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Forty Niner Truck Plaza, Inc., A California Corporation v. Roger Shank

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA


September 20, 2011

FORTY NINER TRUCK PLAZA, INC., A CALIFORNIA CORPORATION; PLAINTIFF,
v.
ROGER SHANK, CPA; DEFENDANT.

The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge

MEMORANDUM AND ORDER

This matter is before the court on plaintiff Forty Niner Truck Plaza, Inc.'s ("plaintiff") motion to file an amended complaint.*fn1 By the motion, plaintiff seeks to add causes of action for the unlawful practice of public accountancy and fraud against defendant Roger Shank.*fn2 Plaintiff maintains that such claims are warranted in light of new facts that came to light in defendant's declaration, filed in support of his motion to dismiss the case for lack of personal jurisdiction.*fn3 Through that declaration, plaintiff states it learned, for the first time, that defendant was not authorized to practice public accountancy or execute tax return documents in California as a paid preparer, despite his representations to plaintiff, over 18 years, that he was qualified and authorized to do so.

Because a scheduling order has yet to issue in this case, plaintiff's motion is governed by Federal Rule of Civil Procedure 15. Pursuant to Rule 15(a), "leave [to amend] is to be freely given when justice so requires." "[L]eave to amend should be granted unless amendment would cause prejudice to the opposing party, is sought in bad faith, is futile, or creates undue delay." Martinez v. Newport Beach, 125 F.3d 777, 785 (9th Cir. 1997).

Defendant's primary basis for opposing the motion is that amendment of the complaint would be futile since plaintiff's proposed claims are not cognizable. However, while defendant discusses at length plaintiff's claim for the unlawful practice of public accountancy, he fails to address plaintiff's separate intentional concealment (fraud) cause of action. As such, with respect to that cause of action, plaintiff's motion is properly granted.

Regarding the public accountancy claim, defendant contends the claim is futile because California law provides him an exemption from the relevant statutory requirements for accountants; namely, California Business & Professions Code § 5050(b) which states that an out-of-state accountant who performs temporary work in California, incident to practice in another state, is exempt from the "practice privilege" requirements provided elsewhere in the Code. Moreover, defendant argues that even if the requirements applied to him, the statute does not provide plaintiff with a private right of action to enforce the statute and seek damages. Instead, the remedy for a violation of the accounting licensing statutes is a disciplinary action by the California Board of Accountancy. See Cal. Bus. & Prof. Code § 5050.2.

Defendant's arguments are unavailing. First, plaintiff may bring its claim for the unlawful practice of public accountancy pursuant to California Business and Professions Code § 17200 et seq., which permits a plaintiff to sue for unlawful business practices defined as "any unlawful, unfair or fraudulent business act or practice[.]" Cal. Bus. & Prof. Code § 17200. Here, plaintiff alleges defendant violated state law by conducting accounting services in California without a valid permit or practice privilege. Cal. Bus. & Prof. Code § 5050(a) (providing that no person can "engage in the practice of public accountancy [in California] unless the person is the holder of a valid permit to practice accountancy issued by the board or a holder of a practice privilege pursuant to Article 5.1"); Cal. Bus. & Prof. Code § 5096(a) (providing the requirements for a non-California licensed accountant to obtain a "practice privilege" to conduct business in California, including notification to the board of the intent to practice in California and payment of certain fees). These violations of law can serve as the predicates for a Section 17200 claim.

While plaintiff is correct that its claim is cognizable via Section 17200, plaintiff is incorrect that it may recover damages pursuant to that statute. A claim under Section 17200 is "equitable in nature; damages cannot be recovered . . . . [Generally stated] prevailing plaintiffs are . . . limited to injunctive relief and restitution." In re Tobacco II Cases, 46 Cal. 4th 298, 312 (2009) (internal quotations and citations omitted).

As to the applicability of Section 5050(b)'s exemption, plaintiff has pled sufficient facts to demonstrate that defendant's practice in California was not "temporary" and "incidental" to his practice in Ohio. Plaintiff has alleged that over eighteen continuous years defendant prepared monthly financial reports for plaintiff, prepared state and federal tax returns for the business and rendered other accounting services for plaintiff, including conducting its payroll. Taken as true, these facts would establish that defendant's business dealings with plaintiff in California were not "temporary" or merely "incidental" to his practice in Ohio. Indeed, this court's order denying defendant's motion for lack of personal jurisdiction would further support such a finding.

As such, the court does not find amendment of the complaint to be futile. Plaintiff has alleged sufficient facts to state cognizable claims against defendant for violation of state accountancy laws and fraud.

Finally, as to the other relevant factors under Rule 15, plaintiff has promptly sought leave to amend following its discovery of new facts contained within defendant's recently filed declaration, and thus, the instant motion is not being brought in bad faith. Additionally, granting leave to amend in this case will cause neither prejudice to defendant nor undue delay, as the case is in its preliminary stages.

Accordingly, for the foregoing reasons, plaintiff's motion for leave to amend is HEREBY GRANTED. Plaintiff shall file and serve a first amended complaint in accordance with this order within 10 days. Defendant may file his response thereto within 20 days after service of the amended complaint.

IT IS SO ORDERED.


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