DCV Imports, LLC v. Bureau of Alcohol

• Decision Date: 04 October 2016
• Docket Number: No. 16-1015,16-1015
• Citation: 838 F.3d 914
• Parties: DCV Imports, LLC, Petitioner, v. Bureau of Alcohol, Tobacco, Firearms and Explosives, Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

838 F.3d 914

DCV Imports, LLC, Petitioner,

v.Bureau of Alcohol, Tobacco, Firearms and Explosives, Respondent.

No. 16-1015

United States Court of Appeals, Seventh Circuit.

Argued August 9, 2016

Decided October 4, 2016

John Howard Brooke, John Mycroft Stevens, Law Offices of John H. Brooke, P.C., Muncie, IN, for Petitioner.

Charles R. Gross, Department of Justice, Bureau of Alcohol, Tobacco, Firearms and Explosives, Tyce R. Walters, Department of Justice, Civil Division, Appellate Staff, Washington, DC, Jason A. Libby, Department of Justice, Bureau of Alcohol, Tobacco, Firearms and Explosives, Chicago, IL, for Respondent.

Before Bauer, Posner, and Sykes, Circuit Judges.

Sykes

, Circuit Judge.

DCV Imports, LLC, a family-operated fireworks importer in rural Illinois, petitions for review of an order denying renewal of its import license. An administrative law judge found that DCV Imports willfully failed to keep required records of its daily transactions, see 18 U.S.C. § 842(f)

; 27 C.F.R. § 555.127, and recommended that the company's license not be renewed. The regional office of the Bureau of Alcohol, Tobacco, Firearms and Explosives accepted that recommendation, and the decision was upheld by the Deputy Director of ATF. We conclude that substantial evidence supports the Deputy Director's decision and deny the petition for review.

I. Background

The activities of two closely related, family-owned fireworks businesses are relevant to this case, although only the denial of DCV Import's license is directly at issue. Mary Vinyard and Stephen Vinyard, Sr., began operating S&N Fireworks in the late 1970s, and in 1997 they obtained from the ATF a license to import high explosives. Their son Darren founded DCV Imports in 2004 with the intention of eventually buying out his parents' business or running his own fireworks company. DCV (meaning Darren Clifford Vinyard) shared S&N's place of business in Lincoln, Illinois, and in 2004 obtained its own license to import high explosives. From 2004 until 2011, S&N Fireworks ordered bulk fireworks from DCV Imports, which imported the explosives from China and immediately transferred them to S&N Fireworks. S&N then packaged and sold the fireworks for individual shows.

In addition to the two companies' shared premises and symbiotic business relationship, Darren was employed by S&N Fireworks and was listed as a “responsible person” on S&N's license. ATF regulations define “responsible person” as one “who has the power to direct the management and policies of the applicant pertaining to explosive materials” and generally “includes partners, sole proprietors, site managers, corporate officers and directors, and majority shareholders.” 27 C.F.R. § 555.11

. Darren's duties with S&N included delivering fireworks for shows and staging fireworks shows.

ATF agents periodically conduct compliance inspections of federal explosives licensees. See id. § 555.24. Agency regulations require that licensees maintain for each storage area or “magazine” an accurate “daily summary of magazine transactions,” including the quantity of explosives received and removed and the total on hand at day's end. See id. § 555.127

. Licensees also have an affirmative duty to notify ATF about discrepancies that “might indicate a theft or loss of explosive materials.” Id. ATF investigators inspecting DCV Imports in 2004, 2008, and 2010 did not uncover any regulatory violation. DCV was not storing any explosives during this period, however, because all fireworks it received were immediately transferred to S&N Fireworks. Following each inspection, an ATF investigator reviewed with Darren the applicable statutes and regulations, and each time he signed an Acknowledgement of Federal Explosives Regulations.

S&N's compliance record, on the other hand, was spotty. ATF investigators cited the company for numerous violations during a 2006 inspection, including not maintaining accurate daily summaries and storing fireworks unsafely. That inspection led to a “warning conference” in 2008 attended by Darren and other S&N Fireworks personnel. Then in 2009 an inspection revealed a multitude of violations, including hundreds of instances where actual counts of stored fireworks contradicted inventory records, multiple inaccurate daily summaries, and the disappearance of roughly 10,000 pounds of shells. Stephen “Vinny” Vinyard, Jr., Darren's brother, was the S&N employee tasked with maintaining the daily summaries throughout the period when these infractions occurred. Darren attended a conference in early 2010 to wrap up the 2009 inspection, and after reviewing the violations with an ATF investigator, he signed a report acknowledging the citations. Later that same year the ATF's Chicago Field Division, through its Director of Industry Operations, notified S&N Fireworks that its license would not be renewed because of willful violations uncovered during the 2009 inspection. Rather than contest the decision, S&N voluntarily surrendered its license.

DCV Imports then bought out S&N's inventory, equipment, customer lists, and show contracts. As part of the transaction, Darren agreed to give Vinny a 50% stake in DCV and to make him vice president, although Darren retained operational control as president of the company. DCV Imports expanded its operations from importing fireworks to running a complete fireworks business, as S&N Fireworks had been. Darren made Vinny responsible for maintaining the required daily summaries (and consequently the magazine inventories) even though maintaining those same records for S&N Fireworks had been Vinny's job when the lapses leading to the company's demise had occurred. Vinny did not receive any formal recordkeeping training and struggled to complete the daily summaries; he told Darren that he was uncomfortable performing this task. In early 2013 Vinny hired a cousin to take over the recordkeeping duties. Vinny himself trained the cousin to maintain the daily summaries and then “stopped paying attention” to the records.

A team of ATF investigators arrived unannounced in September 2013 to inspect DCV Imports. The investigators began by counting the explosives in DCV's magazines and comparing those numbers to a computerized inventory, but when it became clear that the quantities did not match, the team asked Darren for the daily summaries. The investigators found 73 instances in which those records did not match the amount of fireworks added or removed from a magazine. Those 73 inaccurate daily summaries totaled 1,897 missing “units” or roughly 870 net pounds of explosives for which DCV Imports could not account. As before, this inspection concluded with a conference during which ATF investigators reviewed regulatory requirements and DCV's violations with Darren and required him to sign an Acknowledgement of Federal Explosives Regulations.

Based on these violations, ATF's Director of Industry Operations in Chicago notified DCV Imports in May 2014 that the agency did not intend to renew DCV's explosives license. The notice charged DCV Imports with willfully failing to comply with the recordkeeping mandate of 27 C.F.R. § 555.127

. The notice placed special emphasis on the volume of missing fireworks.

DCV invoked its right to a hearing before an administrative law judge. See 18 U.S.C. § 843(e)(2)

. In a written submission to the assigned judge, DCV Imports did not dispute the violations but argued instead that its violations should not be deemed willful given its perfect compliance record before 2013. The agency responded that S&N Fireworks and DCV Imports were “essentially the same business operation” and equated the violations of the former with the latter.

The administrative law judge conducted an evidentiary hearing in December 2014 and afterward issued a written order agreeing with the agency that DCV Imports had committed the recordkeeping violations willfully. The judge reasoned that Darren's long history of working in the fireworks industry and extensive interactions with the ATF “demonstrate that he was sufficiently knowledgeable of the ATF's federal explosives regulations” yet chose to disregard those requirements. The judge acknowledged that DCV Imports and S&N Fireworks are different entities, and although she did not impute S&N's violations to DCV, the judge did hold Darren accountable for the knowledge he gained as a responsible person at S&N Fireworks. She also agreed with the agency that Darren's decision to defer recordkeeping responsibility to Vinny—knowing that he was “at the center of the faulty recordkeeping that led to S&N's 2010 denial”—strongly supported a finding of willfulness. The judge recommended that the agency confirm the decision not to renew DCV's license.

That recommendation was accepted. DCV Imports sought review by the Deputy Director of the ATF, who after briefing and oral argument upheld the denial of DCV's license renewal. See 27 C.F.R. § 555.79

. DCV Imports petitioned for review by this court. See id. § 555.80.

II. Discussion

We will uphold the agency's...