In Crusader Gun Group, LLC v. James, the Fifth Circuit Court of Appeals upheld ATF’s denial of an application for a federal firearm license (FFL) for gun dealers. In recent years, this court has been one of the most aggressive courts in the country for striking down federal laws related to firearms, which makes it noteworthy that this court sided with the ATF in this instance, as did the district court.
FFL applications require entities like Crusader Gun Group to identify the “responsible person,” that is, an actual (living) adult human being, even though an entity like an LLC is technically a legal “person” for purposes of many legal questions, like forming valid contracts or filing lawsuits in court. Federal law tasks ATF with processing these applications. Identifying a human being behind an entity is commonplace on many state and federal government application forms for licenses, permits, business registration, or special tax status, and something analogous (a documented board resolution identifying human board members) is necessary for a business entity to open a bank account. In the case of Crusader Gun Group, LLC, Alan Aronstein identified himself as the “responsible person” and President of the company. Unsurprisingly, ATF did a simple cross-check for Aronson’s name in its other records and discovered that he had been the responsible person for three previous entities, now defunct, that had firearm licenses.
It turned out that with his previous businesses, Aronstein had “more than 6,000 recordkeeping violations, failure to report the theft or loss of more than 200 firearms, failure to serialize 2,400 firearm frames, and the possession of unlawful machineguns.” The court probably cites these specific numbers to emphasize that merely a few harmless clerical errors or isolated instances, but a repeated pattern of a dealer simply ignoring the clear rules that most law-abiding gun dealers follow. Aronstein is arguably the very type of person that Congress wanted to weed out when it enacted the federal licensing regime for gun dealers. In fact, these violations were serious enough that ATF had announced that it planned to revoke the license of one of Aronstein’s previous entities in 2021, and instead Aronstein surrendered all three of the FFL’s he held, while the new FFL application (his fourth) for Crusader Gun Group was already pending. Note that Second Amendment and administrative procedure challenges to some of these legal requirements are currently pending in other courts, based on the Supreme Court’s new rubric set forth in the 2022 case New York State Rifle & Pistol Association Inc. v. Bruen, but this case does not include such challenges, and at the time Aronstein committed these violations, the requirements were good law, at least according to the courts.
Regarding the new application it planned to deny, ATF gave Aronstein an agency hearing (very normal in administrative law). Aronstein had a lawyer at the hearing. ATF presented evidence at the hearing to support its decision, but Aronstein and his lawyer did not present evidence supporting his case, except to cross-examine ATF’s witnesses. Federal law provides that those who lose at their ATF hearing have a right to appeal the decision in federal court, which Aronstein did, and then both he and ATF filed motions for summary judgment, which allows a court to decide a case before trial if there are no meaningly factual questions in dispute between the parties, as in this case. The court granted summary judgment in favor of ATF, so Aronstein appealed that decision to the Fifth Circuit, which brings us to this case. Crusader Gun Group (that is, Aronstein) raised three issues on appeal the first two of which I discuss here. The third issue was about a technical procedural issue about when the court ended the period of pre-trial discovery (that is, the parties’ court-authorized search for additional evidence).
The first issue was about whether ATF had legal authorization from Congress, via statute, to deny FFL applications based on prior violations attributed to the “responsible person” rather than the entity itself that was applying for the license. The statute in question, 18 U.S.C. § 923(d)(1), does not give ATF much discretion about granting or denying license applications. It provides that ATF must (“shall”) approve FFL applications unless one or more disqualifying factors is present, which the statute specifically delineates. The first two factors screen out those legally prohibited from buying guns under other federal laws, the third factor screens out “applicants” with prior willful violations of federal gun laws, the fourth screens fraudulent applications, the fifth requires a physical location or premises, and the remaining two require certifications of compliance with certain other state and federal laws. The third factor, prior violations by “the applicant,” was the only one at issue in this case. Congress defined “applicant” in the same section as the “individual possessing, directly or indirectly, the power to direct or cause the direction of the management and policies of the [entity].” ATF’s regulations simply copy and paste the definition from the statute. The court here cites two cases from other federal circuit courts back in 2011 holding that this statutory definition does indeed authorize ATF to deny applications based on the “responsible person” being “the applicant,” and agrees with its sister circuit courts.
Crusader had additional arguments on this point. It asserted that because the licensing statute spelled out in one place that “applicant” can include the human controlling the entity, the court should assume Congress did not mean that in other places where it merely says “applicant.” Historically, there are some cases, unrelated to FFL’s, where this type of where this type of logic might have prevailed – a type of argument from silence when the legislature was specific elsewhere. Here, however, the court notes the much more common practice or interpretive “canon” of interpreting a word the same way each time it occurs in the same statute. Crusader then attempted to argue the flip side: that the prior entities committed the prior violations, not Aronstein himself, at least in legal terms. The court disposes of this argument based on the fact that the same person was, in reality, running these entities.
Probably the best argument raised here was that Aronstein’s prior violations were not “willful,” but were inadvertent clerical errors and oversights. There is a subjective component to this question, of course, because we can never fully know what another human was thinking or intending subjectively in a certain situation, but courts normally solve this by looking at outward or external evidence of the person’s internal thought process. Here, the court mentions that Aronstein had received written warnings from ATF about violations, and had given written acknowledgement of these warnings, and then had continued to commit the same violations after the warnings. The court concludes that he was fully aware of the rules and chose to ignore them.
The next main section of the case deals with due process objections over the administrative hearing that the ATF held about its denial of this application. Over the last fifty years or so, the Supreme Court and other appellate courts have set forth some due process rules for administrative hearings conducted by regulatory agencies, from the Social Security Administration to parole boards to zoning commissions. These are factors that courts use to determine how much “process” is enough to satisfy “due process,” or what makes a hearing fair enough under the Constitution. One of these factors is the hearing officer conducting the hearing – some courts have held the hearing officer cannot have a direct financial or personal stake in the specific case, but courts consistently say it is fine, and indeed customary, for a hearing officer to be an employee by the agency itself, as happened here with Tanarra James, who was ATF’s Director of Industry Operations of the Houston Field Division. As courts typically do in administrative due process cases, the court here cited other procedural fairness protections afforded to Crusader Group, such as “written notice of the reasons for the denial, a hearing to challenge the denial, copies of ATF’s evidence in advance of the hearing, and the opportunity to have legal representation and present evidence and cross-examine ATF’s witnesses during the hearing,” as well as judicial review of the hearing officer’s decision and conduct at the hearing. The court quickly concluded that the applicant received plenty of due process in this case.
As a law professor, I teach an Administrative Law course almost every year, and this is a case I might use in the course to illustrate how agencies routinely deny some license and permit applications, the small amount of discretion agencies often have in these cases, and what modern courts expect, or do not expect, from agencies in terms of due process at agency hearings. Law schools tend to over-emphasize the “big cases” from the Supreme Court, but when law students graduate and begin practicing law, this case is more typical of the matters they will regularly handle for clients, especially small business owners like gun dealers, restaurateurs, beauticians, building contractors.
I will close with a comment about licensing and permitting regimes in general. Businesses, especially smaller businesses, often complain about the hassle of these legal requirements. This is understandable, because applying for and renewing licenses and permits will always involve some tedious paperwork, recordkeeping requirements, involving the agency when certain incidents occur, and maybe even unscheduled inspections or reviews. All these take time and money. On the other hand, licensing and permit regimes are a pervasive feature of every modern society – professional licenses, drivers licenses, import/export licenses, building permits, and so on. Though clunky and annoying, this is the main way modern legal systems protect consumers and workers beforehand from fraudsters and scammers, and how they imperfectly protect the public from “front organizations” for criminal cartels and terrorist organizations.
With gun dealer licenses, Congress wanted to make it more difficult for criminals, or even foreign adversaries, to arm themselves or others who would pose a threat to public safety or national security – or at least more difficult to avoid detection from law enforcement. Some kind of gun dealer licensing regime, despite its many imperfections and failures, is also necessary for a government to enforce federal taxes on firearm manufacturing and tariffs on gun imports, to enable a system for law enforcement to trace guns recovered from crime scenes, and to have any type of background check system for gun purchasers. I am aware that some gun rights advocates are hopeful that the Supreme Court will abolish many gun laws, including dealer licenses, but at least two of the conservative justices on the Court have signaled in recent cases their approval of at least some restrictions on firearms commerce. I suspect that the FFL system is here to stay for the foreseeable future, given the current makeup of the Supreme Court, unless Congress repeals the law, which seems unlikely in the short term.
