State Of Iowa Ex Rel. Thomas J. Miller, Attorney General Of Iowa Vs. Smokers Warehouse Corp. And Bruce Vogel ( 2007 )

IN THE SUPREME COURT OF IOWA
No. 32 / 04-1692
Filed August 3, 2007
STATE OF IOWA ex rel. THOMAS J. MILLER,
ATTORNEY GENERAL OF IOWA,
Appellee,
vs.
SMOKERS WAREHOUSE CORP. and BRUCE VOGEL,
Appellants.
Appeal from the Iowa District Court for Polk County, Robert J. Blink,
Judge.
Defendants appeal from a district court order directing them to
comply with civil investigative demands issued by the Iowa Attorney
General. AFFIRMED.
Daniel B. Shuck and Jeana L. Goosmann of Heidman, Redmond,
Fredregill, Patterson, Plaza, Dykstra & Prahl, L.L.P., Sioux City, and
Leonard Violi, Mamaroneck, New York, for appellants.
Thomas J. Miller, Attorney General, and Steve St. Clair, Assistant
Attorney General, for appellee.
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TERNUS, Chief Justice.
The appellants, Smokers Warehouse Corp. and its owner/president,
Bruce Vogel, appeal from a district court order granting the State’s
application to enforce civil investigative demands issued by the appellee,
Iowa Attorney General Thomas J. Miller, under the authority of the Iowa
Consumer Fraud Act, Iowa Code section 714.16 (2003). Smokers
Warehouse and Vogel challenge the Attorney General’s authority to issue a
civil investigative demand under the Act and assert section 714.16 violates
their due process rights. We affirm.
I. Background Facts and Proceedings.
In 2003 the Iowa Attorney General filed a consumer fraud lawsuit
against Smokers Warehouse Club, Inc., an Illinois corporation. The State
alleged Smokers Warehouse Club had misled Iowa residents by falsely
advertising that Iowans could purchase tax-free cigarettes from the
defendant through the mail. In addition, the State alleged Smokers
Warehouse Club had failed to exercise due care to ensure that minors did
not purchase cigarettes from the company. This lawsuit was dismissed
without prejudice upon the motion of Smokers Warehouse Corp., a
Mississippi corporation, based on the State’s failure to name and serve the
proper entity.
Rather than re-filing the lawsuit against the proper defendant, the
Attorney General employed the investigative tools of the Consumer Fraud
Act by sending civil investigative demands (CIDs), which were substantially
the same, to Smokers Warehouse Corp. and to its owner/president, Bruce
Vogel. These CIDs requested information and records regarding the
corporate structure and control of Smokers Warehouse Corp., its
advertising and sales to Iowans, and its policies and practices relating to
excise tax compliance and the prevention of underage cigarette sales.
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Smokers Warehouse Corp. and Vogel filed a motion for protective order in
the dismissed action, which the court denied on the basis there was no
pending lawsuit.
These parties persisted in their refusal to respond to the CIDs, so on
June 30, 2004, the State filed an “application to enforce consumer fraud
subpoena,” in which the State asked the court to direct the defendants,
Smokers Warehouse Corp. and Vogel, to comply with the CIDs. The
defendants filed a resistance and a request for a protective order.
Thereafter, the district court entered a ruling, concluding the requirements
of due process had been satisfied and there was no Fourth Amendment
violation. The district court granted the State’s application to enforce,
subject to specific limitations, and enjoined the defendants from selling or
advertising any merchandise in or from Iowa or to Iowa residents should the
defendants fail to comply with the CIDs.
The defendants appeal from this order. They raise two main issues.
First, they claim the Attorney General is without authority to issue a CID in
a consumer fraud investigation, and consequently, the State has violated
the defendants’ Fourth Amendment rights by conducting an impermissible
search. Second, the defendants claim Iowa Code section 714.16 violates the
Due Process Clause because it does not require reasonable cause as a
condition of issuance of a CID.
II. Scope of Review.
We will review the defendants’ first assignment of error, grounded in
statutory interpretation, for correction of errors of law. See State v. Wolford
Corp., 689 N.W.2d 471, 473 (Iowa 2004). To the extent the defendants’
claims are based upon the Due Process Clause and the Fourth Amendment,
our review is de novo. See State ex rel. Miller v. Pace, 677 N.W.2d 761, 767
(Iowa 2004).
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III. Authority to Issue CID Under Section 714.16.
Iowa’s Consumer Fraud Act is found in Iowa Code section 714.16.
Subsection (3) of this section specifies various actions the Attorney General
may take when he believes that a person may be engaging in a practice
prohibited by the Act. See Iowa Code § 714.16(3). Such actions include
requiring the suspected violator to give a statement or report under oath
upon forms prescribed by the Attorney General concerning that person’s
sale or advertisement of merchandise; examining under oath any person
concerning such sale or advertisement; examining merchandise, records,
documents, accounts, or papers; and pursuant to court order, impounding
“any record, book, document, account, paper, or sample of merchandise
that is produced in accordance with this section.” Id. In addition to these
powers, the statute further provides:
To accomplish the objectives and to carry out the duties
prescribed by this section, the attorney general, in addition to
other powers conferred on the attorney general by this section,
may issue subpoenas to any person, administer an oath or
affirmation to any person, conduct hearings in aid of any
investigation or inquiry, prescribe such forms and promulgate
such rules as may be necessary, which rules shall have the
force of law.
Id. § 714.16(4)(a) (emphasis added). To aid in the enforcement of these
investigative powers, the legislature provided for court assistance in the
event “a person fails or refuses to file a statement or report, or obey any
subpoena issued by the attorney general.” Id. § 714.16(6).
The defendants claim this statute does not authorize the Attorney
General to issue a civil investigative demand because nowhere in section
714.16 is there any mention of “civil investigative demands.” They complain
the CIDs are essentially “civil interrogatories and requests for production
that are not authorized by the legislature.” We think the defendants’
reading of the statute is too narrow and restrictive.
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While it is true section 714.16 does not use the term “civil
investigative demand,” the Attorney General is given express authority to
issue subpoenas. See id. § 714.16(4)(a). A “civil investigative demand . . . is
essentially an administrative subpoena.” Office of Attorney Gen. v. M.J.D. (In
re Investigation of Highway Constr. Indus.), 396 N.W.2d 757, 758 (S.D.
1986). In addition, the following provision in essence gives the Attorney
General statutory authority to require the subject of an investigation to
answer questions akin to civil interrogatories:
[T]he attorney general may:
a. Require such person to file on such forms as the
attorney general may prescribe a statement or report in writing
under oath or otherwise, as to all the facts and circumstances
concerning the sale or advertisement of merchandise by such
person, and such other data and information as the attorney
general may deem necessary.
Iowa Code § 714.16(3)(a). The defendants do not dispute that the questions
propounded in the CIDs seek information related to the defendants’ sale or
advertisement of cigarettes in Iowa.
Finally, we also reject the defendants’ contention that the Attorney
General’s investigative powers under the Consumer Fraud Act do not
include the authority to request the production of documents. As noted
above, section 714.16(3) authorizes the Attorney General to “[e]xamine any
. . . record, book, document, account or paper” and to obtain a court order
impounding “any record, book, document, account, [or] paper . . . that is
produced in accordance with this section.” Id. § 714.16(3)(c), (d) (emphasis
added). Clearly, the legislature contemplated that the Attorney General’s
examination of documents would necessitate the production of those
documents. Moreover, courts are reluctant to interfere with an agency’s use
of its subpoena power other than to preserve due process rights. See Iowa
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Civil Rights Comm’n v. City of Des Moines/Personnel Dep’t, 313 N.W.2d 491,
495 (Iowa 1981).
In conclusion, to adopt the defendants’ argument would place form
over substance, a result inconsistent with the broad interpretation
historically given to the investigative powers of administrative agencies in
general and to the investigative powers authorized by the Consumer Fraud
Act in particular. See State ex rel. Miller v. Publishers Clearing House, Inc.,
633 N.W.2d 732, 737, 738 (Iowa 2001) (describing investigative powers
under the Consumer Fraud Act as broad and plenary); Iowa Civil Rights
Comm’n, 313 N.W.2d at 495 (“Administrative agencies are normally invested
with broad investigative powers to enable them to effectively carry out their
legislative mandates.”). Consequently, we conclude the Attorney General
had the authority to issue civil investigative demands that included
interrogatories and requests for production. Because we have concluded
that the CIDs issued by the Attorney General were within his statutory
authority, we need not address the defendants’ contention that the CIDs
constituted an unauthorized search that violated their Fourth Amendment
rights.
IV. Due Process.
The defendants also claim section 714.16 violates their due process
rights because it fails to require the Attorney General to have “reasonable
cause” to initiate an investigation. “We presume statutes are
constitutional.” Krull v. Thermogas Co., 522 N.W.2d 607, 614 (Iowa 1994).
Consequently, “[t]he challenger must show beyond a reasonable doubt that
a statute violates the constitution.” Bowers v. Polk County Bd. of
Supervisors, 638 N.W.2d 682, 688 (Iowa 2002).
The Due Process Clause has been interpreted to have both
substantive and procedural components, with different analytic frameworks
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applied depending upon whether a substantive or procedural violation is
alleged. The defendants do not clearly identify the nature of their claim, but
we assume it is a substantive due process argument because they do not
discuss any notice or hearing deficiencies in section 714.16. See generally
id. at 690-91 (noting procedural due process requires notice and an
opportunity to be heard).
“[The] substantive due process doctrine ‘does not protect
individuals from all governmental actions that infringe liberty
or injure property in violation of some law.’ Rather,
substantive due process is reserved for the most egregious
governmental abuses against liberty or property rights, abuses
that ‘shock the conscience or otherwise offend . . . judicial
notions of fairness . . . [and that are] offensive to human
dignity.’ With the exception of certain intrusions on an
individual’s privacy and bodily integrity, the collective
conscience of the United States Supreme Court is not easily
shocked.”
Blumenthal Inv. Trusts v. City of W. Des Moines, 636 N.W.2d 255, 265 (Iowa
2001) (quoting Rivkin v. Dover Twp. Rent Leveling Bd., 671 A.2d 567, 575
(N.J. 1996)).
A substantive due process analysis begins with an identification of
the nature of the right at issue, as that determines the test to be applied.
Bowers, 638 N.W.2d at 694. Here, the right at stake is the corporation’s
right of privacy. When, as in this case, a fundamental right is not involved,
the Due Process Clause “demands no more than a ‘reasonable fit’ between
government purpose . . . and the means chosen to advance that purpose.”
Reno v. Flores, 507 U.S. 292, 302, 305, 113 S. Ct. 1439, 1447-49, 123
L. Ed. 2d 1, 18 (1993).
Turning to the Iowa statute, we note it employs a subjective standard
for the commencement of an inquiry, allowing the Attorney General to
investigate
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[w]hen it appears to the attorney general that a person has
engaged in, is engaging in, or is about to engage in any practice
declared to be unlawful by this section or when the attorney
general believes it to be in the public interest that an
investigation should be made to ascertain whether a person in
fact has engaged in, is engaging in or is about to engage in, any
such practice[.]
Iowa Code § 714.16(3) (emphasis added). While the defendants have cited
to several consumer fraud statutes from other states that require the
attorney general in those states to have reasonable cause to believe a
violation has occurred, they have pointed to no case that holds the Due
Process Clause mandates this standard. In fact, the United States Supreme
Court appears to have rejected a similar argument in United States v. Morton
Salt Co., 338 U.S. 632, 70 S. Ct. 357, 94 L. Ed. 401 (1950).
In Morton Salt, the corporate defendants challenged the authority of
the Federal Trade Commission to issue an order requiring them to make
“highly particularized reports to show continuing compliance with [a
consent] decree.” 338 U.S. at 636, 70 S. Ct. at 361, 94 L. Ed. at 407. In
concluding the order did not exceed the agency’s authority, the Supreme
Court stated that “an administrative agency charged with seeing that the
laws are enforced . . . is more analogous to the Grand Jury, which . . . can
investigate merely on suspicion that the law is being violated, or even just
because it wants assurance that it is not.” Id. at 642-43, 70 S. Ct. at 364,
94 L. Ed. at 411. The Court went on to reject a due process challenge made
to the Commission’s order, stating:
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, 70 S. Ct. at 369, 94 L. Ed. at 416.
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We conclude there is a reasonable fit between the legislative purpose
to eliminate consumer fraud and the authorization of the Attorney General
to investigate a person when he “believes” that person has violated the law.
The defendants have failed to establish beyond a reasonable doubt that
section 714.16(3) violates their substantive due process rights by failing to
impose an objective, reasonable-cause standard for the initiation of an
investigation.
V. Conclusion.
The Attorney General has authority under the Consumer Fraud Act,
Iowa Code section 714.16, to issue a civil investigative demand that
includes questions in the nature of civil interrogatories and requests for
production. The State’s ability to undertake an investigation of possible
consumer fraud upon the Attorney General’s belief that a violation has
occurred, as opposed to the existence of reasonable cause to believe a
violation has occurred, does not violate substantive due process. The
district court did not err in ordering the defendants to comply with the CIDs
issued by the Attorney General, subject to the limitations imposed by that
court.
AFFIRMED.
All justices concur except Appel, J., who takes no part.