Liberty Coins, LLC v. Goodman

• Decision Date: 22 January 2018
• Docket Number: No. 16-3735,16-3735
• Parties: LIBERTY COINS, LLC; John Michael Tomaso; Worthington Jewelers, LTD. ; Robert Capace, Plaintiffs-Appellees, v. David GOODMAN, et al., Defendants, Jacqueline T. Williams, in her official capacity as Director, Ohio Department of Commerce ; Amanda McCartney, in her official capacity as Consumer Finance Attorney of Division of Financial Institutions, Ohio Department of Commerce, Defendants-Appellants.
• Court: U.S. Court of Appeals — Sixth Circuit

880 F.3d 274

LIBERTY COINS, LLC; John Michael Tomaso; Worthington Jewelers, LTD. ; Robert Capace, Plaintiffs-Appellees,

v.David GOODMAN, et al., Defendants,Jacqueline T. Williams, in her official capacity as Director, Ohio Department of Commerce ; Amanda McCartney, in her official capacity as Consumer Finance Attorney of Division of Financial Institutions, Ohio Department of Commerce, Defendants-Appellants.

No. 16-3735

United States Court of Appeals, Sixth Circuit.

Argued: June 22, 2017

Decided and Filed: January 22, 2018

ARGUED: Jennifer S. M. Croskey, OFFICE OF THE OHIO ATTORNEY GENERAL, Columbus, Ohio, for Appellants. Maurice A. Thompson, 1851 CENTER FOR CONSTITUTIONAL LAW, Columbus, Ohio, for Appellees. ON BRIEF: Jennifer S. M. Croskey, Keith O'Korn, OFFICE OF THE OHIO ATTORNEY GENERAL, Columbus, Ohio, for Appellants. Maurice A. Thompson, 1851 CENTER FOR CONSTITUTIONAL LAW, Columbus, Ohio, Curt C. Hartman, THE LAW FIRM OF CURT C. HARTMAN, Cincinnati, Ohio, for Appellees.

Before: SILER, McKEAGUE, WHITE, Circuit Judges.

McKEAGUE, Circuit Judge.

Plaintiffs Liberty Coins, LLC, and Worthington Jewelers, Ltd., bring facial and as-applied Fourth Amendment challenges to four warrantless search provisions in Ohio’s Precious Metals Dealers Act and the accompanying regulations: O.R.C. §§ 4728.05(A), 4728.06, 4728.07, and Ohio Admin. Code § 1301:8-6-03(D). These laws equip state agents and local law enforcement with the authority to inspect certain records, articles, and information kept by precious metals dealers without first obtaining a warrant. The district court held that these warrantless search provisions were unreasonable and unconstitutional on their face, and therefore did not address plaintiffs' as-applied claims.

For the reasons set forth below, we affirm in part and reverse in part. We agree with the district court that the warrantless searches authorized by O.R.C. § 4728.05(A) and Ohio Admin. Code § 1301:8-6-03(D) are facially unconstitutional. These search provisions are not necessary to furthering the state’s interest in recovering stolen jewelry and coins nor do they serve as adequate warrant substitutes because they are overly broad in scope. However, we reverse the district court’s ruling as to §§ 4728.06 and 4728.07 because we conclude that the warrantless searches provided for in these subsections are facially constitutional. Further, we dismiss plaintiffs' as-applied challenges to §§ 4728.06 and 4728.07 as not ripe.

I

We first provide a brief overview of the Precious Metals Dealers Act before turning to the facts of this appeal.

A. Precious Metals Dealers Act

For over a century, Ohio indirectly regulated precious metals dealers through statutes governing pawnbrokers and secondhand dealers. See generally R. 14-1 (compiling the legislative history of these various laws). As prices for gold and silver increased, the state found that such dealers provided easy avenues for thieves to re-sell and profit from stolen jewelry and coins. See Appellant Br. at 31; R. 23-3, Exh. DXD at 4, PID 369. Therefore, in 1987, the Ohio General Assembly sought to impose stricter standards on them through the passage of the Precious Metals Dealers Act (PMDA). The Act defines a "precious metals dealer" as any person who "holds himself, herself, or itself out to the public" as being "engaged in the business of purchasing articles made of or containing gold, silver, platinum, or other precious metals or jewels...." O.R.C. § 4728.01(A). The Act tasks the Division of Financial Institutions within Ohio’s Department of Commerce with general enforcement responsibility. § 4728.10.

The PMDA requires every dealer in precious metals to first apply for and obtain a license. § 4728.02(A). The state conducts investigations of all applicants and has the power to issue licenses "to any person of good character, having experience and fitness in the capacity involved, who demonstrates a net worth of at least ten thousand dollars and the ability to maintain that net worth during the licensure period." § 4728.03(B)(1). Prospective licensees must pay a $200 investigation fee and, upon being licensed, an annual renewal fee as well. § 4728.03(C)–(D). Licensees are required to post, in a "conspicuous place" at their business location, (1) their license and (2) a statement that they have no right to retain stolen goods. § 4728.04(A)–(B). Certain businesses are exempt from licensure, for example, jewelry stores whose monthly precious metals purchases represent less than 25% of their total inventory and shops that buy coins as "numismatic objects, and not for their content as precious metals." See, e.g. , § 4728.11(E)–(F). However, even these exempt businesses are subject to certain requirements under the Act. See § 4728.12.

Beyond licensure, the PMDA also imposes recordkeeping requirements and provides state agents and local police with power to search the records and businesses of dealers without a warrant. The four sections of the PMDA that authorize warrantless searches form the heart of this appeal. The first challenged provision, § 4728.05(A), provides the state with the authority to "investigate the business" of both licensees and non-licensees who deal in precious metals "and for that purpose" provides it with "free access to the books and papers thereof and other sources of information with regard to the[ir] business[es]." Even though it allows officials to look at this information without a warrant, § 4728.05 also arms the state with administrative powers to effectuate compliance, including the power to compel, issue subpoenas, and apply to the court for an order, injunction, or temporary restraining order. See, e.g. , § 4728.05(B)(5).

Section 4728.06—the second provision at issue—requires licensees to maintain books and records in a form approved by the state. The records must include a detailed description of all precious metals purchased as well as identifying information about the seller. This information must be kept at the licensed location "open to the inspection of the superintendent or chief of or head of the local police department...." Section 4728.06 also requires licensees, "upon demand," to show authorities any precious metal within their possession that is listed in these records. Id.

Similarly, § 4728.07—the third provision at issue in this case—requires licensees to keep separate records for the benefit of local police departments. Specifically, this section mandates that licensees keep "on forms furnished by the police department, a description of all articles received" and make these forms available to the police "every business day."

The fourth and final challenged provision is a regulation promulgated pursuant to the PMDA, which elaborates on licensees' recordkeeping duties and advises them how to comply with state inspections. This regulation, Ohio Administrative Code § 1301:8-6-03(D), contemplates that the state shall have the authority to inspect "at all times" the "books, forms, and records, and all other sources of information with regard to the business of the licensee" in order to ensure "that the business of the licensee is being transacted in accordance with law." This regulation also requires licensees to maintain their records and inventory at the licensed location.

In addition to these four sections authorizing warrantless searches, several other sections of the PMDA are pertinent to this appeal. Section 4728.09(A) prohibits licensees from either reselling or altering the form of any article purchased for at least five days. This holding period can be extended to thirty days if the police have "probable cause" to believe that an article within a licensee’s possession is stolen property. § 4728.09(B). The PMDA also provides for a criminal enforcement scheme. Section 4728.10 requires state agents to "make all reasonable efforts to discover alleged violators" of the Act and to "notify the proper prosecuting officer." Section 4728.99, in turn, imposes criminal penalties for violations.

B. Factual Background

Liberty Coins, LLC, is a coin shop, located in Delaware County, Ohio, that buys and sells various forms of gold and silver. R. 72, Amended Compl. ¶¶ 5–6, PID 826. It is owned by John Michael Tomaso. Id. ¶ 6, PID 826. Although it admits that it "holds itself out to the public" as a precious metals dealer, Liberty Coins does not have a PMDA license. R. 26, TRO Tr. at 91, 110, PID 564, 583. In August 2010, the state got wind of that fact and sent out an inspector to investigate. R. 26, TRO Tr. at 54–55, PID 526–27. The inspector spoke with Tomaso and left forms for him to complete so that the state could determine whether Liberty Coins was eligible for an exemption from licensure. Id. at 71–72, PID 543–45. The inspector did not request to see any business records during his visit to Liberty Coins. Id. at 74, PID 547. After Tomaso failed to complete the necessary forms, the state sent a letter requiring him to "produce business records to demonstrate the amount of precious metals [it had] purchased from the public over the last twelve (12) months." R. 23-1, Exh. JXI at 1, PID 339.

Tomaso never responded to the state’s inquiries, and Liberty Coins never applied for a PMDA license. Instead, they filed a 42 U.S.C. § 1983 action against various Ohio Department of Commerce officials. R. 1, Verified Compl. ¶¶ 11–12, PID 4–5. They sought declaratory and injunctive relief, arguing that the PMDA was facially invalid under the First, Fourth, and Fourteenth Amendments. Id. ¶ 1, PID 2. The district court granted a preliminary injunction to Tomaso and Liberty Coins on their First Amendment claim, prohibiting the state from enforcing the PMDA because it placed an impermissible burden on commercial speech, i.e., the ability to advertise one’s willingness to buy precious metals. Liberty Coins, LLC v. Goodman , 977 F.Supp.2d 783, 792 (S.D. Ohio 2012). A panel of this court reversed. 748 F.3d 682 (6th Cir. 2014).

On remand, Liberty Coins and...