The shootout at Little Bohemia lodge, near Mercer, Wisconsin in 1934, and the killing/wounding of bystanders by FBI Agents, was a classic example of "Murphy's Law" when it comes to a dangerous arrest situation.
The gangster period of 1934 came on hard and fast to the Bureau. One thing that has to be kept in mind is that when the shooting occurred in April, 1934, Bureau Agents still had not received any formal training in firearms, raids and more. In fact, the first official firearms training class wasn't held until May, 1934 and the training facility at Quantico was still someone's "dream."
Dillinger checked into the lodge with his full accompaniment of well-dressed associates: Homer Van Meter, John "Three Fingered Jack" Hamilton, Tommy Carroll, and Lester Gillis, aka "Baby Face Nelson." Little Bohemia's owner recognized the outlaws. The owner also recognized that each man had bulging armpits, a fashion resulting from carrying .45 caliber handguns in shoulder holsters. In part by smuggling messages written in matchbook covers, Little Bohemia's owner secretly notified relatives, who contacted the Chicago Bureau of the FBI.
Although Dillinger and his gang escaped out the back, 3 of their girlfriends/wives were taken into custody.
During the shootout, Special Agent, Carter Baum lost his life (killed by Baby Face Nelson) and Special Agent J. C. Newman was seriously wounded. Innocent bystanders were also killed or wounded by FBI personnel.
Subsequent to the Bohemia shootout, the Bureau conducted an extensive review of all the facts of the incident and the internal investigation was assigned to Hoover's right hand man, Assistant Director, Harold Nathan. The Bohemia scenario was destined for problems from the outset; the raid in the dark, the loss of "surprise" as a result of barking dogs, and the drunken occupants all aided in the disaster. There were no hand held walkie talkies then, and the necessity of setting up the arrest plan "on the fly" is clearly a problem with the lack of communication. However, from the facts, it appears there was no alternative.
NOTICE ON THE "NATHAN" FILE: The Nathan report is a very large 26 meg file and will take quite a few minutes to load to your browser. Instead, I strongly recommend you "right click" this link and "save" the file to your hard drive and then open/read it there. (As of July 10, 2009, this file is working)
It wasn't long after the shootout that lodge owner, Emil Wanatka, turned the lodge into a "museum" of sorts with news clippings and other remnants of some of the Dillinger gang's belongings not taken by the FBI that day. Wanatka later produced, for tourists at the lodge, a bullet proof vest and a .38 caliber handgun that he claimed were the property of slain FBI Agent, Carter Baum. Upon hearing about this, Wanatka was interviewed by the FBI about these items. He clearly admitted that he had concocted the story of these items belonging to Baum, and during the interview even admitted that his photo in the lodge, standing with Dillinger, was a fake and that he superimposed Dillinger's photo. Wanatka agreed he'd cease his advertising campaign that he had some personal and professional items belonging to deceased Agent, Carter Baum.
You can read the 2 page Tolson memorandum of the Baum incident here - page 1
You can read the resulting interview with Wanatka here - page 1
From the advertising of current owners, its written today that "Little Bohemia still bears the scars of that fateful night. The walls are riddled with bullet holes, shattered windows are preserved for posterity. Vintage newspaper headlines cover the vestibule walls."