Lincoln Bank & Trust Co. v. Oklahoma Tax Commission
63 O.B.A.J. 470, 1992 OK 22, 827 P.2d 1314 (1992)
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Rule of Law:
For the singular purpose of enforcing the Uniform Disposition of Unclaimed Property Act, a state's tax commission qualifies as a "supervisory agency" and is thus not barred by financial privacy laws from inspecting a bank's records. The "reason to believe" standard required to initiate such an administrative inspection is satisfied by showing the inspection is part of a general, neutral enforcement plan, not by the criminal law standard of probable cause.
Facts:
- The Oklahoma Tax Commission (Commission) believed Lincoln Bank and Trust Company (Lincoln) was holding unreported abandoned property under the Uniform Disposition of Unclaimed Property Act.
- The Commission's belief was based on Lincoln's reporting history, which included no reports filed for 1978 and 1979, 'negative' reports filed for 1980 and 1981, and a reporting pattern inconsistent with similarly sized banks.
- In a letter dated August 26, 1986, the Commission notified Lincoln of its intent to inspect certain financial records to verify compliance with the Act.
- In a subsequent letter dated September 9, 1986, the Commission requested that Lincoln make available various documents, including the general ledger and records of dormant accounts.
- Lincoln refused to produce any of the requested materials.
- The Unclaimed Property Act requires holders of property presumed abandoned, including banks, to report and deliver such property to the Commission.
- Evidence from the Commission's statewide inspection program showed that noncompliance with the Act was widespread, and of 75 banks that had been examined, all had unreported abandoned property.
Procedural Posture:
- Lincoln Bank and Trust Company brought suit in the district court seeking to quash the Oklahoma Tax Commission's administrative process for inspection of financial records.
- The district court issued a preliminary injunction barring the Commission from examining Lincoln’s records pending a final determination.
- Following a trial on the merits, the district court issued a permanent injunction in favor of Lincoln, finding the Commission had no reason to believe the bank had failed to comply with the Act.
- The Oklahoma Tax Commission (appellant) appealed the district court's issuance of the permanent injunction to the Supreme Court of Oklahoma.
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Issue:
Does the Oklahoma Financial Privacy Act prohibit the Oklahoma Tax Commission from inspecting a state bank's financial records to search for unreported property presumed abandoned under the Uniform Disposition of Unclaimed Property Act?
Opinions:
Majority - Opala, Chief Justice
No, the Financial Privacy Act does not prohibit the Oklahoma Tax Commission from inspecting a bank's records for the limited purpose of enforcing the Unclaimed Property Act. For this singular mission, the Commission qualifies as a 'supervisory agency,' which is exempt from the Financial Privacy Act's restrictions. The legislature's intent is evident as it has consistently included banks under the Unclaimed Property Act and expanded the Commission's enforcement powers even after the Financial Privacy Act was enacted. Furthermore, no privacy interest exists in property that is legally presumed abandoned. The Commission's inspection authority is not purely discretionary; it must have a 'reason to believe' a violation occurred. This standard is met not by criminal probable cause, but by showing the inspection is part of a 'general administrative plan for the enforcement of the Act derived from neutral sources,' which the Commission demonstrated through evidence of widespread noncompliance and Lincoln's own inconsistent reporting history.
Dissenting - Simms, Justice
Yes, the Financial Privacy Act was enacted to prevent the precise governmental invasion of privacy that the majority allows. The Act provides the exclusive lawful procedure for obtaining access to customer financial records, requiring either customer consent or a subpoena, neither of which the Commission obtained. Bank customers have a reasonable, constitutionally-dimensioned expectation of privacy in their records. The legislatively designated supervisory agency for banks is the Oklahoma Banking Department, not the Tax Commission. The majority's decision to create the Commission as a 'supervisory agency' for this purpose is an 'ill-advised gratuity' that grants the government unbridled power to peruse the private financial affairs of citizens, contrary to the explicit protections of the Financial Privacy Act.
Analysis:
This decision carves out a significant exception to state financial privacy laws, strengthening the enforcement power of state agencies tasked with recovering unclaimed property. By classifying the Tax Commission as a 'supervisory agency' for a singular, specific purpose, the court allows it to bypass the typical consent or subpoena requirements for accessing private financial records. This creates a powerful precedent that could be argued in other contexts where a regulatory agency's mission conflicts with general privacy statutes. The ruling lowers the bar for administrative searches in this area, confirming that a 'reasonable belief' can be established through neutral, data-driven administrative plans rather than specific evidence of wrongdoing against a particular entity.
