People ex rel. Ferguson v. Reardon

• Decision Date: 11 January 1910
• Citation: 90 N.E. 829,197 N.Y. 236
• Parties: PEOPLE ex rel. FERGUSON v. REARDON, Peace Officer.
• Court: New York Court of Appeals Court of Appeals

197 N.Y. 236

90 N.E. 829

PEOPLE ex rel. FERGUSON

v.REARDON, Peace Officer.

Court of Appeals of New York.

Jan. 11, 1910.

Appeal from Supreme Court, Appellate Division, First Department.

Habeas corpus by the People, on relation of John S. Ferguson, against Edward Reardon, as Peace Officer of the County of New York. From an order of the Appellate Division (124 App. Div. 818,109 N. Y. Supp. 504), reversing a Special Term order dismissing the writ, and discharging relator from custody, respondent appeals. Affirmed.

The relator was a member of a firm of stockbrokers. Claiming to act under the provisions of article 15, General Tax Law (now article 12 of the Tax Law in the Consolidated Laws), in relation to the tax on transfers of stock, an agent of the State Comptroller demanded of the relator the right to examine the books and papers of said firm, for the purpose of ascertaining whether the relator's firm had complied with the provisions of said article; and, when this demand was refused, the relator was taken into custody, in accordance with the provisions of said tax law, as for a violation thereof. One of the grounds set forth in relator's petition for the writ of habeas corpus, and upon which his discharge was demanded, was that the statute under which the examination of the books and papers was demanded was unconstitutional because it sought to make relator a witness against himself in a criminal case.Edward R. O'Malley, Atty. Gen., Wm. Travers Jerome, Dist. Atty. (Robert C. Taylor, of counsel), for appellant.

John G. Milburn, for respondent.

HISCOCK, J. (after stating the facts as above).

This appeal involves the disposition of certain questions arising under chapter 241, Laws 1905, as amended, entitled ‘An act to amend the tax law, by providing for a tax on transfers of stock,’ and which provisions have now been re-enacted as part of the tax law in the Consolidated Laws. As the title of the original act indicated, this statute provided for the imposition of a tax on transfers of stock as evidenced or accomplished by various methods and contracts enumerated therein, and contained various provisions looking to the enforcement of said law, and prescribing both criminal punishement and civil penalties, so called, for violations thereof.

We have already had occasion to affirm the constitutionality of the act in its general scope, and as a revenue-producing measure. People ex rel. Hatch v. Reardon, 184 N. Y. 431, 77 N. E. 970,8 L. R. A. (N. S.) 314, 112 Am. St. Rep. 628.The questions now presented arise under certain special and subordinate provisions, which became incorporated in section 321 of the tax law, and as thus presented they are:

(1) Did said provisions of said section purport to authorize a compulsory general examination of all the private books and papers of a person having made, or suspected of having made, transfers of stocks as enumerated in the statute, for the purpose of ascertaining whether, if made, he had kept a record thereof and paid taxes thereon as required by the statute?

(2) Did the Comptroller, through his representative, on the occasion which became the basis for this proceeding, demand such general examination of the private books and papers of relator's firm?

(3) If these questions be answered in the affirmative, did the statute, in attempting to authorize the Comptroller to secure evidence from relator's private books and papers of violations, if any, of the statute, which might be made the basis of criminal proceedings against him thereunder, or of an action for penalties, violate the provision of the Constitution, which secures every individual against any attempt to compel him ‘in any criminal case to be a witness against himself’?

The answer to the first question seems to me to be so clear as not to require extended discussion, beyond mere quotations from the statute itself.

Section 321, c. 241, Laws 1905, as amended by Laws 1907, c. 324 (chapter 60, Consol. Laws, § 276), first provides: ‘Every person, firm, company, association or corporation making a sale, agreement to sell, delivery, or transfer, of shares or certificates of stock, or conducting or transacting a brokerage business shall keep or cause to be kept a just and true book of account wherein shall be plainly and legibly recorded’-amongst other things the date of, the number of shares covered by, and the name of the party to, such sale, agreement to sell, etc., ‘and such book shall at all times be subject to the inspection of the Comptroller, or any of his representatives,’ within certain hours, and excepting certain days.

No attack upon the foregoing provision is involved in this proceeding, and in our opinion it is entirely valid and constitutional. If this provision was complied with, the state required no further assurances than would be contained in this book to enable it to determine that proper taxes had or had not been paid. But the Legislature apprehended that some persons might surrender too readily to a doubt whether a given transaction came within the provisions of the statute, and that others might willfully attempt to evade its provisions, and that therefore this prescribed ‘book of account’ might not be reliable. To guard against these contingencies it then added the provisions which are here attacked. It provided: ‘The State Comptroller may, at any time after transfers of stock * * * inquire into and ascertain whether the tax imposed by the provisions of this article has been paid. For the purpose of ascertaining such fact the Comptroller shall have the right and it shall be his duty to examine the books and papers of any person, firm, company, association or corporation, and memoranda of transfers shall remain accessible for such inspection for three months from their respective dates. * * * Every person, firm, company, association or corporation who shall refuse to permit the Comptroller or any of his representatives to inspect such books or any memorandum or record relating to such sale, agreement to sell, delivery, or transfer, or transaction at any time as above provided, or who shall fail to keep such book of account, or who shall in any other respect violate any of the provisions of this section shall be deemed guilty of a misdemeanor.’

Independent of banks and other persons, it is manifest that in the ordinary course of affairs a person like relator's firm, carrying on a brokerage business, would keep many books and records showing bought and sold transactions in stocks. He would be compelled to keep accounts with his customers, and with other brokers with whom he dealt; there would be either the originals or copies of statements, reports, and correspondence relating to and evidencing such transactions, and very likely other memoranda or copies thereof, under chapter 458, Laws 1908, ‘relative to bucket shops, and fixing penalties,’ all showing the sale or purchase of stocks. It is impossible to adopt any normal conception of private books and papers which would not include those of the general description enumerated, showing a broker's private, and oftentimes most confidential, transactions with his customers and others. Yet there can be no doubt that the statute attempted to authorize the Comptroller and his agents to enter the place of business of any individual, and at will demand, open up, and examine any and all such books and records. The book which the statute required to be kept for public inspection is clearly and repeatedly described throughout the statute as a certain and specific ‘book of account’; and, when the statute describes as subject to inspection ‘the books and papers' and ‘any memoranda or record relating to’ the sales, agreements to sell, etc., described in the statute, it clearly passes beyond this prescribed and required book of account, and deals with all books and all papers in the possession of the person proceeded against. No entry of any confidential transaction would be protected from the prying search of the public official. The purpose of this broad provision is, of course, apparent. The Legislature intended to provide a means, by general examination, of ascertaining whether the book required by the statute had been truly kept, and whether all of the taxes provided by the statute had been paid.

To my mind it is scarcely less clear that the Comptroller, through his representative on the occasion in question, demanded a general examination of the private books and papers of relator's firm, and not an examination of the book specified by the statute, and that, therefore, the second question outlined above must be answered in the affirmative.

It appears that the Comptroller had equipped his representative with a certificate, stating that he was ‘a duly authorized representative of the Comptroller of the State of New York to inspect and examine the books memoranda, records, and papers of any person, firm * * * who has made sale agreement to sell, delivery, or transfer of shares or certificates of stock, or who is conducting ducting or transacting a brokerage business to ascertain whether the tax imposed by law has been paid.’ When the Comptroller's representative appeared at the office of the relator's firm he presented the above authorization, and thus indicated the purpose for which he had come, and thereby very clearly defined the meaning and scope of his subsequent demand. According to his own affidavit, presented in response to relator's petition, he ‘requested and demanded that he be allowed to inspect the books of said firm of Benjaming, Ferguson & McMurty which contained any entries, record or memoranda of any sale, agreement to sell, or transfer of stock made within three months,’ and this demand was the one which was refused. By no reasonable interpretation, as it seems to me, can this demand be construed as applicable simply to the ‘book of account,’ required by the statute to be kept for inspecition. The language employed in the...