Borchardt Rifle Corp. v. Cook

• Decision Date: 10 July 2012
• Docket Number: No. 11–2086.,11–2086.
• Citation: 684 F.3d 1037
• Parties: BORCHARDT RIFLE CORP., Plaintiff–Appellant, v. Nancy F. COOK, Director of Industry Operations, Bureau of Alcohol, Tobacco, Firearms and Explosives, Defendant–Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

684 F.3d 1037

BORCHARDT RIFLE CORP., Plaintiff–Appellant,

v.Nancy F. COOK, Director of Industry Operations, Bureau of Alcohol, Tobacco, Firearms and Explosives, Defendant–Appellee.

No. 11–2086.

United States Court of Appeals,Tenth Circuit.

July 10, 2012.

Richard E. Gardiner, Fairfax, VA, for Plaintiff–Appellant.

Kenneth J. Gonzales, United States Attorney; Tony West, Assistant Attorney General; Michael S. Raab and Benjamin S. Kingsley, Attorneys, Appellate Staff, Civil Division, Department of Justice, Washington, D.C., for Defendant–Appellee.

Before BRISCOE, Chief Judge, BALDOCK and HOLMES, Circuit Judges.

BRISCOE, Chief Judge.

Borchardt Rifle Corporation (Borchardt) appeals the district court's grant of summary judgment affirming the revocation of its federal firearms license. After an initial compliance inspection, the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) granted Borchardt a license in 2002. The ATF conducted a second inspection in 2007 and detected numerous violations of the Gun Control Act, 18 U.S.C. § 923(g)(1)(A). Some of the 2007 violations had also been noted in 2002. In 2008, the ATF revoked Borchardt's license based on these repeat violations. Borchardt filed a petition for review in federal district court and challenged the revocation by arguing that Borchardt's owner, Albert Story, did not willfully violate the Act. On ATF's motion for summary judgment, the district court sustained the administrative revocation. We have jurisdiction under 28 U.S.C. § 1291 and affirm. ¹

I

Under 18 U.S.C. § 923(d)(1), a federal firearms license is required for anyone “engage[d] in the business of importing, manufacturing, or dealing in firearms.” A licensed dealer must keep accurate and detailed “records of importation, production, shipment, receipt, sale, or other disposition of firearms at his place of business for such period, and in such form, as the Attorney General may by regulations prescribe.” 18 U.S.C. § 923(g)(1)(A). In the present case, the relevant regulations include a requirement that the manufacturer or dealer record in a record book the model, caliber or gauge, and serial number of each firearm it manufactures or acquires, 27 C.F.R. §§ 478.123, 478.125(e), and a requirement that any licensed firearms importer, manufacturer, or dealer complete and maintain in its records an ATF Form 4473 for every sale of a firearm to a non-licensee. Id. § 478.124(a). Form 4473 contains information about the transferor, transferee, and firearm; the type of identification provided by the transferee; a National Instant Criminal Background Check System (“NICS”) background check for the transferee; signatures from the transferor and transferee; and the date of the transfer. Id. § 478.124(c). The Director of Industry Operations in a Field Division of the ATF may revoke a license when the licensee “has willfully violated any provision” of the Gun Control Act or rules promulgated thereunder.²18 U.S.C. § 923(e).

Borchardt, owned and operated solely by Albert Story, received a federal firearms license for the manufacture and sale of firearms in 2002. Directly or indirectly, Story has held three licenses since 1992: the first ran from 1992 until 2005, the second from 2001 to 2004, and this latest license from 2002 until its revocation in 2008. Story had his own license and was inspected in 2002 when he sought a license for Borchardt, the corporation he formed to take over his business. In 2007, the ATF inspected Borchardt, still operated by Story, and that inspection resulted in the license revocation at issue here.

In the June 2002 inspections, an ATF officer inspected Story's records and business premises as part of Story's application inspection for the Borchardt license application. During the inspection, Story signed an acknowledgment of ATF rules and procedures, stating that the rules and procedures were thoroughly explained to him by an ATF inspector and all of his questions regarding the rules were answered. The inspector found four violations—failure to properly record necessary information in the record book, failure to properly complete more than one-third of the Form 4473s on file, failure to pay taxes associated with gun sales, and failure to distinguish personal inventory from business inventory. Story acknowledged these mistakes and signed a statement that he had corrected them.

In August 2007, another ATF agent conducted a second compliance inspection, reviewing Story's records from 2004 to 2007.³ The 2007 Inspection Report lists twelve violations, with many consisting of multiple infractions. In total, Story had fifty-two Form 4473s on file, and forty-three of those forms contained errors.⁴ Several violations were repeated from the 2002 inspection, indicating that Story had already been informed that the conduct at issue was a violation but had still repeated the same conduct. The repeated violations were violations of 27 C.F.R. 478.21(a) (failure to properly execute Form 4473 in seventeen instances); 27 C.F.R. 478.123(g) (failure to properly maintain the record book); 27 C.F.R. 478.124(b) (failure to properly file Form 4473 in twelve instances); 27 C.F.R. 478.124(c)(1) (failure to properly complete Form 4473 in thirty-two instances); 27 C.F.R. 478.124(c)(5) (failure to sign and date Form 4473 in twelve instances).⁵ Story stated that the repeat violations were all oversights and that he could not account for the mistakes.

In April 2008, Nancy Cook, Director of Industry Operations for the Phoenix Field Division of ATF, revoked Borchardt's license based on these violations. Although Story acknowledged during the administrative process that “most of these errors are oversights and [his] attention to paper work and book keeping has sometimes been lax and inadequate,” Aplt.App. at 100, and that his “paperwork is very sloppy,” id. at 261, he maintained that he did not do “anything purposely illegal.” Id. After an administrative hearing, Cook issued a Final Notice of Revocation of the license based on her determination that Story's twelve violations constituted willful violations of ATF regulations under the Gun Control Act.

II

Pursuant to 18 U.S.C. § 923(e) and (f), in December 2008, Story filed a petition in federal district court for de novo review of the revocation. In relevant part, Story argued that his violations were not willful violations, as required for a license revocation under 18 U.S.C. § 923(e).⁶ Cook moved for summary judgment based on the facts as established in the administrative record, and Story did not contest the facts relevant to counts V, IX, and X—the counts determined by summary judgment and at issue in this appeal. Cook did not maintain that Story purposefully disregarded the statutory requirements; instead Cook argued that Story was plainly indifferent to the requirements of the Gun Control Act and that this repeated indifference rose to the level of willfulness.

After reviewing the evidence, the district court concluded that “the undisputed evidence demonstrates numerous repeated violations of the regulations which gave rise to Count V (duplicate and triplicate serial numbers on Forms 4473), Count IX (Forms 4473 missing firearm identification information) and Count X (twelve Forms 4473 missing Borchardt Rifle's signature and/or date) in Borchardt Rifle's petition for review, ... [and that] these violations demonstrated plain indifference and thus constitute willful violations under 18 U.S.C. § 923.” Id. at 44.

In drawing this conclusion, the district court relied on the Fifth Circuit's articulation of the standard applicable to establish willfulness under § 923: “[t]o prove that a firearms dealer ‘willfully’ violated the law, ATF must show that the dealer either intentionally or knowingly violated his obligations or was recklessly or plainly indifferent despite the dealer's awareness of the law's requirements.” Id. at 49 (quoting Athens Pawn Shop, Inc. v. Bennett, 364 Fed.Appx. 58, 59 (5th Cir.2010) (unpublished)). The district court noted that the Tenth Circuit has not yet addressed the standard for willfulness under § 923, but the district court proceeded to embrace the Athens articulation as the clearest expression of the standard adopted by all seven circuits that have addressed the issue. Id. See also Athens, 364 Fed.Appx. at 59;Armalite, Inc. v. Lambert, 544 F.3d 644, 648 (6th Cir.2008); RSM, Inc. v. Herbert, 466 F.3d 316, 321–22 (4th Cir.2006); Article II Gun Shop, Inc. v. Gonzales, 441 F.3d 492, 497 (7th Cir.2006); Willingham Sports, Inc. v. ATF, 415 F.3d 1274, 1277 (11th Cir.2005); Perri v. ATF, 637 F.2d 1332, 1336 (9th Cir.1981); Lewin v. Blumenthal, 590 F.2d 268, 269 (8th Cir.1979).

The district court astutely noted that the parties' real dispute was not over what standard must be met to establish willfulness, but rather what type of evidence is needed to prove willfulness. Story argued that Cook was required to present direct evidence of Story's state of mind at the time the violations of the Gun Control Act occurred. In contrast, Cook relied largely upon circumstantial evidence—in particular, Story's repeated violations of the Act after the ATF advised him of the Act's reporting requirements. The district court agreed with Cook and concluded that Story's state of mind could be proven through circumstantial evidence, and that the evidence of Story's repeated violations of the Gun Control Act sufficed to demonstrate his plain indifference to the Act's requirements. Id. at 53, 56–58 (citing RSM, 466 F.3d at 317 (“Because Valley Gun repeatedly violated requirements of the Gun Control Act with knowledge of the law's requirements and after repeated warnings by ATF, we hold that Valley Gun's plain indifference toward its known legal obligations satisfies the willfulness requirements in 18 U.S.C. § 923(e).”)). In particular, the district court found that the high error rate, Story's testimony that the errors were “oversights,” the ATF's...