Friday, December 29, 2006

CPA's and UnAuthorized Practice of Law

CPA's are becoming much more agressive in seeking out transactional legal work that has historically been handled by attorneys. Encouraged by big multi-national accounting firms that maintain large legal staffs to provide legal "cover" for their accounting staff, smaller accounting firms and solo CPA's are increasingly taking the same type of work even though their firms lack the legal staff to back it up. An excellent article from the New York State Society of CPA's that sets out fairly simple guidelines as to where the CPA's responsibilities should end and the attorney's begin can be found at:

Apparently, the states are divided as to whether or not CPA's may practice transactional law by drafting legal agreements, business organizational documents, etc. The State of Oklahoma has not addressed this issue through the courts to date. However, the best authority available comes from Ohio in a case which the Oklahoma Courts could find persuasive. In COLUMBUS BAR ASSOCIATION v. VERNE Case No. 2003-0259, Supreme Court of Ohio, May 16, 2003 the Ohio Supreme Court upheld a lower court which flatly enjoined a CPA firm from drafting corporate organizational documents for its clients. The Columbus Bar Assocation was supported by an amicus brief from the Ohio Bar Association. The Defendant CPA's were supported by an amicus brief by the Ohio Association of Certified Public Accountants.

Less persuasive but closer to home is KNIGHT COUNSELING, INC. VS. WILLIAM DAY, Arkansas Supreme Court Case No. 00-731, January 25, 2001. The client sued Day, an accountant, for constructive fraud after it was found that Day had improperly set up a Subchapter S Corporation and apparently given bad legal advice about its operation. The plaintiff's theory on appeal was that Day had engaged in constructive fraud by holding himself out as competent to provide the services rendered and thus practiced law without a license. The Arkansas Supreme Court ignored the fact that Day had prepared legal documents and provided legal advice about the formation of the corporation and centered solely on the issue of constructive fraud, ruling that Day was not guilty because he had allegedly prepared the documents for review by an attorney and the client did not thereafter retain an attorney to review them.

The Arkansas Supreme Court's decisions is troubling. An attorney may not assist a non-attorney in the unlicensed practice of law. There is a very good Montana case holding that an attorney who refused to go forward in a administrative hearing where the defendant was represented by a CPA was not only correct in his actions but was also entitled to judicial immunity from Sec. 1983 claims because he was acting as an officer of the court to prevent the unauthorized practice of law and could not assist in UPL by going forward with the hearing. STEELE v. McGREGOR Case No. 97-084, April 14, 1998. This line of reasoning begs the question as to whether or not an attorney can or should cooperate when presented with a CPA drafted business entity.

Justice Glazer of the Arkansas Supreme Court issued a sting dissent stating in part:

"Although Day averred he told Knight that the corporate documents would need to be reviewed by an attorney, he conceded that he did not prepare any documents for an attorney to review. As found by the trial court, while an attorney would need to prepare and file such documents, Day did so instead. Most important, Day admitted that, without speaking to an attorney or researching the issue, he decided Baker's license legally allowed her to be a shareholder and owner in the new Subchapter S corporation. (snip)

"Day further conceded that he did not tell Knight to discuss this issue with an attorney, but instead said, "I had already talked to a counselor, and I had been around corporations, and I had talked to other accountants and I thought it would be okay." In other words, Day held himself out as having the expertise to make such a decision (snip)

"The foregoing evidence reflects that Day not only erroneously informed Knight that it was legally permissible for Baker to be an owner/shareholder of Knight's newly incorporated Subchapter counseling business, but Day also prepared and filed the corporate documents to include Baker as an owner/shareholder. (snip)

"In particular, the judge found Knight had failed to justifiably rely on a misrepresentation because Day gave Knight opportunities to talk to lawyers. However, it is not necessary that actual fraud exist to state a cause of action; it is sufficient if constructive fraud exists. See Roach v. Concord Boat Corp., 317 Ark. 474, 880 S.W.2d 305 (1994). This court has held many times that there may be constructive fraud, or fraud in the law, even when there is a complete absence of any moral wrong or evil intention. Id. It is also well settled that representations are construed as fraudulent when they are made by someone who, unaware of their falsity, asserts them to be true. Id. That is exactly what happened in the instant case.

"Aside from whether or not Day gave Knight an opportunity to contact an attorney, Day very clearly and erroneously advised both Knight and Baker that Baker could become an owner/shareholder of Knight's newly incorporated Subchapter S business. Such a misrepresentation of these facts proved to be untrue and constituted constructive fraud. Moreover, Day acted on this material misrepresentation by preparing and filing the documents required to make Baker an owner in Knight's corporation. Certainly, since Day was convinced that his actions were proper and lawful in making Baker an owner of Knight's corporate business, Knight was surely more than justified in relying on Day's representations. (snip) In conclusion, the majority opinion, where it states Knight did not make a false representation of fact, is wrong."

Neither the Arkansas Bar Association nor the the Arkansas Association of CPA's participated in this case and it would appear that the decision was limited to the facts of the case without addressing the larger issue of accountant unauthorized practice of law with the exception, of course, of Glazer's dissent.

A deeper question looms in the background. If a CPA can draft transactional legal documents, business organizational documents, shareholder agreements, etc. why can't they prepare estate planning documents as well? Simple wills and trusts actually present fewer legal issues than many business documents. The Mississippi Supreme Court addressed this issue in In re the ESTATE OF DABNEY, deceased, Case No. 98-CA-00508-SCT, Supreme Court of Mississippi,August 12, 1999:

"Although this Court has never addressed the specific issue presented here, other courts have addressed this issue and have held that the preparation of a will for another by a nonlawyer is in fact the illegal practice of law. See, e.g., Grievance Comm. v. Dacey, 154 Conn. 129, 222 A.2d 339 (1966)(drafting of legal documents, including wills, is the practice of law and must be done by an attorney); In re Estate of Margow, 77 N.J. 316, 390 A.2d 591, 597 (1978)(legal counseling by proponent, a former legal secretary, of testatrix as to her estate planning constituted unauthorized practice of law); Grievance Comm. State Bar of Texas v. Coryell, 190 S.W.2d 130 (Tex.Civ.App.1945)(the drawing of wills done by notary public, not licensed as an attorney, constituted illegal practice of law). Therefore, since he was not licensed to practice law, Boolos (a CPA) was clearly not competent as a matter of law to prepare the will."

Sunday, December 17, 2006

So Long Vogon ...

Those of us who dabble in computer crime defense and litigation lost a valuable resource earlier this year. Oxford, UK based Vogon International, a world class computer forensic consulting firm which maintained a regional office in Norman, Oklahoma was acquired by the Norwegian IBAS Group in April. From all that I can tell, the Norman, Oklahoma office was closed shortly after the acquisition and Vogon's only remaining presence in the United States is based in Eden Prairie, Minnesota. Travel expenses from the Minneapolis area to Oklahoma plus travel time will place Vogon out of reach of many potential litigants here in the Sooner State. The loss of Vogon leaves Oklahoma with only Oklahoma Digitial Forensic Professionals, Inc., a Tulsa based consulting firm which has strong ties to the Tulsa Police Department Cyber Crimes Unit, the OSBI and other state agencies.