelegation doctrine: a challenge to the “delegation of open-

ended legislative authority to rewrite federal statutory definitions without an

intelligible principle.” Id. at 37. But these are not the type of constitutional

violations that would compel the court to skip any equity-balancing analysis.

See Aposhian v. Barr, 958 F.3d 969, 990–91 (10th Cir. 2020).8

8 The Aposhian court held that because the plaintiff did not allege a violation

of an “individual constitutional right[,]” the equities weighed in favor of the

government. 958 F.3d at 991. Aposhian concerned ATF’s banning of bump stocks

by including them in the statutory definition of a “machinegun.” Id. at 976–77. The

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Unlike Division 80, the Government makes a case for balancing the

equities in its favor. In the Proposed Rule itself, the Attorney General

explains that it is “difficult for law enforcement to determine where, by

whom, or when [unserialized weapons] were manufactured, and to whom

they were sold or otherwise disposed.” 86 Fed. Reg. at 27,722. Non-FFL

holders can use unserialized gun parts to create their own unserialized

firearms. Id. Many privately made firearms are recovered at crime scenes,

often leaving law-enforcement officials unable to prosecute criminals when

they cannot trace a firearm to its owner. Id. at 27,722–23. Advances in

technology have made it easier to construct operable firearms from

component parts. Id. at 27,722. “Prohibited persons,” including convicted

felons, are able to easily obtain partially complete frames or receivers that

can be readily converted into functional weapons that “are nearly impossible

to trace.” Id. at 27,729 (citing examples).

The Government contends the implementation of the Final Rule will

decrease the number of untraceable firearms in circulation, thus facilitating

law enforcement’s efforts to keep guns out of the hands of criminals. Division

court held that the plaintiff had no irreparable harm to weigh against the

government’s interests because its “cases finding that a violation of a constitutional

right alone constitutes irreparable harm are limited to cases involving individual

rights, not the allocation of powers among the branches of government.” Id. at 990.

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80 makes little attempt to dispute this point or to explain why it is

outweighed by equities favoring itself and similarly situated entities.

The court finds that the balance of the equities weighs against issuing

the requested relief.

V. CONCLUSION

Injunctive relief is meant to be extraordinary relief. “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.” Winter, 555 U.S. at 20. A plaintiff must

establish all four of those requirements, not just one or two. In this case,

Division 80 seems convinced it has made a good case for its likelihood to

succeed on the merits, and that that should be enough. But a court is not

justified in exercising its equitable power without a showing of likely

irreparable harm, that the equities favor the plaintiff, and that the injunction

will serve the public interest. Because Division 80 failed to establish those

elements, the court need not address its likelihood of success on the merits.

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* * *

The court denies Division 80’s motion for a preliminary injunction

(Dkt. 11).

Signed on Galveston Island this 23rd day of August, 2022.

___________________________

JEFFREY VINCENT BROWN

UNITED STATES DISTRICT JUDGE

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