Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Kern County No. CV-269000. Lorna H. Brumfield, Judge.
Lowell A. Baisden, in pro. per., for Plaintiff and Appellant.
Edmund G. Brown, Jr., Attorney General, Alfredo Terrazas, Assistant Attorney General, Karen B. Chappelle and Rene Judkiewicz, Deputy Attorneys General, for Defendant and Respondent.
OPINION
Levy, Acting P.J.
Appellant Lowell Baisden appeals from the superior court’s denial of his petition for writ of mandate challenging revocation of his accountant’s license by the Board of Accountancy (Board) for conduct in violation of Business and Professions Code sections 5100, subdivisions (c), (i), and (j) and 5062, and California Code of Regulations, title 16, section 58. Appellant claims insufficient evidence supports the true findings on all three causes for discipline asserted in the accusation: (1) dishonesty or fraud; (2) breach of fiduciary responsibilities; and (3) knowing preparation of false and fraudulent or materially misleading reports or information and failure to comply with professional standards. We disagree and affirm the superior court’s judgment.
Business and Professions Code section 5100 states in pertinent part: “After notice and hearing the board may revoke, suspend, or refuse to renew any permit or certificate granted under Article 4... and Article 5..., or may censure the holder of that permit or certificate for unprofessional conduct that includes, but is not limited to, one or any combination of the following causes: [¶]…[¶]
Business and Professions Code section 5062 states: “A licensee shall issue a report which conforms to professional standards upon completion of a compilation, review or audit of financial statements.”
California Code of Regulations, title 16, section 58 states: “Licensees engaged in the practice of public accountancy shall comply with all applicable professional standards, including but not limited to generally accepted accounting principles and generally accepted auditing standards.”
FACTUAL AND PROCEDURAL HISTORY
In 2002, Evan Geilenkirchen (Evan) was a nurse anesthetist working as an independent contractor to a private anesthesiology office run by appellant’s brother-in-law (Dr. Koning). Dr. Koning introduced Evan to appellant. At that initial meeting, appellant explained the advantages of forming a corporation, which would provide Evan with tax savings and protection from personal liability in the event of malpractice litigation. Appellant later met with Evan and his wife Jane (the Geilenkirchens) to discuss the concept further, and finalize their intent to set up and utilize this corporate structure. Jane had a small greeting card and scrapbooking business she ran out of their home, which would also be included in the corporation. The Geilenkirchens hired appellant as their certified public accountant (CPA). They orally agreed appellant would prepare their 2002, 2003, and 2004 tax returns and pay him a monthly retainer for his services. The intention was for appellant to set up a professional corporation in Nevada for the Geilenkirchens, which was to receive income in the form of Evan’s paychecks from the anesthesiology office, and any income from Jane’s business. The corporation then was to pay the Geilenkirchens.
Appellant and the Geilenkirchens discussed the name of the corporation in 2002, and appellant attempted to incorporate the new business in Nevada in late 2002. The Nevada Secretary of State, however, rejected the original name of the corporation, and appellant, after discussing a new name with the Geilenkirchens, filed the articles of incorporation of the newly named corporation in early February 2003. Nevada allows a nominee to be named on behalf of the corporation owners, for privacy purposes. Appellant utilized his brother-in-law’s sister-whom the Geilenkirchens did not know-as the nominee and incorporator for the Geilenkirchens’ new corporation.
After filing the articles of incorporation, however, no further corporate formalities were completed. Appellant contends he advised Evan and Jane to establish a separate checking account for the corporation, and to assign Evan’s employment contract to the corporation while simultaneously establishing an employment contract between Evan and the corporation. However, they failed to do so. Although appellant had told Evan he had a lawyer who would help set up the corporation, no evidence indicates this was the case. No assets were transferred to the corporation’s name, no by-laws were drafted, and the corporation failed to establish a corporate seal or minute book.
The Geilenkirchens provided appellant with bank statements showing their check transactions, which appellant translated into books of original entry for the corporation after discussing many of the transactions over the phone with the Geilenkirchens. He then translated the books of original entry into various accounting and financial documents, one of which was a compilation report for the corporation, and two others of which were the Geilenkirchens’ individual and corporate federal tax returns for the 2002 tax year.
On the tax returns, appellant funneled the Geilenkirchens’ 2002 personal expenses through the corporation, indicating them as deductible business expenses. He justified this practice by stating, without corroborating authority, that it was possible for corporations to pay personal expenses of its owners in lieu of direct payments of salary, benefits, or royalty payments. On the Geilenkirchens’ individual tax return, he indicated the Geilenkirchens received rental or royalty income which corresponded in amount to the rent expense listed on the corporate tax return.
Notwithstanding appellant’s filing a 2002 tax return for a corporation that did not formally and officially exist until 2003, appellant then failed to file the Geilenkirchens’ 2003 tax returns. He claimed he was awaiting Internal Revenue Service (IRS) feedback on Dr. Koning’s 2003 tax returns since there was an outstanding issue with the Geilenkirchens’ tax returns that would be affected by whatever decision the IRS rendered with respect to Dr. Koning’s tax returns. In the middle of 2004, frustrated at appellant’s lack of action, the Geilenkirchens stopped paying him monthly retainer payments. Appellant took this to mean he need not prepare the Geilenkirchens’ 2004 tax returns, and terminated his services without notice.
The Geilenkirchens received notice from the IRS in January 2005 that they were being audited. They immediately contacted appellant, who had them sign over power of attorney and assured them he would handle the situation. Instead, he failed to respond to the IRS’s requests for documentation on multiple occasions, which resulted in the IRS personally serving a summons on Evan and terminating its attempts to communicate with appellant. The Geilenkirchens were assessed thousands of dollars in penalties and fines for erroneous 2002 tax returns and unfiled 2003 and 2004 tax returns. Finding appellant unavailable and unwilling to address the situation, the Geilenkirchens hired local counsel to defend them against the IRS, and a local CPA to amend and file the errant and missing tax returns.
The Geilenkirchens filed a complaint with the Board, notifying it of appellant’s conduct and practices. The Board filed an “Accusation” against appellant alleging three causes for disciplinary action that revolved around appellant’s preparation and filing of the 2002 tax returns for the Geilenkirchens and their associated inchoate corporation, and his failure to declare his lack of independence in connection with preparation of a compilation report for the corporation.
They also filed a lawsuit in an attempt to recover damages for his negligent handling of their finances, for which they received a default judgment. The United States Department of Justice filed a lawsuit for a tax injunction against appellant. The federal district court granted a preliminary injunction, and set a trial for the permanent injunction in mid-2008.
An administrative law judge (ALJ) conducted a three day hearing where the Board presented evidence and testimony from its investigator, Evan, and from a forensic tax controversy and accounting expert. Appellant represented himself and presented no witnesses on his behalf. The ALJ handed down a proposed decision, finding cause existed to discipline appellant for each of the Board’s accusations and revoking appellant’s CPA license. The Board adopted the ALJ’s proposed decision in its entirety, and revoked appellant’s CPA license with leave for reinstatement. Appellant filed a petition for writ of mandate, which the superior court denied after conducting an independent review of the evidence. This appeal followed.
DISCUSSION
Appellant argues insufficient evidence supports the disciplinary causes leveled against him by the Board and which underlie the superior court’s judgment. We disagree and find substantial evidence supports the superior court’s denial of his petition for writ of mandate.
Standard of Review
“The right to practice one’s profession is a fundamental vested right and if a person’s license to practice that profession is revoked by an administrative agency, when a petition for a writ of mandate is brought for restoration of the license, the trial court must apply its independent judgment to its review of the facts underlying the administrative decision. [Citations.]” (Vaill v. Edmonds (1991) 4 Cal.App.4th 247, 257-258.) “In exercising its independent judgment, a trial court must afford a strong presumption of correctness concerning the administrative findings, and the party challenging the administrative decision bears the burden of convincing the court that the administrative findings are contrary to the weight of the evidence.” (Fukuda v. City of Angels (1999) 20 Cal.4th 805, 817.) “On appellate review of the superior court’s exercise of its independent judgment, this court will sustain the court’s findings if they are supported by substantial evidence. [Citation.]” (Hildebrand v. Department of Motor Vehicles (2007) 152 Cal.App.4th 1562, 1568 (Hildebrand).) In applying the substantial evidence standard, we resolve conflicts in the evidence in favor of the prevailing party, giving that party the benefit of every reasonable inference in support of the judgment, notwithstanding reasonably deduced alternative inferences. (Pasadena Unified School District v. Commission on Professional Competence (1977) 20 Cal.3d 309, 314; Hildebrand, supra, 152 Cal.App.4th at p. 1568.)
Substantial Evidence Supports the Superior Court’s Ruling
Under the facts and circumstances of this case, substantial evidence supports the superior court’s independent determination that “the weight of the evidence supports all three causes for discipline.” With respect to the first two accusations regarding dishonesty, fraud, and breach of fiduciary responsibility, several factors support the superior court’s judgment. Appellant does not dispute that the corporation was officially recognized by the State of Nevada in February 2003, but that he filed a tax return for the corporation for the 2002 tax year. He argues that the Nevada Secretary of State erred in not retroactively applying the date of incorporation from his first attempt to create a corporation for the Geilenkirchens in 2002, but no legal action was taken to correct or adjust this date. He also argues that he was acting based on the intent of the Geilenkirchens to form the corporation in 2002, but provides no supporting authority establishing this as an acceptable accounting practice.
Furthermore, appellant prepared tax returns showing the corporation paid non-deductible personal expenses of the Geilenkirchens and improperly deducted them as business expenses. For example, the corporation deducted mortgage payments, personal credit card payments, grocery bills, car payments, student loan payments, and video rentals. The expenses included in the 2002 tax returns were accumulated over the entire calendar year, despite the corporation’s earliest possible formation being December of 2002. Also, appellant delineated the corporation’s payment of, and the Geilenkirchens’ receipt of, “royalty” payments, in the form of payments of personal expenses in lieu of direct payments to the Geilenkirchens, supposedly for license and use of Jane’s greeting card designs. No agreement, however, was entered into between Jane and the corporation regarding the designs or payment arrangements. Appellant listed the primary business activity of the corporation as “real estate” where no real estate activity was being undertaken. The Geilenkirchens owned their own home, and hoped to invest in real estate in the future, but had not yet done so. Appellant also listed Evan’s primary occupation as “investor, ” when his primary occupation was as a nurse anesthetist. Despite assuring the Geilenkirchens he had an attorney to assist with forming the corporation, appellant failed to ensure the corporation was properly formed and capitalized to withstand scrutiny and verify establishment of the liability protection he represented in his initial meetings with the Geilenkirchens. Substantial evidence supports the superior court’s finding the weight of the evidence supported the first two causes for discipline.
With respect to the third accusation, substantial evidence also supports the superior court’s finding that appellant failed to comply with professional standards. He failed to declare his lack of independence in preparing the compilation report for the corporation pursuant to professional standards of practice. While appellant contends that he maintained his independence by discussing the substance of the check transactions with the Geilenkirchens, Evan testified appellant was solely responsible for setting up the corporation and Evan was not involved in day-to-day operations nor did he otherwise make decisions with regard to the corporation. The Board’s investigator found that appellant was performing management functions, and thus lacked independence, when he set up the corporation without the Geilenkirchens’ input, and prepared journal entries without their review and approval. Appellant also failed to provide adequate representation with respect to the Geilenkirchens’ audit when he told them to ignore letters from the IRS requesting financial documents and failed to provide the IRS with the requested documents in a timely fashion.
Substantial evidence supports the superior court’s independent judgment denying appellant’s petition for writ of mandate.
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to respondent.
WE CONCUR: Kane, J., Detjen, J.
“(c) Dishonesty, fraud, gross negligence, or repeated negligent acts committed in the same or different engagements, for the same or different clients, or any combination of engagements or clients, each resulting in a violation of applicable professional standards that indicate a lack of competency in the practice of public accountancy or in the performance of the bookkeeping operations described in section 5052. [¶]…[¶]
“(i) Fiscal dishonesty or breach of fiduciary responsibility of any kind.
“(j) Knowing preparation, publication, or dissemination of false, fraudulent, or materially misleading financial statements, reports, or information.”