7 FSM Intrm. 137-147

The FSM social security program's purpose is to provide a means whereby employees may be ensured a measure of financial security in their old age and be given an opportunity for leisure without hardship and complete loss of income, and, further, to provide survivors' insurance for wage earners and their dependents. 53 F.S.M.C. 602. The program is funded by joint contributions from employers and employees. FSM Social Sec. Admin. v. Weilbacher, 7 FSM Intrm. 137, 141 (Pon. 1995).

An administrative agency may either request certain records be provided or formally subpoena the desired information, rather than obtain a court-ordered search warrant. In either situation, the subject of the inspection may decide whether to refuse or cooperate with the government's request. Only when a person refuses to permit the requested search does the Constitution prohibit the administrative agency from coercing that person to turn over records without first obtaining a valid search warrant. FSM Social Sec. Admin. v. Weilbacher, 7 FSM Intrm. 137, 143 (Pon. 1995).

Where a person refuses to cooperate with the inspection requests of the administrative agency, the government will be required to demonstrate to a neutral and detached magistrate that the requested material is reasonable to the enforcement of the administrative agency's statutory responsibilities and that the inspection is being conducted pursuant to a general and neutral enforcement plan in order to obtain the required search warrant. FSM Social Sec. Admin. v. Weilbacher, 7 FSM Intrm. 137, 143 (Pon. 1995).

individual's membership in one of the classes enumerated in article IV, section 4, or if the discrimination affects a "fundamental right." The law is then subject to a strict scrutiny review, under which it will be upheld only if the government can demonstrate that the classification upon which that law is based bears a close rational relationship to some compelling governmental interest. But if the law does not concern an enumerated class or a fundamental right, the question becomes whether the classification is rationally related to a legitimate governmental purpose. FSM Social Sec. Admin. v. Weilbacher, 7 FSM Intrm. 137, 146 (Pon. 1995).

On March 1, 1995, this Court issued an Order granting Plaintiff FSM Social Security Administration ("FSMSSA") partial summary judgment on the counterclaims filed by Defendant Bismarck Weilbacher. Defendant's counterclaims alleged that an audit conducted by agents of the FSMSSA violated his rights of equal protection, privacy, and to be free from unreasonable searches and seizures. 11 F.S.M.C. 701(1), (2) & (3). In opposing Plaintiff's motion for partial summary judgment, Defendant argued that genuine issues of material fact prevent the Court from entering judgment as a matter of law at this time. Defendant also claims that the entire social security program is unconstitutional because it undermines the traditional, informal social security system that already exists in the FSM. This Memorandum of Decision explains the Court's basis for its earlier grant of summary judgment in favor of the FSMSSA.

Rule 56 of the FSM Rules of Civil Procedure states that summary judgment will be rendered if the evidence reveals that "there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." See also Bank of Guam v. Island Hardware, Inc., 2 FSM Intrm. 281, 284 (Pon. 1986). Moreover, in reviewing a motion for summary judgment, the Court views the facts, and any inferences therefrom, in the light most favorable to the party opposing summary judgment. Id.

On September 22, two field representatives of the FSMSSA arrived at the business address of Defendant in order to conduct the audit. At that time, the field representatives requested that Defendant provide only information that was directly related to the company payroll. The Defendant, rather than producing a formal record of his payroll, was only able to provide employee pay stubs for some of his employees. As a result, the field representatives of the FSMSSA made three additional visits to Defendant's home in an attempt to collect sufficient information upon which to determine the amount owing to the FSMSSA by Defendant.

Defendant did not object to the visits to his home or to his place of business. Instead, he voluntarily complied with FSMSSA's requests that the Defendant submit to the audit. According to the Defendant, he "did not oppose [the FSMSSA administrator's letter regarding the audit or the audit itself] not because he wanted to have the staff enter his business premises but because he wanted to comply with the law." Aff. Def. (attachment to Def.'s Opp'n to Pl.'s Motion to Dismiss). Defendant then emphasized his cooperation with the FSMSSA by reiterating that he "complied with the notice because he wanted to obey the law." Id.

At a hearing held on Plaintiff's motion for summary judgment, Defendant confirmed that he voluntarily consented to the examination conducted by the FSMSSA field representatives. Defendant stated that no force was used by the field representatives, and that he did not object to the requests made by them. Defendant nonetheless argues that his actions cannot be deemed consent because he was unaware of his right to refuse to cooperate and because he believed that he was required to comply with the requests of the FSMSSA agents.

On April 19, 1994, after Defendant refused to pay the taxes and penalties assessed, Plaintiff initiated the instant lawsuit. In response, Defendant counterclaimed, alleging that the audit conducted by FSMSSA violated his constitutional rights. Specifically, Defendant claims that the audit violated his equal protection rights, as well as his right to be free from invasions of privacy and unreasonable searches and seizures. In addition to the three constitutional claims set forth above, Defendant asserts that, even if the FSMSSA audit was proper, it is still illegal because the entire FSM social security program is unconstitutional. In Defendant's view, the FSMSSA is unconstitutional because it undermines the traditional, informal social security system created by the customs and traditions of

Before examining Defendant's individual claims, it is necessary to have a brief understanding of the FSM Social Security Administration. The purpose of the FSM social security program, as stated within Title 53 of the FSM Code, is to provide "a means whereby employees may be ensured a measure of [financial] security in their old age and given an opportunity for leisure without hardship and complete loss of income, and, further, to provide survivors' insurance for wage earners and their dependents." 53 F.S.M.C. 602. The program is funded by joint contributions from employers and employees. Specifically, employers are required to deduct four-percent from the employee's total pay, add an additional four-percent from their own proceeds, and remit the entire amount to the FSMSSA. Employers also are required to file quarterly tax returns with the FSMSSA. To enforce its stated purpose, a Social Security Board was created and given the authority to oversee the audit and collection functions of the FSMSSA. According to the authorization contained in 53 F.S.M.C. 706, the Social Security "Board and its representatives shall have the power to audit employer records, issue subpoenas, and administer oaths" in order to ensure that FSM employers are making their required contributions to the FSMSSA. This provision of FSM Code purports to allow the Board and its representatives to inspect the payroll records of any and all companies operating within the FSM. In the event that the Board or its authorized representatives discover that an employer is not making filings and payments to the FSMSSA, that employer may be penalized pursuant to 53 F.S.M.C. 605, which provides for financial penalties based on knowingly supplying false information to the FSMSSA as well as for one who "willfully fails to report wages paid or pay contribution required thereon."

Title 53 of the FSM Code, which created the FSMSSA, is patterned after many United States statutes that create administrative agencies with the power to conduct investigations for the United States Government. Despite numerous challenges to the constitutionality of administrative agencies similar to the FSMSSA in the United States, the United States federal courts have upheld the constitutionality of statutory schemes that are virtually identical to that of the FSMSSA. The United States courts have ruled that administrative agencies, where authorized by statute, may perform many different investigatory functions, among them the auditing of books and records, the issuance of subpoenas requiring the disclosure of information relevant to the agency's functions, and requiring the sworn testimony of witnesses. Oklahoma Press Pub. Co. v. Walling, 327 U.S. 186, 66 S. Ct. 494, 90 L. Ed. 614 (1946) (upholding administrative agency's right to judicial enforcement of subpoenas duces tecum). The statute in Oklahoma Press, which was upheld by the United States Supreme Court, was no more specific than the statute in this case. That statute stated, in relevant part, as follows:

The Administrator or his designated representatives may investigate and gather data regarding the wages, hours, and other conditions and practices of employment in any industry subject to this Act, and may enter and inspect such places and such records (and make such transcriptions thereof), question such employees, 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 this Act.

Defendant makes three specific challenges to the constitutionality of the administrative inspection conducted in this case. First, Defendant complains that the inspection was an unreasonable search and seizure. Second, Defendant complains that the method by which the inspection was conducted was intrusive and that it constituted an invasion of privacy. Finally, Defendant argues that the manner in which he was singled out for an audit denied him the equal protection of the laws. The Court will examine each of Defendant's claims in turn.

Defendant cites several bases for his conclusion that the administrative inspection conducted by FSMSSA was an unreasonable search and seizure. Initially, Defendant claims that the inspection was unreasonable because the FSM Constitution prohibits warrantless administrative inspections in industries that are not "closely regulated." Defendant also claims that he did not consent to the search, and that a genuine issue of material fact exists as to whether Defendant's silence can be viewed as his consent to the search. Defendant further argues that the search was unreasonable because it failed to conform to the customs and traditions of the FSM. Specifically, Defendant claims that in the custom of the FSM, it is more intrusive to visit an individual's home and place of business than it would have been to simply issue subpoenas for the desired records.

Article IV, section 5 of the FSM Constitution states that "[t]he right of the people to be secure in their persons, houses, papers, and other possessions against unreasonable search, seizure or invasion of privacy may not be violated." For purposes of article IV, section 5, a search is any governmental intrusion into an area where a person has a reasonable expectation of privacy. Thus, the constitutional protections of Article IV do not attach unless the search or seizure can be attributed to governmental conduct and the defendant had a reasonable expectation of privacy in the items searched.

Although there are a number of FSM cases addressing what constitutes an unreasonable search and seizure, those cases do not involve administrative inspections of company records. Accordingly, it is appropriate for this Court to review the relevant law of other jurisdictions, including that of the United States, upon which the FSM's law regarding searches and seizures is based. See Lonno v. Trust Territory (I), 1 FSM Intrm. 53, 69-71 (Kos. 1982). According to the law of the United States, the Fourth Amendment of the United States Constitution (the United States counterpart to article IV, section 5 of the FSM Constitution) does in fact apply to administrative inspections of payroll records made for the purposes of tax collection. G.M. Leasing Corp. v. United States, 429 U.S. 338, 355-56, 97 S. Ct. 619, 630, 50 L. Ed. 2d 530, 545-46 (1977); See v. Seattle, 387 U.S. 541, 87 S. Ct. 1737, 18 L. Ed. 2d 943 (1967); Camara v. Municipal Court, 387 U.S. 523, 87 S. Ct. 1727, 18 L. Ed. 2d 930 (1967). In G.M. Leasing, the United States Supreme Court held that administrative searches designed to aid in the collection of taxes rightly owing to the Government must be conducted according to the same requirements laid down for other searches and seizures. Moreover, in See, the United States Supreme Court noted that "[i]t is now settled that, when an administrative agency subpoenas corporate books or records, the Fourth Amendment requires that the subpoena be sufficiently limited in scope, relevant in purpose, and specific in directive so that compliance will not be unreasonably burdensome." See, 387 U.S. at 544, 87 S. Ct. at 1740, 18 L. Ed. 2d at 947. The court then went on to conclude that

The fact that an administrative inspection is subject to the protections of the Constitution, however, does not mean that an administrative agency can never conduct an inspection without a warrant. Just like in any other governmental search and seizure, a warrant is unnecessary where the government obtains the voluntary consent of the party to be searched. FSM v. George, 1 FSM Intrm. 449, 455-56 (Kos. 1984); FSM v. Tipen, 1 FSM Intrm. 79, 87 (Pon. 1982). Thus, the FSMSSA, like all other administrative agencies, may either request that an employer provide certain records or formally subpoena the desired information, rather than obtain a court-ordered search warrant. In either situation, the subject of the inspection may decide whether to refuse or cooperate with the government's request. It is only where the individual refuses to permit the requested search that the Constitution prohibits the administrative agency from coercing that employer to turn over records without first obtaining a valid search warrant.

In the event that a search warrant is required ) that is, where an employer refuses to cooperate with the requests of the administrative agency ) the government, at the very least, will be required to demonstrate to a neutral and detached magistrate that the requested material is reasonable to the enforcement of the administrative agency's statutory responsibilities and that the inspection is being conducted pursuant to a general and neutral enforcement plan. Marshall v. Barlow's, Inc., 436 U.S. 307, 323, 98 S. Ct. 1816, 1826, 56 L. Ed. 2d 305, 318 (1978). The purpose of this requirement is to insure that the administrative agency does not abuse its inquisitorial powers, and that it does not perform its duties in a selective or discriminatory manner.1

In the present case, the inspection conducted by the FSMSSA was not constitutionally unreasonable because the Defendant's actions plainly demonstrate that he consented to the FSMSSA inspection. On multiple occasions FSMSSA representatives requested, and were voluntarily provided with, information from Defendant. As Defendant himself admits, the FSMSSA field representatives neither coerced nor forced Defendant to comply with their requests. Rather, Defendant voluntarily provided the information sought because he wanted to comply with the law. Having done so, the Defendant cannot undo his decision by arguing after the fact that he was unaware of his full legal rights to insist on a warrant. The fact that an employer is unaware of the law does not mean that he will not be bound by it.

to cooperate, the FSMSSA would obtain subpoenas for the desired information. In addition, the letter sent by Plaintiff offered to answer any questions that the Defendant may have had about the audit. The letter was sent two weeks prior to the scheduled date of the audit, thereby providing Defendant more than ample time to seek legal advice regarding his rights under the law, and to decide whether to submit to the FSMSSA's request or to insist that the FSMSSA obtain a warrant or subpoena. Based on these facts, it is apparent that the Defendant was informed that he had options available to him other than complying in the audit, and that he chose not to take advantage of those opportunities.2 It is likewise clear that Defendant also chose not to take advantage of the FSMSSA's offer to answer any questions the Defendant might have about the audit. As such, the Court concludes that Defendant voluntarily chose to cooperate with the FSMSSA and that Defendant's decision was not caused by any pressure or coercion on the part of the FSMSSA.

Additionally, the facts of this case are far less compelling than many of the other cases in which a defendant claims that he did not consent to a police search. This search did not involve the intimidation that is often accompanied by searches made by police officers, uniformed and armed. Also, this was not a case where the search is initiated by a sudden demand or by forced entry, such that the Defendant has little time to reflect upon whether to permit the search. The Defendant in this case had more than two weeks to decide whether to cooperate by handing over the requested documents, or to insist upon a formal subpoena. In sum, Defendant's decision to comply with the request of the FSMSSA was in no way coerced or compelled by the FSMSSA.

Defendant argues lastly that even if the search was reasonable, the Court should nonetheless find that the social security laws are unconstitutional. Defendant claims that the social security laws are overbroad, conferring almost unlimited discretion upon the FSMSSA and its authorized representatives. That is, they enable the representatives of the FSMSSA to enter an individual's home and have a "field day on the business premises and records exposing the person to be inspected to potential criminal liability or self-incrimination." This argument has no merit, because it was not the social security laws that enabled the FSMSSA representatives to enter into Defendant's home. Rather, it was Defendant who consented to the representatives' entry into his home,3 thereby eliminating the need for the FSMSSA to obtain alternative authorization to carry out its audit of Defendant's payroll records. Therefore, because the laws were not the basis for the alleged intrusion in this case, there is no reason for this court to examine the constitutionality of the social security laws themselves.4

Defendant's invasion of privacy claim, which is also based on the article IV of the FSM Constitution, challenges the actual manner in which the administrative audit was conducted. First, Defendant complains that the audit was conducted by two members of the FSMSSA staff, as opposed to just one staff member. Defendant claims that a letter sent to him by the FSMSSA led him to believe that the audit would be conducted by only one staff member. Second, Defendant argues that portions of the audit were carried out at his home, and that multiple visits were made to his home, thus further invading his privacy. By necessity, Defendant's invasion of privacy argument overlaps a great deal with his unreasonable search and seizure claim, because both claims involve the audit of Defendant's payroll records. Since the Court has already determined that the audit was not an unreasonable search, however, the only remaining bases for Defendant's privacy claim are that the FSMSSA invaded his privacy by coming to Defendant's home, by doing so on more than one occasion, and by dispatching two field representatives to conduct the audit rather than one.

The Court finds that the factors complained of by Defendant are insufficient as a matter of law to demonstrate an unconstitutional deprivation of the right to privacy. The fact that two field representatives performed the audit, rather than one as Defendant expected, did not have any significant, invasive, effect on Defendant's privacy. Furthermore, despite Defendant's claim that the letter stated that only one staff member would conduct the audit, the Court sees no such suggestion contained in the letter. In fact, the language of the letter cited by Defendant clearly contemplated that more than one staff member would conduct the audit.

An even more compelling reason for rejecting Defendant's invasion of privacy claim is because the Defendant consented to the actions of the FSMSSA that he now terms "invasive." As a practical matter, it is difficult to envision a situation where an individual's privacy can be invaded by acts that are willingly permitted by that individual. Here, the Defendant permitted the inspections to go on at his home, and he let the FSMSSA agents conduct their follow-up visits. At any time, Defendant could have terminated the inspection and claimed that the FSMSSA agents were acting unreasonably. Had Defendant done so, the FSMSSA agents would have been required to obtain a warrant by justifying their conduct before an officer of the court. Defendant did not make any such demands, however. Finally, Defendant claims that the letter sent by the FSMSSA stated that the audit would be conducted by one agent, and that that is why the presence of two agents constituted an invasion of privacy. As stated above, however, the letter does not contain any such implication. Moreover, even if it did, the Court already has determined that the difference between one or two agents is not determinative of whether this audit constituted an unreasonable search or an unconstitutional invasion of privacy,

Defendant's equal protection claim differs slightly from the two claims discussed above. In this claim, Defendant argues that he was deprived the equal protection of the laws because he was singled out for an audit because his company is in direct competition with a construction company owned by the FSMSSA Administrator. There are two equal protection clauses contained in the FSM Constitution. According to article IV, section 4 of the FSM Constitution "[e]qual protection of the laws may not be denied or impaired on account of sex, race, ancestry, national origin, language or social status." Similarly, article IV, section 3 guarantees that "[a] person may not be deprived of life, liberty, or property without due process of law, or be denied the equal protection of the laws." These clauses, like their counterpart in the United States Constitution, are designed to protect individuals from discrimination based on their membership in a class. Samuel v. Pryor, 5 FSM Intrm. 91, 105 (Pon. 1991). If the discrimination is based on the individual's membership in one of the classes enumerated in article IV, section 3, or if the discrimination affects a "fundamental right," the law is subject to strict scrutiny review. Id. at 105-07. Under a strict scrutiny examination, a law will be upheld only if the government can demonstrate that the classification upon which that law is based "`bears a close rational relationship to some compelling governmental interest[].'" Id. at 106 (quoting SCREP No. 23, II J. of Micro. Con. Con. 793). If the law does not concern an enumerated class or a fundamental right, the question becomes whether "the classification[ is] rationally related to a legitimate [governmental] purpose. Afituk v. FSM, 2 FSM Intrm. 260, 263 (Truk 1986). Here, Defendant does not claim that he is being discriminated against on the basis of his membership in an enumerated class. Rather, Defendant's equal protection claim is based on his membership in a class composed of individuals who own and operate construction companies that compete with the construction company owned by the FSMSSA administrator. Defendant also does not identify any fundamental right that has been denied him on the basis of his membership in the classification as alleged. Accordingly, Defendant's equal protection claim will not be subjected to strict scrutiny review.

As stated above, the rational relationship test examines whether there is a reasonable justification for permitting a law that discriminates against certain classes or groups. Although Defendant's claim is made more complicated, because it alleges that the law is discriminatory as applied rather than as written, this fact does not affect the equal protection analysis. See, e.g., Yick Wo v. Hopkins, 118 U.S. 356, 30 L. Ed. 220 (1886) (applying same equal protection standard where plaintiff claimed that a neutral law was being applied in a discriminatory fashion). In other words, Defendant is not claiming that the social security statutes instruct the FSMSSA to treat owners of construction companies differently from owners of other companies that are required to make disclosures and payments to the FSMSSA. Rather, Defendant argues that the social security laws, although neutral and non-discriminatory on their face, are being applied in a manner that discriminates against owners of construction companies that are in competition with the private business interests of the FSMSSA Administrator.

The Court recognizes the seriousness of Defendant's claim. The Court also is disturbed by the appearance of impropriety, and the potential conflict of interest, that is created by the FSMSSA Administrator's simultaneous involvement in a private business enterprise and in the affairs of the FSMSSA. In this case, however, the Defendant does not offer any evidence to support his contention. Instead, Defendant states merely that he can think of no reason for his being audited, other than the fact that he operates a company that competes directly with the company owned by the FSMSSA administrator. However, Defendant's unsubstantiated assertion, although disturbing, does not meet Defendant's burden under the rational relationship test. Accordingly, Plaintiff is entitled to summary judgment on Defendant's equal protection claim.

Defendant's final claim alleges that the entire FSM Social Security program is unconstitutional because it undermines Pohnpeian culture and tradition. According to Defendant, "Pohnpeians have inherent in their culture a social security system whereby the able-bodied members of the extended family take care of the disabled or incapacitated members of the extended family," and that the FSM social security program undermines the traditional, informal system by reducing the salaries from which the working family members can care for others.

Defendant's culture and tradition argument is not supported by any facts or law. Rather, the entire basis for Defendant's argument is the Defendant's own opinion. In contrast to that opinion is the collective opinion of the Congress of the FSM which has determined that a social security program would be beneficial to the security and well-being of the people of this nation. Accordingly, because Defendant failed to offer sufficient evidence that the customs and traditions of the FSM oppose the maintenance of a formal social security system, and because the FSMSSA complements, rather than undermines, the informal, customary social security system in Pohnpei, Defendant's claim was rejected.

1. In the administrative context, however, a warrant is not always required in order to force an individual to submit to an inspection. Rather, neither a warrant nor consent need be obtained in order to conduct an administrative inspection of a company involved in a highly regulated industries, such as liquor Colonnade Catering Corp. v. United States, 397 U.S. 72, 90 S. Ct. 774, 25 L. Ed. 2d 60 (1970) and guns, United States v. Biswell, 406 U.S. 311, 92 S. Ct. 1593, 32 L. Ed. 87 (1972). The theory behind this exception is that a warrant is not required because of the urgent public interest and the theory that the business has impliedly consented to warrantless searches by entering into a highly regulated industry.

2. Specifically, the September 6 letter clearly stated that the FSMSSA would subpoena the desired information if the Defendant decided not to cooperate with the requested audit. One of the bases for Defendant's counterclaim is that a subpoena is less intrusive than the audit conducted by the FSMSSA field representatives, and that Defendant would have preferred the FSMSSA to subpoena the records. Based on the fact that the FSMSSA informed the Defendant that they were willing to subpoena the records, the Court rejects Defendant's claim. Having been notified of the availability of this option, Defendant cannot now complain that he failed to choose it.

4. Even if the Court were inclined to review the constitutionality of the statutory scheme of the social security laws, it is plain that there is no constitutional violation. As stated above, the information gathering techniques of inspection and subpoena have long been recognized as a valid means of obtaining administrative information by administrative agencies. Moreover, when engaging in statutory interpretation, this Court, where possible, is obligated to interpret the statutory language so as to avoid any conflict with the Constitution. Ishizawa v. Pohnpei, 2 FSM Intrm. 67, 76 (Pon. 1985). Thus, even if Defendant were correct in arguing that a literal reading of the statutory language might run afoul of the Constitution, the preferred interpretation would be to read these statutes as requiring that any inspections be conducted in a reasonable, and therefore constitutional, manner.