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Oct 1993

Supreme Court allows in-person solicitations by CPAs. (Accountant's Liability)

by Lantry, Terry

    Abstract- The 'Fane v. Edenfield' case challenged Florida's statute and regulation banning in-person solicitation by CPAs. Fane instituted the lawsuit to have the prohibition declared unconstitutional under the First Amendment which guarantees free speech. Fane argued that the ban restricts commercial speech, does not promote the interest of the state in regulating the profession of accountancy and is not narrow in scope. In accordance with the lower court and the appellate court, the Supreme Court averred that it has not been sufficiently proven that the prohibition of CPA solicitation furthers the interest of the state in any way. This decision indicates that it is still possible to uphold policies banning solicitation as long as there is credible evidence to support it.

The view of the Justice Department which supports the spirit of the FTC/AICPA consent order is that a complete ban on advertising and solicitation violates antitrust law absent a state-action exemption. A state-action exemption provides a state with immunity from antitrust law if the restraint is clearly articulated, expressed, and administered by a state as state policy.

Four states (Florida, Georgia, Texas, Louisiana) have state statutes prohibiting in-person solicitation by CPAs. These statutes clearly prohibit what the AICPA now allows under its consent order with the FTC, namely, that it is permissible to solicit any potential client by any means, including direct solicitation. Twelve other states prohibit in- person solicitation by rule of accounting boards.

A Challenge

In the case of Fane v. Edenfield, 945 F.2d 1514 (11th Cir. 1991), the Florida statute and regulation prohibiting direct solicitation was challenged. The challenge was to be expected to determine how much restriction, if any, on the promotional efforts of CPAs is legally enforceable in light of the fact that the restraints may not be constitutional under the First Amendment of the Constitution which guarantees free speech.

The significance of the case is highlighted by the fact that the Supreme Court agreed to decide whether states may prohibit accountants from soliciting business in person. In the past the Supreme Court has ruled that commercial speech deserves substantial protection under the guarantee of the First Amendment but has allowed restrictions on commercial speech if they are narrow in scope and further an important state interest.

Case For Ban on In-Person Solicitation by CPAs

* There is a need to preserve and protect the public's ability to rely on the independence and objectivity of CPAs.

* Because there is no acceptable method of regulating in-person solicitation, a prophylactic rule against its utilization is necessary.

* A government may ban commercial speech that is more likely to deceive the public than to inform it.

* The relationship between the legislature's means and ends must be reasonable but does not require perfection.

* A state does not lose its power to regulate commercial activity deemed harmful to the public where speech is a component of the activity. Therefore, simply because Florida's regulation involves speech does not mean that the regulation must be struck down on constitutional grounds.

* The degree of protection afforded commercial speech is toward the low end of the scale.

* It is not the court's place to second guess state officials about their rules.

* States are largely free to regulate the professionals which they license.

* States may ban in-person solicitation because it inherently opens the door to fraud, undue influence, intimidation, and overreaching.

* With advertising, generally the recipient may simply turn away, but in-person solicitation may exert pressure and often demand an immediate response.

Case Against Ban on In-Person Solicitation

* It is unconstitutional to restrict |commercial speech because it does not further the state's interest in regulating the accounting profession nor is it narrowly tailored to that end.

* Imposition of the ban upon CPAs but not on other professionals who perform the same tasks is a violation of equal protection.

* Commercial speech furthers the economic interests of the speaker while also informs the consumer audience.

* Dissemination of commercial information is a benefit to consumers and society.

* The mere possibility that isolated abuses or mistakes may occur does not justify a total ban on a certain mode of protected commercial speech.

* In assessing the restriction on commercial speech, it must be determined that government interest is substantial, the regulation directly advances the government interest and whether government regulation is more extensive than necessary.

* Prophylactic restraints on commercial speech based on unsupported assertions or unsubstantiated fears are not acceptable.

* The utilization of an advertising ban to protect the ethical or performance standards of a profession is impermissible.

* It acts as a ban on in-person solicitation rather than regulating the details of when, where, and how a CPA may engage in such solicitation.

* The possibilities for overreaching, invasion of privacy, exercising undue influence, and outright fraud are remote in the accounting profession.

Factual Background of the Case

Fane is a CPA licensed in New Jersey and Florida who moved to Florida to set up an accounting practice and sought to solicit business via in- person contacts with businesses he felt would be interested in his services. He was not able to implement his planned solicitation, however, because in-person solicitation by CPAs is forbidden in Florida. The ban applies only to CPAs. Other financial professionals such as non- certified accountants, bookkeepers, and tax preparers are not prohibited from utilizing personal contacts to solicit new clients.

Fane instituted this lawsuit to have Florida's prohibition of in-person solicitation by CPAs declared unconstitutional. The Board disputed any constitutional violation created by the proscription. The district court granted Fane's motion for summary judgment and enjoined the Board from enforcing the ban on in-person solicitation by CPAs in Florida. The Board then perfected its appeal to this court.

The only issue raised by the Board that the government addressed is whether the district court correctly determined that Florida's prohibition on in-person solicitation by CPAs is unconstitutional. Fane contended that Florida's prohibition against in-person solicitation by CPAs is an unconstitutional restriction of commercial speech because the restraint does not further the state's interest in regulating the accounting profession, nor is it narrowly tailored to that end. Fane also maintained that the imposition of the ban upon CPAs but not on other accounting professionals who perform the same task is a violation of equal protection. The position of the Board was that the ban is necessary to protect a CPA's integrity, independence, and objectivity while performing the attest function. The Board also argued that the ban is a permissible time, place, and manner restriction that is content neutral.

The Decision

The court noted that it did not lightly interfere with a state's power to regulate the professions which practice within it. Nevertheless, the state's regulatory power cannot be used to insulate restrictions of constitutionally protected speech from the review of the court for constitutional infirmity. In this case the court stated Florida's restriction on in-person solicitation by CPAs does not directly advance the state's asserted interest. The justification offered for the ban could be served equally well by existing regulations imposed on the accounting profession or by a more limited restriction of the protected speech. The court therefore affirmed the district court's order granting summary judgment in favor of Fane and enjoined the State of Florida from enforcing its ban on in-person solicitation by CPAs.

Supporters of the ban on direct uninvited solicitation who view such activities as 1) a manifestation of a trend away from professionalism, 2) a force which compromises independence in mental attitude, and 3) a form of unfair competition and opponents of the ban who view it as 1) a barrier to free competition, 2) a deterrent to fair fees, and 3) an impediment to an efficient market for accounting service waited with interest for the Supreme Court's decision.

The Supreme Court Decision

On April 26, 1993, the Supreme Court affirmed the decision of both the lower court and the appellate court.

The court held that the type of personal solicitation contemplated by Fane is commercial expression to which the protection of the First Amendment apply.

From a public policy viewpoint the court was of the opinion that solicitation may have considerable value. The court noted that unlike many other forms of commercial expression, solicitation allows direct and spontaneous communication between buyer and seller. A seller has a strong financial incentive to educate the market and stimulate demand for his or her product or service, so solicitation produces more personal interchange between buyer and seller than would occur if only buyers were permitted to initiate contact. Personal interchange enables a potential buyer to meet and evaluate the person offering the product or service and allows both parties to discuss and negotiate the desired form for the transaction or professional relationship. Solicitation also enables the seller to direct his proposals toward those consumers who he has a reason to believe would be most interested in what he has to sell. For the buyer, it provides an opportunity to explore in detail the way in which a particular product or service compares to its alternatives in the market. In particular, with respect to nonstandard products like the professional services offered by CPAs, these benefits are significant.

The court concluded in denying CPAs and their clients these advantages, Florida's law threatened societal interests in broad access to complete and accurate commercial information that First Amendment coverage of commercial speech is designed to safeguard.

In contrast the dissenting justice, Justice O'Connor held that there was a broader authority for the States to prohibit commercial speech that, albeit not directly harmful to the listener, is inconsistent with the speaker's membership in a learned profession and therefore damaging to the profession and society at large.

The majority did recognize that States have the right to ban commercial expression that is fraudulent, invades privacy or in the case of CPAs impairs independence or creates a conflict of interest. However, as to the specific ban of commercial speech in the case of CPAs the interests can not be stated in the abstract or be speculative or based on conjecture.

The court concluded that the Board had not demonstrated that, as applied in the business context, the ban on CPA solicitation advances its asserted interests in any direct and material way.


The decision of the court does not totally preempt states from limiting commercial speech in the area of CPAs' solicitation. Rather what the decision of the court does is point the way to how bans on solicitation can be upheld if creditable evidence can be offered which justifies the ban. Important to the decision making of the court was the AICPA committee's statement it was unaware of any empirical data supporting the theories that CPAs (a) are not independent of clients obtained by direct uninvited solicitation or (b) do not maintain their independence in mental attitude toward those clients subjected to direct uninvited solicitation by another CPA.

Terry Lantry, JD, CPA, Colorado State University

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