Earles v. State Bd. of Certified Public Accountants of Louisiana

• Citation: 139 F.3d 1033
• Decision Date: 24 April 1998
• Docket Number: No. 97-30159,97-30159
• Parties: 1998-1 Trade Cases P 72,135 Kenneth Don EARLES; Albert R. Leger; Joseph Michael Sledge, Plaintiffs-Appellees, v. STATE BOARD OF CERTIFIED PUBLIC ACCOUNTANTS OF LOUISIANA; Mildred W. McGaha, CPA: L. Paul Hood, CPA: Leon K. Poche, CPA: Lawrence W. Stoulig, Jr., CPA: Donald L. Moore, CPA: W. Theron Roberts, CPA: Michael A. Tham, CPA: Susan C. Cochran, CPA: J. Gordon Reische, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 1033

139 F.3d 1033

1998-1 Trade Cases P 72,135

Kenneth Don EARLES; Albert R. Leger; Joseph Michael

Sledge, Plaintiffs-Appellees, v. STATE BOARD OF CERTIFIED PUBLIC ACCOUNTANTS OF LOUISIANA;

Mildred W. McGaha, CPA: L. Paul Hood, CPA: Leon K. Poche,

CPA: Lawrence W. Stoulig, Jr., CPA: Donald L. Moore, CPA:

W. Theron Roberts, CPA: Michael A. Tham, CPA: Susan C.

Cochran, CPA: J. Gordon Reische, Defendants-Appellants.

No. 97-30159.

United States Court of Appeals, Fifth Circuit.

April 24, 1998.

Rehearing and Suggestion for Rehearing En Banc Denied June 3, 1998.

Glennon P. Everett, Crowley, LA, for Earles.

Donald B. Verrilli, Jr., Steven Nathan Berk, Jenner Block, Washington, DC, Sharon Cormack Mize, Sessions & Fishman, New Orleans, LA, for Plaintiffs-Appellees.

Robert J. Conrad, Jr., Mark Raymond Beebe, Ralph H. Wall, Adams & Reese, New Orleans, LA, for Defendants-Appellants.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before GARWOOD, DUHE and DeMOSS, Circuit Judges.

DeMOSS, Circuit Judge:

Rules promulgated by the State Board of Certified Public Accountants of Louisiana prohibit CPAs from accepting commissions and engaging in the practice of so-called "incompatible professions." These rules apply to Louisiana's CPAs and have been used to prevent the three plaintiffs in this lawsuit from carrying out their accounting practices while simultaneously selling securities. The plaintiffs sued the Board and its individual members, seeking to block the enforcement of these rules.

The defendants filed a motion to dismiss the lawsuit, claiming immunity from suit (1) under the Eleventh Amendment and (2) under the state-action exemption doctrine of federal antitrust laws. The motion was denied, and the defendants now seek interlocutory review. The Board is entitled to Eleventh Amendment immunity; however, the federal claims against the Board's individual members may proceed under the doctrine of Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). Finally, the state-action doctrine does block scrutiny of the Board's rules under federal antitrust laws. Accordingly, we affirm in part, reverse in part, and remand the matter with instructions for further proceedings in the district court.

I. Factual and Procedural Background

A. The Plaintiffs

Kenneth Don Earles, a CPA, has practiced as an accountant in Crowley, Louisiana since 1969. Beginning in 1987, he obtained the licenses necessary to become a securities broker and began practicing as a broker-dealer licensed with H.D. Vest Investment Securities, Inc. Mr. Earles earns commissions from his sales of securities. His securities business is kept separate from his accounting business, with separate books, records, and bank accounts.

In October 1988, the Board of Certified Public Accountants of Louisiana notified Mr. Earles that it considered his practice of concurrently acting as a CPA and a securities broker to be a violation of the Board's rules pertaining to "incompatible occupations" ¹ and "receipt of commissions." ² A series of communications ensued between the Board and Mr. Earles, culminating in a March 1990 administrative hearing on the Board's complaint.

In August 1990, the Board issued its decision finding Mr. Earles in violation of the rule proscribing the practice of incompatible occupations. Mr. Earles's future certification and licensure as a CPA were expressly conditioned upon cessation of his securities business. Mr. Earles responded by filing this lawsuit against the Board and its individual members in federal court. He also sought judicial review of the Board's decision in state court.

The federal suit was stayed pending state-court review. ³ In state court, the Board's ruling was initially overturned but later reinstated on appeal. See Earles v. State Bd. of Certified Pub. Accountants, 665 So.2d 1288 (La.Ct.App.1995), writ denied, 669 So.2d 397 (La.1996).

In August 1996, after Mr. Earles had exhausted his remedies in state court, the federal suit was reactivated. Soon thereafter, two additional plaintiffs joined the suit--Albert R. Leger, who had practiced as a CPA in Marksville, Louisiana since 1975, and Joseph Michael Sledge, who had practiced as a CPA in Shreveport, Louisiana since 1975. Like Mr. Earles, both Mr. Leger and Mr. Sledge are licensed securities brokers affiliated with H.D. Vest. Each also keeps his securities-related business separate from his accounting practice. In January 1997, Mr. Leger and Mr. Sledge were found by the Board to be guilty of violating the rules against practicing incompatible professions and receiving commissions. They were each fined, and their accounting licenses were revoked.

B. The Defendants

The defendants in this lawsuit are the Board of Certified Public Accountants of Louisiana and its individual members in their official capacities. The Board was created by the State of Louisiana for the purpose of licensing public accountants and regulating the profession of public accounting within the state. See LA.REV.STAT.ANN. §§ 37:73, 37:75 (West 1988 & Supp.1998). The Board's seven members are chosen by the governor from a slate of candidates proposed by the Society of Louisiana Certified Public Accountants, and they must be confirmed by the state senate. See id. § 37:73 (West 1988).

Among the powers of the Board is the ability to "[a]dopt 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." Id. § 37:75(B)(2). Pursuant to this power, the Board adopted the incompatible-occupations and receipt-of-commissions rules which gave rise to this lawsuit. ⁴

II. Appellate Jurisdiction

Pursuant to our precedent applying 28 U.S.C. § 1291 and the collateral order doctrine, ⁵ we have appellate jurisdiction to consider an interlocutory appeal from the denial of a motion to dismiss based upon immunities bestowed by the Eleventh Amendment and the state-action antitrust exemption. See Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 147, 113 S.Ct. 684, 689, 121 L.Ed.2d 605 (1993) (denial of Eleventh Amendment immunity is subject to interlocutory review); Martin v. Memorial Hosp., 86 F.3d 1391 (5th Cir.1996) (denial of the state-action exemption is subject to interlocutory review). ⁶

III. Eleventh Amendment Immunity

The United States Constitution provides: "The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State." U.S. CONST. amend. XI. The Eleventh Amendment thus negates federal jurisdiction over covered suits, including federal suits against a state brought by the citizens of that state. See Hans v. Louisiana, 134 U.S. 1, 10 S.Ct. 504, 33 L.Ed. 842 (1890).

Of course, the Board and its members are not the state itself. The scope of the Eleventh Amendment, however, is not limited to suits that name a state as a defendant. See, e.g., Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, ----, 117 S.Ct. 900, 903, 137 L.Ed.2d 55 (1997). The Eleventh Amendment bars any suit in which a state is the "real, substantial party in interest." Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 101, 104 S.Ct. 900, 908, 79 L.Ed.2d 67 (1984); see also Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 464, 65 S.Ct. 347, 350-51, 89 L.Ed. 389 (1945). We must thus decide whether the Board and its members satisfy this standard and thereby avoid suit.

A. The Board

The Board claims that because it is a "state agency," LA.STAT.REV.ANN. § 37:73(A) (West Supp.1998), it is entitled to Eleventh Amendment immunity. Federal law controls the Board's eligibility for Eleventh Amendment immunity. See Doe, 519 U.S. at ---- n. 5, 117 S.Ct. at 904 n. 5. State agencies are immunized by the Eleventh Amendment in certain circumstances. See, e.g., Pennhurst, 465 U.S. at 100, 104 S.Ct. at 907-08; Papasan v. United States, 756 F.2d 1087, 1092 (5th Cir.1985), aff'd in part, vacated in part sub nom. Papasan v. Allain, 478 U.S. 265, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986). Simply being a political subdivision of a state, however, is not enough. See Edelman v. Jordan, 415 U.S. 651, 667-68 n. 12, 94 S.Ct. 1347, 1358 n. 12, 39 L.Ed.2d 662 (1974). We must look to see whether the entity "in effect, stands in the shoes of the state itself." Hander v. San Jacinto Junior College, 519 F.2d 273, 278 (5th Cir.), modified on other grounds, 522 F.2d 204 (5th Cir.1975); see also Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 280, 97 S.Ct. 568, 572-73, 50 L.Ed.2d 471 (1977) (entity must be an "arm of the state"); Voisin's Oyster House, Inc. v. Guidry, 799 F.2d 183, 186 (5th Cir.1986) (entity must be an "alter ego" of the state). Our analysis must consider the particular nature of the entity, including its powers and duties, the nuances of its organizational structure, and its interrelationship with other organs of the state. See, e.g., Mt. Healthy, 429 U.S. at 280, 97 S.Ct. at 572-73; Jacintoport Corp. v. Greater Baton Rouge Port Comm'n, 762 F.2d 435, 438 (5th Cir.1985), cert. denied, 474 U.S. 1057, 106 S.Ct. 797, 88 L.Ed.2d 774 (1986); Laje v. R.E. Thomason Gen. Hosp., 665 F.2d 724 (5th Cir.1982); United Carolina Bank v. Board of Regents of Stephen F. Austin State Univ., 665 F.2d 553, 557 (5th Cir. Unit A 1982).

There is no simple litmus test that determines whether a state agency is an "arm of the state" for the purposes of Eleventh Amendment immunity. Rather, the matter is determined by reasoned judgment about whether the lawsuit is one which, despite the presence of a state agency as the nominal defendant, is effectively against the sovereign state. In determining whether a given state agency operates as an "arm of the state," our Court has taken many...