FREE SPEECH COALITION, INC. v. HOLDER (E.D.Pa. 7-27-2010)

ession must be kept as part of the records does not in itself create a reasonable expectation of privacy in the records, nor does it create a Fourth Amendment violation.

Other caselaw reinforces this Court's conclusion that plaintiffs do not have a reasonable expectation of privacy in the records at issue here. For instance, in United States v. Sorcher, Crim. A. No. 05-0799, 2007 WL 1160099 (E.D.N.Y. Apr. 18, 2007), Judge Nina Gershon stated that "where an entity governed by a regulatory scheme maintains documents required by that scheme, its owners or operators would have no reasonable expectation of privacy that would protect those documents from seizure by the regulators." Id. at *8. Additionally, in United States v. McCoy, 492 F. Supp. 540 (M.D. Fla. 1980), Judge Howell N. Melton held that a customshouse broker could not claim a reasonable expectation of privacy in business records which were required by administrative regulations to be retained and made available for inspection. Judge Melton explained:

[T]he defendant . . . was aware of [his] responsibility . . . to provide [authorities] with access to his business records. Indeed, the regulations could not be clearer on this subject. . . . Clearly, the . . . books and papers which the defendant seeks to suppress, if presently in his possession, would have to be released to the proper authorities. The defendant cannot claim a legitimate expectation of privacy in these documents. . . . [T]he customs records seized herein were "required records", which the government had statutory authority to inspect and remove. . . .

. . . With respect to [these] business records . . . the Court can detect no violation of any right of the defendant. The law permits customs agents access to, and the privilege of copying required records.

Id. at 544.

Furthermore, numerous courts have ruled that a person does not have a reasonable expectation of privacy in documents, files, or records that are compiled under, and may be inspected or reviewed pursuant to, statutes or regulations. See, e.g., Couch v. United States, 409 U.S. 322, 335 — 36 (1973) ("[T]here can be little expectation of privacy where . . . records are handed to an accountant, knowing that mandatory disclosure of much of the information therein is required. . . . Accordingly, petitioner here cannot reasonably claim . . . an expectation of protected privacy or confidentiality."); United States v. Kamara Reid, 16 F. App'x 160, 161 (4th Cir. 2001) (per curiam) (nonprecedential) (in immigration context, the plaintiff did not have legitimate expectation of privacy in, and thus did not have a valid Fourth Amendment claim as to, a photocopy of counterfeit green card given to her employer, as "the rationale for the employer's collection of these immigration records is compliance with INS requirements and for INS inspection; thus, the [plaintiff] should have been aware that the documents were likely to be reviewed by the INS during her employment tenure" (citation omitted)); United States v. Blocker, 104 F.3d 720, 728 (5th Cir. 1997) (holding, in the context of an audit of insurance records, that the defendant did not have "any reasonable expectation of privacy" in the records where the investigator "was authorized by statute and by [the defendant] to search [the company's] records"); United States v. Chuang, 897 F.2d 646, 650 (2d Cir. 1990) ("In view of the pervasive nature of federal regulation of the banking industry, [Defendant], as an officer of the bank, knew that bank documents . . . were subject to periodic examination. . . . The existence of a regulatory scheme necessarily reduces a bank officer's expectation of privacy in his corporate office."); McLaughlin v. A.B. Chance Co., 842 F.2d 724, 726 (4th Cir. 1988) ("The issue presented is whether . . . an OSHA compliance officer . . . may examine and copy OSHA forms . . . when OSHA regulations require the maintaining of such forms and the production thereof for inspection and copying by a representative of the Secretary of Labor for the purpose of carrying out the provisions of the Act. We hold that [the employer company] had no reasonable expectation of privacy in [the] OSHA forms . . . and the information contained therein. . . ."); United States v. Amon, 669 F.2d 1351, 1358 (10th Cir. 1981) ("It is also clear that defendants' Fourth Amendment rights have not been violated by the Government since they could not legitimately claim an expectation of privacy in documents which they submitted voluntarily to the IRS and their employers.");United States ex rel. Terraciano v. Montanye, 493 F.2d 682, 685 — 86 (2d Cir. 1974) ("The New York statutes which furnished the authority for [the investigator]'s search were limited to [files and records] which other New York statutes required to be kept on the premises. . . . [W]e do not find . . . unconstitutional this . . . inspection . . . of

records . . . maintained on the premises as required [by statute]." (internal citations and quotation marks omitted));United States v. Szur, No. S5 97 CR 108, 1998 WL 132942, at *14 (S.D.N.Y. Mar. 20, 1998) (Koeltl, J.) ("[T]o the extent a regulatory agency requires the production of documents to which it would otherwise be entitled under a regulatory and statutory scheme . . ., the production of the documents does not violate a defendant's Fourth Amendment right since the inspection does not intrude upon any reasonable expectation of privacy that a defendant might have." (internal quotation marks and alteration marks omitted)).

For the aforementioned reasons, this Court finds that plaintiffs do not have a subjective expectation of privacy in the records, and that even if plaintiffs did have a subjective expectation of privacy, the expectation is not one that society would recognize as reasonable.

4. The Inspection Program Falls Within the Administrative Search Exception to the Warrant Requirement

In addition to finding that plaintiffs have no reasonable expectation of privacy in the records required to be kept pursuant to §§ 2257 and 2257 and their implementing regulations, this Court finds that the statutes and regulations proscribe constitutionally valid administrative searches.

As discussed above, the regulations provide that producers must make the required records available for inspection either "at the producer's place of business or at the place of business of a non-employee custodian of records." 28 C.F.R. § 75.4. Further, investigators are authorized to "enter without delay and at reasonable times any establishment of a producer where records . . . are maintained to inspect during regular working hours and at other reasonable times, and within reasonable limits and in a reasonable manner, for the purpose of determining compliance with the record-keeping requirements." § 75.5(a). Inspections are to "take place during normal business hours," § 75.5(c)(1), and upon commencing an inspection, the investigator is to show his or her credentials, explain the nature and purpose of the inspection "including [its] limited nature," and indicate "the scope of the specific inspection and the records that [the investigator] wishes to inspect." § 75.5(c)(2). The inspections "shall be conducted so as not to unreasonably disrupt the operations of the establishment." § 75.5(c)(2). Records may be inspected no more than once every four months unless there is reasonable suspicion of a violation, and an investigator may copy any record that is subject to inspection. § 75.5(d), (e).

Plaintiffs argue that the statutes and regulations violate the Fourth Amendment by allowing warrantless searches of producers' commercial premises. This Court disagrees,

Plaintiffs also argue that the statutes and their regulations allow for warrantless searches that are "not limited to commercial premises" but extend "to private homes as well." (Doc. 3 at 51). Plaintiffs' Complaint, however, fails to allege any instances of inspections occurring in any of plaintiffs' private homes. Plaintiffs attempt to remedy this issue with their Motion for Leave to Amend, alleging that the FBI entered, for purposes of conducting records inspections, the homes of two producers "who are not members of Plaintiff Free Speech Coalition." (Doc. 49 at 2). Without ruling on the issue, this Court notes that under the related standing doctrines of organizational and third-party standing, there is nothing to indicate that Free Speech Coalition, or any other plaintiffs in this case, would have standing to assert claims on behalf of these unidentified producers. See, e.g., Pa. Psychiatric Soc. v. Green Spring Health Serv., Inc., 280 F.3d 278, 287 (3d Cir. 2002) ("Because the patients are not members of, or otherwise directly associated with, the Pennsylvania Psychiatric Society, the Society does not have associational standing to assert their claims."); League of Women Voters of Fla. v. Cobb, 447 F. Supp. 2d 1314, 1340 (S.D. Fla. 2006) ("Here, because Plaintiffs do not allege that the John and Jane Does are members of their respective organizations, Plaintiffs cannot pursue their [organizational] standing theory.").
Even assuming plaintiffs had standing as to this claim, or, alternatively, looking at the statutes and regulations purely on their face, this Court finds that because plaintiffs do not have a reasonable expectation of privacy in the records at issue, and because an inspector's entry onto a producer's premises for the limited purpose of inspecting records constitutes a lawful administrative search, there is no constitutional violation if a producer's commercial premises happens to be his home. Indeed, Congress expressly contemplated such a situation and provided producers with what this Court believes is an appropriate remedy: producers may use a non-employee third-party custodian to maintain the records at issue. See 28 C.F.R. § 75.4.

finding that the inspections authorized under the statutes and regulations are lawful under what the Third Circuit has explained to be one of the "well recognized exceptions to the warrant requirement — administrative inspections pursuant to regulatory regimes." Showers v. Spangler, 182 F.3d 165, 172 (3d Cir. 2009).

It is well established that, under the Fourth Amendment, a person's reasonable expectation of privacy in his or her home or business exists "not only with respect to traditional police searches conducted for the gathering of criminal evidence but also with respect to administrative searches designed to enforce regulatory statutes." New York v. Burger, 482 U.S. 691, 699 — 700 (citing Marshall v. Barlow's, Inc., 436 U.S. 307, 312 — 13 (1978)). "An expectation of privacy in commercial premises, however, is different from, and indeed less than, a similar expectation in an individual's home." Id. at 700 (citing Donovan v. Dewey, 452 U.S. 594, 598-99 (1981)).

This expectation is particularly attenuated in commercial property employed in "closely regulated" industries. Id. "`Certain industries have such a history of government oversight that no reasonable expectation of privacy [can] exist for a proprietor over the stock of such an enterprise.'" Id. (citation omitted) (quoting Marshall, 436 U.S. at 313). As the Third Circuit has explained, "one who is engaged in an industry that is pervasively regulated by the government or that has been historically subject to such close supervision is ordinarily held to be on notice that periodic inspections will occur and, accordingly, has no reasonable expectations of privacy in the areas where he knows those inspections will occur." Lovgren v. Byrne, 787 F.2d 857, 865 (3d Cir. 1986). For this reason, a warrantless inspection of commercial premises may be reasonable within the meaning of the Fourth Amendment, and the Supreme Court has correspondingly recognized an exception to the warrant requirement for searches of "closely" or "pervasively" regulated industries. Burger, 482 U.S. at 702 — 03.

A pervasively regulated business is one which has "such a history of government oversight that no reasonable expectation of privacy could exist." Marshall, 436 U.S. at 313 (citation omitted). "[T]he doctrine is essentially defined by `the pervasiveness and regularity of the federal regulation' and the effect of such regulation upon an owner's expectation of privacy."Burger, 482 U.S. at 701 (quotingDonovan, 452 U.S. at 606). As the Third Circuit has emphasized, individuals who "voluntarily engage in such [closely or pervasively] regulated businesses accept the burdens as well as the benefits of the trade." Frey v. Panza, 621 F.2d 596, 597 (3d Cir. 1980) (per curiam).

As discussed at length above, for over three decades the creation, production, and distribution of sexually explicit expression has been the subject of extensive federal regulation aimed at protecting children from sexual exploitation. As a result of this steadily strengthening web of initiatives — which include §§ 2257 and 2257A and their implementing regulations — producers of sexually explicit expression have been on notice for some time that, when it comes to ensuring the performers in their expression are adults, they will be subject to various forms of government oversight, including inspection of age-verification records. Indeed, the "regulatory presence is sufficiently comprehensive and defined" in this regard that producers of such expression "cannot help but be aware that their property will be subject to periodic inspections undertaken for specific purposes." Burger, 482 U.S. at 705 n. 16 (internal quotation marks omitted). Accordingly, this Court finds that, "in light of the regulatory framework governing" the production of sexually explicit expression as it pertains to age verification and the protection of children from sexual exploitation, plaintiffs have a "reduced expectation of privacy in this `closely regulated'" enterprise. Id. at 707.

Thirty years is a sufficient amount of time for an industry to have been closely or pervasively regulated. See, e.g., Prof'l Dog Breeders Advisory Council v. Wolff, Civ. A. No. 09-0258, 2009 WL 2948527, at *9 (M.D. Pa. Sept. 11, 2009) (Rambo, J.) (concluding that "the kennel industry is a pervasively regulated activity" in part because it "has been subject to random inspections and searches since at least 1982"). Furthermore, while the length of time regulation has been in place can be a factor in determining whether it is sufficiently pervasive to make the imposition of a warrant requirement unnecessary, the Supreme Court has emphasized that "if the length of regulation were the only criterion, absurd results would occur. . . . [N]ew or emerging industries, including ones such as the nuclear power industry that pose enormous potential safety and health problems, could never be subject to warrantless searches even under the most carefully structured inspection program simply because of the recent vintage of regulation." Donovan, 452 U.S. at 606. In the present case, this Court finds that the duration and extent of the legislative measures regarding the age of performers appearing in sexually explicit expression are sufficient to make such regulation pervasive.

The Supreme Court has promulgated a three-prong test to determine if a warrantless inspection of a pervasively regulated activity survives constitutional scrutiny. See id. at 702-03. First, "there must be a substantial government interest that informs the regulatory scheme pursuant to which the inspection is made." Id. at 702 (internal quotation marks omitted). Second, "the warrantless inspections must be necessary to further the regulatory scheme." Id. (internal quotation marks omitted). Third, "the inspection program, in terms of the certainty and regularity of its application, must provide a constitutionally adequate substitute for a warrant," meaning that it "must perform the two basic functions of a warrant: (1) it must 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." Id. at 703 (internal quotation marks and alteration marks omitted). Regarding the first part of the final requirement,

the inspection program must be "sufficiently comprehensive and defined that the owner of commercial property cannot help but be aware that his property will be subject to periodic inspections undertaken for specific purposes." Id. at 703 (quoting Donovan, 452 U.S. at 600). Regarding the second part of the final requirement, in restricting the discretion of inspectors, the inspection program must be "carefully limited in time, place, and scope." Id. (quoting United States v. Biswell, 406 U.S. 311, 315 (1972)).

The inspection program set forth by §§ 2257 and 2257A and their implementing regulations satisfies all three criteria. First, as discussed at length above, the government has a substantial interest in preventing the sexual exploitation of children in the production of sexually explicit expression, and this interest informs the age-verification requirements at issue here. As Senator Charles Grassley commented in the Senate Committee Report for the Child Pornography Prevention Act of 1995, "[t]he history of efforts to eliminate the scourge of child pornography is replete with examples of child pornographers finding ways around legislation intended to eliminate child pornography." S. Rep. No. 104-358, at 28 (1996). For the reasons already set forth, this Court is of the view that §§ 2257 and 2257A and their implementing regulations provide a critical tool in this ongoing battle against the sexual exploitation of children.

Second, warrantless entrance onto a producer's premises to inspect the required records is necessary to further the regulatory scheme. The statutes and regulations are designed to provide a reliable mechanism for inspectors — and producers — to verify that the performers appearing in depictions of sexually explicit conduct are adults, something which often cannot be ascertained by looking at the performers or depictions themselves. The purpose of the age-verification requirements, however, is not merely to identify producers who have used children in such depictions, but to protect children from such harm before it happens. Correspondingly, by not requiring advance notice or a warrant, the inspection program encourages producers to follow the age-verification procedures regularly and in advance of the production of the depictions, and deters the possibility of fabrication or after-the-fact compilation of such information. As the Supreme Court has noted:

[I]f inspection is to be effective and serve as a credible deterrent, unannounced, even frequent, inspections are essential. In this context, the prerequisite of a warrant could easily frustrate inspection; and if the necessary flexibility as to time, scope, and frequency is to be preserved, the protections afforded by a warrant would be negligible.

Burger, 482 U.S. at 710 (quoting Biswell, 406 U.S. at 316). Here, the warrantless and unannounced inspections ensure that producers of sexually explicit expression obtain and maintain accurate and truthful records of the ages, names, and other identifying information regarding the performers appearing therein. Administrative searches of producers' premises in order to gain access to the records are thus necessary to further the government's substantial interest in preventing the sexual exploitation of children.

Third and finally, the inspection program set forth by the statutes and regulations provides a "constitutionally adequate substitute for a warrant," as it advises producers that the inspection is being made pursuant to law, and both adequately defines the scope of the inspection and properly limits the discretion of the inspecting officers.Id. at 711 (quoting Donovan, 452 U.S. at 603). The regulations inform producers of sexually explicit expression that, absent reasonable suspicion of a violation of the age-verification requirements, inspections may occur no more than once every four months. 28 C.F.R. § 75.5(d). And, before commencing an inspection, the inspector must display his or her credentials and explain the nature and purpose of the inspection. 28 C.F.R. § 75.5(c). Thus, producers know that the inspections to which they are subject "do not constitute discretionary acts by a government official, but are conducted pursuant to statute."Burger, 482 U.S. at 711 (citing Marshall, 436 U.S. at 332).

Further, the "time, place, and scope" of the inspections are sufficiently limited so as to place "appropriate restraints upon the discretion of the inspecting officers." Id. In addition to the four-month limitation mentioned above, inspectors are only authorized to enter a producer's premises to inspect records "at reasonable times" and "during normal business hours" — between 9 a.m. and 5 p.m. — "for the purpose of determining compliance with the record-keeping requirements." 28 C.F.R. § 75.5(a), (c)(1). The inspector must explain the "limited nature of the records inspection" and indicate "the scope of the specific inspection and the records that [the investigator] wishes to inspect." § 75.5(c). The regulations also detail where the records to be inspected should be located, and how they should be maintained and categorized. §§ 75.2 — 75.4. Thus, producers receive adequate "notice as to how to comply with" the regulatory scheme. Burger, 482 U.S. at 711. Because §§ 2257 and 2257A and their implementing regulations adequately advise those subject to inspection that the entrance onto their premises to review records is being made pursuant to law, and because the searches are properly limited in time, place and scope, a constitutionally adequate substitute for a search warrant has been established.

If a producer does not maintain "at least 20 normal business hours per week," the producer "must provide notice to the inspecting agency of the hours during which records will be available for inspection, which in no case may be less than 20 hours per week." 28 C.F.R. § 75.5(c).

The Third Circuit has made clear that, under the administrative search exception to the warrant requirement, "`[b]ecause the owner or operator of commercial premises in a "closely regulated" industry has a reduced expectation of privacy, the warrant and probable-cause requirements, which fulfill the traditional Fourth Amendment standard of reasonableness for a government search, have lessened application in this context.'"Watson v. Abington Twp., 478 F.3d 144, 151 — 52 (3d Cir. 2007) (quoting Burger, 482 U.S. at 702). As the Supreme Court has emphasized,

The interest of the owner of commercial property is not one in being free from any inspections. Congress has broad authority to regulate commercial enterprises engaged in or affecting interstate commerce, and an inspection program may in some cases be a necessary component of federal regulation. Rather, the Fourth Amendment protects the interest of the owner of property in being free from unreasonable intrusions onto his property by agents of the government.

Donovan, 452 U.S. at 599 (some emphases added). "[W]arrantless inspections of commercial property may be constitutionally objectionable if their occurrence is so random, infrequent, or unpredictable that the owner, for all practical purposes, has no real expectation that his property will from time to time be inspected by government officials." Id. (quotingMarshall, 436 U.S. at 323). Thus, "[w]here Congress has authorized inspection but made no rules governing the procedures that inspectors must follow, the Fourth Amendment and its various restrictive rules apply," id. (quotation marks omitted), and that "[i]n such cases, a warrant may be necessary to protect the owner from the unbridled discretion [of] executive and administrative officers," id. (internal quotation marks omitted) (second alteration in original).

In the present case, to the extent producers have any reasonable expectation of privacy in age-verification records relating to depictions of sexually explicit conduct, that expectation is reduced. Furthermore, the government has a substantial interest in preventing sexual exploitation of children in the production of such depictions; producers of such depictions have adequate notice that their records will periodically be inspected by government officials; and Congress has both authorized inspections and created rules, further fleshed out by implementing regulations, governing the procedures that inspectors must follow. As such, this Court concludes that §§ 2257 and 2257A and their implementing regulations authorize lawful administrative searches of producers' premises for the specific and limited purpose of inspecting records required to be kept pursuant to the regulatory scheme. Such a holding is consistent with caselaw upholding valid administrative searches conducted pursuant to lawful statutes and/or regulations.

See, e.g., Donovan, 452 U.S. at 606 (holding that warrantless inspections by federal mine inspectors of underground mines at least four times a year and surface mines at least twice a year to ensure compliance with health and safety standards required by federal legislation did not violate Fourth Amendment); Biswell, 406 U.S. at 317 (upholding validity of warrantless search for firearms or ammunitions dealer); Colonnade Catering Corp. v. United States, 397 U.S. 72 (1970) (granting agents of Alcohol and Tobacco Tax Division of the Internal Revenue Service authority to inspect facilities of licensed liquor dealers without a warrant);Peterman v. Coleman, 764 F.2d 1416, 1421 (11th Cir. 1985) ("We conclude . . . that the [administrative search] exception applies to the regulation of second-hand [firearms] dealers. . . . The only inspection authorized by the ordinance relates to the transaction registers second-hand dealers are required to maintain. . . . In light of the compelling state interest . . ., this intrusion is reasonable under the Fourth Amendment." (citation omitted)); Gallaher v. City of Huntington, 759 F.2d 1155 (4th Cir. 1985) (upholding warrantless inspection of record book of precious metal and gem purchases by a licensed pawnbroker); Bionic Auto Parts Sales, Inc. v. Fahner, 721 F.2d 1072, 1081 (7th Cir. 1983) (rejecting Fourth Amendment challenge to warrantless searches of premises of automotive parts dealers because "[u]nder the carefully drawn provisions of the statute, the state's objective of deterring automobile theft through warrantless searches outweighs the licensees' right to privacy");Wayne Cusimano, Inc. v. Block, 692 F.2d 1025, 1029 (5th Cir. 1982) (finding administrative search of produce dealer's records lawful, as "[t]he administrative regulations require a licensee to permit a representative of the regulatory agency to inspect during ordinary business hours the regulation-required records for the . . . specified inspection purposes provided by the Act itself. . . . [T]he present administrative searches authorized by statute are restricted to specified purposes. Further, the warrantless administrative examinations . . . are reasonably related to, and required to effectuate, the statutory regulatory scheme. . . . We thus find no constitutional defect in the present unannounced, warrantless administrative examination of the . . . statutorily-required records. . . ."); United States v. Jamieson-McKames Pharm., Inc., 651 F.2d 532, 537 — 38 (8th Cir. 1981) ("We think the drug-manufacturing industry is properly within the [administrative search] exception to the warrant requirement. . . . [T]he enforcement needs are more critical in the drug-manufacturing field, and the interests of the general public are more urgent. We hold that inspections authorized [by federal statute] are `reasonable' and therefore not inconsistent with the Fourth Amendment." (citations and footnotes omitted));Terraciano, 493 F.2d at 685 ("[W]e do not find the statutes here at issue so seriously deficient as to render unconstitutional this non-forcible inspection and seizure, during business hours, by a narcotics agent, of records of a licensed pharmacist, maintained on the premises as required, relating to narcotics and stimulant or depressant drugs."); Prof'l Dog Breeders, 2009 WL 2948527, at *16 (finding that Pennsylvania statute authorizing warrantless searches and inspections of dog kennels did not violate the Fourth Amendment, as it was a valid administrative search which met all three Burger prongs).

* * *

Because plaintiffs do not have a reasonable expectation of privacy in the records required by §§ 2257 and 2257A, and because, even if there were such an expectation, the statutes and their implementing regulations establish a valid inspection program under the administrative search exception to the warrant requirement, this Court rejects plaintiffs' Fourth Amendment challenge.

As noted, the parties also dispute whether plaintiffs' Fourth Amendment challenge is ripe; they do not, however, provide meaningful discussion or analysis of applicable Third Circuit caselaw on it. Regardless, in light of the disposition above, this Court declines to take up the ripeness inquiry.

VII. Conclusion

For the reasons set forth above, defendant's Motion to Dismiss will be granted, and plaintiffs' Motion for Leave to Amend the Complaint will be denied. An appropriate order follows.