D.C v. Imports, L.L.C. v. ATF ( 2016 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 16-1015
DCV IMPORTS, LLC,
Petitioner,
v.
BUREAU OF ALCOHOL, TOBACCO,
FIREARMS AND EXPLOSIVES,
Respondent.
____________________
Petition for Review of an Order of the
Bureau of Alcohol, Tobacco, Firearms and Explosives.
No. 3-IL-107-23-3L-00682
____________________
ARGUED AUGUST 9, 2016 — DECIDED OCTOBER 4, 2016
____________________
Before BAUER, POSNER, and SYKES, Circuit Judges.
SYKES, Circuit Judge. DCV Imports, LLC, a family-
operated fireworks importer in rural Illinois, petitions for
review of an order denying renewal of its import license. An
administrative law judge found that DCV Imports willfully
failed to keep required records of its daily transactions, see
18 U.S.C. § 842(f); 27 C.F.R. § 555.127, and recommended
that the company’s license not be renewed. The regional
2 No. 16-1015
office of the Bureau of Alcohol, Tobacco, Firearms and
Explosives accepted that recommendation, and the decision
was upheld by the Deputy Director of ATF. We conclude
that substantial evidence supports the Deputy Director’s
decision and deny the petition for review.
I. Background
The activities of two closely related, family-owned fire-
works businesses are relevant to this case, although only the
denial of DCV Import’s license is directly at issue. Mary
Vinyard and Stephen Vinyard, Sr., began operating S&N
Fireworks in the late 1970s, and in 1997 they obtained from
the ATF a license to import high explosives. Their son
Darren founded DCV Imports in 2004 with the intention of
eventually buying out his parents’ business or running his
own fireworks company. DCV (meaning Darren Clifford
Vinyard) shared S&N’s place of business in Lincoln, Illinois,
and in 2004 obtained its own license to import high explo-
sives. From 2004 until 2011, S&N Fireworks ordered bulk
fireworks from DCV Imports, which imported the explosives
from China and immediately transferred them to S&N
Fireworks. S&N then packaged and sold the fireworks for
individual shows.
In addition to the two companies’ shared premises and
symbiotic business relationship, Darren was employed by
S&N Fireworks and was listed as a “responsible person” on
S&N’s license. ATF regulations define “responsible person”
as one “who has the power to direct the management and
policies of the applicant pertaining to explosive materials”
and generally “includes partners, sole proprietors, site
managers, corporate officers and directors, and majority
shareholders.” 27 C.F.R. § 555.11. Darren’s duties with S&N
No. 16-1015 3
included delivering fireworks for shows and staging fire-
works shows.
ATF agents periodically conduct compliance inspections
of federal explosives licensees. See id. § 555.24. Agency
regulations require that licensees maintain for each storage
area or “magazine” an accurate “daily summary of maga-
zine transactions,” including the quantity of explosives
received and removed and the total on hand at day’s end.
See id. § 555.127. Licensees also have an affirmative duty to
notify ATF about discrepancies that “might indicate a theft
or loss of explosive materials.” Id. ATF investigators inspect-
ing DCV Imports in 2004, 2008, and 2010 did not uncover
any regulatory violation. DCV was not storing any explo-
sives during this period, however, because all fireworks it
received were immediately transferred to S&N Fireworks.
Following each inspection, an ATF investigator reviewed
with Darren the applicable statutes and regulations, and
each time he signed an Acknowledgement of Federal Explo-
sives Regulations.
S&N’s compliance record, on the other hand, was spotty.
ATF investigators cited the company for numerous viola-
tions during a 2006 inspection, including not maintaining
accurate daily summaries and storing fireworks unsafely.
That inspection led to a “warning conference” in 2008 at-
tended by Darren and other S&N Fireworks personnel. Then
in 2009 an inspection revealed a multitude of violations,
including hundreds of instances where actual counts of
stored fireworks contradicted inventory records, multiple
inaccurate daily summaries, and the disappearance of
roughly 10,000 pounds of shells. Stephen “Vinny” Vinyard,
Jr., Darren’s brother, was the S&N employee tasked with
4 No. 16-1015
maintaining the daily summaries throughout the period
when these infractions occurred. Darren attended a confer-
ence in early 2010 to wrap up the 2009 inspection, and after
reviewing the violations with an ATF investigator, he signed
a report acknowledging the citations. Later that same year
the ATF’s Chicago Field Division, through its Director of
Industry Operations, notified S&N Fireworks that its license
would not be renewed because of willful violations uncov-
ered during the 2009 inspection. Rather than contest the
decision, S&N voluntarily surrendered its license.
DCV Imports then bought out S&N’s inventory, equip-
ment, customer lists, and show contracts. As part of the
transaction, Darren agreed to give Vinny a 50% stake in
DCV and to make him vice president, although Darren
retained operational control as president of the company.
DCV Imports expanded its operations from importing
fireworks to running a complete fireworks business, as S&N
Fireworks had been. Darren made Vinny responsible for
maintaining the required daily summaries (and consequent-
ly the magazine inventories) even though maintaining those
same records for S&N Fireworks had been Vinny’s job when
the lapses leading to the company’s demise had occurred.
Vinny did not receive any formal recordkeeping training
and struggled to complete the daily summaries; he told
Darren that he was uncomfortable performing this task. In
early 2013 Vinny hired a cousin to take over the recordkeep-
ing duties. Vinny himself trained the cousin to maintain the
daily summaries and then “stopped paying attention” to the
records.
A team of ATF investigators arrived unannounced in
September 2013 to inspect DCV Imports. The investigators
No. 16-1015 5
began by counting the explosives in DCV’s magazines and
comparing those numbers to a computerized inventory, but
when it became clear that the quantities did not match, the
team asked Darren for the daily summaries. The investiga-
tors found 73 instances in which those records did not match
the amount of fireworks added or removed from a maga-
zine. Those 73 inaccurate daily summaries totaled 1,897
missing “units” or roughly 870 net pounds of explosives for
which DCV Imports could not account. As before, this
inspection concluded with a conference during which ATF
investigators reviewed regulatory requirements and DCV’s
violations with Darren and required him to sign an
Acknowledgement of Federal Explosives Regulations.
Based on these violations, ATF’s Director of Industry
Operations in Chicago notified DCV Imports in May 2014
that the agency did not intend to renew DCV’s explosives
license. The notice charged DCV Imports with willfully
failing to comply with the recordkeeping mandate of
27 C.F.R. § 555.127. The notice placed special emphasis on
the volume of missing fireworks.
DCV invoked its right to a hearing before an administra-
tive law judge. See 18 U.S.C. § 843(e)(2). In a written submis-
sion to the assigned judge, DCV Imports did not dispute the
violations but argued instead that its violations should not
be deemed willful given its perfect compliance record before
2013. The agency responded that S&N Fireworks and DCV
Imports were “essentially the same business operation” and
equated the violations of the former with the latter.
The administrative law judge conducted an evidentiary
hearing in December 2014 and afterward issued a written
order agreeing with the agency that DCV Imports had
6 No. 16-1015
committed the recordkeeping violations willfully. The judge
reasoned that Darren’s long history of working in the fire-
works industry and extensive interactions with the ATF
“demonstrate that he was sufficiently knowledgeable of the
ATF’s federal explosives regulations” yet chose to disregard
those requirements. The judge acknowledged that DCV
Imports and S&N Fireworks are different entities, and
although she did not impute S&N’s violations to DCV, the
judge did hold Darren accountable for the knowledge he
gained as a responsible person at S&N Fireworks. She also
agreed with the agency that Darren’s decision to defer
recordkeeping responsibility to Vinny—knowing that he
was “at the center of the faulty recordkeeping that led to
S&N’s 2010 denial”—strongly supported a finding of will-
fulness. The judge recommended that the agency confirm
the decision not to renew DCV’s license.
That recommendation was accepted. DCV Imports
sought review by the Deputy Director of the ATF, who after
briefing and oral argument upheld the denial of DCV’s
license renewal. See 27 C.F.R. § 555.79. DCV Imports peti-
tioned for review by this court. See id. § 555.80.
II. Discussion
We will uphold the agency’s conclusion that DCV Im-
ports acted willfully if it is supported by substantial evi-
dence. See § 843(e)(2); 5 U.S.C. § 706(2)(E). Congress has
directed the Attorney General (and by delegation the Direc-
tor of the ATF) to deny or refuse to renew a license to import
or deal in explosive materials if the applicant has willfully
violated any pertinent statute or regulation. 18 U.S.C.
§ 843(a), (b)(2). “Willfully” as used in § 843 is not defined,
and only one of our sister circuits has addressed its meaning.
No. 16-1015 7
In Vineland Fireworks Co. v. Bureau of Alcohol, Tobacco, Fire-
arms & Explosives, the Third Circuit reasoned that explosives
licensing is analogous to firearms licensing “because ATF
administers both … and the statutory provisions governing
the revocation of each type of license require that the licen-
see has ‘willfully violated’ a statutory provision or a regula-
tion.” 544 F.3d 509, 518 (3d Cir. 2008). The court concluded
that decisions addressing firearms licensing under the Gun
Control Act provide “a useful framework” for explosives
licensing and observed that the six circuits that have inter-
preted the meaning of “willful” in proceedings to revoke the
license of a firearms dealer agree that the term means plain
indifference to, or purposeful disregard of, a known legal
duty. Id.; see Shawano Gun & Loan, LLC v. Hughes, 650 F.3d
1070, 1077–78 (7th Cir. 2011); RSM, Inc. v. Herbert, 466 F.3d
316, 320–23 (4th Cir. 2006); Willingham Sports, Inc. v. Bureau of
Alcohol, Tobacco, Firearms & Explosives, 415 F.3d 1274, 1277
(11th Cir. 2005); Appalachian Res. Dev. Corp. v. McCabe,
387 F.3d 461, 464 (6th Cir. 2004); Perri v. Dep’t of the Treasury,
637 F.2d 1332, 1336 (9th Cir. 1981); Lewin v. Blumenthal,
590 F.2d 268, 269 (8th Cir. 1979).
We adopt the Third Circuit’s approach and conclude that
the interpretation of “willfulness” applicable to firearms
licensing applies as well to revocation of explosives licenses.
Accordingly, no showing of bad purpose or evil motive is
required to establish willfulness, and no de minimis exception
is available. See Article II Gun Shop, Inc. v. Gonzales, 441 F.3d
492, 497–98 (7th Cir. 2006) (interpreting a parallel provision
of the Gun Control Act).
With this definition in mind, we turn to the question
whether substantial evidence supports the administrative
8 No. 16-1015
law judge’s finding that DCV Imports acted willfully. DCV
Imports insists that the judge focused “so heavily” on estab-
lishing Darren’s knowledge of the explosives regulations
that she “failed to address the more important issue of
whether DCV intentionally disregarded or was plainly
indifferent to its legal duties.”
DCV essentially takes the position that it lost 870 net
pounds of explosives because of negligence or ignorance, not
purposeful disregard of its regulatory duties. The company
argues that the administrative law judge was wrong to fault
Darren for giving Vinny responsibility for the daily summar-
ies because Vinny was the “relatively more experienced
brother.” Darren’s choice to defer to “the most experienced
person available” evinces a “conscious effort to fulfill” the
regulatory requirement, DCV argues. But that inference is
unreasonable on this record; even if we accept that Vinny
was the “more experienced brother,” his recordkeeping
history at S&N Fireworks was so poor that it led to the
revocation of S&N’s license. DCV Imports also contends that
the agency was wrong to impute to Darren knowledge
gained from his time at S&N Fireworks because he did not
hold an ownership interest and was at most a site manager.
But Darren’s lack of an ownership interest in S&N Fireworks
is irrelevant since DCV Imports cannot claim that he was
unaware of the recordkeeping requirements.
DCV also argues that the agency was wrong to rely on
the acknowledgments Darren signed because those forms
merely indicate that ATF gave him a general overview of the
regulatory requirements and do not establish that Darren
actually understood them. Again, that’s not a reasonable
argument on this record. Substantial evidence supports the
No. 16-1015 9
agency’s conclusion that Darren was sufficiently familiar
with the regulatory requirements based on his long history
in the fireworks business and numerous prior ATF inspec-
tions and warnings.
DCV tries to minimize its culpability by characterizing
the many lapses uncovered in the 2013 inspection as a
“single recordkeeping violation.” Once again, that’s not an
accurate characterization of the facts; hundreds of pounds of
explosives were lost on account of 73 inaccurate daily sum-
maries. Anyway, one willful violation is enough; the ATF
isn’t required to cite a licensee repeatedly before revoking an
explosives license. Am. Arms Int’l v. Herbert, 563 F.3d 78, 87
(4th Cir. 2009) (“Plain indifference can be found even where
nine times out of ten a licensee acts in accordance with the
regulations, if he was plainly indifferent to the one-in-ten
violation.”); Vineland Fireworks Co., 544 F.3d at 518–19.
Darren and Vinny were intimately involved with S&N
Fireworks when their parents lost their license based largely
on the same type of recordkeeping violations, yet neither of
the brothers exercised the initiative to ensure that DCV
complied. This more than supports a finding of willfulness.
Moreover, no principled basis exists on which to distin-
guish the facts of this case from Vineland Fireworks Co., the
only federal appellate decision directly addressing revoca-
tion of an explosives license. There the Third Circuit upheld
a finding that a licensee willfully failed to maintain accurate
daily transaction records where the company’s owner had
been the responsible person of a predecessor company when
its license was revoked for similar recordkeeping violations.
544 F.3d at 521–22. The Third Circuit specifically rejected an
argument that the company’s principal should be excused
10 No. 16-1015
from compliance because her bookkeeper was undergoing
cancer treatment when the violations occurred, finding that
the owner’s interactions with ATF during the predecessor
company’s revocation demonstrated her knowledge of the
regulatory requirements. DCV’s argument—that Darren’s
lack of experience and Vinny’s apparent incompetence
negates a finding of willfulness—is similarly unpersuasive.
Finally, DCV asserts that because it previously asked the
ATF for guidance in interpreting a different set of explosives
regulations, the finding of willfulness was improper. As far
as we can tell, this contention concerns a separate, unrelated
charge that the administrative law judge rejected and thus
no longer is at issue. A licensee’s effort to understand one
regulation does not inoculate it against a finding that it
intentionally disregarded another. DCV also suggests,
without citation to evidentiary support, that the ATF inves-
tigators provided contradictory interpretations of the agen-
cy’s regulations. The administrative law judge pointed out
that no evidence in the record supports this contention.
In short, substantial evidence supports the agency’s con-
clusion that DCV Imports willfully violated explosives
regulations. The petition for review is, accordingly, DENIED.