State v. Miles

• Citation: 156 P.3d 864,160 Wn.2d 236
• Decision Date: 26 April 2007
• Docket Number: No. 78656-9.,78656-9.
• Court: United States State Supreme Court of Washington
• Parties: STATE of Washington, Respondent, v. Michael M. MILES, Petitioner.

156 P.3d 864

160 Wn.2d 236

STATE of Washington, Respondent, v. Michael M. MILES, Petitioner.

No. 78656-9.

Supreme Court of Washington, En Banc.

Argued November 9, 2006.

Decided April 26, 2007.

Kevin P. McCabe, Attorney at Law, Seattle, WA, for Petitioner.

Ivan Orton, Attorney at Law, Seattle, WA, for Respondent.

Jean Marie Wilkinson, Carol A. Murphy, Marta Uballe Deleon, Attorney Generals Office, Olympia, WA, for Amicus Curiae on behalf of Washington State Attorney General.

Douglas B. Klunder, Attorney at Law, Seattle, WA, for Amicus Curiae on behalf of American Civil Liberties Union.

C. JOHNSON, J.

¶ 1 This case involves the interpretation of article I, section 7 of the Washington Constitution in the context of statutory administrative subpoena authority under The Securities Act of Washington, chapter 21.20 RCW. Michael Miles is charged with securities fraud, witness intimidation and tampering, and theft. The trial court denied a motion to suppress evidence uncovered when a state agency issued an administrative subpoena seeking Miles' bank records without notice to Miles. The Court of Appeals granted a joint motion for discretionary review of that denial. We granted Miles' motion to transfer review to this court. Although the trial court concluded bank records are within a person's private affairs, the motion was denied on the basis of a pervasively regulated industry exception to the warrant requirement. We reverse and find the subpoena invalid under article I, section 7.

FACTS AND PROCEDURAL HISTORY

¶ 2 Miles purported to be an investment specialist.¹ Miles told Julie Gillett that he worked for a large investment firm, invested his clients' money wisely, and regularly doubled his clients' profits. Miles told Gillett that her principal would be guaranteed and he could double her money in 12 to 18 months. He gave Gillett a document on his letterhead in which he guaranteed return of her principal. Gillett gave Miles over $100,000 to invest.

¶ 3 Miles began delaying return of or information to Gillett about her money. Gillett contacted the Washington State Securities Division of the Department of Financial Institutions (Division) and filed a complaint, providing copies of the checks she made out to "MM Miles." The backs of the checks indicated they were signed by Miles and negotiated through Washington Mutual Bank. Gillett also provided a copy of Miles' guaranty of her principal, written on letterhead describing MM Miles as an investment firm.

¶ 4 On June 13, 2001, the Division issued an administrative subpoena to Washington Mutual Bank. The subpoena requested records pertaining to all accounts assigned to or used by Miles or entities under his control from January 1996 to the date of the subpoena. In an accompanying cover letter to the bank, the Division indicated it was only requesting copies of the signature cards, monthly statements, and all deposits of $1,000 or more. The Division attached copies of the checks provided by Gillett.

¶ 5 The Division did not disclose to Miles that it had issued the subpoena. Furthermore, in a letter accompanying the subpoena, the Division asked Washington Mutual not to tell Miles about the subpoena. The letter also urged Washington Mutual to act quickly because of the three year statute of limitations for prosecuting theft. Washington Mutual did not tell Miles of the investigation. It did comply with the subpoena. The records provided by the bank evidently supported the filing of criminal charges.

¶ 6 The superior court denied Miles' motion to suppress evidence from the bank records. The trial court found that banking records fall within constitutionally protected privacy interests under article I, section 7. The trial court also concluded that the subpoena lacked "authority of law" because, by not providing for notice, the statute leaves the individual's privacy interest unprotected. However, the trial court denied the suppression motion based upon a "pervasively regulated industry" exception to the warrant requirement. We granted discretionary review under RAP 2.3(b)(4).²

¶ 7 The State urges us to affirm the trial court on a narrow basis: a reduced expectation of privacy based on participation in a pervasively regulated industry. Alternately, the State cross-assigns error to several findings and conclusions of the trial court, including that bank records are protected by article I, section 7 and that this statute lacks "authority of law."

¶ 8 Miles would have us affirm the trial court's ruling on the scope of private affairs and the lack of "authority of law" for an administrative subpoena in this case. Miles contends, however, that the trial court erred in two respects. First, Miles asserts that he could not have had a diminished expectation of privacy under the pervasively regulated industry exception to the warrant requirement. He maintains this statute neither reflects legislative authorization for the method nor serves as an adequate warrant substitute. Finally, he argues the Division unlawfully used an administrative inspection to further a criminal prosecution. Br. of Pet'r at 4-5.

¶ 9 In addition to the motion to suppress, the State filed a motion to supplement the record with the declaration of Martin Cordell. Cordell is the chief of enforcement for the Division. The motion was passed to the merits for our consideration. The State initially sought to introduce factual information, based on a conversation with Cordell, in the course of the State's arguments to the trial court regarding the motion to suppress. The trial judge stopped the State from giving oral representations of Cordell's opinion as to matters not on the record. The declaration was not filed with the trial court pending resolution of the motion. Miles urges us to deny the motion. Miles claims, in part, that the State's motion was not timely and that the evidence has low value. Since the declaration is unnecessary to our analysis, we deny the State's motion to supplement the record.

ANALYSIS

¶ 10 Chapter 21.20 RCW is the Securities Act of Washington and provides generally for regulation of the securities profession. RCW 21.20.380 provides the Division with subpoena authority, allowing the director or any officer to "subpoena witnesses, compel their attendance, take evidence, and require the production of any books, papers, correspondence, memoranda, agreements, or other documents or records which the director deems relevant or material to the inquiry."³ RCW 21.20.370(1) describes the reach of this authority: "[I]n his or her discretion [the director] (a) may annually, or more frequently, make such public or private investigations ... as the director deems necessary ..." to investigate past or ongoing violations of the chapter, rules and forms, or criminal law. The director may invoke his authority if "necessary or appropriate in the public interest or for the protection of investors." RCW 21.20.370(1).

¶ 11 Article I, section 7 of the Washington Constitution requires that "[n]o person shall be disturbed in his private affairs ... without authority of law." The interpretation of article I, section 7 involves a two-part analysis. We begin by determining whether the action complained of constitutes a disturbance of one's private affairs. If there is no private affair being disturbed, no article I, section 7 violation exists. If a valid privacy interest has been disturbed, the second step in our analysis asks whether "authority of law" justifies the intrusion. In general terms, the authority of law required by article I, section 7 is satisfied by a valid warrant. Since the State has argued that the trial court erred in concluding that bank records are protected as private affairs under article I, section 7, we begin with that question.⁴

¶ 12 The "private affairs" inquiry focuses on "`those privacy interests which citizens of this state have held, and should be entitled to hold, safe from governmental trespass absent a warrant.'" State v. Young, 123 Wash.2d 173, 181, 867 P.2d 593 (1994) (quoting State v. Myrick, 102 Wash.2d 506, 511, 688 P.2d 151 (1984)). Private affairs are not determined according to a person's subjective expectation of privacy because looking at subjective expectations will not identify privacy rights that citizens have held or privacy rights that they are entitled to hold. We begin by looking to what kind of protection has historically been afforded to the interest asserted. State v. McKinney, 148 Wash.2d 20, 27, 60 P.3d 46 (2002). Part of this inquiry focuses on the nature and extent of the information which may be obtained as a result of the governmental conduct. McKinney, 148 Wash.2d at 29, 60 P.3d 46.

¶ 13 As the trial court correctly recognized, our cases support the conclusion that a person's banking records are within the constitutional protection of private affairs. In Gunwall, we analyzed whether an individual's long distance phone records were within a person's private affairs. State v. Gunwall, 106 Wash.2d 54, 720 P.2d 808 (1986). We concluded that they were based on, among other things, the type of information those records revealed. The information revealed where calls were made and to whom. We generally held that these records did not lose their privacy interests merely because the phone company, and perhaps some employees, had access to the records. That a contractual or business relationship existed with the phone company did not alter a person's expectation of privacy into an assumed risk of disclosure. Gunwall, 106 Wash.2d at 67, 720 P.2d 808 (quoting People v. Sporleder, 666 P.2d 135, 141 (Colo.1983)).

¶ 14 Similarly, in State v. Boland, 115 Wash.2d 571, 578, 800 P.2d 1112 (1990), although we were dealing with a privacy interest in garbage put out for collection, we incorporated in our opinion a recognition that the type of information potentially revealed by rummaging through garbage bags could include sensitive information about business...