BILL ANALYSIS Ó SENATE COMMITTEE ON PUBLIC SAFETY Senator Loni Hancock, Chair S 2013-2014 Regular Session B 7 6 2 SB 762 (Hill) As Amended April 15, 2013 Hearing date: April 23, 2013 Code JM:jr PAWNBROKERS AND SECONDHAND GOODS DEALERS HISTORY Source: California Pawnbrokers' Association Prior Legislation: SB 1520 (Schiff) - Ch. 994, Stats. 2000 SB 1893 (Burton) - failed in Assembly Business and Professions, 2004 SCR 63 (Yee) - Ch. 16., Stats. 2010 AB 1796 (Galgiani) 2012, failed in Assembly Public Safety Support: California Coin and Bullion Merchants Association; California Sheriffs' Association; California Police Chief's Association, Inc. Opposition:California District Attorneys Association; One Individual KEY ISSUES SHOULD OPERATING AS AN UNLICENSED SECONDHAND DEALER AND NOT (More) SB 762 (Hill) PageB REPORTING ACQUISITIONS OF SECONDHAND PROPERTY BE CONSIDERED CRIMINAL PROFITEERING BY ORGANIZED CRIME AND THE PROFITS FROM SUCH ACTIVITIES SUBJECT TO CRIMINAL FORFEITURE? (CONTINUED) SHOULD THE RIGHTS AND INTERESTS OF A PAWNBROKER IN LOST OR STOLEN PROPERTY THAT HAS BEEN SOLD TO THE PAWNBROKER OR HELD AS COLLATERAL BE CLARIFIED AND PROTECTED IN RELATED STATUTES? PURPOSE The purposes of this bill are to 1) provide that operating as an unlicensed secondhand dealer and failing to report acquisitions of secondhand goods may be considered criminal profiteering by organized crime and the profits of such an enterprise subject to criminal forfeiture; 2) specifically authorize a law enforcement officer to seize property that was reported stolen if the pawnbroker or secondhand dealer in possession of the property refuses to place a hold on the property; and 3) protect and clarify the rights and interests of pawnbrokers in property seized from a pawnbroker where a criminal investigation or case involving the property has been resolved or terminated. Criminal Profiteering Existing law includes criminal profiteering asset forfeiture that applies where the defendant is convicted of a specified offense and the defendant has engaged in a pattern of criminal profiteering activity, as specified. (Pen. Code § 186.3.) The following property is subject to forfeiture: Any property interest whether tangible or intangible, acquired through a pattern of criminal profiteering activity. All proceeds of a pattern of criminal profiteering activity. This includes all things of value that may have (More) SB 762 (Hill) PageC been received in exchange for the proceeds immediately derived from the pattern of criminal profiteering activity. Existing law states that forfeited cash and proceeds of the sale of forfeited property shall be distributed as follows: To the bona fide or innocent purchaser, conditional sales vendor, or holder of a valid lien, mortgage, or security interest, up to the amount of his or her interest in the property or proceeds, as specified. To the Department of General Services or local governmental entity for all expenditures incurred in connection with the sale of the forfeited property. To the State General Fund or the general fund of the local governmental entity, whichever prosecutes. (Pen. Code § 186.8), except in the child pornography or recycling fraud cases. In a case of fraud involving the state recycling program, to a special fund designated in the Public Resources Code. In the case of child pornography crimes, to the county children's trust fund or State Children's Trust Fund. In a case involving the use of a minor for prostitution or related commercial sex acts, to the Victim-Witness Assistance Fund for child sexual exploitation and abuse counseling and prevention programs. Fifty percent of the funds shall be granted to community-based organizations that serve minor victims of human trafficking. This bill defines operating a business as secondhand goods dealer without a license as criminal profiteering, subject to the forfeiture laws covering such activities. This bill provides that operating as secondhand goods dealer without a license and not reporting to the police acquisitions of secondhand goods shall be defined as organized crime, within the meaning of the criminal profiteering asset forfeiture laws. This bill provides that the proceeds of forfeiture, after storage fees, court costs and money owed secured creditors are (More) SB 762 (Hill) PageD paid, shall be distributed as follows: 10% to the Restitution Fund. 45% to the general fund of the city, county or city and county that instituted the forfeiture. 45% to the city, county or city and county in which the forfeiture occurred. Secondhand Dealers and Pawn Generally Existing law includes a statement of legislative intent to curtail the dissemination of stolen property, to facilitate the recovery of stolen property and to detect possible sales tax evasion by means of a uniform, statewide, state-administered program of regulation of persons whose principal business is dealing in tangible personal property, as specified. (Bus. & Prof. Code § 21625; Fin. Code § 21051.) Existing law includes legislative intent that reports of transactions in pawned and secondhand property should be correlated with law enforcement reports so as to trace and recover stolen property. (Bus. & Prof. Code § 21625.) Existing law , for purposes of the system for curtailing dissemination of stolen property, defines a "secondhand dealer" as any person or entity whose business includes buying, selling, trading, taking in pawn, accepting for sale on consignment or auctioning any "tangible personal property." (Bus. & Prof. Code § 21625.) Existing law defines "tangible personal property" thus: All secondhand personal property that has a serial number or personalized markings, All tangible property, new or used, taken by a pawnbroker as security for a loan, and All tangible personal property commonly sold by secondhand dealers that constitutes a significant class of (More) SB 762 (Hill) PageE stolen property. (Bus. & Prof. Code § 21627, subds. (a)-(b).) Existing law provides that tangible personal property does not include coins, monetized bullion or commercial grade ingots of precious metals. (Bus. & Prof. Code § 21627, subd. (d).) Existing law defines a pawnbroker<1> as a "person engaged in the business of receiving goods in pledge for security for a loan." (Fin. Code § 21000.) Existing law defines a "coin dealer" as a person or entity "whose principal business is the buying, selling, and trading of coins, monetized bullion, or commercial grade ingots of gold, or silver, or other precious metals." (Bus. & Prof. Code § 21626, subd. (b).) A coin dealer is not a secondhand dealer, except as concerns transactions in tangible personal property. (Bus. & Prof. Code § 21626, subd. (a).) Existing law provides that a violation of the statutes regulating secondhand dealers and tangible personal property, including the failure to obtain a license is a misdemeanor. These offenses include an element<2> that the defendant person knew or should have known that a violation was committed. The offenses are punishable as follows: For the first offense, a fine of up to $1,500 or imprisonment in the county jail up to two months, or both; For the second offense, a fine of up to $5,000 or imprisonment in the county jail up to four months, or both; and, For the third offense, a fine of up to $25,000 or imprisonment in the county jail up to six months, or both. (Bus. and Prof. Code § 21645.) -------------------------- <1> For purposes of this analysis, the terms pawnbroker and secondhand dealer are used interchangeably. Secondhand dealers also handle property for consignment sale and resale. <2> An element is a fact or circumstance that is essential to the proof of a crime. (More) SB 762 (Hill) PageF Existing law provides that a license to operate as a secondhand dealer is subject to forfeiture and the licensee's activities may be enjoined for a breach of any of the following conditions: The business shall be carried on only at the location designated on the license. The license shall designate all locations where property belonging to the business is stored. Property of the business may be stored at locations not designated on the license only with the written consent of the local licensing authority. The license or a copy thereof, certified by the licensing authority, shall be displayed on the premises in plain view of the public. The licensee shall not engage in any act which the licensee knows to be in violation of this article; or The licensee shall not be convicted of an attempt to receive stolen property or any other offense involving stolen property. (Bus. & Prof. Code § 21642, subd. (b).) Reports to Law Enforcement of Transactions in Secondhand Goods and Issues Concerning Return of Stolen Property to the Owner Existing law includes a statement of legislative intent to require the uniform statewide reporting of transactions in and acquisitions of secondhand and pawned property by pawnbrokers and secondhand dealers. (Bus. & Prof. Code § 21625; Fin. Code § 21051.) Existing law provides that pawnbrokers and coin dealers shall report daily on forms approved or provided by the Department of Justice (DOJ), or electronically, as specified, all personal property purchased, taken in trade, taken in pawn, etc., to local law enforcement. The report shall include the following information: The name and current address and identification of the intended seller or pledgor of the property; (More) SB 762 (Hill) PageG A complete and reasonably accurate description of serialized or nonserialized property; and A certification by the intended seller or pledgor that he or she is the owner of the property, or has the authority of the owner to sell or pledge the property and that any information provide is true and complete, and a legible fingerprint taken from the intended seller or pledgor. (Bus. & Prof. Code § 21628.) Existing law provides that on the date that DOJ implements the statewide electronic reporting system for pawned or secondhand tangible personal property, each secondhand dealer or pawnbroker shall electronically report applicable transactions, as specified. The following apply to the electronic reporting system: Coin dealers shall continue to report transactions on paper forms. For 30 days after implementation of the electronic system, dealers shall continue to report on paper forms. DOJ shall charge all secondhand dealers and pawnbrokers a fee for the operation of the electronic reporting system. The secondhand dealer licensing authority - the sheriff, police chief or police commission as applicable - shall collect the electronic system reporting fee and transmit the fee to DOJ. The secondhand dealer licensing authority may charge a fee to the applicant not to exceed the actual costs incurred to process the application and collect and transmit the fee charged by DOJ. Pawnbrokers shall comply with property transaction reporting requirements imposed on secondhand dealers. (Bus. & Prof. Code § 21628, subd. (j).) Existing law provides the following as to the calculation of the electronic reporting system fee: (More) SB 762 (Hill) PageH The fee shall be paid at the time the original license is granted and when the license is renewed every two years. The fee shall be no more than $300 in any event. The fee shall be no more than necessary to reflect the costs of the following: o Processing of the initial application. o Processing renewal applications. o Implementing, operating and maintain the statewide reporting system. (Bus. & Prof. Code § 21642.5, subds. (a)-(b).) Exiting law establishes the Secondhand Dealer and Pawnbroker Fund. The fund shall, upon appropriation of the Legislature, be used by DOJ to implement, operate, and maintain the pawned and secondhand property electronic reporting system. (Bus. & Prof. Code § 21642.5, subd. (d).) Existing law provides that a district attorney or the Attorney General may seek an injunction to stop or prevent a violation of the laws governing transactions in pawned and secondhand goods. (Bus. & Prof. Code § 21646.) Existing law provides that when a peace officer has probable cause to believe that property, other than coins and precious metal ingots, in the possession of a pawnbroker, secondhand dealer or coin dealer is stolen, the officer may place a hold on the property for up to 90 days. The pawnbroker or dealer may not release or dispose of the property without a court order or written receipt from an officer of the agency that placed the hold. The pawnbroker or dealer shall produce and deliver the property to a peace officer for purposes of a criminal investigation. (Bus. & Prof. Code § 21647, subds. (b)-(c).) Existing law provides that where property reported as stolen is found in the possession of a pawnbroker, secondhand dealer or (More) SB 762 (Hill) PageI coin dealer, the agency shall notify the person who reported the property lost or stolen of the following: The contact information for the pawnbroker, secondhand dealer or coin dealer holding the property. The law does not prohibit payment of a fee or any condition for surrender of the property. If the reporting person declines to participate in the prosecution of the alleged thief, the reporting person shall pay the broker or dealers expenses for the acquisition of the property. If the reporting person takes no action to recover the property within 60 days of the mailing of notice, the broker or dealer may treat the property as acquired in the regular course of business. A copy of the notice will be mailed to the broker or dealer in possession of the property. (Bus. & Prof. Code § 21647, subd. (c).) Existing law provides that when property subject to a law enforcement agency hold is no longer needed for a criminal investigation, the agency shall release the hold. The agency shall give notice to the person who reported the property as lost or stolen, as specified. (Bus. & Prof. Code § 21647, subd. (d).) Existing law provides that where the pledgor of property (person using the property as collateral for a loan) attempts to retrieve the property during the holding period, the pawnbroker shall inform the pledgor about the officer and agency that placed the hold. If the property is no longer needed for an investigation, the hold shall be released. (Bus. & Prof. Code § 21647, subd. (e).) Existing law provides that where stolen or lost property (as listed in the DOJ system) is found in the possession of a pawnbroker, secondhand dealer or coin dealer, and a peace officer places a hold on the property, the following shall apply: (More) SB 762 (Hill) PageJ If 60 days elapses following delivery of the required notice to the reporting person, or the hold otherwise elapses, the pawnbroker, secondhand dealer or coin dealer may send, by certified mail, a request to delete the property from the DOJ stolen or lost property or firearm system. Within 30 days of the mailing of the request, the law enforcement agency shall have the listing deleted or place a hold on the property. If law enforcement takes no action within 45 days, the pawnbroker, secondhand dealer or coin dealer, may presume the listing has been deleted and "deal with the property accordingly." (Bus. & Prof. Code § 21647, subd. (f).) Existing law provides that where allegedly stolen property has been taken from a pawnbroker, the officer, magistrate, court clerk or other holder of the property shall not deliver the property to a person claiming ownership unless the following requirements have been met: If anyone makes a claim of ownership, the person with custody of the property shall notify the pawnbroker. If the pawnbroker makes no claim on the property within 10 days of notice, the property may be disposed of in compliance with the law. (Fin. Code § 21206.8, subds. (a)-(b).) Existing law provides that where the ownership of stolen or embezzled property can be ascertained, and where the address of the owner and security holder can be ascertained, the officer in custody of the property shall notify by mail the owner and security holder, as specified: The owner shall be notified of the location of the property and the method through which the owner may retrieve the property. If the property is not timely claimed, as specified, the property shall be sold and the proceeds deposited in the county treasury. The property may be retained for the county if needed. (More) SB 762 (Hill) PageK If the property was taken from a pawnbroker or secondhand dealer and reasonable efforts to return the property to the owner have been unsuccessful, the property shall be returned to the pawnbroker or dealer when it is not needed in a criminal case. (Pen. Code § 1141.) Notice shall be given to the pawnbroker and the property may not be disposed of for three months. (Fin. Code § 21206.8, subd. (c).) Existing law provides that where law enforcement identifies serialized property that has been reported stolen or lost and the property has been listed in the DOJ system, the agency shall notify the owner or person entitled to possession of the property within 15 days. If a pawnbroker or secondhand dealer reported his or her acquisition of the the property to law enforcement, the owner shall be given the contact information of the pawnbroker or dealer and be informed of the law concerning retrieval of property from such a business. If the property is no longer needed as evidence, it shall be returned to the owner, as specified. (Pen. Code § 11108.5.) This bill provides that the rules set out in Penal Code Section 1411 concerning retrieval from a law enforcement agency of stolen or embezzled property by the owner of the property shall not apply to property taken from a pawnbroker or secondhand dealer unless the pawnbroker or secondhand dealer willfully refused to consent to a statutory hold on the property or the property was seized from the pawnbroker or secondhand dealer by warrant. This bill provides that where property held by a pawnbroker or secondhand dealer is needed for a criminal investigation, and a law-enforcement hold has been placed on the property, the property lien of the pawnbroker or secondhand dealer shall continue when the property is surrendered to law enforcement. Upon termination of criminal proceedings, the property shall be returned to the pawnbroker for disposition, as specified. This bill specifically provides that a peace officer, when placing a hold on property found at a pawnshop that has been (More) SB 762 (Hill) PageL reported stolen, may take the property or leave it at the pawnshop. This bill provides that when property entered into the DOJ automated property or firearm system is found in the possession of a pawnbroker or secondhand dealer, the property shall be placed on law enforcement hold. This bill provides that a pawnbroker or secondhand dealer shall not refuse a request to place a hold on property that law enforcement has probable cause to believe is stolen. If the hold request is refused, an officer may seize the property without a warrant. This bill provides that a warrant shall not be issued for the search of a pawn or secondhand business unless the application for the warrant sets out the officer's unsuccessful attempts to use the procedures for placing a hold on the property and the magistrate determines the following: The pawnbroker or secondhand dealer has refused to voluntarily surrender the property, or there is probable cause that the business owner willfully concealed the property; and Any notice requirements as to the property would frustrate the criminal investigation of the pawnbroker or secondhand dealer. This bill provides that in adjudicating competing claims of interest in property seized from a pawnbroker, the magistrate or person with custody of the property shall consider Section 2403 of the Commercial Code, which concerns the rights acquired by a purchaser of property under various circumstances. This bill provides that when property that has been reported lost, stolen or embezzled is taken from a pawnshop, the (More) SB 762 (Hill) PageM following applies: The person claiming ownership of the property must file a written statement, under penalty of perjury, stating the factual basis for his or her claim. The person with custody of the property shall notify the pawnbroker of the claim and provide the pawnbroker with a copy of the claim. This bill provides that at least 30 days prior to any hearing adjudicating competing claims of a pawnbroker and a person claiming interest in property, the person with custody of the property shall deliver to the pawnbroker a copy of the police report substantiating the basis for the seizure of the property from the pawnbroker. This bill refers to property that is "lost, stolen or embezzled" in references to property that is acquired by pawnbrokers and secondhand dealers and subject to reporting requirements and procedures for return of such property. Existing law refers to lost and stolen property. RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION For the last several years, severe overcrowding in California's prisons has been the focus of evolving and expensive litigation relating to conditions of confinement. On May 23, 2011, the United States Supreme Court ordered California to reduce its prison population to 137.5 percent of design capacity within two years from the date of its ruling, subject to the right of the state to seek modifications in appropriate circumstances. Beginning in early 2007, Senate leadership initiated a policy to hold legislative proposals which could further aggravate the prison overcrowding crisis through new or expanded felony prosecutions. Under the resulting policy known as "ROCA" (which stands for "Receivership/ Overcrowding Crisis Aggravation"), the Committee held measures which created a new felony, expanded the (More) SB 762 (Hill) PageN scope or penalty of an existing felony, or otherwise increased the application of a felony in a manner which could exacerbate the prison overcrowding crisis. Under these principles, ROCA was applied as a content-neutral, provisional measure necessary to ensure that the Legislature did not erode progress towards reducing prison overcrowding by passing legislation which would increase the prison population. ROCA necessitated many hard and difficult decisions for the Committee. In January of 2013, just over a year after the enactment of the historic Public Safety Realignment Act of 2011, the State of California filed court documents seeking to vacate or modify the federal court order issued by the Three-Judge Court three years earlier to reduce the state's prison population to 137.5 percent of design capacity. The State submitted in part that the, ". . . population in the State's 33 prisons has been reduced by over 24,000 inmates since October 2011 when public safety realignment went into effect, by more than 36,000 inmates compared to the 2008 population . . . , and by nearly 42,000 inmates since 2006 . . . ." Plaintiffs, who opposed the state's motion, argue in part that, "California prisons, which currently average 150% of capacity, and reach as high as 185% of capacity at one prison, continue to deliver health care that is constitutionally deficient." In an order dated January 29, 2013, the federal court granted the state a six-month extension to achieve the 137.5 % prisoner population cap by December 31st of this year. In an order dated April 11, 2013, the Three-Judge Court denied the state's motions, and ordered the state of California to "immediately take all steps necessary to comply with this Court's . . . Order . . . requiring defendants to reduce overall prison population to 137.5% design capacity by December 31, 2013." The ongoing litigation indicates that prison capacity and related issues concerning conditions of confinement remain unresolved. However, in light of the real gains in reducing the prison population that have been made, although even greater reductions are required by the court, the Committee will review each ROCA bill with more flexible consideration. The following (More) SB 762 (Hill) PageO questions will inform this consideration: whether a measure erodes realignment; whether a measure addresses a crime which is directly dangerous to the physical safety of others for which there is no other reasonably appropriate sanction; whether a bill corrects a constitutional infirmity or legislative drafting error; whether a measure proposes penalties which are proportionate, and cannot be achieved through any other reasonably appropriate remedy; and whether a bill addresses a major area of public safety or criminal activity for which there is no other reasonable, appropriate remedy. COMMENTS 1.Need for This Bill Under current law there are no consequences to operators who are unlicensed and deal in secondhand reportable property transactions. Consumers cannot recover property that is not "held" as described in current law, when an unscrupulous operator is not licensed and therefore ignores that requirement. Theoretically, the bill can generate revenue through seizure that may be directed to the General Funds of cities and counties that may be dedicated to law enforcement and prosecutors to curb this illegal activity. Further, to incentivize businesses to become licensed and to report and hold their acquisitions pursuant to existing law, SB 762 streamlines the process of adjudicating the competing claims of licensed secondhand dealers and alleged crime victims by revising the existing statutory hold provision of current law. (More) SB 762 (Hill) PageP 2. Property Rights and Interests of Pawnbrokers - Law Enforcement may Return Property to a Person Claiming to be the Owner of the Property The sponsor has stated that this bill would, in substantial part, clarify existing law and codify a federal appellate case holding that California law prohibits law enforcement from simply taking reportedly stolen property and returning the property to the person claiming to own the property. The case at issue is G&G Jewelry v. Oakland (1993) (9th Cir.) 989 F.2d 1093. Boiled down to the essence of the decision, the court in G&G held that California law prohibited the Oakland Police (or any law enforcement agency) from taking reportedly stolen property from the possession of a pawnbroker and giving the property to the claimed owner of the property. The police cannot return the property to the owner following resolution of a criminal case concerning the stolen property. The police must follow statutory procedures requiring that property be returned to the pawnshop owner and the owner must obtain the property from the pawnshop. The pawnshop owner may charge a fee for returning the property to the owner. If the owner did not participate in the prosecution, the pawnshop owner may require the property owner to pay the pawnbroker's "out of pocket" expenses. These expenses apparently include the amount of a loaned secured by the property or the money paid by the pawnshop owner to buy the property. G&G was decided on the basis of law that is largely the same today as in 1993. The police in Oakland were not following statutory procedures at that time. This raises the issue as to whether the problems for pawnshop owners in vindicating their rights arise because of misapplication of the governing, rather than deficiencies in the way the statutes are written. A summary of the facts of G&G follows: Michael Watson filed a report that his camera had been stolen in a robbery. A few months later, the camera was pawned (given as collateral for a loan) by Frederick Brasley at G&G Jewelry - a pawnshop in (More) SB 762 (Hill) PageQ Oakland. The Oakland Police placed a statutory (Bus. & Prof. Code § 21647) 90-hold on the camera when the department matched the serial numbers of the camera from the robbery report with the required report by G&G of the pawn transaction with Brasley. The hold prohibited G&G from transferring or disposing of the camera. The police determined that Brasley had not stolen the camera, so charges were not filed against him. Six days before the 90-day hold expired, the police notified G&G that unless it could establish that Watson - the reported robbery victim - was not the owner of the camera, the camera would be returned to Watson. G&G objected, but an officer took the camera. (G&G Jewelry v. Oakland, supra, 989 F.2d 1093, 1094-1095.) The interests and rights of pawnshop owners in property that has been acquired by a pawnshop and that has been reported as lost or stolen is a very important part of this bill. Existing statutes on this issue are not entirely clear and consistent. For example, Penal Code Section 1411 could be interpreted to allow a law enforcement agency to return lost or stolen property directly to a person who claimed ownership of the property, regardless of whether the property had been sold as secondhand property or pledged as collateral for a loan from a pawnshop. This bill essentially requires that all property that has been pledged as a loan or sold to a pawnshop and that 1) was entered into the database of property acquired by pawnshops and secondhand dealers, and 2) reported as lost or stolen, be returned to the pawnshop owner when a criminal investigation or prosecution concerning the property has concluded. Upon return of the property to the pawnshop owner, the pawnshop owner may return the property to the person claiming ownership as follows: 1) If the person claiming ownership cooperated with the underlying criminal action, the pawnshop owner may charge a fee to the person claiming ownership of the property as a condition of return. 2) If the person claiming ownership did not cooperate with the criminal action, the pawnshop owner is entitled to his or her "out of pocket" expenses, presumably including the amount of money loaned to the pledger of the (More) SB 762 (Hill) PageR property, or the price the pawnshop owner paid to purchase the property and any related costs and expenses. In discussions about this bill, a representative of the sponsor noted that property that has been reported as lost or stolen and in the possession of a pawnshop is only discovered because the pawnshop owner reported acquisition of the property. Had the pawnshop owner not complied with the reporting law, the owner of the property would not have gotten his or her property back. Others noted that reporting the acquisition of the property is a legal duty. The legal duty is imposed because pawnshops and secondhand dealers provide a relatively obvious method for thieves to attempt to dispose of stolen property. Return of the property to the owner without compensation to the pawnshop owner or secondhand goods dealer arguably should be considered an expected risk or cost of doing business in secondhand goods. WHERE PROPERTY PLEDGED FOR A LOAN OR SOLD AS A SECONDHAND GOOD IS DETERMINED TO BE LOST OR STOLEN, AND THE PAWNSHOP OWNER OR SECONDHAND GOODS BUSINESS COMPLIED WITH THE LAW, SHOULD THE PROPERTY ALWAYS BE RETURNED TO THE PAWNSHOP OWNER UPON CONCLUSION OF A CRIMINAL INVESTIGATION OR PROSECUTION? UPON RETURN OF THE PROPERTY TO THE PAWNSHOP OWNER, SHOULD HE OR SHE BE ENTITLED TO A FEE FROM THE PROPERTY OWNER OR PAYMENT BY THE OWNER OF THE PAWNBOKER'S OUT OF POCKET COSTS? 3. Search Warrant Issues This bill provides that a warrant shall not be issued for the search of the place of business of a pawnbroker or secondhand dealer unless one of the following is demonstrated to the court: The evidence sought "to be secured by the search warrant is sought for its evidentiary value other than property that is lost, stolen or embezzled." The peace officer's attempts to use the procedures for placing a hold on property that is suspected of being lost, stolen or embezzled demonstrate that the pawnbroker has (More) SB 762 (Hill) PageS refused to voluntarily surrender the property. There is probable cause that the reportedly lost, stolen or embezzled property is being willfully concealed by the pawnbroker or secondhand dealer. This portion of the bill was discussed at length in a conference call that included the sponsor, the author's staff, Committee staff and representatives of the California District Attorneys Association (CDAA). Concerns were raised that this provision could be read as limiting a court's ability to issue a warrant for the search of a pawnbroker or secondhand goods business. In general, questions were raised about the propriety of describing in a statute the grounds for issuance of a search warrant, since search warrants are issued when a law enforcement officer establishes probable cause that evidence of a crime may be found in found in the place to be searched. That is, the limits on the issuance of search warrants are found in constitutional law, not statutes. In particular, questions were raised as to whether these provisions would create uncertainty and issues for court motions, writs and appeals. For example, one could argue that the bill limits searches to cases where the police seek to "secure" a specific item of evidence, rather than to discover evidence. CDAA has argued in its letter of opposition that a California appellate case authorizes police to seize stolen property from a pawnbroker or secondhand dealer without a warrant if the property is in plain view. (Christian v. Chester (1990) 218 Cal.App.3d 273, 277.) CDAA argues that this bolsters its argument that issues of search and seizure are governed by constitutional law and should not be addressed in statute.<3> The court in Christian ruled that when a police officer finds stolen property in plain view at a pawnshop, the officer can --------------------------- <3> The court in G&G v. Oakland , supra , 989 F.2d 1093, 1094-1095, appears to have concluded that Oakland police did not have the right to seize stolen property from a pawnbroker without a warrant under the plain view doctrine. (More) SB 762 (Hill) PageT seize the property without a warrant under the plain view doctrine. The officer must give the pawnbroker a receipt for the property, as required by Financial Code 21206.7. The officer need not comply with the provisions in Business and Professions Code Section 21647, which sets out the procedure for placing a law-enforcement hold on suspected stolen property. (Id, at pp. 274-277.) It appears that this bill would provide that a law enforcement officer cannot seize a suspected stolen item from a pawnbroker unless the pawnbroker refuses to place a hold on the property. The determination of how existing law not amended by this bill, the provisions of this bill and constitutional provisions concerning search and seizure will be interpreted and harmonized in the courts is uncertain. DOES THE BILL CREATE AMBIGUITIES OR CONSTITUTIONAL ISSUES CONCERNING WHEN A PEACE OFFICER MAY OBTAIN A WARRANT TO SEARCH THE BUSINESS OF A PAWNBROKER OR SECONDHAND DEALER? 4. Creating Financial Incentive through Forfeiture for Law Enforcement to Enforce Secondhand Dealer License Laws - Issues of "Bounty" and Influencing Law Enforcement Priorities This bill defines the operating an unlicensed secondhand goods business and failing to report acquisitions of secondhand goods as criminal profiteering by organized crime and authorizes forfeiture of those profits. The proceeds of forfeiture from unlicensed businesses will be divided as follows: 45% to the city or county that instituted the forfeiture through the police or sheriff; 45% and the city or county that litigated the forfeiture through the office of the district attorney or city attorney; and 10% to the Restitution Fund for victims of crime. Representatives of the sponsor have argued that the offense of acting as a secondhand property dealer without a license is a low priority for law enforcement. As such, the state must offer financial incentives for law enforcement and the government entities that fund and employ law enforcement agencies to investigate and prosecute unlicensed dealers. (More) SB 762 (Hill) PageU Designating that forfeiture proceeds shall be paid to the law enforcement agency that seized the forfeited property has been criticized as creating an improper bounty - an incentive for law enforcement agencies to pursue investigations based on financial interest, rather than public safety. While the proceeds of forfeiture from unlicensed dealers would not be paid directly to law enforcement agencies, representatives of the sponsor have noted that the chief of police in a city or sheriff in a county could press the city council and board of supervisors for additional funding of the law enforcement agency from the proceeds of forfeitures initiated by the law enforcement agency. In an era where all government agencies have very tight budgets, there could be significant pressure to use forfeiture proceeds as a source of operating revenue for law enforcement agencies. The purpose of criminal asset forfeiture is to prevent organized crime entities from profiting from crime and amassing assets that would allow them to become more powerful and dangerous. (Pen. Code § 186.2, subd. (d).) The Senate Public Safety Committee analysis of the bill that added gang crimes to the criminal profiteering laws<4> explained: "The California Control of Profits of Organized Crime Act ('Little RICO"), patterned after the federal RICO statute, was enacted in 1982 for the purpose of recovering the profits of organized crime." The most common examples of organized crime are likely the Mafia and criminal street gangs. Such organizations would appear to present such a danger to the community that law enforcement would not need any special incentive to pursue investigations and arrests of participants and controllers of organized crime. Where a law enforcement agency is successful in arguing that the proceeds of forfeitures from illegally operated businesses should be designated for the agency that initiated the forfeiture, other entities and organizations representing a range of licensed businesses and professions could well press --------------------------- <4> SB 1992 (Calderon), Ch. 844, Stats. 1996 - May 7, 1996 hearing. (More) SB 762 (Hill) PageV for similar forfeiture schemes to be adopted to protect them. These businesses could very likely include contractors, cosmetology and barbering, medical professionals, plumbers, or any entity for which a license is required, including a simple business license. While such businesses do not provide a means for the fencing of stolen property, it could well be argued that because the public is put at risk by unlicensed businesses, and because unlicensed businesses can unfairly compete with licensed businesses, forfeiture should be applied to any unlicensed or improperly run business. WOULD ANY OTHER LICENSED PROFESSIONALS - CONTRACTORS FOR EXAMPLE - SEEK SIMILAR LAWS TO ENCOURAGE LAW ENFORCEMENT TO MAKE INVESTIGATION OF UNLICENSED ACTIVITY AND ARREST OF OFFENDERS A PRIORITY? 5. Secondhand Property Dealers are Broadly Defined in Existing Law - Separate Regulatory Scheme for Flea Markets and Swap Meets Business and Professions Code Section 21626 defines a "secondhand dealer" as any person or entity "whose business includes buying, selling, trading, taking in pawn, accepting for sale on consignment, accepting for auctioning, or auctioning secondhand tangible personal property." (Italics added.) A person or entity is a secondhand dealer regardless of whether or not secondhand property transactions form the major part of the person's or entity's business. For example, it would appear that a music store that regularly accepts a few instruments on consignment is a secondhand dealer. However, Business and Professions Code Section 21625 states that the intent of the reporting system for tangible personal property is to regulate "persons whose principal business" is dealing in tangible personal property so as to curtail theft and prevent and detect sales tax evasion. (More) Court Decisions There are surprisingly very few appellate decisions discussing who is a secondhand property dealer. A litigant in one appellate case has provided the Committee, the author and the sponsor with a decision from the Court of Appeal of California, Second Appellate District, in Los Angeles interpreting and applying the Los Angeles City ordinance regulating secondhand dealers. In that case, the appellate court held that a person who buys and collects, but does not sell, used books and "ephemera" is not a secondhand dealer within the meaning of the local ordinance. (Hopp v. City of Los Angeles (2010) 183 Cal.App.4th 713,717-722.) The Los Angeles ordinance at issue in Hopp is similar to state law in defining persons who buy property as secondhand dealers. As such, the decision in Hopp could well to apply to a similar challenge of state law. Opinion of the Attorney General Bakersfield City Attorney Virginia Gennaro requested an opinion as to who is required to hold a license as a "secondhand dealer" under the Business and Professions Code. In response, the California Attorney General issued an opinion finding that "[a] person is required to hold a license as a "secondhand dealer" if: (a) he or she owns a "drop-off" store located within the state where secondhand tangible personal property is accepted for sale to be conducted on an Internet auction Web site, (b) the property is held for display or in storage at the store or off the premises, (c) the property is advertised and sold by an Internet auction Web site, (d) the store owner arranges for payment and delivery of the property sold, and (e) he or she charges the seller a fee for services rendered. (88 Ops.Cal.Atty.Gen. 41 (April 6, 2005).) 6. Sentencing Issues - the Bill Creates a New Felony by Requiring a Person Claiming Ownership in Property that has been taken from a Pawnbroker to File a Claim under Penalty of Perjury (More) SB 762 (Hill) PageX One of the major parts of this bill concerns protection of the property rights and interests of pawnbrokers in property acquired by the pawnbroker that has been reported stolen, lost or embezzled. Under existing law, in cases where the property has been taken from the pawnbroker for a criminal investigation or case, Financial Code Section 21206.8 requires a person claiming ownership in the property to notify the pawnbroker of the claim. This bill requires a person claiming ownership of the property to file a statement under penalty of perjury (declaration) setting out the factual basis for the claim. The person or entity with custody of the property - police officer, judge, clerk or other party - shall notify the pawnbroker of the claim and provide the pawnbroker with a copy of the declaration. Because this bill creates a requirement that a person claiming ownership in property taken from pawnbroker to file a statement under penalty of perjury, the bill effectively creates a new felony. Perjury is the willful making of a materially false statement. Perjury is a felony, punishable pursuant to Penal Code Section 1170, subdivision (h), by a jail term of two, three or four years. (Pen. Code §§ 118 and 126.), 1f the convicted person is prohibited by law from serving an executed felony sentence in jail, such as person currently or previously convicted of a serious felony, the executed sentence must be served in jail. It appears that issues of ownership of lost, stolen or embezzled property found in the possession of a pawnbroker arise relatively frequently. It cannot be estimated how often claimants would file false claims of ownership under penalty of perjury and become subject to a felony prosecution under the terms of this bill. However, persons convicted of this new form of perjury would add to the jail and prison population. This includes convicted defendants who are granted probation, as probation typically involves a term in the county jail as a condition of probation. WOULD THIS BILL AFFECT JAIL AND PRISON POPULATION NUMBERS AND SB 762 (Hill) PageY REALIGNMENT? ***************