People ex rel. MacFarlane v. American Banco Corp.

• Decision Date: 12 September 1977
• Docket Number: No. 27454,27454
• Citation: 570 P.2d 825,194 Colo. 32
• Parties: The PEOPLE of the State of Colorado ex rel. J. D. MacFARLANE, Attorney General of the State of Colorado, Petitioner-Appellee, v. AMERICAN BANCO CORPORATION, a Colorado Corporation, Respondent-Appellant.
• Court: Colorado Supreme Court

Page 825

570 P.2d 825

194 Colo. 32

The PEOPLE of the State of Colorado ex rel. J. D.

MacFARLANE, Attorney General of the State of

Colorado, Petitioner-Appellee, v. AMERICAN BANCO CORPORATION, a Colorado Corporation,

Respondent-Appellant.

No. 27454.

Supreme Court of Colorado, En Banc.

Sept. 12, 1977.

Rehearing Denied Oct. 24, 1977.

J. D. MacFarlane, Atty. Gen., Jean E. Dubofsky, Deputy Atty. Gen., Edward G. Donovan, Sol. Gen., Alan H. Friedman, First Asst. Atty. Gen., Denver, for petitioner-appellee.

Alperstein, Plaut & Busch, P. C., Arnold Alperstein, Evans S. Lipstein, Judith S. Bassow, Lakewood, for respondent-appellant.

ERICKSON, Justice.

Questions concerning the constitutionality of certain sections of the Colorado Consumer Protection Act are before us for review on this appeal. Sections 6-1-101, et seq., C.R.S. 1973. Appellant American Banco Corporation challenges those provisions of the Act and the procedure which grants the attorney general of the State of Colorado the power to issue subpoenas and force a witness to appear and produce enumerated documents. Sections 6-1-108, 109, C.R.S. 1973.

This action arises out of an investigation conducted by the attorney general's office into the operations and practices of a privately owned health club, operated by Duane Knaus, as principal, known as the World of Fitness. From the spring of 1975 until its closing in February, 1976, the World of Fitness and Duane Knaus were engaged in promoting and selling, and did sell, spa memberships to approximately 400 consumers. A large number of these transactions involved installment sales contracts. At the time the spa's business terminated, most, if not all of the contractual obligations of the World of Fitness were unfulfilled. Appellant came into possession of various records reflecting the transactions between World of Fitness and its members as a result of purchasing approximately 100 of the installment sales contracts.

American Banco and the attorney general's office made independent and simultaneous efforts to obtain alternative spa facilities for World of Fitness members. These efforts resulted in agreements whereby two Denver area health spas offered to provide their facilities and services to World of Fitness members.

While endeavoring to secure alternative facilities, the attorney general's office also conducted an investigation into suspected deceptive trade practices on the part of World of Fitness and Duane Knaus. Attempts were made to contact spa members to determine what representations were made to them at the time they joined the World of Fitness and at the time it closed its doors. As part of this investigation, the attorney general's office subpoenaed certain information contained in records in American Banco's possession pertaining to the World of Fitness. American Banco objected to and refused to comply with the subpoena. Thereafter, the attorney general's office commenced a proceeding in district court to obtain enforcement of the subpoena. After a hearing, the district court issued an order to produce certain documents. American Banco appeals. We affirm.

I.

The two statutory provisions challenged in this appeal provide:

Section 6-1-108, C.R.S. 1973.

"Subpoenas hearings rules. The attorney general, in addition to other powers conferred upon him by this article, may issue subpoenas to require the attendance of witnesses or the production of documents, administer oaths, conduct hearings in aid of any investigation or inquiry . . . as may be necessary to administer the provisions of this article."

Section 6-1-109, C.R.S. 1973.

"Remedies. (1) If any person . . . fails to obey any subpoena pursuant to section 6-1-108, the attorney general may apply to any district court for an appropriate order to effect the purposes of this article. The application shall state that there are reasonable grounds to believe that the order applied for is necessary to terminate or prevent deceptive trade practices as defined in this article. If the court is satisfied that reasonable grounds exist, the court in its order may:

"(a) Grant injunctive relief restraining the sale or advertisement of any property by such person;

"(b) Require the attendance of or the production of documents by such person, or both;

"(c) Grant such other or further relief as may be necessary to obtain compliance by such person."

Appellant contends that these sections violate its right to be free from unreasonable searches and seizures as guaranteed by the Fourth Amendment of the United States Constitution and Article II, Section 7 of the Colorado Constitution. American Banco insists probable cause must be established before a neutral and detached magistrate before a subpoena may issue. The appellant asserts that since the statute authorizes the attorney general to issue a subpoena upon his own volition, without prior court approval, the procedural protections afforded against unreasonable searches and seizures are lacking. Appellant also contends that the statutes are unconstitutional in that they permit the issuance of subpoenas that are unconstitutionally indefinite and overbroad, and also compel the production of materials not relevant to the purposes sought to be accomplished by the enactment of the Consumer Protection Act. We find both contentions unpersuasive and contrary to established authority.

It is important to note preliminarily that the person subpoenaed in this case was a corporation. Self-incrimination under the Fifth Amendment of the United States Constitution is not an issue as to a corporate entity. Oklahoma Press Pub. Co. v. Walling, 327 U.S. 186, 66 S.Ct. 494, 90 L.Ed. 614 (1946). However, a corporation has the right to invoke the protections of the Fourth Amendment. United States v. Morton Salt Co., 338 U.S. 632, 70 S.Ct. 357, 94 L.Ed. 401 (1950); Oklahoma Press Pub. Co. v. Walling, supra; A. v. District Court of Second Judicial District, Colo., 550 P.2d 315 (1976).

The United States Supreme Court, in Oklahoma Press Pub. Co. v. Walling, supra, stated the principles of law applicable to subpoenas duces tecum:

"(T)he fair distillation, in so far as they apply merely to the production of corporate records and papers in response to a subpoena or order authorized by law and safeguarded by judicial sanction, seems to be that the Fifth Amendment affords no protection by virtue of the self-incrimination provision, whether for the corporation or for its officers; and the Fourth, if applicable, at the most guards against abuse only by way of too much indefiniteness or breadth in the things required to be 'particularly described,' if also the inquiry is one the demanding agency is authorized by law to make and the materials specified are relevant. The gist of the protection is in the requirement, expressed in terms, that the disclosure sought shall not be unreasonable.

". . . The requirement of 'probable cause, supported by oath or affirmation,' literally applicable in the case of a warrant, is satisfied in that of an order for production by the court's determination that the investigation is authorized by Congress, is for a purpose Congress can order, and the documents sought are relevant to the inquiry. Beyond this the requirement of reasonableness, including particularity in 'describing the place to be searched, and the persons or things to be seized,' also literally applicable to warrants, comes down to specification of the documents to be produced adequate, but not excessive, for the purposes of the relevant inquiry. Necessarily, as has been said, this cannot be reduced to formula; for relevancy and adequacy or excess in the breadth of the subpoena are matters variable in relation to the nature, purposes and scope of the inquiry."

These principles have been consistently applied. California Bankers Ass'n v. Shultz, 416 U.S. 21, 94 S.Ct. 1494, 39 L.Ed.2d 812 (1974); United States v. Morton Salt Co., supra ; A. v. District Court of Second Judicial District, supra.

Appellant's contention that the statute is unconstitutionally defective in authorizing the attorney general to issue the subpoena in the first instance was also answered in Oklahoma Press Pub. Co. v. Walling,supra. In that case, the United States Supreme Court sustained the position of the Administrator of the Wage and Hour Division of the Department of Labor that his investigative function was essentially the same as a grand jury's or a court's in issuing pretrial orders for the discovery of evidence. The same limitations were held to be applicable; he must not act arbitrarily or in excess of his statutory authority. But his inquiry need not be limited by forecasts of the probable result of the investigation. The Supreme Court stated:

"We think, therefore, that the courts of appeal were correct in the view that Congress has authorized the administrator, rather than the district courts in the first instance, to determine the question of coverage in the preliminary investigation of possibly existing violations; in doing so to exercise his subpoena power for securing evidence upon that question, by seeking the production of petitioners' relevant books, records and papers, and, in the case of refusal to obey his subpoena, issued according to the statute's authorization, to have the aid of the district court in enforcing it. No constitutional provision forbids Congress to do this . . . ." Oklahoma Press Pub. Co. v. Walling, supra.

The attorney general, under the Colorado Consumer Protection Act, occupies a position not unlike that of an administrator of a governmental agency. Indeed, the duties and powers of the two are quite similar. At least one court has held that an attorney general, when exercising his investigatory powers, acts as an executive official performing an administrative duty. Carlisle v. Bennett, 268 N.Y. 212, 197 N.E. 220 (1935). The statutory authority vested in both positions reflects a compromise that attempts to balance the public's...