Writ of Certiorari Denied October 28, 1940. See 61 S.Ct. 71, 85 L.Ed. ___.
TREANOR, Circuit Judge.
This is an appeal from the order of the District Court requiring respondent to comply with a subpœna duces tecum which had been issued by petitioner pursuant to authorization of the Fair Labor Standards Act of 1938.
Respondent is a corporation engaged in a general merchandising business carried on throughout the United States, and maintains and operates one of its branches in Kansas City, Missouri. This branch consists of a mail order house and a retail store; and at least 80% of the goods received by such mail order house is shipped from sources without the state of Missouri and the mail order house sends, transports and sells merchandise to points outside the state. Respondent's operation of its Kansas City plant brings it within the terms of the Fair Labor Standards Act as an employer of employees engaged in interstate commerce or in the production of goods for interstate commerce.
Petitioner undertook an investigation of the acts and practices of respondent in its Kansas City branch relating to hours of employment, wages paid, classification of employees, and discriminatory acts. By the terms of the Fair Labor Standards Act, which will be referred to hereinafter as the "Act," the petitioner is authorized, as Administrator of the Wage and Hour Division, United States Department of Labor, to conduct investigations of the acts and practices of respondent relating to the foregoing subjects.
In the course of the investigation petitioner issued a subpœna duces tecum which required the respondent to produce (1) the records of a six months period showing wages paid to, and timeclock cards of, employees in the mail order branch at Kansas City, (2) the records showing the number of hours scheduled for each department of the mail order branch for the same period, and (3) the record of the actual number of hours worked by each of the departments during such period. Respondent refused to comply with the subpœna and petitioner thereupon applied to the District Court for an enforcement order.
Respondent does not urge that the Act is unconstitutional, but does urge that the requirements of the subpœna were unreasonable and that its enforcement would operate to deprive respondent of its rights under the Fourth Amendment to the Federal Constitution.
Petitioner averred below that he had reasonable grounds to believe that respondent had violated the provisions of Sections 7, 11(c), 15(a) (1), (2), (3), and (5), and certain regulations which had been promulgated under authority of the Act. Respondent answered that petitioner had no reasonable cause to suspect the existence of violations of the Act. And on appeal respondent urges as one ground of error by the District Court that respondent was not permitted to introduce evidence for the purpose of showing that the petitioner had no reasonable cause to believe that respondent was violating the Act. And in conjunction with the foregoing respondent argues that, in the absence of a showing of reasonable cause to believe that respondent was violating the Act, the issuance and enforcement of the subpœna duces tecum would constitute an unreasonable search and seizure.
We shall consider first petitioner's claim that he may inspect respondent's records relating to matters regulated and controlled by the Act without showing reasonable grounds to believe that a violation of the Act has occurred.
Respondent is a corporation and as such is not protected by immunity against self-incrimination which is guaranteed by
The scope and purpose of the Act, the proper exercise of the authority conferred upon the Administrator, and the effective performance of his duties, are inconsistent with an intention to limit inspections of books and records to cases in which the Administrator has reasonable cause to believe an employer is violating the provisions of the Act.
Section 2 of the Act sets out a legislative finding and declaration of policy which constitute the legislative justification of the Act as a regulation of commerce. Congress declares, as a finding of fact, that the existence in industries engaged in interstate commerce or in the production of goods for such commerce, of labor conditions detrimental to the maintenance of a minimum standard of living necessary for health, efficiency, and well-being of workers affect interstate commerce; and Congress declares that the policy of Congress is to eliminate such conditions. Section 4 creates a Wage and Hour Division (in the Department of Labor) which is placed under the direction of an Administrator. The Administrator is required to make an annual report to Congress of his activities, such report to include "such information, data, and recommendations for further legislation in connection with the matters covered by (the) Act [this chapter] as he may find advisable." Section 5 requires the Administrator to appoint an "industry committee" for each industry, and Sections 6 and 7 fix a minimum wage standard and a maximum hour standard, respectively. Section 8, in conjunction with Section 6(a) (3) and (4) provides for the investigation of industry conditions by the industry committee and for a recommendation of minimum wage rates and classifications within the industry. The Administrator is required to approve or disapprove of such recommendations. Section 11(a) authorizes the Administrator to "investigate and gather data regarding the wages, hours, and other conditions and practices of employment * * *, and [to] enter and inspect such places and such records * * * and investigate such facts, conditions, practices, or matters as he may deem necessary or appropriate to determine whether any person has violated any provision of (the) Act [this chapter], or which may aid in the enforcement of the provisions of (the) Act [this chapter]." Section 11(c) requires employers to make and keep records of wages, hours and other conditions of employment and to make reports therefrom, as prescribed by regulations of the Administrator "as necessary or appropriate for the enforcement of the provisions of (the) Act [this chapter] * * *." And in conformity with the foregoing the respondent has made certain regulations regarding the making and keeping of records.
It is apparent from this cursory analysis of pertinent provisions of the Act that Congress has conferred upon the Administrator of the Wage and Hour Division broad powers of regulation and supervision which are accompanied, for the purpose of giving effect thereto, by investigatory duties and powers which are designed especially to enable the Administrator to have available at all times detailed information respecting the conditions and practices of employment, including information respecting wages and hours of labor. The duties of the Administrator go far beyond the relatively simple task of instituting punitive actions against employers for occasional violations of the Act. The Administrator is authorized to inspect in order "to determine whether any person has violated the Act," not merely to corroborate a previously formed belief of violation; and he is authorized to make inspections "which may aid in the enforcement" of the Act. Section 4(d) requires the Administrator to make an annual report to Congress which shall include "information, data, and recommendations for further legislation in connection with the matters covered by (the) Act [this chapter] * * *." The Administrator, in conjunction with the industry committee, enjoys a wide discretion
We are of the opinion that the terms of the Act necessarily indicate a legislative intent that the exercise of the investigatory powers of the Administrator be in no degree conditioned upon the existence of reasonable cause for the Administrator to believe that the industry, which is the subject of investigation, is violating the Act.
Respondent insists that "no case has upheld a search and seizure in the absence of probable cause * * * except when the search and seizure has been directed against a public utility, common carrier, or the like." But even if we assume the accuracy of the statement, it does not follow that the decisions hold that probable cause is dispensed with only in case of public utility corporations. And we are of the opinion that the cases do not so hold.
In Hale v. Henkle, supra note 4, the Supreme Court indicates that the test of validity of an order of production of records of a corporation is reasonableness of the order under the circumstances, and points out why the subpœna duces tecum, which was under investigation, violated the standard of reasonableness. The Court stated that the search and seizure clause of the Fourth Amendment was not intended to interfere with the power of courts to compel, through a subpœna duces tecum, the production upon a trial in court, of documentary evidence; but the Court also stated that an order for the production of books and papers may constitute an unreasonable search and seizure within the Fourth Amendment. The Court was of the opinion that the subpœna before it was "too sweeping" and stated that if the writ had required the production of all books, papers and documents of the corporation "it would scarcely be more universal in its operation." [201 U.S. 43, 26 S.Ct. 380, 50 L.Ed. 652.]
But of special significance in the instant investigation is the statement of the Supreme Court in the foregoing case that "in view of the power of Congress over interstate commerce * * * we do not wish to be understood as holding that an examination of the books of a corporation, if duly authorized by act of Congress, would constitute an unreasonable search and seizure within the 4th Amendment."
In Wilson v. United States, supra note 4 [221 U.S. 361, 31 S.Ct. 545, 55 L.Ed. 771, Ann.Cas.1912D, 558], the Supreme Court stated that the "corporate form of business activity, with its chartered privileges, raises a distinction when the authority of government demands the examination of books"; and that the corporation had no privilege to refuse a demand "expressed in lawful process, confining its requirements within the limits which reason imposes in the circumstances of the case." And although the object of the inquiry may be to discover violations of law and to inflict punishment "it must submit its books and papers to duly constituted authority when demand is suitably made." The foregoing limitation on immunity "is involved in the reservation of the visitatorial power of the state, and in the authority of the national government where the corporate activities are in the domain subject to the powers of Congress."
In Essgee Company of China v. United States
The reasoning and holding of the Supreme Court in the foregoing cases are inconsistent with the contention that enforced inspection of the books and records of a corporation constitutes an unreasonable search and seizure in the absence of the existence of probable cause to believe that the corporation is guilty of an unlawful act. In general, the cases hold that there must be a demand suitably made by duly constituted authority; that such demand be expressed in lawful process, and that the lawful process limit its requirements to certain described documents and papers which are easily distinguished and clearly described. Also, there must be relevancy to the subject of investigation.
The reasoning of the cases, and the tests of lawful inspection are broad enough to apply equally, on principle, to non-public as well as public utility corporations. And we are of the opinion that the decisions of the Supreme Court, and at least one decision of this Court, have established clearly that when Congress, in the exercise of its power under the commerce clause, has created an administrative agency with power to regulate and supervise the conduct of an industry and has authorized such administrative agency to inspect books and records for the purpose of enabling the agency to perform its functions under the Act, the same principles that have been applied to inspection of books and records by the Interstate Commerce Commission are applicable to inspections by such other administrative agency.
In Interstate Commerce Commission v. Brimson
The case of Bartlett Frazier Co. v. Hyde
That the phrase "affected with a public interest" is descriptive and not definitive or restrictive is made clear by the following statement of the Supreme Court in the Olsen case: "In view of the actual interstate dealings in cash sales of grain on the exchange, and the effect of the conduct of the sales of futures upon interstate commerce, we find no difficulty * * * in concluding that the Chicago Board of Trade is engaged in a business affected with a public national interest and is subject to national regulation as such." And in Nebbia v. New York
But "an adequate reason" for national regulation exists if the activities of an industry substantially affect interstate commerce. This is made abundantly clear by the opinion of the Supreme Court in National Labor Relations Board v. Jones & Laughlin.
The recent decision of the Supreme Court in Sunshine Anthracite Coal Co. v. Adkins, 60 S.Ct. 907, 912, 84 L.Ed. 1263, May 20, 1940, upheld the power of Congress to create a scheme of price control of bituminous coal under the commerce clause of the Constitution. The Court declared that "the fixing of prices, the proscription of unfair trade practices, the establishing of marketing rules respecting such sales of bituminous coal constitute regulations within the competence of Congress under the commerce clause." The Court further stated that "The commerce clause empowers [Congress] to undertake stabilization of an interstate industry through a process of price-fixing which safeguards the public interest by placing price control in the hands of its administrative representative." Elsewhere in its opinion the Supreme Court stated that "the problem of fixing reasonable prices for bituminous coal cannot be differentiated legally from the task of fixing rates under the Interstate Commerce Act."
When Congress, acting in the public interest, has the power to regulate and supervise the conduct of any particular business under the commerce clause, an administrative agency may be authorized to inspect books and records and to require disclosure of information regardless of whether the business is a public utility and regardless of whether there is any pre-existing probable cause for believing that there has been a violation of the law. Neither of the foregoing elements enters into the question of the reasonableness of the investigation.
Respondent earnestly contends that Federal Trade Commission v. American Tobacco Co., supra note 5, requires a different view to be taken; and respondent stresses the following quotation from such case [264 U.S. 298, 44 S.Ct. 337, 68 L.Ed. 696, 32 A.L.R. 786]: "The mere facts of carrying on a commerce not confined within State lines and of being organized as a corporation do not make men's affairs public, as those of a railroad company now may be." In that case the Federal Trade Commission was seeking to compel production of papers by petitions for writs of mandamus. The Federal Trade Commission claimed "an unlimited right of access to the respondents' papers with reference to the possible existence of practices in violation
We are unable to find the significance found by respondent in the quotation relied upon by it as indicating a special restriction on the power to require production of books and papers by a private corporation, as distinguished from a public carrier. It is undoubtedly true that, for purposes of regulation, the affairs of a railroad company are more public than the affairs of a private corporation. As already suggested in this opinion, the power of Congress to regulate railroad companies is based upon the commerce clause; but when Congress exercises the power to regulate railroad companies which are engaged in interstate commerce, the scope of potential regulation is enlarged by the fact that railroad companies are public utilities. In the case of private corporations that are not engaged in the business of a public utility the scope of the regulatory power of Congress is limited by the requirement that the purposes and effects of the regulation must bear some relation to interstate commerce. Since the valid scope of regulation of a railroad company, as an interstate public carrier, is necessarily extremely broad, the scope of the incidental power of inspection is correspondingly broad. But in the case of a private corporation which is subject to regulation by Congress only for the protection of interstate commerce, the potential scope of valid regulation is not as great as in the case of a public carrier engaged in interstate commerce; and the scope of inspection of books and records will be correspondingly limited. In view of the broad power of regulation of interstate public carriers, it is difficult to conceive of a case in which the Interstate Commerce Commission would be seeking to inspect a record or document which would not be relevant to a lawful activity of the Commission. We assume, however, that if such a case were presented, the right to require production of a record or document would be denied.
We conclude that when Congress, in the exercise of its plenary power of regulation under the commerce clause, creates an administrative agency with power to regulate and supervise the acts and practices of an industry in order to safeguard commerce, and requires records to be kept to have available to the agency information respecting specified subjects, and requires the agency to enforce the requirement to keep such records, such administrative agency is entitled to inspect the records at any time to obtain the information and for the further purpose of determining whether or not such records are being kept, and whether or not they are being kept in such a way as to make available the specified information.
The decisions afford ample authority for the order of production in the instant case, which covered certain specified and particularized records covering a stated period of time and containing wage and hour information. The wage and hour information is relevant to an investigation of respondent's acts and practices regarding hours of employment, wages paid, classification of employees, and discriminatory acts, all of which subjects of investigation are matters controlled and regulated by the Act. Since respondent is subject to the Act, the investigation is a lawful inquiry. In the instant case the demand was suitably made by a duly constituted authority; and the demand "was expressed in lawful process, confining its requirements to certain described documents and papers easily distinguished and clearly described."
We are of the opinion that the subpœna duces tecum is not invalidated by the absence of a showing that certain of the records called for are described in detail by the Act, or by regulations, as records which respondent is required to keep. Respondent is required by the Act and regulations to have the information available in some form to be determined by the respondent. That is sufficient. Furthermore, it is not denied that the records do exist and it is clear that they are relevant to the inquiry.
Respondent urges that since there are sources of information other than its records, for example, the employees, petitioner should exhaust such other sources before seeking to obtain the information from respondent. But it is evident that the information sought from the records, and to which respondent is entitled, is not within the knowledge of employees generally. Respondent is the sole source of information as to whether it has complied with Sections 11(c) and 15(a) (5) by keeping records and by keeping them in such a way as to make available the information which such records are assumed to contain. Furthermore, there is no lawful restraint upon the use of the subpœna duces tecum which limits its use to cases where the subpœnaed property is the sole source of the information. And there is substantial merit in the administrator's statement that "to require the Administrator to seek 2000 sources (employees) for some of the information which the Act specifically provides shall be made available to him by the employer would nullify the enforcement of the Act."
Respondent urges, as was urged upon this Court in Bartlett Frazier Co. v. Hyde, supra, that compliance with the subpœna would impose on it "an exceedingly onerous burden." This Court rejected the contention with the comment that it was "too trivial to merit serious consideration when weighed against the wise public policy manifested by the act." We think the foregoing language is applicable to the present contention.
Respondent insists that the subpœna was unreasonable because the records required would include records of employees not entitled to the benefits of the Act. In the course of the administration of the Act the Administrator will have to determine in many particular cases whether the employee is covered by the Act; there will be difficulty in making the proper classification of employees under the exceptions of Section 13(a) (1). And the Act provides that the exemption in Sec. 13(a) (1) of bona fide "executive", "administrative", "professional", or "local retailing" employees is subject to the provisions of the Act "as such terms are defined and delimited by regulations of the Administrator." Petitioner is not required to accept respondent's classification of employees; and, in fact, the necessary conclusions seem to be that petitioner, in making the investigation "to determine whether any person has violated any provision of (the) Act, or which may aid in the enforcement of the provisions of (the) Act" must determine for himself, in the first instance, whether an employee of an employer subject to the Act is one entitled to the Act's benefits and whether he has received those benefits. It would be impossible for the Administrator to discharge his duties under the Act without full information respecting the wages and hours of employees and the nature of their duties, regardless of whether particular employees are exempt from the provisions of the Act. As pointed out above, the exemption of Section 13(a) (1) applies to the enumerated classes of employees "as such terms are defined and delimited by regulations of the Administrator." To make proper and effective regulations the Administrator is entitled to full information respecting the character and basis of voluntary classifications by the employer. Such information may suggest to the Administrator the necessity of further legislation in order to enable the Administrator to make effective regulations.
We are of the opinion that to limit the scope of the subpœna duces tecum to records of employees who have been classified as non-exempt by the employer would deprive the Administrator of information necessary for the proper performance of his duties under the Act and seriously interfere with the effectuation of the purposes of the Act.
The order of the District Court is affirmed.