Court Orders Halt To New York Law Demanding Online Access To Pawn Shop Acquisition Records

Pawn shops — like scrap metal dealers and junkyards — are “closely regulated” businesses. What this means is they are compelled to track acquisition information and make it available for law enforcement to view without a warrant. The nexus of these businesses to criminal activity is undeniable. But that doesn’t necessarily mean everything law enforcement demands, it gets. Some demands exceed the diminished Fourth Amendment protections afforded to these businesses.

The “closely regulated” language comes from the US Supreme Court. In a decision affecting a New York junkyard owner, the Supreme Court found that:

A business owner’s expectation of privacy in commercial property is attenuated with respect to commercial property employed in a “closely regulated” industry. Where the owner’s privacy interests are weakened and the government interests in regulating particular businesses are concomitantly heightened, a warrantless inspection of commercial premises, if it meets certain criteria, is reasonable within the meaning of the Fourth Amendment.

A decision in the New York Supreme Court (People v. Keta) seemingly went against the US Supreme Court’s precedent. It narrowed the broad exceptions to the Fourth Amendment somewhat, with the presiding judge (Vito J. Titone) noting:

“Our responsibility in the judicial branch is not to respond to these temporary crises or to shape the law so as to advance the goals of law enforcement, but rather to stand as a fixed citadel for Constitutional rights.”

But “advancing the goals of law enforcement” still seems to be the goal. Officers are free to inspect acquisition records without a warrant, as well as seize stolen goods in plain sight, but most other actions (including searches of safes, etc.) still require additional paperwork.

In order to expedite police inspections of pawnbrokers, New York legislators passed a law making it even easier for law enforcement check in on “closely regulated” businesses.

RCNY §21-03(a) and (b), §21-04(a) and (c), §21-07(a)-(f), and § 21-08, promulgated as a result of Local Law No. 149 require pawnbrokers and dealers in second-hand merchandise to create electronic transaction records and upload the same to a web-based electronic transfer service designated by the NYPD known as Leads Online, who then makes those records available to the NYPD.

Because this law compels (sort of…) the upload of information to a database that can be accessed at will by law enforcement and other entities, it does not conform to the standards set by the NY Supreme Court’s Keta decision.

[T]he foregoing statutes fail to prescribe limits for the review of the records required to be disclosed and, in fact, in requiring the daily disclosure of those records seem to vest with the NYPD the unbridled discretion which even the court in Glenwood TV, Inc., would invalidate a statute authorizing warrantless searches (103 AD2d, 322, 330).


Specifically, at this stage, it is hard to fathom how the foregoing statutes – bereft of any standards on the frequency of searches, setting virtually no limit on how said searches will be conducted and thus, conferring unfettered discretion upon the defendants suffer from the very afflictions the court in Keta held afflicted VTL § 415-a(5) – can, in light of their facial unconstitutionality born by this record, be constitutionally applied.

The court mentions the “means to an end” approach the NYPD is rather fond of. Simply having on-demand, warrantless access to on-site inspection of “closely regulated” businesses’ records wasn’t enough. It wanted to enjoy the same privileges without leaving the office. Now, these “inspections” — along with others permitted under the same set of statutes — have been halted until further notice.

This compelled database of acquisition information is the centerpiece of another lawsuit against the city and the NYPD. It appears from the allegations made in this suit that the NYPD expresses a certain irritation with those that don’t opt-in to the online database. (The law requires creation and storage of electronic records, but does not actually mandate the use of Leads Online by affected businesses, stating only that “such electronic record may include real-time sharing or accessing of such records in an electronic format and/or through use of an internet website designated by the police commissioner.”)

Plaintiff here alleges that Defendants have “effectively singled out Gem from other pawnbrokers and secondhand dealers and have done so with malice and bad faith.” (Am. Compl. ¶ 152.) Plaintiff further alleges that pawn brokers who choose not to use Leads Online are subject to additional onsite inspections for “administrative purposes,” and that Plaintiff has experienced continual visits to its stores, warrantless searches, holds on jewelry, criminal summonses and over all harassment. (Id. ¶¶ 36–133.) Defendants raise no argument as to this element of Plaintiff’s selective enforcement equal protection claim, instead relying on the fact that the NYPD is permitted to perform administrative inspections. The Court finds that Plaintiff’s detailed description in its Amended Complaint of the actions taken beyond mere administrative inspections, including various in-store visits from the NYPD, statements made to Gem employees, subsequent requests for jewelry holds, and the seven misdemeanor summons received, (see id.), are adequate to demonstrate at the pleadings stage a malicious or bad faith intent to injure Plaintiff. The Court therefore finds that Plaintiff has stated a plausible claim for violation of the Equal Protection Clause and Defendants’ motion to dismiss is, therefore, denied.

This lawsuit was filed before Local Law 149 was passed and enacted, suggesting there was a pre-legislation push by the NYPD to move these records to an online database. As of this point, the lawsuit is still ongoing, having survived the city’s motion to dismiss.

The codes cited in the lawsuit don’t specify anything more than the sort of records to be maintained. In accordance with the new law, these records are to be maintained electronically, but nothing specifically mandates the use of an online database.

As the court sees it here, this demand to participate in the online collection of these records — which can be perused at the sole discretion of law enforcement officers and others with access to the database — falls dangerously close to being a “general warrant.” Compelled production of records during periodic inspections and/or suspicion of illegal activity is one thing. Providing at-will “inspections” with no corresponding guidelines turns “close regulation” into a prime fishing spot for law enforcement, who will no longer be participating in periodic inspections and searches, but rather trolling databases simply because they have unfettered access to the information.

Obviously, this has its parallel in the recent incident involving Motel 6’s faxing of guest information to local law enforcement nightly. Motels and hotels are businesses that are subject to routine inspection of collected records, but nothing about this sort of regulation demands proactive measures on the part of the businesses involved, other than the collection and maintenance of the required records. The rest is dependent on law enforcement not abusing these privileges, which wander outside the protections of the Fourth Amendment — supposedly in the “public interest,” i.e. fighting crime.

The necessary limitations — and there are only a few — are subverted by instantly-accessed, central collections of this information. The Supreme Court may have lowered the Fourth Amendment standards for these businesses, but New York’s highest court stills sees at least a minimal amount of privacy implications in this sort of regulation. These are in place to help law enforcement combat theft, but these noble ends are not a justification for “by any means necessary” approaches.

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