95-0505 La.App. 4 Cir. 12/14/95, Earles v. State Bd. of Certified Public Accountants of Louisiana
| Decision Date | 14 December 1995 |
| Citation | 665 So.2d 1288 |
| Parties | 95-0505 La.App. 4 Cir |
| Court | Court of Appeal of Louisiana — District of US |
Alan D. Ezkovich, Sharon Cormack Mize, Sessions & Fishman, L.L.P., New Orleans, and Donald B. Verrilli, Jr., and Steven N. Berk, Jenner & Block, Washington, D.C., for Plaintiff.
Robert J. Conrad, Jr., Adams and Reese, New Orleans, for Defendant.
Christopher M. Guidroz and Charles C. Coffee, Simon, Peragine, Smith & Redfearn, New Orleans, Amicus Curiae--the Society of Louisiana Certified Public Accountants.
Before LOBRANO, ARMSTRONG and WALTZER, JJ.
[95-0505 La.App. 4 Cir. 1] ARMSTRONG, Judge.
This is an action for judicial review of a decision of the State Board of Certified Public Accountants of Louisiana ("the Board"). Petitioner Don Earles is a certified public accountant ("CPA") and also a securities broker. The Board is a state agency which regulates CPA's. See La.R.S. 37:71-88. See generally Accountants' Ass'n of Louisiana v. State, 487 So.2d 155 (La.App. 4th Cir.1986). The Board has promulgated Rules of Professional Conduct, pursuant to its statutory authority, La.R.S. 37:75. B(2), which CPAs must follow. The Board decision at issue found that Mr. Earles was violating the rule on "incompatible occupations," La.Admin.Code 46: XIX. 501(E), by representing the same clients as both a CPA and a commission-compensated securities broker.
Mr. Earles brought this action for judicial review of the Board's decision. The facts are uncontested and, in particular, the parties agree that Mr. Earles does represent some of the same clients as both a CPA and as a commission-compensated securities broker. However, the trial court found that the Board's decision was erroneous and vacated it. We find that, under the standards for judicial review of an administrative agency action, La.R.S. 49:964. G, the Board [95-0505 La.App. 4 Cir. 2] committed no reversible error and so we reinstate the Board's decision. We note that there appear to be no previous reported decisions addressing the Board's "incompatible occupations" rule, so the trial court had no case law to follow. Hopefully, this present opinion will provide some guidance for future cases involving the Rule.
Mr. Earles argues that the Board's decision should be vacated because the decision was made in excess of the Board's statutory authority and because the decision was arbitrary and capricious or an abuse of discretion. The Administrative Procedure Act provides, in pertinent part, that:
The court may reverse or modify the decision [of the agency] if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:
* * * * * *
(2) In excess of the statutory authority of the agency;
* * * * * *
(5) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion [.]
La.R.S. 49:964. G(2) and (5).
The Board derives its authority to adopt and enforce its Rules of Professional Conduct from the Public Accountancy Law which states in pertinent part:
The Board may:
* * * * * *
(2) Adopt and enforce all rules and regulations, bylaws, and rules of Professional conduct as the board may deem necessary and proper to regulate the practice of public accounting in the state of Louisiana [.]
La.R.S. 37:75. B(2) (emphasis added).
The Board's "incompatible occupations" Rule states in pertinent part:
A licensee shall not concurrently engage in the practice of public accountancy and in any other business or [95-0505 La.App. 4 Cir. 3] occupation which impairs his independence or objectivity in rendering professional services [.]
La.Admin.Code 46: XIX. 501(E) (emphasis added).
Mr. Earles' brief expressly concedes that the Board did not act improperly in adopting its "incompatible occupations" Rule. He challenges only the Board's application of the Rule to him.
The Board's decision is entitled to a strong presumption of validity because of the Board's accounting expertise. Wilcox v. Louisiana State Board of Medical Examiners, 446 So.2d 502, 506 (La.App. 4th Cir.1984); Fisher v. Louisiana State Board of Medical Examiners, 352 So.2d 729, 732 (La.App. 4th Cir.1977), writ denied, 353 So.2d 1338 (La.1978). Also, as a matter of common sense, the Board's interpretation of its own Rule is entitled to at least some deference. Cf., eg., Chevron, U.S.A. v. N.R.D.C., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984) ().
The Board's very detailed written opinion makes it clear that the Board was concerned that Mr. Earles' serving a client as a commission-based securities broker creates a conflict-of-interest as to Mr. Earles' serving the same client as a CPA. A CPA must exercise professional judgment as to the financial affairs of a client. That professional judgment must not be affected, not even subconsciously, by the prospect of financial gain to the CPA. If the CPA is receiving commissions on the financial transactions of the client (in this case, securities transactions) then there is the potential, or at least the appearance, that the CPA's judgment as to the client's financial affairs could be affected by the CPA's self-interest. To use a crude example, if the CPA, as a commission-compensated securities broker, had a tax-sheltered security available to sell to the client, and the CPA was giving the client tax-planning advice as a CPA, there [95-0505 La.App. 4 Cir. 4] could never be certainty that the tax-planning advice was unaffected by the possibility of a commission on the client's purchase of the tax sheltered security.
The Board's decision describes the issue as one of "professional objectivity" of the CPA and then reasons:
While independence may not be a necessary characteristic of all accountant-client relationships, professional objectivity is. Rule 501(E), thus, deals not only with other pursuits which may impair independence but also with non-accounting businesses and occupations which may impair objectivity. In doing so, the rule proscribes a concurrent activity which gives rise to a conflict of interest in serving the client; it requires abstention from any other business or interest which would actually or potentially affect the CPAs impartial and objective judgment on behalf of the client. It is our opinion that concurrent service of a client as a certified public accountant and securities broker falls into this category, clearly bearing the potential for impairment of objectivity even when accounting services are limited to compilation of financial statements, general bookkeeping and tax return preparation and advice. As the Board's Executive Director noted in advising Mr. Earles some two years ago, given such a dual relationship, "[i]t simply could not be said that the CPA's judgment ... was impartial and objective when such advice [might] determine whether or not the CPA was to receive brokerage commissions."
Board Decision August 23, 1990 at 6 (footnotes, citations omitted).
Mr. Earles' brief points out the distinction between a CPA's audit and other "attest" services, by which the CPA provides services in connection with the client's financial statements which are to be furnished to or used by third parties, and "non-attest" services which involve only the CPA and client and not third parties. Mr. Earles' brief asserts that CPA "independence" from the client is necessary to audit and other attest services but not to non-attest services such as tax return preparation, investment advice and financial statement compilations (not audited) and bookkeeping services. However, the above-quoted portion of the [95-0505 La.App. 4 Cir. 5] Board's decision found not only independence (from the client), but also "objectivity" (to the client), to be a concept addressed by the "incompatible occupations" Rule. The Board also stressed that objectivity was necessary for non-attest CPA services. In any event, Mr. Earles' brief expressly concedes: "Earles, however, recognizes the need to maintain objectivity while performing non-attest services for his clients." (...
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