Zwygart v. Board of Public Accountancy

• Decision Date: 20 April 2007
• Docket Number: No. S05-1457.,S05-1457.
• Citation: 273 Neb. 406,730 N.W.2d 103
• Parties: Rodney G. ZWYGART, appellant, v. STATE BOARD OF PUBLIC ACCOUNTANCY OF THE STATE OF NEBRASKA, appellee.
• Court: Nebraska Supreme Court

730 N.W.2d 103

273 Neb. 406

Rodney G. ZWYGART, appellant, v. STATE BOARD OF PUBLIC ACCOUNTANCY OF THE STATE OF NEBRASKA, appellee.

No. S05-1457.

Supreme Court of Nebraska.

April 20, 2007.

Robert F. Bartle, of Bartle & Geier Law Firm, Lincoln, for appellant.

Robert T. Grimit, of Baylor, Evnen, Curtiss, Grimit & Witt, L.L.P., Lincoln, for appellee.

HEAVICAN, C.J., WRIGHT, CONNOLLY, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

WRIGHT, J.

NATURE OF CASE

The Nebraska State Board of Public Accountancy (Board) found that Rodney G. Zwygart had violated Neb.Rev.Stat. § 1-137 (Reissue 1997) and rules and regulations promulgated by the Board. The Board revoked Zwygart's license to practice as a certified public accountant (CPA). The Board's decision was affirmed by the Lancaster County District Court, and Zwygart appeals.

SCOPE OF REVIEW

A judgment or final order rendered by a district court in a judicial review pursuant to the Administrative Procedure Act may be reversed, vacated, or modified by an appellate court for errors appearing on the record. Wilson v. Nebraska Dept. of Health & Human Servs., 272 Neb. 131, 718 N.W.2d 544 (2006). When reviewing an order of a district court under the Administrative Procedure Act for errors appearing on the record, the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor unreasonable. Wilson, supra.

BACKGROUND

Zwygart was licensed to practice as a CPA in 1976. In 1997, two lawsuits were filed against Zwygart in the Madison County District Court (trial court) alleging fraudulent acts related to a closely held corporation. The trial court found that Zwygart had made misrepresentations and violated his fiduciary duty as a corporate officer. The trial court concluded that Zwygart had perpetrated fraud on William Anderson and, as a result of fraudulent acts, had violated his fiduciary duty to David Fauss. A judgment of $93,501.54 was entered against Zwygart. Via a memorandum opinion, this court affirmed the trial court's ruling. See Fauss v. Norfolk Avenue Liquor Mart, 264 Neb. xxi (Nos.S01-696, S-01-697, Sept. 18, 2002) (Fauss cases).

On May 16, 2003, an amended complaint was filed before the Board alleging that Zwygart had violated the Public Accountancy Act and the Board's rules and regulations. The complaint was based in part on the actions of Zwygart that were detailed in the Fauss cases.

The Board alleged that in the underlying Fauss cases, Zwygart had, in his capacity as a CPA, performed professional services for Fauss, Anderson, and various business entities. The services included using his accounting or auditing skills in the preparation of financial statements and tax returns, providing advisory or consulting services, and furnishing advice on tax matters. The Board also alleged that Zwygart kept the corporate records for the business entities and prepared necessary documents for filing with regulatory authorities, including Nebraska's Secretary of State and the Nebraska Liquor Control Commission. The Board asserted that Zwygart's conduct was not limited to his activities as a shareholder in the business entities, that Zwygart used the knowledge he gained in his capacity as a CPA for Anderson and Fauss to further Zwygart's interest as a stockholder in the business entities, and that Zwygart used information gained from income tax returns he prepared for Fauss to further his own interest as a shareholder. The complaint alleged that Zwygart disclosed Fauss' confidential tax and financial information without consent, information which Zwygart had obtained in the course of performing professional services.

The Board alleged that Zwygart's conduct arose out of dishonesty, fraud, or gross negligence in the practice of public accountancy, in violation of § 1-137(2). It also alleged that Zwygart's conduct violated the following disciplinary rules:

Integrity and Objectivity. A licensee shall not in the performance of professional services knowingly misrepresent facts, nor subordinate his judgment to others.

Title 288, Chapter 5-003.

.... Confidential Client Information. A licensee shall not disclose any confidential information obtained in the course of performing professional services except with the consent of the client.

Title 288, Chapter 5-005.01.

....

Acts [D]iscreditable. A licensee shall not commit an act that reflects adversely on his fitness to engage in the practice of public accountancy.

Title 288, Chapter 5-007.01.

In response to the complaint, Zwygart filed an answer alleging that (1) the complaint failed to state a claim for which relief could be granted; (2) the complaint attempted to sanction Zwygart for actions other than those taken "in the practice of public accountancy," see § 1-137(2), and therefore, the Board lacked jurisdiction over the subject matter of the action; and (3) the claims raised in the complaint were barred by the doctrine of laches and the statute of limitations.

PROCEEDINGS BEFORE BOARD

The Board held a hearing pursuant to its statutory authority to take disciplinary action. See § 1-137 and Neb.Rev.Stat. §§ 1-140 to 1-149 (Reissue 1997). The hearing officer adopted the trial court's findings of fact and noted the following relevant facts:

In late 1992, Anderson sold his interest in Norfolk Big Red Bottle Shop, Inc. (Big Red), and Norfolk Avenue Liquor Mart, Inc. (Liquor Mart), to Zwygart and Fauss for $40,000. If a stock transfer had been entered in the corporate minutes, Zwygart and Fauss would each have owned 3,750 shares of Liquor Mart and 1,500 shares of Big Red. However, the stock was never transferred. Anderson believed his interest in the corporations was terminated at that time.

From 1992 until January 1997, Anderson had no involvement in either corporation. Anderson's name no longer appeared on any corporate documents, including those filed with the State of Nebraska and the Internal Revenue Service that were prepared by Zwygart or under his direction. The hearing officer found that Anderson was linked to the corporations only by the failure of the corporations to transfer and deliver Anderson's shares to Fauss and Zwygart and by the pledge of Anderson's personal assets on secured notes of the corporations.

After Anderson was removed from corporate affairs, the business relationship between Fauss and Zwygart became strained. In order to resolve the problems, Fauss and Zwygart agreed to split the management of the businesses, with Fauss' acting as operator and manager of Big Red and Liquor Mart. The parties also agreed as to the servicing of the debts of Big Red and Liquor Mart.

In January 1997, Zwygart paid Anderson $100 for the Big Red shares and $100 for the Liquor Mart shares previously sold by Anderson but not transferred on the corporate books. The hearing officer found that Zwygart also induced Anderson to vote with Zwygart on the assurance that Fauss would be ousted and Anderson's personal obligation on the outstanding debts would be discharged.

Zwygart and Anderson called a special meeting of the board of directors of Big Red and Liquor Mart for January 21, 1997, at which meeting Zwygart was elected as a new officer over the protest of Fauss. Zwygart then fired Fauss from his employment as manager of Big Red and Liquor Mart. Zwygart and Anderson outvoted Fauss by a margin of 2 to 1 in corporate business. Zwygart and Anderson then called a shareholders' meeting for February 3, despite Fauss' written and verbal objections. At that meeting, Zwygart voted his one-third interest and the one-third interest he had purchased from Anderson. All resolutions concerning corporate business were adopted at the January 21 and February 3 meetings based on the strength of Anderson's vote as a director and Zwygart's vote based on the shares he acquired from Anderson. Thereafter, Anderson again was no longer involved in the affairs of the corporations and Zwygart ran the businesses to the exclusion of Fauss.

The trial court found that Zwygart perpetrated fraud in both the January 21 and February 3, 1997, meetings. Zwygart benefited from this fraud by the acquisition of management of the two businesses, and Fauss was excluded from the two businesses. Anderson was unaffected except for the $200 received from Zwygart. The trial court imposed a constructive trust in favor of Fauss on one-half of the shares of stock in Big Red and Liquor Mart transferred by Anderson to Zwygart in January 1997 and voided all actions of the directors, officers, and shareholders at the January 21 and February 3 meetings.

Before the Board, Zwygart argued that the Board lacked jurisdiction over the subject matter because it was attempting to sanction him for actions other than those "in the practice of public accountancy." See § 1-137(2). Zwygart asserted that he was a shareholder in the corporations, that the corporations were not his clients, and that he was acting in his capacity as a shareholder.

The hearing officer concluded that the facts were sufficient to support the allegations in the complaint and that Zwygart was acting as a CPA during the performance of his duties and obligations on behalf of the corporations, as well as in actions he performed on behalf of Anderson. The hearing officer referred to definitions provided in the Board's rules and regulations:

(Practice of Public Accountancy) shall mean the performance or offering to perform by a person holding himself out to the public as a permit holder, for a client or potential client, of one or more kinds of services involving:

001.17B: one or more kinds of management advisory or consulting services, or the preparation of tax returns or the furnishing of advice on tax matters.

288 Neb. ADMIN. Code Ch. 3 § 001.17 (1999).

Based on the trial court's opinion and testimony given during trial, the hearing officer determined that Zwygart served as the CPA for "all of the individuals and entities involved...