LIBERTY COINS, LLC v. GOODMANNo. 13-3012.
748 F.3d 682 (2014)
LIBERTY COINS, LLC; John Michael Tomaso, Plaintiffs-Appellees,
David GOODMAN, Director, Ohio Department of Commerce; Amanda McCartney, Consumer Finance Attorney, Division of Financial Institutions, Ohio Department of Commerce, Defendants-Appellants.
David GOODMAN, Director, Ohio Department of Commerce; Amanda McCartney, Consumer Finance Attorney, Division of Financial Institutions, Ohio Department of Commerce, Defendants-Appellants.
United States Court of Appeals, Sixth Circuit.
Argued: October 11, 2013.
Decided and Filed: April 8, 2014.
ARGUED: William J. Cole, Office of the Ohio Attorney General, Columbus, Ohio, for Appellants. Maurice A. Thompson, 1851 Center for Constitutional Law, Columbus, Ohio, for Appellees. ON BRIEF: William J. Cole, Jennifer S.M. Croskey, Office of the Ohio Attorney General, Columbus, Ohio, for Appellants. Maurice A. Thompson, 1851 Center for Constitutional Law, Columbus, Ohio, Curt C. Hartman, The Law Firm of Curt C. Hartman, Amelia, Ohio, for Appellees. Timothy Sandefur, Pacific Legal Foundation, Sacramento, California, Paul M. Sherman, Erica Smith, Institute for Justice, Arlington, Virginia, for Amici Curiae.
Before: MERRITT and CLAY, Circuit Judges; and STAFFORD, District Judge.
CLAY, Circuit Judge.
Defendants, David Goodman, Director of the Ohio Department of Commerce, and Amanda McCartney, Consumer Finance Attorney of the Division of Financial Institutions, Ohio Department of Commerce, are charged with enforcement of the Ohio Precious Metals Dealers Act ("PMDA"), Ohio Revised Code § 4728. They appeal from an order entered by the United States District Court for the Southern District of Ohio, Eastern Division, granting Plaintiffs' motion for a preliminary injunction, which was later modified in a separate order. Finding that Plaintiffs were likely to succeed on the merits of their facial First Amendment commercial speech claim at trial, the district court issued a preliminary injunction prohibiting enforcement of the PMDA. We disagree with the district court's interpretation of the Ohio statute, and, for the reasons that follow, we
A. Procedural History
Plaintiffs, Liberty Coins, LLC, and John Michael Tomaso, filed a complaint in district court pursuant to 42 U.S.C. § 1983 facially challenging the constitutionality of the PMDA, Ohio Revised Code § 4728. In their complaint for declaratory and injunctive relief, claiming they would suffer irreparable harm if a preliminary injunction were not issued, Plaintiffs allege that the PMDA (1) facially violates the First Amendment commercial speech rights of businesses dealing in precious metals throughout the state of Ohio; (2) is void for vagueness; and (3) violates the Fourth Amendment rights of businesses through what they claim are overly burdensome retention, reporting, and record-keeping requirements. See Ohio Rev.Code Ann. § 4728.06-08 (West 2014).
After a hearing held within two weeks after the filing of the complaint, the district court granted a preliminary injunction based on a finding that the PMDA facially violates the First Amendment of the United States Constitution because only those engaged in commercial speech are subject to the statute's licensing requirement; therefore, the district court found, Plaintiffs are likely to succeed on the merits of their First Amendment claim
Following that decision, Defendants timely appealed the district court's order granting the preliminary injunction and sought a stay of the enforcement of the preliminary injunction from the district court. The motion for a stay of the preliminary injunction pending appeal was denied by a three-judge panel of this Court. Reviewing the district court's preliminary injunction order for an abuse of discretion, the panel found that "[t]he district court's conclusion that the PMDA regulates commercial speech has some support in the case law, but is not dictated by precedent." Liberty Coins v. Goodman, No. 13-3012, slip op. at 2 (6th Cir. Mar. 26, 2013) (order denying stay of preliminary injunction pending appeal). Therefore, the panel held, it was not an abuse of the district court's discretion to grant a preliminary injunction where the law is not yet established on the issue presented. The preliminary injunction remains in force today.
Plaintiffs' requests for permanent injunctive relief based on the First Amendment and for temporary, preliminary, and permanent injunctive relief under the Fourth Amendment remain pending before the district court. Therefore, this Court is only charged in this appeal with deciding whether a preliminary injunction is proper on a facial First Amendment challenge of the constitutionality of the PMDA.
B. Factual Background
Plaintiffs are John Michael Tomaso and Liberty Coins, LLC, an Ohio Limited Liability Company with its principal place of business and storefront in Delaware County, Ohio. Tomaso owns and operates Liberty Coins, which buys, sells, and trades silver and gold jewelry, hallmark bars, ingots, numismatics, and other related items. Liberty Coins advertises its goods and services through a number of means, including a storefront and signage, newspaper advertisements, and business card distribution. These various forms of advertisements indicate that the business buys, sells, and trades gold and silver items.
Since 1921, the state of Ohio has, in some form, prohibited businesses from engaging in the purchasing of precious metals without a license. As Defendants assert in this case, the Ohio legislature sought to regulate businesses potentially dealing in stolen goods. The statute in question states that except as otherwise provided, "no person shall act as a precious metals dealer without first having obtained a license from the division of financial institutions in the department of commerce." Ohio Rev.Code Ann. § 4728.02 (West 2014). Once licensed, each individual or entity
Ohio Rev.Code Ann. § 4728.06 (West 2014). Additionally, the licensee "shall keep the books in numerical order at all times at the licensed location, open to the inspection of the ... head of the local police department [or others charged with such authority]. Upon demand ... the licensee shall produce and show an article thus listed and described." Id. Each licensee must also make available "a description of all articles received by the licensee on the business day immediately preceding, together with the number of the receipt issued." Ohio Rev.Code Ann. § 4728.07 (West 2014).
In addition to the statute's reporting and record-keeping requirements, licensed precious metals dealers must comply with additional requirements. For example, "[n]o person licensed under [the PMDA] shall purchase any articles from any minor, or from any person intoxicated or under the influence of a controlled substance, from any person who is known or believed by the licensee to be a thief, or a receiver of stolen property." Ohio Rev. Code Ann. § 4728.08 (West 2014). Once the licensee purchases precious metals, the PMDA requires that the licensee retain those articles for at least "five days after the date of purchase." Ohio Rev.Code Ann. § 4728.09(A) (West 2014). Thereafter, if the head of the local police department has probable cause to believe that an item listed in the licensee's daily reports has been stolen, he will notify the licensee, who must retain the item for thirty days, unless otherwise notified by the local police department. Ohio Rev.Code Ann. § 4728.09(B) (West 2014). Any person who fails to comply with the PMDA's requirements is subject to civil action by injured parties. Additionally, dealers who fail to comply with the PMDA's provisions are guilty of a misdemeanor for the first offense and a felony of the fifth degree for each subsequent offense, and they are fined accordingly. Ohio Rev.Code Ann. § 4728.99 (West 2014).
The PMDA's requirements apply to any party that holds itself out to the public as willing to purchase precious metals. In 1982, the Ohio General Assembly amended the Ohio Pawnbroker Act (Ohio Revised Code Chapter 4727) to more clearly define "precious metals dealer," and in 1986, this definition was separated out into the newly enacted Precious Metals Dealers Act (Ohio Revised Code Chapter 4728). This version of the statute defined a precious metals dealer as "a person who is engaged in the business of purchasing articles made of or containing gold, silver, platinum, or other precious metals or jewels of any description if, in any manner, including any form of advertisement or solicitation of customers, he holds himself out to the public as willing to purchase such articles." 1986 Ohio Legis. Serv. Ann. 5-963 (West). The statute was subsequently altered to include female and gender-neutral pronouns.
Pursuant to the PMDA, the State has continued to prohibit unlicensed precious metals dealers from formally purchasing non-exempt precious metals from the public and has recently ramped up enforcement efforts under the statute.
In August 2012, Brian Landis ("Landis"), the Chief Examiner of the Consumer Finance Division of the Ohio Department of Commerce, reviewed an anonymous letter directing his attention to Tomaso and Liberty Coins. After reviewing this letter, Landis visited Liberty Coins on August 24, 2012. He documented this visit by taking photographs of the store front and the inside of the store. The photographs were specifically targeted at the store's signage, which announced to the public that Liberty Coins was open for business and listed the services and goods that were available inside the store. Landis indicated to Tomaso that Liberty Coins was operating as a precious metals dealer in violation of the PMDA and that Plaintiffs must comply with the statute, otherwise they would face fines and criminal charges. Plaintiffs were given until September 7, 2012, to comply with the order.
After Plaintiffs failed to respond, Landis transferred the case to Defendant Amanda McCartney in the Ohio Department of Commerce's legal department sometime around September 24, 2012. A few days later, around October 1, 2012, McCartney sent a letter to Plaintiff Tomaso stating as follows: "Liberty Coins has held itself out to the public as willing to purchase precious metals via signage at the store location." Due to that activity, McCartney stated, Liberty Coins had violated the PMDA by operating as a precious metals dealer without a license. Additionally, the letter pointed out that Tomaso had failed to respond to the Division of Financial Institutions' inquiry into the violation. The letter gave Liberty Coins twenty-one days to produce business records that would "demonstrate the amount of precious metal [the] business ha[d] purchased from the public over the last twelve (12) months." This would allow Defendants to assess a proper fine consistent with the amount of unlicensed business conducted by Plaintiffs during the period of noncompliance. The letter also advised that if Plaintiffs did not respond to the letter, they might face a cease and desist order and a fine of up to $10,000. Additionally, Plaintiffs' failure to respond could reflect negatively on a future license application.
Tomaso responded to McCartney's letter sometime around October 17, 2012, requesting clarification of her demands. One of the questions Tomaso posed in his letter was whether Liberty Coins could continue to operate the business consistent with the PMDA's requirements if all advertising was removed from the building and other forms of business solicitation ceased. McCartney indicated in response that "[s]imply ceasing advertising [would] not eliminate the need for a license [and c]easing precious metals business in its entirety [was] the only way [to] forego the need for a license." She later stated in an email that Plaintiffs "cannot buy any gold or silver without a license. [They] must cease all illegal activities immediately as each violation is subject to a $10,000 fine and criminal sanctions [under the PMDA]." While their motion for a preliminary injunction was pending, Plaintiffs
In this appeal, Defendants challenge the district court's finding that there is a strong likelihood Plaintiffs will prevail on their facial challenge of the PMDA's constitutionality at trial. Because the district court has not yet ruled on Plaintiffs' requests for permanent injunctive relief based on the First Amendment or their claims regarding the Fourth Amendment, this Court does not address those issues.
A. Standard of Review
Plaintiffs assert that the proper standard of review in this case is for abuse of discretion. "It is well settled that the scope of review on appeal from the denial or granting of a preliminary injunction is limited to a determination of whether the District Court abused its discretion." Mason County Medical Ass'n v. Knebel,
However, "[w]hen a party seeks a preliminary injunction on the basis of a potential constitutional violation, `the likelihood of success on the merits often will be the determinative factor.'" Obama for America v. Husted,
The main issues presented on appeal in the instant case are questions of law, potentially implicating the First Amendment. Therefore, this Court reviews de novo the district court's application of the law and ultimate decision to grant a preliminary injunction.
B. Standard for Issuing a Preliminary Injunction
When determining the appropriateness of a preliminary injunction, a court
Each of these factors "[should] be balanced against one another and should not be considered prerequisites to the grant of a preliminary injunction." Leary, 228 F.3d at 736. In the context of a First Amendment claim, the balancing of these factors is skewed toward an emphasis on the first factor. As this Circuit has previously stated,
Connection Distrib. Co. v. Reno,
C. Likelihood of Success on the Merits
1. Facial Challenge
This Court has before it a facial challenge of the PMDA. Generally, the party asserting a facial challenge to a statute must establish that "no set of circumstances exists under which [it] would be valid." U.S. v. Salerno,
2. The PMDA is a Valid Regulation of Business
The PMDA is, first and foremost, a licensing statute. It is a statute calculated to regulate individuals and entities that hold themselves out to the public as willing to purchase precious metals. Each subsection of the statute is tailored to achieve this goal. The manner by which the state of Ohio defines a precious metals dealer is meant to distinguish between those who operate as businesses that are open to the public and those who make isolated, casual precious metals purchases.
Ohio's method of regulating precious metals dealers is not unique. In fact, numerous other states have enacted business regulations that contain similar language. In North Carolina, for example, a statute regulating cash converters defines a currency converter as "[a] person engaged in the business of purchasing goods from the public for cash at a permanently located retail store who holds himself or herself out to the public by signs, advertising, or other methods as engaging in that business." N.C. Gen.Stat. Ann. § 66-387 (West 2013).
3. Business Regulation Subject to Rational Basis Review
Long ago, the Supreme Court recognized that "[t]he power of the state to provide for the general welfare of its people authorizes it to prescribe all such regulations as in its judgment will secure or tend to secure them against the consequences of ignorance and incapacity, as well as of deception and fraud." Dent v. West Virginia,
The PMDA is just such a statute that neither burdens a fundamental right, nor creates a suspect classification. It merely constitutes a regulatory scheme meant to protect the safety and welfare of the public through the regulation of professional conduct. Rational basis review therefore applies. See Doe. v. Mich. Dep't of State Police,
In Martinez v. Goddard,
Similarly, in Office of Prof'l Regulation v. McElroy, 175 Vt. 507,
To prevail under rational basis review, Defendants need only demonstrate that the statute's classification and the licensing requirement are rationally related to a legitimate government interest. City of Cleburne, Tex. v. Cleburne Living Ctr.,
City of New Orleans v. Dukes,
Under rational basis review, a law is upheld so long as it is rationally related to a legitimate government purpose. There is a strong presumption of constitutionality and the regulation will be upheld so long as its goal is permissible and the means by which it is designed to achieve that goal are rational. Nat'l Ass'n for Advancement of Psychoanalysis, 228 F.3d at 1050. "This standard is highly deferential; courts hold statutes unconstitutional under this standard of review only in rare or exceptional circumstances." Doe, 490 F.3d at 501. "Under rational basis scrutiny, government action amounts to a constitutional violation only if it is so unrelated to the achievement of any combination of legitimate purposes that the court can only conclude that the government's actions were irrational." Michael v. Ghee,
Plaintiffs are unlikely to prevail on the merits of their claim under rational basis review. Defendants asserted in their briefs that the Ohio legislature's purpose in enacting and subsequently amending and enforcing the PMDA was to protect consumers and the public from theft, fraud, money laundering, fencing, to restrict the flow of stolen goods, and to prevent terrorism. Even Plaintiffs concede that such a government purpose is legitimate, even compelling. Liberty Coins v. Goodman, No. 2:12-cv-998, 977 F.Supp.2d 783, 795-96, 2012 WL 9335828, at *8 (S.D.Ohio Dec. 5, 2012).
The PMDA's licensing requirement is rationally related to that legitimate government
4. The PMDA and the "Holding Out" Requirement
Plaintiffs improperly assert and the district court improperly found that the PMDA burdens commercial speech and is therefore governed by the test laid out in Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n of New York,
In the as-applied challenge in Parker v. Commonwealth of Kentucky, Bd. of Dentistry,
In both Parker and Thompson, the Courts applied the Central Hudson test without first determining whether the statute implicated protected commercial speech or economic interests.
Additionally, these cases are distinguishable by their facts. Under the PMDA, any business holding itself out as willing to purchase non-exempt goods must be licensed, regardless of the way in which it holds itself out. Parties like Plaintiffs are not able to operate as businesses in the marketplace without a license. The PMDA does not require the infrequent garage sale-goer to obtain a license, but it does require any party that holds itself out to the public for the purpose of operating a precious metals business to obtain the required license. The statute proscribes business conduct and economic activity, not speech. Without first obtaining a license from the State, a precious metals dealer may not have a storefront with or without signage, may not spread word to the public that it is open for business, may not place advertisements in the newspaper, and may not function as an open, public, and visible business.
Although at first glance, the PMDA appears analogous to the FDAMA and the Kentucky statute regulating dentists, those cases are inapposite in this context. In Thompson, pharmacists legally produced compounded drugs but could not advertise them to the public. The statute did not proscribe any conduct unless a pharmacist advertised the compounded drug. In Parker, dentists could legally perform specialized procedures for the public but were unable to hold themselves out as available to do so. In the instant case, Plaintiffs and others similarly situated are prohibited from functioning as businesses open to the public for the purchase of precious metals unless they obtain licenses. The PMDA regulates all precious metals businesses operating in a manner that is open and accessible to the public. Precious metals dealers must obtain licenses and comply with the PMDA's reporting, retention, and record-keeping requirements, regardless of whether they advertise or post signage. In this case, the underlying conduct of the unlicensed precious metals dealer is prohibited, as distinguished from the cases cited by Plaintiffs.
The PMDA does not burden the commercial speech rights of unlicensed precious metals dealers because such dealers do not have a constitutional right to advertise or operate an unlicensed business that is not in compliance with the reasonable requirements of Ohio law. Such dealers cannot "hold themselves out" to the public without a license, regardless of whether they advertise. This case does not turn on advertising or solicitation, it turns on whether the business in question holds itself out to the public, which can occur by posting a sign, placing goods in an open window, simply conducting business in a manner that is visible to the public, or otherwise making its wares available to the public. This Court properly applies rational basis review in concluding that the statute does not violate Plaintiffs' First Amendment rights.
D. Other Preliminary Injunction Factors
1. Irreparable Injury in the Absence of a Preliminary Injunction
Because this Court finds that Plaintiffs are not likely to succeed on the merits of their First Amendment claim at trial, this factor weighs against affirming the district court's order granting a preliminary injunction. Plaintiffs do not have a constitutional right to engage in the unlicensed business of precious metals dealing and they therefore do not have a First Amendment right to advertise that they engage in such business when they lack a license to
2. Substantial Harm to Others Caused by a Preliminary Injunction
Additionally, because the PMDA constitutes a valid exercise of the State's police power, this factor weighs in favor of reversing the district court and vacating the preliminary injunction. If the government has a legitimate, and even compelling or substantial, interest in regulating precious metals dealers to protect the public from theft, fraud, money laundering, fencing, and even terrorism, as Plaintiffs concede, then the absence of such a regulation could cause substantial harm to others. Although the district court found that Defendants presented insufficient evidence to demonstrate a proper "fit" between the PMDA's licensing requirement and the governmental interest, as required under Central Hudson, such a fit need not be demonstrated under rational basis review. In the instant case, where it is reasonable for the Ohio legislature to have concluded that businesses dealing in potentially substantial quantities of precious metals are likely to move stolen items through the marketplace, the absence of such a licensing scheme could result in substantial harm to others.
3. Public Interest Not Served by a Preliminary Injunction
Finally, under this last factor, because the PMDA constitutes a valid exercise of the State's police power and does not impermissibly burden a constitutional right, the issuance of a preliminary injunction fails to serve the public interest. Instead, the public interest would be served by enforcement of the PMDA.
For the foregoing reasons, we
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