Federal Court: State Cannot Inspect Ohio Businesses Without a Warrant

Fourth Amendment prohibits state mandate to make business records, property, and inventory available to state agents “at all times” and “upon demand”

recordsColumbus, OH – A federal court late yesterday ruled that State Agencies violate the Fourth Amendment’s protection against unreasonable searches when they, without a warrant or any evidence of wrongdoing, investigate Ohio businesses by simply demanding private business records, property, and inventory.

The ruling, made by Judge Watson of the Columbus division of the Southern District of Ohio, addressed regulations governing those purchasing gold, silver, and other precious metals under the Precious Metals Dealers Act (“PMDA”).

However, its impact is likely to far exceed just the PMDA. Many Ohio businesses, particularly those requiring government licensing, face materially identical mandates. Accordingly, the ruling paves the way for Ohio businesses, even if heavily licensed and regulated, to refuse government demands to search private records, property, and inventory, especially when such demands are made on-the-spot and without a warrant.

The 1851 Center for Constitutional Law took up the case in 2012 on behalf of Liberty Coins, a coin dealer of Delaware, Ohio, and Worthington Jewelers, a retail jeweler in Worthington, Ohio. Each balked at the prospect of, without any evidence of wrongdoing, losing their business licenses and being fined and prosecuted for refusing to turn over cell phones, laptops, paper records, and even inventory such as jewelry and rare coins simply “upon demand” of state enforcement agents.

In his 35 page decision, Judge Watson, enjoined four state requirements:

  • A statute declaring that “all books, forms, and records, and all other sources of information with regard to the business shall at all times be available for inspection.”
  • A statute demanding “free access to the books and papers and other sources of information with regard to the business.”
  • A requirement that private business records be “open to the inspection of the police upon demand.”
  • A mandate that businesses, at the end of each business day, fax descriptions of every item purchased that day to local police.

The Court explained as follows: “The Inspection Provisions give the government and law enforcement the right to inspect a licensee’s records without any opportunity for the licensee to seek neutral, precompliance review. The PMDA specifically provides that failure to comply with a search request is a crime. . . . The PMDA’s Inspection Provisions violate the Fourth Amendment’s protection against unreasonable searches and seizures.”

“Acts like this treat Ohio entrepreneurs as public utilities at best, and criminals at worst, irrespective of whether they have done harm. No entrepreneur deserves to be arrested for questioning the authority of a state agent to show up at his business unannounced, without any evidence of wrongdoing, and confiscate or filter through his papers, computers, cell phones, and even his business’s inventory.” said Maurice Thompson, Executive Director of the 1851 Center.

Thompson added “we brought this case to invalidate the constant invasions confronting not just precious metal dealers, but all of the other businesses that face similar inspection requirements. Our expectation is that this precedent will invalidate these kinds of searches in all industries. Ohio businesses are free to decline invasive and costly government searches – – they cannot lose their business licenses or be prosecuted, fined, or disciplined simply for saying ‘no’.”

The Supreme Court has continuously reaffirmed that the Fourth Amendment applies to businesses and business property just as it does to individuals and private homes.

Read the Court’s Order Granting the Motion for Summary Judgment of Liberty Coins and Worthington Jewelers HERE.

Read the Plaintiffs’ Motion for Summary Judgment HERE.