Johnson v. California State Bd. of Accountancy

• Decision Date: 29 December 1995
• Docket Number: No. 92-16433,92-16433
• Citation: 72 F.3d 1427
• Parties: 96 Cal. Daily Op. Serv. 13, 96 Daily Journal D.A.R. 17 Ross A. JOHNSON, Plaintiff-Appellant, v. CALIFORNIA STATE BOARD OF ACCOUNTANCY, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1427

72 F.3d 1427

96 Cal. Daily Op. Serv. 13, 96 Daily Journal

D.A.R. 17

Ross A. JOHNSON, Plaintiff-Appellant, v. CALIFORNIA STATE BOARD OF ACCOUNTANCY, et al., Defendants-Appellees.

No. 92-16433.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Dec. 14, 1993.

Submission Vacated April 19, 1994.

Resubmitted July 6, 1994.

Memorandum Filed July 25, 1995.

Decided Dec. 29, 1995.

Norman C. Hile, Raul A. Ramirez, and Kathryn Doi, Orrick, Herrington & Sutcliff, Sacramento, California, for plaintiff-appellant.

Daniel E. Lungren, Atty. Gen. of the State of Cal.; Joel S. Primes, Supervising Deputy Atty. Gen., Sacramento, CA, on Briefs; Michael R. Granen, Deputy Atty. Gen., Los Angeles, CA, Oral Argument, for defendants-appellees.

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

Before: POOLE, BEEZER and KLEINFELD, Circuit Judges.

ORDER

The Defendant-Appellee's request for publication pursuant to Ninth Circuit Rule 36-2 is hereby GRANTED. Accordingly, all third-party requests for publication are also hereby GRANTED. The memorandum disposition filed July 25, 1995 in the above-captioned matter is redesignated as an authored opinion by Judge Cecil F. Poole.

OPINION

POOLE, Circuit Judge:

Ross A. Johnson appeals the district court's denial of his motion for a preliminary injunction. Johnson, who has been a certified public accountant (CPA) since 1974, sought to enjoin the California State Board of Accountancy (the Board) from investigating and disciplining him for violations of California Business and Professions Code Sec. 5061. ¹ Section 5061 prohibits those engaged in the practice of public accountancy from accepting commissions. Johnson alleges that California's prohibition on commissions is triggered by Johnson's use of constitutionally protected speech and therefore should be subject to a strict scrutiny test. Johnson argues that the district court erred in denying his motion for preliminary injunction because it erroneously applied a rational basis test rather than strict scrutiny. Because the district court correctly determined that Johnson did not have a fair chance of success on the merits, we affirm its denial of Johnson's motion for a preliminary injunction.

I. FACTUAL AND PROCEDURAL BACKGROUND

The parties do not dispute the facts. The Board has licensed and certified Johnson to practice public accountancy in California. The State of California has also licensed Johnson to sell real estate and insurance. The National Association of Securities Dealers has given Johnson licenses to sell securities. Johnson is affiliated with H.D. Vest Investment Securities, Inc., of Irving, Texas, a registered broker/dealer.

Johnson operates a solo accountancy practice in Sacramento, California. He regularly identifies himself as a CPA on his letterhead and business cards. Johnson does not perform audits or issue opinions requiring him to attest to the reliability, fairness, or accuracy of financial information. He regularly accepts commissions for the sale of real estate and the referral of investment products to his accounting clients.

Johnson requires all his clients to read and sign annually a letter which states that he receives cash commissions for the sale of investment securities and financial products, and that the client has no obligation to follow his recommendations. According to the Board of Accountancy, Johnson received over $40,000 in commissions during 1990-92 for the referral of investment products in limited partnerships in gas and oil leases, real estate, mortgage equipment leasing and mutual funds to his accounting clients. He also received over $29,000 in commissions during the same time period for referral of real estate products to his clients.

On July 25, 1991 the Board informed Johnson by letter that they were investigating him for possible violations of Section 5061. The parties eventually agreed to an investigatory interview in November 1991. On September 18, 1991 Johnson filed this action in the Eastern District of California. On September 20, 1991 Johnson moved for a preliminary injunction pending trial to prevent the Board from taking further investigatory or disciplinary action against him. The Board suspended action pending the district court's decision on the motion.

The district court denied the motion for a preliminary injunction on July 15, 1992 concluding that Johnson was not likely to succeed on the merits. Johnson filed this appeal on July 28, 1992. Johnson subsequently filed motions for a stay pending appeal with the district court and the court of appeals. The district court denied the motion on August 11, 1992 and this court denied the motion on August 24, 1992.

On November 9, 1992 the Board filed an Accusation against Johnson, charging him with unprofessional conduct for his violation of Section 5061. Hearings regarding the Accusation against Johnson were held before an Administrative Law Judge on June 14, June 15, July 14, July 22 and October 18, 1993.

We heard oral argument on December 14, 1993. The Supreme Court subsequently heard and decided Ibanez v. Florida Dep't of Business and Professional Regulation, Board of Accountancy, --- U.S. ----, 114 S.Ct. 2084, 129 L.Ed.2d 118 (1994), the case of an attorney/accountant/financial planner reprimanded by a state accountancy board under a similar statutory scheme. We vacated submission on April 19, 1994 in order to obtain the benefit of the Supreme Court's latest decision regarding commercial speech and regulated professions. In the meantime, on June 7, 1994, the Board adopted the extensive findings of the Administrative Law Judge and decided to discipline Johnson for accepting commissions by suspending Johnson's CPA license effective July 7, 1994. After the Board denied Johnson's petition for reconsideration he filed an emergency motion for a stay and a preliminary injunction of the Board's disciplinary action. We denied Johnson's emergency motion and resubmitted the case on July 6, 1994.

II. DISCUSSION

A. Standard of review

The grant or denial of a motion for a preliminary injunction lies within the discretion of the district court. We will reverse "only if the district court relied on an erroneous legal premise or abused its discretion." Sports Form, Inc. v. United Press Int'l, 686 F.2d 750, 752 (9th Cir.1982). See also Religious Technology Ctr., Church of Scientology Int'l, Inc. v. Scott, 869 F.2d 1306, 1309 (9th Cir.1989). Because the test for a preliminary injunction is "probable success on the merits" or "fair chance of success on the merits," our appellate decision "may provide little guidance as to the appropriate disposition on the merits." Sports Form, 686 F.2d at 753. Therefore, we do not reach the merits of the substantive determination of the free speech issue.

The question is limited to whether the district court abused its discretion in determining that Johnson's probability of success on the merits was low. Id. at 754. We hold that it did not.

B. Standards for preliminary injunctive relief

"The traditional equitable criteria for granting preliminary injunctive relief are (1) a strong likelihood of success on the merits, (2) the possibility of irreparable injury to plaintiff if the preliminary relief is not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of the public interest (in certain cases)." Dollar Rent A Car v. Travelers Indem. Co., 774 F.2d 1371, 1374 (9th Cir.1985). "Alternatively, a court may issue a preliminary injunction if the moving party demonstrates 'either a combination of probable success on the merits and the possibility of irreparable injury or that serious questions are raised and the balance of hardships tips sharply in his favor.' " Martin v. Int'l Olympic Comm., 740 F.2d 670, 675 (9th Cir.1984) (quoting William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 526 F.2d 86, 88 (9th Cir.1975) (emphasis in original)). Johnson urges this panel to focus on the second part of the alternative test because the balance of hardships tips sharply in Johnson's favor. However, Martin explicitly teaches that "[u]nder this last part of the alternative test, even if the balance of hardships tips decidedly in favor of the moving party, it must be shown as an irreducible minimum that there is a fair chance of success on the merits." Martin, 740 F.2d at 675. Consequently, we focus on Johnson's chance of success on the merits by examining his constitutional claims.

C. Probability of success on the merits.

1. California's accountancy regulations

In order to evaluate Johnson's argument that the district court erred in denying his motion for a preliminary injunction, we must first analyze how California regulates accountants. California's Business and Professions Code, contains the licensing and disciplinary regulations governing the practice of accounting. See Cal.Bus. & Prof.Code Secs. 5000-5173 (West 1990).

Except for temporary practice by certified public accountants (CPAs), public accountants (PAs), or their equivalent from another jurisdiction, California prohibits the practice of public accountancy without a valid permit from the Board. Id. Sec. 5050. Permits expire regularly every other year unless renewed. Id. Sec. 5070.5 In order to receive the Board's certification as a certified public accountant a person must fulfill demanding educational and professional experience requirements (Secs. 5081, 5081.1, 5083), as well as pass a certified public accountancy examination. Id. Sec. 5082. After notice and hearing the Board has power to revoke, suspend, or refuse to renew any permit or certificate which it grants, or censure the holder of such a permit or certificate for unprofessional conduct. Id. Sec. 5100. Unprofessional conduct includes "[w]illful violation of this chapter or any rule or regulation promulgated by the board under the authority granted under this chapter." Id. Sec. 5100(f).

The...