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United States v. Mansour

United States District Court, W.D. New York

April 27, 2017

UNITED STATES OF AMERICA,
v.
BRENDA MANSOUR, Defendant.

          DECISION AND ORDER

          HONORABLE RICHARD J. ARCARA UNITED STATES DISTRICT JUDGE.

         This case is before the Court on several motions filed by the Defendant, Brenda Mansour. The Defendant first moves to suppress evidence recovered from a warrantless administrative search of the convenience store at which she worked. That search was conducted by investigators from the New York State Department of Taxation and Finance (DTF) with the purpose of ensuring that the deli was in compliance with New York State laws related to the State's excise tax on cigarettes. During their search, the DTF investigators found, as they had during recent searches of other delis, packets of synthetic marijuana. The investigators gave the synthetic marijuana to agents from Homeland Security Investigations (HSI), who had accompanied the DTF investigators. The Defendant was then interviewed by the HSI agents.

         The Defendant now moves to suppress the synthetic marijuana found during the search. She also moves to suppress the statements she made to the HSI agents. Magistrate Judge Scott, to whom the Court referred this case for all pretrial proceedings, recommends denying both motions. For the reasons stated below, the Defendant's objections are overruled, and the Court adopts Judge Scott's recommendations.

         BACKGROUND

         The Court briefly recites only those facts necessary to resolve the Defendant's objections.

         At approximately 7:00 p.m. on May 27, 2015, investigators from the New York State Department of Taxation and Finance conducted a regulatory inspection of Mario's Deli in Niagara Falls, New York. The Defendant, whose parents own the deli, was working as the manager that evening. According to the DTF investigators, the purpose of their inspection was to ensure that the deli was in compliance with laws related to New York State's excise tax on cigarettes. Specifically, the investigators testified that they were looking for invoices to “match . . . what [the deli] ha[d] on the shelves, ” cigarettes with “discrepancies” in their New York State tax stamp, and cigarettes that were “possibly shipped in from out of state” and which did not “have . . . stamp[s] on [them].” Tr. 6:11-15; 67:23 - 68:4.

         The search was conducted by three investigators from the DTF. The investigators were accompanied, however, by several local police officers. According to one DTF investigator, the police officers accompanied the investigators because the officers “know the area a lot better than [the DTF investigators] do so if we're walking into a place that . . . wasn't as nice as some of the other ones . . . they would be there for support.” Tr. 7:14-18. One of the officers was a Niagara County Sheriff's Deputy, who locked-and then blocked-the deli's front entrance. Tr. 15:19-21; 73:1-3; 138:8-9. A DTF investigator described this as a “common practice.” Tr. 19:24.

         In addition, and as is particularly relevant in this case, the DTF investigators were accompanied by two agents from Homeland Security Investigations (HSI), a component of U.S. Immigration and Customs Enforcement. During recent inspections of other cigarette retailers, DTF investigators had “been finding a lot of synthetic marijuana.” Tr. 8:1-2; 51:2-5; 69:4-8. When they did, the DTF investigators called agents from HSI to take custody of the synthetic marijuana. Tr. 8:1-5; 60:17-20. In the case of Mario's Deli, however, HSI agents accompanied the DTF investigators to allow the investigators to be “more productive”-that is, rather than “slowing down [the DTF investigators'] productivity [by] waiting for another agency to respond, ” HSI agents would be able to immediately take custody of any synthetic marijuana that the DTF investigators might discover during their search. Tr. 69:9-19. This was the first time the DTF investigators had brought an HSI agent with them (Tr.17:25; 60:21-23), but neither the DTF investigators nor their supervisors chose to bring HSI agents to Mario's for any particular reason. Indeed, each of the three DTF investigators who conducted the search of Mario's testified that they had no reason to believe that synthetic marijuana would be found there. Tr. 19:10-16; 69:22-24; 81:12-14.

         Nonetheless, the DTF investigators quickly found synthetic marijuana in two locations at Mario's. Several DTF investigators recalled seeing the Defendant throw something as the investigators entered the deli. Tr. 9:14-15; 36:15-18. One DTF investigator then walked behind the counter and found a box. Inside that box was a cigar box, and inside the cigar box were packets of synthetic marijuana. The DTF investigator then told HSI Special Agent Edward Williams about what she had found.[1]Tr. 113:2. After notifying Agent Williams of the synthetic marijuana, the DTF investigator found more synthetic marijuana in an open bag behind the sales counter. Tr. 42:18 - 43:6.

         After the DTF investigators found the synthetic marijuana, the Defendant was approached by Agent Williams and HSI Task Force Officer Farkas.[2] According to Agent Williams, he and Task Force Officer Farkas “[went] over, . . . identif[ied] oursel[ves] with Government-issued identification verbally and asked if [the Defendant] would be willing to discuss” the synthetic marijuana that had been discovered by the DTF investigators. Tr. 104:15-19. The Defendant agreed, and the agents asked whether “there was a spot in the store like an office or something that she would like to go to talk with [the agents].” Tr. 105:22-24. According to Agent Williams, the Defendant suggested “go[ing] to the back of the store, ” an area that was not enclosed and that was “still in the main part of the store.” Tr. 106:1-12. The Defendant's description of the interview location was slightly different, but not inconsistent with Agent Williams's: according to the Defendant, she and the agents went into a corner “where it was blocked off, no one else could see. You could see the front counter . . . . You could see the doors.” Tr. 154:25 - 155:5.

         Agent Williams was armed, but his firearm remained holstered on his hip during the search and questioning. Tr. 109:13 - 110:1. Further, Agent Williams did not use handcuffs or any “physically threatening stance, ” nor did he see any other investigator or officer do so. Tr. 110:8-14; 176:2-4. As noted, however, during the interview a Niagara Falls Sheriff's Deputy remained at the deli's door. According to the Defendant, the door was locked and “[c]ustomers were trying to get in, they would unlock it and tell the customers the store is currently closed.” Tr. 158:21-23.

         At the back of the store, Agent Williams informed the Defendant that she was not under arrest, that she did not need to speak to the agents, that she was free to leave the store, and that he wanted to discuss “some concerns that we had regarding the suspected synthetic marijuana.” Tr. 106:16-20; 107:10-13. Agent Williams did not read the Defendant her Miranda rights because, according to Agent Williams, “[s]he wasn't in custody.” Tr. 106:25. After the Defendant agreed to speak to the agents, Agent Williams informed her that selling synthetic marijuana is a violation of federal law and that she could be prosecuted for doing so, to which the Defendant responded, “awe, f---me.” Tr. 107:6-22. See also Tr. 119:10-18. The Defendant testified that she “was scared for my life, thought I was going to get arrested because he told me that it was something serious, it was killing people.” Tr. 155:6-9.

         The agents then asked the Defendant questions about “how she obtained the packages.” Tr. 108:1-2. Specifically, Agent Williams asked the Defendant “if she would be willing to kind of cooperate with us further to further the investigation to . . . her supply chain.” Tr. 11:8-10. Agent Williams testified that he “made no threats, ” but that he did “advise[] [the Defendant] that providing information . . . would not be a bad thing.” Tr. 116:16-20. Indeed, Agent Williams was vehement that he did not “make promises . . . about what will happen if” the Defendant cooperated. Tr. 118:18-19. The Defendant testified that she “thought [she] was getting arrested” if she did not cooperate. Tr. 158:10. She then answered Agent Williams's questions with “general information about the price she paid for each packet of the suspected synthetic marijuana; how much she sold it for; a general, vague description of the individual . . . she obtained it from. Kind of logistics behind it.” Tr. 124:3-6. The Defendant described Agent Williams as “civil” and “calm” during the interview (Tr. 157:16; 173:20), and she testified that she thought Agent Williams “was trying to help [her] out.” Tr. 162:6. Ultimately, the Defendant concluded, although she was not arrested, she “thought [she] was gonna be under arrest.” Tr. 175:2-11.

         At the end of the interview, Agent Williams gave the Defendant his business card and asked her to call him the next day. Tr. 111:11-13; 161:25 - 162:2-5. The entire conversation lasted approximately ten minutes. Tr. 108:5.

         The Defendant was ultimately charged with two counts of possessing, with intent to distribute, synthetic marijuana, in violation of 21 U.S.C. §§ 841(a)(1) and 841(b)(1)(C). See Docket No. 9 (Indictment). In proceedings before Judge Scott, the Defendant moved to suppress evidence recovered from the search of Mario's Deli. She also moved to suppress her statements to Agent Williams. As to her first motion, the Defendant argues, generally, that the search was not a true regulatory search, but that it was instead conducted with the intent of finding evidence of a crime. As to her second motion, the Defendant argues that she was in “custody” for purposes of Miranda v. Arizona, 384 U.S. 436 (1966), and that her un-Mirandized statements must therefore be suppressed.

         Judge Scott recommends denying both motions. The Defendant objects to those recommendations. The Court therefore reviews each recommendation de novo. 28 U.S.C. § 636(b)(1).[3]

         DISCUSSION

         1. Whether searches conducted pursuant to New York Tax Law § 474(4) comply with the Fourth Amendment

         The search in this case was conducted by investigators from the criminal division of the New York State DTF. In conducting their search, the investigators acted pursuant to authority conferred by New York State Tax Law § 474(4). Section 474(4) provides, in relevant part, as follows:

The commissioner of taxation and finance is hereby authorized to examine the books, papers, invoices and other records of any person in possession, control or occupancy of any premises where cigarettes or tobacco products are placed, stored, sold or offered for sale, and the equipment of any such person pertaining to the stamping of cigarettes or the sale and delivery of cigarettes or tobacco products taxable under this article, as well as the stock of cigarettes or tobacco products in any such premises.

         After the parties filed their briefing on the Defendant's objections, the Court directed the parties to file additional briefs addressing the Supreme Court's recent decision in City of Los Angeles v. Patel, 135 S.Ct. 2443 (2015). As relevant here, Patel observed that, “absent consent, exigent circumstances, or the like, in order for an administrative search to be constitutional, the subject to the search must be afforded an opportunity to obtain precompliance review before a neutral decisionmaker.” Id. at 2452. Section 474(4), the Court noted, does not provide such an opportunity. The Court therefore directed the parties to file briefs addressing whether searches conducted pursuant to § 474(4) comply with the Fourth Amendment. And because the Court's order implicated the constitutionality of a state statute, the Court invited the New York State Attorney General to file a brief stating his position on this question. The Attorney General has done so.

         All parties appear to agree that, to determine the constitutionality of § 474(4), the Court must first decide whether cigarette retailers are “pervasively regulated” or “closely regulated, ” as the Supreme Court has defined those terms.[4] Over the past several decades, the Supreme Court has identified a handful of industries that are subject to pervasive and often longstanding regulation arising from the industries' “relatively unique circumstances.” Marshall v. Barlow's, Inc., 436 U.S. 307, 313 (1978). These industries “have such a history of government oversight that no reasonable expectation of privacy could exist for a proprietor over the stock of such an enterprise.” Id. In other words, in the case of a heavily-regulated industry, the question whether a search is a “reasonable” one under the Fourth Amendment is answered with a recognition that, “when an entrepreneur embarks upon such a business, he has voluntarily chosen to subject himself to a full arsenal of governmental regulation.” Id. See also New York v. Burger, 482 U.S. 691, 702 (1987) (“[W]here the privacy interests of the owner are weakened and the government interests in regulating particular businesses are concomitantly heightened, a warrantless inspection of commercial premises may well be reasonable within the meaning of the Fourth Amendment.”) Closely-regulated industries, however, are “the exception, ” Barlow's, 436 U.S. at 313, a point reinforced by the fact that the Supreme Court has identified only four industries that are closely regulated: liquor retailers, Colonnade Catering Corp. v. United States, 397 U.S. 72 (1970); firearms dealers, United States v. Biswell, 406 U.S. 311 (1972); mining, Donovan v. Dewey, 452 U.S. 594 (1981); and automobile junkyards, New York v. Burger, 482 U.S. 691 (1987).[5]

         Here, if the Court concludes that cigarette retailers are pervasively regulated, Patel's concern about precompliance review is irrelevant. In that case, § 474(4) would, at least as a general matter, authorize DTF investigators to conduct warrantless regulatory searches of cigarette retailers. But that would not end the Court's Fourth Amendment analysis: Even if the Court concludes that cigarette retailers are pervasively regulated, to determine whether the search in this case was constitutional the Court must also decide whether searches conducted pursuant to § 474(4) are “reasonable, ” as the Supreme Court has defined that term.

         For the reasons that follow, the Court concludes that cigarette retailers are pervasively regulated in New York State and that searches conducted pursuant to § 474(4) are “reasonable” under the Fourth Amendment. This is because warrantless searches under § 474(4) “further urgent [State] interest[s]”-namely, enforcement of a regulatory scheme designed to ensure that all cigarettes sold in New York State are taxed-and because, given § 474(4)'s limits on the scope of a regulatory search, as well as the way in which the New York Court of Appeals has interpreted the statute, “the possibilities of abuse and the threat to privacy are not of impressive dimensions.” Biswell, 406 U.S. at 316.

         A. Whether cigarette retailers are pervasively regulated

          The Court first addresses whether cigarette retailers are pervasively regulated.

         To determine whether an industry is pervasively regulated for Fourth Amendment purposes, the Supreme Court has identified three factors for courts to consider. A court must consider, first, whether the degree and scope of regulation is “extensive” or otherwise pervasive. See Burger, 482 U.S. at 703-04. Next, the court must consider the extent to which other states have “imposed similarly extensive regulations” on the industry in question. Id. at 705. And finally, the court must examine the duration of the regulatory scheme at issue. Id. at 705-07.

         These three factors need not be present in equal measure, however. See Patel, 135 S.Ct. at 2459 (Scalia, J., dissenting) (“These factors are not talismans, but shed light on the expectation of privacy the owner of a business may reasonably have, which in turn affects the reasonableness of a warrantless search.”) The most important factor is, intuitively, “the pervasiveness and regularity” of the inspection program. Dewey, 452 U.S. at 606 (noting that this factor “ultimately determines whether a warrant is necessary to render an inspection program reasonable under the Fourth Amendment”). For example, the Supreme Court has concluded that certain industries are pervasively regulated where the regulatory scheme at issue was relatively novel. See Biswell, 406 U.S. at 315 (“Federal regulation of the interstate traffic in firearms is not as deeply rooted in history as is governmental control of the liquor industry, but close scrutiny of this traffic is undeniably of central importance to federal efforts to prevent violent crime and to assist the States in regulating the firearms traffic within their borders.”); Dewey, 452 U.S. at 606 (“[I]f the length of regulation were the only criterion, absurd results would occur.”)

         The Court will therefore examine each of the Burger factors to determine whether the cigarette industry in New York is pervasively regulated. In doing so, however, the Court is mindful that the most important factor is the degree and scope of regulation.

         i. The degree or intensity of regulation

         First, to determine whether an industry is closely regulated, the Supreme Court looks to the degree to which the industry is regulated. See Burger, 482 U.S. at 704 (“The provisions regulating the activity of vehicle dismantling are extensive.”); Dewey, 452 U.S. at 603 (“[T]he regulation of mines [the Mine Safety and Health Act of 1977] imposes is sufficiently pervasive and defined that the owner of such a facility cannot help but be aware that he will be subject to effective inspection.”) (quotation marks omitted). There can be little question that New York State regulates the distribution and sale of cigarettes with an intensity reserved for few other industries; as the Attorney General observes, “cigarettes and other tobacco products are among the most heavily regulated products available in New York.” Docket No. 51 at 13.

         Underlying New York's regulatory scheme is the State's $4.35 excise tax on every pack of cigarettes-the highest in the United States. N.Y. Tax Law § 471(1). See Map of Excise Tax Rates on Cigarettes, Centers for Disease Control and Prevention (last visited Apr. 27, 2017), https://www.cdc.gov/statesystem/excisetax.html. A large portion of the State's regulatory scheme-and, ultimately, the warrantless inspection program at issue in this case-is designed to ensure that that tax is paid on all cigarettes sold in New York State. As the Second Circuit has summarized New York's regulatory framework for the distribution and sale of cigarettes, the DTF “‘precollects' the tax from a limited number of state-licensed stamping agents, and mandates that these agents be the only entry point for cigarettes into New York's stream of commerce. Stamping agents, often wholesalers themselves, purchase tax stamps from the State and cigarettes from manufacturers. Before selling the cigarettes to other wholesalers or retailers, agents must affix a tax stamp to each pack of cigarettes to demonstrate the payment of the tax. Agents incorporate the cost of the stamp into the pack's price and pass the cost along the distribution chain to the consumer.” Oneida Nation of New York v. Cuomo, 645 F.3d 154, 158 (2d Cir. 2011) (citations and footnote omitted). Further, any person transporting unstamped cigarettes within the State must “have in his actual possession invoices or delivery tickets for such cigarettes.” N.Y. Tax Law § 474(1). This comprehensive framework, which is designed to ensure that all cigarettes sold in New York bear a tax stamp, is buttressed by both state and federal criminal penalties. See N.Y. Tax Law § 1814; 18 U.S.C. § 2342.

         New York's intense regulation of cigarette sales continues at the retail level. All cigarette retailers must be licensed and registered with the DTF, see N.Y. Tax Law § 480-a, and risk suspension or revocation of their license for possessing or selling unstamped cigarettes. Id. at § 480-a(4). A cigarette retailer must open a shipment of cigarettes within 24 hours of receipt “for the purpose of ascertaining whether or not the . . . packages have affixed thereto the proper tax stamp.” Id. § 473. A cigarette retailer must retain invoices containing detailed information about its cigarette purchases for a period of three years. Id. § 474(4). And to ensure that the consumer bears the “ultimate incidence of and liability for” the State's cigarette tax, id. ยง 471(2), ...


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