Criminal Procedure

Files Shared on Peer-to-Peer Network – No Reasonable Expectation of Privacy

State v. Baric, 2018 WI App 63 (filed 18 Sept. 2018) (ordered published 31 Oct. 2018)

HOLDINGS: 1) The defendant had no reasonable expectation of privacy in digital files that he publicly shared on a peer-to-peer (P2P) network. 2) The defendant voluntarily consented to a search of his computer devices.

SUMMARY: The defendant was convicted of two counts of possession of child pornography. Among the issues on appeal was whether the police conducted an illegal, warrantless search when they viewed files the defendant offered for download on a P2P file sharing network. “P2P file sharing is a means by which computer users share digital files with other users around the world. The only requirements to access a P2P file sharing network are that a user have an internet connection and P2P software” (¶ 2).

In this case police officers ultimately were led to the defendant and his computer after using a software program to conduct an automated search of P2P file sharing networks for known files of child pornography.

In a decision authored by Judge Seidl, the court of appeals concluded that the defendant had no objectively reasonable expectation of privacy in the files he publicly shared on a P2P file sharing network (see ¶ 21). The software used by the police “did nothing more than conduct an automated search that any member of the public could have performed manually to find the files on [the defendant’s] computer” (¶ 24).

Courts in other jurisdictions have uniformly reached the conclusion that individuals have no objectively reasonable expectation of privacy in files shared on P2P networks (see ¶ 22). “In sum, we hold that there is no reasonable expectation of privacy in digital files that are publicly shared on a P2P network” (¶ 26).

On the facts of this case the court also concluded that the defendant voluntarily consented to a search of his computer devices by police officers (see ¶ 39).

Municipal Law

Railroads – Federal Preemption – Regulations

City of Weyauwega v. Wisconsin Cent. Ltd., 2018 WI App 65 (filed 20 Sept. 2018) (ordered published 31 Oct. 2018)

HOLDING: Under federal preemption doctrine, the court struck down a city ordinance that prohibited trains from obstructing traffic for more than 10 minutes.

SUMMARY: A city enacted a municipal ordinance that prohibited trains from blocking local roadways for more than 10 minutes. The defendant railroad received numerous citations for violating this ordinance; the city and the railroad agreed to litigate one of them to resolve the underlying legal issues. The circuit court ruled that the railroad had violated the ordinance, also rejecting the railroad’s contention that the Federal Railroad Safety Act (FRSA) preempted the city’s ordinance.

The court of appeals, in an opinion authored by Judge Fitzpatrick, reversed the circuit court, concluding that the FRSA preempts the city’s ordinance. The appeal turned on the application of several “saving clauses” in the FRSA, which the city claimed authorized the ordinance. The court declined to resolve several preliminary issues, such as whether a city ordinance is a “state” law for purposes of the clauses and whether a “presumption against pre-emption” applied (¶¶ 21, 27).

The court next took up the two saving clauses. The first clause required the court to determine 1) whether the ordinance related to railroad safety, 2) the subject matter of the ordinance, and 3) whether federal regulations “cover” the subject matter. The ordinance clearly related to safety, but such “anti-blocking laws” have as their subject matter the operation and movement of trains at crossings, not health and safety concerns (¶ 41). Examining the federal regulations, which the court discussed in some detail, the court held that they “covered” the subject matter of the local ordinance. Thus, there is no exception to preemption under the first saving clause (see ¶ 50).

Nor did the second saving clause apply. The ordinance did “not address an essentially local safety hazard,” as required by one element of the clause (¶ 52).

Taxation

State Occupational Tax – Sales of Intoxicating Liquors

Arty’s LLC v. Wisconsin Dep’t of Revenue, 2018 WI App 64 (filed 13 Sept. 2018) (ordered published 31 Oct. 2018)

HOLDINGS: 1) The petitioner incurred occupational tax liability when it sold its product (premixed cocktails) to its wholesaler customers and the entire volume of each bottle of premixed cocktails was taxable as an intoxicating liquor. 2) The petitioner failed to establish that the relevant statutes, as interpreted in this case by the Tax Appeals Commission and by the court of appeals, on their face violate the constitutional guarantee of equal protection of the laws.

SUMMARY: Arty’s LLC mixes various types of distilled spirits with soda, water, and various flavorings to produce seven-ounce bottles of “premixed cocktails.” Arty’s sells its bottled products to liquor wholesalers, who then sell them to retailers. Arty’s buys in bulk from a distillery the various distilled spirits that it uses to create its products.

It was undisputed that these activities of Arty’s involve sales of “intoxicating liquors” (Wis. Stat. § 125.02(8)) and that sales of intoxicating liquors are subject to a state occupational tax (Wis. Stat. § 139.03(2m)). An occupational liquor tax is a tax on the privilege to sell intoxicating liquors and applies only to intoxicating liquor in possession of persons who are engaged in the business of selling intoxicating liquor; it is a tax on sales of liquor – not an excise tax on the liquor itself (see ¶ 23).

In this case Arty’s and the Wisconsin Department of Revenue disputed two closely related questions regarding the liability of Arty’s for the intoxicating liquor occupational tax. “When does Arty’s incur liability, and how much of the contents of each bottle is subject to the tax?” (¶ 2).

The department argued that Arty’s should incur tax liability when it sells its mixtures in bottles to wholesalers and that the taxes should be calculated based on the entire contents of each bottle (both alcohol and nonalcohol ingredients). Arty’s responded that it should incur liability when it purchases distilled spirits in bulk from a distiller and that taxes should be calculated later based only on the distilled spirits portion of the contents of each bottle.

The Tax Appeals Commission agreed with the department’s statutory interpretation. Arty’s petitioned for judicial review, and the circuit court affirmed the commission’s ruling and order.

In a decision authored by Judge Blanchard, the court of appeals agreed with the commission and accordingly affirmed the circuit court on this statutory interpretation issue. “We conclude that the tax liability is incurred when Arty’s sells to its customer wholesalers, and that the entire volume of each bottle is taxable as an intoxicating liquor” (¶ 3).

Arty’s also made a constitutional argument that, if the commission is correct in its statutory interpretation, the statutes on their face violate the constitutional guarantee of equal protection of the laws, because sellers of intoxicating liquor pay higher occupational tax rates than sellers of wines or beers containing the same or higher alcohol contents, without a rational basis to justify this distinction.

The appellate court disagreed, concluding that “Arty’s fails to demonstrate that there is no rational basis for the legislation. We discern a rational basis in the pursuit of the efficient and effective collection of the taxes for the benefit of the public, including deterring and detecting tax cheating” (¶ 5).