Moore v. California State Bd. of Accountancy

• Decision Date: 02 July 1992
• Docket Number: No. S017399,S017399
• Citation: 9 Cal.Rptr.2d 358,831 P.2d 798,2 Cal.4th 999
• Parties: , 831 P.2d 798 Bonnie MOORE et al., Plaintiffs, Cross-defendants and Appellants, v. CALIFORNIA STATE BOARD OF ACCOUNTANCY, Defendant, Cross-complainant and Respondent.
• Court: California Supreme Court

Page 358

9 Cal.Rptr.2d 358

2 Cal.4th 999, 831 P.2d 798

Bonnie MOORE et al., Plaintiffs, Cross-defendants and Appellants, v. CALIFORNIA STATE BOARD OF ACCOUNTANCY, Defendant, Cross-complainant and Respondent.

No. S017399.

Supreme Court of California,

In Bank.

July 2, 1992.

Rehearing Denied Aug. 27, 1992.

Kronick, Moskovitz, Tiedemann & Girard, Leonard M. Friedman, Sacramento, and Ralph C. Alldredge, San Francisco, for plaintiffs, cross-defendants and appellants.

Robert C. Fellmeth, Julianne B. D'Angelo, San Diego, Gerald J. Thain, Madison, Wis., William H. Sager and James G. Seely, San Francisco, as amici curiae on behalf of plaintiffs, cross-defendants and appellants.

John K. Van de Kamp and Daniel E. Lungren, Attys. Gen., and Wilbert E. Bennett, Deputy Atty. Gen., for defendant, cross-complainant and respondent.

BAXTER, Justice.

We granted review in this case to determine whether persons unlicensed by the State Board of Accountancy (Board), the public agency charged with administering the regulatory scheme governing the profession of public accountancy in California (Bus. & Prof.Code, § 5000 ¹ et seq., commonly known as the Accountancy Act), may hold themselves out to the public as "accountants," or as persons qualified and lawfully able to offer "accounting" services for compensation.

As will be shown, under California's regulatory scheme, accounting activities falling within the statutory definition of the "practice of public accountancy" are reserved to the Board's licensees. "Public accountancy" is broadly defined; a person is deemed to be practicing public accountancy, and is thus subject to the jurisdiction and licensing requirements of the Board, if the person does any of the following: "[h]olds himself or herself out to the public in any manner as one skilled in the knowledge, science and practice of accounting, and as qualified and ready to render professional service therein as a public accountant for compensation" (§ 5051, subd. (a), italics added); "[o]ffers to prospective clients to perform for compensation ... professional services that involve or require an audit, examination, verification, investigation, certification, presentation, or review, of financial transactions and accounting records" (id., subd. (c)); or "[i]n general or as an incident to that work, renders professional services to clients for compensation in any or all matters relating to accounting procedure and to the recording, presentation, or certification of financial information or data" (id., subd. (e), italics added).

In contrast, unlicensed persons may offer to the public only a limited category of basic accounting services when performed "as a part of bookkeeping operations." (§§ 5051, subd. (f), 5052.) Furthermore, they may not assume or use any title or designation "likely to be confused" with the two official titles reserved for licensed accountants: "certified public accountant" and "public accountant." (§ 5058.) Exercising the rulemaking authority granted to it in the Accountancy Act, the Board has adopted a regulation which prohibits the use of either the title "accountant" or the description of services offered as "accounting" by an unlicensed person. (Cal.Code of Regs., tit. 16, sec. 2 [hereafter Regulation 2].) Appellants contend that in so doing the Board exceeded its authority, that the regulation is therefore invalid, and that even if the regulation is permissible under section 5058, the restriction denies them rights under the First Amendment to the United States Constitution.

California's statutory scheme reserves the practice of public accountancy to the Board's licensees--persons who have been certified as qualified to offer and perform the full gamut of accounting services, and whose educational, experience, and ethical qualifications have been established as a prerequisite to licensing. To protect members of the public from the unlicensed practice of public accountancy, section 5058 prohibits the use by an unlicensed person of any designation or term describing the person's profession, or services he or she offers, that is likely to cause a layperson to believe that the provider is licensed. Thus, the section expressly prohibits the use by an unlicensed person of any designation that is "likely to be confused with 'certified public accountant' or 'public accountant.' "

The Board has determined that the terms "accountant" and "accounting" are misleading to members of the public, many of whom believe that a person who uses these terms must be licensed. For the reasons explained below, we conclude that the adoption and enforcement of Regulation 2 is a proper exercise of the Board's authority to administer the Accountancy Act, and, in particular, section 5058. We further conclude, however, that the regulatory scheme may constitutionally ban only those uses of the terms "accountant" and "accounting" that may potentially mislead the public regarding the user's licensee or nonlicensee status. Where the terms are used in conjunction with a modifier or modifiers that serve to dispel any possibility of confusion--for example, an express disclaimer stating that the "accounting" services being offered do not require a state license--their use in such a context may not be constitutionally enjoined.

I Facts and Procedural Background

In 1986, appellants Bonnie Moore, an unlicensed individual, Accounting Center, a California corporation of which Moore is president, and the California Association of Independent Accountants (CAIA), a nonprofit membership organization affiliated with the National Society of Public Accountants (NSPA), collectively filed suit against respondent Board for declaratory relief and a permanent injunction. (Code Civ.Proc., § 1060.) The complaint alleged that Moore had received a letter from the Board ordering her and Accounting Center to cease and desist from using the terms "accountant" and "accounting" in referring to herself, the business of Accounting Center, or the services she offered to the public. The complaint further alleged that resolution of the question of whether the Board may constitutionally prohibit use of generic terms such as "accountant" and "accounting" by unlicensed individuals will affect thousands of other unlicensed persons practicing throughout the state of California. At that time approximately 700 such individuals were members of CAIA, and the officers and directors of CAIA joined the lawsuit to challenge the Board's actions on behalf of CAIA's membership. The complaint sought a declaratory judgment that the Board may not constitutionally enjoin or prohibit appellants or members of CAIA from using the terms "accountant" and "accounting" in referring to unlicensed persons or the services rendered by them, and a permanent injunction ordering the Board to cease all enforcement actions against the use of those terms.

After its demurrer to the complaint was overruled, respondent Board filed an answer and a cross-complaint for injunctive relief against the named plaintiffs plus 2,000 Doe defendants. Does 1 through 1,000 were designated California members of CAIA, and Does 1,001 through 2,000 were designated as individuals who "have transacted and continue to transact business in the County of San Francisco and elsewhere in the State of California." The cross-complaint alleged that the cross-defendants were engaged in the practice of public accountancy and of tax preparation within California, yet were not licensed as public accountants or certified public accountants. The first amended cross-complaint prayed in part that cross-defendants be enjoined from using the words "accountant," "accounting," or "accounting services" in referring to themselves or their businesses, or representing themselves as "accountants" in any other manner which would tend to mislead or confuse the public.

During the ensuing court trial, evidence was introduced establishing that Moore possesses a college degree with a major in accounting. She has never taken the examination to become a certified public accountant (CPA), nor is she interested in doing so. Respondent Board concedes she meets the educational eligibility requirements for the CPA examination, but not the experience requirement for licensure. As a practical matter, in order to satisfy the latter requirement--two years of public accounting experience under the supervision of a licensed accountant (§§ 5081.1, 5083)--she would have to secure employment with a CPA for at least two years.

Accounting Center primarily designs and installs basic accounting systems for small business clients. Once the system is set up, bookkeepers service the accounts, supervised by degreed accountants. The firm prepares monthly financial statements and long-range financial projections for its clients in furtherance of budgetary control and sound financial management practices. In a generic sense, the firm "audits" its client's books for internal purposes, although it does not produce formal signed audits. Moore conceded she is not qualified to perform the type of formal audits that a CPA does, nor is she qualified to perform services that require a certification of financial statements.

Moore uses the terms "accountant" and "accounting" to describe herself and her services in 90 percent of her advertising. She refers to her business on building directories, in the telephone directory, and in radio and television advertising as "Accounting Center."

Like Moore, none of the various officers or members of CAIA who testified at trial have ever passed the CPA examination. Ronald Duffin, a former president of CAIA, operates an accounting and tax service Edwin Greenstreet, another former president of CAIA, operates a tax, accounting and bookkeeping business. John Jenkins, president-elect of CAIA at the time of trial, owns a bookkeeping and income tax business. Among other services, he prepares reports that are filed with various...