City of New York v. Mickalis Pawn Shop was recently decided by a unanimous 3-judge panel of 2d Circuit Judges Sack and Wesley, plus Judge Eaton (Court of International Trade) sitting by designation. The case began several years ago when New York City Michael Bloomberg brought a public nuisance lawsuit against several firearms stores located in the southeastern United States. Bloomberg alleged that the stores had violated federal gun laws by selling firearms to straw purchasers (lawful buyers who are acting as a front for a person who is prohibited from possessing firearms), and that as a result, some of the defendants’ guns had been used in crimes in New York City. The defendants argued that Judge Weinstein, of the federal Eastern District of New York, had no jurisdiction. At various stages of the litigation, defendants dropped out, and a default judgment was entered against them. They appealed to the Second Circuit. The key issues decided by the panel were as follows:
1. The federal Protection of Lawful Commerce in Arms Act (PLCAA) prohibits most civil lawsuits against firearms stores. The 2d Circuit ruled that the PLCAA is not jurisdictional, because courts should not construe a statute as depriving a court of jurisdiction unless the legislature has expressed a clear intent to do so. According to the 2d Circuit, the PLCAA might well bar a plaintiff’s cause of action, but that is not the same as prohibiting subject-matter jurisdiction itself.
2. The next question was whether entry of a default judgment (Fed. Rules Civ. Pro. 55(a)) is proper against defendants who have participated in some stages of the litigation, but then withdrawn. There is a circuit split on this, and the Second Circuit candidly acknowledged that the leading treatises (Moore; Wright/Miller/Kane) oppose a default judgment in circumstances such as Mickalis, and that some 2d Circuit dicta seems to agree. However, the Mickalis panel held that 2d Circuit precedent supported a default judgment.
3. By defaulting, the defendants forfeited their claim that the PLCAA bars the Bloomberg lawsuits.
4. Defendants likewise forfeited their claim that Judge Weinstein lacked personal jurisdiction over them.
5. Default does not deprive the Second Circuit of the ability to review whether the District Court’s injunction complied with FRCP 65(d)(1): “Every order granting an injunction . . . must: (A) state the reasons why it issued; (B) state its terms specifically; and (C) describe in reasonable detail — and not by referring to the complaint or other document — the act or acts restrained or required.”
6. The Weinstein injunction violated Rule 65 in four ways:
“First, the injunctions impose on defendants an obligation to act ‘in full conformity with applicable laws pertaining to firearms,’ and to ‘adopt appropriate prophylactic measures to prevent violation’ of those laws, without specifying which laws are ‘applicable’ or identifying the ways in which the defendants must alter their behavior to comply with those laws.... A directive to undertake ‘appropriate’ measures does not ‘describe in reasonable detail . . . the act or acts restrained or required,’ Fed. R. Civ. P. 65(d)(1), nor does it provide ‘explicit notice of precisely what conduct is outlawed,’ Schmidt, 414 U.S. at 476.” So “an injunction must be more specific than a simple command that the defendant obey the law..”
Second, the injunction applies to much more than straw purchases, which were “the sole kind of illegal practice identified in the City’s amended complaint...An injunction is overbroad when it seeks to restrain the defendants from engaging in legal conduct, or from engaging in illegal conduct that was not fairly the subject of litigation.”
Third, the injunctions put the stores under the essentially limitless supervision of a Special Master, and any violation of the Special Master’s directives would itself be considered a violation of the injunction. Thus, the terms of the injunction were not clear from the injunction itself, but would be based on what amounted to a nearly unchecked grant of discretion to the Special Master. “Serious constitutional questions arise when a master is delegated broad power to determine the content of an injunction as well as effectively wield the court’s powers of contempt.”
Finally, part of the injunction “prohibits certain conduct by reference to the amended complaint. This drafting technique, however efficient, is expressly prohibited by Rule 65(d).”
Thus, the injunction was voided, and the case remanded to District Judge Weinstein to enter a new injunction.
Judge Wesley joined the opinion in full, but also wrote a concurring opinion. He agreed that the defendants had forfeited their argument about personal jurisdiction. However, he wrote separately in order to point out that ”the district court’s jurisdictional analysis has no basis in New York law.” According to Judge Wesley, the district court had flagrantly ignored the well-established standards of New York State’s long-arm statute, and had contradicted his own prior decisions by inventing “out of whole cloth” a 7-factor test to be applied against gun stores. [The test is quoted on page 10, note 6, of the concurring opinion.] The assertion of personal jurisdiction over the defendant stores does not “‘comport with the requirements of due process.’” The defendants had never done business in New York. A “‘defendant’s awareness that the stream of commerce may or will sweep the product into the forum State does not convert the mere act of placing the product into the stream into an act purposefully directed toward the forum State.’ Asahi Metal Indus. v. California, 480 U.S. 102, 112 (1987).” There was no precedent for Judge Weinstein’s assertion that a different rule should apply for what he termed “inherently dangerous products.”
Judge Weinstein’s theory that “cumulative parallel conduct” of several defendants could create personal jurisdiction over them, even though there might not be jurisdiction over an individual defendant considered on its own, was an indisputable violation of New York Court of Appeals precedent. [When federal courts hear claims based on state law issues, their jurisdiction over defendants generally cannot extend further than what would be allowed in the state courts of the relevant state.]
“In sum, the district court’s analysis with respect to defendants’ affirmative defense based on lack of personal jurisdiction was a substantial and unjustified deviation from well-known and easily understood principles of New York law. The jurisdictional analysis performed by the court below appears to be based on one federal judge’s view of how the law of New York ought to be constructed, rather than on how it is clearly delineated by statute and in the decisions of the state and federal courts.”