Errors Spell Denial Of Firearms License


Although a simple mistake in record keeping does not constitute willfulness, repeated tolerance for mistakes can cost a pawnbroker his licensed to sell firearms.
A man whose first name was Franklin held a federal firearms license which authorized him to engage in business as a firearms dealer under the Gun Control Act of 1968. In October 1998, an ATF inspector conducted a compliance inspection at Franklin’s pawn shop. The inspector cited Franklin for a violation because the ATF Forms 4473 he obtained from customers contained errors, omissions, or both.
In the section for corrective action in the Report of Violations, the inspector wrote: “All future transfers — proprietor will have forms completed as required.” She and Franklin signed the report, and he got a copy.
In March 2000, another ATF inspector conducted a compliance inspection at the pawn shop. The inspector cited Franklin for five separate violations, among them failure to obtain properly executed ATF Forms 4473 and failure to enter acquisitions and dispositions of firearms in a timely and accurate manner in the Acquisitions & Dispositions Record.
The inspector provided explicit written corrective actions that were required to be taken, as well as deadlines for the corrections. The inspector and a representative of Franklin signed the form and received a copy.
On the same day, as part of the compliance inspection, the inspector educated the representative about the application of numerous federal firearms laws and requirements. She signed a form that listed the regulations covered.
Issues Warning
In June 2000, the ATF issued a warning letter to Franklin that listed the five separate violations of the federal firearms laws found during the March inspection. The letter reminded him that his FFL was conditioned upon his compliance with Federal laws and regulations. It warned that repeat violations would be viewed as willful and could result in the revocation of his license.
In April and May 2007, a team of ATF investigators conducted another compliance inspection at Franklin’s pawn shop. This time the lead inspector cited him for 12 violations of the federal firearms laws including (1) transferring firearms where he had reason to believe the purchaser was a prohibited individual, (2) making a false entry in the A&D Record and in Franklin’s copy of a Theft/Loss Report previously filed with the ATF, (3) failing to make accurate and timely entries in the A&D Record, (4) failing to obtain properly completed ATF Forms 4473, (5) failing to record Tennessee Instant Check System information, and (6) failing to report dispositions of multiple handguns.
In the Report of Violations, the lead inspector set out explicit corrective actions to be taken. An inspector also explained the numerous federal firearms regulations.
In May 2008, the ATF issued Franklin a Notice of Revocation of License which listed five grounds for revocation: (1) transfer of firearms to persons with reason to believe they were prohibited persons, (2) disposition falsely recorded, (3) acquisitions not recorded, (4) ATF Forms 4473 not properly completed, and (5) failure to file multiple handgun sales reports.
Review of Revocation
The ATF notified Franklin that he could request a hearing to review the revocation of his license. If his request was filed in a timely manner, the effective date of the license revocation would be stayed pending review pursuant to the hearing. Franklin filed a timely request for a hearing, which was held on Nov. 4, 2008.
At the hearing, the hearing officer and the ATF attorney referred to the hearing as an “informal hearing.” Through his counsel, Franklin objected that he had made requests for additional information from the director of industry operations that was not received, the ATF attorney did not supply him with copies of the exhibits before the hearing, the rules of discovery and the Administrative Procedures Act were not applied to the hearing, other ATF witnesses that defense counsel wished to testify were not produced by the ATF at the hearing, and the ATF counsel refused to allow the lead inspector of the 2007 inspection to testify about ATF policies and procedures on the grounds that they were privileged law enforcement material.
The lead inspector was the only witness called by the ATF attorney, although he was not sworn to testify under oath. Through the inspector, the ATF attorney introduced the exhibits concerning the 1998, 2000, and 2007 compliance inspections. The inspector explained in detail the April/May 2007 compliance inspection he conducted and the specific violations he found.
Changes and Training
Franklin then called himself as a witness. He stated that, based on the 2000 inspection and the communications he had with ATF at that time, he made changes to his operating practices and procedures and trained his employees in an effort to improve his compliance.
He denied that he or any of his employees willfully violated the obligations of a FFL holder. Franklin acknowledged that the federal firearms business is heavily regulated; that he kept a copy of the Federal Firearms Regulations Reference Guide at his business; that he received letters and newsletters from ATF concerning application of firearms laws and regulations; that he did not attend any ATF seminars; that he was aware that maintaining a FFL was contingent on compliance with the laws and regulations; that he was responsible for the acts or omissions of all the people who worked for him in the business, and that he signed the 1998 Report of Violations and his employees signed the 2000 and 2007 Reports of Violations.
In January 2009, the hearing officer issued a report and a summary of the evidence presented on each ground alleged for license revocation. He found that Franklin transferred firearms to persons with reason to believe they were prohibited from receiving firearms; that he failed to enter correct information and entered false information with regard to a theft of firearms; that he failed to record timely the purchase or other acquisition of approximately 17 firearms; that he transferred firearms without obtaining properly completed ATF Forms 4473, and he failed to complete Multiple Sales Reports on 13 occasions.
In addition, the hearing officer determined that each violation was “willful” because Franklin knew of a legal obligation and purposefully disregarded the obligation or was plainly indifferent to it. The officer recommended that Franklin’s license be revoked.
Because Franklin’s license expired effective April 1, 2009, he filed a timely application for renewal of the license. His renewal application automatically converted the pending proceeding from a revocation to consideration of the renewal application.
On April 9, 2009, the director, industry operations, issued a Final Notice of Denial of Application or Revocation of Firearms License, denying Franklin’s application to renew his license.
Pawnbroker Goes to Court
Franklin then filed a complaint in the United States District Court of Tennessee. He sought judicial review and reversal of the ATF’s Final Notice. Franklin claimed that the ATF’s decision was an arbitrary and capricious abuse of discretion, that the ATF violated the APA, the Paperwork Reduction Act, and his federal due process rights.
He sought the reinstatement of his license and an order requiring the ATF to continue to issue Letters of Authorization pending a final decision in the case, and award him attorney’s fees. The Attorney General, in turn, filed a motion for summary judgment.
Going over Records
According to Franklin, his records reflected that the business traded on new and used guns in the pawn business. In 1998, the pawn shop conducted 772 firearm transactions. For the years 1999 through 2006, the business averaged between 615 and 820 firearm transactions per year.
To Franklin’s recollection, said the court, the first ATF compliance inspection was in 1998 and was relatively brief. The ATF inspector advised him that there were some errors on some of the firearms transaction record forms that were filled out by purchasers, and the forms needed to be completed.
Franklin claimed he did not receive any warning letter or conference at that time. He instructed the people who worked in the pawn shop that it was important to make sure that the firearms transaction records were properly filled out and that the background checks were done on each sale.
From time to time, he reviewed the paperwork in an effort to make sure that his employees were doing things correctly. It appeared to him that the forms he reviewed were proper.
The pawn shop was again inspected in 2000. In that inspection, the inspector pointed out several things being done wrong that Franklin claimed he did not realize were problems.
For example, Franklin collected firearms and had 75 of his personal guns at the pawn shop, but they were not listed in the pawn shop inventory of guns. Franklin discussed this with the inspector and was told that his personal guns still had to be entered in the A&D Record even if they were not part of his pawn shop inventory. That had not been Franklin’s understanding.
He was also told that he had to put the TICS confirmation number on the Form 4473s. Pawn shop employees were keeping the confirmation number on a form that TICS provided on which the employee also obtained the fingerprint of the purchaser, and then the employee stapled the TICS form to the ATF form.
Franklin claimed he did not realize the number had to be written on both forms and that stapling them together was not good enough.
Franklin was also told that customers actually had to write out “Yes” and “No” to various questions and that they could not put just “Y” and “N.” Again, Franklin claimed that he and his employees did not understand that the law was that picky about how those questions were answered because for many years it had been OK to answer such questions with a “Y” or “N.”
Franklin was also told that he had to list some of his employees on the license, but he did not realize that employees had to be listed on the license because that was not brought up at the prior inspection.
Problems Seemed Minor
It seemed to Franklin that the problems the inspector was talking about were either occasional errors on some of the forms or a difference in what the ATF required of the pawn shop concerning how to keep records. Franklin received a warning letter.
Franklin claimed he worked with his employees to fix everything and he talked with them about how important it was to keep good records.
Franklin told them the information needed to be checked carefully and if they had any questions about how to handle something they should check with him and he would find out the right way to handle the matter.
Franklin checked on his employees and believed they were keeping the records and doing what needed to be done in accordance with what the ATF told him was reasonably required.
The pawn shop was inspected again in 2007. This inspection spanned several weeks over two months. Unlike the prior inspections, it seemed to Franklin that the ATF inspectors wanted to look at every piece of paper and they were doing this to document as many errors as possible.
When the inspectors left in May 2007, they met with Franklin’s son and provided a report which Franklin reviewed and discussed with his son. The report again said the inspectors believed the pawn shop had errors in its records. Franklin claimed that the inspectors did not seem to take into consideration that they were reviewing seven years of records and more than 4,000 transactions.
The employees felt they had addressed each of the inspectors’ concerns by the time the inspection ended. The lead inspector confirmed that understanding during the agency hearing in 2008. Franklin and his employees thought they were doing a pretty good job of complying with the law as they understood it.
Shock at Revocation
In May 2008, approximately a year after the inspection ended, Franklin received a notice of revocation from ATF. He had not heard from ATF regarding the inspection a year earlier, and he was shocked and angered that ATF was revoking his license.
He felt the pawn shop was in compliance with the laws and that there were simply human errors or misunderstandings by some of the employees that Franklin had been trying since 2000 to reduce, catch and correct.
The notice of revocation listed several areas in which the ATF said Franklin had violated the law, but he did not believe that the ATF’s findings were accurate. According to Franklin, there were many errors with the ATF’s interpretation of the facts.
Gunsmiths’ Work
ATF stated the pawn shop had 17 guns that should have been listed in the A&D Record. Six of the guns were parts guns that were used by the gunsmith. They were not complete guns or had broken frames. Franklin and his employees did not understand that these parts had to be treated like firearms in the books.
Three of the guns were misidentified by ATF and were in fact in the book. One of the guns was a personal Winchester rifle that was not part of the inventory. The seven remaining guns were customer guns being worked on by the gunsmith and employees did not realize they needed to be in the books.
According to Franklin, the ATF claimed that 24 ATF Forms 4473 covering the period from mid 2000 to early 2007 had one or more answers to questions that were wrong or missing.
For example, some of the errors were the failure to answer “state of residence,” although that question is asked twice on the form and usually is answered the first time by the buyer and it is overlooked the second time on some forms.
Another question that is not answered by some buyers is the country of citizenship, although on the forms the buyers do state they are born in the United States by giving their city and state of birth, again a duplicate question.
Other errors appear to be transposition of numbers, confusion over the date of the month, and oversights by the buyers in answering questions.
Made an Effort
Franklin claimed he had made an effort since the 2000 inspection to periodically review with his employees the importance of filling out these forms and had performed spot checks from time to time.
Based on this, Franklin felt the pawn shop was doing a good job of keeping the records and that the number and types of errors identified by the ATF were the result of occasional human errors.
The ATF required the pawn shop to file additional reports if someone made multiple handgun purchases over a five day window. That can be hard to do if the purchases are not made at the same time or handled by the same employee. However, the pawn shop was aware of this obligation and normally filed the reports.
The ATF cited one occasion in 2001, two in 2002, three in 2003, five in 2004, and one in 2006. Upon reviewing the ATF’s allegations, Franklin claimed the ATF’s records were wrong.
For example, the ATF claimed that the first identified transaction involved the purchase of two pistols, but the Form 4473 clearly listed the second gun as a HiPoint 995 and identified it as an “Auto Rifle.”
It appeared the other transactions were occasional oversights by employees who had been trained to and generally did file these reports as required.
Franklin claimed he was not attempting to avoid, intentionally or otherwise, any of his duties as a gun dealer since it was very important to his pawn shop business. It was not Franklin’s understanding that ATF was requiring absolute and 100 percent perfection or that there were no allowances for occasional or inadvertent errors.
The District Court noted that an application for a FFL will not be approved if the applicant has willfully violated any provision of the GCA or the regulations. 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, such as recklessly violating them.
The U.S. Court of Appeals for the Sixth Circuit has joined five other circuits in holding that a willful violation of the GCA requires a deliberate, knowing or reckless violation of its requirements. A negligent violation of the statute is not sufficient to establish a cognizable violation.
Strict on ‘Willfulness’
“Willfulness” under the GCA does not require a heightened showing of “bad purpose” or evil motive; rather, evidence of an individual’s disregard of a known legal obligation is entirely sufficient. A single willful violation of the GCA, said the district court, is enough to deny a FFL application or revoke a dealer’s FFL.
To preclude the grant of summary judgment, said the court, Franklin must establish that genuine issues of material fact exist for to each of ATF’s charged violations.
The court noted that Franklin could not successfully plead ignorance of the law. Franklin knew that he and his employees were charged with full knowledge of the federal firearms laws and regulations as a prerequisite to holding a FFL.
He was advised in the 2000 inspection warning letter that repeat violations like those found would in the future be viewed as willful and could result in the revocation of his license.
The factual evidence, said the district court, even taken in a light favorable to Franklin, would compel a reasonable fact finder to conclude that he and his employees intentionally, knowingly or recklessly violated the known legal requirements.
No ‘No Harm No Foul’
One of the reasons Franklin’s license was not renewed was because the pawn shop transferred firearms to persons who appeared to be prohibited. Franklin contends that none of the 16 persons was actually prohibited from owning a firearm based on background checks.
The “no harm no foul” defense, said the court, does not help. The lead inspector discovered 16 ATF Forms 4473 on file at Franklin’s pawn shop that included indications from transferees that they were prohibited from owning a firearm because they answered yes to a question in a category that meant the purchaser could not lawfully buy the gun or a no answer regarding whether the transferee was the actual buyer.
Franklin did not present any evidence to contradict the transferees’ answers on the ATF Form 4473s or to show that the forms were correct and proper when the firearms were transferred. Thus, the court concluded that no genuine issue of material fact existed and the violations were willful as a matter of law.
Another reason for declining to renew Franklin’s license was a false entry in the A&D Record. The lead inspector stated at the agency hearing that the licensee reported the loss of four firearms to ATF on a Theft/Loss Report, ATF Form 3310.11 dated Dec. 31, 2001, and then after filing the Theft/Loss Report with the ATF, the licensee recorded on the licensee’s copy of the ATF Form 3310.11 an additional fifth firearm and entered a false entry in the A&D Record as a disposition stating that the fifth firearm was reported lost to the ATF.
The fifth firearm was not entered on the Theft/Loss Report filed with ATF and was also omitted on the Theft/Loss Report filed with the local police department.
Franklin, said the court, attempted to explain this violation at the agency hearing and in his affidavit as a simple mixup in paperwork sent to the ATF or as one employee not knowing what the other was doing. The critical aspect of this violation that Franklin did not adequately explained was why his employees would report the firearm stolen and then sell or attempt to sell the same firearm two weeks later.
The court concluded that a genuine issue of material fact was not generated. Because this violation involved a false entry in the A&D Record, willfulness arose from intentional and knowing conduct, not just reckless conduct.
Need to Know
A third reason for refusing to renew Franklin’s license was his failure to record acquisitions in the A&D Record in a timely manner. The lead inspector and his team inspected the firearms on hand at the pawn shop and determined that 17 of them were not entered as acquisitions in the A&D Record.
Even taking as true Franklin’s contention that the ATF was wrong about three of the guns and that those firearms were, in fact, entered in the A&D Record, the only explanation he could offer for why the other 14 guns were not entered was that he and his employees did not understand that gun parts or customer guns brought to the gunsmith for work had to be entered in the A&D record.
It was Franklin’s obligation as a federal firearms licensee, said the court,  to know, understand, and comply with the firearms regulations. This was the second time that ATF inspectors cited him for this violation, as the same violation was also disclosed in 2000.
A reasonable fact finder could only determine that Franklin and his employees were plainly indifferent to their legal obligations or reckless in the keeping of the pawn shop’s paperwork for firearms transactions and this violation was willful.
The fourth reason for not renewing Franklin’s license was the failure to obtain properly executed ATF Forms 4473. During the 2007 inspection, inspectors discovered more than 700 ATF Forms 4473 at the pawn shop contained errors or omissions. At the agency hearing, said the court, the lead inspector produced 24 forms as a sample to demonstrate the types of errors and omissions found.
Franklin did not adequately explain for this huge record keeping problem. He pointed out that some of the questions on the ATF Forms 4473 are duplicative and customers answered the question the first time but not the second time. He claimed it should be sufficient if a customer answers a question “Y” instead of “Yes.”
The court said it was not Franklin’s place to decide unilaterally which federal firearms regulations were so picky that they need not be followed.
Franklin argued that ATF had not proved intentional or reckless violations, but the court determined otherwise. Also, under Sixth Circuit law, said the court, at some point, repeated negligence becomes recklessness, and that point arrived for Franklin in 2007.
The failure to complete ATF Forms 4473 properly after being previously cited and warned to do so was a willful violation of the firearms laws.
More Oversights
The fifth and last reason why Franklin’s license was not renewed was the failure to report multiple sales of handguns. Franklin’s explanation was that the ATF inspectors were wrong about some of the sales, but that others were “occasional oversights,” and his employees normally reported multiple handgun sales.
Considering Franklin’s duty to comply with the laws and the scope of his and his employees’ reckless disregard for that duty, this violation, too, was willful, and there were no factual issues to be tried.
Franklin, said the court, contended that he had taken steps since the 2007 inspection to reform his business and that it would be a hardship for him to lose the right to deal in firearms.
Unfortunately for him, evidence that he reformed his business practices after the 2007 inspection was not proof as to whether the violations observed during that inspection were willful. The law focuses on willfulness at the time the violations occurred.
Consideration of post inspection evidence would prevent ATF from ever revoking a license because the licensee could recover the license simply by coming into compliance before judicial review. What matters was the conduct of Franklin and his employees at the time the violations occurred. So Franklin’s argument that he tried to correct the problems after the 2007 inspection was immaterial to the question of willfulness at the time the violations occurred.
Tolerance for Errors
The record revealed, said the court, Franklin’s pervasive history and tolerance for mistakes. A simple mistake does not on its own constitute willfulness, but at some point, a series of purported mistakes may demonstrate a tolerance for errors and thus a plain indifference to the applicable statutory and regulatory requirements.
Finally, the court concluded there was no merit to Franklin’s argument that ATF should have applied the APA to the agency hearing or that this was the proper forum to raise the issue of violations of the Paper Reduction Act.
It also concluded that there was no merit to his claim that his due process rights had been violated. He received due process in accordance with the GCA and regulations through an agency hearing to review the license revocation and denial of his renewal application for a license, and he received due process in the federal action for judicial review.
The court concluded that Franklin had not generated any genuine issues of material fact to be tried on the issue of willfulness. The court said from the evidence presented, the violations were willful as a matter of law and that the attorney general was authorized to revoke Franklin’s FFL and to deny his application for a renewal of that license. As a result, the court granted the attorney general’s motion for summary judgment.

Pawnbrokers who would like a free copy of this case sent electronically should send an E-mail to with “Mistakes Made” in the subject line.

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