Seton Hall Constitutional Law Journal
Symposium: The Second Amendment (& Emerson Case)
vol. 10, (Summer, 2000): 775
Posted for Educational use only. The printed edition remains canonical. For citational use please visit the local law library or obtain a back issue.

MUNICIPAL ANTI-GUN LAWSUITS: HOW QUESTIONABLE LITIGATION SUBSTITUTES FOR LEGISLATION

James H. Warner*

The question of the liability of sellers of handguns for the misuse of their products is not new. It was addressed by Oliver Wendell Holmes more than a century ago:

If notice so determined is the general ground for liability, why is not a man who sells fire-arms answerable for assaults committed with pistols bought of him, since he must be taken to know that, sooner or later, someone will buy a pistol of him for some unlawful end? . . . The principle seems to be pretty well established . . . that everyone has a right to rely upon his fellow-men acting lawfully, and, therefore, is not answerable for himself acting upon the assumption that they will do so, however improbable it may be.[1]

The majority of the courts which have considered the issue of liability for manufacturers and sellers of firearms have agreed with Holmes. Despite the weight of case law, however, a number of municipal governments, perhaps emboldened by the apparent success of the lawsuits against tobacco firms, have filed suits against various entities engaged in, or associated with, commerce in firearms. More than a decade ago there was a similar string of unsuccessful suits against manufacturers, employing many of the same theories, but filed on behalf of individuals.[2] In both series of cases, it appears that the ulterior mo-[Page 776] tive behind the lawsuits was the desire, by the anti-gun movement, to use the courts to restrict the private ownership of handguns, since it was not possible to do so through legislation.[3] The municipal lawsuits suffer from the same weaknesses as the earlier individual suits, as well as the additional handicap of being third party suits, which tort law in the English speaking world, generally, has rejected. Supporters of the municipal suits have made little or no attempt to present a case that the earlier, individual, suits were wrongly decided, much less to explain why the courts should now grant to third parties the relief which they denied to those directly injured. In the apparent absence of a good faith argument for the extension or modification of existing law, the municipal plaintiffs may be opening themselves to court imposed sanctions, for filing suits devoid of merit, or even to judgments for a variety of damages incurred by the defendants.

The municipal plaintiffs claim that they are entitled to recover, as "damages," sums which they have been forced to expend as a result of "gun violence." There are three primary theories under which the municipalities are proceeding: (1) they allege that firearms manufacturers and dealers employ improper distribution methods which result in firearms being sold in an "illegitimate" secondary market, (2) they allege that manufacturers employ "unsafe" designs which permit "unauthorized" persons to use the firearms, and (3) they allege that the manufacture and sale of handguns constitutes a "public nuisance."

This paper reviews those claims in light of the procedural and substantive weaknesses. It also reviews the potential for liability arising from the suits themselves, and liability arising from the Smith & Wesson settlement agreement.

I. PROCEDURAL WEAKNESSES IN THE MUNICIPAL CASES.

A) PRE-EMPTION

Forty two states have laws which pre-empt local government from regulating the manufacture, sale, or possession of firearms. There is case law to support the proposition that the municipal lawsuits are an attempt at regulation. In San Diego Building Trades Council v. Garmon, 359 U.S. 236 (1959), the National Labor Relations Board declined to take jurisdiction in a labor dispute. However, the Supreme Court held that the National Labor Relations Act pre-empted jurisdiction by a state court in litigation in which the plaintiff sought [Page 777] damages for economic losses resulting from union picketing. In his opinion, holding that action by a state court was pre-empted, Justice Frankfurter stated:

Such regulation can be as effectively exerted through an award of damages as through some form of preventive relief. The obligation to pay compensation can be, indeed is designed to be, a potent method of governing conduct and controlling policy.[4]

In one of the anti-tobacco lawsuits, Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992), the issue was whether section 5 of the language of the Public Health Cigarette Smoking Act of 1969, Pub.L. 91-222, 84 Stat. 87, which forbid the imposition, under state law, of any ". . . requirement or prohibition based on smoking and health . . ." pre-empted a common law action for damages. Justice Stevens re-affirmed the Garmon view of that legal action, touching upon a pre-empted matter, is a proscribed form of regulation. Writing for the plurality, but in a section of the opinion whose result was concurred in by the majority, Justice Stevens stated that ". . . common-law damages actions of the sort raised by petitioner are premised on the existence of a legal duty, and it is difficult to say that such actions do not impose 'requirements or prohibitions."'[5]

It is noteworthy, that the Cipollone Court was compelled to construe pre- emption narrowly, in deference to the presumption against the preemption of state police power regulations. In the municipal lawsuits there is no requirement for such deference. The police powers of the sovereign states exist independently of the federal union; municipal police powers are granted by, and dependent for their existence upon, the states. Thus, a state government is under no obligation to defer to a power which it granted and which it may, at its discretion, withdraw. Thus, state firearms preemption laws can be more liberally construed in favor of preemption.[6]

The relief sought by the municipal plaintiffs would modify, through the action of the judicial branch, the manner in which firearms are manufactured, sold, and possessed, the same as if such modifications were brought about by the action of the legislative branch. If municipalities were to seek this outcome through legislation, it would be forbidden by pre-emption. Since the lawsuits [Page 778] seek to accomplish, judicially, at the request of the executive, what could not be done legislatively, through the federal or state legislature, the lawsuits seek an end which is forbidden.[7]

B) SEPARATION OF POWERS

During the seventeenth century, the Stuart kings of England sought to rule without the help of Parliament. They enacted laws under "dispensation," and sought to raise revenue by a variety of means. The conflict between King and Parliament eventually resulted in the "Glorious Revolution" of 1688, in which James II was deposed and replaced by William and Mary. The first Parliament of William and Mary defined legitimate powers of the crown, reserving to Parliament the right to enact law and to raise revenues to fund governmental functions. The Constitutions the United States, and of all fifty states, in the Common Law tradition, reserve these powers to the legislative branch.

The municipal plaintiffs seek monetary "damages" to defray the costs which they have incurred by performing those functions which municipal governments are organized to perform.[8] Only the legislative power may raise revenue for the support of government. [9] Further, they seek changes in the manner in which the firearms trade is conducted. The courts have repeatedly stated that such decisions are the sphere of the legislative branch.[10] [Page 779]

C) THIRD PARTY CLAIMS

In Laborers Local 17 v. Philip Morris, Inc., 1999 WL 63985 (CA2 August 18, 1999); cert. den. U.S.S.Ct. #99-791 (Jan. 10, 2000), the health and benefit fund of a labor union sought reimbursement for expenditures on medical problems related to the use of tobacco products. In its decision, the Second Circuit stated:

Similarly, courts have held that plaintiffs who are obligated to pay the medical expenses of another may not recover against the tortfeasor who caused the damage, because their injuries are indirect since they derive wholly from the injuries sustained by the third party. This concept is not new. An 1883 treatise cited a case where one who had agreed to support a town's paupers, for a fixed fee, had no cause of action against the assailant of one of the paupers, although the pauper was injured in the assault and the guarantor was put to increased expense. 1 Sutherland, A Treatise on the Law of Damages, 55 (1883) (citing Anthony v. Slaid, 52 Mass. at 291).

The damages claimed by the municipal plaintiffs are too remote from the actions of the defendants to permit recovery. They claim that the firearms manufactured and sold by the defendants were used by parties other than those parties who purchased from the defendants, to commit crimes, and thereby inflict injury, upon parties other than plaintiffs. The courts have repeatedly and consistently held that recovery for third party damages is not possible. As Justice Holmes said, "(t)he general tendency of the law, in regard to damages at least, is not to go beyond the first step. As it does not attribute remote consequences to a defendant so it holds him liable if proximately the plaintiff has suffered a loss."[11]

A relevant definition of proximate causation is given in Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268 (1992):

Here we use "proximate cause" to label generically the judicial tools used to limit a person's responsibility for the consequences of that person's own acts. At bottom, the notion of proximate cause reflects "ideas of what justice demands, or what is administratively possible and convenient." (cites omitted) Accordingly, among the many shapes this concept took at common law (cite omitted) was a demand for some direct relation between the injury asserted and the injurious conduct alleged. Thus, a plaintiff who complained of harm flowing merely from the misfortunes visited upon a third person by the defendant's acts was gene-[Page 780] rally said to stand at too remote a distance to recover.[12]

Justice Souter explains why direct causation is required for recovery:

First, the less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiff's damages attributable to the violation, as distinct from other, independent, factors. (cite omitted) Second, quite apart from problems of proving factual causation, recognizing claims of the indirectly injured would force courts to adopt complicated rules apportioning damages among plaintiffs removed at different levels of injury from the violative acts, to obviate the risk of multiple recoveries. (cites omitted) And, finally, the need to grapple with these problems is simply unjustified by the general interest in deterring injurious conduct, since directly injured victims can generally be counted on to vindicate the laws as private attorney's general, without any of the problems attendant upon suits by plaintiffs injured more remotely.

In this case, the municipal plaintiffs claim that they have been injured when the defendants sold firearms to lawful purchasers, which firearms were later transferred to unauthorized individuals who use the firearms to harm unspecified persons, and that the city, in response to crimes committed against such unspecified persons, have spent funds. It is difficult to conceive a claim which could be more remote. The clear and unequivocal law is that third party plaintiffs cannot recover for injuries which were not proximately caused by the defendant.[13]

D) SUMMARY

The municipal plaintiffs seek to change the manner in which firearms are manufactured, distributed and sold. In most cases the state has occupied the whole field of firearms regulation. Thus, the relief requested by many of the plaintiffs is not an objective which the municipalities may lawfully pursue.

The municipal plaintiffs claim that they are seeking monetary damages to [Page 781] compensate for expenditures for municipal services. As stated above, they are also seeking to impose, upon the firearms industry, changes in the manner in which these goods are marketed. Legislation and the raising of revenues is the proper province of the legislative branch, not the executive.

The defendants have manufactured and sold firearms in accordance with the law. Some firearms, manufactured and sold at some unspecified time in the past, have come into the hands of persons who may not lawfully possess them, and have been used to harm the victims of crime. In response to such crime (and to the purpose for which governments are organized) the municipal plaintiffs have spent money. Any damages, however the same might be calculated, were not proximately caused by the defendants. The municipal plaintiffs lack standing to proceed with their lawsuits.

II. SUBSTANTIVE LEGAL WEAKNESSES IN THE MUNICIPAL CASES.

A) DEFECTIVE DISTRIBUTION

Plaintiffs claim that firearms manufacturers, distributors, and dealers engage in distribution practices which, although legal, are defective in that some firearms sold eventually are used in crime.[14]

Proponents of this theory rely upon Moning v. Alfono, 400 Mich. 425 (1977). In that case the Michigan Supreme Court held that one who sells slingshots to minors could be held liable for the damage which a minor subsequently caused with a slingshot. However, other courts, presented with a similar claim, have reached the opposite result.[15] Further, in subsequent cases, Michigan courts have distinguished Moning.[16]

In any case, Moning is inapposite to the issues presented in the cases of the municipal plaintiffs. The law has long recognized that there are certain individuals who ought not to have dangerous instruments.[17] In the case of chil-[Page 782] dren, as was the case in Moning, one may readily discern whether a given individual falls within the prohibition. Therefore, the law may impose upon one dealing with a child a duty to withhold such dangerous instruments. Just as the law imposes the duty where the prohibited status may be readily discerned, it declines to impose the duty where there is no reasonable cause to believe that an individual is a prohibited person.[18]

In the instant cases, it is not alleged that the defendant manufacturers and dealers have transferred firearms to prohibited persons. Rather, it is alleged that defendants have failed to discern the possibility that a prospective transferee may, at some time in the future, develop the intent to act unlawfully, or sell the firearm, letting it enter a chain of transactions which may result in the eventual acquisition of it by a prohibited person or person who will act unlawfully. As these are not contingencies which a manufacturer or dealer may discern with reasonable care, they are too remote and speculative to form a basis for the assignment of liability. Like the other fanciful theories devised to impose liability on the firearms industry, "defective distribution" has been routinely rejected by the courts.[19] As one observer noted, ". . . there is no currently accepted legal doctrine of 'defect in distribution'. . ." As one observer has noted, the common law recognizes no such tort.[20]

B) PUBLIC NUISANCE

Blackstone defined a public, or "common" nuisance, as the ". . . doing of a thing to the annoyance of all the king's subjects or the neglecting to do a thing which the common good requires." Blackstone, Commentaries On the Laws of England, IV 167 (London, 1769).

In [Page 783] City of Bloomington, Indiana v. Westinghouse Electric Corporation, 891 F.2d 611 (CA7 1989), the City brought suit against Westinghouse, as the user, and Monsanto, as the manufacturer, of polychlorinated biphenyls (PCBs). Westinghouse settled, and the case against Monsanto went to a jury, which found in Monsanto's favor. There was no allegation that Monsanto used, or misused, the chemicals.

The city claimed that the sale of PCBs constituted a public nuisance, an abnormally dangerous activity, and that the sale to the end user, who used the product inappropriately, constituted a trespass.

The city argued that Monsanto's position was that it was not liable because the pollution did not come from a Monsanto facility. The court replied that this misread the position of the defendant: "(T)he essence of the tort of nuisance is one party¾here Westinghouse¾'using his property to the detriment of the use and enjoyment of others," citing Friendship Farms Camps, Inc. v. Parson, 172 Ind. App. 73 (1977). The court continued: "The city has not refuted this requirement in either of its briefs, nor has it been able to find any cases holding manufacturers liable for public or private nuisance claims arising from the use of their product subsequent to the point of sale.[21] Since the pleadings do not set forth facts from which it could be concluded that Monsanto retained the right to control the PCBs beyond the point of sale to Westinghouse, we agree with the district court that Monsanto cannot be held liable on a nuisance theory."[22] Further, the court disposed of the city's argument which relied upon the Restatement of Torts, 2d, Section 812B, which defines a public nuisance as "an unreasonable interference with a right common to the general public." The court pointed out that there was no basis to conclude that Monsanto itself had interfered with such a right, the definition was not satisfied. Finally, the court pointed out that Monsanto was not shown to have participated in any way in the nuisance, thus defeating the definition in the Restatement, at Section 834.[23]

The City also argued that the manufacture of PCBs was an abnormally dangerous activity, relying on the holding in Indiana Harbor Belt Railway Co. v. American Cyanamid Co. 517 F. Supp. 314 (N.D. Ind. 1981). In that case it [Page 784] was held that shipment of acrylonitrile (a toxic substance) was an abnormally dangerous activity. The Bloomington court distinguished Harbor Belt, citing Martin v. Harrington & Richardson, Inc., 743 F.2d 1200 (CA7 1984), in which it was held that the manufacture of handguns is not an ultrahazardous activity and that there can be no liability for merely manufacturing dangerous products. The court continued:

Cases requiring liability impose liability for the ultrahazardous activity as a result of the use of the product. To recognize liability of a manufacturer or distributor would virtually make them the insurer for such products as explosives, hazardous chemicals or dangerous drugs even though such products are not negligently made nor contain any defects. Although such a social policy may be adopted by the legislature, it ought not be imposed by judicial decree.[24]

The tort of maintaining a public nuisance is closely associated with the concept of strict liability for conducting an ultrahazardous activity.[25] As with other theories which have been used against manufacturers and distributors of firearms, this theory has been repeatedly rejected by the courts.[26]

C) PRODUCTS LIABILITY

The municipal plaintiffs assert various products liability claims with respect to handguns. Among other claims, they allege that the defendants products are defective because they lack (1) a loaded chamber indicator, or (2) a magazine disconnector which would disable the pistol when the magazine is removed, or (3) "smart gun" technology which would only permit the pistol to be fired when held by one who is "authorized" to fire it. These claims were made, for example by the Mayor of the City of New Orleans, in his lawsuit. It is a matter of some interest to note that the New Orleans Police Department has changed the duty firearm of its officers twice in the last ten years, and in neither case did the contract specify any one of these three items whose absence is asserted [Page 785] to make the products "defective." Further, there are more than 86,000 federal law enforcement officers, and several hundred thousand members of the armed forces each of whom has been issued a pistol. There are, in addition, nearly 700,000 state and local law enforcement officers who have been issued pistols by their employers. Each and every one of these pistols was purchased by the issuing authority pursuant to a contract in which the purchasing authority had the opportunity to specify the features required in the pistols. Under the Model Uniform Product Liability Act, §108(C), compliance with the contract is an absolute defense.[27]

In any case, the municipal plaintiffs do not assert that they have been directly injured by the firearms manufactured and sold by the defendants. Since the defendants did not proximately cause the injuries claimed by the plaintiffs, the question of product defect is merely academic.

III. THE STRANGE CASE OF SMITH & WESSON.

A. STATEMENT OF FACTS.

Smith & Wesson, one of America's oldest manufacturers of firearms, has been named as a defendant in several of the municipal third party lawsuits seeking compensation for the expense of "gun violence." The Federal Department of Housing and Urban Development (HUD) has threatened to file its own third party lawsuit, although it has not identified whom it would name as defendants, and has invited potential defendants to reach a "settlement" prior to the suit being filed.

On Friday, March 17, 2000, HUD announced that it had reached an agreement with Smith & Wesson. Of significance, with respect to this discussion are the following provisions:

¾ -Although unrelated to questions relating to antitrust liability, Section II(A)(i) would require a signatory to require of its "authorized dealers" that each dealer permit unlimited inspection of records, for any reason, contrary to Federal Statute, 18 U.S.C. §923(g)(1)(B)(ii); Section IIA(j) would require the manufacturer to require of its "authorized dealers" that each such dealer "(p)articipate in and comply with all monitoring of firearms distribution by manufacturers, ATF or law enforcement. It would also require the manufacturer to require of its "authorized dealers" that each such dealer agree to submit to the jurisdiction of the "court enforcing this Agreement."

¾ -Section I(B) provides for an exception for law enforcement and military [Page 786] firearms. This implies recognition that a firearm configured as required by the agreement may not be suitable for personal protection.

¾ -Section II(A)(1)(d) would require a signatory to require of its "authorized dealers" that each such dealer agree that it will not sell any firearms at gun shows unless each sale at such gun show be the subject of a background check.

¾ -Section II(A)(1)(h) would require a signatory to require of its "authorized dealers" that each such dealer agree (i) that it will provide safety locks and warnings with firearms, (ii) that it will not sell high capacity ammunition feeding devices, (iii) that it will not sell "semiautomatic weapons" as that term is defined at 18 U.S.C. §921(a)(30) (without regard to the date of manufacture), and (iv) that it will not sell any firearms which are not designed in conformity with the design restrictions embodied in the Agreement (even though this standard is subject to further, unknown agreements with unknown entities).

¾ -Section II(A)(2) would require a signatory to require of its "authorized distributors and dealers" that each such distributor or dealer agree to a provision which would permit the distributor or dealer status to be terminated upon notice that it may be violating the Agreement. Notice of termination may be sent either by the manufacturer or by an "Oversight Commission" created by the Agreement.

¾ -Section II(C)(3) would require a signatory to require of its "authorized dealers" that each such dealer agree to limit multiple sales, permitting the dealer to deliver one handgun at the time of sale, while he retains the other handguns for 14 days.

¾ -Section II(D)(4) would require a signatory to agree that it will not place advertisements near "high crime zones or public housing."

B. DISCUSSION.

1) STATUS OF THE "SETTLEMENT AGREEMENT"

There is room for doubt as to the validity of the threat from the Secretary of the Department of Housing and Urban Development (HUD). The Secretary appears to be limited, by statute, in the issues over which he may sue, 42 U.S.C. §1404a, which are confined to those functions under the United States Housing Act of 1937, as amended (42 U.S.C. §1437, et seq.), and title II of Public Law 76-671, as amended (42 U.S.C. §1501, et seq.). I have found nothing in either law which could, by the most generous interpretation, be construed to justify or authorize the threatened lawsuit.

Further, the threatened suit sought to impose regulation, rather than obtain compensation, which implies that regulation was the relief sought. Since the [Page 787] regulations which HUD seeks to impose have been considered and rejected by Congress, there is serious doubt that such regulations, however arrived at, are valid.[28] Further, the nature of the regulations sought to be imposed by HUD were legislative, rather than administrative, and, therefore, required an exercise of a power allocated, by the Constitution, to the Legislative Department.[29]

It is the opinion of counsel that the primary party with standing to assert the invalidity of the agreement is Smith & Wesson, or any successor in interest.[30] However, if the government had acted ultra vires, even if it could have validly requested the voluntary agreement from Smith & Wesson, the fact that the agreement is with the government may not be a valid defense in an action against Smith & Wesson asserting an antitrust claim.

2) ANTITRUST IMPLICATIONS OF THE "AGREEMENT"

i) State Participation in the Settlement

In the Preamble to the "Agreement" is the following statement: "The undersigned state, city, and county parties to the Agreement dismiss the manufacturer parties to the Agreement with prejudice from the lawsuits specified in Appendix A subject to any consent orders entered pursuant to paragraph VIII."

The Constitution, at Article I, Sec. 10, has the following prohibition: "No State shall . . . pass any . . . Law impairing the Obligation of Contracts." In the "Agreement" Smith & Wesson makes several promises, each of which is a promise to do that which had been proposed, repeatedly, in Congress or in [Page 788] state or local legislatures. Entering into the lawsuits, and making a concession (dismissal with prejudice) in order to obtain the result which could not be obtained through the legislature is the equivalent of legislation.[31] Smith & Wesson has existing contracts with dealers. However, under the terms of the "Agreement" all of these contracts must be reformed or terminated. That is, through "legislation," the municipal plaintiffs, creatures of, and therefore, constitutionally in the same class as, the states, have "impaired the obligation of contracts." Every dealer will have a cause of action against the municipal plaintiffs for having "enacted" this "legislation."

Further, the "Agreement," at III(A)(1) creates an "Oversight Commission" of five members, two of whom are to be appointed by the municipal parties, III(A)(1)(a), and a third to be appointed by the state parties, III(A)(1)(b). The "Oversight Commission" has the power, granted at II(A)(2), to terminate a contract between a manufacturer and a dealer. Thus, the majority vote on the "Oversight Commission" is in the hands of states and creatures of states, with the pretended authority to terminate contracts.

The fact that the "Agreement" is entered into with a governmental entity does not necessarily relieve Smith & Wesson of its obligation to obey the antitrust laws. Silver v. New York Stock Exchange, 373 U.S. 341 (1963). The Sherman Antitrust Act, at 15 U.S.C. §1, reads, in pertinent part, as follows:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.

Injured parties may seek treble damages for injuries incurred as a result of violation of the anti-trust laws, 15 U.S.C. §15(a) Further, a private party may seek an injunction against threatened loss or damage by a continued violation of the antitrust laws.

In light of the principles of federalism, a state itself, whether acting through its legislative, judicial, or executive departments, is not subject to the anti-trust laws. Parker v. Brown, 317 U.S. 341 (1943). However, local governments are exempt from anti-trust laws only if the anti-competitive action is taken pursuant to state policy. LaFayette v. Louisiana Power & Light Co. 435 U.S. 389, 413 (1978). The employment of "sham" lawsuits to restrain trade is a violation of the anti-trust laws. A lawsuit may be considered a sham if the aim [Page 789] of the lawsuit is the governmental process itself, with its delays and expenses, as opposed to the possible outcome of the process. See, Columbia v. Omni Outdoor Advertising, Inc. 499 U.S. 365, 380 (1991). The sham lawsuit must be objectively merit less and must be pursued for the purpose of restraining trade through the litigation process, rather than any possible judgment. That is, the lawsuit must lack probable cause. PERI v. Columbia Pictures Industries, Inc., 508 U.S. 49, 60 (1993).

In 1984, Congress amended the anti-trust laws to prevent recovery of damages ". . . from any local government, or official or employee thereof acting in an official capacity. . . "(emphasis added), 15 U.S.C. §35(a). Such immunity, if it were not conditioned upon acting in an official capacity would give one, by his status as a government official, carte blanche to violate the anti-trust laws in a private capacity. However, by adding this condition, it could be argued that this amendment to the law merely codifies the holding in LaFayette, supra, and its progeny, i.e., that the "state action exemption" applies to the acts of a local unit of government if the acts in restraint of trade be taken pursuant to a clearly articulated state policy. The Ninth Circuit appears to agree. In Lancaster Community Hospital v. Antelope Valley Hospital District, 940 F.2d 397 (CA9 1991), the court refused to recognize the statutory immunity when the action was not taken pursuant to clearly articulated state policy.

In the instant case, the municipal plaintiffs are seeking to compel Smith & Wesson to enter into tying arrangements with its distributors and dealers. If such arrangements be authorized by state law, that is, if a state require the sale of a lock with a handgun, then the provision in the "Agreement" is unnecessary. If the state does not require this, or permit municipal corporations to require this, then the provision amounts to a conspiracy to restrain trade. If Smith & Wesson actually fulfills its obligation, under the "Agreement," to require this tying arrangement by its "authorized dealers," then it will have actually restrained trade.

ii) "Tying Agreements"

In Northern Pac. R.. Co. v. United States, 356 U.S. 1 (1958), the Railroad had received, from the U.S. government, enormous parcels of land in order to compensate it for building the railroad, under the theory that the land could be given to settlers whose use of the rails would provide the freight needed to amortize the construction costs. The railroad sold the land, and mineral rights, on the condition that the buyer agree to ship over the railroad. The Court applied the "rule of reason," as articulated in International Salt Co. v. United States, 332 U.S. 392 (1947), with respect to tying arrangement (requiring that one thing be bought if one buy another) and held that it was illegal as a restraint of [Page 790] trade.

The requirement, in Section IIA(1)(h), that "authorized dealers" provide safety locks with the firearms they sell is a tying arrangement. Unless this tying arrangement is specifically authorized by state law, it is an illegal restraint of trade. Although we said, above, that for purposes of the impairment of contracts clause, municipal action in the form of legislation is the same as state action this is not true for the purpose of exemption from the operation of the antitrust laws.

iii) Vertical Restraints

A vertical restraint is imposed by a manufacturer on its distributors and dealers, or by distributors on dealers, requiring the party downstream to agree, as a condition of doing business, not to conduct business beyond certain boundaries. This arrangement may involve a specified geographic area, in which one may be exclusive, or it may involve certain business practices which the downstream party must not engage in. The history of these arrangements has been varied. In White Motor Co. v. United States, 372 U.S. 253 (1963) the Court held that vertical restraints should be viewed under the "rule of reason," to determine if, in each case, the arrangement restrains commerce and competition, or encourages the same. Four years later, with little mention of White Motor, the Court, in Schwinn v. United States, 388 U.S. 365 (1967), held that vertical restraints were per se illegal. Then, in Continental T.V., Inc. v. GTE Sylvania, 433 U.S. 36 (1977), the Court abandoned Schwinn and returned to the rule of reason. Thus, if the "Agreement" creates a vertical restraint arrangement, it would have to be shown that the arrangement actually restrains trade.

The "Agreement" requires, at Section IIC(1), that the "authorized dealer" agree not to sell to federal firearms licensees (FFLs) any Smith & Wesson product unless the FFL is also an "authorized dealer." Section IIA(1)(d) would require provisions to prevent an "authorized dealer" to refrain from selling at a gun show unless all sales at the gun show be subject to a background check. Section IIA(1)(h) would require provisions under which "authorized dealers" would not sell "high capacity ammunition feeding devices," "semiautomatic weapons" as that term is defined at 18 U.S.C. §921(A)(30) (i.e., ugly guns, or guns with ugly names written on them), or any firearms which are not designed in conformity with the design restrictions embodied in the "Agreement." That is, Smith & Wesson must require its "authorized dealers" to agree not to sell competing goods of manufacturers who are not parties to the "Agreement," and to agree, also, not to sell certain unrelated and noncompeting, but lawful, goods. These provisions amount to vertical restraints. [Page 791]

The question, then, is whether these would restrain trade. Since no other manufacturer has signed the "Agreement," an "authorized dealer" would not be able to carry these others products. Since Smith & Wesson only control approximately 40% of the domestic handgun market, this means that an "authorized dealer" must not sell firearms from the other 60% of the market. Further, the size of the market share of Smith & Wesson, in terms of the antitrust laws, is large enough to warrant the assertion that they bargain from a dominant position, giving them inordinate bargaining power. Under this analysis, this vertical arrangement does restrain trade.

iv) Restraint of Trade Generally

Under the terms of Section IIC(3) the "authorized dealer" would be required, in the case of multiple purchases, to deliver only one gun on the date of the purchase, while withholding the other guns for fourteen days. (quaere: Since the Agreement is entered into by the United States Government, and by municipal governments, what does this provision do to one gun a month laws?) It has been held that such arrangements cripple the freedom of traders and restrain their ability to sell in accordance with their own judgment. Klor's v. Broadway- Hale Stores, 359 U.S. 207 (1959), citing Kiefer-Stewart Co. v. Seagram & Sons, 340 U.S. 211, 213 (1951).

Section IIC(1) would require the "authorized dealer," when selling to other FFLs, to sell only to FFLs who are "authorized dealers." In Eastern States Retail Lumber Dealers' Association v. United States, 234 U.S. 600 (1914), the Court held that a blacklist arrangement, which did not require the recipients of the blacklist to actually refrain from conducting business with those who were listed, was a restraint of trade. In this case, there is an actual restriction on conducting business with certain lawfully licensed dealers. A refusal to deal, in such circumstances, could be deemed a restraint of trade. See, Fashion Originators Guild v. Federal Trade Commission, 312 U.S. 457 (1941).

v) Miscellaneous

Section IID(4) would prohibit advertising near "high crime zones" and public housing. The term "high crime zone" is not defined. This provision presents the possibility of arbitrary enforcement of an ambiguous term. It presents clear First Amendment issues since some of the parties to the "Agreement" are governments. It also presents a clear and unambiguous equal protection issue. All of these issues have been examined before. While beyond the scope of this paper, since they are not antitrust issues, any potential challenge to the Agreement should include an in depth examination of these issues.  [Page 792]

3) ANTI-TRUST IMPLICATIONS FOR NON-SIGNERS OF THE "AGREEMENT"

The announcement of the "Agreement" brought forth an instantaneous reaction. Distributors declared that they would no longer distribute Smith & Wesson products. Dealers declared that they would not sell Smith & Wesson products. Some dealers went so far as to ship their remaining inventory back to their distributors or to Smith & Wesson itself, willingly incurring the restocking fee to avoid the taint of having Smith & Wesson products in their inventories. Consumers nationwide vowed never again to buy a Smith & Wesson product. There have been some calls for a boycott, although NRA has declined to do so. In response to the reaction of gun owners and dealers, the proponents of the municipal lawsuits have demanded an investigation into the actions of the industry for possible anti-trust violations.

It is not a violation of any law, nor of any public policy, for consumers to decide to buy one product and refuse to buy another. All evidence indicates that the reaction was spontaneous. An examination of the "Agreement" reveals several provisions that individual consumers might find objectionable. For example, federal law, at 18 U.S.C. §923(g)(1)(B)(ii), places limits upon the authority of the Bureau of Alcohol, Tobacco and Firearms (BATF), to inspect records of dealers. The limitation was enacted to correct certain perceived abuses. The "Agreement," at Section II(A)(i) would require a signatory to require its dealers to agree to unlimited inspection of records. It is improbable that any dealer would agree to this, simply for the privilege of selling Smith & Wesson products, when there are competing products which do not impose this requirement. It is even more improbable that a consumer, knowing that the records will be subject to unlimited fishing expeditions, would buy any firearm from a dealer who has consented to such searches.

The fact is that the municipal lawsuits, and the threatened participation by HUD, are perceived as unjustifiable by the gun owning public. Smith & Wesson, by coming to agreement with those conducting these lawsuits, is seen as a traitor. With public hostility toward the products of Smith & Wesson so high, a decision not sell these products could be seen as nothing more than a prudent business decision.

The reaction against the lawsuits, and the "Agreement," arises out of political conviction, not economic greed. The case law in such matters could not be more clear. A boycott motivated by a belief that a business is taking action which harms one's political rights is protected action, and is not a violation of the anti-trust laws. NAACP v. Clairborne Hardware,458 U.S. 886 (1982).

One of the advocates of anti-trust action against industry is New York Attorney General Eliot Spitzer, who is quoted as saying: "We have the capacity to say to gun makers, 'we can drive you into bankruptcy if you don't play by [Page 793] our rules."' [32] Given that this is the clear and unambiguous intent of the players in this drama, the fact that there would be no merit to an anti-trust case against industry would be no more a deterrent to such a case than has proven to be the case with the case in chief. The idea is not to win in court, but to bankrupt the opponents.

IV. HOW TO RECTIFY THE WRONGS OF THE MUNICIPAL PLAINTIFFS.

(A) ANTI-TRUST

In Section III we discussed the anti-trust implications of the "Agreement" between Smith and Wesson, on the one hand, and the governmental plaintiffs on the other, including the Federal Department of Housing and Urban Development. Here we will address anti-trust more generally, as it applies to the municipal plaintiffs.

The anti-trust laws, including the provisions for treble damages, are discussed above. In light of the principles of federalism, a state itself, whether acting through its legislative, judicial, or executive departments, is not subject to the anti-trust laws.[33] Local governments are exempt from anti-trust laws only if the anti-competitive action is taken pursuant to state policy.[34] The employment of "sham" lawsuits to restrain trade is a violation of the anti-trust laws. A lawsuit may be considered a sham if the aim of the lawsuit is the governmental process itself, with its delays and expenses, as opposed to the possible outcome of the process.[35] The sham lawsuit must be objectively merit less and must be pursued for the purpose of restraining trade through the litigation process, rather than any possible judgment. That is, the lawsuit must lack probable cause.[36]

In 1984, Congress amended the anti-trust laws to prevent recovery of damages ". . . from any local government, or official or employee thereof acting in an official capacity. . . "(emphasis added), 15 U.S.C. §35(a). An immunity [Page 794] which is not conditioned upon acting in an official capacity would give one, by his status as a government official, carte blanche to violate the anti-trust laws in a private capacity. However, by adding this condition, it could be argued that this amendment to the law merely codifies the holding in LaFayette, supra, and its progeny, i.e., that the "state action exemption" applies to the acts of a local unit of government if the acts in restraint of trade be taken pursuant to a clearly articulated state policy. The Ninth Circuit appears to agree. In Lancaster Community Hospital v. Antelope Valley Hospital District, 940 F.2d 397 (CA9 1991), the court refused to recognize the statutory immunity when the action was not taken pursuant to clearly articulated state policy.

Given the fact that the overwhelming weight of the law stands against the theories asserted by the municipal plaintiffs, an objective observer might conclude that the cases which they have asserted are without merit. Further, given the political nature of the suits, and the clear involvement of anti-gun groups, and the history of such suits, including the indications that the suits have, as an ulterior unstated motive, the elimination of trade in firearms, one could also conclude that the suits restrain trade by employing the resources of the industry in defending against a plethora of suits. In states with preemption laws, the suits would be proceeding without a grounding in a clearly articulated state policy. Without authority to proceed, the suits might be seen as ultra vires. Thus, any potential liability could involve a personal component on the part of the municipal officers who decided to proceed.

(B) RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACTION

A civil RICO action requires at least two prior criminal acts (the "predicate acts"). 18 U.S.C. §1961(a)(5), 1962. The only crime which could remotely be predicated of the actions of the mayors is extortion, defined at 18 U.S.C. §1951(b)(2) as "the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right." There is case law to support the proposition that the filing of a sham lawsuit constitutes a predicate act.

C. TAXPAYER LAWSUITS.

In a number of jurisdictions, gun owners and activists are planning lawsuits which challenge the illegitimate use of taxpayer funds for these lawsuits. As none of the suits have been filed as of this writing, it would be premature to discuss the legal theories to be asserted. Suffice it to say, with respect to some of the suits, that they are supported by adequate case law and have a fair chance for success. That is to say, unlike the municipal lawsuits, the plaintiffs in these suits may entertain a good faith belief that there is precedent to support [Page 795] their position, or that a reasonable argument can be made for the modification or extension of existing law. If successful, such lawsuits would have interesting implications. For example, if taxpayer money cannot be used to fund the lawsuits, the municipal plaintiffs may be personally liable to defray the costs of defending against possible countersuits and for payment of any damages or sanctions.

V. CONCLUSION.

The municipal lawsuits against firearms manufacturers and dealers, like the tobacco lawsuits which preceded them, represent an excursion into executive legislation of a sort rarely seen since the end of the Stuart dynasty in Great Britain. They are third party lawsuits of the sort which has never been accepted in any Common Law jurisdiction. In many cases, they may constitute a violation of the anti-trust laws. They may constitute violations of the RICO statute. If the cases were in Federal Court, the plaintiffs would be flirting with possible sanctions under Fed. R. Civ. P. 11(c). Although the governmental entities threaten anti-trust action against manufacturers, distributors, and dealers who refuse to deal with Smith & Wesson, these activities are constitutionally protected. It is likely that taxpayer lawsuits will be filed, challenging the authority of the municipal plaintiffs to proceed, and possibly hampering further pursuit of the actions. The individual decision makers behind the municipal lawsuits may face personal liability for irresponsible litigation.

* Assistant General Counsel, The National Rifle Association of America.

1. Holmes, Privilege, Malice and Intent, 8 HARV. L. REV. 1,10 (1894), cited in Note, Handguns and Products Liability, 97 HARV. L. REV. 1912, n. 39 (1984) (cited below as Handgun Note); Mavilia v. Stoeger Industries, 574 F. Supp. 107, 110, n. 3 (D. Mass 1983).

2. See, Armijo v. Ex Cam, Inc. 656 F. Supp. 771 (N.M. 1987), aff'd 843 F.2d 406 (CA10 1988); Martin v. Harrington & Richardson, Inc., 743 F.2d 1200 (CA7 1984); Moore v. R.G. Industries, Inc., 789 F.2d 1326 (CA9 1986); Perkins v. F.I.E. Corp., 762 F.2d 1250 (CA5 1985).

3. Handgun Note, supra note 1, at 1925 n.78.

4. Id., at 247.

5. Id., at 522.

6. See, e.g., Noey v. City of Saginaw, 271 Mich 595 (1935); People v. Llewellyn, 401 Mich 314 (1977).

7. On the issue of the preemption of firearms regulation, see Ortiz v. Commonwealth, 681 A.2d 152 (Pa. 1996); City of Portland v. Lodi, 94 Or. App. 735, 767 P.2d 108 (1989); Duff v. Northampton, 532 A.2d 500 (Pa. Cmwlth. 1987); Dwyer v. Farrell, 193 Conn. 7, 475 A.2d 257 (1984); Doe v. San Francisco, 136 Cal. App. 3d 509, 186 Cal. Rptr. 380 (1982); Schwanda v. Bonney, 418 A.2d 163 (Me. 1980); Schneck v. Philadelphia, 383 A.2d 227 (Pa. Cmwlth. 1978). See also, City of Chicago v. Haworth, 708 N.E.2d 425 (Ill. App. 1999) (Illinois Private Detective Statute preempted local firearm registration requirement).

8. These are not suits for breach of contract or warranty with respect to goods purchased by the municipal plaintiffs, but for costs incurred for performing governmental functions.

9. See, e.g., Hudson Motor Car, Co. v. City of Detroit, 282 Mich 69 (1937).

10. City of Bloomington v. Westinghouse, 891 F.2d 611, 616 (CA7 1981); Mavilia v. Stoeger Industries, 574 F. Supp. 107, 111 (DC Mass 1893); Caveny v. Raven Arms Company, 665 F. Supp. 530, 535 (SD Ohio 1987); Addison v. Williams, 546 S.2d 220, 225 (CA La 2nd Ct. 1989); Miles v. Olin Corp., 922 F.2d 1221, 1225 (CA5 1991); Buczkowski v. McKay et al., 441 Mich. 96, 107 (1992).

11. Southern Pacific Co. v. Darnell-Taenzer Lumber Co., 245 U.S. 531, 533 (1918).

12. Id.

13. See also Southern Pacific, 245 U.S. at 533; Joint Board Health and Welfare Trust Fund v. Philip Morris, et al, docket 99-3396, 99-3397 (CA7 1999); Oregon Laborers, et al. v. Philip Morris, et al., docket #98-36024 (CA9 1999); Steamfitters Local #420 v. Philip Morris, et al., docket #98-1426 (CA3 1999).

14. Many of the handguns used in crime are stolen. At least one commentator has observed that it would be difficult to devise a distribution method which would prevent the firearms being stolen from their ultimate purchaser. See Handgun Note, supra note 2, at 1922 n.58.

15. See Bojorquez v. House of Toys, Inc., 62 Cal. App. 3d 930 (1976).

16. See, e.g., Buczkowski v. McKay, et al., 441 Mich. 96 (1992); Resteiner v. Sturm, Ruger & Company, Inc., 223 Mich. App. 374 (1997).

17. See, e.g., Dixon v. Bell, 5 Maule & Selwyn 198 (Eng. 1816) (loaded firearm given to 13 year old girl); Lundy v. Hazen, 90 Idaho 323 411 P.2d 768 (1966) (.22 revolver sold to 13 year old).

18. 18 U.S.C. §922(d): "It shall be unlawful for any person to sell or otherwise dispose of any firearm or ammunition to any person knowing or having reasonable cause to believe that such person . . . .(falls within a prohibited category)."

19. See, e.g., Mavilia v. Stoeger Industries, 574 F. Supp. 107 (DC Mass 1983); Riordan v. International Armament Corp., 477 N.E.2d 12293 (Ill 1985); Trespalacios v. Valor Corporation of Florida, 486 So.2d 649 (Fl 1986); Shipman v. Jennings Firearms Inc., 791 F.2d 1532 (CA11 1986); Caveny v. Raven Arms, 665 F. Supp. 530 (DC SD Ohio 1987); Resteiner v. Sturm, Ruger & Company, Inc., 223 Mich. App. 374 (1997), lv. den., 457 Mich 871 (1998). See also, Buczkowski v. McKay et al., 441 Mich. 96, 107 (1992).

20. Handgun Note, supra note 2, at 1921 n.51.

21. In a footnote, the court noted two New Hampshire cases in which manufacturers were held not liable for nuisance claims arising from the use of their product subsequent to sale. See City of Manchester v. National Gypsum Co., 637 F. Supp. 646 (DRI 1986); Hooksett Sch. Dist. v. W. R. Grace & Co., 617 F. Supp. 126 (DNH 11984).

22. Id., at 614.

23. Restatement of Torts, § 834: "One is subject to liability for a nuisance caused by an activity, not only when he carries on the activity but also when he participates to a substantial extent in carrying it on."

24. Id., at 615, 616.

25. See, e.g., Rylands v. Fletcher, L.R.3 H.L. 330 (1868).

26. Mavilia v. Stoeger Industries, 574 F. Supp. 107 (DC Mass 1983); Perkins v. F.I.E. Corporation, 762 F.2d 1250 (CA11 1985); Shipman v. Jennings Firearms, Inc., 791 F.2d 1532, 1534 (CA11 1986); Caveny v. Raven Arms Company, 665 F. Supp. 530, 531 (SD Ohio 1987); Addison v. Williams, 546 So.2d 220 (CA Louisiana 1989); Delahanty v. Hinckley, 564 A.2d 758, 760 (DC App. 1989).

27. Cited in 63 Am Jur2d, Products Liability, §362. See also, 44 Fed. Reg. 62730.

28. See FDA v. Brown & Williamson Tobacco, United States Supreme Court, docket #98-1152, decided March 21, 2000 (where the Court found that the Food and Drug Administration assumed powers to regulate which Congress had repeatedly and explicitly denied to the agency).

29. Youngstown Sheet & Tube v. Sawyer, 343 U.S. 579 (1953) (finding that President Truman exceeded his powers by his executive order seizing the steel mills in the face of a threatened strike).

30. This should not be taken lightly. Those who have read the "Agreement" share my conclusion that Smith & Wesson will never get a dealer to agree to exclusively sell S & W products, and if they could, no one will buy them. Thus, one can reasonably anticipate that the company will be bankrupt before long, in which case, one may expect a bargain hunter to take either the bare assets, or the corporation itself, encumbered by the "Agreement." For the right price, it may be attractive to buy the corporation and sue to be relieved from the contract.

31. City of Bridgeport v. Smith & Wesson, Connecticut Superior Court, No. x06-cv-01531988, Dismissal Memorandum, December 10, 1999; Penelas v. Arms Technology, Circuit Court for the 11th Judicial Circuit of Florida (Miami- Dade County), Dismissal Order, Docket # 99-091941 CA-06 December 13, 1999. See, also, F.D.A. v. Brown and Williamson, U.S.S.C., Docket #98-1152, March 21, 2000; Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952).

32. Bloomberg News, March 16, 2000.

33. Parker v. Brown, 317 U.S. 341 (1943).

34. LaFayette v. Louisiana Power & Light Co. 435 U.S. 389, 413 (1978).

35. See Columbia v. Omni Outdoor Advertising, Inc. 499 U.S. 365, 380 (1991).

36. PERI v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993).