Armslist Not Liable for Hosting Gun Sale Ads That Led to Purchases by People Who Used the Guns Criminally

The Seventh Circuit so holds, applying Wisconsin tort law, and not reaching the 47 U.S.C. § 230 issue.

From Monday's decision in Webber v. Armslist LLC, decided by the Seventh Circuit in an opinion by Judge Michael Brennan, joined by Judges Joel Flaum and Michael Scudder:

Erin Bauer and Richard Webber are the legal representatives and family members of two individuals killed using guns that had been listed on armslist.com, an online firearms marketplace. Bauer and Webber each sued Armslist LLC …, alleging negligence and other Wisconsin state law claims. The plaintiffs assert that the defendants designed the website to encourage and assist individuals in circumventing federal and state law regulating firearms. The defendants argue that the plaintiffs have failed to state a claim upon which relief can be granted because publishing third-party offers to sell firearms does not establish tort or other liability under Wisconsin law.

Because we affirm on the state law claims, we decline to rule on the [§ 230] preemption issue….

Armslist.com is an online marketplace for firearms…. Armslist LLC is not engaged in the business of selling firearms. Rather, its website hosts "for sale" and "want to buy" ads posted by users….

The plaintiffs level serious accusations against the defendants. They allege that armslist.com allows individuals to engage in the business of selling firearms without a license and to circumvent federal and state law governing firearms dealers, including avoiding background checks. The defendants purportedly accomplished this through design and content features. Among these are choosing to label purchases and sales as private party transactions by default. The plaintiffs also claim that armslist.com allows users to filter listings to identify private party sellers. This "filter function" allegedly facilitates the private sale of firearms without background checks to individuals prohibited from possessing firearms.

The plaintiffs also contend the defendants provided certain assurances that enabled both buyers and sellers to operate anonymously, including that:

• "ARMSLIST DOES NOT become involved in transactions between parties and does not certify, investigate, or in any way guarantee the legal capacity of any party to transact";
• "ARMSLIST can not and will not be a party in transactions. It is the sole responsibility of the buyer and seller to conduct safe and legal transactions";
• "You can perform all of the major functions without creating an account"; and
• Armslist will not contact a seller on behalf of a user or provide a user with information about another user but can provide this information to law enforcement during due process of law.

In addition to contending that the website's design is flawed, Bauer and Webber allege that Armslist LLC and Gibbon should have implemented certain design features, adopted by other online firearm marketplaces, to prevent illegal transactions. These include requiring evidence of the legality of the transactions, background checks and transaction records, delivery through federal firearms licensees, and a waiting period. They also include taking certain actions with respect to high volume sellers, allowing users to flag illegal conduct, and providing updated information on firearms laws….

A negligence claim under Wisconsin law consists of four elements: duty, breach, causation, and damages…. [W]e focus on the third [element], causation.

Legal cause under Wisconsin law has two components: cause-in-fact and public policy factors…. The public policy factors address whether the cause of the harm is legally sufficient to permit recovery. In other words, under Wisconsin law, "[p]roximate cause involves public policy considerations for the court," although the term "proximate cause" is no longer used.

The six public policy factors Wisconsin courts consider when deciding whether to limit liability are: (1) "[T]he injury is too remote from the negligence"; (2) "Recovery is 'too "wholly out of proportion to the culpability of the negligent tort-feasor" ' "; (3) "[I]n retrospect it appears too highly extraordinary that the negligence should have brought about the harm"; (4) "Allowing recovery 'would place too unreasonable a burden upon [the tortfeasor]' "; (5) "Allowing recovery would be 'too likely to open the way to fraudulent claims' "; or (6) "Allowing recovery 'would "enter a field that has no sensible or just stopping point." ' " Because these factors are set out in the disjunctive, a finding that one is satisfied is sufficient to preclude liability….

The key legislative enactment guiding our discussion is Wisconsin Statute § 175.35, which regulates the purchase of handguns. That statute defines "firearms dealer" as "any person engaged in the business of importing, manufacturing or dealing in firearms and having a license as an importer, manufacturer or dealer issued by the federal government." § 175.35(1)(ar). By referring to the federal licensing scheme, the state statute incorporates certain definitions provided under federal law. First, a "licensed dealer" is "any dealer who is licensed under the provisions of this chapter," and a "dealer" includes "any person engaged in the business of selling firearms at wholesale or retail." The term "engaged in the business," however, "shall not include a person who makes occasional sales, exchanges, or purchases of firearms for the enhancement of a personal collection or for a hobby, or who sells all or part of his personal collection of firearms." Therefore, the provisions of § 175.35 governing firearms dealers exclude individuals making occasional sales and exchanges—that is, private sellers. Wisconsin law compels firearms dealers to obtain evidence of the legality of the transaction, conduct background checks, and keep transaction records, among other requirements….

The allegations of Armslist LLC's negligence track the same three categories:

1. Evidence of Legality. Bauer and Webber contend Armslist LLC breached its duty by failing to require buyers and sellers to provide information about the legality of transactions. They specifically allege that Armslist LLC failed to demand greater transparency from users, such as by requiring both buyers and sellers to create accounts and provide credit-card verified evidence of their identities. They also aver Armslist LLC failed to oblige buyers and sellers to certify and provide evidence that they are legal transactors. Bauer adds that Armslist LLC was negligent in failing to require buyers and sellers to register.
2. Background Checks and Transaction Records. Bauer and Webber further allege that Armslist LLC breached its duty by failing to require or recommend that sellers conduct background checks. Webber adds that Armslist was negligent in failing to require or recommend that sellers create transaction records.
3. Delivery and Waiting Period. Bauer and Webber also claim that Armslist LLC was negligent in failing to require purchasers from private sellers to take delivery of the firearm through a federal firearms licensee, who would run a background check and create transaction records. Webber further alleges that Armslist LLC was negligent in failing to impose a reasonable waiting period for delivery of a firearm purchased through the website.

As shown above, Wisconsin Statute § 175.35 regulates each of these aspects of handgun sales. Concluding that the allegations in these three categories state a negligence claim would directly contravene the Wisconsin legislature's judgments, as reflected in Wisconsin Statute §§ 175.35 and 66.0409.

Section 175.35 requires firearms dealers—not websites, private sellers, or other entities—to obtain certain evidence of the legality of a transaction, the first category. Armslist LLC is not a firearms dealer. Concluding that the allegations in this first category can proceed would impose the responsibilities of firearms dealers on actors which the Wisconsin legislature has not chosen to regulate in this manner. It would also hold Armslist LLC liable for failing to operate as an arm of the state where Wisconsin has not given it this function. Just so, on allegations about background checks and transaction records—the second category—the Wisconsin legislature has not chosen to regulate websites or private sellers, such as Verstagen, or to oblige them with enforcement.

Under § 175.35, neither a method of delivery nor a waiting period is specified—the third category—even for firearms dealers. That statute also incorporates the federal definition in 18 U.S.C. § 921 of "engaged in the business" of dealing in firearms, which expressly exempts private sellers from its requirements. Therefore, the Wisconsin legislature has chosen not to impose delivery specifications on handguns obtained via private sale, the third category. Nor has it imposed a waiting period on transactions. In fact, a forty-eight-hour waiting period that formerly existed under Wisconsin law was eliminated in later versions of § 175.35.

Armslist LLC is not a firearms dealer—rather, it operates a website that hosts third-party advertisements for the sale and purchase of firearms. The state has not entrusted it with enforcing the provisions of the regulatory scheme governing handgun transfers. It follows that Armslist LLC has no statutory obligation to collect identification, require certification and evidence of legal transactions, mandate or recommend background checks or recordkeeping, or regulate the delivery of firearms. If we decided that plaintiffs stated a negligence claim against Armslist LLC based on these three categories of allegations, that conclusion would contravene the Wisconsin legislature's judgment on which entities—i.e., firearms dealers—will be held liable for meeting the requirements of state and federal law. Wisconsin has not chosen to include websites hosting firearms transactions as among the actors regulated in the ways plaintiffs allege, a decision that must be respected. Wisconsin has also chosen to exempt private sellers, like Verstagen, from certain requirements, and has made the decision to eliminate a waiting period on handgun purchases. We decline to redefine what is politically appropriate for the state or to find liability where Wisconsin has not expressed it should exist….

Although most of plaintiffs' allegations fall into these three categories and are in unmistakable tension with Wisconsin's legislative enactments, we see three sets of allegations that are not:

• High Volume Sellers. Bauer alleges Armslist LLC was negligent in failing to: monitor high volume sellers, design its website to prevent unlawful high volume sales, remove sellers engaged in the business of selling firearms without a license, provide users with tools to report repeat offenders, notify law enforcement of users engaged in the business of selling firearms, and inform users that law enforcement will be notified of persons who appear to be engaged in selling firearms without a license.
• Flagging Illegal Conduct. Plaintiffs also claim Armslist LLC was negligent in failing to enable users to flag potentially illegal conduct and alert it and law enforcement of this activity.
• Providing Updated Firearms Law. Bauer and Webber aver Armslist LLC breached its duty by failing to provide "extensive and regularly updated" information regarding all applicable firearms laws….

Bauer's high-volume seller claim fails due to a break in the chain of causation. Even if we assume Bauer's high volume seller allegations adequately plead duty and breach, Bauer does not plead any facts that demonstrate Jones was prohibited by law from purchasing firearms. Rather, Bauer alleges only that Jones had been previously arrested on drug charges; Bauer does not claim that Jones had been charged with any crime that would have precluded him from lawfully obtaining a firearm. What is more, Bauer pleads only that Jones "may have feared" he would be unable to pass a background check, as opposed to alleging that a background check would have affirmatively prevented him from buying a gun. Private sales are legal in Wisconsin, and Bauer has not alleged that Jones unlawfully obtained the firearm at issue. Reasonable people could not disagree that Bauer failed to plead that Armslist LLC's alleged negligence was actively operating when Jones obtained the firearm. Bauer thus has not alleged causation as a matter of law in a high-volume seller claim.

We reach the same conclusion as to the other two sets of allegations. Causation is not established where the harm would have occurred even absent the defendant's negligence. Bauer and Webber have failed to plausibly plead that the deaths would not have occurred but for Armslist LLC's failure to permit users to flag illegal conduct. In fact, in its website's terms of use, Armslist LLC provided the contact information number for the Bureau of Alcohol, Tobacco, Firearms and Explosives. Given that users could report the same conduct directly to ATF, plaintiffs do not explain how allowing users to flag conduct would plausibly have prevented the deaths.

Plaintiffs have also failed to plausibly allege that the deaths would not have occurred but for Armslist's failure to provide updated firearms laws. Bauer and Webber do not allege any facts about the effect of providing updated firearms information on the likelihood that individuals will engage in illegal transactions. Without these allegations, we cannot conclude that plaintiffs have plausibly alleged providing updated firearms laws would have prevented the deaths.

Even if we assume the duty and breach elements of negligence have been satisfied, these three additional sets of allegations, not precluded by Wisconsin Statute § 175.35, do not survive the plausibility standard necessary to plead a negligence claim. None of these allegations plead factual content that allows the court to draw the reasonable inference that the defendants are liable for the misconduct alleged. Put another way, the allegations in any of these three sets do not plausibly show that Armlist LLC caused the deaths of Commander Bauer and Sara Schmidt….

As an alternative causation analysis, we consider plaintiffs' allegations under two of the public policy factors, the second (disproportionate liability) and the sixth (no sensible or just stopping point).

In Webber, the district court ruled that the plaintiff's negligence claim was precluded, including by the second policy factor of disproportionate liability. He concluded that imposing civil liability here would likely destroy Armslist LLC's business. In Bauer, the district court declined to base its decision on the public policy factors.

Out of proportion to culpability. Bauer and Webber argue that Wisconsin courts have invoked this public policy factor only when the defendant's blameworthiness is minimal at the time the risk materializes, or if it is more than minimal, the cost of injury is so high that it is out of proportion with the defendant's culpability. Among the cases plaintiffs cite for this proposition is Stephenson.

Armslist LLC counters that because it did not use, distribute, or sell a firearm to anyone, holding it responsible for the murders would be disproportionate to its culpability. It also refers to Daniel and argues that creating and operating a website that enables buyers to find information posted by third-party sellers is legal.

In Stephenson, the Wisconsin Supreme Court concluded that recovery was precluded on this factor against an individual who agreed to drive an inebriated person home, causing a bartender to serve that person more alcohol. It reasoned, in relevant part, that liability was disproportionate considering the state's immunity laws. If the defendant had been a social host who had served alcohol to the defendant, he would be immune from suit. "It defies common sense to hold someone in [the defendant]'s position liable while immunizing someone who serves or even encourages alcohol consumption."

Based on Stephenson, this second factor precludes liability in Webber on all allegations within the three categories referred to above. As in that case, statutes inform culpability. Private sellers are exempt from the requirements plaintiffs seek to impose. Verstagen is a private seller, and thus has no obligation to certify, investigate, or delay the transaction. To impose those requirements on Armslist LLC, the website hosting Verstagen's transaction, would place liability on an actor one step removed from Verstagen, and circumvent legislative judgment. See id. For these reasons, we agree with the district court's analysis and conclusion on this second factor in Webber.

No sensible or just stopping point. Under the sixth public policy factor, Armslist LLC contends that because plaintiffs will always conjure creative arguments about what a firearms platform should have done to prevent harm, liability here has no sensible or just stopping point. Armslist LLC argues that potential harm is not limited to firearms and could apply to any product that could harm someone. Plaintiffs respond there is no liability if a defendant played no role in a harm, but here the defendants consciously created, designed, and maintained a website to allow and encourage illegal firearms sales. Per plaintiffs, the stopping point would be a jury's decision that Armslist LLC acted reasonably.

At the end of its discussion of this sixth factor in Stephenson, the Wisconsin Supreme Court stated that "the possibilities for expanding liability … would also threaten to run counter to the legislative enactments regarding immunity." That court continued, "Finally, we give significant weight to the fact that the production, sale, distribution, vending, and consumption of alcoholic beverages are highly regulated by the legislature." "Given this history and the current state of the law, we are reluctant to create liability where the legislature has not expressed that there should be any. We think that it is more appropriate that the legislature decide whether or not someone who agrees to drive an intoxicated person home should be an exception to the legislature's general policy of holding the intoxicated persons themselves liable for injuries they cause."

In Smaxwell, the same court ruled that the sixth factor precluded liability against a landowner for harm caused by a tenant's dogs. This was in part because allowing liability would contradict a state statute imposing strict liability exclusively on owners for injuries caused by dogs.

Under the reasoning of Stephenson and Smaxwell, this sixth factor precludes liability in Webber and Bauer. The same concerns exist with expanding liability counter to legislative enactments on the purchase of handguns. Wisconsin statutes regulate the entities that qualify as firearms dealers; other actors are not subject to those statutes and have not been charged with enforcing them. To allow liability on those other actors, such as private sellers—and here a website—would contradict that legislative judgment. The same holds true for the lack of a principled stopping point. If liability is permitted here, there would be no distinction between firearms dealers and exempt entities, a line Wisconsin law has drawn….

Timothy Moore and Brian A. Sutherland (Reed Smith LLP) represent the defendants.