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