Fairmont Cash Mgmt., LLC v. James

• Decision Date: 23 September 2016
• Docket Number: CIVIL ACTION NO. 3:15-CV-077
• Citation: 208 F.Supp.3d 830
• Parties: FAIRMONT CASH MGMT., LLC d/b/a, Cash Cow Pawn, Plaintiff, v. Tanarra JAMES, Directory of Industry Operations Bureau of Alcohol, Tobacco, Firearms, and Explosives, Defendant.
• Court: U.S. District Court — Southern District of Texas

208 F.Supp.3d 830

FAIRMONT CASH MGMT., LLC d/b/a, Cash Cow Pawn, Plaintiff,

v.Tanarra JAMES, Directory of Industry Operations Bureau of Alcohol, Tobacco, Firearms, and Explosives, Defendant.

CIVIL ACTION NO. 3:15-CV-077

United States District Court, S.D. Texas, Galveston Division.

Signed September 23, 2016

Scott L. Braum, Timothy R. Rudd, Scott L. Braum & Associates, Ltd., Dayton, OH, Michael John Zomcik, Branisa and Zomcik PC, Houston, TX, for Plaintiff.

Don J. Calvert, Asst. US Attorney, San Antonio, TX, Samuel G. Longoria, Chad Wesley Cowan, United States Attorney Office, Houston, TX, for Defendant.

MEMORANDUM OPINION AND ORDER

George C. Hanks Jr., United States District Judge

Fairmont Cash Mgmt, LLC d/b/a Cash Cow ("Cash Cow") filed a Petition for Judicial Review in this Court on April 10, 2015, requesting de novo judicial review pursuant to 18 U.S.C. § 923(f)(3) of the administrative decision by Tanarra James, the Director of Industry Operations for the Bureau of Alcohol, Tobacco, Firearms and Explosives ("ATF") revoking its federal firearms license. Dkt. 1. Cash Cow contends that the ATF improperly revoked its license to sell firearms, and it seeks injunctive relief and judgment in its favor reinstating its license, as well as its costs and reasonable attorney's fees. Id.

The ATF filed an answer and then moved for summary judgment. Dkt. 14, 18. Cash Cow has responded to that motion, Dkt. 33, and the motion is now ripe for consideration. After due consideration of the Motion, the Response, and the pleadings of the parties, the Court finds that the Motion should be GRANTED .

BACKGROUND

The Gun Control Act of 1968 (the "GCA") requires every person who engages in business as an importer, manufacturer, or dealer in firearms or ammunition to be properly licensed by the Secretary of the Treasury. United States v. Shirling , 572 F.2d 532, 533 (5th Cir. 1978) ; 18 U.S.C. § 923(a). Further, businesses that are licensed to sell firearms "must create and maintain records of all firearms transactions, including the name, age, and residence of each individual who purchases a firearm." 10 Ring Precision, Inc. v. Jones , 722 F.3d 711, 715 (5th Cir. 2013).

Under the GCA, "certain classes of people—felons, drug addicts, and the mentally ill, to list a few—may not purchase or possess any firearm. And to ensure they do not, § 922(d) forbids a licensed dealer from selling a gun to anyone it knows, or has reasonable cause to believe, is such a prohibited buyer." Abramski v. United States , ––– U.S. ––––, 134 S.Ct. 2259, 2263, 189 L.Ed.2d 262 (2014). Among other requirements, the GCA requires that the licensed dealer verify the purchaser's identity by examining a valid photo ID and having the purchaser fill out a form, known as "Form 4473," providing identifying information and affirming that the purchaser is not disqualified from buying the gun. Id. Form 4473 requires several different types of very specific: the name, address, sex, race, date of birth, and place of birth of the buyer; the buyer's identification number, type of identification, and identification state; the date and location of the sale; and the manufacturer, importer, type, model, caliber, and serial number of the firearm. Id. The form must be signed and dated by the buyer, and the buyer must swear that he or she meets the eligibility requirements for purchasing the firearm. Id. at 2263–64 ; see also 27 C.F.R. §§ 478.96(b), 478.124(a). Form 4473 also informs the purchaser that they are prohibited from buying the firearm on someone else's behalf. Abramski , 134 S.Ct. at 2263. Finally, the dealer must then submit the purchaser's information to the National Instant Background Check System ("NICS") to determine whether the purchaser is, for any reason, disqualified from owning a firearm. Id. (citing 18 U.S.C. § 922(t)(1)(A)–(B) ).

The GCA also requires licensed dealers to "maintain such records of ... disposition of firearms at [their] 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) ). The federal government, through the ATF, initially inspects licensed firearm businesses to ensure the businesses meet initial qualifying standards and then conducts additional inspections to ensure the licensed dealers continue to comply with federal firearms license regulations. See 18 U.S.C. § 923(g) ; Moreno v. Bureau of Alcohol, Tobacco, Firearms, Explosives , 113 F.Supp.3d 916, 918 (W.D. Tex. 2015). Government investigators also conduct unannounced compliance inspections to examine the dealer's records and inventory firearms. Id.

Cash Cow is a pawn shop located in Alvin, Texas. Cash Cow's sole member and President is Derek Munz. Munz has been in the pawn shop business since 1986, and at one time specialized in creating and maintaining computer software that assisted pawn shops in complying with ATF and federal firearms license ("FFL") requirements. At one point, Munz operated as many as thirteen pawn shops, "handling all the guns, the [thirteen] FFLs," and any ATF audits at each site. Munz purchased Cash Cow in 2007, and Cash Cow was then issued an FFL in 2007 that listed Munz as the "Responsible Person." In 2010, the ATF conducted a compliance inspection of Cash Cow and recorded no violations.

In early 2013, however, the ATF received an anonymous tip that Cash Cow was selling firearms without the proper background and compliance checks. The ATF sent a confidential informant into the store. On February 7, 2013, the confidential informant purchased a Berretta pistol from Cash Cow's store manager, Nelson Alonso, even though the informant informed Alonso that he was a convicted felon and not a citizen of the United States. In order to sell the gun, Alonso ran the required criminal background check through NCIS by using a misspelling of the purchaser's name.

On February 11, 2013, the confidential informant again returned to Cash Cow. Even though the background check did not clear, and even though Alonso had been told that the informant was a felon, Alonso sold him a rifle by falsifying another customer's paperwork. On February 21, 2013, the informant again went to Cash Cow, this time with another confidential informant. Alonso again sold three guns to the informant, improperly allowing the second informant to fill out the paperwork and to falsely state that she was the one purchasing the firearms.

On February 28, 2013, the ATF obtained and executed a search warrant for Cash Cow's premises. At that time, the ATF seized two years' worth of Form 4473s, dating back to February 28, 2011. Munz was informed of the allegations against Alonso, and he was made aware of the ATF's ongoing investigation. Despite Alonso's subsequent indictment, Cash Cow was allowed to continue operating and selling firearms throughout 2013 and into 2014.

In February 2014, ATF agents conducted a compliance inspection to review Cash Cow's documentation and procedures in the year since Alonso's departure. ATF agents found failures to properly document and report firearms sales dating back to 2011. These failures included one instance, in March 2013, where Cash Cow failed to timely report the sale of two or more semiautomatic rifles to the same person, in violation of 18 U.S.C. § 923(g)(5)(A) and 27 C.F.R. § 478.126. Similarly, from 2011 through December 2013, Cash Cow failed to timely report twelve instances where it sold two or more pistols or revolvers to the same purchaser, violating 18 U.S.C. § 923(g)(3)(A) and 27 C.F.R. § 478.126a. Cash Cow also failed to properly record and track its inventory on seven occasions, violating 18 U.S.C. § 923(g)(1)(A) and 27 C.F.R. § 478.125(e). The ATF found also multiple problems with the Form 4473s that Cash Cow accepted in 2011 and 2012, noting over 50 separate instances where Cash Cow employees had failed to verify photo IDs or dates of birth, left parts of the form blank, provided incorrect information, failed to identify the firearm that was sold, failed to verify that an NCIS background check was completed, or failed to sign the form as required. The ATF also discovered that Alonso had, in 2011 and 2013, completed two Form 4473s for his own purchase of firearms and that he provided false information in those forms. Each one of these failures is a stand-alone violation of the GCA. See, e.g., 18 U.S.C. §§ 922(m), 923(g)(1)(A) and 27 C.F.R. §§ 478.21(a), 478.124(c)(1), 478.124(c)(3)(i), 478.124(c)(3)(iv), 478.124(c)(4), 478.124(c)(5).

In November 2014, the ATF sent Cash Cow a "Notice to Revoke or Suspend License and/or Impose Civil Fine," listing the above findings as violations that supported revocation. Cash Cow timely requested an administrative hearing, which took place on February 3, 2015.

During the informal hearing, Munz and Cash Cow were represented by counsel. Both an ATF officer and Munz testified, and numerous exhibits were admitted. During his testimony, Munz stated that he had a significant amount of past experience with ATF compliance requirements and ATF audits, and that he fully understood "the importance of compliance." He emphasized the importance of employee training, inventory control, and keeping "clean records." He stated that, when he purchased Cash Cow in 2007, he operated it with eight hand-picked employees, including the store manager Alonso. Munz stated that he was stunned when the ATF informed him of the allegations about Alonso's criminal activity. Munz noted the hours of training each of his employees had been given, and he pointed out that Cash Cow had previously been audited in 2010 by the ATF but no violations had been found.

After considering the evidence submitted during the hearing, and the arguments of counsel, the hearing officer issued a report concluding that Cash Cow had committed the alleged violations, except for two alleged failures in which the ATF argued that other Cash Cow employees must have failed to verify Alonso's photo ID. On March 26, 2015, the ATF...