Myers v. Holshouser

214 S.E.2d 630, 25 N.C. App. 683, 1975 N.C. App. LEXIS 2379

• Court: Court of Appeals of North Carolina
• Decided: May 21, 1975
• Docket: 7510SC52
• Status: Published

Opinion

BROCK, Chief Judge.

We are confronted, at the outset, with a determination of the scope of the investigatory powers of the North Carolina Board of Alcoholic. Control: may the Board, even if it has no probable cause, require petitioner to produce relevant business books and records without abridging his constitutional rights under the Fourth Amendment? We conclude that it may.

The Twenty-First Amendment to the United States Constitution grants to the states the right “to legislate concerning intoxicants brought from without the state for use of sale therein, unfettered by the commerce clause.” 45 Am. Jur. 2d Intoxicating Liquors § 42 (1969). Because of the Twenty-First Amendment and the effect of liquor on the health and welfare of the people, states have broad powers to regulate intoxicants. However, the power to regulate is subject to the United States Constitution and cannot transcend its bounds.

Administrative investigating power is essential not only for law enforcement but also for adjudication, rule-making, and supervision. “There is a peculiar need for an administrative body to provide close surveillance and regulation of the liquor industry because of the numerous and complex problems that arise and the inability of the legislature to anticipate specific problems and to maintain effective continuing supervision.” 45 Am. Jur. 2d Intoxicating Liquors § 26 (1969). Hence, statutes establishing administrative agencies, both state and federal, necessarily confer broad investigatory powers.

North Carolina General Statute 18A-15(12) provides:

“The State Board of Alcoholic Control shall have power and authority as follows:

“(12) To grant, to refuse to grant, or to revoke permits for any person, firm, or corporation to do business in North Carolina in selling alcoholic beverages to or for the use of any county or municipal store and to provide and to require that such information be furnished by such person, firm, or corporation as a condition precedent to the granting of such permit, or permits, and to require the furnishing of such data and information as it may desire during the life of such permit, or permits, and for the purpose of determining whether such permit, or permits, shall be continued, revoked, or regranted after expiration dates. No permit, however, shall be granted by the State Board to any person, firm, or corporation when the State Board has reason sufficient unto itself to be-live that such person, firm, or corporation has furnished to it any false or inaccurate information or is not fully, frankly, and honestly cooperating with the State Board and the several county and municipal boards in observing and performing all liquor laws that may now or hereafter be in force in this State, or whenever the Board shall be of opinion that such permit ought not to be granted or continued for any cause. Upon the granting of a permit in accordance with this Chapter, the State Board of Alcoholic Control shall notify the county sheriff and county tax collector, and if applicable, the city chief of police and city tax collector, as well as the county alcoholic beverage control officer, whenever an alcoholic beverage control permit of any type is issued within the respective county and/or city;

“The State Board shall have all other powers which may be reasonably implied from the granting of express powers herein named, together with such other powers as may be incidental to, or convenient for, carrying out and performing the powers and duties herein given to the Board.”

A primary reason advanced by petitioner for denying the Board access to books and records stems from the fear that such access would permit fishing expeditions into private affairs. In Federal Trade Commission v. American Tobacco Company, 264 U.S. 298, 44 S.Ct. 336, 68 L.Ed. 696 (1924), Justice Holmes, speaking for a unanimous court, stated:

“Anyone who respects the spirit as well as the letter of the 4th Amendment would be loathe to believe that Congress intended to authorize one of its subordinate agencies to sweep all our traditions into the fire . . . , and to direct fishing expeditions into private papers on the possibility that they may disclose evidence of crime.” 264 U.S. at 305-306.

This position, however, has been eroded by a long line of decisions expanding the scope of an administrative agency’s investigatory powers. See Davis, The Administrative Power of Investigation, 56 Yale L.J. 1111 (1947). In Oklahoma Press Pub. Co. v. Walling, 327 U.S. 186, 66 S.Ct. 494, 90 L.Ed. 614 (1946), a subpoena duces tecum was issued by the Administrator of the Fair Labor Standards Act. It required the production of

“[a] 11 of your books, papers and documents showing the hours worked by and wages paid to each of your employees between October 28, 1938, and the date hereof [November 3, 1943], including all payroll ledgers, time sheets, time cards and time clock records, and all your books, papers and documents showing the distribution of papers outside the State of Oklahoma, the dissemination of news outside the State of Oklahoma, the source and receipt of news from outside the State of Oklahoma, and the source and receipt of advertisements of nationally advertised goods.” 327 U.S. at 210 n. 46.

The Court rejected the argument that administrative investigations involved unreasonable search and seizure in violation of the Fourth Amendment. Without attempting to sumarize or accurately distinguish all the cases, the Court stated that the fair distillation, as applied to the production of corporate records and papers in response to a subpoena or order authorized by law and safeguarded by judicial sanction, was that

“the Fourth [Amendment], 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.” 327 U.S. at 208.

The holding in Oklahoma Press was buttressed by language in United States v. Morton Salt Co., 338 U.S. 632, 70 S.Ct. 357, 94 L.Ed. 401 (1950) :

“The respondents argue that since the Commission made no charge of violation either of the decree or the statute, it is engaged in a mere ‘fishing expedition’ to see if it can turn up evidence of guilt. We will assume for the argument that this is so.

“We must not disguise the fact that sometimes, . . . the courts were persuaded to engraft judicial limitations upon the administrative process. The courts could not go fishing, and so it followed neither could anyone else. Administrative investigations fell before the colorful and nostalgic slogan ‘no fishing expeditons.’ It must not be forgotten that the administrative process and its agencies are relative newcomers in the field of law and that it has taken and will continue to take experience and trial and error to fit this process into our system of judicature. More recent views have been more tolerant of it than those which underlay many older decisions.” (Citations omitted.) 338 U.S. at 641-642.

“Even if one were to regard the request for information in this case as caused by nothing more than official curiosity, nevertheless law-enforcing agencies have a legitimate right to satisfy themselves that corporate behavior is consistent with the law and the public interest.” Id. at 652.

However, the Court did not completely abandon its position against fishing expeditions, and emphasized that “a governmental investigation into corporate matters may be of such a sweeping nature and so unrelated to the matter properly under inquiry as to exceed the investigatory power.” Id. More recent decisions have been very liberal in expanding an administrative agency’s investigatory powers, even to the extent of sanctioning a warrantless administrative inspection , of a locked gun storeroom under 18 U.S.C. § 923 (g) of the Federal Gun Control Act of 1968, United States v. Biswell, 406 U.S. 311, 92 S.Ct. 1593, 32 L.Ed. 2d 87 (1972), and a third party “John Doe” summons issued by the Internal Revenue Service to a bank to discover the identity of a person who had bank transactions suggesting the possibility of liability for unpaid taxes. United States v. Bisceglia, 420 U.S. 141, 95 S.Ct. 915, 43 L.Ed. 2d 88 (1975). Cf. Camara v. Muncipal Court, 387 U.S. 523, 87 S.Ct. 1727, 18 L.Ed. 2d 930 (1967) ; See v. Seattle, 387 U.S. 541, 87 S.Ct. 1737, 18 L.Ed. 2d 943 (1967) ; Colonnade Catering Corp. v. United States, 397 U.S. 72, 90 S.Ct. 774, 25 L.Ed. 2d 60 (1970). These cases lead us to the ineluctable conclusion that an administrative agency, in this case the Board of Alcoholic Control, is empowered to conduct inquiries to whatever extent is reasonably necessary to make the power of investigation effective. See Davis, Administrative Law Text, Investigation § 3.02 (3rd ed. 1972).

A second reason advanced by petitioner for denying the Board the right to compel production of his books and records stems from his belief that (1) the Board had no reason to believe he had violated the law when it requested the documents, and (2) its request for the production of the documents was so over-broad as to be impermissibly burdensome.

In United States v. Morton Salt Co., supra, the Court made it clear that the Federal Trade Commission had

“a power of inquisition . . . not derived from the judicial function [but] more analogous to the Grand Jury, which does not depend on a case or controversy for power to get evidence but can investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not. When invesigative and accusatory duties are delegated by statute to an administrative body, it, too, may take steps to inform itself as to whether there is probable violation of the law. 338 U.S. at 642-643. (Emphasis added.)

In our opinion the Board of Alcoholic Control was not required to have evidence that petitioner had violated its rules and regulations before it undertook an investigation of him. The Board is not bound by traditional probable cause. The purpose of an administrative investigation is to protect the public; therefore, the public’s interest in applying more relaxed criteria for administrative investigations is greater than the regulated person, firm, or corporation’s right to privacy. See Note, 58 Geo. L.J. 345, 363 n. 93 (1969). The Board could not perform its duty and determine whether its rules and regulations were being violated if it first had to establish a probable violation as a condition precedent to an investigation. Such a requirement would render the Board’s enforcement provisions nugatory.

An order to produce documents is subject, however, to certain bounds. The investigation must be authorized by law and conducted pursuant to a legitimate purpose, United States v. Powell, 379 U.S. 48, 85 S.Ct. 248, 13 L.Ed. 2d 112 (1964) ; the information sought must be relevant to a lawful subject of investigation, United States v. Powell, supra; the investigative demand must be reasonable and specific in directive so that compliance is not unreasonably burdensome. See v. Seattle, 387 U.S. 541, 87 S.Ct. 1737, 18 L.Ed. 2d 943 (1967). See also United States v. Morton Salt Co., supra 338 U.S. at 651-652. The practical effect, of these requirements is that requests for records will be denied only where they are either extreme, vague, or oppressive, or irrelevant. We hold that the Board’s request meets none of these objections. It fully satisfies the tests set forth above.

In reaching the conclusion that the Board can compel petitioner to produce his books and records, we have relied on cases in which subpoenas were issued by administrative agencies for certain documents. The Administrative Procedure Act of North Carolina, set forth in Chapter 150A of the General Statues, empowers agencies to issue subpoenas upon their own motions or upon written request. G.S. 150A-27. That Act becomes effective 1 July 1975. N. C. Session Laws 1973, c. 1331, § 4. However, we do not deem harmful the absence of a subpoena in this case. One of the purposes of a subpoena duces tecum is to insure that documents are described with sufficient particularity and. with such definiteness that they can be identified without prolonged or extensive search. Vaughan v. Broadfoot, 267 N.C. 691, 149 S.E. 2d 37 (1966). G.S. 18A-55 requires the keeping of accurate records and grants to the Board the right to inspect those records. The order of the Board is sufficiently particular and definite to satisfy the requirement of a subpoena, and the court’s conclusion that the order is “so broad as to be unduly burdensome to the petitioner resulting in a substantial denial of his constitutional rights” is error.

In our opinion the Board of Alcoholic Control can conduct, without traditional probable cause, an investigation of petition er’s books and records pertaining to promotional activities in North Carolina for Hiram Walker, Inc. All conclusions of law of the superior court contrary to this are overruled.

Having so concluded, we are left' to resolve two issues: whether the refusal of the Board to renew the permit, without a hearing, upon petitioner’s refusal to produce his records, deprived petitioner of due process of law, and whether the superior court should have ordered the Board to issue a permit to petitioner.

When petitioner failed to produce his records for respondents’ inspection, the Board of Alcoholic Control refused to renew petitioner’s permit to operate as a distillery representative. In its declaratory judgment of 20 November 1974, the court found as a fact that the “ABC Board at no time granted, offered to grant or held a hearing in connection with the issuance of its order of February 19, 1974, amounting to a refusal to renew or reissue the permit of Robert Myers.” Respondents have not taken exception to this finding of fact. After receiving notification that his permit would not be renewed if he did not comply with the Board’s order, petitioner applied to the superior court for a mandatory injunction compelling the Board to issue petitioner a permit. On 1 March 1974 the court granted petitioner the remedy he sought and ordered the Board to issue a permit. The Board complied with the order and issued a permit to operate as a distillery representative until 28 February 1975. On 20 November 1974 the court entered a declaratory judgment in which it again commanded the Board to issue a permit. In the event the Board did not do so, the judgment authorized petitioner “to conduct such business affairs as he was authorized to conduct under Distillery Representative’s permit # 38 of March 1, 1973.”

Petitioner worked as a distillery representative until the license issued pursuant to the 1 March 1974 court order expired on 28 February 1975. Petitioner did not expect to have his license renewed beyond that date, but the Board did issue another permit licensing petitioner as a distillery representative until 28 February 1976. In a motion filed with this Court, respondents assert that the issuance of the last permit was the result of clerical error. The Board states that it has no plans to revoke the permit, even though it was issued by mistake. Petitioner also filed a motion with this Court, asserting that the action of the Board has “disposed of” the subject matter of this appeal and urging us to find that this controversy has become moot. Against this background, we now turn to the two remaining issues raised by this appeal.

The prevailing view among the states is that “a license to sell intoxicating liquor is not property in any constitutional sense, . . . except where the license is held to be a franchise.” 45 Am. Jur. 2d Intoxicating Liquors § 117 (1969). However, North Carolina has taken the position that “ [a] license to engage in a business or practice a profession is a property right that cannot be suspended or revoked without due process of law.” 2 Strong, N. C. Index 2d Constitutional Law § 23 (1967). In State v. Parrish, 254 N.C. 301, 118 S.E. 2d 786 (1961), the judgment of a superior court suspending the license of a professional bail bondsman was held void. The bondsman had not violated any provisions of the applicable statuté. His conduct had not been the subject of inquiry by the official board of either the county or city, and the bondsman himself had never had a hearing before either board. The court stated that “[t]he granting of such license is a right conferred by administrative act, but the deprivation of the right is a judicial act requiring due process.” 254 N.C. at 303. The Parrish due process requirement has been applied in subsequent decisions of the appellate courts of this State to disciplinary proceedings against attorneys, compare In re Burton, 257 N.C. 534,126 S.E. 2d 581 (1962) with In re Bonding Co., 16 N.C. App. 272, 192 S.E. 2d 33 (1972), and to revocation of an operational license for massage parlors. See Smith v. Keator, 285 N.C. 530, 206 S.E. 2d 203 (1974).

We interpret G.S. 18A-15 (12) to require the Board of Alcoholic Control to give notice and an opportunity to be heard to the applicant or permittee before a permit is refused or revoked for failure to produce records as ordered by the Board. In our opinion the Board exceeded its authority in refusing to renew petitioner’s permit for 1 March 1974 without notice and an opportunity to be heard. Insofar as the declaratory judgment of the superior court found that “[t]he order of the Board of February 19, 1974, has deprived Robert E. Myers of a property right in his Distillery Representative’s Permit # 38 in that it has taken such permit from him by the refusal to renew it, without due process of law,” it is affirmed.

We finally consider whether the court should have ordered the Board to issue a permit to petitioner. The hearing in this matter by the superior court was not an appeal under G.S. 143-315 to review a decision of an administrative agency. The su perior court heard this matter in an independent action for a declaratory judgment and a mandatory injunction. Although petitioner prayed for a mandatory injunction, such relief was inappropriate under our holding herein that the Board’s statutory power of investigation does not abridge petitioner’s constitutional- rights. In view of our determination that the statutory investigative authority of the Board is not unconstiutional, the authority of the superior court in this action was limited to a declaration that petitioner is entitled to a due process hearing before the Board, upon its order to produce records, before action is taken to revoke or deny renewal of his permit. Under the circumstances presented upon this appeal, it was error for the superior court to order the Board to issue a permit to petitioner.

Reversed in part.

Affirmed in part.

Judges Parker and Arnold concur.