Court Opinion

ID: 9467964
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:00:44.765711+00
Date Added: 2024-06-11T17:40:36.716568
License: Public Domain

SWYGERT, Circuit Judge,
dissenting.
The majority leaves Stein’s, Inc. and others similarly situated vulnerable to capricious and arbitrary licensing decisions of the Administrator of the Bureau of Alcohol, Tobacco and Firearms without meaningful judicial review, contrary to 18 U.S.C. § 935(f)(3) and Congress’s expressed intent. In the case before us, the district court should have conducted a de novo review which would have afforded Kenneth Stein, owner of Stein’s, Inc., an opportunity to testify and perhaps offer other evidence on the question of intent.
Apart from the revocation of its license to deal in firearms, Stein’s previously had no problems with law enforcement authorities. In May, 1974, the Bureau of Alcohol, Tobacco and Firearms discovered several violations during an inspection. In July, 1974, another inspection was conducted by Agent David Bateman. Despite finding violations, Bateman recommended renewal of Stein’s license; he also gave Kenneth Stein copies of the relevant statute and regulations and explained correct procedures to him. An admonitory letter was sent.
In late October of 1975, Bateman contacted Stein prior to conducting a recall inspection and inquired about the completion of an inventory. Because Stein misunderstood Bateman’s previous instructions, the inventory had not been completed. Apparently, Stein believed that the company’s record books had to be approved prior to the inventory. By November 4, the inventory was completed, and the violations discovered during the previous inspection were corrected. Agent Bateman testified that, in the course of three inspections in two years, Stein and his employees fully cooperated and that they made an effort to comply with the law.
A year later Stein’s was again inspected. An initial inspection occurred on November 29 and 30, 1976, and a follow-up inspection on January 7, 1977; both were conducted by Agent Michael Crump. Crump found many violations, most involving recordkeeping, although a pawned handgun was found to have been returned to “someone under twenty-one years old” in violation of 27 C.F.R. § 178.99(b). In addition, the inventory was inaccurate. Another admonitory letter was sent, but license renewal was recommended and granted. Crump testified that out of approximately one thousand firearms transactions engaged in by Stein’s, only twenty-five to thirty record-keeping violations were found. He also did not find a pattern of deceit.
Finally, in September and October of 1977, Stein’s was again inspected, this time by Agent Michelle Dunn. The inspection occurred shortly after Stein’s had changed locations. Stein explained that many of the admittedly numerous violations cited by Dunn resulted from the business’s then-recent move and the attendant disruption of its records and inventory. Nevertheless, Dunn noted every violation she found.1 In her zeal, she also noted a violation which later was shown not to exist. She cited a shortage in the inventory, but at the hearing, Dunn acknowledged that there actually was no such shortage. Dunn also stated that no criminal violations were found.
*470Agent Dunn’s recommendation to deny renewal of Stein’s license was accepted by Regional Administrator David Chupp. Appended to the Notice of Denial form were five typewritten pages explaining the “reasons” for the denial. More than two of the five pages consisted of quotations of the pertinent provisions of the statute and regulations. Another two and one-half pages were devoted to reciting the inspection history summarized above. Finally, the Administrator stated:
In view of the enumerated violations, and, in particular, the recurring violations of 18 U.S.C. § 922(m), 18 U.S.C. § 923(g), 27 C.F.R. § 178.124(c), and 27 C.F.R. § 178.125(e), you have demonstrated a careless and willful disregard of the provisions of Chapter 44, Title 18, U.S.C., and the Regulations issued thereunder.
Because of the detrimental impact of this decision upon its business, Stein’s invoked its right to a hearing. The hearing was held on April 4, 1978. Agents Dunn, Crump, and Bateman testified for the Government and the inspection reports and other documents were introduced. Stein’s was represented by counsel and Kenneth Stein testified in its behalf.
Stein acknowledged that there were problems, especially in Stein’s recordkeeping. He attributed these problems to his and the employees’ misunderstanding of the law, to human error, and, as to the violations found during Dunn’s inspection, to the disruption caused by the business’s move. He denied that the violations were willful. Stein explained that when he noticed omissions or errors on forms completed by other employees, even if he knew the omitted or correct information, he would not alter the forms because he did not believe it correct to do so. He also indicated that steps had been taken to ensure compliance in the future. These included relieving Kenneth Stein’s seventy-eight year old father and a seventy-two year old employee of any involvement with firearms transactions2 and hiring a former Milwaukee police detective to manage Stein’s firearms business.
In sum, the testimony and other proof adduced at the hearing revealed that Stein’s had committed numerous violations, some more serious than others. Initially, the Administrator presumed that the violations must have been willful, because' so many occurred over a long period of time despite warnings and explanations regarding correct procedures. But Stein denied that the violations were willful and offered plausible explanations for them. The agents partially supported Stein’s denial of willfulness. The hearing officer concluded that license renewal was warranted.3 Nevertheless, Administrator Chupp, without having seen and heard the testimony, was unmoved. In a hastily scrawled note, he rejected the hearing officer’s recommendation for the reasons initially given. Apparently, in Chupp’s mind, the presumption that the violations were willful had not been overcome.
Having exhausted its administrative remedies, Stein’s invoked its right to judicial review under 18 U.S.C. § 923(f)(3). The Secretary’s answer “affirmatively alleged that the decision of the Treasury . is supported by substantial evidence. . . ” The Secretary then moved for summary judgment, relying on the administrative record and his answer. In opposition, Stein’s submitted the affidavit of Kenneth Stein, who generally denied that the violations were willful. The district court granted summary judgment in favor of the Secretary.
In its memorandum, the district court alluded to the split in authority regarding the appropriate standard of judicial review under section 923(f)(3), but purported to find it unnecessary to decide whether the *471“substantial evidence” test or de novo review was appropriate. The majority is convinced that de novo review was undertaken. See majority opinion at 468. The district court apparently applied the “substantial evidence” test, however, as evidenced by the district court’s conclusion that “substantial evidence exists in the record supporting the finding of a willful violation .... ” The fact that this case was decided on summary judgment is additional evidence that the wrong test was applied, because in this circuit substantial evidence is a question of law, appropriately decided on summary judgment. Milton v. Harris, 616 F.2d 968, 975 (7th Cir. 1980) (per curiam). Moreover, the district court refused to accept additional evidence only because Stein’s failed to overcome the substantial evidence supporting the Secretary’s decision.4 This violated the applicable law because in so doing the district court viewed the administrative decision as presumptively correct.
Neither the district court nor the Secretary heard testimony but characterized the evidence in the administrative record as “uncontroverted.” As discussed above, however, Kenneth Stein offered plausible explanations for the violations which were supported partially by the agents. These explanations were disregarded. The only reasonable basis for so doing must have been a determination that Kenneth Stein was riot a credible witness. Thus, the district court’s conclusion that summary judgment was appropriate because credibility was not at issue was incorrect. Credibility is precisely what was and remains at issue. In this regard, the fact that the hearing officer, who was the person who heard Kenneth Stein’s testimony, recommended license renewal is most significant. At the very least, the district court was required to explain its “findings” in the light of all the evidence, including Stein’s testimony.
In conclusion, if the appropriate standard of review were the “substantial evidence” test, the district court’s disposition of this case would have been correct. Similarly, even on de novo review, the obligation to hear live witnesses might have been abrogated if Stein’s had not come forth with plausible explanations for the violations. See, e. g., Mayesh v. Schultz, 58 F.R.D. 537 (S.D.Ill.1973). But, because Stein’s did offer explanations, the rejection of which could only have been because of credibility determinations, the district court was obliged to make those determinations itself. Otherwise, the requirements that the violations be willful and that judicial review be de novo are meaningless. This court may not substitute considerations of judicial economy for those requirements. This case illustrates the reason the requirements were enacted by Congress and the abuses which result when they are not satisfied.
I would reverse and direct the district court to conduct a de novo review, including an evidentiary hearing, in accordance with 18 U.S.C. § 923(f)(3).

. Many of the violations cited by Dunn were extremely minor. For example, if an address which was obviously in Milwaukee omitted that fact or a zip code was not shown, a violation was noted.

. Apparently, these two persons experienced the most difficulty with the required forms.

. One can only speculate whether this recommendation was based upon a finding that the violations were not willful. On this point the record is unclear. The majority’s assertion that the hearing officer’s recommendation was based upon his belief that nonrenewal “was too severe a penalty for the infractions found . ,” is, however, equally speculative.

. Although Kenneth Stein’s affidavit was conclusory, the administrative record was before the district court. Stein’s was entitled to rely upon it, at least to the extent that the Secretary did so. Thus, the district court’s refusal ultimately could not have been based upon the inadequacy of Stein’s affidavit.