Earlier this month, the United States Court of Appeals for the D.C. Circuit announced that it was dismissing the appeal of machine gun manufacturer and distributor U.S. Ordnance in its lawsuit against the Directorate of Defense Trade Controls (“DDTC”). The Court of Appeals dismissed the appeal because DDTC had resumed processing U.S. Ordnance’s pending export licenses. This certainly raised a few eyebrows since the trial court had sided with DDTC and upheld the agency’s decision to deny U.S. Ordnance’s pending license applications. So why did DDTC cave after winning in the lower court?

The reason, in my view at least, is that the decision of the District Court was a mess. Basically the Court defended DDTC’s actions because the father of the owner of U.S. Ordnace had been indicted, but not convicted, of crimes arising out of allegedly illegal firearms imports. That’s right — the father.

According to the trial court:

In May 2004, however, the Department learned that plaintiff allegedly was associated with an individual named Curtis Lynn Debord (“Debord Sr.”), who had been indicted in 1997 for violations of § 2778 of the AECA, and therefore was considered as being ineligible to engage in the export of arms under the AECA’s implementing regulations – International Traffic in Arms Regulations (“ITAR”). See United States v. Debord, No. 97-CR-239 (N.D. Cal.) (charging Debord Senior with smuggling arms into the United States, dealing in firearms without a license, entry by false statements, conspiracy, making false statements and witness tampering).

In a footnote, the Court noted that Debord Sr. was the father of “Curtis Lee Debord, who is the President, Treasurer, Secretary and sole director and owner of” U.S. Ordnance.

When the trial judge says that U.S. Ordnance was ineligible for DDTC licenses because the father of the owner of the company had been indicted for firearms import violations, you have to wonder whether anybody bothered to share a copy of the ITAR with the lower court. And if they did, whether it read it. Not only doesn’t the ITAR impose any family eligibility requirement but also the charges against Debord père don’t appear to be violations of the Arms Export Control Act or any of the other statutes singled out by ITAR section 120.27 as disqualifying. (Parts of section 2778 of the AECA do deal with certain imports of firearms but it’s not clear from the court’s description that these relatively narrow provisions were involved.)

But it gets worse. The trial court held that it had no jurisdiction over U.S. Ordnance’s case because the DDTC’s actions were matters of foreign policy committed to the agency’s discretion. That argument might make sense if U.S. Ordnance was challenging the decision of DDTC to adopt a rule that made license applicants ineligible for the sins of their fathers; it makes no sense where the argument was that the DDTC wasn’t following its own rules.

To be fair, the DDTC claimed that the father was, at least for a period, a senior official of U.S. Ordnance. If that was true and the indictment against Debord Sr. had charged crimes listed in section 120.27, then U.S. Ordnance would have been ineligible under section 120.1(c) and would have been required under section 126.13(a)(1) with any license applications. But this appears to have been contested by U.S. Ordnance and certainly wasn’t relied on by the trial court judge who felt it sufficient that the CEO of U.S. Ordnance was related to someone who had been indicted.

Last week, Dr. Thomas Enders, the CEO of the European Aeronautic Defense and Space Company (“EADS”) spoke at the CEO Leadership Series at the U.S. Chamber of Commerce. An article in World Politics Review describes an ITAR war story told by Dr. Enders during his speech:

Offering his own “war story” concerning ITAR, Enders cited a case involving EADS and the U.S. Navy. EADS had exported U.S.-made parts for incorporation into a radar system for Malaysia, he said. When that deal . . . became sidetracked, the [parts] became available and the Navy decided that it needed them. So, in June of 2005, EADS asked the State Department for permission to re-transfer the American-made parts back to the United States.

The State Department, which is responsible for enforcing ITAR rules, took 11 months — until May, 2006 — to grant that permission, and only “when this matter was elevated to the highest management level of the Directorate [of] Defense Trade Controls in the State Department,” Enders said. Was the State Department “worried about the reliability of the Navy as end-user?” he asked rhetorically.

While noting that he was “not trying to ridicule ITAR,” Enders said that “There’s something wrong” with the current situation. “The point is [that] these regulations are so burdensome for industry on both sides of the Atlantic.” They are “strangling” U.S.-EU defense trade, he said.

Although my first thought was that these re-exports of the parts to the Navy would be covered under the exemptions in ITAR § 126.4 for shipments by or for U.S. government agencies, a closer look at them shows that not to be the case. The exemption in § 126.4(a) only applies to temporary imports and temporary exports. In this case, a permanent export was involved. Similarly, the exemption in § 126.4(c) only applies to exports for end-use by the U.S. government in a foreign country, which was also not the case.

Certainly it is an odd result that there would have been an exemption if EADS were shipping those parts back to the Navy for use outside the U.S. but no exemption if they were being shipped back for use by the Navy in the United States itself. This only makes sense if you make the otherwise reasonable assumption that the definition of re-export in § 120.19 wasn’t intended to cover a transfer of defense articles to the U.S. government in the United States. However reasonable that assumption might otherwise be, the language of § 120.19 doesn’t explicitly permit such a reading, and EADS was, therefore, required to apply for a license to cover the re-export of the parts to the Navy.