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Do Tennessee Small Businesses Face a Hobson's Choice?

The term “Hobson’s choice” is from Thomas Hobson (1544-1631), a stable manager in Cambridge, England.  To rotate the use of his horses, he offered his customers the choice of either taking the horse in the stall nearest the door, or taking none at all.

Referring to such a choice has gained notoriety as a “Hobson’s choice” in literature, like Thomas Ward’s 1688 poem “England’s Reformation” where Ward wrote: “Where to elect there is but one, ‘Tis Hobson’s choice ­– take that, or none.”  Thomas Ward, England’s Reformation: A Poem In Four Cantos 373 (D. & J. Sadlier & Co.) (1853).

We recently filed a brief with the Tennessee Court of Appeals contending that a coercive statutory scheme in Tenn. Code Ann. §§ 50-7-703 and 712, violates our client’s constitutional right to procedural due process.  Specifically, when a Tennessee small business wants a judge to review the propriety of a department's demands to investigate its private business records, the statute’s procedure only offers a coercive “Hobson’s choice.” 

In other words, the business may either comply with the department’s demand and give up its constitutional right to privacy or await the Attorney General initiating an action to prosecute with penalties ranging from civil contempt to a Class E felony.  The business has no other avenue to the courthouse.  Indeed, when facing threats of such substantial penalties, the statutory scheme offers nothing but “a free choice in which only one is offered.  As a person my refuse to take that option, the choice is therefore between taking the option or not.”  Walker v. State, M2010-00449-CCA-R3-PC, p. 28, n. 1 (Tenn. Ct. Crim. App. Mar. 8, 2011).

The rule as to the constitutionality of an administrative subpoena is well-established: The Fourth Amendment is satisfied if the administrative subpoena (1) relates to an inquiry which the administrative agency is authorized to make; (2) seeks information reasonably relevant to that inquiry; and, (3) is not too indefinite in scope.  City of Seattle, 387 U.S. at 544-45.  See also United States v. Morton Salt Co., 338 U.S. 632, 52-53 (1950).

In addition to those requirements, due process requires that there exist a mechanism by which validation, modification, or nullification of the subpoena can be judicially resolved, without penalty, before compliance with the subpoena can be exacted.  City of Seattle, 387 U.S. at 544.  Indeed, the purpose of such a procedure requiring the availability of judicial review is simple: to ensure that the department complies with the law.  As the United States Supreme Court has reflected, “[i]t is significant that most of the provisions of the Bill of Rights are procedural, for it is procedure that marks much of the difference between rule by law and rule by fiat.”  Wisconsin v. Constantineau, 400 U.S. 433, 436 (1971).

However, in our case the department simply asserted that since our client was required by law to keep the information sought, it could not assert any rights to privacy.  Notwithstanding, the department conceded that subpoenaed party could not institute an action for judicial review of its subpoenas.  At the same time, the department reasoned that whatever due process right to which a subpoenaed party is entitled is nevertheless satisfied. 

These assertions were rooted in the argument that constitutional due process exists because Sections 703 and/or 712 provide a subpoenaed party a choice: take the “risk” of imprisonment and fines to obtain judicial review after refusing to comply with subpoenas or simply comply.  Respectfully, we do not think that such a risk is Constitutionally permissible.

1.  Tennessee Businesses are Entitled to Privacy in Business Records, Even When Required to Keep and Make Them Available.

It is well-established that “the concept of ‘required records’ is not synonymous with the absence of a privacy interest.”  Publix Super Markets, Inc. v. Tennessee Dept. of Labor, 402 S.W.3d 218, 230 (Tenn. Ct. App. 2012) (citing McLaughlin v. Kings Island, Div. of Taft Broadcasting Co., 849 F.2d 990, 994 (6th Cir. 1988)).  See also Brock v. Emerson Electric Co., 834 F.2d 994, 996 (11th Cir. 1987) (a regulation requiring an employer to keep records regarding his employees’ injuries and illnesses “does not serve to strip away a company’s attendant privacy interest in that information”); United States v. Blue Diamond Coal Co., 667 F.2d 510, 519 (6th Cir. 1981) (even in pervasively regulated industries, employer’s records are “not public property”); C.A.B. v. United Airlines, Inc., 542 F.2d 294 (7th Cir. 1976) (privacy interest in access to records that United Airlines was required to maintain); United States v. Stanack Sales Co., 387 F.2d 849 (3d Cir. 1968) (employer maintains privacy interest in the records that it is required to maintain by law); Mid-Fla Coin Exchange, Inc. v. Griffin, 529 F.Supp. 1006 (M.D. Fla. 1981) (same).

2.  The Case Law Upon Which the Trial Court Relied is Inapposite to its Holding.

In the proceeding below, the trial court based much of its holding on Shriver v. Leech, which we believe involved a completely different situation.  In Leech, the Tennessee Supreme Court upheld a statute authorizing the enforcement of a Civil Investigative Demand by promulgating jurisdiction to the Chancery Courts, which could exercise its basic right to hold individuals in contempt for failing to comply with court orders.  Therefore, Leech is different for several important reasons.  First, the statute did not expressly limit access to the courts to the attorney general, which is the case under Sections 703 and/or 712.  Second, the Leech court recognized that challenges to the agency’s demands could be raised in a proceeding to “enforce compliance” – not in a proceeding to enforce penalties like Sections 703 and/or 712 provide.  Finally, Leech only clarified the court’s role and fundamental discretion to find individuals who violate court orders in contempt of court.  Sections 703 and/or 712 are completely different because they create completely separate “additional” penal consequences.

The trial court also relied on McNiel v. Cooper, 241 S.W.3d 886 (Tenn. Ct. App. 2007), which is also different that our case.  There, the Tennessee Court of Appeals upheld the Tennessee Board of Medical Examiner’s authority to gain access to a licensed physician’s patient records after a verified complaint was filed against that physician.  Further, the court upheld the Board of Medical Examiner’s authority to discipline the physician’s refusal to provide such records.  Clearly, McNiel is different because it involved the State’s “compelling interest” in exercising its police powers in a highly regulated profession – the medical profession – to ensure that physicians meet minimal professional standards.  Additionally, the McNiel court recognized that the physician would be afforded a number of judicial or quasi-judicial forums within which to challenge the Board’s actions, where the Board ultimately maintained the burden of proof.  In our case, our client had no such forums under Sections 703 and 712, which literally excluded its right to initiate any challenge to the department’s unilateral demands.

3.  Other States Do Not Approve of Statutes Authorizing the Enforcement of Administrative Subpoenas with Threats of Imprisonment and other Sanctions.

When posed with the identical question that presents itself in our case, the California Court of Appeals held that an enforcement scheme that authorized the California Department of Labor to issue administrative subpoenas which threatened civil and criminal penalties for noncompliance was unconstitutional.  California Restaurant Ass’n v. Henning, 173 Cal.App.3d 1069) (Cal. App. 1985).  There, the California court recognized that the statute put the subpoenaed party to a “Hobson’s choice: he must either surrender the material with any questions as to the subpoena’s validity still unresolved, or he must refuse to comply with the subpoena.  The alternatives are stark – relinquishment of a constitutional protection or face criminal prosecution.”  Id. at 1076.

In light of Henning, it should not come as a surprise to find that even a cursory review of other states with administrative subpoena enforcement schemes reveals that such statutes are different than Tennessee’s and generally only allow the penalty of contempt for failing to comply with a court order and do not include the strict criminal liability imposed in Tennessee’s statute.  See, e.g., Ala. Code. § 25-2-23 (“In the event of failure of any person to comply with any [administrative] subpoena lawfully issued . . . it shall be the duty of any court . . . to compel obedience by attachment proceedings for contempt”); Ark. Code Ann. § 11-2-118 (same); Fla. Stat. Ann. § 440.107 (same); Iowa Code Ann. § 97B.23 (“Any failure to obey the order of the court may be punished by the court as contempt”).  Other states, like Georgia, very carefully convey that an administrative subpoena may not be enforced with the threat of criminal penalties and imprisonment.  See Ga. Code Ann. § 34-9-60 (Imprisonment shall not be used as a “means of enforcing” an administrative subpoena).

Therefore, it is clear that Tenn. Code Ann. § 50-7-703 is the practical equivalent of the statute the California Court of Appeals determined was unconstitutional.  It imposes a Hobson’s choice upon small businesses: they are only given a “take-it or leave-it” decision where the alternatives are stark.

4.  In Fact, the Application of United States Supreme Court Authority Requires a Ruling that Sections 703 and 712 are Unconstitutional.

The U.S. Supreme Court long ago held that “to impose upon a party interested the burden of obtaining a judicial decision of [the constitutionality of an administrative action] . . . only upon the condition that, if unsuccessful, he must suffer imprisonment and pay fines, . . . is, in effect, to close up all approaches to the courts[.]”  Ex parte Young, 209 U.S. 123, 148 (1908) (emphasis added).  However, this is exactly what the trial court did in our case.  In that regard, a statute which would require a business’s employee or agent to violate the law to challenge an administrative action necessarily “preclude[s] a resort to the courts . . . for the purpose of testing its validity.” Id. at 448.

Ex parte Young is not an isolated opinion.  In fact, its principles resonate in the last century of U.S. jurisprudence.  See Oklahoma Operating Co. v. Love, 252 U.S. 331, 336 (1920) (An enforcement scheme was unconstitutional because “the only judicial review of an [administrative order] possible . . . was that arising in proceedings to punish for contempt”); Wadley v. Southern Ry. v. Georgia, 235 U.S. 651, 661-63 (1915) (“[T]he right to a judicial review must be substantial, adequate and safely available; but that right is merely nominal and illusory if the party to be affected can appeal to the courts only at the risk of having to pay penalties so great that it is better to yield to orders of uncertain legality rather than to ask for the protection of the law.” Such statutory schemes are essentially “ex post facto” laws because they “punish[] for an act done when the legality of the command has not been authoritatively determined”); Reisman v. Caplin, 375 U.S. 440, 446 (1964) (“the penalties of contempt [or prosecution] risked by a refusal to comply with summonses are so severe that the statutory procedure amounts to a denial of judicial review”); United States v. Euge, 444 U.S. 707, 719 (1980) (A party issued an administrative summons is “entitled to challenge the issuance of the summons in an adversary proceeding in federal court prior to enforcement”) (emphasis added); Donaldson v. United States, 400 U.S. 517, 525 (1971) (“Thus the summons is administratively issued but its enforcement is only by federal court authority in an adversary proceeding affording the opportunity for challenge and complete protection to the witness”) (emphasis added); Schulz v. I.R.S., 413 F.3d 297 (2d Cir. 2005) (“[A]ny legislative scheme that denies subjects an opportunity to seek judicial review of administrative orders except by refusing to comply, and so put themselves in immediate jeopardy of possible penalties ‘so heavy as to prohibit resort to that remedy,’ runs afoul of the due process requirements of the Fifth and Fourteenth Amendments.   This is so even if “‘in the proceedings for contempt the validity of the original order may be assailed.’”)

In our case, the Department actually conceded that the operation of Section 703 provides judicial review only in defense to penal proceedings.  The Department’s lawyer even argued that “if you lose those arguments, then The Court can go ahead and penalize you at that time, immediately, for failure to comply.”

While we obviously do not know how the Tennessee Court of Appeals will ultimately rule, we are optimistic that Tennessee small businesses will not be faced with a Constitutionally impermissible Hobson's choice.