Robert Thorne v. Dos ( 2020 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ROBERT D. THORNE; BARBARA J. No. 19-17606
DENNYSSCHEN; DAVE SHEER GUNS;
DIPLOPOINT; SOUTHERN ARMS; D.C. No.
PRETORIA ARMS PTY LTD; G AND D 2:19-cv-01982-
GROUP, JCM-EJY
Plaintiffs-Appellants,
v. OPINION
UNITED STATES DEPARTMENT OF
STATE; MICHAEL POMPEO;
DIRECTORATE OF DEFENSE TRADE
CONTROLS; MIKE MILLER,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Nevada
James C. Mahan, District Judge, Presiding
Argued and Submitted September 1, 2020
Pasadena, California
Filed October 26, 2020
Before: Eugene E. Siler, * Marsha S. Berzon, and
Kenneth K. Lee, Circuit Judges.
Opinion by Judge Siler
*
The Honorable Eugene E. Siler, United States Circuit Judge for the
U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
2 THORNE V. DOS
SUMMARY **
Arms Export Control Act
The panel affirmed the district court’s order denying the
motion of plaintiff exporters and resellers of United States
armaments for a preliminary injunction seeking to force the
federal government to abide by procedural protections
before debarring plaintiffs under 22 C.F.R. § 127.7 from
engaging in their business.
The Arms Export Control Act (AECA) authorizes the
President to “control the import and the export of defense
articles and defense services.” 22 U.S.C. § 2778(a)(1).
Pursuant to that authority, the Department of State
promulgated the International Traffic in Arms Regulations
(ITAR). One of those regulations, 22 C.F.R. § 127.7, allows
for the “debarment” of an individual or entity who wishes to
act under ITAR and AECA. Plaintiffs claimed that they
were de facto debarred from engaging in their business.
To establish a de facto debarment under § 127.7,
plaintiffs need to show that the Directorate of Defense Trade
Councils (DDTC) has completely prohibited them from
legally engaging in all ITAR and AECA activities. The
panel held that plaintiffs did not meet their burden. The
panel further held that plaintiffs presented facts and evidence
that established, at best, the denial of some license
applications to export arms, not a complete prohibition to act
under ITAR and AECA. The panel also held that plaintiffs
did not sufficiently establish that the DDTC improperly
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
THORNE V. DOS 3
imposed a presumption of denial on their license
applications. The panel concluded that the district court did
not abuse its discretion in denying plaintiffs’ motion for a
preliminary injunction.
COUNSEL
Matthew A. Goldstein (argued) and Robert A. Bernheim,
Farhang & Medcoff PLLC, Tucson, Arizona; Jordan T.
Smith, Pisanelli Bice PLLC, Las Vegas, Nevada; for
Plaintiffs-Appellants.
Christopher A. Bates (argued), Sharon Swingle, and
Matthew J. Glover, Attorneys; Joseph H. Hunt, Assistant
Attorney General; Nicholas A. Trutanich, United States
Attorney; United States Department of Justice, Civil
Division, Washington, D.C.; for Defendants-Appellees.
OPINION
SILER, Circuit Judge:
In passing the Arms Export Control Act (AECA),
Congress authorized the President to “control the import and
the export of defense articles and defense services.”
22 U.S.C. § 2778(a)(1). The President delegated such
authority to the Secretary of State and State Department,
who promulgated the International Traffic in Arms
Regulations (ITAR). Exec. Order No. 13,637 § 1(n), 78 Fed.
Reg. 16,129, 16,130 (Mar. 8, 2013). One of these
regulations, 22 C.F.R. § 127.7, allows for the “debarment”
of an individual or entity who wishes to act under ITAR and
AECA. “Debarment” constitutes a “prohibit[ion on] . . .
4 THORNE V. DOS
participating directly or indirectly in any [ITAR and AECA]
activities . . . .” 22 C.F.R. § 127.7(a)–(b).
Plaintiffs, exporters and resellers of United States
armaments, claim they have been “de facto debarred” under
22 C.F.R. § 127.7 from engaging in their business. In other
words, plaintiffs claim that they have been completely
prohibited from engaging in all ITAR and AECA activities
without being afforded the requisite procedural protections.
Plaintiffs brought suit and sought a preliminary injunction to
force the government to abide by those procedural
protections before debarring them. The district court denied
plaintiffs’ request for a preliminary injunction, and we
affirm that denial, as plaintiffs have insufficiently pleaded
facts and submitted evidence to support their assertion that
they have been de facto debarred.
I. Background
Plaintiff Robert D. Thorne (Thorne) is in the business of
exporting firearms, ammunition, and security equipment
from the United States to the other plaintiffs in this case, i.e.,
the Dave Sheer entities and their beneficial owners, who are
based in South Africa and sell those armaments. To lawfully
export such goods under ITAR and AECA, Thorne is
required to obtain a license from the Directorate of Defense
Trade Controls (DDTC). See generally 22 C.F.R. § 123.1;
22 U.S.C. § 2778. Thorne’s license applications for export
to the Dave Sheer entities were regularly approved.
In 2018, the DDTC denied Thorne’s 14 then-pending
license applications, two of them for “administrative
deficiencies” and 12 of them because “the foreign consignee
and end-user on each of these license applications,” i.e., one
of the Dave Sheer entities, “was an unreliable recipient of
U.S. origin defense articles.” The DDTC also told Thorne
THORNE V. DOS 5
that “[p]ursuant to 22 CFR 126.7 . . . U.S. persons are
accorded an opportunity to present additional information
requesting reconsideration of an adverse decision; however
we have determined that new permits would not overcome
the presumption of denial for these transactions.” The
DDTC then, through provisos, instructed some third parties
to refrain from selling arms to the Dave Sheer entities, and
also “flagged” some of the Dave Sheer entities in its
database.
Plaintiffs brought the instant action, alleging four claims
and requesting a preliminary injunction. Plaintiffs’ claims
and preliminary injunction request rest on two
presuppositions: (1) that the DDTC has de facto debarred
plaintiffs, under 22 C.F.R. § 127.7, from engaging in their
business; and (2) that the DDTC has improperly instituted a
presumption of denial, under 22 C.F.R. § 127.11, on
Thorne’s license applications listing the Dave Sheer entities
and owners as “foreign consignee[s] and end-user[s.]”
Because plaintiffs have not sufficiently pleaded or shown
that the DDTC has done either of these things, they have not
shown that the district court abused its discretion in finding
that they did not meet the necessary requisites to obtain a
preliminary injunction. See California v. Azar, 911 F.3d
558, 568, 575 (9th Cir. 2018); Arc of Cal. v. Douglas, 757
F.3d 975, 983–84 (9th Cir. 2014); Johnson v. Couturier, 572
F.3d 1067, 1083 (9th Cir. 2009).
II. Discussion
To establish a de facto debarment under § 127.7,
plaintiffs must show that they have been “prohibit[ed] . . .
from participating directly or indirectly in any [ITAR and
AECA] activities that are subject to this subchapter.”
22 C.F.R. § 127.7(a)–(b). Although it is possible to read
6 THORNE V. DOS
“any” in § 127.7 to mean “less than all,” the better reading
of “any” is to read it synonymously with “total.” If the
regulation’s drafters truly meant for “any” to mean “less than
all,” the clearer way to indicate such a meaning would be to
state, “prohibit[ed] . . . from participating directly or
indirectly in any [ITAR and AECA] activity that is subject
to this subchapter.” (emphasis added). Such a reading is
also more in line with the general concept of a debarment in
other contexts. Cf., e.g., 22 C.F.R. § 513.200; 48 C.F.R.
§ 9.405; 29 C.F.R. § 503.24; 2 C.F.R. § 417.625. So, to
establish a de facto debarment under § 127.7, plaintiffs need
to show that the DDTC has completely prohibited them from
legally engaging in all ITAR and AECA activities.
Plaintiffs have not met their burden in that regard. The
facts and evidence Thorne points to establish, at best, the
denial of some license applications to export arms to the
Dave Sheer entities, not a complete prohibition to act under
ITAR and AECA. The denial of a license pertaining to a
specific transaction only is not tantamount to a debarment.
See U.S. Ordnance, Inc. v. U.S. Dep’t of State, 432
F. Supp. 2d 94, 99 (D.D.C. 2006) (“Debarment . . . would
permanently deprive plaintiff of any chance to obtain a
license under the AECA. Whereas, a decision to deny an
export license is not an enforcement action, but rather is an
exercise of the broad discretion[] granted to the Department.
Thus, a denial of a license is only a preliminary action
. . . .”), vacated as moot by U.S. Ordnance, Inc. v. Dep’t of
State, 231 F. App’x 2, 2007 WL 141656, at *1 (D.C. Cir.
2007). 1 A decision to deny an export license is not an
1
Ordnance is the only case to have addressed debarment under
§ 127.7 and interpreted a previous version of that regulation, which
defined debarment as “prohibit[ing] any person from participating
directly or indirectly in the export of defense articles.” Ordnance, 432
F. Supp. 2d at 99; 22 C.F.R. § 127.7(a) (2006).
THORNE V. DOS 7
enforcement action, but rather an exercise of the broad
discretion granted to the DDTC. Indeed, as Thorne was
merely denied a license, the DDTC suggested to Thorne the
reconsideration process offered by § 126.7, not the
reinstatement and appeal process of § 127.7, i.e., the only
process available for debarred individuals and entities. See
22 C.F.R. § 127.7(a), (b), (d). Thorne’s claim of a
government ruse in that regard is uncompelling when he
never formally attempted to avail himself of any of the
aforementioned review processes, which would probably
have shed greater light on his ITAR and AECA status. See
Nat’l Archives & Recs. Admin. v. Favish, 541 U.S. 157, 174
(2004) (“[T]here is a presumption of legitimacy accorded to
the Government’s official conduct. . . . [C]lear evidence is
usually required to displace it.” (citations omitted)).
As for the Dave Sheer entities and owners, it is true that
the DDTC termed them unreliable end users, “flagged” them
in its internal database, and sent provisos to some third
parties instructing them not to engage in business with those
entities. That being said, the harshest result of these actions
has been the Thorne license denials and DDTC’s instruction
to some third parties to refrain from engaging in business
with the Dave Sheer entities and owners. The license
denials, however, pertained to a singular group of
transactions with Thorne only. Additionally, plaintiffs point
to nothing in the record challenging the DDTC’s assertion
that it “did not add [the] provisos [plaintiffs complain of] to
licenses for . . . end-use in South Africa, where the risk of
diversion [of arms to the Dave Sheer entities] was
determined to be low,” not non-existent. The Dave Sheer
entities and owners cannot claim a de facto § 127.7
debarment when the DDTC has only prohibited some third
parties from engaging in transactions with those plaintiffs.
Moreover, as with Thorne, those plaintiffs have never
8 THORNE V. DOS
directly availed themselves of the ITAR and AECA process
in a way that establishes pretext or an actual, consequential
change in their legal status—they have only ever been listed
as “foreign consignees or end-users” on Thorne’s license
applications.
By essentially only informally requesting further
clarification regarding Thorne’s license denials, plaintiffs
have not pleaded sufficient facts or provided sufficient
evidence of a nefariously imposed complete prohibition on
their legal engagement in ITAR and AECA activities so as
to overcome the “presumption of legitimacy” that is
“accord[ed to] Government records and official conduct.”
U.S. Dep’t of State v. Ray, 502 U.S. 164, 179 (1991).
Because plaintiffs never engaged in the ITAR and AECA
processes after Thorne’s license application denials,
seemingly unrefuted is the DDTC’s assertion that “none of
the Plaintiffs have been deemed ineligible by DDTC or are
the subject of . . . a . . . debarment” and that it “will continue
to review any license applications submitted where Robert
Thorne is the exporter or the [Dave Sheer] entities . . . are
the foreign consignees or end-users on a case-by-case basis.”
As for the purported institution of a presumption of
denial on license applications, plaintiffs have read too much
into a DDTC email to Thorne, that email being the basis for
that argument. The DDTC has explained that its use of the
phrase “presumption of denial” was merely meant to convey
that a resubmission of license applications unresponsive to
the DDTC’s reasons for denial would be pointless. The
DDTC has also explained that when it stated in its email that
“new permits would not overcome the presumption of denial
for these transactions,” the permits referred to were the Dave
Sheer entities’ and owners’ South African permits, not ITAR
and AECA licenses. In other words, when Thorne emailed
THORNE V. DOS 9
the DDTC and asked if “it [would] do any good to resubmit
the permits,” the DDTC thought Thorne was referring to
permits plaintiffs needed to obtain from the South African
government to be able to import United States’ arms, not the
licenses Thorne needed to export those arms. Plaintiffs
never formally requested reconsideration or reapplied for
licenses, so the DDTC’s assertion that no presumption of
denial was actually applied to the licenses that were denied
or that such a presumption would be applied to future license
applications is not refuted by clear facts or evidence.
In sum, the entirety of plaintiffs’ action, including its
request for a preliminary injunction, rests on two
presuppositions—that they have been de facto debarred and
that the DDTC has improperly imposed a presumption of
denial on their license applications. Because plaintiffs have
not sufficiently established that either of these things
happened, however, the district court did not abuse its
discretion in denying plaintiffs’ motion for a preliminary
injunction.
AFFIRMED.