SEVENTH CIRCUIT UPHOLDS ADMIN SEARCH OF CONVENIENCE STORE BASED ON CIGARETTE ORDINANCE
by Brian S. Batterton, Attorney
©2016 Brian S. Batterton, Attorney, PATC Legal & Liability Risk Management Institute (www.llrmi.com)
On January 4, 2016, the Seventh Circuit Court of Appeals decided the United States v. Hamad [i], which serves as an excellent review of the law pertaining to administrative searches of businesses. The relevant facts of Hamad, taken directly from the case, are as follows:
Iaad Hamad owned H & Y Chicago Foods, a small convenience store on the west side of Chicago. Among other items, the store sold cigarettes. Cook County (which encompasses Chicago) has an ordinance which taxes and regulates the sale of cigarettes. See Cook County Code of Ordinances, Title IX, Section 74-430, et seq. (2009) (hereafter "Cigarette Ordinance" or "Ordinance"). It is unlawful in Cook County, for example, to sell individual, unpackaged cigarettes or to sell packs of cigarettes that do not contain the proper tax stamps. The Cook County Department of Revenue employs inspectors to enforce the Ordinance. As we will discuss below, the Ordinance allows representatives of the Department of Revenue to inspect a retailer's books and records related to the sale of cigarettes and to examine the cigarette inventory itself.
The Department of Revenue had a list of prior violators of the Ordinance, businesses that had sold cigarettes without the proper tax stamps. Hamad's store was on the list. On October 15, 2010, two inspectors and an intern with the Department of Revenue approached H & Y Chicago Foods for an inspection. The intern, Courtney Marshall, entered the store first, and made an undercover purchase of a pack of Newport cigarettes for $6. At the time, the typical price of a properly-taxed pack of cigarettes in Chicago was $8 or $9. Marshall brought the suspiciously low-priced pack out to the inspectors, Jessa Srain and Aaron Glasper, who examined it and determined that it did not bear the required Cook County tax stamp. The inspectors and the intern then entered the store and identified themselves as Department of Revenue agents to two employees behind the counter.
Srain and Marshall then entered the area behind the counter to examine the cigarette inventory to determine if there were additional unstamped packs. Glasper went to the back of the store. Srain found another pack of unstamped cigarettes next to the cash register, and continued her search. On the floor behind the counter, she found a plastic grocery bag that contained two prescription bottles, loose pills, and a large, clear candy jar full of white pills. As Srain continued her search, she recovered several additional prescription pill bottles, which she added to the bag. When she looked at the pills in the large jar, she could not identify all of them but believed that some were Vicodin, a narcotic pain killer. She contacted her supervisor and asked for guidance. The supervisor advised her to do what she thought best. She continued to search the area behind the counter.
In the meantime, Marshall, who was also searching behind the counter, felt a loose floorboard beneath his foot. He lifted the board and found a shoe box. Inside the shoe box, he found magazines for a gun. Srain then searched a shelf behind the door leading to the counter area. Under a pile of t-shirts, she found a velvet bag. When she picked up the bag, she felt an object that she realized was the handle of a gun. She again called her supervisor for guidance and this time, the supervisor directed her to call the police.
Officer Alejandro Gallegos responded to the call. When he arrived at the store, Srain pointed out the firearm and the large jar of pills. Someone else pointed out the prescription bottles. Officer Gallegos entered the area behind the counter and took custody of the gun, the gun magazines and the pills. The older of the two women working in the store identified herself to the officer as Alma Price, the store manager. She told Officer Gallegos that the other woman was her daughter. She also told the officer that Hamad owned the store and that she had already called him and left him a message. Officer Gallegos then arrested Alma Price for possession of the pills and gun. Price told the officer that she thought the jar contained candy and that Hamad had directed her to sell the "candy" for $5 per pill. She also told the officer that Hamad owned the gun.
A short time later, when Officer Gallegos was processing the arrest of Alma Price at the police station, he was notified that there was a man at the front desk asking for him. He went out to meet the man, who identified himself as Hamad. Officer Gallegos asked Hamad if he was the owner of the store and Hamad said he was. Hamad provided his identification to Officer Gallegos, and the officer then took Hamad into custody for the narcotics and gun recovered from the store. After Officer Gallegos read Hamad his rights, Hamad made a number of incriminating statements. Hamad was later charged under the federal statute prohibiting felons from possessing firearms. 18 U.S.C. § 922(g)(1). [ii]
Hamad filed a motion to suppress the evidence and the district court denied the motion. He was convicted and later appealed the denial of the motion to suppress Seventh Circuit Court of Appeals.
At the outset, the Seventh Circuit examined some legal principals relevant to the issues they must decide. The court stated:
"[W]arrantless searches are generally unreasonable, and ... this rule applies to commercial premises as well as homes." Marshall v. Barlow's, Inc., 436 U.S. 307, 312 (1978). See also Burger, 482 U.S. at 699. Business owners possess reasonable expectations of privacy in commercial property with respect to both traditional police searches as well as administrative inspections designed to enforce regulatory statutes. Burger, 482 U.S. at 699-700. However, the Supreme Court has recognized exceptions to the warrant requirement for pervasively regulated businesses such as those dealing in firearms, United States v. Biswell, 406 U.S. 311, 316 (1972), and for closely regulated industries long subject to close supervision and inspection, such as the liquor industry, Colonnade Catering Corp. v. United States, 397 U.S. 72, 74 (1970)…The business owner in a highly regulated or licensed industry in effect consents to the restrictions put in place by the government. Barlow's, 436 U.S. at 313.
In Burger, the Court set forth the standards for warrantless, administrative inspections of commercial premises in closely regulated industries. First, there must be a substantial government interest that informs the regulatory scheme pursuant to which the inspection is made. Second, the warrantless scheme must be necessary to further the regulatory scheme. And third, the statute's inspection program, in terms of the certainty and regularity of its application, must provide a constitutionally adequate substitute for a warrant. Burger, 482 U.S. at 702-03. In order to meet the third factor, the regulatory statute must (1) advise the owner of the commercial premises that the search is being made pursuant to the law and has a properly defined scope, and (2) it must limit the discretion of the inspecting officers. Burger, 482 U.S. at 703. [iii] [emphasis added]
The court then set out to apply the above principles to the issues before them. The first issue raised by Hamad was that convenience stores are not closely regulated businesses and therefore the warrantless search cannot be justified under the administrative search exception.
Regarding this issue, the court noted that administrative searches have been applied to businesses that were not typically closely regulated because those businesses chose to sell items that were closely regulated. For example, pawnshops that sell firearms are subject to administrative searches regarding the firearms, and catering companies that sell alcohol are subjects to searches because of the alcohol sales. Similarly, a convenience store that sells an item that is closely regulated, such as selling cigarettes subject to the cigarette ordinance, would be subject to administrative searches. The court further noted that cigarettes had been regulated in Chicago, and cigarettes are also subject to state regulation. As such, it was permissible under the Fourth Amendment to conduct an administrative search of Hamad’s store based upon the cigarette ordinance.
The other issue on appeal was Hamad’s contention that the Cigarette Ordinance did not meet the third requirement from Burger, particularly that the ordinance provides a constitutionally adequate substitute for a warrant. In order to meet that third element, the ordinance must (1) advise the owner that the search is being conducted by law and has a properly defined scope, and (2) the ordinance must limit the discretion of officers.
The ordinance at issue, stated, in pertinent part, the following:
Inspections. Books and records kept in compliance with Sec. 439 of this Ordinance shall be made available to the Department upon request for inspection and/or copying during regular business hours. Representatives of the Department shall be permitted to inspect or audit cigarette inventory in or upon any premises. An audit or inspection may include the physical examination of the cigarettes, packaging or the cigarette tax stamps. It shall be unlawful for any person to prevent or hinder a duly authorized Department representative from performing the enforcement duties provided in this article. Cook County Code of Ordinances, Title IX, Section 74-440 (2009). Section 74-431 provided that "[p]remises means, but is not limited to, buildings, vehicles or any place where cigarette inventory is possessed, stored or sold.
The court then compared the constitutional requirements to the ordinance at issue. They first noted the ordinance adequately advised owners of commercial premises that sell cigarettes that the search was permitted by law. Particularly, the ordinance states that they must permit inspection of their books and inventory related to cigarette sales. Further, the ordinance limits inspection of the books to business hours and the officers, in this case, conducted the inspection and search during business hours. As such, the court read the ordinance to require inspection of books and inventory limited to business hours.
Hamad also argued that the ordinance did not limit the scope of the search. However, the court stated the ordinance limits the inspections to the cigarettes, their packaging, and tax stamps. Further, it defines buildings.
As such, the court stated that the ordinance at issue complied with the constitutional requirements and was properly applied to Hamad’s convenience store.
Note: Court holdings can vary significantly between jurisdictions. As such, it is advisable to seek the advice of a local prosecutor or legal adviser regarding questions on specific cases. This article is not intended to constitute legal advice on a specific case.
[i] No. 14-3813 (7th Cir. Decided January 4, 2016)
[ii] Id. at 1-3
[iii] Id. at 10-11