Stein's, Inc. v. Blumenthal

Decision Date10 September 1980
Docket NumberNo. 79-1766,79-1766
Citation649 F.2d 463
PartiesSTEIN'S INC., d/b/a Harry Stein's Loan, Plaintiff-Appellant, v. W. Michael BLUMENTHAL, Secretary of the Treasury et al., Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

Michael J. Colgan, Milwaukee, Wis., for plaintiff-appellant.

Joseph P. Stadtmueller, Asst. U. S. Atty., Milwaukee, Wis., for defendants-appellees.

Before FAIRCHILD, Chief Judge, SWYGERT and SPRECHER, Circuit Judges.

FAIRCHILD, Chief Judge.

This is an action brought under 18 U.S.C. § 923(f)(3) to review the decision of the Secretary of the Treasury denying an application for a license to deal in firearms. The plaintiff, Stein's Inc., d/b/a Harry Stein's Loan, appeals from the district court's judgment upholding the Secretary's decision. The plaintiff argues that the district court had an obligation pursuant to 18 U.S.C. § 923(f)(3) to try the case de novo and that its summary disposition of the case on the basis of the administrative record and without taking additional evidence was inconsistent with that obligation. Our review of the proceedings before the district court convinces us that the district court's disposition of the cause was consistent with the statutory provision authorizing judicial review and that the district court's judgment is correct. Accordingly, we affirm.


The plaintiff, a Wisconsin corporation with its principal place of business in Milwaukee, is a pawnbroker dealing in firearms. Pursuant to the provisions of the Gun Control Act of 1968, the plaintiff must obtain from the Secretary of the Treasury a license to deal in such instrumentalities. The plaintiff did possess a license prior to 1978 and applied for the license's renewal in late 1977. The Regional Regulatory Administrator of the Bureau of Alcohol, Tobacco and Firearms on February 7, 1978, denied the plaintiff's application because of the plaintiff's repeated violations of 18 U.S.C. § 922(m), 27 C.F.R. § 178.124(c) and 27 C.F.R. § 178.125(e). The Administrator found that this pattern of violations demonstrated "a careless and willful disregard" of the gun control law and regulations justifying nonrenewal under 18 U.S.C. § 923(d) (1). 1 The notice of the Administrator's action informed the plaintiff of its right to have that action reviewed pursuant to 18 U.S.C. § 923(f)(2).

The plaintiff invoked its right to an informal hearing before a hearing officer. At that hearing, held on April 4, 1978, three inspectors for the Bureau of Alcohol, Tobacco and Firearms testified for the government. Numerous exhibits showing the results of several investigations made of the plaintiff's business over a period of several years were also introduced. This evidence established that the plaintiff had repeatedly failed to adhere to the Secretary's recordkeeping requirements. The evidence also showed that the recordkeeping requirements had been explained to the plaintiff's president, Kenneth Stein, several times but that violations persisted. The plaintiff's president testified in defense of the charges. He admitted that there had been violations, attributed them to employee error, and generally denied that the violations were willful. He also maintained that most of the violations were of technical requirements and promised that measures had and would continue to be taken to ensure that the violations would not occur.

The hearing officer in his report found that the government had established repeated violations "for relatively minor things" as well as some more serious violations. The report, however, contained no explicit findings as to willfulness. Instead, the hearing officer, apparently of the opinion that nonrenewal of the license was too severe a penalty for the infractions found, recommended that the original denial be reversed and the application be granted. 2 The hearing officer's recommendation was overruled by the Administrator. At the end of the report is the following notation, signed by the Administrator:

I disagree with the recommendation of the Hearing Officer. My decision is that the denial of the renewal application should stand.

More formal findings denying the plaintiff's application were later prepared which incorporated the reasons specified in the Administrator's original denial. These were sent to the plaintiff along with a "Final Notice of Denial or Revocation of License" dated April 26, 1978.

The plaintiff then initiated this suit under 18 U.S.C. § 923(f)(3) in the district court. 3 The defendant responded by filing an answer and a motion for summary judgment. The motion was accompanied by a certified copy of the administrative record. The plaintiff in turn filed an affidavit of its president which denied in general terms that any of the violations were willful.

The district court granted the government's motion for summary judgment. The district court held that it was unnecessary to decide the proper standard of review because

the uncontested evidence already in the administrative record . . . reveals that despite plaintiff's admitted knowledge of the recordkeeping requirements and the prohibition of delivery of firearms to certain individuals, it violated the law continually for about three years. . . . The failure to maintain proper records when a dealer is aware of his legal duty to do so has been held to be a willful violation of 18 U.S.C. § 923(c) (sic).

The district court held that the conclusory denials of any willful violations in the affidavit submitted by the plaintiff did not require a contrary conclusion.


The crux of the plaintiff's argument concerns the scope of and procedure for judicial review mandated by 18 U.S.C. § 923(f)(3). The government, however, has not chosen to address this issue. We believe that an orderly disposition of this appeal requires that we explore the nature of review authorized by statute before examining the particular facts of this case, and, consequently, we examine the issue here.

Section 923(f)(3) provides in part that the district "court may consider any evidence submitted by the parties to the proceeding. If the court decides that the Secretary was not authorized to deny the application or to revoke the license, the court shall order the Secretary to take such action as may be necessary to comply with the judgment of the court." As one court has noted, the section "is unclear and in some respects appears to contain contradictory language." Weidner v. Kennedy, 309 F.Supp. 1018, 1019 (C.D.Cal.1970). Some courts have held that the decision of the Secretary may be upheld if supported by substantial evidence in the administrative record. See McLemore v. United States Treasury Department, 317 F.Supp. 1077 (N.D.Fla.1970); cf. Lewin v. Blumenthal, 590 F.2d 268, 269 (8th Cir. 1979) (semble as to standard applied, but court noted that "substantial evidence" supported license nonrenewal). Other courts, however, have noted that the section permits the court to "consider any evidence submitted by the parties." Finding this phrase ambiguous, they have looked to the provision's legislative history. That history evidences Congress' intention to "provide broad judicial review" or "de novo review" of license nonrenewals and revocations. H.R.Rep.No.1577, 90 Cong., 2d Sess., reprinted in (1968) U.S.Code Cong. & Admin.News, pp. 4410, 4411, 4423. Relying on that scant legislative history, those courts have concluded that the statute requires de novo review of the Secretary's decisions. See, e. g., Prino v. Simon, 606 F.2d 449, 451 (4th Cir. 1979); Fin & Feather Sport Shop, Inc. v. United States Treasury Department, 481 F.Supp. 800 (D.Neb.1979); Service Arms Co. v. United States, 76 F.R.D. 109 (W.D.Okl.1977); Shyda v. Director, 448 F.Supp. 409 (M.D.Pa.1977); Rich v. United States, 383 F.Supp. 797 (S.D.Ohio 1974); Weidner v. Kennedy, 309 F.Supp. 1018 (C.D.Cal.1970).

We agree with the latter decisions that the statute requires de novo review. We do not, however, view those decisions as necessarily irreconcilable with those upholding the Secretary's decision if based on substantial evidence. This is because of our view of the nature of the review authorized by 18 U.S.C. § 923(f)(3). Although the legislative history of § 923(f)(3) speaks of "de novo review," we do not understand that history to require the district court to hold a hearing and receive evidence beyond that contained in the administrative record in every case. The language of the statute itself is permissive: "the court may consider any evidence submitted by the parties." (Emphasis added.) Instead we believe that Congress intended to afford the district court the discretion to receive additional evidence to be considered along with that in the administrative record when some good reason to do so either appears in the administrative record or is presented by the party petitioning for judicial review. 4 In other words, there is a difference between the "de novo review" required by 18 U.S.C. § 923(f)(3) and a "trial de novo." Cf. United States v. Raddatz, 447 U.S. 689, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980) (the "de novo determination" required by the Federal Magistrates Act does not always require a de novo hearing). We hold that while the statute requires the former, it does not in every case require the latter. 5 Considerations of judicial economy suggest that trial anew of factual matters already litigated should be avoided unless substantial doubt infects the agency's findings of fact. See Guilday v. United States Department of Justice, 385 F.Supp. 1096, 1098-99 (D.Del.1974) ("In the absence of clear guidelines from Congress, it is appropriate for the courts to consider the interests of judicial economy and fairness before requiring an automatic trial de novo. To the extent that a trial de novo would require pretrial discovery and trial proof of factual background already developed in administrative proceedings, it would be...

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