Court Opinion

ID: 3062084
Source: CourtListenerOpinion
Date Created: 2015-10-14 08:18:42.526328+00
Date Added: 2024-06-11T10:36:53.687324
License: Public Domain

FILED
                                                                   United States Court of Appeals
                                                                           Tenth Circuit

                                                                          July 10, 2012
                                                                      Elisabeth A. Shumaker
                                        PUBLISH                           Clerk of Court

                      UNITED STATES COURT OF APPEALS

                                   TENTH CIRCUIT

 BORCHARDT RIFLE CORP.,

        Plaintiff-Appellant,
 v.                                                           No. 11-2086
 NANCY F. COOK, Director of Industry
 Operations, Bureau of Alcohol, Tobacco,
 Firearms and Explosives,

        Defendant-Appellee.

           APPEAL FROM THE UNITED STATES DISTRICT COURT
                  FOR THE DISTRICT OF NEW MEXICO
                    (D.C. No. 1:08-CV-01188-JB-WDS)

Submitted on the briefs:

Richard E. Gardiner, Fairfax, Virginia, for Plaintiff-Appellant.

Kenneth J. Gonzales, United States Attorney; Tony West, Assistant Attorney General;
Michael S. Raab and Benjamin S. Kingsley, Attorneys, Appellate Staff, Civil Division,
Department of Justice, Washington, D.C., for Defendant-Appellee.

Before BRISCOE, Chief Judge, BALDOCK and HOLMES, Circuit Judges.

BRISCOE, Chief Judge.
       Borchardt Rifle Corporation (Borchardt) appeals the district court’s grant of

summary judgment affirming the revocation of its federal firearms license. After an

initial compliance inspection, the Bureau of Alcohol, Tobacco, Firearms and Explosives

(ATF) granted Borchardt a license in 2002. The ATF conducted a second inspection in

2007 and detected numerous violations of the Gun Control Act, 18 U.S.C. § 923(g)(1)(A).

Some of the 2007 violations had also been noted in 2002. In 2008, the ATF revoked

Borchardt’s license based on these repeat violations. Borchardt filed a petition for review

in federal district court and challenged the revocation by arguing that Borchardt’s owner,

Albert Story, did not willfully violate the Act. On ATF’s motion for summary judgment,

the district court sustained the administrative revocation. We have jurisdiction under 28

U.S.C. § 1291 and affirm.1

                                              I

       Under 18 U.S.C. § 923(d)(1), a federal firearms license is required for anyone

“engage[d] in the business of importing, manufacturing, or dealing in firearms.” A

licensed dealer must keep accurate and detailed “records of importation, production,

shipment, receipt, sale, or other disposition of firearms at his 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). In the present case, the relevant regulations include a requirement

       1
        After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist in the determination of this
appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is, therefore,
submitted without oral argument.

                                              2
that the manufacturer or dealer record in a record book the model, caliber or gauge, and

serial number of each firearm it manufactures or acquires, 27 C.F.R. §§ 478.123,

478.125(e), and a requirement that any licensed firearms importer, manufacturer, or

dealer complete and maintain in its records an ATF Form 4473 for every sale of a firearm

to a non-licensee. Id. § 478.124(a). Form 4473 contains information about the transferor,

transferee, and firearm; the type of identification provided by the transferee; a National

Instant Criminal Background Check System (“NICS”) background check for the

transferee; signatures from the transferor and transferee; and the date of the transfer. Id. §

478.124(c). The Director of Industry Operations in a Field Division of the ATF may

revoke a license when the licensee “has willfully violated any provision” of the Gun

Control Act or rules promulgated thereunder.2 18 U.S.C. § 923(e).

       Borchardt, owned and operated solely by Albert Story, received a federal firearms

license for the manufacture and sale of firearms in 2002. Directly or indirectly, Story has

held three licenses since 1992: the first ran from 1992 until 2005, the second from 2001 to

2004, and this latest license from 2002 until its revocation in 2008. Story had his own

license and was inspected in 2002 when he sought a license for Borchardt, the corporation

he formed to take over his business. In 2007, the ATF inspected Borchardt, still operated

by Story, and that inspection resulted in the license revocation at issue here.

       2
         “The Attorney General may, after notice and opportunity for hearing, revoke any
license issued under this section if the holder of such license has willfully violated any
provision of this chapter or any rule or regulation prescribed by the Attorney General
under this chapter . . . .” 18 U.S.C. § 923(e).

                                              3
       In the June 2002 inspections, an ATF officer inspected Story’s records and

business premises as part of Story’s application inspection for the Borchardt license

application. During the inspection, Story signed an acknowledgment of ATF rules and

procedures, stating that the rules and procedures were thoroughly explained to him by an

ATF inspector and all of his questions regarding the rules were answered. The inspector

found four violations—failure to properly record necessary information in the record

book, failure to properly complete more than one-third of the Form 4473s on file, failure

to pay taxes associated with gun sales, and failure to distinguish personal inventory from

business inventory. Story acknowledged these mistakes and signed a statement that he

had corrected them.

       In August 2007, another ATF agent conducted a second compliance inspection,

reviewing Story’s records from 2004 to 2007.3 The 2007 Inspection Report lists twelve

violations, with many consisting of multiple infractions. In total, Story had fifty-two

Form 4473s on file, and forty-three of those forms contained errors.4 Several violations

were repeated from the 2002 inspection, indicating that Story had already been informed

that the conduct at issue was a violation but had still repeated the same conduct. The

       3
         After Borchardt received its license, Story began conducting this business
through the corporation. For clarity, we continue to refer to the Borchardt corporation as
Story, as he is the corporation’s sole owner and operator, and because his state of mind is
at issue in this case.
       4
         By year, all thirteen of the 2004 forms had errors, all seven of the 2005 forms had
errors, fourteen of the twenty 2006 forms had errors, and nine of the twelve 2007 forms
had errors.

                                             4
repeated violations were violations of 27 C.F.R. 478.21(a) (failure to properly execute

Form 4473 in seventeen instances); 27 C.F.R. 478.123(g) (failure to properly maintain the

record book); 27 C.F.R. 478.124(b) (failure to properly file Form 4473 in twelve

instances); 27 C.F.R. 478(c)(1) (failure to properly complete Form 4473 in thirty-two

instances); 27 C.F.R. 478.124(c)(5) (failure to sign and date Form 4473 in twelve

instances).5 Story stated that the repeat violations were all oversights and that he could

not account for the mistakes.

       In April 2008, Nancy Cook, Director of Industry Operations for the Phoenix Field

Division of ATF, revoked Borchardt’s license based on these violations. Although Story

acknowledged during the administrative process that “most of these errors are oversights

and [his] attention to paper work and book keeping has sometimes been lax and

inadequate,” Aplt. App. at 100, and that his “paperwork is very sloppy,” id. at 261, he

maintained that he did not do “anything purposely illegal.” Id. After an administrative

hearing, Cook issued a Final Notice of Revocation of the license based on her

determination that Story’s twelve violations constituted willful violations of ATF

regulations under the Gun Control Act.

       5
         His other violations included failure to report the loss of a firearm in a timely
fashion; two instances of transfer of a firearm without conducting a background check;
transfer of a firearm without completing Form 4473; failure to properly record type of
identification used on Form 4473 in six instances; failure to record NICS information on
Form 4473 in twenty-eight instances; failure to record firearm type on Form 4473 in five
instances; failure to properly add information to the record book in fifty-nine instances.

                                              5
                                              II

       Pursuant to 18 U.S.C. §§ 923(e) and (f), in December 2008, Story filed a petition

in federal district court for de novo review of the revocation. In relevant part, Story

argued that his violations were not willful violations, as required for a license revocation

under 18 U.S.C. § 923(e).6 Cook moved for summary judgment based on the facts as

established in the administrative record, and Story did not contest the facts relevant to

counts V, IX, and X—the counts determined by summary judgment and at issue in this

appeal. Cook did not maintain that Story purposefully disregarded the statutory

requirements; instead Cook argued that Story was plainly indifferent to the requirements

of the Gun Control Act and that this repeated indifference rose to the level of willfulness.

       After reviewing the evidence, the district court concluded that “the undisputed

evidence demonstrates numerous repeated violations of the regulations which gave rise to

Count V (duplicate and triplicate serial numbers on Forms 4473), Count IX (Forms 4473

missing firearm identification information) and Count X (twelve Forms 4473 missing

Borchardt Rifle’s signature and/or date) in Borchardt Rifle’s petition for review, . . . [and

that] these violations demonstrated plain indifference and thus constitute willful

violations under 18 U.S.C. § 923.” Id. at 44.

       In drawing this conclusion, the district court relied on the Fifth Circuit’s

       6
        The petition discusses the grounds for revocation in twelve “counts,” and the
twelve counts correspond to the twelve grounds for revocation listed in the Notice of
Revocation of License.

                                              6
articulation of the standard applicable to establish willfulness under § 923: “[t]o prove

that a firearms dealer ‘willfully’ violated the law, ATF must show that the dealer either

intentionally or knowingly violated his obligations or was recklessly or plainly indifferent

despite the dealer’s awareness of the law’s requirements.” Id. at 49 (quoting Athens

Pawn Shop, Inc. v. Bennett, 364 F. App’x 58, 59 (5th Cir. 2010) (unpublished)). The

district court noted that the Tenth Circuit has not yet addressed the standard for

willfulness under § 923, but the district court proceeded to embrace the Athens

articulation as the clearest expression of the standard adopted by all seven circuits that

have addressed the issue. Id. See also Athens, 364 F. App’x. at 59; Armalite, Inc. v.

Lambert, 544 F.3d 644, 648 (6th Cir. 2008); RSM, Inc. v. Herbert, 466 F.3d 316, 321–22

(4th Cir. 2006); Article II Gun Shop, Inc. v. Gonzales, 441 F.3d 492, 497 (7th Cir. 2006);

Willingham Sports, Inc. v. ATF, 415 F.3d 1274, 1277 (11th Cir. 2005); Perri v. ATF, 637

F.2d 1332, 1336 (9th Cir. 1981); Lewin v. Blumenthal, 590 F.2d 268, 269 (8th Cir. 1979).

       The district court astutely noted that the parties’ real dispute was not over what

standard must be met to establish willfulness, but rather what type of evidence is needed

to prove willfulness. Story argued that Cook was required to present direct evidence of

Story’s state of mind at the time the violations of the Gun Control Act occurred. In

contrast, Cook relied largely upon circumstantial evidence—in particular, Story’s

repeated violations of the Act after the ATF advised him of the Act’s reporting

requirements. The district court agreed with Cook and concluded that Story’s state of

mind could be proven through circumstantial evidence, and that the evidence of Story’s

                                              7
repeated violations of the Gun Control Act sufficed to demonstrate his plain indifference

to the Act’s requirements. Id. at 53, 56–58 (citing RSM, 466 F.3d at 317 (“Because

Valley Gun repeatedly violated requirements of the Gun Control Act with knowledge of

the law’s requirements and after repeated warnings by ATF, we hold that Valley Gun’s

plain indifference toward its known legal obligations satisfies the willfulness

requirements in 18 U.S.C. § 923(e).”)). In particular, the district court found that the high

error rate, Story’s testimony that the errors were “oversights,” the ATF’s previous

instruction to Story on how to comply with the law, and the errors repeated from the 2002

inspection “conclusively establish[] that [Story] was aware of the regulations imposed on

[him] and yet, despite that knowledge, [Story] continued to violate those same regulations

. . . demonstrat[ing] plain indifference to [his] legal obligations.” Id. at 41. Based on this

conclusion, the district court granted Cook’s motion for summary judgment and affirmed

her decision to revoke Borchardt’s federal firearms license.

                                             III

       Borchardt timely appealed the district court’s decision, arguing that:

       1. “[t]he district court erred because, in applying the reckless standard, the district

court considered [Story]’s previous violations as evidence of recklessness and did not

solely focus on the evidence of [Story]’s state of mind at the time the violations were

committed;” Aplt. Br. at 7, and

       2. the violations were negligent but not reckless and thus not willful.

                                              8
                                  A. Standard of review.

       We “review[] the grant of summary judgment de novo, applying the same

standards as the district court” pursuant to Federal Rule of Civil Procedure 56(c). Salazar

v. Butterball, 644 F.3d 1130, 1136 (10th Cir. 2011). Summary judgment is appropriate if

the movant shows that there is no genuine dispute as to any material fact and the movant

is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a).7 Finally, in reviewing a

petition for judicial review of an ATF license revocation, the court may grant relief only

if it “decides that the Attorney General was not authorized to deny the application or to

revoke the license.” 18 U.S.C. § 923(e). The parties agree that even one willful violation

of the Gun Control Act could justify the revocation of Borchardt’s license.

        B. Plain indifference toward known legal obligations meets the willfulness
       requirement of 18 U.S.C. § 923(e), and this plain indifference may be
       shown with circumstantial evidence.

       This case presents two issues which our court has not yet addressed: first, what

       7
         Story states that, on a motion for summary judgment, “the court must ‘disregard
all evidence favorable to the moving party. . . .’” Aplt. Br. at 13. (citing Reeves v.
Sanderson Plumbing Products, Inc., 530 U.S. 133, 151 (2000)). The full Reeves quote
actually states:
                [a]lthough the court should review the record as a whole when
                considering a motion for judgment as matter of law, it must
                disregard all evidence favorable to the moving party that the
                jury is not required to believe. That is, the court should give
                credence to the evidence favoring the nonmovant as well as that
                evidence supporting the moving party that is uncontradicted and
                unimpeached, at least to the extent that evidence comes from
                disinterested witnesses.
Id. (internal citations and quotation marks omitted).

                                             9
standard should we apply to measure willfulness in the 18 U.S.C. § 923(e) context, and

second, what type of evidence (direct or circumstantial) can be used to meet that standard.

       Here, the district court determined that a willful violation meant that the “dealer

either intentionally or knowingly violated his obligations or was recklessly or plainly

indifferent despite the dealer’s awareness of the law’s requirements.” Aplt. App. at 49

(quoting Athens, 364 F. App’x at 59 ).8 The seven circuits that have addressed the

applicable standard for willfulness in the 18 U.S.C. § 923(e) context have embraced

constructions similar to those used by the district court in this case.9 This precedent from

the other circuits is persuasive. We hold that, in this context, the willfulness requirement

of 18 U.S.C. § 923(e) is met by plain indifference toward known legal obligations.

       The parties also dispute the appropriate method of proof to show plain indifference

under 18 U.S.C. § 923(e). Is direct evidence of plain indifference required, or is

       8
        The parties also agree that “willful” in this context means intentional, knowing,
reckless, or plainly indifferent. Aplt. Br. at 6; Aplee. Br. at 3. Nevertheless, Story
generally refers to recklessness as the required standard in his brief.
       9
         Athens, 364 F. App’x at 59; Armalite, 544 F.3d at 647 (“[A] dealer violates the
statute when, with knowledge of what the law requires, it intentionally or knowingly
violates the GCA’s requirements or acts with plain indifference to them.”); RSM, 466
F.3d at 317 (“plain indifference toward . . . known legal obligations satisfies the
willfulness requirement”); Article II Gun Shop, 441 F.3d at 497 (“must prove that the
dealer knew of his legal obligation and purposefully disregarded or was plainly
indifferent to the record keeping requirements”); Willingham Sports, 415 F.3d at 1277 (“a
showing of purposeful disregard of or plain indifference to the laws and regulations
imposed on firearms dealers shows willfulness”); Perri, 637 F.2d at 1336 (“Willful
violation of the Gun Control Act is established when a firearm dealer understands the
requirements of the law, but knowingly fails to follow them or is indifferent to them.”);
Lewin, 590 F.2d at 269 (“plain indifference to the regulatory requirements will suffice as
a ‘willful’ violation justifying denial of license”).

                                             10
circumstantial evidence enough? Here, the district court agreed with Cook that Story’s

prior violations after he was fully advised of the law’s requirements and the sheer number

of current violations were sufficient to show plain indifference. Story argues that these

prior acts provide no evidence of Story’s state of mind at the time the violations

occurred,10 asserting that “the district court erred because . . . [it] considered Borchardt’s

previous violations as evidence of the recklessness and did not focus solely on the

evidence of Borchardt’s state of mind at the time the violations were committed.” Aplt.

Br. at 7.

       As with the applicable standard for willfulness, this court has not addressed

whether evidence of a gun dealer’s past violations can establish that new violations were

committed with plain indifference. But the seven other circuits that have addressed this

question have all concluded “that a dealer’s repeated violations after it has been informed

of the regulations and warned of violations does show purposeful disregard or plain

indifference.” Willingham Sports, 415 F.3d at 1277 (collecting cases); Athens, 364 F.

App’x at 60 (“Repeated violation of known legal requirements is sufficient to establish

willfulness.”).

       Our own precedent also suggests that circumstantial evidence can suffice to

       10
         Story argues that we cannot consider evidence of any violations that were not
ruled on by the court in its summary judgment. But the district court relied on the
evidence of other violations, and Story has not argued that the other violations did not
occur. Here, we consider all of Story’s uncontested violations as presented in the record
in determining whether there was sufficient evidence to conclude that these particular
violations were the result of plain indifference.

                                              11
establish state of mind. We have noted in the criminal context that “the element of

willfulness is rarely provable by direct evidence, and most often can be proven only by

inference from the evidence introduced.” United States v. Brown, 996 F.2d 1049, 1057

(10th Cir. 1993) (internal citation and quotation marks omitted). Moreover, use of

evidence of past violations to show state of mind—e.g., intent or lack of accident—is

hardly unusual; we admit evidence under Federal Rule of Evidence 404(b) for just such a

purpose. See, e.g., United States v. Rothbart, 723 F.2d 752, 755 (10th Cir. 1983) (“In this

case where the sole issue was defendant’s willfulness, the evidence [that defendant had

previously filed late personal income tax returns] was properly admitted to show intent

and absence of mistake.”).

       We join our sister circuits and hold that, after a dealer has been informed of the

Gun Control Act requirements and warned of violations, a dealer’s subsequent repeat

violations suffice to show plain indifference to the statutory requirements. RSM, 466

F.3d at 322 (“[A] court may infer willful omission from a defendant’s plain indifference

to a legal requirement to act if the defendant (1) knew of the requirement or (2) knew

generally that his failure to act would be unlawful.”).

           C. The district court correctly concluded that Story acted with plain
                indifference to the requirements of the Gun Control Act.

       Story argues that his violations do not show anything more than mere negligence

in failing to comply with the Gun Control Act. Story further suggests that the legislative

                                             12
history for 18 U.S.C. § 923(e),11 which indicates that the intention behind adding

“willfully” to § 923(e) was to avoid revoking licenses for “inadvertent errors or technical

mistakes,” precludes a determination that his negligent mistakes in this case showed

willfulness. Given the evidence presented in this record, this argument is not convincing.

       First, Story maintains that his actual error rate was very low, roughly three to six

percent, and that this low error rate only supports a finding of negligence. He arrives at

these numbers by dividing the number of incorrectly completed information blanks by the

number of Form 4473s at issue multiplied by the number of information blanks per form.

Aplt. Reply Br. at 3. This approach obscures the fact that ninety percent of Story’s Form

4473s were completed incorrectly. Although the completion of each form presents

numerous opportunities for error, on the whole Story’s error rate was very high. In light

of his numerous past violations, when coupled with his present high error rate, more than

mere negligence is evident.

       Second, Story argues that the mistakes were due to carelessness, as Story testified

at the administrative hearing. He notes that the Supreme Court has equated carelessness

to negligence, not plain indifference. This argument fails because it relies on the

reasoning behind Story’s first argument, that the past violations should not be considered

evidence of Story’s state of mind at the time he committed the infractions. Based on our

       11
          Story cites language from S. Rep. No. 98–583, the report for a bill substantially
similar to the bill that became § 923(e), because the bill that became § 923(e) had no
Senate Report.

                                             13
holding here, the evidence in the record compels the conclusion that Story acted with

plain indifference, in spite of his own statements that the violations resulted from

carelessness. Story’s continued carelessness, in the face of Story’s acknowledged prior

violations and his understanding of the Gun Control Act requirements, amounts to the

plain indifference necessary to support Cook’s willfulness determination.

       In summary, an ATF officer inspected Story’s records in 2002 and found several

violations of the Gun Control Act. Story acknowledged the mistakes and signed a

statement that he understood the pertinent regulations and had corrected the mistakes. In

August 2007, another ATF agent conducted a second compliance inspection and found

Story had made numerous repeated mistakes in records from 2004 through 2007. Based

on the standard we have adopted herein, this undisputed evidence established that the

violations were plainly indifferent as a matter of law. Story knew of the regulations, had

violated them in the past and been warned of the need for compliance, and then continued

to violate the same regulations.12 This evidence shows Story was plainly indifferent to his

ongoing reporting requirements under the law, despite his awareness of the law’s

requirements. His plain indifference rises to the level of wilfulness under 18 U.S.C.

923(e). The errors which served as a basis for revocation of Borchardt’s federal firearms

       12
         See Armalite, 544 F.3d at 649–50 (finding willfulness when, after one inspection
revealed numerous infractions, a second inspection a year later found errors in over half
of the Form 4473s on file); Lewin, 590 F.2d at 269 (continued violations discovered
during a compliance inspection two years after a first compliance inspection supported a
finding of willfulness).

                                             14
license were not inadvertent errors or technical mistakes, but rather were a systematic and

continuing failure to abide by known legal requirements.

                                            IV

       Accordingly, we AFFIRM the district court’s grant of summary judgment.

                                            15