Posted on: 9/20/2012
H. Rowan Leathers III, B. Hart Knight
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Recently, there has been a recent increase in the number of state deceptive trade practice and consumer protection act claims being asserted against accountants either separately or in conjunction with negligence, breach of contract, or breach of fiduciary obligation-based malpractice claims. Virtually every state in this country has enacted a deceptive trade practices act or a consumer protection statute. These statues vary from state to state, but they all have the same basic purpose – protection of the public from unfair or deceptive acts or practices with respect to the sale of goods or services. It is within the context of those who supply services, rather than goods, that the greatest amount of debate has occurred among the various states and their judicial tribunals.
Any number of states have excluded professional services as being beyond the reach of consumer protection statutes. The rationales vary from state to state, but the crux is that true professional services are not commercial in nature. Rather, they fall outside the scope of "trade and commerce." Typically, clients of accountants are protected by enforcement of regulations by various state boards of accountancy and other governmental regulatory bodies. The potential application of state consumer protection statutes to accountants therefore opens the door for the possibility of inconsistent results and inconsistent applications of rules and regulations.
A minority of state consumer protection acts contain express statutory exemptions for certain types of professional services. Maryland, for example, has specifically excluded accountants. (Md. Code Ann., Com. Law, §13-104 - "This title [the Consumer Protection Act] does not apply to [t]he professional services of a certified public accountant …."). Several states and the District of Columbia have also drafted their deceptive trade practices and consumer protection acts with professional service provider exemptions. A number of states such as North Carolina and Texas have opted to exempt professional services rendered "by a member of a learned profession" and providing advice or professional skill, respectively. (N.C. Gen. Stat. §§ 75-1.1 – "For purposes of [the North Carolina consumer protection statute], 'commerce' includes all business activities, however denominated, but does not include professional services rendered by a member of a learned profession." Tex. Bus. & Com. Code Ann. § 17.49(c) – "Nothing in this subchapter shall apply to a claim for damages based on the rendering of a professional service, the essence of which is the providing of advice, judgment, opinion, or similar professional skill.").
Several state courts have judicially created exemptions for accountants based on the rationale that the regulation of such services by a separate and developed specialized body of law on accountancy obviates the need for deceptive trade practices and consumer fraud acts to impose additional regulations. Further attempts at regulation by the courts through the vehicle of deceptive trade practices or consumer protection acts may encroach on the authority of regulatory authorities and lead to inconsistent enforcement in results.
On the other hand, a growing number of jurisdictions have taken the position that some professional services such as accounting services may be governed by their deceptive trade practices or consumer fraud acts. More often than not, however, the courts draw a distinction between the commercial or "entrepreneurial aspects" of the profession and the pure practice of the profession, which relates to the actual competence of the professional. These courts deem the pure practice of the profession as beyond the realm of trade or commerce. These states, while recognizing that claims that allege negligence or professional malpractice are exempt from the consumer protection laws, carve out an exception for the commercial or "entrepreneurial aspects" of the practice of accountancy and allow claims to be asserted against accountants for these aspects. This typically includes claims related to things such as advertising or marketing. SeeVanczak v. Romani, 2002 WL 31466438, at *2 (Conn. Super. Ct. Oct. 18, 2002); The Advest Group, Inc. v. Arthur Andersen, LLP, 1998 WL 457697, at *7-*8 (Conn. Super. Ct. July 28, 1998).
The authors handle many accounting malpractice claims in Tennessee. Claims for professional negligence typically cannot be pursued pursuant to the provisions of the Tennessee Consumer Protection Act. Constant v. Wyeth, 352 F.Supp.2d 847, 853-854 (M.D. Tenn. 2003); Proctor v. Chattanooga Orthopedic Group, 270 S.W.3d 56, 59 (Tenn. Ct. App. 2008). This position is consistent with the decisions of courts in other states, such as the New Jersey Court decision in S & D Environmental Services, Inc. v. Rosenberg Rich Baker Berman & Co., PA, 759 A. 2d 360, 369 (N.J. Super. Ct. Law Div. 1999). However, the issue still remains as to whether such claims can be asserted for the commercial or "entrepreneurial aspects" of the practice, including things such as marketing and advertising efforts.
In summary, it seems that there are common threads that run through attempts to assert state deceptive trade practices and consumer protection act claims against accountants for the provision of their services. First, accounting malpractice claims cannot typically be recast as deceptive practice act or consumer protection act claims. Second, the better position seems to be that trade deceptive trade practices and consumer protection act claims against accountants should be limited to those facets of their practice involving the commercial or "entrepreneurial aspects" of the practice.
The increasing number of deceptive trade practices or consumer protection act claims being asserted against them is a troubling development for the accounting profession. In many states, the law is not clear, and it is difficult to easily to defeat such claims. These claims additionally add a layer of damage such as attorneys' fees and treble damages that are not otherwise recoverable within the professional malpractice setting.
H. Rowan Leathers III
B. Hart Knight
Miller & Martin PLLC