E.D.Cal.: State insurance company audit complied with Fourth Amendment

The plaintiff insurance company sued the California state comptroller claiming that an audit of records would violate, among other things, the Fourth Amendment. The Fourth Amendment claim fails comparing the audit to the requirements of an administrative subpoena and the administrative search doctrine. Fid. & Guar. Life Ins. Co. v. Chiang, 2014 U.S. Dist. LEXIS 159858 (E.D. Cal. November 12, 2014):

4. Fourth Amendment–Fifth Cause of Action

Defendant argues that Plaintiff’s Fourth Amendment claim must be dismissed because the proposed audit complies with Fourth Amendment requirements for administrative subpoenas. MTD at 15. Plaintiff argues that a different Fourth Amendment standard – that used for warrantless searches of physical property – applies and that the audit violates that standard. Opp. to MTD at 18.

The Fourth Amendment protects commercial privacy interests. New York v. Burger, 482 U.S. 691, 699-700, 107 S. Ct. 2636, 96 L. Ed. 2d 601 (1987). However, in the context of an administrative subpoena, these protections are limited. Reich v. Montana Sulphur & Chem. Co., 32 F.3d 440, 448 (9th Cir. 1994). An administrative subpoena is reasonable under the Fourth Amendment as long as the following criteria are satisfied: (1) the inquiry must be within the authority of the agency, (2) the demand must not be too indefinite, and (3) the information sought must be reasonably relevant. United States v. Morton Salt Co., 338 U.S. 632, 652-53, 70 S. Ct. 357, 94 L. Ed. 401, 46 F.T.C. 1436 (1950).

Although the Controller did not issue an administrative subpoena in this case, the proposed audit is the functional equivalent of an administrative subpoena. The audit’s compliance with the Fourth Amendment is, therefore, analyzed under the administrative subpoena standard set forth above. See Big Ridge, Inc. v. Fed. Mine Safety & Health Review Comm’n, 715 F.3d 631, 646 (7th Cir. 2013) (holding that courts “look to the substance of [the statute’s] inspection power rather than how the [statute] nominally refers to those powers;” where the “power at issue . . . more closely resembles an administrative subpoena than a search or seizure,” the more limited Fourth Amendment standard is appropriate). The audit at issue in this case is reasonable under the Fourth Amendment as long as (1) the audit is within the authority of the Controller; (2) the demand for documents is not too indefinite; and (3) the documents sought are reasonably relevant. Morton Salt, 338 U.S. at 652-53.

The audit is within the authority of the Controller. The UPL gives the Controller authority “to examine the records of any person if the Controller has reason to believe that the person is a holder who has failed to report property that should have been reported” pursuant to the UPL. Cal. Civ. Proc. Code § 1571. The Court also finds that the demand for documents is not too indefinite. At no point does Plaintiff allege that the document requests are too vague for it to identify which documents must be turned over. Rather, Plaintiff’s complaint is that the request for documents is overbroad, which is a separate and distinct concern from “indefinite.” Compl. ¶ 54. Finally, the documents sought are reasonably relevant to the Controller’s inquiry. The documents sought relate to the tracking of unreported deaths and unclaimed benefits, and the reporting of unclaimed property to the Controller. Although Defendant seeks documents which have no facial connection to California, the UPL provides that some property may be escheatable to California despite the lack of a California address on the face of a company’s records. Specifically, the UPL states that property may escheat to California if “[n]o address of the apparent owner appears on the record of the holder and … [t]he last known address of the apparent owner is in this state.” Cal. Civ. Proc. Code § 1510(b)(1). Because the Fourth Amendment criteria applicable to Defendant’s audit are satisfied, Defendant’s motion to dismiss the fifth cause of action is GRANTED.