De La Cruz v. Quackenbush
| Decision Date | 10 May 2000 |
| Docket Number | No. B130093.,B130093. |
| Citation | 96 Cal.Rptr.2d 92,80 Cal.App.4th 775 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Jose DE LA CRUZ, Plaintiff and Respondent, v. Charles QUACKENBUSH, as Insurance Commissioner, etc., Defendant and Appellant. |
Bill Lockyer, Attorney General, David S. Chaney, Richard W. Bakke, Supervising Deputy Attorney General, and Mark P. Richelson, Deputy Attorney General, for Defendant and Appellant.
Raymond A. Greenberg, Calabasas, for Plaintiff and Respondent.
California's Insurance Commissioner appeals from a judgment holding he cannot revoke an insurance broker's license for refusing to permit a warrantless search of the books and records the broker is required by law to maintain. We affirm.
The facts are not in dispute.
The California Department of Insurance received an anonymous complaint alleging certain insurance agencies in the Los Angeles area were selling insurance through unlicensed agents. The department began an inquiry which eventually led it to the office of Jose De La Cruz, a licensed broker.
A department investigator went to De La Cruz's office unannounced and asked to see a list of his employees and to review his trust account records. De La Cruz told the investigator the persons who maintained their records were not in the office, it being late on a Friday afternoon. The investigator told De La Cruz he would return the following week and to have the personnel and trust account records available for inspection.
Prior to returning to De La Cruz's office, the investigator received a telephone call from De La Cruz's attorney, who asked why the investigator wanted to see his client's records. The investigator did not divulge his reasons. The attorney then told the investigator that under the circumstances De La Cruz would not provide access to the records based on the protections afforded him by California case law and the Fourth Amendment. The attorney went on to say if the investigator wanted to review the records he should make a written request and the attorney would decide whether to allow the inspection but, absent such a request, inspection would be denied.
The following week the investigator wrote to De La Cruz informing him an inspection of "all of your insured files and financial records" would take place at De La Cruz's office three weeks hence at 10 a.m. and that De La Cruz could have his attorney present if he so chose. The letter also stated failure to permit a review of the records could lead to revocation of De La Cruz's license.
The attorney representing De La Cruz responded with a letter to the inspector expressing the view the proposed examination of "all" his client's records without a warrant or administrative subpoena was unconstitutional. The letter concluded: "I suggest that you submit with specificity the exact records you wish to be produced, or else obtain an administrative subpoena [otherwise] you will not be permitted access to our client's premises[.]"
The investigator wrote back specifying the records he wished to inspect which included trust account records for the previous twelve months, and policy folders and financial records for the past five years, including "bank statements, checks, deposit slips, cash receipt books, journals ... and all automated data processing systems."
On the appointed day and time the investigator arrived at De La Cruz's office and was denied access to the records.
As a result of De La Cruz's refusal to allow the investigator to examine his files, the Insurance Commissioner, Chuck Quackenbush, brought proceedings to revoke De La Cruz's license to sell insurance. The matter was tried before an administrative law judge who ruled a warrantless inspection of an insurance broker's records was unconstitutional and therefore De La Cruz could not be disciplined for his failure to permit inspection of the requested records. The Commissioner rejected this decision and decided the matter himself, ruling the department's "warrantless inspection scheme is reasonable" under the Fourth Amendment and therefore De La Cruz was required to permit the inspection. His refusal to do so constituted good cause for revocation of his license.
De La Cruz filed a petition for administrative mandate in the Superior Court, alleging the Commissioner's decision to revoke his license constituted a prejudicial abuse of discretion because it violated the Fourth Amendment's protection against unreasonable searches and seizures. The trial court agreed with De La Cruz and issued a writ of mandate directing the Commissioner to reinstate De La Cruz's license. The Commissioner appeals.
We initially address De La Cruz's argument the proposed warrantless1 search of his files exceeded the Commissioner's statutory authority. If this argument is correct we need not reach the constitutional issue because even if such a search is permissible under the Fourth Amendment, the Commissioner can only exercise the powers expressly or impliedly conferred by the Legislature. (Morris v. Williams (1967) 67 Cal.2d 733, 737, 63 Cal.Rptr. 689, 433 P.2d 697; Terry York Imports, Inc. v. Department of Motor Vehicles (1987) 197 Cal.App.3d 307, 319, 242 Cal.Rptr. 790.)
At the time the Commissioner attempted a warrantless inspection of De La Cruz's records, Insurance Code section 1727 subdivision (a) provided: "The commissioner shall, after notice and hearing, promulgate reasonable rules and regulations specifying the manner and type of records to be maintained by those licensees acting as insurance agents and brokers and the location where the records shall be kept."
A reasonable argument could be made the Commissioner had no authority under this statute to promulgate regulations authorizing nonconsensual inspections of those records, at least absent an administrative warrant or subpoena.2 The existence of numerous other statutes in which the Legislature authorized warrantless inspections would support that argument. (See discussion below.)
In 1999, however, the Legislature amended section 1727, subdivision (a) to provide the records referred to in the statute "shall be open to inspection or examination by the commissioner at all times, and the commissioner may at any time require the licensee to furnish any information maintained or required to be maintained in those records." (Stats.1999, ch. 782, § 4.) The Legislature stated "the amendments to Section 1727 of the Insurance Code, made by Section 3[sic] of this act do not constitute a change in, but are declaratory of, existing law."3 Thus we read section 1727 of the Insurance Code as providing, at the time of the events in this action, the records of insurance agents and brokers were "open to inspection or examination by the commissioner at all times" and the commissioner could require the agent or broker to furnish any information required to be maintained in those records "at any time."
Courts have interpreted similar language in other statutes to authorize warrantless inspections. (See e.g., People v. Firstenberg (1979) 92 Cal.App.3d 570, 155 Cal.Rptr. 80, 579 []; People v. Easley (1979) 90 Cal.App.3d 440, 443, 153 Cal.Rptr. 396 []; Miller v. Obledo (1978) 79 Cal.App.3d 714, 716, 145 Cal.Rptr. 140 .)
Thus, we are required to confront the question whether the proposed warrantless search of De La Cruz's insurance files violated his rights under the Fourth Amendment to the United States Constitution.
No one disputes the proposition "[t]he Warrant Clause of the Fourth Amendment protects commercial buildings as well as private homes" against unreasonable searches and seizures. (See Marshall v. Barlow's, Inc. (1978) 436 U.S. 307, 311, 98 S.Ct. 1816, 56 L.Ed.2d 305 [].) Therefore, "unless some recognized exception to the warrant requirement applies," the Fourth Amendment would require a warrant or its equivalent to conduct the inspection sought in this case. (Id. at p. 313, 98 S.Ct. 1816.)
The Commissioner urges us to apply an exception which has come to be known as the "closely regulated" business exception. This exception, most recently articulated in New York v. Burger (1987) 482 U.S. 691, 107 S.Ct. 2636, 96 L.Ed.2d 601, applies when a business is "closely" or "pervasively" regulated and the search is reasonable because there is a "`substantial' government interest" underlying the inspection scheme, warrantless inspections are "`necessary to further [the] regulatory scheme,'" and the inspection program "`in terms of the certainty and regularity of its application, [provides] a constitutionally adequate substitute for a warrant.'" (Id. at pp. 702-703, 107 S.Ct. 2636.) If all these criteria are met, a warrantless inspection of commercial premises is not unreasonable under the Fourth Amendment.
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