State Bd. of Account. v. Integrated Fin.

• Decision Date: 24 June 2008
• Docket Number: No. SC 89037.,SC 89037.
• Citation: 256 S.W.3d 48
• Parties: STATE BOARD OF ACCOUNTANCY, Appellant, v. INTEGRATED FINANCIAL SOLUTIONS, L.L.C., Respondent.
• Court: Missouri Supreme Court

256 S.W.3d 48

STATE BOARD OF ACCOUNTANCY, Appellant, v. INTEGRATED FINANCIAL SOLUTIONS, L.L.C., Respondent.

No. SC 89037.

Supreme Court of Missouri, En Banc.

June 24, 2008.

Samantha Anne Harris, Hearne & Greene, Jefferson City, Stanley D. Davis, Shook, Hardy & Bacon, L.L.P., Kansas City, for Appellee.

Dennis K. Hoffert, Stefan J. Glynias, Lashly & Bauer, P.C., St. Louis, for Respondent.

STEPHEN N. LIMBAUGH, JR., Judge.

The issue presented in this appeal is whether the Missouri State Board of Accountancy may exercise its discretion to deny a permit to a public accounting firm based on the criminal conduct of a 49% shareholder that occurred before the formation of the firm. After the Administrative Hearing Commission (AHC), the Circuit Court of Cole County, and the Court of Appeals answered that question in the negative, this Court granted transfer. Mo. Const. art. V, sec. 10. The judgment is reversed.

I. Facts and Procedural History

In 1999, Carl Kossmeyer pled guilty to wire fraud in federal court, admitting as part of the plea that he "knowingly participated in a scheme and artifice to defraud and to obtain money by means of false and fraudulent pretenses, representations, and promises." The facts, as stipulated by Kossmeyer, involved a marketing scheme through which Kossmeyer and his partner marketed an instruction course that promised to teach buyers how to acquire businesses using none of their own money. Clients had the option of taking a training course by home study for $495 or in person for as much as $7500. Kossmeyer also authored and marketed a book titled "How to Buy or Start Any Kind of Business Without Any of Your Own Cash." The cover of the book displayed a photo of Kossmeyer and his CPA title. Further, Kossmeyer and his partner prepared a promotional video and distributed it to potential buyers. All of these materials contained false statements of "success stories" from former "clients" who attributed their business accomplishments to Kossmeyer's instruction.

In 2001, the Board of Accountancy revoked Kossmeyer's license to practice as a CPA in the state of Missouri, finding that Kossmeyer's CPA license was subject to discipline under section 326.130.2(2), RSMo 2000 (repealed 2001), because his guilty plea to fraud demonstrated a lack of moral character. Pursuant to section 536.120, RSMo 2000, the revocation was stayed during the ensuing administrative and judicial appeals. However, the revocation of Kossmeyer's license became final on September 26, 2006.

In February 2005, before the revocation became final, Kossmeyer and two other CPAs formed Integrated Financial Solutions, LLC (IFS), and applied for a certified public accountant firm permit under section 326.289, RSMo Supp.2005. The permit application listed three licensed shareholders: Steven Strauss, Judy Elias, and Carl Kossmeyer. With a 49% interest, Kossmeyer was the largest shareholder, while Strauss and Elias owned 40% and 11%, respectively. All three owners would provide professional services to their clients in Missouri. Strauss and Elias were both CPAs, licensed and in good standing, and prior to the formation of IFS, they operated their own CPA firm, Straus & Elias, P.C.

The Board denied IFS's application by a letter dated March 4, 2005, citing Kossmeyer's association with the firm, his conviction for fraud, and the stayed revocation of his license as the basis therefor. Further, the Board found that because Kossmeyer's scheme involved his status and expertise as a licensed CPA, the admitted fraud, misrepresentation, and dishonesty bore directly on his "performance of the functions or duties of a CPA." The Board then concluded that "Mr. Kossmeyer's criminal conviction and the underlying conduct related to his criminal offense reflect adversely on the firm as a whole and demonstrates the firm's lack of fitness to engage in the practice of accounting." The Board also noted that "revocation [of Kossmeyer's license], once imposed, would be an additional basis for the denial of this application pursuant to sections 326.310.3 and 326.289.4(1)."

The AHC reversed, ordering the Board to issue the permit to IFS. The AHC reasoned that while conviction of a felony is certainly grounds for denial of a permit under section 326.310.2(2), Kossmeyer's conduct occurred prior to the formation of IFS and, therefore, could not be considered in determining whether the firm met licensing standards. Furthermore, the AHC found that the pending revocation of Kossmeyer's license was not ground for denial because section 326.289.4 only requires that licensed CPAs make up "a simple majority of the ownership of the firm, in terms of financial interests and voting rights." The Board then brought this appeal.

II. Standard of Review

On appeal, this Court reviews the decision of the agency, not the circuit court. Tendai v. State Bd. of Reg. for Healing Arts, 161 S.W.3d 358, 365 (Mo. banc 2005). The standard of review is de novo. Id. "To the extent that [the] conclusions of law contain statements of fact or ultimate fact, the Court defers to the commission as fact finder if the conclusions are supported by competent and substantial evidence when considering the record as a whole." Id.; see section 536.140.2, RSMo 2000. However, no deference is given the AHC's decisions on questions of law, "which are matters for this Court's independent judgment." Gott v. Dir. of Revenue, 5 S.W.3d 155, 157 (Mo. banc 1999).

III. Analysis

Chapter 326, the Missouri Accountancy Act, regulates CPAs and the accounting profession and establishes the Board of Accountancy. A statement of policy set out in section 326.253, RSMo Supp.2007, makes clear the Board's purpose: to protect the public by ensuring the integrity of the CPA profession. This necessarily requires the Board to examine the fitness of those who would offer professional advice as CPAs, whether individually or as members of an accounting firm. The applicant for professional licensure bears the burden of proving that it meets the statutory requirements for a firm permit. Francois v. State Bd. of Reg. for Healing Arts, 880 S.W.2d 601, 603 (Mo. App.1994) (holding that reinstatement of revoked license was not proper where licensee failed to demonstrate rehabilitation of his moral character after conviction of a felony).

A.

In denying IFS's application for a firm "permit," which is defined in section 326.256.1(15), RSMo Supp.2007, as "a permit to practice as a certified public accountant firm pursuant to section 326.289," the Board invoked sections 326.310 and 326.280, RSMo Supp.2007. Section 326.310 states:

1. The board may refuse to issue any license or permit required pursuant to this chapter for one or any combination of causes stated in subsection 2 of this section. . . .

2. The board may file a complaint with the administrative hearing commission as provided by chapter 621, RSMo, or may initiate settlement procedures as provided by 621.045, RSMo, against any certified public accountant or permit holder required by this chapter or any person who fails to renew or surrenders the person's certificate, license or permit for any one or any combination of the following causes:

. . . .

(2) The person has been finally adjudicated and found guilty, or entered a plea of guilty or nolo contendere, in a criminal prosecution under the laws of any state or of the United States, for any offense reasonably related to the qualifications, functions or duties of any profession licensed or regulated pursuant to this chapter, for any offense an essential element of which is fraud, dishonesty or an act of violence, or for any offense involving moral turpitude, whether or not sentence is imposed;

. . . .

(5) Incompentency, misconduct, gross negligence, fraud, misrepresentation or dishonesty in the performance of the functions or duties of any profession licensed or regulated by this chapter;

(6) Violation of, or assisting or enabling any person to violate, any provision of this chapter or any lawful rule or regulation adopted pursuant to this chapter;

. . . .

(13) Violation of any professional trust or confidence[.]

Section 326.280, which informs section 326.310, states:

1. A license shall be granted by the board to any person who meets the requirements of this chapter and who:

. . . .

(3) Is of good moral character[.]

IFS contends, however, that sections 326.310 and 326.280 are inapplicable to its application for an initial permit as a CPA firm under section 326.289. That section states:

1. The board may grant or renew permits to practice as a certified public accounting firm to entities that make application and demonstrate their qualifications in accordance with this section or to certified public accounting firms originally licensed in another state that establish an office in this state. A firm should hold a permit issued pursuant to this section to provide attest, review or compilation services or to use the title certified public accountant or certified public accounting firm.

. . . .

4. An applicant for initial issuance or renewal of a permit to practice pursuant to this section shall be required to show that:

(1) Notwithstanding any other provision of law to the contrary, a simple majority of the ownership of the firm, in terms of financial interests and voting rights of all partners, officers, principals, shareholders, members or managers, belongs to licensees who are licensed in some state, and the partners, officers, principals, shareholders, members or managers, whose principal place of business is in this state and who perform professional services in this state are licensees pursuant to section 326.280 or the corresponding provision of prior law. Although firms may include nonlicensee owners, the firm and its ownership shall comply with rules promulgated by the board[.]

IFS maintains that the failure to meet the requirements set forth in section 326.289 is the only reason the Board may properly...