Technical Ordnance Inc., v. U.S.

• Decision Date: 13 December 2000
• Docket Number: No. 99-4334,99-4334
• Citation: 244 F.3d 641
• Parties: (8th Cir. 2001) TECHNICAL ORDNANCE, INC.; NORMAN H. HOFFMAN, PLAINTIFFS - APPELLEES, v. UNITED STATES OF AMERICA; DOUGLAS MOORE, SPECIAL AGENT, THE BUREAU OF ALCOHOL, TOBACCO, AND FIREARMS ("ATF"), U.S. DEPARTMENT OF THE TREASURY; OTHER UNKNOWN ATF AGENTS JOHN DOE 1, JOHN DOE 2, JOHN DOE 3, JOHN DOE 4, JOHN DOE 5, TRUE NAMES UNKNOWN, DEFENDANTS - APPELLANTS. Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 641

244 F.3d 641 (8th Cir. 2001)

TECHNICAL ORDNANCE, INC.; NORMAN H. HOFFMAN, PLAINTIFFS - APPELLEES, v. UNITED STATES OF AMERICA; DOUGLAS MOORE, SPECIAL AGENT, THE BUREAU OF ALCOHOL, TOBACCO, AND FIREARMS ("ATF"), U.S. DEPARTMENT OF THE TREASURY; OTHER UNKNOWN ATF

AGENTS JOHN DOE 1, JOHN DOE 2, JOHN DOE 3, JOHN DOE 4, JOHN DOE 5, TRUE NAMES UNKNOWN, DEFENDANTS - APPELLANTS.

No. 99-4334

UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Submitted: December 13, 2000

Filed: March 26, 2001

Appeal from the United States District Court for the District of South Dakota.

Before McMILLIAN, Fagg, and Murphy, Circuit Judges.

Murphy, Circuit Judge.

After a jury found Technical Ordnance, Inc. (Ordnance) and Norman Hoffman, the president of Ordnance, not guilty of criminal charges growing out of their business of manufacturing and selling explosive materials, they sued the United States and several agents of the Bureau of Alcohol, Tobacco, and Firearms (ATF). Special Agent Douglas Moore was the only identified individual defendant. The district court denied Moore's motion for summary judgment on the basis of qualified immunity, and he appeals. We reverse.

I.

Ordnance is a manufacturer and distributor of explosive devices. It exports products abroad in two different ways. The first is by export to foreign countries or foreign companies. The second is pursuant to Department of Defense (DOD) contracts. On March 20, 1992, Moore and Kim Kratochvil, an ATF regulatory compliance inspector, went to the Ordnance facility at Clear Lake, South Dakota to investigate three accidental explosions that had occurred there between January 16 and January 21, 1992. They also wished to inspect explosive bunkers and inventory for which Ordnance had received a non-compliance citation two years earlier. ATF has jurisdiction to license and regulate the importation, manufacture, distribution, and storage of explosive materials in interstate and foreign commerce. See 18 U.S.C. §§ 842 and 843. Those who operate under an ATF license must keep records and make those records and their storage facilities available for inspection. See id. at §§ 842(f) and 843(f). Ordnance has had an ATF license since 1989.

Prior to the inspection in March 1992, Hoffman had had a longstanding disagreement with ATF about its jurisdiction over Ordnance. He had told ATF agents on several occasions that his business was over regulated and that ATF should not have jurisdiction over its activities. He also disagreed with ATF concerning the scope of its regulation.

Congress has provided that companies cannot lawfully engage in the sale of defense articles directly to foreign entities without a license from ATF and an export license from the State Department. See id. at § 842 (a); 22 U.S.C. § 2778(g)(6). ATF describes sales to foreign entities under these licenses as "commercial sales," and it has regulatory jurisdiction over this type of sale. See 18 U.S.C. § 843. ATF does not have authority, however, to regulate sales to foreign governments when they are made under contracts with the United States military, see id. at § 845(a)(6), and it describes such sales as "government to government sales." Until 1989 Ordnance had exported materials to foreign governments and related foreign businesses without an ATF license. Ordnance used its own terminology for those sales; it called them "foreign military sales" and denied that they were "commercial sales" subject to ATF regulation. In 1988 ATF informed Ordnance that these sales were "commercial" and fell within its jurisdiction, and Ordnance obtained an ATF license in 1989.

When Moore and Kratochvil went to the Clear Lake facility on March 20, 1992, they met with Hoffman and John Yuhas, the vice president of Ordnance. Hoffman objected to the inspection; he said ATF did not have jurisdiction over the Clear Lake plant. Hoffman stated that Ordnance was not "currently" engaged in what he called "foreign military sales" and was "currently" working only under DOD contracts so ATF did not have jurisdiction over the operations. Hoffman showed Moore a computer printout listing the work being done at the Clear Lake facility on that day, indicating that all of it was under DOD contract. Hoffman told the agents that records of all DOD contracts and foreign military sales were kept at the Ordnance facility in St. Bonifacius, Minnesota.

Appellees claim that Hoffman told Moore that Ordnance still did foreign military sales but that the only work that day was under DOD contract. Moore says that he asked Hoffman why Ordnance had an ATF license if it only engaged in DOD contracts, and Hoffman replied "because they made me get one." Appellees say they felt threatened during this conversation because Moore asked Hoffman and Yuhas if they realized he wore a badge, carried a gun, and could arrest people. Eventually Hoffman discussed the causes of the explosions with the agents and allowed Kratochvil to inspect the facility, and Kratochvil determined that Ordnance had remedied the problem for which it had been cited two years previously.

Moore suspected that Ordnance was engaged in direct export to foreign governments and that Hoffman had lied when he told him that Ordnance was currently working only on projects under DOD contracts. He continued his investigation of Ordnance after the inspection on March 20. During his investigation, Moore received reports from defense contract investigators which indicated that relatively few Ordnance projects were under DOD contract. He also received a printout from the State Department indicating that, beginning in 1983 and as late as June 3, 1992, Ordnance had been making sales directly to foreign governments or companies under export licenses issued by the State Department, rather than under military contract. Such sales do not fall under the 18 U.S.C. § 845 (a)(6) exemption from ATF regulatory jurisdiction (the exemption for so-called government to government sales).

On October 19, 1992, Moore applied for a warrant to search the Clear Lake facility. His accompanying affidavit was also used by another ATF agent who attached it to his own affidavit and application for a search warrant for the St. Bonifacius facility in Minnesota where company records were located. Moore testified in his affidavit that Hoffman had told the ATF agents during the March 20, 1992 inspection that:

because his operation currently involves only Department of Defense contracts, [] ATF has no jurisdiction and his companies [sic] activities are exempted under Title 27, CFR, Section 55.141. Hoffman stated that his company has discontinued manufacturing destructive devices and is not currently providing explosive materials to foreign customers or governments.

Appellees' Appendix at 372-73. Moore also included in his affidavit information that he had uncovered showing that Ordnance had been making sales directly to foreign governments from January 19, 1983 through June 3, 1992. He attached the State Department computer printout in support. He also supplied two other documents: an ATF report from April 17, 1990, indicating that Hoffman had told an agent that all projects at Clear Lake were under DOD contract, and a July 25, 1990 letter from John Yuhas to ATF saying that all Clear Lake projects at that time were conducted under government contracts. This evidence led Moore to believe that Hoffman had made false statements when he claimed an exemption for work being done at the Clear Lake facility and Moore concluded in his affidavit that "either no records are being maintained for the commercial transactions, . . . , or false records are being maintained to conceal the activity and give the appearance that the transactions are exempted under government contract obligations." Id. at 378.

The applications and Moore's affidavit were presented to two different United States magistrate judges who each found probable cause and who issued search warrants for both the Clear Lake, South Dakota and St. Bonifacius, Minnesota facilities. The warrants were executed simultaneously at both locations by ATF and DOD agents who seized a number of documents. Appellees complain that the agents only seized documents that were incriminating and bypassed or refused exculpatory documents offered by Ordnance employees.

Moore prepared a criminal case report, based in part on the seized documents. In his case report Moore listed all Ordnance commercial transactions from 1983 to 1992, the corresponding records ATF had seized under the search warrants, and an analysis of whether the records complied with ATF regulations. He forwarded the report to federal prosecutors who decided after reviewing it to seek an indictment against Ordnance and Hoffman. A federal grand jury was convened, and Moore was called to testify. He testified that during the March 20, 1992 inspection, Hoffman had "related at that point in time, they were not engaged in any commercial activity, nor were they at a given point in time engaged in any contract with foreign sales." Appellant's Brief at 10. In September 1993, the grand jury returned a multi-count indictment charging Ordnance and Hoffman with federal offenses related to licensing and record requirements, false statements, and conspiracy.¹

After Ordnance and Hoffman were acquitted in a jury trial, they brought this action against the United States under the Federal Tort Claims Act (FTCA), see 28 U.S.C. §§ 1346, 2671 et seq.,² and against Moore and other unnamed ATF agents under Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388 (1971). In their 43 page complaint appellees raised many claims, including violations of their First, Fourth, and Fifth Amendment rights, conspiracy involving Moore and unnamed agents, negligent training and supervision, abuse of process, malicious prosecution, and infliction of emotional distress. They sought some $60,020,000 in damages from Moore and other unidentified ATF...