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Johnson v. California State Board of Accountancy

filed: July 27, 1995.

ROSS A. JOHNSON, PLAINTIFF-APPELLANT,
v.
CALIFORNIA STATE BOARD OF ACCOUNTANCY, ET AL., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Eastern District of California. D.C. No. CV-91-01250-LKK. Lawrence K. Karlton, District Judge, Presiding.

Before: Cecil F. Poole, Robert R. Beezer and Andrew J. Kleinfeld, Circuit Judges. Opinion by Judge Poole.

Author: Poole

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 § 5061.*fn1 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, 129 L. Ed. 2d 118, 114 S. Ct. 2084 (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 ...


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