MOORE v. CALIFORNIA STATE BOARD OF ACCOUNTANCY (1990)

In this case we consider whether the California State Board of Accountancy (Board), a public agency, may prohibit unlicensed persons from using the terms “accountant” or “accounting” in holding themselves out to the public.   We hold that the unmodified use of these terms may be constitutionally enjoined.

Procedural History

In 1986, Bonnie Moore,¹ a non-licensed individual, Accounting Center, a California corporation, and the California Association of Independent Accountants (CAIA), a California non-profit corporation (plaintiffs), filed a complaint against the Board for declaratory relief and a permanent injunction.   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 “accounting” and “accountant” 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 whether the Board may constitutionally prohibit use of generic terms such as “accounting” and “accountant” by non-licensed accountants will affect thousands of other non-licensed accountants practicing within the State of California.   Approximately 700 such individuals were currently members of CAIA, and the officers and directors of CAIA joined the action to challenge the Board's actions on behalf of all CAIA members.   The complaint sought a declaration that the Board may not constitutionally prohibit plaintiffs or members of CAIA from using the terms “accountant” and “accounting” in referring to non-licensed accountants 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, the Board filed an answer and a cross-complaint for injunctive relief against the named plaintiffs plus 2,000 Doe defendants.²  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 cross-complaint prayed in part that cross-defendants be enjoined from using the words “accounting,” “accounting services” or “accountant” 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 revealed that Moore is president of Accounting Center.   She possesses a college degree with a major in accounting.   She has never taken an examination to become a certified public accountant (CPA), nor is she interested in doing so.   Accounting Center offers small business clients a service consisting of devising and installing basic accounting systems.   Once the system is set up, bookkeepers are supervised by degreed accountants.   The firm prepares long-range financial projections, monthly financial statements, and “compilation reports,” as that term is used by the American Institute of Certified Public Accountants.   In a generic sense the firm audits a client's books, but 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 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, former president of CAIA, operates an accounting and tax service.   He prepares compilation reports and review reports in the sense that those terms are used by the American Institute of Certified Public Accountants.   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 used for the purpose of filing with governmental agencies, and signs the reports as “John Jenkins, Accountant.”

In January of 1987, the California Attorney General's office contacted the Field Institute, an independent opinion research firm.³  The Attorney General's office wanted to determine whether the public thought a person was licensed when that person advertised accounting and accounting services.   The specific questions asked in the April 1987 California Poll were:  1) “Do you think that persons who refer to themselves as accountants in advertising to the public are required to be licensed by the State of California?” and 2) “Do you think persons who advertise accounting services to the public are required to be licensed by the State of California to offer such services?”   The results of the survey with respect to the first question indicated that 55 percent of the public believed that a person who advertised as an “accountant” had to be licensed, 26 percent did not believe that a license was required and 19 percent did not know.   The results of the second question indicated that 53 percent believed that a person who advertised accounting services to the public was required to be licensed, 29 percent did not and 18 percent did not know.

After trial, the court entered a judgment denying relief to plaintiffs and granting the Board's request for an injunction restraining plaintiffs from referring to themselves or their services as “accountant,” “accounting” and “accounting services.”   This appeal followed.

DISCUSSION

Use of the Terms “Accountant” and “Accounting”

Originally enacted in 1945, the Accountancy Act (Bus. & Prof.Code, § 5000 et seq.) ⁴ contains the pertinent statutes relating to accountants in this state.   Section 5050 provides in relevant part:  “No person shall engage in the practice of public accountancy in this State unless such person is the holder of a valid permit to practice public accountancy issued by the board [.]”  At the time of trial, former section 5051 provided in pertinent part:  “Except as provided in Sections 5052, 5053, and 5054, a person shall be deemed to be engaged in the practice of public accountancy within the meaning and intent of this chapter:

“(a) Who holds 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 ⁵ for compensation;  or

“(b) Who maintains an office for the transaction of business as a public accountant;  or

“(c) Who offers to prospective clients to perform for compensation, or who does perform on behalf of clients for compensation, professional services that involve or require an audit, examination, verification, investigation, certification, presentation, or review, of financial transactions and accounting records;  or

“․

“(e) Who, in general or as an incident to such 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.”

The most pertinent exception to section 5051 is contained in section 5052 which provides in part:  “Nothing in this chapter shall apply to any person who as an employee, independent contractor, or otherwise, contracts with one or more persons, organizations, or entities, for the purpose of keeping books, making trial balances, statements, making audits or preparing reports, all as part of bookkeeping operations, provided that such trial balances, statements, or reports are not issued over the name of such person as having been prepared or examined by a certified public accountant or public accountant.”

However, section 5058 states in relevant part:  “No person or partnership shall assume or use the title or designation ‘chartered accountant,’ ‘certified accountant,’ ‘enrolled accountant,’ ‘registered accountant’ or ‘licensed accountant,’ or any other title or designation likely to be confused with ‘certified public accountant’ or ‘public accountant[.]’ ”  (Emphasis supplied.)

Thus, the issue presented in the present action is whether individuals who legally perform the services enumerated in section 5052 without being licensed may represent to the public that they are “accountants” and they perform “accounting services.”

In People v. Hill (1977) 66 Cal.App.3d 320, 136 Cal.Rptr. 30, Division Two of this District construed the Accountancy Act as prohibiting an unlicensed person from holding himself or herself out as being such a person as defined in various subdivisions of section 5051.  (Id., at pp. 328–329,,,, 136 Cal.Rptr. 30.) The court reasoned that “[t]he use of the word ‘accounting’ on the building directory and office door can only be interpreted to mean that he is representing to the public that he is skilled in the practice of accounting and is qualified and ready to provide accounting services to the public, a representation that an unlicensed person is prohibited from doing.”  (Id., at p. 329,29,, 136 Cal.Rptr. 30.)

Hill was cited with approval in Chen Chi Wang v. United States (9th Cir.1985) 757 F.2d 1000, 1003, for the proposition that it is unlawful for a person to represent himself as an accountant without first having been licensed as such under state law.   The court then stated:  “Accountants, like attorneys, cannot achieve professional status in California without meeting state licensing standards․  The fact that a person performs some of the functions of an accountant (e.g., tax preparation) does not make that person an accountant if he or she is unlicensed, just as the fact that a person performs some of the functions of an attorney (a bank officer drafts a will;  an insurance officer drafts an insurance contract) does not make that person an attorney.”  (Ibid.)

The difficulty with both Hil l and Chen Chi Wang is that neither case considered the constitutional limitations in enjoining unlicensed persons from calling themselves accountants. Courts in other jurisdictions have taken varying positions on this issue. (See Annot. (1981) 4 A.L.R.4th 1201 1205 1208.) For guidance in this area we consider only the most pertinent decisions in other jurisdictions.

In Texas State Board of Public Accountancy v. Fulcher (1974) 515 S.W.2d 950 (Fulcher I), the court determined that the Texas Public Accountancy Act, which expressly prohibits unlicensed persons from holding themselves out as accountants, was constitutional.   The court reasoned that the Act “does not amount to an unwarranted regulation of private business and the right of a citizen to pursue an ordinary occupation.   It does not abridge rights of private property and does not infringe upon rights of contract in matters of purely private concern bearing no perceptible relation to the public welfare.   It is not unreasonable, arbitrary, vague or ambiguous.   It does not deny appellee equal protection of the law, nor does it violate any guarantees to appellee under the Bill of Rights, nor does it benefit only a single class, licensed accountants, at the expense of unlicensed accountants and the public as a whole.   Every licensing act creates a hardship on those who do not meet its requirements and works to the benefit of those who do, and every licensing act involves a legislative determination that there is or is not a public need for unlicensed practitioners in the profession that is being regulated.   The decision by the legislature should not be disturbed unless it is patently violative of constitutional prohibitions and guarantees, or is so ambiguous or vague to the extent that a potential actor cannot determine the point at which his lawful conduct becomes proscribed conduct.” (Id., at pp. 955–956; but see Florida Accountants Association v. Dandelake (1957) 98 So.2d 323, 327–328 and cases cited therein for contrary holdings.)

In Fulcher v. Texas State D. of Public Acc. (1978) 571 S.W.2d 366 (Fulcher II), the court was called upon to consider whether Fulcher, who had dropped the designation “accountant” but had substituted the word “accounting” to describe his services, could constitutionally employ such terminology, in light of the United States Supreme Court's decisions in Va. Pharmacy Bd. v. Va. Consumer Council (1976) 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 [“commercial speech” not entirelyoutside protection of First Amendment] and Bates v. State Bar of Arizona (1977) 433 U.S. 350, 97 S.Ct. 2691, 53 L.Ed.2d advertisement of legal services which is not false, deceptive or misleading may not be subject to restraint]. Relying on language in Hill, the Texas court found Virginia Pharmacy and Bates did not control. “Appellant's “Appellant's holding himself out as possessing expert knowledge in accounting is misleading and remains subject to restraint as stated in Bates[.]” (Fulcher II, supra, 571 S.W.2d 366, 370.)

A contrary result was reached in Comprehensive, etc. v. Maryland State Bd. (1979) 284 Md. 474, 397 A.2d 1019. In that case, Comprehensive Accounting Service Company, which did not hold an enrollment certificate to practice public accounting in Maryland, challenged a Maryland statute which provides that no person, partnership or corporation not holding an enrollment certificate “shall practice or hold himself or itself out to the public as ‘accountant’ or ‘auditor’ in connection with his own or any other name, nor describe or designate the services offered or performed by him or it as ‘accounting’ or ‘auditing,’ with or without any other designation or description․”  (Id., at p. 1020.) Comprehensive argued that the prohibitions of the statute “unconstitutionally abridge its right of free speech because the statute prevents uncertified persons, who are permitted to perform ordinary accounting work, from advertising the true nature of their services” and “the State cannot, consistent with the first amendment, completely suppress the dissemination of truthful information about an entirely lawful business activity.” (Id., at p. 1022.)

The Comprehensive court's decision rests on its analysis of Virginia Pharmacy and Bates. It noted the United States Supreme Court's recognition that in some cases it may be “appropriate to require that a commercial message appear in such a form, or include such additional information, warnings, and disclaimers as are necessary to prevent its being deceptive.” (Comprehensive, supra, 397 A.2d at p. 1025, quoting Virginia Pharmacy, supra, 425 U.S. at pp. 771 772, fn. 24, 96 S.Ct. at pp. 1830–1831, fn. 24.) It similarly referred to the high court's acknowledgement in Bates that “supplementation, such as a warning or disclaimer, might be necessary in some circumstances to assure that consumers are not misled.” (Comprehensive, supra, 397 A.2d at p. 1026.) From these cases, among others, the court concluded, “[t]o prevent the possibility of public confusion and deception, the legislature cannot consistent with the first amendment choose the most drastic remedy—the complete suppression of the use of certain words to describe the lawful activity of non-certified accountants.” (Id., at pp. 1026–1027.)

The Comprehensive decision contains a more thorough analysis of Virginia Pharmacy and Bates than does Fulcher II. Its conclusion is consistent not only with those cases but with the high court's subsequent holdings that the First and Fourteenth Amendments require that a restriction on advertising be “narrowly tailored” to serve a significant governmental interest. (Bd. of Trustees of State Univ. of N.Y. v. Fox (1989) 492 U.S. 469, 109 S.Ct. 3028, 3033, 106 L.Ed.2d 388;Central Hudson Gas & Elec. v. Public Serv. Comm'n (1980) 447 U.S. 557, 565, 100 S.Ct. 2343, 2351, 65 L.Ed.2d 341.)

 The case at bench is somewhat different from other reported cases.   For the first time an independent survey was introduced into evidence to show that the California public is being misled by use of the terms “accountant” and “accounting.”   Section 5058 provides that no person shall use any designation that is likely to be confused with “certified public accountant” or “public accountant,” the only designations which are licensed by the state.   Yet the poll conducted by the Field Institute indicates that more than 50 percent of Californians believe that persons calling themselves “accountant” or advertising accounting services are required to hold licenses.   Therefore, we find that the terms “accountant” and “accounting,” standing alone, are misleading to the public and may not be utilized by unlicensed persons.

 Our conclusion does not mean that the terms “accountant” and “accounting” may never be used by unlicensed persons who perform legally permissible services.   The rulings by the United States Supreme Court in Virginia Pharmacy and Bates make it clear that to satisfy the First Amendment, we must permit the use of those terms if they are qualified by a warning or disclaimer that avoids their misleading impact.   While we do not intend to dictate the language which would be acceptable, it is obvious that the term “unlicensed accountant,” for instance, is not misleading.   Thus, the judgment and injunction in this case must be modified to prohibit only the use of the terms “accountant” or “accounting” without a modifier, qualifier, disclaimer, or warning stating either that the advertiser is not licensed by the state or that the services provided do not require a state license.

Scope of Judgment and Injunction

 Although CAIA is one of the plaintiffs in this action, none of its members, other than Moore, is a plaintiff.   By its cross-complaint Board named as defendants Does 1 through 1,000, members of CAIA.   However, the cross-complaint was never amended to insert the true names of the fictitious defendants and none were ever served.   Nevertheless, the judgment and permanent injunction entered by the trial court include “members of the California Association of Independent Accountants who are not licensed as certified public accountants or public accountants.”   Plaintiffs contend the trial court had no jurisdiction to enjoin individual members of CAIA, since these Doe defendants were neither properly named nor served.

 As a general rule, when a complaint includes fictitiously-named defendants, and no amended pleading substitutes proper names nor are such defendants served, any resulting judgment is operative only against properly named parties.  (Moulton v. Parks (1883) 64 Cal. 166, 167, 30 P. 613.) However, there exist certain exceptions to the general rule. “In matters of injunction ․ it has been a common practice to make the injunction run also to classes of persons through whom the enjoined person may act, such as agents, servants, employees, aiders, abetters, etc., though not parties to the action, and this practice has always been upheld by the courts, and any of such parties violating its terms with notice thereof are held guilty of contempt for disobedience of the judgment․  [T]he whole effect of this is simply to make the injunction effectual against all through whom the enjoined party may act, and to prevent the prohibited action by persons acting in concert with or in support of the claim of the enjoined party, who are in fact his aiders and abetters.”  (Berger v. Superior Court (1917) 175 Cal. 719, 721, 167 P. 143, original emphasis omitted;  see also Ross v. Superior Court (1977) 19 Cal.3d 899, 906, 141 Cal.Rptr. 133, 569 P.2d 727.)

In the present case all members of the CAIA are not agents or employees of CAIA;  nor are they “acting in concert” with the Association.   Although plaintiffs' complaint avers that “the officers and directors of CAIA have decided to join in this action to challenge the BOARD's actions on behalf of all of the CAIA members,” there is no indication that all members had knowledge of this decision.   The Board's cited union cases (Berger, supra, 175 Cal. 719, 167 P. 143 ; Armstrong v. Superior Court (1916) 173 Cal. 341, 159 P. 1176) are inapposite.   In those cases court orders restraining the union from picketing included unnamed union members, since the unions could not picket without the concerted action of its members.   In contrast, the officers and directors of CAIA were free to bring an action on behalf of its members without the knowledge, approval or participation by the membership.   Therefore, we hold that the judgment and injunction in the present case must be limited to those parties who were properly named in the cross-complaint.

The judgment is reversed and the cause remanded to the trial court for further proceedings consistent with the views expressed herein.

Each party to bear its own costs on appeal.

FOOTNOTES

1.   After the instant action was filed, Bonnie Moore married and her present name is Bonnie Moore Brown.   However, since the suit was filed under the name of Moore, we will refer to her by that name.

2.   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.”

3.   The Field Institute conducts the California Poll, an ongoing survey of Californians which attempts to measure public attitudes on unrelated topics.   All results from the poll are made public.

4.   All further statutory references are to the Business and Professions Code.

5.   “Public Accountant” is defined as “any person who has registered with the board as a public accountant and who holds a valid permit for the practice of public accountancy.”  (§ 5034.)

WHITE, Presiding Justice.

MERRILL and STRANKMAN, JJ., concur.