BILL ANALYSIS                                                                                                                                                                                                    Ó







                      SENATE COMMITTEE ON PUBLIC SAFETY
                            Senator Loni Hancock, Chair              S
                             2013-2014 Regular Session               B

                                                                    7 
                                                                    6 
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          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  




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          REPORTING ACQUISITIONS OF SECONDHAND PROPERTY BE CONSIDERED  
          CRIMINAL PROFITEERING BY ORGANIZED CRIME AND THE PROFITS FROM  
          SUCH ACTIVITIES SUBJECT TO CRIMINAL FORFEITURE?

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          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  




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               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  




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          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  




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                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.



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           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; 




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                 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: 




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                 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  




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          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:





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                 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.




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                 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  




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          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  




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          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  




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          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  




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          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. 





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          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  




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          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  




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          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  




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               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.  



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          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.




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          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.



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          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. 









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           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  





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          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  












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          REALIGNMENT?


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