ALJDEC

02A-1996201-ACY · State Board of Accountancy · 2002-02-11

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: January 28, 2002 in Phoenix, Arizona. Post-hearing filings made by Complainant Donald D. Bailey on February 11, 2002. Record Concluded on February 11, 2002. APPEARANCES: Donald D. Bailey appeared representing himself. Assistant Attorney General Patti J. Shelton appeared representing the Arizona State Board of Accountancy. ADMINISTRATIVE LAW JUDGE: Kay A. Abramsohn _____________________________________________________________________ After review of the pre-hearing filings, the hearing record, and the post-hearing filings in this matter, the following Findings, Conclusions and Recommendations are made: FINDINGS 1. On or about April 11, 1996, the United States District Court for the District of Arizona (“District Court”) entered judgment for the Defendant and against Respondent Donald D. Bailey, finding Respondent guilty of aiding and abetting the understatement of tax liability under Internal Revenue Code §6701(a), and reducing the imposed preparer penalty from $10,000 to a $1,000 preparer penalty under IRC §6701(b)(1). Donald D. Bailey vs. United States of America, No. CV95-0267 (TUC). Hearing Exhibit 4. 2. This case concerned Respondent’s preparation of corporate tax returns for Duke’s Video Movies, Etc., and personal tax returns for the corporate owners. The allegations were that, in connection with the tax return preparation, Respondent had filed inadequately supported amended and adjusted returns not in accordance with applicable tax standards, resulting in reduction and/or elimination of income taxes which the taxpayers should have paid. Board Notice of Hearing; Plaintiff and Defendant Motion briefs on argument to District Court. 3. Mr. Bailey requested reconsideration, which the District Court declined on April 26, 1996. Hearing Exhibit 5. 4. Mr. Bailey appealed to the Ninth Circuit of Appeals, which affirmed the District Court determination on July 9, 1997. Hearing Exhibit 6. 5. Mr. Bailey then petitioned for rehearing, which was denied. March 1, 1999 Letter of Investigator Tucker to Board and May 18, 1999 Letter from Mr. Bailey’s counsel, Hubert Kelly, to Board. Hearing Exhibits and 3. 6. According to the Board’s witness, the Board summarily suspended Mr. Bailey’s license because of the District Court determination and, in accordance with its standard procedures, then provided the opportunity for formal administrative hearing. Testimony. No copy of an Order of Summary Suspension was presented to the Tribunal. Additionally, the Complaint and Notice of Public Hearing does not reference a Summary Suspension. 7. The above captioned matter was set for formal administrative hearing to be held on January 28, 2002 at the Arizona Office of Administrative Hearings pursuant to the Complaint and Notice of Public Hearing (Complaint and Notice) issued by the Arizona State Board of Accountancy on November 6, 2001 and mailed to Respondent Bailey on November 21, 2001. That Complaint sets forth that an Answer is requested to be filed to the Board within twenty days of service of the Complaint. A copy of the Complaint and Notice was forwarded to this Tribunal by the Board prior to the scheduled hearing. 8. On January 4, 2002, Respondent Bailey filed a Motion to Continue this matter, indicating that he was sending in several subpoenas against the Internal Revenue Service, which he stated were important in the matter in order to allow him access to “relevant” documentation in order to proceed. No explanation was given as to such “relevancy” in light of the Board’s allegations against Respondent. 9. On January 7, 2002, Respondent Bailey filed a request for several subpoenas to the I.R.S. and one to the Board with regard to files, work papers, returns, and background information of the previously litigated matter. 10. On January 7, 2002, the Board filed its Response to the Motion, indicating its objection and explanation of the issue charged. The Board objected to a continuance, stating that, in light of the sole two allegations in the Complaint and Notice, the underlying case (which had resulted in the two allegations) may not be retried in this administrative forum. 11. By ORDER dated January 9, 2002, Respondent Bailey’s Motion for Continuance was Denied as well as his request for those requested subpoenas. 12. On January 13, 2002, (and for several days thereafter, in a total of fourteen faxes and partial faxes) Respondent filed, or attempted to file, his Answer to the Complaint with multiple and unnumbered or catalogued attachments. Respondent was filing his Answer with the Office of Administrative Hearings and also to the Board. Respondent’s Answer stated that the factual allegations in the Board’s Complaint are “completely false”. Respondent stated that two cases related to the CV95- 0267-TUC are in the Ninth Circuit of Appeals, and that he is being represented by Woodbean & Associates in Texas on those matters. Respondent argued that CV95-0267-TUC is not “final” and could be set aside by the Ninth Circuit Court of Appeals. 13. On January 17, 2002, the Board filed its Reply to the Respondent’s Answer, explaining its position on the underlying matter being a “final” disposition. The Board argued that it had been very patient and accommodating to Respondent’s previous requests for delay, but indicated that its patience and accommodation were “…at an end. The public is not well served by further Board inaction.”

14. On January 23, 2002, Respondent then filed his Reply to the Board’s Reply, arguing that the matter was not “final” and that he would show at the hearing that his actions in the tax preparation were not in violation of accounting or tax law. Respondent argued that the matter had been in “continues (sic) litigation on the issue of ‘false documents’, which were discovered after the Ninth Circuit turned down the appeal in Bailey v. U.S., CV95-267-TUC-RMB case.” Petitioner argued that his actions were validated by the U.S. Tax Court in the agreement that the parties came to, and that they settled as to the issue of the loss on the amended return “which was the subject of the IRS Section 6701 Penalty.” 15. On January 16, 2002, Respondent requested subpoenas for the appearances of I.R.S. personnel, his former attorney, a C.P.A. and the taxpayer. No explanation was provided as to the purpose or relevancy for their testimony. 16. By ORDER dated January 23, 2002, this Tribunal issued its ORDER regarding the issue for the above captioned matter, and denying the requested subpoenas because their requested appearance “appear to relate to possible testimony regarding substance of the underlying ‘final’ case in this matter.” The ORDER sets forth that the “actual substance of the underlying District Court case shall not be reexamined, reviewed or determined at this state administrative level.” Further, the parties were advised that “no additional documents or evidence” should be submitted to the Tribunal prior to the scheduled hearing. 17. On January 24, 2002, a newly retained attorney, on behalf of Respondent, filed his Motion to Continue the matter, indicating that although he had just been contacted, he could not represent Respondent in this matter unless a Continuance could be granted for at least thirty days. Respondent argued that, since the findings on which the Board was proceeding were four years old, that a delay of another thirty days would hardly be unreasonable. 18. On January 25, 2002, the Board filed its Response to the Motion to Continue, indicating its objection to a continuance and its belief that Respondent had had adequate time to secure counsel. 19. By ORDER dated January 25, 2002, this Tribunal denied the last- minute Motion to Continue for the reasons that Respondent was clearly on notice that he could be represented by counsel at the hearing; that he was already represented by counsel in his appeal matters, and had had ample time to seek any additional representation. 20. On January 28, 2002, the day of the hearing, Respondent filed his Motion for Reconsideration for Subpoenas, Witnesses, Exhibits, and Continuance to seek legal counsel. 21. At the hearing, Respondent argued his Motion and this Tribunal denied the Motion for Reconsideration, but admitted the Exhibits[1] presented by Respondent. The Exhibits were presented in a box, unstapled, but according to Respondent, all marked in the upper right hand Respondent corner. On review, not all indexed[2] exhibits could be found. On review, some of those exhibits clearly relate to the underlying background and Respondent’s arguments in his Ninth Circuit cases. 22. The Board presented testimony regarding the documents in its investigation and file, and the status of various cases and appeals filed by Respondent. The Board argued that the underlying case, CV96-0267-TUC was “final” because it had not been appealed to the United States Supreme Court after the denial of rehearing in the Ninth Circuit Court of Appeals. The Board argued, additionally, that this is evident from the type of cases which Respondent began pursuing in U.S. District Court in 2000, and continues at this time in the Ninth Circuit Court of Appeals. The Board argues that a Rule 60(b) Motion to set aside the judgment in CV95-0267-TUC can only be taken after a “final” judgment, and the Court having accepted such a Motion only reinforces the finality of the judgment. The Board argued that his current cases are not an appeal of that underlying final judgment. 23. The Board argues that, by virtue of the final decision in CV95- 0267-TUC, the Respondent’s conduct and circumstances show unprofessional conduct and discreditable act in violation of Arizona Revised Statutes (A.R.S.) §32-741.A.7 and the American Institute of Certified Public Accountants (AICPA) Rule 501 on discreditable acts. The Board argues that these circumstances call for suspension of Respondent’s license. 24. The Board asked for a recommendation for suspension of Certificate 3811-E for one year and probation for three years; for sixteen hours of continuing professional education over and above the standard statutory requirements; that Respondent Bailey reimburse the Board for the costs of the investigation proved up. No costs were presented to the Tribunal. 25. Respondent argued his position that the matter of CV95-0267-TUC is not final because of the ongoing and unfinished litigation he is currently pursuing. Respondent argued that it is not final until a party fails to appeal[3], and until the right to appeal is exhausted[4]. Respondent argued that his attorneys in Texas were working on the case and feel that they have a good chance to overturn the decision because of misconduct by the I.R.S. and the Department of Justice. Respondent argued that his appeal briefs and Opening Briefs [to be submitted to the Tribunal after the hearing] show all the relevant arguments. 26. Federal Rule of Civil Procedure Rule 60(b) provides that the court may relieve a party from a “final judgment, order, or proceeding” for certain specified reasons, among them: newly discovered evidence which could not have been discovered in time to move for a new trial; and, fraud (whether intrinsic or extrinsic), misrepresentation, or other misconduct of the adverse party. Such Rule 60 Motions must be made not more than one year after the judgment was entered. The Rule specifically provides that such a Motion “does not affect the finality of a judgment or suspend its operation.” CONCLUSIONS OF LAW 1. A.R.S. §32-701 et seq. authorizes the Board to regulate and control the profession of Certified Public Accountancy in Arizona. 2. A.A.C. R4-1-455 through R4-1-455.04 incorporate standards and principles of professional conduct with which all accountant registrants must comply. 3. A.R.S. §32-741.A.7 provides that the Board may suspend or revoke any certificate for final judgment in a civil action if the court makes findings of accounting violations, dishonesty, fraud, misrepresentation or breach of fiduciary duty. 4. The Ninth Circuit Court of Appeal’s determinations regarding CV95- 0267-TUC are final, not having been appealed after the denial of rehearing. Therefore, the judgment against Respondent Bailey constitutes such a final judgment. 5. A.A.C. R4-1-456.A.3 requires that accountant registrants shall report to the Board any final judgment in a civil action where the court makes findings of accounting violations, dishonesty, fraud, misrepresentation or breach of fiduciary duty by the accountant registrant.

6. The evidence and record in this matter shows that Donald D. Bailey is in violation of A.R.S. §32-741.A.7, and the associated and related administrative rules. RECOMMENDATION Pursuant to the record in this matter, IT IS RECOMMENDED that the CPA Certificate No. 3811-E issued to Donald D. Bailey be suspended for six months; and IT IS FURTHER RECOMMENDED that Donald D. Bailey be ordered to reimburse the Board in the nature of investigative and administrative costs in the form of a penalty of $500.00; and ///

IT IS FURTHER RECOMMENDED that Donald D. Bailey complete, in addition to the statutorily required amount, sixteen additional continuing professional education hours within one year following the Board’s Order in this matter. RECOMMENDED and DATED this day, March 14, 2002.

______________________________________ Kay A. Abramsohn Administrative Law Judge

Original mailed this ____ day of March, 2002, to:

Lee Prins, Executive Director State Board of Accountancy ATTN: Wendy Johnson 3877 North 7th Street, Suite 106 Phoenix, AZ 85014

By ___________________________ ----------------------- [1] The Exhibits were presented by Respondent in a box, unstapled together. According to Respondent, all were marked in the upper right hand Respondent corner. [2] According to the Respondent’s Index in Respondent’s Motion for Reconsideration, page 3 and 4. Numbers 1-20 were found, however, numbers 21and 22 were not found. [3] For this proposition, Respondent cited “Jacobsen v. General Finance Corp. (2d Dist) 227 Ill App 3d 1089, 170 Ill Dec 441, 592 Ne2d 1121” in his Reply. No copy of the case was provided. [4] For this proposition, Respondent cited “Ellison v Gary (Okla) 702 P2d 360” in his Reply. No copy of the case was provided.

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826