*1 402 KNIGHT, Individual; M.
Mаry Inc. v. Counseling, DAY, Individual William 300 00-731 S.W.3d Court of Arkansas Supreme delivered Opinion January *2 P.A., Miller, Neihouse & for Krug, by: WayneKrug, Harrington, appellant. VanWinkle, VanWinkle,
Law R. for by: Officesof John John appellee. in Chief issue this ARNOLD, W.H. “Dub” Justice. is whether committee constructive
appeal appellee in the unauthorized of law. fraud by allegedly engaging practice court found no fraud. We with trial court and The trial agree affirm. hereby
The facts of the case are as follows. had hired Appellants William to servicеs. accounting appellee Day perform Appellant clinical social licensed worker had Mary Knight, (L.C.S.W.), her entitled started own business Inc. Ms. Knight Counseling, in the with the was contract State and obtaining Knight process needed to obtain a business for her Ms. entity practice. Knight hired a tax established her as had who attorney company profes- sional limited but she later discovered (PLLC), liability company that it was valid.1 to be going 1994,
In late consulted with Ms. William Knight appellee Day another recommendation. Mr. holds no upon person’s Day profes- certificates; he sional licenses or acts as a tax Ms. practitioner. testified Mr. told her needed to dissolve the Knight PLLC and set a Sub S testified that Ms. up Corporation. Knight Mr. told her he had such and that he would be able experience However, draft all documents. at their initial necessary Mr. referred Ms. to Mr. Oleson and meeting, Knight George Moon, Mr. He later both attorneys. necessary completed J.D. PLLC; and dissolved the Ms. рaperwork Knight subsequently received a of Dissolution for the Certificate PLLC.
After the creation of the Ms. Sub S Knight Corporation,2 Knight It seems that Ms. received such notice from the State. following It Mr. documents and appears Day prepared presented corporate Baker, a in another Brenda licensed social worker brought person, with then Ms. Baker’s work her. Ms. discussed (L.S.W), Knight addition to the in of how to treat her for terms practice payroll she discussed Mr. Ms. testified that with purрoses. fact that Ms. Baker could not be an owner or partner business, occurred, due to the and that if such State’s regulations, license could be in jeopardy. testified told her if Baker
Ms. that Mr. Ms. shareholder in the she would not be as an company, perceived owner and that she could be treated the same as Ms. for tax treated; and, Ms. Baker was so Mr. purposes. Day pre- Ms. tax for 1994. returns pared Knight’s personal *3 Later, 1997, in or of Mr. told Ms. January February Knight that he wanted to his client bаse for reasons lighten personal her referred to Dan another accountant. Downing, After with Mr. he told Ms. after meeting Downing, Knight, documents, her tax had not been reviewing prepared and that she needed to have them amended to remove accurately Ms. Baker as a shareholder. Mr. did not make all of the Downing Bottoms, Ms. later hired filed suggested changes; who Knight Jack tax amended returns and amended 941 forms on her behalf. Ms. then filed a of cause action William against Day allеging of law without a license. accounting malpractice illegal practice 5, 2000, trial on the trial Following court one-day January stated its failure to find that fraud or of fact had misrepresentation occurred; the court found that Ms. failed on her complaint for and also failed on accounting her for malpractice complaint fraud and The trial court issued on its order misrepresentation. 5, 22, on (filed with January February 2000) dismissing both counts of and fraud. It is prejudice acсounting malpractice from that order that the instant is taken. assert as appeal Appellants the on that the trial court erred only point appeal finding had not committed fraud constructive appellee by engaging unauthorized of law. practice signature: them to Ms. for her the articles of the franchise incorporation, corporate (Arkansas 1103), tax election form, an as a a consent form Subchapter organizational meeting, meeting action taken in lieu of an directors, minutes of a of special
and the resolution for the authorization of loans. standard of review on bench trials for is appeal the trial were erroneous or whether judge’s findings clearly clearly of the evidence. SeeFordMotor Credit Co. preponderance against Ellison, 357, 361, 464, 334 Ark. 974 S.W.2d This (1998). v. reviews the evidence in the most favorable to the Court light all inferences in favor of the Id. Dis resolving appellee, appellee. faсts and determinations witnesses are within credibility puted of the Id. factfinder. province
Here,
assert that
committed con
appellants
appellee
fraud,
fraud.3
structive
To establish
must show:
a false
plaintiff
(1)
fact;
of material
(2)
representation
knowledge
representa
is
or
tion
false
that there is insufficient evidence
which to
upon
make the
intent to induce action
representation; (3)
or inaction in
refiance
upon
(4)
rebanee on the
representation;
justifiable
rep
resentation; and (5)
suffered as a result
rebanee.
damage
Scollard,
83,
Scollardv.
329 Ark.
Constructive fraud is defined as a breach of a
or
which,
equitable duty
of the moral
of the fraud
irrespective
guilt
feasor, the law declares fraudulent because of its
to deceive
tendency
*4
others. Neither actual
nor intent to
dishonesty
deceive is an essen
tial
Coe,
element. See
RLI Ins. Co. v.
306 Ark.
Appellants held argue himself out as appebee having skill and requisite to draft the ability docu- necessary corporate ments. state that Appebants to have the appebee’ssuggestion docu- ments reviewed and by have his or attorney her name entered as counsel did not come corporate until six months after the corpora- 3 It should although be noted that actual fraud in their appellants pled complaint, argued objection constructive fraud at trial, without they by appellee. 4 In Farm Bureau, the Court labeled these elements as those that must inadvertently be established to constructive fraud, when are prove the elements of fraud, actually rather than constructivefraud. assert that because the tion was formed. Appellants improperly was not formed under the Arkansas Profes- properly corporation Act, Mr. himself out as sional Day’s holding compe- Corporations tent to services in constituted the consulting provide of a material “of the fact” and communication misrepresentation that he should have known that the was false. representation that intended to induce action in allege
Appellants appellee reliance on his such that Ms. would representation employ $600.00. him for the sum of that Ms. Appellants argue suffered her in that was company damages corporation improp- structured, the sums for the erly including paid appellee formation and all sums to correct improper corporation expended the deficiencies. further that maintain committed construc-
Appellants appellee tive fraud when discussed whether Brenda Baker was at a licen- оfficer, director, sure level sufficient to be an shareholder assert that held himself professional corporation. Appellants appellee out as one of this determination and that he capable making knew or should have that known such was false. representation intended to Again, cause reliance on appellants allege appellee and that Ms. relied on what representation Knight justifiably advice, she such that she suffered thought professional damages, considerable fees in including accounting amending corporate 941s, returns and and incurred considerable and interest penalties with the late taxes. payment payroll conclude that the fact
Appellants appellee provided legal advice to of stock in what should appellants regarding ownership have been a and the fact that he held professional corporation, himself out as capable preparing properly documents, is sufficient action to con- drafting corporate improper fact, claim, stitute constructive fraud. In there is such a appellants to this be it should deemed the Court to danger type activity, be se constructive fraud. We with the assertions of the per disagree appellants. case,
In this have failed to even the first appellants prove *5 fraud, is, element of a false of material fact. representation never or stated he that was an Appellee implied attorney. Although testified thаt Mr. did tell her that he Mary not appellant review all Mr. Moon to and Oleson with Mr. had an agreement documents her that all he told documents, testified Mr. Day his dissolution, including from beginning, were prepared above, dis- As stated an attorney. reviewed by to be need would within witnesses are squarely the credibility and facts puted court. See the trial factfinder, in this case which was of the province Ellison, The trial court clearly Co. v. supra. Credit Motor Ford at court’s findings as evidenced by Mr. testimony, Day’s believed trial: a he was not she knew that and lawyer was not told her he He to call and she calls two lawyers names of He them gave
lawyer. in, Mr. Bond and doesn’t and she sees to go chooses not one and he has committed and see that of the papers him review all have to talk to her all kinds opportunities he’s given . . . Again, fraud. to, I think she’s hard-pressed not if she chooses lawyers, over my the wool say, “Judge, pulled in this court and come I getting have idea that was any me I didn’t dupеd and he eyes And because of his actions.” the cleaners to be taken to ready case show. the facts the that’s just letter, dated sent Mary Knight appellant Additionally, appellee 1995, which stated part: June If you documents. necessary and other Enclosed is the By-laws necessary me a call. It will be give have any questions please the following. complete seal.
1. Obtain in front of of stock and insert it a desired 2. Obtain specimen entitled, FOR AUTHORIZA- documents “RESOLUTION LOAN(S).” TION OF CORPORATE documents. of choice to hold these 3. Obtain book and have his reviewedby your attorney 4. Have thesedocuments on the inserted into the location counsel proper name as corporate titled, IN OF TAKEN LIEU “CONSENT TO ACTION form MEETING,” consent 1. page, ORGANIZATION added.) (Emphasis that Mr. in this demonstrates
The record case clearly to be reviewed an attorney documents that were by was preparing of the all ramifications needed to discuss and that appellants told with an appellant Mary attorney. Appellee Ms. reviewed his work attorney, presented to have we hold that with the names of attorneys. Accordingly, *6 trial court did not err when it found that faded to clearly appeEants fraud, constructive or otherwise. prove reasons, For the we above-stated affirm the court’s trial dismis- . sal of for fraud appeEants’ complaint How- misrepresentation. ever, the circumstances this case involve given aEegations law, the unauthorized we direct the Clerk practice to hereby forward a of this to the Arkansas Court copy opinion Supreme Committee on the Unauthorized Practice of Law.
Affirmed.
Glaze, J., dissents.
TOM Glaze, William Justice, dissenting. AppeEee Day’s to decision represent structur- appeEant Mary Knight her constituted ing business constructive fraud counseling which reasons, caused For these I dissent from Knight damages. decision. majority court’s facts are the pertinent is a foEowing: Mary Knight
licensed certified social worker which (L.C.S.W.), requires masters She degree. Inc., her services as performed Knight Counseling, limited professional When liability company (PLLC). Knight became concerned that she lose her with contract might state unless she had accountant, hired an corporation, Knight for Day, advice. Baker, also was Brenda Knight a licensed social bringing business, worker into (LSW), so she her Knight’s voiced concern over whether Baker should be made an owner or partner business since Baker was not a L.C.S.W. told that Baker friend, was a good she wantеd Baker to own 50% of the matters, after corporation, these determined it discussing would be to make Baker a “okay” 50% owner and shareholder of he told corporation; that he could her set business up then to way. Day dissolution for proceeded prepare PLLC and existing documents prepared corporate estabhshing so, business as a In Subchapter corporation. doing prepared the articles of to consent action taken in lieu incorрoration, of an organizational and other meeting, by-laws, related documents. averred he told
Although Day that the docu- ments would need to be reviewed an he conceded that attorney, he did not documents for an to review. any As prepare attorney court, need would while attorney prepare trial found by documents, did so instead. Most important, and file such that, to an or researching without attorney admitted speaking her be a issue, allowed share- decidеd Baker’s license legally *7 he S Day and owner new Subchapter corporation. holder as follows: testified even licensewasgoodenough
I madethe determination [Baker’s] to and I did not talk to a about lawyer it was not though equal [Knight’s] I determination.I knewat thetimethat I wasmaking it madethat before that the licensewas not to be a going problem, thedetermination I was with the rules and the Arkansas Social dealing regulationsof the Arkansas Worker’sBoard and the statutesin Arkansasgoverning Board, that I was withthe lawsin SocialWorker’s dealing corporate Arkansas all those meshed the State and how things together. for setting One of reasons as S [Knight] up Subchapter [a] was because could be of her paid only she corporation part Service, income at a level to the Internal Revenue as acceptable and over and above those could wages, wages company pay FICA, out as dividends and would have she not money pаy because a sole both ends FICA and that is 15.3 proprietor pays added.) percent. (Emphasis he concluded that based his decision to
Interestingly, Day include Baker as an owner in the on one S Subchapter of his client’s that Baker’s licensure would allow her to be a opinion of a further conceded that he did not tell Day part corporation.1 said, to discuss this issue with an but instead “I had attorney, counselor, talked to and I had been around already corporatiоns, and I had talked to other accountants and I it would be thought words, In other held himself out as Day okay.” having expertise to make such a decision. evidence reflects that not foregoing Day only erroneously
informed that it was for Baker to be an legally permissible owner/shareholder Knight’s newly incorporated Subchapter business, but and filed the also counseling prepared stated, documents to include Baker as an owner/shareholder. As he he did talk with or send to an this attorney regarding fact, issue. In the trial court found that made the misrep- had a client who and after a counselor, conversa apparently telephone client, tion with that he decided that Baker could be a shareholder. resentation that Baker’s license no based on posed problem solely client, to his who was a calling speaking counselor. After heard the having the trial testimony presented by Knight, court considered and denied directed-verdict motion Day’s to dis- occurred, miss fraud claim. claimed no fraud because never that he was an represented Knight attorney. Knight’s counsel with the responded following argument:
The fraud does not have to be malicious. You can have constructive fraud when the knew or should have person known were doing something and in this he knew wrong, case or should have known he was doing In fact something wrong. testified “I have had lots [Day] of opportunities to do these things and I send them away because need attorneys to do that.”
Well he is right, do need attorneys to do that. But in this case *8 he decided to all of these prepare documents and file the documents. The second is also the misrepresentation unauthorized prac- law,
tice of and .. . more severe is the misrepresentation that the licensure was that the okay, between the licensure levels was parties difference of Mr. okay. made that Day statute, determination not with the review the of not with review committee, regulations social work he made of (Emphasis added.) that determination client. calling After the court Knight’s response, denied directed- again Day’s verdict motion. witnesses Following were then called ruling, accountant, Dan by Day. an testified that Downey, he did not find with the any problems work and that if Day prepared, Day prepared Knight’s documents and told her to have an attorney them, review However, “saw Downing with that.” nothing wrong further it Downey that was not explained for an accоuntant proper Arkansas law with interpret to who regard could be a shareholder — in a that an attorney’s is on opinion required issue. witness, next called Baker
Day as a and other among things, Baker said that told her it all for her to be a share- right holder in and also related the corporation, following:
I had informed Mr. that I could not be an owner. I told Mr. personally that I only found out later that Mr. had set me as a up and he shareholder did tell me that it was to do alright [sic] house, a lot оf Mr. I ran Day’s I remember going it this way. occasion, Mr. on one a lot of papers, and up errands and picked it, I not be reminded him that could and I I talked about and said, [Knight] And he does why licensure. my owner because of over, I me, this to me over and up bringing telling keep keep I be an owner clear that cannot both want to be very said we that I in a He year ago. in a letter turned as I had stated way any shareholder, said, much as should you not taxed as you’re well as a be, and I what I am doing. I am it this know way, that is why doing added.) I that he did. (Emphasis So assumed trial, trial made the of the judge following At the end failed to her claims: before holding prove findings fraud and deceit I had a hard time to the issue According because in my opinion the directed verdict not granting [earlier] a fraudulent concerning misrepresen- there was a lack of evidence knew or should have known was false. tation of a fact that [Day] was not a her he was not a and she knew that he lawyer told [Day] оf two to call and she calls lawyers He them names lawyer. gave in and she sees Mr. Bond [attorney] one and chooses not to go has all of the and see that he [Day] doesn’t have him review papers law, If the unauthorized then committed fraud. this is practice committee, there’s a committee that studies we need to have the there. and let’s it out down fight those things legal profession is committed or [Day] misrepre- But burden to convinceme that your fraud has to I don’t find that occurred and she [Knight] sentationoffact. has [Day] relied on a misrepresentation. Again, have justifiably and if she her all kinds of to talk to lawyers, given opportunities to, chooses I think she’s to come in this court hard-pressed over and he me and my eyes wool say, “Judge, pulled duped *9 the I didn’t have idea that I was to be taken to any getting ready facts cleaners because of his actions.” And that’s not the the just stated, For the to be my finding case show. reasons it’s going . . . for fraud and misrepresen- has failed on her Knight complaint tation .... not trial was case does judge wrong. Knight’s against Day an on the fact that knew was not
rise or fall only Knight Day or because did not avail herself of the attorney Knight opportunity above, as a mentioned held himself out to see an As attorney. Day when who knew what he was Knight’s doing incorporating person that it all to make and Baker and was business assuring Knight right Baker, I am told “I know what Baker a shareholder. Day clearly of He Baker could be made a sharеholder/owner asserted doing.” 412 venture, S but that newly incorporated Subchapter
Knight’s repre- false, sentation was to sustain causing damages. indisputably Knight trial, In trial remarks at end it the the of is reading judge’s clear found the five elements tort of the of abundantly only fraud, deceit were not and never mentioned constructive proved which In Knight and the alleged, argued, proved.2 particular, judge found had failed to on a Knight rely justifiably misrepresentation because to to talk How Day gave Knight opportunities lawyers. ever, it is not that actual fraud to state cause exist a of necessary action; it is if v. sufficient constructive fraud exists. See Roach Con cordBoat Ark. S.W.2d This court Corp., (1994). fraud, has held times that there be or constructive fraud many may law, even when there is a absence of moral complete any or evil Id. also intention. It is well settled that wrong representa tions are construed when as fraudulent are made someone by who, unaware of their them be asserts to true. Id. That is falsity, what in the instant case. exactly happened from whether or not Aside to gave Knight opportunity contact an clearly advised both attorney, very erroneously and Baker that Baker could become an owner/shareholder of S Knight’s Such a newly incorporated business. Subchapter of these to be facts untrue and constituted misrepresentation proved Moreover, constructive fraud. acted on this material misrepre- sentatiоn the documents to preparing make filing required Baker an owner in since was Certainly, corporation. convinced that his actions were in lawful Baker making proper business, an owner of more Knight’s corporate surely than on justified relying Day’s representations. conclusion,
In the it where states did majority opinion, fact, above, make false is As set out representation wrong. that Baker could be a shareholder in repeatedly represented when, law, in fact аnd she Subchapter could not. This even if believed true misrepresentation, constituted by Day, 2 We have held that five elements establish the tort of deceit: a false representation knowledge fact; a material making or belief on part person representation is false there or that is not sufficient basis of information make such representation an intent induce the other to act acting or refrain from in reliance representation; party justifiable reliance upon the other misrepresentation; upon representation by party *10 taking resulting damages. action; and See Nicholson v. 21, 161, 307 Ark. 818 Century (1991). S.W.2d 254 to incur fees in fraud and caused accounting constructive and to her situa- to correct her business structure remedy damages Service, Internal which has with the Revenue tion questioned did not as an (or taxes she pay) incorporated Subchapter paid fraud and In constructive alleging seeking compensatory company.3 tо which she also damages, requested punitive damages, entitled her case for would be compensatory upon proving damages. reasons, the above I would reverse and remand the trial
For court’s decision.
Russell BERGER v. STATE of Arkansas
CR 00-210
Supreme delivered January Opinion (CPA), Lee Bottoms, a certified accountant testified he had to review public Jack questioning and correct the 1995 tax returns and the IRS the structure of business. Her bill was and there was a balance of a had an fee. He also $250.00 $950.00 regarding amount in the sum of due in connection his work with the IRS $820.00 inquiry.