BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Noreen Evans, Chair 2013-2014 Regular Session SB 762(Hill) As Amended April 15, 2013 Hearing Date: April 30, 2013 Fiscal: Yes Urgency: No TW SUBJECT Secondhand Goods: Lost, Stolen, or Embezzled Items DESCRIPTION This bill would clarify the rights and interests of licensed pawnbrokers and secondhand dealers in property seized from a pawnbroker where a criminal investigation or case involving the property has been resolved or terminated. This bill would provide additional procedures for a law enforcement agency to seize lost, stolen, or embezzled property from a pawnbroker or secondhand dealer, including authorizing a law enforcement officer to seize property, with or without a warrant, if the pawnbroker or secondhand dealer in possession of the property refuses to place a hold on the property. This bill would also 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. BACKGROUND The Legislature has enacted various laws to curtail the dissemination of stolen property and facilitate the recovery of stolen property, including laws regulating pawnbroker and secondhand dealer businesses, which may be utilized by individuals attempting to sell or pawn stolen or embezzled property. With the recent rise in the price of gold, individuals, who are (more) SB 762 (Hill) Page 2 of ? unlicensed to deal in the resale of secondhand goods, are availing themselves of this opportunity to purchase gold and jewelry items for resale. The author argues that this unlicensed activity must be addressed. In order to limit the potential for criminal transfer of property, this bill would enhance existing laws governing the practices of unlicensed secondhand goods sales, and provide additional due process protections to licensed pawnbrokers and secondhand dealers. This bill contains provisions similar to those in AB 704 (Ma, 2011), which died in the Assembly Committee on Judiciary. AB 1796 (Galgiani, 2012), would have included in the definition of criminal profiteering activity the unlicensed sale of tangible personal property or other secondhand goods, including gold and other precious metals, without a license. AB 1796 failed passage in the Assembly Committee on Public Safety. This bill was heard by the Senate Committee on Public Safety on April 23, 2013, and passed out on a vote of 7-0. CHANGES TO EXISTING LAW 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 Sec. 21625; Fin. Code Sec. 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 Sec. 21625.) Existing law , with respect to the dissemination of stolen property, defines a "secondhand dealer" to mean 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 Sec. 21625.) Existing law defines "tangible personal property" to mean: (1) all secondhand personal property that has a serial number or personalized markings; (2) all tangible property, new or used, SB 762 (Hill) Page 3 of ? taken by a pawnbroker as security for a loan, and (3) all tangible personal property commonly sold by secondhand dealers that constitutes a significant class of stolen property. (Bus. & Prof. Code Sec. 21627(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 Sec. 21627(d).) Existing law defines a "pawnbroker" to mean a person engaged in the business of receiving goods in pledge for security for a loan." (Fin. Code Sec. 21000.) Existing law defines a "secondhand dealer" to mean any person, copartnership, firm, or corporation whose business includes buying, selling, trading, taking in pawn, accepting for sale on consignment, accepting for auctioning, or auctioning secondhand tangible personal property. A "secondhand dealer" does not include a "coin dealer." (Bus. & Prof. Code Sec. 21626(a).) Existing law defines a "coin dealer" to mean any person, firm, partnership, or corporation 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 Sec. 21626(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, punishable with fines or imprisonment, as specified. (Bus. & Prof. Code Sec. 21645.) 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 specified conditions, including that the licensee shall not be convicted of an attempt to receive stolen property or any other offense involving stolen property. (Bus. & Prof. Code Sec. 21642(b).) 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 Sec. 21625; Fin. Code Sec. 21051.) Existing law requires pawnbrokers and coin dealers to report daily to law enforcement all personal property purchased, taken in trade, or taken in pawn. (Bus. & Prof. Code Sec. 21628.) SB 762 (Hill) Page 4 of ? Existing law requires, on the date that Department of Justice (DOJ) implements the statewide electronic reporting system for pawned or secondhand tangible personal property, each secondhand dealer or pawnbroker to electronically report applicable transactions, as specified. (Bus. & Prof. Code Sec. 21628(j).) 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 Sec. 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. Existing law prohibits the pawnbroker or dealer from releasing or disposing of the property without a court order or written receipt from an officer of the agency that placed the hold. Existing law also requires the pawnbroker or dealer to produce and deliver the property to a peace officer for purposes of a criminal investigation. (Bus. & Prof. Code Sec. 21647(b)-(c).) Existing law requires, if property reported as stolen is found in the possession of a pawnbroker, secondhand dealer or coin dealer, the law enforcement agency to provide written notice to the person who reported the property lost or stolen the following information: 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; and a copy of the notice will be mailed to the broker or dealer in possession of the property. (Bus. & Prof. Code Sec. 21647(c).) Existing law requires that when property subject to a law SB 762 (Hill) Page 5 of ? enforcement agency hold is no longer needed for a criminal investigation, the law enforcement agency must release the hold. The agency is required to give notice to the person who reported the property as lost or stolen, as specified. (Bus. & Prof. Code Sec. 21647(d).) Existing law provides that if a pledgor of property (person using the property as collateral for a loan) attempts to retrieve the property during the holding period, the pawnbroker is required to inform the pledgor the name of the peace officer and law enforcement agency that placed the hold. If the property is no longer needed for an investigation, the hold must be released. (Bus. & Prof. Code Sec. 21647(e).) Existing law provides that if stolen or lost property listed in the DOJ automated property 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 apply: 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 automated property system; within 30 days of the mailing of the request, the law enforcement agency must either have the listing deleted or place a hold on the property; and if law enforcement takes no action within 45 days, the pawnbroker, secondhand dealer or coin dealer may presume the listing has been deleted and thereafter deal with the property accordingly. (Bus. & Prof. Code Sec. 21647(f).) Existing law requires that if allegedly stolen property has been taken from a pawnbroker, the officer, magistrate, court clerk or other holder of the property to deliver the property to a person claiming ownership unless the following requirements have been met: (1) if anyone makes a claim of ownership, the person with custody of the property shall notify the pawnbroker; and (2) 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 Sec. 21206.8 (a)-(b).) Existing law requires notice to be given to the pawnbroker and the property may not be disposed of for three months. (Fin. Code Sec. 21206.8(c).) Existing law requires, if the ownership of stolen or embezzled property and address of the owner and security can be ascertained, the peace officer in custody of the property to SB 762 (Hill) Page 6 of ? notify by mail the owner and security holder, as follows: 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, the property may be sold, and the proceeds deposited in the county treasury, or retained for the county if needed; and 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 must be returned to the pawnbroker or dealer when it is not needed in a criminal case. (Pen. Code Sec. 1141.) Existing law requires, if 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 property to law enforcement, the owner must be given the contact information of the pawnbroker or dealer and be informed of the law concerning retrieval of property from the business. If the property is no longer needed as evidence, it must be returned to the owner, as specified. (Pen. Code Sec. 11108.5.) Existing law provides that, if a defendant is convicted of a specified offense and the defendant has engaged in a pattern of criminal profiteering activity, criminal profiteering asset forfeiture applies to the defendant's property, as follows: (1) any property interest whether tangible or intangible, acquired through a pattern of criminal profiteering activity; and (2) all proceeds of a pattern of criminal profiteering activity, including all things of value that may have been received in exchange for the proceeds immediately derived from the pattern of criminal profiteering activity. (Pen. Code Sec. 186.3.) Existing law requires forfeited cash and proceeds of the sale of forfeited property to 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 SB 762 (Hill) Page 7 of ? governmental entity, whichever prosecutes; 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; and 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; 50 percent of the funds shall be granted to community-based organizations that serve minor victims of human trafficking. (Pen. Code Sec. 186.8.) This bill would provide that during a 90-day law enforcement hold of lost, stolen, or embezzled property, the peace officer may take custody of the property as evidence or leave it with the licensed pawnbroker or secondhand dealer. This bill would provide that if property held by a pawnbroker or secondhand dealer is surrendered or delivered to a law enforcement agency during the period of the law enforcement hold, the hold and the pawnbroker's lien. Upon termination of criminal proceedings, the property must be returned to the pawnbroker for disposition, as specified. This bill would require the notice, which must be provided by law enforcement to the person who reported property as lost, stolen, or embezzled, to be sent within two business days after the law enforcement hold is placed on the property. This bill would require, for property entered into the DOJ automated property or firearm system and found in the possession of a pawnbroker or secondhand dealer, the property to be placed on law enforcement hold. This bill would prohibit a pawnbroker or secondhand dealer from refusing 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 would prohibit issuance of a warrant 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 that: (1) the pawnbroker or secondhand dealer has refused to voluntarily surrender the property, or there is SB 762 (Hill) Page 8 of ? probable cause that the business owner willfully concealed the property; and (2) any notice requirements as to the property would frustrate the criminal investigation of the pawnbroker or secondhand dealer. This bill would require a civil or criminal court, in adjudicating the competing claims of a licensed pawnbroker or secondhand dealer and another party claiming ownership or an interest in the property that is or was subject to a law enforcement hold, to award possession of the property only after due consideration is given to the effect of Commercial Code Section 2403, which concerns the rights acquired by a purchaser of property under various circumstances. This bill would prohibit a peace officer, magistrate, court clerk, or other person having custody of lost, stolen, or embezzled property taken from a pawnbroker to deliver the property to any person claiming ownership of the property unless: (1) the person files a written statement, signed under penalty of perjury, stating the factual basis upon which they claim ownership or an interest in the property with the person having custody of the property; and (2) the person having custody of the property notifies the pawnbroker of the claim. This bill would require a court, in adjudicating the competing claims of a licensed pawnbroker or secondhand dealer and a person claiming ownership or an interest in the property seized from a pawnbroker, to give due consideration to the effect that Commercial Code Section 2403. This bill would require, at least 30 calendar days before any hearing adjudicating any competing claims of a pawnbroker and a person claiming ownership or an interest in the property, the person having custody of the property to deliver to the pawnbroker a true and correct copy of the police report substantiating the basis of the seizure of the property from the pawnbroker. This bill would add to the definition of "criminal profiteering activity" the buying, selling, trading, accepting for sale on consignment, accepting for auctioning, or auctioning secondhand tangible personal property, including, but not limited to, gold, silver, platinum, palladium, and jewelry made of gold, silver, platinum, palladium, or having any diamond, ruby, emerald, or other precious stone, or any item containing sterling or fine silver without being licensed. SB 762 (Hill) Page 9 of ? This bill would add to the definition of "organized crime" to include the unlicensed operation of a secondhand dealer business while not reporting to law enforcement daily acquisitions of secondhand property. This bill would authorize distribution of forfeited tangible personal property, as specified, to also be distributed as follows: (1) 45 percent distributed into the general fund of the city, county, or city and county that instituted the forfeiture; (2) 45 percent distributed to the general fund of the city, county, or city and county that prosecuted the forfeiture; and (3) 10 percent distributed to the Restitution Fund. This bill would prohibit the return of unclaimed property stolen or embezzled to a pawnbroker or secondhand dealer who willfully refused to consent to a statutory hold or a search warrant resulted in seizure of the property. This bill would provide that return of property by a law enforcement agency required to be made to a person claiming to be entitled to possession of a lost or stolen vehicle is not required if the report of theft or loss of the vehicle into the automated property system preceded the report of the acquisition of the property by a licensed pawnbroker. This bill would also make various conforming changes to the above provisions. COMMENT 1. Stated need for the bill The author writes: This bill attempts to curb the illegal trade in gold, silver, gems, and other items that are subject to the pawn and secondhand dealer licenses requirements in the [Business and Professions] and Financial Codes. "Cash for gold", "weekend hotel gold buyers", "the Tupperware model of having all your friends bring their broken or unwanted gold jewelry to your home and you will be handed cash for it on the spot" - All of these require a valid secondhand dealers license. Yet, generally, none of them are licensed. SB 762 (Hill) Page 10 of ? Why is this so important? Licensed secondhand dealers are required to report to local law enforcement daily all transactions of this type. [The Department of Justice] DOJ must also be notified daily. Perhaps more importantly these items must be held for 30 days for the purpose of inspection by law enforcement. Law enforcement knows exactly where to go to inspect because the items must be available at the permanent address of the licensee. None of the gold buying models mentioned above can or do comply. Additionally the bill describes [the] manner in which police may put an unlimited number of 90[-day] "holds" on merchandise suspected of being "lost, stolen, or embezzled" and it should be noted that the police may physically take possession of such items, but the status of the item is still a hold[.] [T]his preserves the property interest of the lender who has perfected a lien on the property. In this way, after the item has no more evidentiary value, the property interest is maintained. If there is some other law enforcement or prosecutorial reason to take an item from a pawnbroker that has followed all of the legal requirements, a warrant can be obtained and upon the conclusion of the criminal action, the pawnbroker will . . . have due process when a disputed claim of ownership arises. For those operating outside of the law, as unlicensed traders, the items taken by law enforcement may be seized and disposed as described in the bill. The elements of the seizure in the bill have been rewritten under [Penal Code Section] 186.2 at the request of the [California District Attorneys Association]. 2. Due process procedures Existing law provides due process procedures for a pawnbroker to challenge a competing claim to ownership of property seized by law enforcement. (See Fin. Code Sec. 21206.8 and Pen. Code Sec. 1407 et seq.) Case law has held that these due process procedures properly recognize that a pawnbroker, as the holder of personal property that has been pledged by the purported property owner in exchange for money, has a legitimate possessory interest in the seized property. (See G&G Jewelry, Inc. v. City of Oakland (1991) 989 F.2d 1093, 1098; Zeltser v. City of Oakland (2003) 325 F. 1141, 1143-44.) This bill would provide additional due process requirements for the final disposition of property that is the subject of competing claims by a purported property owner and pawnbroker. SB 762 (Hill) Page 11 of ? This bill would prohibit a peace officer, magistrate, court clerk, or other person having custody of lost, stolen, or embezzled property taken from a pawnbroker to deliver the property to any person claiming ownership of the property unless: (1) the person files a written statement, signed under penalty of perjury, stating the factual basis upon which they claim ownership or an interest in the property with the person having custody of the property; and (2) the person having custody of the property notifies the pawnbroker of the claim. Additionally, this bill would require, at least 30 calendar days before any hearing adjudicating any competing claims of a pawnbroker and a person claiming ownership or an interest in the property, the person having custody of the property to deliver to the pawnbroker a true and correct copy of the police report substantiating the basis of the seizure of the property from the pawnbroker. Arguably, by requiring the purported owner to validate his or her claim and require sufficient hearing notice to be sent to the pawnbroker would further the Legislature's goal of providing due process to the pawnbroker, as well as potentially providing court efficiency since the court will have more evidence upon which to adjudicate the claim. 3. Adjudication of competing property claims Existing law provides that, when lost or stolen property has been seized by law enforcement, the clerk or person having charge of the property for any police department may, upon satisfactory proof of ownership of the property, deliver the property to the owner. (Pen. Code Sec. 1413(b).) Existing law also requires that prior to delivery of the property to any person claiming ownership, the peace officer, magistrate, court, clerk, or other person having custody of the property must notify the pawnbroker of the claim. (Pen. Code Sec. 1411.) If the owner of the property has made no claim to the property, the property must be returned to the secondhand dealer or pawnbroker. (Id.) However, as demonstrated in Zeltser v. City of Oakland (2003) 325 F. 1141, there is confusion as to the circumstances under which law enforcement may release lost or stolen property, seized pursuant to a warrant, to the purported owner. In Zeltser, law enforcement seized a stolen ring from a pawnbroker and returned the ring to the owner without notifying the pawnbroker of a claim to the property. The City of Oakland (City) argued that it followed existing law's requirement to SB 762 (Hill) Page 12 of ? deliver property upon a court order. The City claimed that the court order declaring the owner's rightful title was the criminal court's acceptance of the thief's guilty plea of stealing the ring from the owner. The trial court adopted the City's argument and held that "once property has been seized pursuant to a valid warrant it is subject to Penal Code [Section] 1536 and when the trial court determines that the subject property was stolen from the alleged victim, a police officer may return the subject property to the alleged victim. No further notice of hearing or opportunity to be heard by the person from whom the property was seized is required either by the Court before whom the matter was heard or by the Court that issued the warrant." (Id. at 1144.) The Court of Appeals, Ninth Circuit, reversed the trial court's ruling and held that the due process procedures under existing law entitle the pawnbroker to an opportunity to assert his or her interest in the property. (Id. at 1145.) To address this confusion, this bill would provide that a civil or criminal court, in adjudicating the competing claims of a licensed pawnbroker or secondhand dealer and another party claiming ownership or an interest in the property that is or was subject to a law enforcement hold, to award possession of the property only after due consideration is given to the effect of Commercial Code Section 2403. Commercial Code Section 2403 provides that a purchaser of goods acquires all title which his transferor had or had power to transfer, and the purchaser maintains the right to title even if the delivery was procured through fraud. That provision also maintains the rights of other purchasers of goods and of lien creditors. Notably, this bill would not limit the court's consideration only to the provisions under Commercial Code Section 2403, but it, arguably, provides guidance to reviewing courts as to the proper disposition of lost or stolen property. 4. Opposition concerns The California District Attorneys Association, in opposition, asserts that this bill would "eliminate the authority of a peace officer to make an immediate, plain view seizure of stolen property as recognized in Christian v. Chester (1990) 218 Cal.App.3d 273. Before an officer could make a seizure, the bill would require that he or she has to give the pawnbroker written notification. Additionally, we are generally concerned about attempted statutory search warrant restrictions that are sought to protect business interests. Law enforcement has a SB 762 (Hill) Page 13 of ? duty to investigate and prosecute crime. The application for, and the issuance of, search warrants are topics that are the subject of much statute and volumes of case law. Jurisprudence surrounding the lawful issuance of search warrants is a balance between the right to be free from unlawful searches and the necessity of law enforcement to enforce the law and protect the public. The fiscal interests of one particular industry should not trump this carefully struck balance and respectfully, we feel this measure unduly restricts the ability of law enforcement to do its job." An individual also raises concerns about "what constitutes a secondhand dealer. . . . By broadly defining secondhand dealer as you have, you will penalize the activities of consumers, churches, thrift shops, etc., if the purchasers and sellers are not licensed and permitted." Support : California Coin and Bullion Merchants Association; California Police Chief's Association, Inc. Opposition : California District Attorneys Association; one individual HISTORY Source : California Pawnbrokers' Association Related Pending Legislation : None Known Prior Legislation : SB 794 (May, 2011) See Background. AB 1796 (Galgiani, 2012), would have included in the definition of criminal profiteering activity the unlicensed sale of tangible personal property or other secondhand goods, including gold and other precious metals, without a license. AB 1796 failed passage in the Assembly Committee on Public Safety. Prior Vote : Senate Committee on Public Safety (Ayes 7, Noes 0) ************** SB 762 (Hill) Page 14 of ?