State Of Washington v. Paul Timothy Chase ( 2017 )

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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
STATE OF WASHINGTON, ) No. 75050-0-1
)
Respondent, ) DIVISION ONE
)
v. ) PUBLISHED OPINION
)
PAUL TIMOTHY CHASE, )
)
Petitioner. ) FILED: December 26, 2017
)
LEACH, J. — Paul Chase, shareholder and principal officer of Red Leaf
Construction Inc., appeals the trial court's partial denial of his motion to suppress
Red Leaf's bank records. A commissioner of this court granted discretionary
review. We consider, as a matter of first impression, whether a shareholder or
officer of a closely held corporation has a personal privacy interest in the
corporation's financial information. We hold that neither has this personal privacy
interest and affirm.
FACTS
In 2007, Paul Chase incorporated Red Leaf Construction Inc., a closely
held corporation. Chase was the president, secretary, treasurer, and chairman of
the board. His wife was the vice-president. In 2009, a former customer filed a
civil claim against Red Leaf. In 2010, the customer sent a fraud referral to the
Department of Revenue (Department), alleging that Chase and his company had
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committed sales tax fraud. This referral was the Department's first indication that
Red Leaf was conducting business. Red Leaf filed a tax return in 2007 showing
no sales tax due but filed no further tax returns and paid no sales tax for the
years 2008, 2009, and 2010.
After the referral, the Department began the audit process of Red Leaf.
The Department mailed a summons to Chase demanding that he produce Red
Leaf's bank records. The postal service returned the summons to the
Department as undeliverable. The Department later issued administrative
summonses to several banks. The Department sought records to assess Red
Leaf's sales tax liability for the period beginning January 1, 2008, and ending
August 31, 2011. It requested the following records: all bank statements, all
bank signature cards, copies of all checks written, copies of the front and back of
all checks deposited, a copy of the lease agreement, and copies of all invoices.
Banner Bank complied with the request. The Banner Bank records
showed that Red Leaf collected sales tax from customers but did not pay it to the
Department. The Department referred the case to the attorney general, who
charged Chase with theft in the first degree.
Chase filed a motion to suppress Red Leafs bank records. The trial court
held that Red Leaf's bank records, except for Chase's social security number on
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the signature cards,1 were not subject to protection under article I, section 7 of
the Washington State Constitution because they were not his personal or private
records. In addition, the court concluded that even if the Department had
violated Red Leaf's privacy rights, Chase did not have standing to assert that
violation. Chase filed a motion for discretionary review. The State concurred in
this request. This court granted review. The trial court stayed Chase's
prosecution pending the outcome of this appeal.
STANDARD OF REVIEW
When an appellate court considers a challenge to findings of fact in a
suppression order, the court reviews the record before the trial court to determine
whether substantial evidence supports the challenged findings.2 Evidence is
substantial when it is enough "'to persuade a fair-minded person of the truth of
the stated premise."3 When an appellant does not assign error to a finding of
fact, the appellate court accepts that finding as true on appea1.4 The appellate
IThe trial court suppressed Chase's social security number on the bank
signature cards because, unlike Red Leafs financial information, the court
determined Chase had a privacy interest in his social security number. The State
does not challenge this ruling.
2 State v. Garvin, 166 Wash. 2d 242, 249, 207 P.3d 1266(2009).
3 Garvin, 166 Wash. 2d at 249 (quoting State v. Reid, 98 Wash. App. 152, 156,
988 P.2d 1038 (1999)).
4 Dep't of Revenue v. March, 25 Wash. App. 314, 316, 610 P.2d 916(1979).
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court reviews challenged conclusions of law from a suppression order de novo.5
It also reviews issues of standing de novo.6
ANALYSIS
I. "Private Affairs" under Article I, Section 7
Chase asserts that the Department's receipt of Red Leaf's bank records
through issuance of an administrative summons violated his right against
unlawful search and seizure under article 1, section 7 of the Washington
Constitution.7 Article 1, section 7 has two components: "private affairs" and
"authority of law."5 If the defendant does not show that his private affairs were
disturbed, there is no violation.9 If a valid privacy interest has been disturbed, the
reviewing court must determine whether the disturbance was justified by
authority of law.19
Chase claims that he has a personal privacy interest in the financial
information in Red Leaf's bank records. Article I, section 7 protects "those
5 Garvin, 166 Wash. 2d at 249.
6 State v. Magneson, 107 Wash. App. 221, 224, 26 P.3d 986(2001).
7 "No person shall be disturbed in his private affairs, or his home invaded,
without authority of law." WASH. CONST. art. 1, § 7. Article I, section 7 protections
are broader than those afforded in the Fourth Amendment to the United States
Constitution. See generally State v. Reeder, 184 Wash. 2d 805, 813-14, 365 P.3d
1243(2015).
8 Reeder, 184 Wash. 2d at 814 (internal quotation marks omitted)(quoting In
re Pers. Restraint of Maxfield, 133 Wash. 2d 332, 339, 945 P.2d 196 (1997)).
9 Reeder, 184 Wash. 2d at 814.
19 Reeder, 184 Wash. 2d at 814.
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privacy interests which citizens of this state have held, and should be entitled to
hold, safe from governmental trespass.'"11 In State v. Miles12 and State v.
Reeder,13 our Supreme Court held that individuals have a privacy interest in their
personal bank records held by a third party.14 The court reasoned that private
bank records could potentially reveal sensitive personal information, such as
"where the person has traveled, the person's reading habits, and the person's
financial condition."15
Here, both parties contend that Miles controls. Although both parties
characterize Red Leaf's bank records as Chase's business bank records, they
advocate for opposing outcomes based on their differing interpretations of the
holding in Miles. We distinguish this case from Miles.
In Miles, the State demanded, by administrative subpoena, banking
records from all accounts used by Miles and did not limit its request to business
records.16 Our Supreme Court rejected the State's argument for a reduced
expectation of privacy based on Miles's participation in the pervasively regulated
11 Reeder, 184 Wash. 2d at 814 (internal quotation marks omitted) (quoting
Maxfield, 133 Wash. 2d at 339).
12 160 Wash. 2d 236, 156 P.3d 864 (2007).
13 184 Wash. 2d 805, 365 P.3d 1243(2015).
14 Miles, 160 Wash. 2d at 244, 251-52; Reeder, 184 Wash. 2d at 814-15.
15 Reeder, 184 Wash. 2d at 814.
16 Miles, 160 Wash. 2d at 251.
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securities industry in part because the State's subpoena allowed "intrusion into
matters outside the records or scope of the regulated industry."17
But here the Department limited its request to a corporation's business
records. The Department issued administrative summonses to four banks for
Red Leaf's bank records. The Department did not issue a summons for Chase's
personal bank records. A corporation's bank records are not an individual's
personal bank records. "A corporation exists as an organization distinct from the
personality of its shareholders."18 Moreover, "a corporation's separate legal
identity is not lost merely because all of its stock is held by members of a single
family or by one person."19 Thus, although Chase was the president, secretary,
treasurer, and chairman of the board of Red Leaf and his wife was the vice-
president, Red Leaf remained a separate legal entity.
In addition, a distinction exists between the criminal responsibility of a
corporation2° and the criminal responsibility of a corporate officer in his personal
capacity.21 This division underscores that corporations and corporate officers
17 Miles, 160 Wash. 2d at 251.
18 Grayson v. Nordic Constr. Co., 92 Wash. 2d 548, 552, 599 P.2d 1271
(1979).
19 Grayson, 92 Wash. 2d at 553.
28 RCW 9A.08.030(2) delineates in what circumstances a corporation can
be criminally charged.
21 An individual may be personally criminally liable for conduct "he or she
performs or causes to be performed in the name of or on behalf of a corporation
to the same extent as if such conduct were performed in his or her own name or
behalf." RCW 9A.08.030(3).
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acting in their personal capacities maintain distinct legal obligations and interests.
As the trial court correctly decided, Red Leaf's bank records are not Chase's
personal bank records. The State's demands did not intrude beyond the
corporation's business activities into Chase's private affairs. Thus, Miles does
not control this case.
This court must therefore decide, as an issue of first impression, whether
a corporate officer has a personal privacy interest in the corporation's financial
transactions described in its bank records. To determine "whether a particular
expectation of privacy is one that a citizen of this state should be entitled to hold,"
this court must engage in a two-part inquiry.22
First, we must examine whether the interest has been protected
historically as part of an individual's private affairs.23 For example, in State v.
McKinney,24 the Washington Supreme Court analyzed a 1937 statute that
created the Department of Licensing (DOL) and required it to maintain vehicle
ownership and libensing information. Anyone could obtain vehicle registration
information until the legislature amended the statute in 1990.25 The 1990
amendment narrowed public access to information from the DOL but did not
22 Reeder, 184 Wash. 2d at 814.
23 Reeder, 184 Wash. 2d at 814.
24 148 Wash. 2d 20, 27, 60 P.3d 46 (2002).
25 McKinney, 148 Wash. 2d at 27.
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restrict release of information to law enforcement.26 The court held that "[o]ur
historical review of driver's license records does not support a conclusion that
DOL licensing records constitute 'private affairs."27
Second, we must consider the nature and extent of the information that
may be obtained by the challenged government conduct.28 For example, in
addition to private bank records, our Supreme Court has held that individuals
have a privacy interest in their garbage that they place on the curb because
garbage "could include sensitive information about business records, bills,
correspondence, tax records, and so on."29 Here, this two-part inquiry shows that
Chase does not have a privacy interest in Red Leaf's financial information.
First, a corporation's financial transactions described in its bank records
historically have not been considered part of a shareholder's or an officer's
"private affairs." Also, records related to the collection of taxes have historically
been available to the Department for audit. The Department issued summonses
in this case in accordance with its authority under RCW 82.32.110. This statute
dates back to 1935 and authorizes the Department to issue administrative
summonses to determine a person's or entity's tax liability.30 RCW 82.32.070
28 McKinney, 148 Wash. 2d at 28.
27 McKinney, 148 Wash. 2d at 29.
28 Reeder, 184 Wash. 2d at 814.
29 Miles, 160 Wash. 2d at 245.
38 Under RCW 82.32.110, the Department may
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was also first adopted in 1935 and states that "[e]very taxpayer liable for any tax
collected by the department must [have his or her] books, records, and
invoices. . . open for examination at any time by the department of revenue.31
Thus, since 1935, taxpayers have been on notice that their financial records
could be subject to random audit at the Department's discretion. This weighs
against treating Red Leaf's financial information as Chase's private affairs.
Second, a corporation's financial transactions do not reveal sufficiently
sensitive information about a person's personal contacts and associations to
.,-
require the protections of article 1, section 7. Records of a corporation's financial
transactions do not pose the same risk of exposing, for example, a person's
financial standing, personal reading habits, or personal travel register as do a
person's personal bank records or a person's garbage. We thus conclude that
neither a shareholder nor corporate officer has a privacy interest in the
corporation's financial transactions described in its bank records. This means
that Chase does not have a privacy interest in Red Leaf's financial information
,
examine any books, papers, records, or other data, or stock of
merchandise bearing upon the amount of any tax payable or
upon the correctness of any return, or for the purpose of making
a return where none has been made, or in order to ascertain
whether a return should be made; and may require the
attendance of any person at a time and place fixed in a
summons served by any sheriff in the same manner as a
subpoena is served in a civil case, or served in like manner by an
agent of the department of revenue.
31 RCW 82.32.070(1).
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disclosed in its bank records. The State did not violate Chase's article 1, section
7 rights.
Because the Department did not intrude into Chase's private affairs with
its summons demanding records of Red Leaf's financial transactions, we need
not determine whether that administrative summons was sufficient authority of
law under article 1, section 7.
II. Standing
Chase also claims that he has standing to challenge any search of Red
Leaf's bank records. Generally, a person must have a legitimate expectation of
privacy in the area searched or the property seized to have standing to challenge
a search.32 Because Chase does not have a privacy interest in Red Leaf's
financial information and asserts no exception to the general standing rule, he did
not have standing to challenge the Department's ability to obtain Red Leaf's
financial information or the Department's authority to issue the particular
summons at issue.
CONCLUSION
Red Leaf's financial transactions contained in bank records. are not
Chase's "private affairs." Thus, the Department did not violate Chase's rights
under article I, section 7 when it obtained Red Leaf's financial information
32 State v. White, 40 Wn. App. 490,494,699 P.2d 239 (1985).
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through issuance of an administrative summons. And Chase does not have
standing to contest the search. We affirm.
/4w-eir71/
WE CONCUR:
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