United States v. Droganes

• Citation: 728 F.3d 580
• Decision Date: 07 October 2013
• Docket Number: Nos. 12–6043,12–6144.,s. 12–6043
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Sam DROGANES, Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

728 F.3d 580

UNITED STATES of America, Plaintiff–Appellee,

v.Sam DROGANES, Defendant–Appellant.

Nos. 12–6043, 12–6144.

United States Court of Appeals,Sixth Circuit.

Argued: July 25, 2013.

Decided and Filed: Aug. 27, 2013.

Rehearing and Rehearing En Banc Denied Oct. 7, 2013.

ARGUED:Steven D. Jaeger, The Jaeger Firm PLLC, Erlanger, Kentucky, for Appellant. Candace G. Hill, United States Attorney's Office, Louisville, Kentucky, for Appellee. ON BRIEF:Steven D. Jaeger, The Jaeger Firm PLLC, Erlanger, Kentucky, for Appellant. Candace G. Hill, United States Attorney's Office, Louisville, Kentucky, for Appellee.

Before: COLE and DONALD, Circuit Judges; MARBLEY, District Judge. ^*

OPINION

COLE, Circuit Judge.

This case arises from a longstanding dispute between Sam Droganes and the United States Government. Droganes is a fireworks dealer in northern Kentucky. In 2007, agents of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) raided his business on suspicions that he was illegally selling “display” fireworks. The agents seized more than 800,000 pounds of merchandise, only a portion of which proved to be contraband. In 2009, Droganes pleaded guilty to distributing explosives without a license and agreed to forfeit the seized items “that [were] determined by ATF to be display fireworks.” The government then tendered a proposed forfeiture order encompassing all such fireworks, which the district court eventually accepted. Droganes objected to both the breadth of the order and the classification standard the government used to sort the fireworks. Droganes also sought monetary sanctions against the government for allegedly failing to return the seized legal fireworks in a timely manner or to reimburse him for them. The district court rejected all of his claims. We affirm.

I.

Certain acts involving “explosive materials” are prohibited by statute, including “dealing” them without a license, 18 U.S.C. § 842(a)(1), “transporting” them without a license, id. § 842(a)(3)(A), and “distributing” them to other unlicensed persons, id. § 842(a)(3)(B). What constitutes an “explosive material,” in turn, is defined by federal regulations. See27 C.F.R. §§ 555.11, .23. The list includes “display fireworks,” which are “[l]arge fireworks designed primarily to produce visible or audible effects by combustion, deflagration, or detonation.” Id. § 555.11; see Noticeof List of Explosive Materials, 71 Fed.Reg. 56555–02 (Sept. 27, 2006). Display fireworks are not the same thing as “consumer fireworks,” which are “small firework device[s] designed to produce visible effects by combustion.” 27 C.F.R. § 555.11. The former are more powerful and therefore subject to a number of additional restrictions, each with corresponding classification standards. The Department of Transportation (DOT), American Pyrotechnics Association (APA), and United States Consumer Product Safety Commission (CPSC) all prescribe standards that are applicable to display fireworks in certain contexts.

Sam Droganes sells consumer fireworks to the public in northern Kentucky through Premium Fireworks, a company he owns and operates. In June 2007, an undercover investigation led by ATF and CPSC confirmed suspicions that he was also selling display fireworks without a license. ATF subsequently obtained a number of search warrants and seizure warrants for various locations associated with Premium Fireworks and Droganes personally. The execution of these warrants ultimately yielded over 800,000 pounds of fireworks either in or destined to become part of Droganes's stock—some but not all of which were display fireworks. The fact that many of the fireworks were mislabeled contributed to initial confusion over which ones were lawful and which ones were not. ATF arranged for all of the seized fireworks to be shipped to a former ammunition depot in Nebraska for storage and sorting, a process that has taken years.

In July 2008, a federal grand jury indicted Droganes on six counts. Five of those counts related to his unlicensed activities with display fireworks. See18 U.S.C. § 842(a)(1), (a)(3)(A), (a)(3)(B). The sixth count sought forfeiture of twelve specific items in addition to all of the seized display fireworks. See id. § 844(c)(1). But testing and separating the display fireworks from the consumer fireworks for the purposes of forfeiture was no small task. Following the indictment, ATF received a report from a government contractor describing the results of initial testing performed on samples from 450 seized fireworks. After disassembling, measuring, and weighing each sample, the contractor classified 187 of them as display fireworks. Further testing performed on 521 additional samples revealed 340 more display fireworks. However, the government later discovered that the contractor had mistakenly used the APA's less-stringent standard to classify the samples and accordingly reassessed the raw testing data using the standard prescribed by 27 C.F.R. § 555.11. A complete inventory eventually produced three lists: a “Green List” containing all of the seized consumer fireworks, a “Red List” containing all of the seized display fireworks, and an “Orange List” containing the remaining seized fireworks of uncertain classification. All told, the Red List totaled 862 items that ATF deemed illegal fireworks subject to forfeiture.

While the inventory was still in progress, Droganes moved for the return of his consumer fireworks under Federal Rule of Criminal Procedure 41(g). This proved to be a problematic request. After more than a year in storage, ATF agents noted that many of the fireworks had deteriorated into a potentially unsafe condition. One agent even expressed doubt that the consumer fireworks could be shipped back to Droganes without running afoul of DOT safety regulations. Notwithstanding these concerns, the district court ordered the government to complete its testing by March 11, 2009, at which time the court instructed the government to provide Droganes with “a list of legal [consumer] fireworks” and a “timetable for [their] return.” On the deadline, Droganes received a letter from the United States Attorney with the required list attached. The letter also relayed the government's concerns about shipping the listed items and proposed to pay him the wholesale price of the unreturned consumer fireworks instead. However, the parties were unable to agree on an amount, and the government now contends it could not pay Droganes in any event.

In July 2009, Droganes pleaded guilty to one count of distributing explosives without a license, see18 U.S.C. § 842(a)(3)(B), and agreed to forfeit the “items listed in Count Six of the Superseding Indictment that have been determined by ATF to be display fireworks.” Droganes further agreed to waive “the right to appeal and the right to attack collaterally the guilty plea, conviction, and any sentence that is within the Guideline range as finally determined by the Court.” The district court sentenced Droganes to four months in prison and four months of home confinement. At sentencing, the district court also accepted the government's proposed preliminary order of forfeiture for the 862 items on the Red List. Droganes objected on several grounds, including that the proposed order was “void for vagueness” and that he had anticipated “further discussions [with the government] to define the classification of the fireworks.” Before the district court could rule, Droganes also moved for sanctions against the government based on its “refus [al] to return the consumer fireworks and refus[al] to reimburse Mr. Droganes for them.” He sought monetary penalties in an amount equal to “the retail value” of the consumer fireworks and “attorney fees and expenses” incurred in his efforts to secure their return. The government responded by moving for the destruction of all the seized fireworks, citing the exorbitant cost of storage.

In August 2012, the district court addressed all three outstanding motions at once. The government at that point submitted an amended Orange List classifying all previously unclassified fireworks as either consumer or display. Regarding forfeiture, the court held that Droganes was bound by the terms of the forfeiture provision in his plea agreement, which expressly contemplated that ATF would determine which items were subject to it. The court also held that the government had carried its burden to “prove[ ] by a preponderance of the evidence that the fireworks on the Red List and those identified as [display] fireworks on the recently amended Orange List are, in fact, [display] fireworks subject to forfeiture.” It rejected Droganes's contention that ATF's determination was based on improper methods and classification. Accordingly, the court entered a preliminary judgment of forfeiture against Droganes for 944 items. Regarding sanctions, the court held that sovereign immunity barred it from assessing a monetary penalty against the government. But that did not stop it from admonishing the government for engaging in bad-faith conduct in its dealings with Droganes. Lastly, the court denied the government's motion for destruction of property as moot. Following the court's ruling, ATF returned to Droganes some 272,000 pounds of consumer fireworks.

Droganes now appeals from the district court's amended judgment ordering forfeiture of those fireworks identified in the Red List and the amended Orange List. He also appeals on the issue of whether sovereign immunity deprived the district court of subject matter jurisdiction to impose monetary sanctions against the government. Finally, he raises two new constitutionalarguments not pursued below. We address each in turn.

II.

Droganes's principal argument is that the district court erred in ordering forfeiture of all the items deemed display fireworks by ATF. He says the “district court incorrectly determined that the testing methods used by the government were proper,”...