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Fairmont Cash Management, L.L.C. v. James

United States Court of Appeals, Fifth Circuit

May 31, 2017

FAIRMONT CASH MANAGEMENT, L.L.C., doing business as Cash Cow Pawn, Plaintiff - Appellant
v.
TANARRA JAMES, Director of Industry Operations, Bureau of Alcohol, Tobacco, Firearms and Explosives, Defendant-Appellee

         Appeal from the United States District Court for the Southern District of Texas

          Before STEWART, Chief Judge, and HIGGINBOTHAM and COSTA, Circuit Judges.

          PATRICK E. HIGGINBOTHAM, Circuit Judge.

         Based on numerous violations of the federal Gun Control Act, the ATF decided to revoke Cash Cow Pawn Shop's federal firearms license ("FFL"). After an administrative hearing, Cash Cow exercised its right to challenge that revocation decision in federal court, but the district court granted summary judgment against it. Cash Cow appealed, asserting error in the grant of summary judgment, as well as in various discovery and procedural rulings of the district court. We affirm.

         I.

         Fairmont Cash Management, LLC, is a Texas company doing business in Alvin as "Cash Cow Pawn." Cash Cow is owned and operated by Derek Munz. Munz has a long history in the pawn shop business, operating at least a dozen since 1994, all of which held federal firearms licenses permitting them to sell guns to members of the public provided they complied with applicable federal regulations. Munz opened Cash Cow in 2007 and obtained an FFL for it that same year.

         With the privileges attendant to an FFL come burdens; in addition to stringent documentation requirements, FFL-holders are subject to unannounced compliance inspections by the Bureau of Alcohol, Tobacco, Firearms, and Explosives, the federal agency charged with administering FFL licensure. To Cash Cow's credit, it was subject to one such inspection in 2010, and received an entirely clean bill of compliance. The ATF thereafter left it alone until early in 2013, when the agency received an anonymous tip that Cash Cow had unlawfully sold firearms to people federally prohibited from possessing them.

         As a result, the ATF launched an undercover investigation of Cash Cow. On three different occasions, the agency sent an agent into Cash Cow's store to attempt to purchase a firearm in a way that would have been unlawful as apparent to Cash Cow. On the first occasion, Cash Cow's store manager, Nelson Alonso, sold a firearm to the undercover ATF agent even though the agent told Alonso that he was a convicted felon not lawfully in the United States. When Alonso ran the required background check on the agent, he misspelled the name given to prevent the national registry from retuning any flags. On the second occasion, the same agent attempted another firearm purchase from Cash Cow. This time, Alonso correctly input the name into the national registry, which returned an instruction to deny the sale. Nonetheless, Alonso completed the transaction, concealing the true purchaser by adding the record of the transaction to an earlier sale to a different, legitimate customer. On the third occasion, the same agent attempted yet another firearm purchase from Cash Cow. This time, he brought his "girlfriend" (another ATF agent) to fill out any paperwork and be subject to the background check instead of the true purchaser-a so-called "straw purchase." Alonso sold three firearms to the agent by subjecting his "girlfriend" to a background check instead of him.

         The ATF understandably chose to arrest and prosecute Alonso. It obtained and executed a search warrant at Cash Cow's store for the transaction records incriminating Alonso. Alonso was charged with selling a firearm to a felon and pleaded guilty. The ATF made Munz aware of the matter, but took no further action against Cash Cow at that time.

         A year later, in early 2014, the ATF conducted an unannounced compliance inspection on Cash Cow to review all of its firearms-related business activity since the Alonso incident. The inspection revealed numerous violations of the Gun Control Act both stemming from and going beyond the Alonso incident. Finally satisfied that perhaps Cash Cow should no longer be in the business of dealing firearms, the ATF sent Cash Cow notice that it intended to revoke Cash Cow's FFL.

         Cash Cow invoked its right to an administrative hearing to contest the revocation, at which it was represented by counsel. The ATF appointed a hearing officer to preside, and ATF division counsel represented the government. After hearing and reviewing the evidence, the hearing officer concluded that Cash Cow had willfully violated the Gun Control Act and recommended that the ATF uphold the revocation of its FFL. He entered an extensive memorandum recounting the events of the hearing and announcing his findings. The ATF's Houston Director of Industry Operations, who had observed the hearing, agreed and issued Cash Cow a final notice that its FFL was revoked.

         The ATF's final list of violations committed by Cash Cow employees, none of which Cash Cow contests, is as follows:

• On three different occasions, selling a firearm to a person known to be subject to a federal firearm prohibition in violation of 18 U.S.C. § 922(d)(1), (5) and 27 C.F.R. § 478.99(c)(1), (5);
• Failing to timely and accurately report the sale of two or more semiautomatic rifles to the same person in violation of 18 U.S.C. § 923(g)(5)(A) and 27 C.F.R. § 478.125;
• On twelve different occasions, failing to timely and accurately report the sale of two or more pistols or revolvers to the same unlicensed person in violation of 18 U.S.C. § 923(g)(3)(A) and 27 C.F.R. § 478.126a;
• On seven different occasions, failing to timely and accurately record the disposition of a firearm in violation of 18 U.S.C. § 923(g)(1)(A) and 27 C.F.R. § 478.125(e);
• Selling a firearm to an unlicensed person without waiting for the applicable period of time to trigger an exception in violation of 18 U.S.C. § 922(t) and 27 C.F.R. § 478.102(a)(2)(ii);
• On two different occasions, selling a firearm to an unlicensed person without any exception available in violation of 18 U.S.C. § 922(t) and 27 C.F.R. § 478.102(a);
• Making a false statement on a federal firearm form in violation of 18 U.S.C. § 923(m) and 27 C.F.R. § 478.128(c);
• Selling a firearm without recording the transaction in violation of 18 U.S.C. § 923(g)(1)(A) and 27 C.F.R. § 478.124(a)(1);
• On four different occasions, failing to execute the required paperwork in violation of 18 U.S.C. § 922(m) and 27 C.F.R. § 478.21(a);
• On sixteen different occasions, failing to get the required documentation from the transferee upon sale of a firearm in violation of 18 U.S.C. § 923(g)(1)(A) and 27 C.F.R. § 478.124(c)(1);
• On ten different occasions, selling a firearm without verifying the transferee's identity in violation of 18 U.S.C. § 923(g)(1)(A) and 27 C.F.R. § 478.124(c)(3)(i);
• On fourteen different occasions, selling a firearm without recording national database information on the required paperwork in violation of 18 U.S.C. § 923(g)(1)(A) and 27 C.F.R. § 478.124(c)(3)(iv);
• On three different occasions, selling a firearm without indicating on the required paperwork what firearm was sold in violation of 18 U.S.C. § 923(g)(1)(A) and 27 C.F.R. § 478.124(c)(4);
• On three different occasions, failing to sign and certify the required paperwork in violation of 18 U.S.C. § 923(g)(1)(A) and 27 C.F.R. § 478.124(c)(5).

         Cash Cow then exercised its right to challenge the revocation of its FFL in federal court; it filed a complaint against the ATF's Houston Director of Industry Operations (styled as the respondent in this lawsuit). Cash Cow sought a temporary restraining order allowing it to keep its FFL and stay in business during the pendency of the federal-court challenge. However, it then withdrew that application because the ATF agreed not to issue the formal revocation until the lawsuit was resolved.

         The ATF moved for summary judgment. In response, Cash Cow moved for a stay of summary judgment under Federal Rule of Civil Procedure 56(d) to allow more time for discovery, arguing that it should be permitted to discover several documents and recordings in the ATF's possession relating to the investigation against Cash Cow. The district court granted the motion in part and extended the time Cash Cow had to respond to summary judgment. It also informed Cash Cow that, even after its response was due, it would be permitted to supplement its response with any additional information discovered. Cash Cow simultaneously filed its summary judgment response and a motion to compel the ATF to turn over its internal files relating to the Alonso investigation-files that the ATF claimed were privileged and unnecessary.

         In the same opinion, the district court both denied Cash Cow's motion to compel and granted the ATF's motion for summary judgment. The court was satisfied that the ATF had followed the correct administrative procedure and that the undisputed evidence in the administrative record established that Cash Cow had committed at least one willful violation of the Gun Control Act. It decided that it did not ...


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