Appendix — Bates v. State Bar of Ariz.
Supreme Court brief1977
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Supreme Court, v. a a
FILED
NOV L? 1976
APPENDIX
R., CLERK -
IN THE
Supreme Court of the United States
Octoper TerM, 1976
No. 76-316
Joun R. Bares and Van O’STEEN
Appellants,
—V)
State Bar or Arizona,
Appellee.
ON APPEAL FROM THE SUPREME COURT OF ARIZONA
JURISDICTIONAL STATEMENT FILED SEPTEMBER 1, 1976
PROBABLE JURISDICTION NOTED OCTOBER 4, 1976
Pages
Relevant Docket EntrieS.....eeeeceeesl -
Formal Complaint of Special
Local Administrative Conm-
i
TABLE OF CONTiWTS
mittee of the State Bar of
Arizona for District No. 5.....+...6
)v Pr rrrereeseerrreerrrrererrerrrrret. |
Stipulated Pre-trial Order
(State Bar Exhibit Ghd coocecececeooba
Excerpts from Transcript
of proceedings before
, Special Local Admini-
strative Committee of the
State Bar of Arizona for
District No. Pasesasesecececececsouu
State Bar Exhibit #2--Survey
of fourteen Phoenix law
ee
State Bar Exhibit #3--Excerpts
from deposition transcript
of Robert G. Begam, Esq..........276
State Bar Exhibit #4--Excerpts
from deposition transcrip*
of William Helme, Perv rrrrisn: . |,
State Bar Exhibit #5--Excerpts
from deposition transcript
of Mark I. Harrison, Esq.........348
ae he
State Bar Exhibit #6--copy of
Respondents' newspaper ad-
vertisement which appeared
ee eee eeeeEEEEEEEEeeeeeeeeeeeEeEeEeEeEeEeEeeeeEeEEeEeEeEeEeEEeEeE——e
ii
TABLE OF CONTENTS (CONT'D)
Pages
in the Arizona Republic,
February 22, 1976 —TrrryrrTTTrTTtTT. |.
State Bar Exhibit #7--Excerpts
from the Restatement of the
Code of Professional Ethics
of the American Institute
of Certified Public Account-
~ PPT TTTTTITTTTTILITTTTTiiit tC.
State Bar Exhibit #8--Excerpts
from Arizona State Board
of Accountancy Rules and
Regulations .eececeeeeeseeseeeese e430
State Bar Exhibit #9--Excerpts
from Ethical Standards of
the Accounting Profession
by John L. Carey and Wm. O
Doherty ceccccecccccccccccccesess e442
State Bar Exhibit #10--Disci-
plinary Rule 2-102 (A) (6)
(1976) Amending Disciplinary
Rule 2-102 (A) (6), American
Bar ASSOCIAtCION cece ceceseseeeeee e446
Respondents’ Exhibit #11--Let-
ter from Bruce E. Babbitt,
Attorney General of Ari-
zona, to Arizona State
Board of Accountancy....seeceeeeee e449
Respondents’ Exhibit #12--Ex-
cerpts from Arizona Legal
Services brochure ...eeeeeeeeeeee e459
heat? Three
iii
TABLE OF CONTENTS (CONT'D)
Respondents’ Exhibit #17--Table
of cases opened before and
after advertising by Legal
Clinic of Bates & O'Steen .......
Stipulation for Addition to
Record eeeneteeeneeeeeeeeneeneeneeeeeee
Findings of Fact, Conclusions
of Law and Recommendations of
Special Local Administrative
Committee of the State Bar of
Arizona for District No. 5 ......
Respondents' Objection to
Recormendation of the Ad-
ministrative Committee and
Request for Oral Argument
Before the Board of Governors ...
Findings of Fact, Conclusions
of Law and Recommendations of
the Board of Governors of the
State Bar of Arizona .......ceceee
Respondents’ Objection to
Recommendation of Board of
Governors eeeeeeeeeeeeeeeeeeeeeee
Cross-reference to the Opinion
of the Supreme Court of Arizona .
Page
481
483
485
487
489
Wines ete so —
1
RELEVANT DOCKET ENTRIES
Note: The proceeding below was technically
Original with the Arizona Supreme Court.
There is no formal docket entry list. The
following constitutes a list of relevant
entries to the official file and the dates
thereof.
DATE : PROCEEDING
1976
March 2, FORMAL COMPLAINT with ex-
hibit and Notice file’.
March 23, RESPONDENTS’ Memorandum of
Law filed.
March 23, RESPONDENTS’ Notice of Fac-
tual Tssues filed.
March 23, SYNOPTICAL STA™"MENT of Po-
sition of Complainant filed.
March 23, RESPONDENTS’ ANSWER filed.
April 8, STIPULATION for Addition to
Record filed.
April 8, FINDINGS of Fact, Conclusi«r« :.
of Law, and Recommendations
SD a ——- oe ee ee =
DATE PROCEEDINGS
of Speciui Local Admini-
strative Committee of the
State Bar of Arizona for
District No. 5, signec.
April 27, RESPONDENTS’ Objection to
Recommendation of the Ad-
ministrative Committec and
Request for Oral Argument
before the Board of Gover-
nors, filed.
April 30,
of Law and Recommendations
of the Board of Governors
of the State Bar of Ari-
zona, signed.
May 4, RESPONDENTS' Objection to
Recommendations of Board
of Governors, filed.
May 7, STIPULATION and Order re-
garding timing for filing
of briefs and waiver of
FINDINGS of Fact, Conclusions
Cl Al aig ON ce ll ERIE Bites Poe Rt Att ow
a ae era
May
May
May
June
June
DATE
7,
7,
17,
3
PROCEEDINGS
Oral argument filed,
TRANSCRIPT of proceedings
before the Special Local
Administrative Committes
of the State Bar of Ari-
zona for District No. 5,
with Exhibits, filed.
BRIEF of the State Bar of
Arizona to the Supreme
Court of Arizona, filed.
BRIEF of Respondents to the
Supreme Court of Arizona,
filed.
Board of Governors of the
State Bar of Arizona
hearing transcript, filed.
MEMORANDUM re: Supplemental
Citation with Exhibit and
Affidavit of Service, filed.
SUPPLEMENTAL memorandum of
Respondent and Affidavit
nab ate Curette enema
4 5
DATE PROCEEDINGS DATE PROCEEDINGS
of Service, filed. | August 9, ORDER of Mr. Justice
July 12, LETTER from William C. Canby, | Rehnquist staying order of
Jr. to The Honorable James | censure, filed.
Duke Cameron dated July 9,
1976 transmitting a copy o
the U.S. Supreme Court de-
cision in Cantor v. Detroit
Edison, Co. (No. 75-122
decided July 6, 1976),
filed.
July 26, OPINION and ORDER of the Ari-
zona Supreme Court entered.
July 26, NOTICE of Decision by Clif-
ford H. Ward, Clerk of the
Arizona Supreme Court,
filed.
July 28, NOTICE of Appeal to the
United States Supreme Court
and Proof of Service
filed.
ee ee
6
SPECIAL LOCAL ADMINISTRATIVE COMMITTEE
OF THE
STATE BAR OF ARIZONA
FOR
DISTRICT NO. 5
In the Matter of a Member of
The State Bar of Arizona
JOHN R. BATES and VAN No. 76-1-S16
)
)
)
)
O'STEEN, )
)
)
)
Respondents.
FORMAL COMPLAINT
(Dated March 2, 1976)
TO: JOHN R. BATES and VAN O'STEEN, Respondents;
Complaint is made against you as follows:
1. Respondents are members of the State
Bar of Arizona.
2. On February 22, 1976 Respondents
caused to be published in a newspaper, The
Arizona Republic, an advertisement offering
Respondents' legal services and publicizing
fees. A copy of this advertisement is attached
as Exhibit A to this complaint.
3. Publication of this advertisement is
—~—
eee ee ere —
oe re
ee eee eee
7
in violation of the Code of Professional Re-
sponsibility of the State Bar of Arizona,
specifically Disciplinary Rule 2-101 (B).
4. This formal complaint is issued and
served by order of Special Local Administrative
Committee S16 of the State Bar of Arizona pur-
Suant to and in accordan::- with the rules of
the Supreme Court of Arizona pertaining to
discipline of attorneys.
Dated: March 2, 1976
By: Philip E. von Ammon
Chairman - Special
Local Administrative
Committee
Exhibit A, copy of advertisement which ap-
peared in the Arizona Republic on February 22,
1976, appears on page 409, infra.
8
SPECIAL LOCAL ADMINISTRATIVE COMMITTEE
OF THE
STATE BAR OF ARIZONA
FOR
DISTRICT NO. 4A
In the Matter of a Member
Of the State Bar of Arizona ) No. 76-1-616
)
)
ANSWER
(Dated March 23, 1976)
For their answer to the Formal Com-
plaint in the proceedings herein, Respon-
dents John R. Bates and Van O'Steen allege
as follows:
1. Allegations of paragraph 1 are
admitted.
2. Allegations of paragraph 2 are
admitted.
3. Allegations of paragraph 3 are
admitted, but Respondents allege the in-
validity of Disciplinary Rule 2-101(B) for
the reasons stated in paragraphs 5 through
- 7 te Sete ed
12 of this Answer.
4. Not having sufficient information
to form a belief, Respondents deny the al-
legations of paragraph 4.
5. Respondents allege that Discipli-
nary Rule 2-101(B) on its face and as enforced
violates the rights of Respondents to freedom
of speech and press under the First and Four-
teenth Amendments to the United States
Constitution.
6. Respondents allege that Disciplinary
Rule 2-101(B) on its face and as enforced vio-
lates the First, Sixth and Fourteenth Amend-
ment rights of potential clients to receive
information concerning the availability and
cost of legal services.
7. Respondents allege that Disciplinary
Rule 2-101(B) on its face and as enforced vio-
lates Respondents' Fourteenth Amendment right
to equal protection of the laws in that it
generally prohibits advertising by attorneys
10
in private practice but permits advertising
by qualified legal assistance organizations,
and permits attorneys involved in political
or (2) organizational activities to publicize
themselves as attorneys.
8. Respondents allege that Disciplinary
Rule 2-101(B) on its face and as enforced
violates Respondents’ Fourteenth Amendment
right to due process of law in that its pro-
hibitions are so vague as to be incapable of
informing a person of normal understanding
what is prohibited and what is not.
9. Respondents allege that Disciplinary
Rule 2-101(B) on its face and as enforced con-
stitutes a violation of 15 U.S.C. §1 (Sherman
Act) in that it is an instrumental part of a
combination and conspiracy to restrain inter-
state trade and commerce in the practice of
law, and interstate trade and commerce which
depends upon the practice of law.
10. Respondents allege that Disciplinary
1l
Rule 2-101(B) on its face and as enforced
constitutes a violation of 15 U.S.C. §2
(Sherman Act) in that it is an instrumental
part of a monopoly and attempt to monopolize
interstate trade and commerce in the practice
of law.
ll. Respondents allege that Disciplinary
Rule 2-101(B) on its face and as enforced con-
stitutes a violation of Ariz. Rev. Stat. §44-
1402 in that it is an instrumental part of a
combination and conspiracy to restrain trade
Or commerce in the practice of law.
12. Respondents allege that Disciplinary
Rule 2-101(B) on its face and as enforced con-
stitutes a violation of Ariz. Rev. Stat. §44-
1403 in that it is an instrumental part of a
monopoly or attempt to monopolize trade or
commerce in the practice of law.
13. Respondents allege that the State
Bar disciplinary hearing procedures under
which Respondents’ case is being heard vio-
late Respondents’ rights to due process of
12
law under the Fourteenth Amendment in that
initial hearings and first review are con-
ducted by practitioners interested in the
outcome of the case by reason of their en-
gagement in the private practice of (3) law in
competition with Respondents and others who
may wish to advertise.
WHEREFORE Respondents pray that this
proceeding be dismissed.
Dated March 23, 1976
By: William C. Canby, Jr.
Attorney for Respondents
x «rk
STIPULATED PRETRIAL ORDER
(Title omitted in printing)
(Dated March 25, 1976)
The parties respectfully request that
the Disciplinary Committee enter a pretrial
order as follows:
1. There is no dispute that Respondents
violated Disciplinary Rule 2-101(B), and no
evidence need be taken on the question of
13
whether they caused the particular adver-
tisement to be printed.
2. The Respondents stand on their position
that the rule is invalid and not properly en-
forceable, while the complainant takes the
opposite view. The parties also differ as to
the validity of the disciplinary procedure.
The views of the parties in these respects
have been set forth in memoranda already filed.
Without in any respect waiving their positions,
the parties waive oral argument on these ques-
tions, and stand on their positions as taken in
writing.
3. The parties request the Committee to
allow up to a day for the taking of evi-
dence on this matter. The parties will work
out for themselves a reasonable allocation
of time to their mutual satisfaction. The
State Bar of Arizona will produce for cross-
examination the president of the State Bar of
Arizona and the Respondents will produce for
14
cross-examination the two individuals against
whom complaint has been made.
(2) 4. Both parties waive objections as to
both foundation and relevance as to any ex-
hibits either side may wish to offer or any
live testimony either side may wish to de-
velop. In so doing, the parties are not
acknowledging that any particular item of
evidence is, in fact, truly relevant to the
case. The object is, rather, to permit a
record to be made which will permit each
side to feel that it can fairly present its
contentions both here and in other tribunals
to which this matter may pass. Each party
reserves the right to contend that whatever
evidence does come into the record may be of
no weight or persuasiveness. This stipulation
reflects the wish of the parties not to con-
sume time over points of evidence. Each side
does, however, reserve the right to object to
what it may regard as prejudicial leading or
15
excessive hearsay, agreeing that any ques-
tion of hearsay shall be passed upon in terns
of whether the contested material — a
persuasive value.
5. The parties request the speedy pro-
duction of a transcript. They reserve the
right to request at the close of the hearing
the possibility of submitting supplementary
memoranda.
LEWIS & ROCA
By: Orme Lewis and
John P. Frank
Attorneys for The
State Bar of Arizona
By: William C. Canby, Jr.
Attorney for Respondents
x* ze& kk &
(3)
ORDER
The foregoing stipulation is accepted
and adopted as a pretrial order. This mat-
ter shall be heard on the 7th day of April,
1976, at 1700 First National Bank Plaza at
16
1:00 o'clock p.m.
Dated: March 25, 1976
By: Philip von Ammon,
Chairman
xe &
SPECIAL LOCAL ADMINISTRATIVE COMMITTEE
OF THE
STATE BAR OF ARIZONA
FOR
DISTRICT NO. 5
In the Matter of a Member of
The State Bar of Arizona
JOHN R. BATES and No. 76-1-S16
)
)
)
)
VAN O'STEEN,
)
)
Respondents.
TRANSCRIPT OF PROCEEDINGS
x eee
(4)
THE CHAIRMAN: This is the time and
place set for the hearing of the Special
Local Administrative Committee of the
State Bar of Arizona for District No. 5
17
in the matter of a Member of the State
Bar of Arizona, John R. Bates and Van
O'Steen, Respondents, No.: 76-1-S16.
The Members of the Administrative
Committee being Carl Divelbiss, Mr. Ivan
Robinette, and Mr. Philip von Ammon are
present.
I'd like to hear the appearance also
on behalf of the parties.
MR. FRANK: For the Complainant, my
partner, Mr. Orme Lewis will join me in
a moment. I will proceed, however, in
the meantime I'm John P. Frank, and I
have with me on table and am receiving
papers from a paralegal assistant, Miss
Lee.
THE CHAIRMAN: Mr. Canby?
MR. CANBY: My name is William C.
Canby, Jr. I'm attorney for both Respon-
dents, Mr. Bates and Mr. O'Steen.
(5) THE CHAIRMAN: I'd like to have the
18
original handed to the court reporter,
who will mark it as Bar Exhibit No. l, if
there is no objection, Mr. Canby.
MR. CANBY: No objection.
THE CHAIRMAN: It may be received.
(Document marked Bar Exhibit No.
1 for identification by the Notary, and re-
ceived in evidence.)
MR. FRANK: As Bar Exhibit No. 2, I
advise the panel that we have made certain
inquiries, as particular questions to some
14 Phoenix law firms. The answers have been
compiled into Exhibit 2. We have stipulated
that Exhibit 2 may be admitted and that the
underlying letters will be maintained in our
office, should either Mr. Canby or this panel
or any later person reviewing the matter have
any desire at any later time to have access
to them. We have in this Exhibit substituted
anonymous terms for (6) the names of the
firms answering the particular questions, al-
19
though, we have listed the firms, and we have
Stipulated that that may be done.
It is further stipulated between us
that we have offered these persons for cross-
examination. The other side waives cross-
examination.
It is stipulated that the ap-
propriate partners from each of these firms
would give these answers to these questions
if they were asked orally.
Mr. Canby, have I fairly stated our
stipulation?
MR. CANBY: Yes. So stipulated.
MR. FRANK: I offer the original of
this as Bar Exhibit No. 2, and give copies
to each member of the panel.
(Document marked Bar Exhibit No. 2 for
identification by the Notary.)
THE CHAIRMAN: Bar Exhibit No. 2 may be
received in evidence, subject to the stipu-
lation of the parties as stated for the
20
record by Mr. Frank.
(Bar Exhibit No. 2 received in evidence.)
MR. FRANK: There is a further stipu-
lation I should have mentioned. One of the
14 firms which has answered the questionnaire
is Lewis and Roca, of which I am a member.
So, as to be scrupulously careful to avoid
any problem about being both witness and
counsel in the same (7) matter, Mr. Canby
has stipulated with me that Lewis and Roca
might give answers to the questions; that
they might be included and I might none-
theless appear with Mr. Lewis as counsel,
and there would be no prejudice on this to
the other side; the answers being strictly
informational in any way.
Mr. Canby, have I fairly stated that?
MR. CANBY: So stipulated.
THE CHAIRMAN: In view of the stipu-
lation, the Respondents waive the right to
examine any persons who are spokesman on
21
behalf of these firms, would seem to me,
you wouldn't be under any liability any-
way, Mr. Frank.
MR. FRANK: Now, we have taken a num-
ber of depositions -- indeed, most of the
testimony is probably in deposition by now.
I tender to the reporter the originals of
the deposition of Doctor Helme and Robert
Begam, noting simply by way of identifi-
cation that Doctor Helme testified concern-
ing the professional ethics of the medical
profession, for such bearing as that may
have on this case, and Mr. Begam testified
in his capacity as president-elect of the
American Trial Lawyers Association.
THE CHAIRMAN: Very well, the Deposi-
tion of Robert Begam will be marked as
Exhibit No. 3, and if there is no objec-
tion, the deposition will be received in
evidence.
(8) Is there any objection to the
22
receipt of Deposition of Robert Begam, Ex-
hibit No. 3?
MR. CANBY: No objection, subject, of
course, to our stipulation.
MR. FRANK: Yes. Our stipulation, I
will note, again, for the panel, it is:
Since this is not a jury case, that you wili
give such weight as it deserves to any pcr-
tion of the materials. That's all.
MR. CANBY: No objection.
(Deposition of Robert G. Begam, Esquire,
marked Bar Exhibit No. 3 for identification
by the Notary.)
THE CHAIRMAN: Very well, Exhibit No.
3 will be received.
(Bar Exhibit No. 3 received in evi-
dence.)
THE CHAIRMAN: The deposition of William
Helme, H-e-l-m-e may be marked Exhibit No.
4 and may be received subject to the same
stipulation.
ee -
23
(Deposition of William Helme, M.D. was
marked Bar Exhibit No. 4 for identification
by the Notary and received in evidence.)
MR. FRANK: Next, Mr. Mark Harrison,
the President of the Arizona State Bar was
that in a technical sense perhaps this is
his deposition, but I had considerable direct,
and I'd ask leave to offer it by stipulation,
as Bar Exhibit next in (9) number.
THE CHAIRMAN: Any objection, Mr. Canby?
MR. CANBY: No objection.
THE CHAIRMAN: It may be received.
(Deposition of Mark I. Harrison, Esquire
was marked Bar Exhibit No. 5 for identification
by the Notary, and received in evidence.)
MR FRANK: A point of information, Mr.
Chairman, I hold a copy of the advertisement
which is the subject of this case. It is
attached to the Complaint. Is there any
point in having it marked, espewially as an
Exhibit, as well?
24
THE CHAIRMAN: Yes.
MR. FRANK: All right. I offer the
advertisement as the Exhibit next in number.
THE CHAIRMAN: That's Bar Exhibit No. 6.
Absent any objection, it may be received.
MR. CANBY: No objection.
THE CHAIRMAN: If you can figure out some
evidentury (sic) grounds to exclude it, Mr.
Canby, I'd certainly be interested in your
expose.
MR. CANBY: Especially since it's been
admitted in our Answer.
(Copy of ad marked Bar Exhibit No. 6 for
identification by the Notary and received in
evidence. )
(10) MR. FRANK: Mr. Chairman, I now offer
as the next three Exhibits three documents re-
lating to the profession of accounting, which
will be taken up in the course of testimony by
Mr. Davidson, but since they will be admitted
by stipulation, I present them at this time.
oe ee +
25
THE CHAIRMAN: I'd like to have them
marked separately. You can choose the order,
I don't care, but tell us what it is.
What is no. 7?
MR. FRANK: No. 7 is the “restatement
(sic) of the Code of Professional Ethics"
of the accounting profession.
THE CHAIRMAN: Any objection?
MR. CANBY: Let me take a quick look
at those.
MR. FRANK: (Presenting)
MR. CANBY: No objection.
THE CHAIRMAN: Seven may be received,
subject to stipulation of the parties.
(Booklet marked Bar Exhibit No. 7 and
received in evidence, )
THE CHAIRMAN: No. 8?
MR. FRANK: These are the "Rules and
Regulations" of the "Arizona State Board
of Accountancy".
(Booklet marked Bar Exhibit No. 8 for
26
identification by the Notary.)
THE CHAIRMAN: Any objection to that,
Mr. Canby?
(11) MR. CANBY: Again, may I see that
for a moment?
THE CHAIRMAN: Certainly.
MR. CANBY: No objection.
THE CHAIRMAN: It will be received.
(Bar Exhibit No. 8 received in evi-
dence.)
THE CHAIRMAN: No. 9?
MR. FRANK: No. 9 is an excerpt from what
Mr. Davidson will identify as the standard
text on the “Ethical Standards of the Ac-
counting Profession” by Messrs. Carey and
Doherty.
MR. CANBY: No objection.
THE CHAIRMAN: Did you say you had no
objection, Mr. Canby?
MR. CANBY: No objection.
THE CHAIRMAN: Bar Exhibit No. 9 may
ee eS ete eee
27
be received in evidence.
(Copy of excerpt marked Bar Exhibit
No. 9 for identification by the Notary,
and received in evidence. )
MR. FRANK: Exhibit 10, I'm told, by
inadvertence is not in the room, but I'm
told it will be brought in. I ask to hold
the number. What it is is the revised
disciplinary rule relating to discipline of
the American Bar Association as adopted by
the House of Delegates in February of this
year, and by oversight it was not brought
into the room,
(12) May I hold the number for that
purpose and tender it as rapidly as it's
brought in?
THE CHAIRMAN: You certainly may.
| x* eke ;
LYMAN A. DAVIDSON, being sworn as a
witness by the Chairman, was examined and
testifies as follows:
28
(13)
EXAMINATION
By Mr. Frank:
Q. Mr. Davidson, until recently you
have been engaged in the profession of
public accountancy, I believe?
A. Yes.
Q. I think you have just retired; is
that right?
A. September 30th.
Q. With what firm were you associated?
A. I was partner in charge of Ernst
& Ernst, here at Phoenix.
Q. For how many years had you been
in that position?
A. Well, I opened the office 16 years
ago, and the one in Tucson 14 years ago.
Q. So that you were the officer in
charge for the entire state; is that correct?
A. That's correct.
. Q. Had you been in the profession of
29
accountancy prior to that time?
A. I had been in totally for 32 years,
in which seven was on my own account.
MR. FRANK: Mr. Canby, I don't want
to spend time needlessly on further founda-
tion. May we have a stipulation that Mr.
Davidson is an expert in the field of ac-
counting?
(14)MR. CANBY: Yes.
THE CHAIRMAN: You didn't specifically
establish whether he was a certified pub-
lic accountant.
MR. FRANK Thank you.
Q. BY MR. FRANK: Mr. Davidson,
are you a certified public accountant?
A. Yes.
Q. For how many years have you been?
A. I think that that figure would be
around 30 years. |
Q. Mr. Davidson, is there some
national organization in the field of pub-
30
lic accounting?
A. Yes.
Q. What is that organization?
A. The American Institute of CPA's.
Q. Are you a member of that organi-
A. Yes.
Q. Is there also a state organization?
A. The Arizona Society of CPA's.
Q. What proportion of the members of
the accounting profession; that is to say
of the certified public accountants of the
state are members of the state association?
A. I don't have an exact figure avail-
able.
Q. Approximately?
A. Approximately 75 percent.
(15) Q. What offices, if any, have
you held in the state profession -- state
association?
A. I have been a member of the Ethics
31
Committee; a number of other comm:ti:ces, and
served on the Board of the Society fora
number of years, including the last one as
president.
Q. Mr. Davidson, in addition to these
two organizations, which I take it are
voluntary organizations -- is that correct?
A. That's correct.
Q. -- is there also some state re-
gulatory agency in the field of accounting?
A. The State Board of Accountants.
THE CHAIRMAN: Excuse me, Mr. Frank.
The record will show that Mr. Orme Lewis
appearing as additional counsel or assoc-
iate counsel for the State Bar has joined
us in the room.
MR. LEWIS: My apologies.
Q. BY MR. FRANK: Mr. Davidson, I
believe the answer you just gave me is that
there is something called the State Board
of Accountancy; is that correct?
\y
32
A. Yes, that's correct.
Q. And the State Board of Accountancy
is, briefly speaking, what?
A. It's a regulatory state agency.
(16) Q. Established under state law?
A. Correct.
Q. I show you what has been marked into
evidence as Exhibit 8, headed, "Arizona State
Board of Accountancy Rules and Regulations",
and ask you what that is? (Presenting).
Mr. Davidson, are those the regulations
of the accounting profession?
A. These are the Rules and Regulations
of the Arizona State Board of Accountancy.
Q. Have you had any official or-
ganization capacity with that organization?
A. I was a member of the State Board,
which ended last year, June '74 -- or '75.
I was president of that group.
Q. Mr. Davidson, does not the organi-
zation of accountants have some code of
33
professional ethics of some sort?
A. Yes, sir.
Q. I will show you what has been mark-
ed into evidence as Exhibit No. 7, and will
ask you if that is a copy of what is called
a "restatement (sic) of the Code of Profes-
sional Ethics" which is commonly used in
your profession?
A. It is, sir.
(17) Q@. Now, how, if at all, does that
national code relate to the code, if there
is one, in the State of Arizona?
A. They are very similar, if not
identical.
Q. Would you explain, please, how
this is achieved?
Is the national code adopted by the
state organization?
A. That is correct. If they so de-
sire.
Q. Has it been so adc »ted in this
state?
34
A. It has been in this state.
Q. In addition to this, is it also
adopted by the State Board of Accountancy?
A. Yes.
Q. So that in other words, the very
same rules become national standards, state
standards, and then state regulations, as
well; is that correct?
A. That is correct.
Q. Are you generally acquainted with
the system by which the American Bar Associ-
ation drafts standards of ethical conduct
for lawyers?
A. In general, yes.
Q. Are you acquainted with the fact
that subject to such modifications as it
may think appropriate, the State supreme
Court then adopts those rules or canons
for the governance of lawyers in the State
of Arizona?
(18) A. Yes, sir.
Q. Is the procedure by which the State
35
Board of Accountancy adopts the accounting
rules of the national organization essen-
tially analogous to the procedure with which
the State Supreme Court adopts the rules for
the profession of lawyers?
A. I would say essentially the same.
THE CHAIRMAN: Mr. Frank, are you
undertaking to establish that the National
Code of Professional Ethics for the Profes-
sion of Accountancy, by virtue of the adop-
tion by the State Board of Accountancy has
the force of law in this state?
MR. FRANK: I wish to show that it has
the force of law, which will make it dif-
ferent from some of the other professions,
but like that of the legal profession;
then, go into its contents, yes.
THE CHAIRMAN: Okay.
Q. BY MR. FRANK: Now, Mr. Davidson,
is there some provisicn in the “restate-
ment" which is before you which deals with
the topic of advertising?
36
A. Yes.
Q. And you have obviously told me
about this in advance. I believe it's
Section -- well, I don't know. What Sec-
tion is it? You have it.
A. I beg your pardon. Are you re-
ferring --
(19) Q. == to the provision dealing
with solicitation and advertising in the
booklet, which is now in your hands, the
"restatement" of the national code.
THE CHAIRMAN: That's Bar Exhibit No.
MR. FRANK: Thank you.
A. If I may read from it -- g
THE CHAIRMAN: What rule number?
THE WITNESS: "502 Solicitation and
advertising".
"A member shall not seek to obtain
clients by solicitation. Advertising is a
form of solicitation and is prohibited."
Q. BY MR. FRANK: Mr. Davidson, I
37
now show you Exhibit 9, which is the
extract from the works of Carey and Doherty
on “Ethical Standards", and will ask you
what that is?
Who are Carey and Doherty?
A. I beg your pardon. John Carey was
the highly respected Executive Director of
the American Institute for CPA's for 20 or
30 years, and in the opinion of my peers in
the accounting profession, was probably one
of the most knowledgeable people abou* the
accounting profession, because of his long
association.
Q. I take it the second author is
someone associated with him?
A. He was an associate, correct.
(20) Q. In the extract which you have
before you, there is some textual expansion
of just what advertising is, as what is
prohibited; is that correct?
A. That's correct.
THE CHAIRMAN: That's Bar Exhibit No.
38
9 which the witness is referring to?
MR. FRANK: Yes, Bar Exhibit No. 9.
Thank you.
Q. BY MR. FRANK: Mr. Davidson,
does the State Board of Accountancy in its
capacity as the disciplinary body for
accountants deal with cases of accousiants
who are charged with having violated the
rules of which we speak?
A. Yes.
Q. And take, for example, a recent
year, 1974 -- I believe you gathered the
figures as to the number of cases that
came before your board concerning solici-
tation or advertising in that year; didn't
you?
A. Yes.
Q. You are free to look at your notes.
A. May I look at my notes on that?
Q. Yes. Tell us what actually hap-
pened in a given year on that score?
A. The year 1973, the board considered
39
26 complaints concerning solicitation and
advertising. That would be exclusive of
so-called advertising in the Yellow Pages
or the Telephone Book. Those were con-
sidered to be minor.
(21) The figures given to me this morn-
ing by the current Executive Secretary of
our State Board said that in 1974 we revoked
one certificate and censured another firm.
Q. Mr. Davidson, for how long has your
profession had a written rule prohibiting
solicitation and advertising?
A. My authority is Mr. Carey's book,
and he states that the Rules of Ethics
have been under an evolutionary for the
past 70 years; and my 32 years in account-
ing, certainly, there has been this prohibi-
tion. r can't give you the exact date that
it was adopted.
Q. Is the prohibition on advertising
generally honored in the profession?
A. No question about it, sir. Yes.
40 41
Q. So that in your many years in this A. Yes, sir.
state, have you ever seen, for example, a Q. And that's a widespread general-
newspaper ad by an accountant? , ization?
A. No, sir. A. If I may say so, Mr. Frank, we do
Q. So, as far as you know, has there require in this state two years of experience
ever been one? ‘ in a CPA firm, after passing the examination
A. So far as I know, there never has and, of course, that means that these people
been one. not only do, but must pursue that course,
Q. What becomes, then, of the young so that that gives them an opportunity,
accountants who come to the community and if I may say so, to go out in practice on
who wish to develop their professions? their own.
How do they do that? THE CHAIRMAN: Do you mean they have
(22) A. Well, they seem to have no to work for a firm of CPA's before they re-
difficulty. I don't know of any accoun- ceive their own certificate?
tants who, because of his inability to THE WITNESS: That's correct, before
advertise has ever had to go out of prac- they receive a license to practice. Certi-
tice. ficate is correct.
Q. In short, has it been your ob- THE CHAIRMAN: All right.
servations that young accountants come to Q. BY MR. FRANK: Mr. Davidson, do
this community and so, in fact, get, pro- you regard advertising as desirable for
fessionally started without any particular your profession?
difficulty? Would this be a helpful innovation,
|
42
in your opinion?
A. I would say it would be a
disaster.
(23) Q@. How would the public in-
terests be disserved if you were to repesl
or abrogate your rules of ethics in this
respect?
THE CHAIRMAN: Did you say “served"
or “disserved"?
MR. FRANK: “Disserved". Thank you.
A. I think the public would be dis-
served, because the idea is to have the
public to understand that we in the pro-
fession know we have a code of ethics that
is to their best interest.
Q. BY MR. FRANK: Would you be con-
crete about that?
Just where would the harm be if the
accounting firms were to put ads in the
paper saying, audit so and so much per
hour, or some other kind of commercial dis-
play of that type?
43
A. Well, again, I think I should
go back to the point that at one time the
accountants were not engaged as a profes-
sion. This would have been in the early
1900's, and they found out at that time that
they would not be considered anything other
than businessmen, unless they did have
a complete set of rules of conduct.
Q. How is the accountant different
from a businessman, as you have just used
the phrase?
A. Well, first of all, I think we are
distinguished from the businessman by reason
of the fact that we must be absolutely in-
dependent. We may be engaged by a client
(24) and find that his books are not in
good order, and so state, for the benefit of
the public.
We do serve the public, basically. I
think that distinguishes us from any busi-
Q. And that public service to which
44
you describe, by virtue of your indepen-
dence, do you have an opinion as to how
that would be affected if you advertise
and solicited and went out looking for busi-
ness?
A. Well, I think anytime you adver-
tise you imply that some kind of a pro“it
motive -- that your first obligation is not
to the public, it is to yourself, to make
a profit. That is my feeling, and the way
it would be taken.
I think the public, over this period
of 70 years has been educated to the fact
that accountants do not solicit or adver-
tise, and it would be degrading to the pro-
fession and not in the best interest of the
public if they did.
Q. I take it it is your opinion it
could be incompatible or it would be incom-
patible with the independence of your
audit if you hustled the business in the
first place?
45
A. No question about that.
MR. CANBY: Excuse me. Was that in-
tended to be @ sestateneat of his testi-
mony?
(25) MR. FRANK: I'm trying to find out
what it is that he is saying.
Q. BY MR. FRANK: So, let me ask:
Was that a restatement of your testimony?
A. I would say yes. In fact, I'm
willing to say it again: I'm saying it
would certainly reflect upon the independence
of the accountant if we were to put ads in
the paper or solicit in any other form.
THE CHAIRMAN: Mr. Canby, for the sake
of the record, I believe that Mr. Frank did,
in essence, restate the nub of Mr. David-
son's testimony. I think that the thrust of
it was that he believes that the independence
of the accountant, and therefore the objec-
tive of their audits would be threatened
or jeopardized by advertising.
What I have not heard yet is why he
46
believes that to be true; just what the
causal connection is between the two.
Q. BY MR. FRANK: Why do you believe
that soshe true, Mr. Davidson?
A. Well, it seems to me it is self-
evident that if you advertise your attain-
ments, your independence is absolutely sub-
ject to question.
Q. Are-you able to expand on that
any further for the benefit of Mr. von Ammon
and the record, of course?
A. Is it permissible --
(26) Q. I think you have the volume --
I'm aware that you have been prepared for
this testimony, and a passage of Mr. Carey's
book appeals to you and a better statement
than your own statement. I'm sure you can
have access to it.
MR. CHAIRMAN: That's fine. Will you
tell us the page number?
Q. BY MR. FRANK: Do you want to pull
out the book itself? I don't think we
47
Xeroxed that page.
A. Page 47, which is an Exhibit here.
Q. Is that the passage that we dupli-
cated?
A. Yes. Section 28, page 47.
MR. DIVELBISS: What Exhibit?
THE CHAIRMAN: Exhibi*: No. 9, Carl.
MR. FRANK: Since it is very short,
would you mind, Mr. von Ammon, so that if
the record ever gets disassociated from the
Exhibit, it can be readily understood; may
I ask Mr. Davidson to quote the passage which
I take it he relies upon?
THE CHAIRMAN: Certainly.
Q. BY MR. FRANK: Would you do that?
A. "The general prohibition against
advertising is accepted today without much
question. To be sure, there is nothing
illegal or immoral about advertising as
such, but it is almost universally regarded
as unprofessional."
(27) “Younger accountants are some-
48
times tempted to advertise or solicit, and
they may suspect that the rules are a
result of a conspiracy among their older
colleagues to protect themselves against
new competition.”
"Actually, the rule against adver-
tising has many sound reasons to support
it. In the first place, advertising would
not benefit the young practitioner. If it
were generally permitted, the larger, well-
established firms could afford to advertise
on a scale that would throw the young prac~
titioner wholly in the shade. Secondly,
advertising is commercial. Profes: ional
accounting service is not a tangible pro-
duct to be sold like a commodity. Its
value depends on the knowledge, skill and
honesty of the CPA. Who would be impres~
sed with a man's own statement that he is
intelligent, skillful and honest? Lastly,
advertising does not pay.”
This may be a direct conflict with ~
49
some other testimony, but that's the way we
feel about it. And that's it.
Q. But there is another passage. This
will be my next question.
In the volume which you have at your
side, there is, I think, near the beginning
of it a passage dealing with the concept of
the independence of the accountant and the
relation of that independence in ethics.
(28) THE CHAIRMAN: Thi: is from the
same work from which Exhibit 9 has been
extracted?
THE WITNESS: Yes.
Q. BY MR. FRANK: Am I correct in my
memory of that point, Mr. Davidson?
A. Concerning advertising?
Q. No, the relationship of ethics,
generally, to the accountant's independence,
or is my memory at fault?
A. Well, I think I would have to say
that as far as this volume is concerned, the
matter of independence is discussed
50
thoroughly. It's certainly a major part
of our Code of Professional Ethics, but as
far as relating this to advertising, I
think I'd have to stand on the testimony
that I have given to date.
Q. Do you adopt as your own the state-
ments by Mr. Carey, as to your views?
A. I do.
MR. FRANK: That's all I have.
THE CHAIRMAN: Mr. Canby.
x*eek ®
EXAMINATION
By Mr. Canby:
Q. Mr. Davidson, did I understand
your point to be that a beginning accountant
here in his two years of service in a firm
has an opportunity to develop clients (29)
from that contact?
A. Oh, I think that opportunity exists.
If I may refer to your term “beginning accoun-
tant", I'm referring to the man who has
passed the CPA exam in the State of Arizona
51
and must serve his two years under a CPA.
Now, we obviously have reciprocal
privileges with other states. A man from
another state, in other words, provided he
meets the specifications of the State Board
of Accountancy can enter practice in this
state, and many do.
Q. Yov don't know of any certified
public accountants who have simply been
unable to attract a viable clientele here
in Arizona?
A. No, not to my personal knowledge.
Q. Is there more certified public
accountant business than can reasonably be
handled?
A. I think it is becoming that way.
Q. I realize it's a general question,
but what is the general nature of the cer-
tified public accountant business that you get?
What kind of clients would you do business
for?
A. We would do business, I think,
52
for almost all kinds of clients in a na-
tional firm, which we are. General services
performed by CPA's are in the area of audit-
ing, tax service and in an area called man-
agement (30) services,
The clients would range from small to
medium, to large,
The type of service required, of couse,
would depend upon the type of industry we
were talking about.
Q. Are all these clients in some sort
of business?
A. No, some are tax clients who are
retired,
Q. And the auditings, you mentioned
three categories; two of which are auditing
and management services?
A. Yes, sir.
Q. Presumably, that would be for peo-
ple who are engaged in business; is that
right?
A That is correct. I might add; also
53
point out to you sir, that about 70 percent
of the work of a national public accounting
firm is in the auditing area, which requires
the independence factor,
Q. About 70 percent?
A. Yes,
Q. Thank you. Are you familiar, Mr.
Davidson, with a letter of the Arizona At-
torney General to the State Board of Account-
ancy in regard to advertising? It's dated
September 19, 1975.
MR. CANBY: May I have this marked?
THE CHAIRMAN: Yes. What we will do is
to (31) continue with the numbers seriatin,
and we will identify this as Respondents’
Exhibit No. ll.
MR. FRANK: Why don't I put in 10 right
now, a8 long as we are at a break? May I
do that? It's here.
THE CHAIRMAN: Yes. Bar Exhibit 10
is the revised disciplinary rule relating
to the advertising, adopted by the House of
54
Delegates by the American Bar Association,
MR. FRANK: Yes. I would like to note
for the record, I put it in because it is
applicable here. It has not been adopted by
our Supreme Court, but simply for the com-
pletion of the record, that if it should be
useful at any point.
THE CHAIRMAN: With that avowal, I quess
there is no objection,
MR. CANBY: I have a question or two,
I have no objection,
The question is whether this is effec-
tive; whether there is any action of the House
of Delegates or the American Bar Association
required to make it official ABA policy?
MR. FRANK: It's my understanding that is
official ABA policy, by virtue of the ac-
tion of the House of Delegates,
THE CHAIRMAN: Do you have any dif-
ferent understanding, Mr. Canby?
(32) MR. CANBY: TI have no knowledge
of a difference. I had simply heard some-
55
where that there was one more meeting in
which they have to consider it by the House
of Delegates, as a whole. I may well be in
error.
THE CHAIRMAN: Before the record is
closed, can we get some kind of a stipu-
lation between the parties with respect to
this fact?
I think it can be determined by
inquiring of some person who is knowledgeable
in the ABA organization.
MR, CANBY: I'd be happy to stipulate to
it on the basis of a telephone inquiry or any~-
thing else.
THE CHAIRMAN: We will receive the stip-
ulation later on, once we know what the facts
are.
In the meantime, Bar Exhibit 10 may
be received,
(Document marked Bar Exhibit No. 10 for
identification by the Notary and received
in evidence. )
56
THE CHAIRMAN: Now, No. 11 has been
described as <-«
MR. CANBY: «= a letter fror the Ate
torney General of Arizona to the Arizona
State Board of Accountancy, September 19,
1975, reported in the 1975-2 "Trade Requ-
lation Reports",
Do you want to mark this?
I'll be happy to offer it in evidence.
MR. FRANK: I'd like to have it put in
evidence,
THE CHAIRMAN: Do you have any objection
to (33) offering it in evidene.?
MR. FRANK: No,
THE CHAIRMAN: Very well, Respondents'
Exhibit No. 11 may be received in evidence.
(Document marked Respondents' Exhibit
No. 11 for identification by the Notary
and received in evidence, )
THE CHAIRMAN: Mr. Davidson, I am
placing in front of you Respondents' Exhibit
No. ll,
57
THE WITNESS: May I take time to read
it?
MR. FRANK: I believe this was issued
subsequent to Mr. Davidson's retirement, on
July 7th.
MR. CANBY: I gather that is correct.
QO. BY MR. CANBY: You left in July of
'75?
A. That's correct.
Q. I think any knowledge of that would
be indirect. I think you had heard of it or
were aware of it?
A. 1 am aware, sir, that they did elim
inate our rule against competitive bidding.
The rule as stated previous to that was
that there would be a prohibition against
competitive bidding on a price basis.
Nevertheless, the accounting profession
has always said that the client is entitled
to be informed of the amount of the fees for
the engagement. It was our position at the
time the best qualified firm should be select-
eee, eee eee
«58
ed; fee discussions should be held. If the
Client (34) were dissatisfied, he could call
on the next qualified firm,
The Attorney General said, yes, that
the competitive bidding rule of the state is
illegal. I have not seen the opinion. If it
refers to advertising, I was not aware of that.
Q. I'm sorry. Competitive bidding is
what I meant. I misspoke, and I apologize.
A. Without reading it, Mr. Canby, may I
ask your Is advertising mentioned in here?
Q. No, it is not, to my knowledge. I
misspoke. I'm sorry about that.
A. It is true,
MR. FRANK: What question is before the
witness, Mr. Canby? I'm mixed up.
MR. CANBY: The question is: Was he
familiar with the Attorney General's letter
on competitive bidding.
THE WITNESS: Yes.
MR. CANBY: He has testified that the
rule has since been abandoned.
59
Q. BY MR. CANBY: Was it a part of the
ethics of either the national or state associ-
ation that chere not be competitive bidding?
A. This has a long history, going back
some years,
The American Institute of CPA's did have
a rule (35) against competitive bidding,
and by agreement, as I understand it, that the
Justice Department did eténtases the rule
from their Code of Ethics. They, also, at
the same time stated that as to what the
states did would be entirely determined by
state law.
The State of Arizona, up until this
ruling, has maintained a competitive bid-
ding rule; prohibition against it, and I
guess I would have to correct my former
testimony -- this is one departure from the
rule of ethics that we have in Arizona, as
compared with the American Institute, which
I readily concede.
Q. What was the reason behind the
60
ethical prohibition on competitive bidding?
A. The basic reason is that we
believe very strongly, and still do -- most
of us in the profession -- I cannot speak
for everybody -- that the quality of ser-
vice will definitely suffer; the clients
will also suffer, because the quality of ser-
vice will. go down.
Q. That is your view?
A. That is my view, and I am joined
in that view and have been for seven years
by at least the members of the Board of
Accountancy and by many others in the pro-
fession.
As a matter of fact, sir, that view was
held by the American Institut:ec for many,
many years.
(36) Q. I so understand.
Lastly, you do agree, don't you, there
is a profit motive in the business of account-
ing, or the profession of accounting, as well
as other motives?
61
A. I do not disagree with the statement
that the profit motive exists, but that is not
of a basic motive in public accounting. The
basic motive is, frankly, service to the pub-
lic.
MR. CANBY: I have no further questions.
MR. FRANK: I have no questions.
May the witness be excused?
THE CHAIRMAN: Well, wait just for a
second, please.
For the record, it appears to me from
examination of Bar Exhibit No. 8, which is
the Rules and Regulations of the State
Board of Accountancy tha= the rule to which
the Attorney General's opinivw:n, which has
been marked Respondents' Exhibit 11 refers
is Rule 9-E(6), which is capiione* "Com-
petitive Bids". Is that the rule which
appears to have been stricken down by the
Attorney General?
THE WITNESS: That's correct. Yes,
Mr. Chairman.
62
THE CHAIRMAN: Could I ask a question
of the witness, for clarification?
MR. FRANK: May I send that Exhibit
out to be duplicated, or do you need it for
your question?
(37) THE CHAIRMAN: No, I don't need
it.
x kere
EXAMINATION
By The Chairman:
Q. Mr. Davidson, are you generally
familiar with the function of the community
organization which is generaliy referre: to
as the Legal Aid Society?
A. Yes, in general.
Q. Are you familiar with what is known
as the Lawyers Referral Service?
A. Yes, to some extent.
Q. As I understand it, the Legal Aid
Society is an organization which attempts to
provide for delivery of legal services to
indigent persons, and the Lawyer Referral
63
Service is a service which purports to pro-
vide access to lawyers for potential clients
who are not indigent and who are guaranteed
the opportunity to have legal services at
some kind of a stipulated initial consulting
fee, with an arrangement for making agree-
ments on compensation after the initia’ con-
sultation,
Do you understand that?
A. Yes,
Q. Does the accountancy profession
have any kind of an activity which is com-
parable either to Legal Aid or to Lawyer Re-
ferral that will make the services of the
(38) profession available either to in-
digent or to persons who have no acces. to
accountants? :
A. I would Say to a certain degree
that is true. We have in our Arizons Soci-
ety of CPA's a committee which lends aid
to minority groups on a for-nothing basis.
There is no charge, and various firms have
64
contributed the time of their people to ef-
forts of this kind.
In addition, a great many of our
charitable organizations have benefited from
the services of CPA's at either no cost or
a very low cost on the auditin; or other
standpoints.
As far as referrals go, we do not have
a standard process of referrals. However,
we do have an executive secretary, and I
checked with him very recently -- like this
morning -- and said, "How many calls do you
receive?"
And he said, "Quite a few."
I said, "What do you do?"
He said, "I ask them basically what
their problem is; where they are located,
geeuceghiouliy, and we will give them the
names of three firms to call, three acco ::’-
ing firms. Also, present them with a ros-
ter, which we have of all of the ones that
are listed in the Board of Accountancy Di-
65
rectory."
We do have that type of referva’,
(39) He also makes it clear that they
should discuss the fee with the accounting
firm before they do, and the flat question,
check the quality of their service before
they engage any services with them.
Q. The other question that I have is
whether members of your profession, among
other services, also provide tax advice and
assist in the preparation of state and federal
income tax returns?
A. Yes, sir.
Q. I think we are all generally
familiar with the activities of an organ-
ization called H & R Block. Do they engage
in furnishing tax advise and the prepar-
ation of income tax returns?
A. Yes, they do.
Q. Do they advertise?
A. They do.
Q. Are they certified public accourt-
66
ants?
A. They are not.
Q. If they were, in fact, CPA's,
would that advertising be a violation of
the Code of Professional Ethics?
A. Very definitely.
THE CHAIRMAN: That's all I have,
THE WITNESS: I'm hopeful, if I may
say so, that we, in no way, a8 an accounting
profession, would be (40) considered at the
same level of H & R Block,
THE CHAIRMAN: I'm not going to draw
any inferences as to which is at the higher
level, but they are not equivalent; is
that true?
THE WITNESS: Right.
THE CHAIRMAN: Thank you,
MR, FRANK: May Mr. Davidson be ex-
cused?
THE CHAIRMAN: You may be excused, and
thank you very much for your assistance,
MR, FRANK: Mr. Canby and I are now
67
able to stipulate that the action of the
House of Delegates is the officia) and
binding action for the American Bar Associ-
ation as to Exhibit 10,
THE CHAIRMAN: So, as of right now,
Bar Exhibit No, 10 constitutes the final
official, binding action of the American:
Bar Association?
MR. FRANK: That is correct.
THE CHAIRMAN: But it is not a par’. of
the body of law of this state until such
time, if any, as the Supreme Court in-
corporates it into their rule,
MR. FRANK: That is correct,
Right Mr. Canby?
MR. CANBY: Right.
MR. LEWIS: Mr. Chairman, may I be
excused for a few (41) minutes?
(Mr. Lewis excused from the heari:.
room, )
64
DEPOSITION OF BERNARD VAN O'STEEN, JR,
AND JOHN RICHARD BATES
** © *
BERNARD VAN O'STEEN, JR., @ Respon-
dent, being sworn as a witness by the Chair-
man, was examined and testifies as follows:
JOHN RICHARD BATES, a Respondent,
being sworn as a witness by the Chairman,
was examined and testifies as follows:
THE CHAIRMAN: Now, the rule is you
only speak when spoken to, so there isn't
suddenly volunteering.
EXAMINATION
By Mr. Frank:
Q. Mr. O'Steen, would you give us
your full name, for the record?
A. BY MR, O'STEN: Bernard Van O'Steen,
Jr.
Q. Mr. O'Steen, are you a member of
the Arizona Bar?
A. BY MR, O'STEEN: I am,
Q. And a graduate of the ASU Law School?
A.
69
BY MR, O'STEEN: Yes,
Q. What year?
A.
BY MR, O'STEEN: 1972,
(42) Q. Are you engaye in the prac-
tice of
A.
Q.
A.
Q.
A.
Bates &
law in this community?
BY MR, O'STEEN: I am,
A member of a firm?
BY MR. O'STEEN: Yes.
What is that firm?
BY MR, O'STEEN: Legal Clinic of
O' Steen,
FRANK: Now, I will turn, if I
may, to Mr. Bates and bring him up to date,
Q.
BY MR. FRANK: Mr, Bates, are you
also a member of the Arizona Bar?
A.
Q.
A.
Q.
A.
Q.
BY MR. BATES: Yes.
Are you a graduate of ASU?
BY MR. BATES: Yes, I am,
When did you graduate?
BY MR. BATES: 1972.
Are you the Mr. Bates who is the
member of the firm just described by Mr.
70
O'Steen?
A. BY MR. BATES: Yes, I am,
THE CHAIRMAN: Would you be kind enough
to state your full nane?
MR. FRANK: Thank you,
WITNESS BATES: John Richard Bates,
Q. BY MR, FRANK: Mr. O'Steen, did you
or your firm, (43) in fact, cause the ad-
vertisement to be published, which is Ex-
hibit No. 6 in this case?
A. BY MR. O'STEEN: Yes, we dil,
Q. And you personally were aware of
the publication in advance?
A. BY MR. O'STEEN: Yes,
Q. And you approved it?
A. BY MR. O'STEEN: Yes,
Q. Mr. Bates, were you also personally
aware of the publication, and did you ap-
prove it?
A. BY MR. BATES: Yos.
Q. Mr. O'Steen, would you tel) us,
please, something about the nature of the
71
practice of your office?
Describe for us what you do.
A. BY MR, O'STEEN: In a good many ways,
our office is like a traditional law office,
in that we provide a range of general ser-
vices of a legal nature to clients who con-
tact us,
We differ perhaps somewhat from
some other law firms --
Q. Let me do this: I believe I in-
terrupted you there, because I'd first
like to get a description of what the ser-
vices are, and go into the differences be-
tween your clinic, as you call it, and a
normal law office.
What are the services?
(44) A. BY MR, O'STEEN: We take cases
in the following areas: Divorce and other
domestic relations matter; adoptions, which
may or may not be included in that first
category; individual bankruptcies, wills;
probates; change of name matters; personal
72
injury cases,
I should have included along with pro-
bate, the areas of guardianship and conser-
vatorship, which are closely related,
We do some work in the consumer
contract area of the law, and a small
amount of real estate prac!\
THE CHAIRMAN: No criiiinal practic?
WITNESS O'STELI!: No criminal prac-
tice,
Q. BY MR. FRANK: Mr. Bates, is
that essentially an accurate descrip-
tion, or do you have anythiry to add?
A. BY MR. BATES: I believe that
covers it.
Q. All right.
Mr. O'Steen, if, hypothetica’.y, a
person comes to you for a divorce and woul!
like the names of the children changed in
connection with tha’. divorc., do you then
handle both of those functions?
A. BY MR. O'STREN: The names of the
73
children changed?
Q. Yes. Suppose, hypothe ically, some-
body comes in for a divorce ani is going to
have her own maiden name returned; let us
Suppose she has been married previously (45)
and she has a child that has some name other
than that of her maiden name; do you then
get those names untangled if she asks
it, and get those children's names
changed?
A. BY MR. O'STEEN: Well, we are
fully capable of providing both services.
They cannot be done in the same proceedings,
but to my recollection, I have never had a
request of multipie services of that na-
ture,
Q. But you are perfectly prepared to
do that; services of that nature?
A. BY MR. O'STEEN: Yes, assuming
there is a legal basis for it.
Q. Let's take the same kind of a
divorcee; do you, as a matter of routine,
74
offer the service of a will to anybody who
gets a divorce, a new wiil?
A. BY MR. O'STEEN: No, we do not.
Q. Do you commonly do wills for the
people for whom you get divorces?
A. BY MR. O'STEEN: Certainly not
commonly.
Q. Do you ever do new wills for the
people for whom you get divorces?
A. BY MR. O'STEEN: I would suspect
that we do, but it happens so infrequent-
ly that I can't recall specifically of
specific examples.
Q. But you have no rule against it?
A. BY MR. O'STEEN: No.
(46) Q. If, hypothetically, somebody
got a divorce on Monday and asked you for
a new will on Tuesday, and alas died on
Friday, are you capable of proviviiig pro-
bate service in that situation?
A. BY MR. O'STEEN: Yes, we are,
Q. You have no rule against that?
75
A. BY MR. O'STEEN: None.
Q. What is a legal clinic, as you
envision it?
What does that term mean in your
title?
A. BY MR. O'STEEN: Well, as I think
I started to explain, in response to anot-
her question a few moments ago, the term
"legal clinic" was adopted by us when we
opened our practice, because we believe
that it best describes what we are doing.
I think unlike some other law firms, we
made a conscious effort from the very
beginning to extend legal services,
quality legal services at the most reason-
able fees possible to persons of modernrte
and low income; people who were not cap-
able of qualifying under the financial
guidelines of the Legal Aid Society, and
therefore had traditionally had difficulty
finding lawyers.
We incorporate a number of cost-
76
saving features into the practice in or-
der to reduce costs, and thereby, pass
along savings in the way of reducec fees
in certain types of cases.
(47) Very briefly, the features of
the clinic are --
Q. I wish you would describe them.
A. BY MR. O'STEEN: Each of the at-
torneys in the clinic specialize, and
this permits an attorney to bring exper-
tise to the client's problem at a minimun
of effort and a most efficient way.
The clinic also employs and makes
extensive use of paralegal or legai as-
sistant personnel, who perform many of
the functions that attorneys have tra-
ditionally done, but have not needed to
do; functions which can be performed of
equal competence by a non-lawyer person-
nel. Of course, they don't give legal
advice and they don't represent clients
in court.
77
Those are the two most important
restrictions on their ability to work,
but they do many other chores that at-
torneys in some other offices do.
THE CHAIRMAN: Could I ask for
a clarification, Mr. O'Steen. Are there
admitted lawyers in the clinic, other
than yourself and Mr. Bates?
WITNESS O'STEEN: Until recently,
we had the third lawyer, Mr. von Ammon.
She has since left the clinic, and we are
hopeful shortly to have another admitted
lawyer to take her place, but at the pre-
sent time there are only two of us.
THE CHAIRMAN: And you employ, as I
understand it, (48) some nonprofessional
people who provide certain kinds of sup-
portive courses?
WITNESS: O'STEEN: That's correct.
THE CHAIRMAN: How many are there
of them?
WITNESS O'STEEN: Two and a half at
78
the present time.
THE CHAIRMAN: All right, thank you.
WITNESS O'STEEN: Now, those are
people who function as -- or, a large part
of their duties are what we would call
paralegal duties. We also have other per-
sonnel, but they are not among that group
we call legal assistants.
A. BY MR. O'STEEN: (Continuing) One
of the most important features of our of-
fice, and it goes hand in hand with the
use of legal assistants in this kind of
practice is that we use -- our approach to
the practice of law is one of a systems
approach. Many tasks are standardized;
techniques which are repetitive are put
together in a carefully devised systems
by the lawyers, and thereby, legal as-
sistants can perform many of these func-
tions that we have been talking about with
good instructional material from lawyers
and with periodic reviews by the lawyers,
79
in important steps along the way.
Various other methods of reducin<:
overhead are used in the offic». Clerical
time is minimized, for example, by the
use of printed legal forms, and by the use
of automatic typewriter equinment.
(49) In addition, we don't maintain
a large collection of law books. Attorneys
do their research at institution of law
libraries.
Probably what we consider perhaps
the most important feature of the clinic
is that a relatively low profit is made
On each case,
Q. Mr. O'Steen, I'd like to take these
in some detail, so that we really under-
stand the distinction between a clinic,
as you envision it, and simply a conven-
tional law office.
Let me put, if I may, the illustra-
tion of this office, in which we are
taking the testimony. The office has
80
attorneys who specialize almost entirely;
uses paralegals to a great extent; uses,
I believe, a systems approach, as you des-
cribe it, and uses automatic typewriters
extensively; yet, I suppose no one would
imagine that this was a legal clinic.
You don't suppose that these ingro‘iunts
make it one?
A. BY MR, O'STEEN: No, sir, I
wouldn't say so,
Q. So that those are not essential
elements of a legal clinic. At least,
they don't define a legal clinic?
A. BY MR, O'STEEN: No, they in them-
selves don't define a legal clinic.
Q. What, then, are the precise fac-
tors which are peculiar to a quote: “legal
clinic", which are not (50) commen to
countless other law offices in this state?
A. BY MR. O'STEEN: Well, first of
all, I think your experience, Mr. Frank,
‘nsofar as the features you just mention-
81
ed to me that are used by this law firn
are generally not employed by attorneys
who handle the kind of cases that we han-
dle; that is, a systems approach to prac-
tice; the use of legal assistants, and the
like. Those are features that typically
can only be used by large law firms who
cater to an entirely different clientele.
Q. I want to be sure I understand it,
and truly fairly, Mr. O'Steen. If I get
what is the concept of the legal clinic,
that is basically that you are appeal’ ng
to low-income personnel, just above the
Legal Aid level?
A. BY MR. O'STEEN: Well, low and
middle income,
Q. What is the range of the incom.
of the persons you serve?
A. BY MR. O'STEEN: Well, I can
make an educated guess for you.
Q. Would you please?
A. BY MR. O'STEEN: From people on
82
welfare and other forms of public assist-
ance, up to, I would say, very few of
our clients probably have family incomes
in excess of $25,000.00 a year.
Q. So, :t's from a low level to
around $25,000.00 is the (51) rance; is
that it?
A. BY MR. O'STEEN: Yes,
Q. If, hypothetically, someone in
response to your advertisement felt that
he would like those services, but he hap-
pened to have an income of $50,000,.°0,
would he be barred from availing himself
of your services because of that fact?
A. BY MR. O'STEEN: Not if his legal
problem was of the type we handle,
Q. Any member of the community could
come to you; is that it?
A. BY MR, O'STEEN: Yes. We have
no income restrictions.
QO. But, at least, you are agreed
your goal is to service persons in the
83
income range you have described; is that
it?
A. BY MR, O'STEEN: Yes, that's
basically it.
Q. And the second element is that
you seek to service them at the lowest
feasible fee and small personal profit;
is that correct?
A. BY MR. O'STEEN: Yes.
Q. Now, other tha), those things, is
there really any significant difference
between your office and really almost
any other office?
A. BY MR. O'STEEN: Well, I think
that's pretty (52) significant.
Q. It is. We respect it.
Is there anything else, or is that
it?
A. BY MR. O'STEEN: Well, there are
other smaller features, I think. The
efforts to reduce overhead, which I men-
tioned, in our firm was accomplished by
84
those things; by minimizing clerical time
and by minimizing the expense of a large
library are significant, in the terms of the
ability we have to reduce fees.
J. Mr. O'Steen, is the term “legal
clinic" a term of art in the legal com-
munity?
Is it commonly used in the literature?
A. BY MR, O'STEEN: It's beginning
to be,
Q. Is there some publication to which
we would go that we would find a regu-
larly established definition?
A. BY MR, O'STEEN: I don't think so. °:
I could give you a bibliography of articles
that are published,
Q. Where did you get -- I'm sorry, I
was interrupting. Please finish your an-
swer,.
A. BY MR. O'STEUN: I was going to
say that the term is used widely now by mein-
bers of the organized Bar in (53) many
85
areas, where legal clinics are being estab-
lished by the members of the Bar.
You may know tue ABA has a stai'ing now on
legal clinics, and will be instituting a
pilot project on leyal clinics in the very
near future. So, the term has fairly wide
acceptance, I think, in the legal community.
Q. But there is no particular refer-
ence to which you can send us for a def-
inition; is that right?
A. BY MR. C'STEEN: No.
(Mr. Lewis enters the hearing »%om.)
Q. Mr. O'Steen, how long have you
been in business?
A. BY MR. O'STEEN: As a legal
clinic?
Q. At the pravtice as a legal clinic?
A. BY MR. O'STEEN: Two years, in
March.
Q. Who would handle this business
wnich you are doing in the commanity if you
didn't handle it?
86
Do you have any opinion as to that?
A. BY MR. O'STEEN: Sure. I assum
that other private lawyers would handle some
of it. I suppose that the Legal Aid
Society attorneys would handle some of
it, and I suppose a good deal of it
would be undone.
Q. Let's take, then, those things
separately. Some of it, you say, is
eligible for Legal Aid treatment?
A. BY MR. O'STEEN: Some of the
clients who see us are eligible for Legal
Aid.
(54) Q. If they went to Legal Aid,
they'd be served for nothing; wouldn't
they?
A. BY MR. O'STEEN: Yes.
Q. Nonetheless, you service them and
take their money; don't you?
A. BY MR. O'STEEN: Not without in-
forming them that Legal Aid is available
to them.
87
In most cases, they already know us. I
am thinking of the area of divorce, which
is really the only other area that I know
of, other than just purely consultation,
which we serve people who are available for
Legal Aid. They are informed when they
eontact Legal Aid there is a six-month
waiting period to see a lawyer; some
horrendous period.
Most of them are not willing to
wait that period of time, and they seek
out an attorney who will do the work at
a low fee.
Q. But you, in every case where
someone is eligible for Legal Aid advise
them of that fact?
A. BY MR. O'STEEN: We don't make an
inguiry to determine that, but if we
sense that a person who comes to the
office might be eligible for Legal Aid,
I know that I explore that and I'm sure
John does too. We call that to their
838
attention.
As you may know, both of our back-
grounds is from (55) the Legal Aid
Society.
Q. But this is when you sense; you
don't ask if they could get Legal Aid
Society somewhere else?
A. BY MR. O'STEEN: No, and I don't
know where ary other lawyer does that.
YQ. And you are saying that the other
category would be in other law offices,
and you are undoubtedly competing for that
work?
A. BY MR. O'STEEN: Exactly.
Q. And the other area are disputes
which would never be litigated at all if
it were not for you; is that correct?
A. BY MR. O'STEEN: Well, I'm not
sure it's fair to categorize it as dis-
putes, as the question categorizes then.
I think they are legal matters that would
be unresolved and unattended to.
8y
Q. Let's take the matters in your ad.
Take the matter of divorces. Do you be-
lieve that you are getting divorces for
people who would otherwise not be getting
divorces if your services were not avail-
able?
A. BY MR. O'STEEN: In some cases.
Q. Do you believe that you are get-
ting bankruptcy discharges for people who
would not otherwise get bankruptcy dis-
charges were it not for your services?
A. BY MR. O'STEEN: Yes, in some
cases.
(56) Q. Are you handling any per-
sonal injury matters for persons who
would otherwise not be bringing person-
al injury claims were it not for your
services?
A. BY MR. O'STEEN: Very few.
Q. Are there any?
A. BY MR. O'STEEN: Personal in-
jury claims?
90
Q. Yes. That would not otherwise
be litigated.
A. BY MR. O'STEEN: Yes, we have
taken clients who have personal injury
matters who have been turned away by three
or four lawyers before they reached us,
because the matter didn't seem to be prof-
itable.
Q. Have you ever taken any personal
injury matters which have not been turned
away by anybody before it came to you?
A. BY MR. O'STEEN: Yes.
Q. In connection with your personal
injury practice, you have noted that in
your ad that information regarding other
types of cases would be furnished on re-
quest.
Would you furnish them information
about your personal injury services if
the request were made?
A. BY MR. O'STEEN: Yes.
Q. Do you distribute cards for your
91
firm to people in hospitals who have had
the misfortune to be in a personal in-
jury?
A. BY MR. O'STEEN: Do you mean do
we walk through (57) hospitals and knock-
ing on stranger's doors?
Q. Precisely.
A. BY MR. O'STEEN: Absolutely not.
Q. Do you go to accidents, and at the
scene of accidents give cards to the people
who have had the misfortune of being in
the accident?
A. BY MR. O'STEEN: No.
Q. Do you believe that you have the
same First Amendment right, if you wish
to do so, to go through the hospital or
to give your card at the scene of accidents
as you do to publish the ad which is Ex-
hibit 6?
A. BY MR. O'STEEN: My answer to the
question has to be that I really haven't
formulated my own ideas about that type
92
of solicitation, that problem. I think
that it may well be true that if tested
that a lawyer had a constitutional right to
engage in such solicitation.
I can tell you my personal feelings
about it.
Q. I won't bring you into that. Mr.
Canby can if he wishes. I simply want to
understand what your opinion is about the
proper function of solicitation of a legal
clinic. It is my understanding that fun-
damentally it is the position of your of-
fice that you are free, under the anti-
trust laws and under the First Amendment
to publish Exhibit No. 6; is that correct?
A. BY MR. O'STEEN: Yes.
(58) Q. I wish to know whether it is
also your view that you would be privi-
leged to distribute cards in hospitals
or go door to door, or to take fliers. I
haven't asked you about that. Would you
be free to have fliers distributed door
93
to door, announcing your service?
THE CHAIRMAN: Are you talking about
handbills?
MR. FRANK: Handbills.
Q. BY MR. FRANK: Are you free to do
that?
A. BY MR. O'STEEN: I'm sorry, I
take no position to that.
THE CHAIRMAN: The witness has an-
swered the question, Mr. Frank. Go to
something else.
Q. BY MR. FRANK: You don't know.
Let me turn to Mr. Bates. Let me
find out if you have a view on this sub-
ject.
Is it your understanding that you
have a privilege under the antitrust laws
and under the First Amendment, or either
of them, regardless of the rules, to pub-
losh the ad which is Exhibit 6?
A. BY MR. BATES: Yes.
Q. Do you have an opinion as to
94
whether you are also privileged to dis-
tribute leaflets door to door, offering
your services?
A. BY MR. BATES: I think I would an-
swer it in the same fashion that my part-
ner has on that. In other words, (59) I
don't — opinion which I feel confi-
dent in expressing at this moment.
Q. The same would be true of cards in
hospitals or calling on the accident vic-
tims at the scene; is that correct?
A. BY MR. BATES: Yes.
Q. Mr. O'Steen, I notice that one of
the services you offer is “Divorce or
legal separation--uncontested (both
spouses sign papers)".
My question is, what is an uncontest-
ed divorce?
A. BY MR. O'STEEN: A divorce in
which both parties have fully settled the
terms of their divorce, and -- well,
I think that completes my answer.
95
Q. Well, let's take this up for a
minute. ‘When someone comes to your of-
fice and says, "I want a divorce", how
do you find out from that person whether
it is uncontested or not?
A. BY MR. O'STEEN: Well, typically,
the inguiry is first made over the tele-
phone, and one of our legal assistants
handles those incoming calls, in order
to determine whether the divorce is con-
tested or uncontested.
Q. Explain that with some precision,
would you please?
A. BY MR. O'STEEN: Yes. [In in-
quiries made by the legal assistant,
whether or not the terms have been (60)
discussed with the adverse spouse, and
whether or not complete agreement has
been achieved on the important matters.
If the person --
x eee
THE CHAIRMAN: Mr. Bates, I'd like to
96
to clarify something. You referred to
Mr. O'Steen as your partner. Is it, in
fact, a partnership or a professional
corporation?
WITNESS BATES: It's a partnership.
Q. BY MR. FRANK: The question which
is before you, Mr. O'Steen, was: Just what
is it that the person on the phone says to
inquiring party about coming in, and so on?
A. BY MR. O'STEEN: Just a brief in-
guiry is made to determine whether or not
the spouses have discussed the important
terms of their divorce, and come to an (61)
agreement on those terms.
If the caller answers in the affirma-
tive, then an appointment is made, at which
time the client sees an attorney.
Q. Let us suppose that -- we will
make the caller she -- let us suppose she
says, "No." Then, what does your telephone
clerk say?
A. BY MR. O'STEEN: "No, we have not
97
come to an agreement on the terms6f the
divorce"?
Q. That's right.
A. BY MR. O'STEEN: They are referred
to the Maricopa County Lawyer Referral
Service.
Q. In short, you do not accept any
contested divorces; is that right?
A. BY MR. O'STEEN: Not any longer.
We did at one time. We don't do it now.
Q. What happens when the parties --
well, correction -- then, who comes in to
see you?
You say the next step is an appoint-
ment with the attorney. Who comes in?
A. BY MR. O'STEEN: The spouse who
called us.
Q. And the other spouse does not come
in?
A. BY MR. O'STEEN: Sometimes both
spouses come in. We make it clear from
the beginning that we will represent one
98
of them, generally the caller, and that
we (62) sometimes ask a nonclient spouse
to step outside of the office and wait in
the reception room while we take the in-
formation down from the client s,ouse.
Q. But you sometimes do tnat. Do
you always do that?
A. BY MR. O'STEEN: No.
Q. How do you decide when to do it and
when not to?
A. BY MR. O'STEEN: I think it's just
a gut feeling that I have after several
years working with it. We always make it
clear to them that we will be counsel for
one spouse, and the other spouse will be the
adverse party, and that if there are any
doubts or hesitations at all on the terms of
the divorce, then we encourage both of them
to go out and seek independent counsel.
Q. Let me take, hypothetically, an
instance in which you allow both of them to
stay in the room, and let us suppose that
99
they have a modest bit of property. This
happens sometimes, doesn't it?
I'll get specific in a second as to the
types of property, but not all of them are
penniless; are they?
A. BY MR. O'STEEN: No.
Q. So that let's suppose, hypothetically
that they have a house in which they own a
small equity; a thoroughly used car and a
number of pieces of personal property and
furniture in the house; a refrigerator;
that kind of thing. Is that a fairly typ-
ical case?
(63) A. BY MR. O'STEEN: I would say
that's typical.
Q. Does it ever happen that when they
come in to see you they, in fact, thought
that everything had been ironed out, but
they are not used to thinking about these
things, and, in fact, it wasn't ironed out,
and they really hadn't thought about what to
do with the car and what to do with the house
1u0
and who was to pay last year's taxes, and
who was to pay the outstanding bills, and so
on. Do these matters ever emerge in a con-
versation with the two people with you?
A. BY MR. O'STEEN: Yes.
Q. What happens in those circumstances?
A. BY MR. O'STEEN: We stop the inter-
view; inform the parties that formerly we
told them there were only two ways we could
function, either, one, if they came to an
agreement with us with all terms; we could
incorporate them into the right pleadings
and handle the case for them or we could
represent the party, the client in the con-
tested divorce, and the other would have
to go elsewhere.
In the case where both of them are
sitting in the office, that is impractical,
and we simply tell them they will have to
both seek independent counsel elswhere, if
they don't resolve the dispute.
Q. Do you help them resolve the dis-
101
pute?
(64) A. BY MR. O'STEEN: No.
Q. Do you discuss with them the fact of
the car and the refrigerator are about a
push away and maybe they could take, each,
one of them; that kind of thing?
A. BY MR. O'STEEN: I don't think I
have ever done that.
I do give certain types of information
at times. Typically, one of the things that
people do not consider when they think about
the divorce is the question whether or not
the life insurance ought to be maintained on
the life of the noncustodial parent in the
event to support the parent if something
happens to the parent on the child support.
That commonly is something that is not con-
sidered by the people involved in the di-
vorce. We discuss that when they come in.
The response is, “Well, gosh, we
haven't thought about that."
I will explain to them the reason they
102
might want to consider such protection,
and tell them it's up to them to decide wheth-
er or not they want it. But we are fully
capable of obtaining an order of court and
incorporate it in a decree or Decree of
Dissolution to obtain such protection.
Q. But you never advise them as to
how they should distribute the propert‘?
(65) A. BY MR. O'STEEN: No.
Q. No matter how slight, if there is
no contest; they haven't thought about it?
A. BY MR. O'STEEN: That's one of the
things--it's very rare that a couple would
come in to the office to seek assistance
in the uncontested divorce, and they
haven't decided how the property is going
to be divided. In most cases they come
into the office, and it's two feet long.
They include the doilies on the sofa --
that much detail. So, that specific prob-
lem doesn't come up very often.
Q. What do you do with those lists?
103
A. BY MR. O'STEEN: The very long
Q. Yes.
A. BY MR. O'STEEN: We do one of two
things. If they feel strongly about it,
we incorporate all that into the pleadings.
I will inform them that if they have an
informal agreement as to the division of
such property, and it has already been ex-
changed, then there is no reason to recite
all of that.
Q. How about the taxes, does it com-
monly happen that they haven't thought
about accrued income taxes, such like in-
surance?
A. BY MR. O'STEEN: Are you talking
about tax liability or tax refunds that
they have?
(66) Q. Either way, that they haven't
thought about; principally, the liability.
Let's suppose money has been earned
by the community during the year, and they
104
Simply have not focused on the fact that
there are taxes due.
A. BY MR. O'STEEN: We inquire about
that. Most of them have payroll deductions
in excess of their tax liability, and most
everyone we deal with has a refund coming,
and so that is, of course, an item of pro-
perty in which there is a combined interest,
and most of the cases it is to be considered
in dividing.
Q. Now, on this galaxy of variations
that we have been speaking about, do these
take a small amount of time?
A. BY MR. O'STEEN: No.
Q. What is the range that is the quick-
est or longest?
A. BY MR. O'STEEN: Are you talking
about the attorney's time or combined staff
time?
Q. The attorney's time. What is the
shortest or the longest?
A. BY MR. O'STEEN: Including the dis-
105
solution hearing; including the total mat-
ter?
Q. Yes, we'll take the totality of the
matter, short to long; what can it be?
A. BY MR. O'STEEN: I would say the
short probably (67) requires about an hour
and a half of attorney time, and the longest,
perhaps three hours of attorney time.
Q. And the fee of $175.00 applys (sic)
to the shortest and the longest, and all
in between; is that correct?
A. BY MR. O'STEEN: Yes.
Q. Without regard to the amount of pro-
perty which is involved; isn't that correct?
A. BY MR. O'STEEN: That's right.
Q. Now, we have spoken earlier about
the fact that you are likely to do wills for
the people, or at least recommend them to
them upon the conclusion of a divorce, when
they become single persons again.
Do you recall that part of our dis-
cussion?
106
A. BY MR. O'STEEN: Yes, I recall that,
saying that we don't do that often.
Q. But you do it from time to time?
A. BY MR. O'STEEN: Rarely. Occasionally.
Q. All right. If you do that, what do
you charge for the wills?
A. BY MR. O'STEEN: $30 for a simple
will for one spouse; 15 for the spouse
reciprocal.
Q. But I'm speaking now of a recently
divorced person?
A. BY MR. O'STEEN: You are talking
about an individual?
(68) Q. Individual.
A. BY MR. O'STEEN: $30.
Q. I notice in the ad that you deal
with changes of names. For the $95, what
do you do for them?
A. BY MR. O'STEEN: Have their name
legally changed.
Do you want to know the steps?
Q. Just a word, how do you do that?
107
A. BY MR. O'STEEN: Well, the client
comes in for an interview; the pleadings
are prepared. That is, a Petition for
Change of Name. It's then filed with the
court. If notice seems to be required in a
case, then notice is given in the manner
prescribed by law. A hearing date is set
by a legal assistant; a letter goes out to
the client and informing them of the hearing
date and asking that they meet us a few min-
utes early at the court house.
The lawyer ’*then meets the client at
the court house; conducts the hearing;
takes --
Q. Mr. O'Steen, I'll ask you to
assume for this hypothetical that the
cases (sic) is one of a person in which
no notice would be appropriate. It's a
person in the community who is alone and
simply wishes, for whatever reason, to
make a change of his name, but there is
no person to whom any notice would pro-
108
bably be sent. Could we assume such a
case? That's not abnormal?
A. BY MR. O'STEEN: No. That's most of
the cases; (69) have no notice requirement.
Q. Now, in that case, would you tell us
with some precision, how that persons (sic)
gets to you? Calls in for an appointment?
A. BY MR. O'STEEN: Yes.
Q. And gets one of the clerks?
A. BY MR. O'STEEN: Well, in this
case, the receptionist -- if a person calls
in and says, “I want to see an attorney
about a change of name", the appointment is
simply made by the receptionist at that
time. The legal assistant isn't used in the
appointment-making process and in the name
change cases.
Q. The receptionist makes an appointment,
and this person comes in to see you, hypo-
thetically?
A. BY MR. O'STEEN: Yes.
Q. Would you tell us, please, what do
109
you say and what does this person say in the
interview? Give us an outline of it.
A. BY MR. O'STEEN: I have an inforr-a‘ica
sheet, which I don't have in front of me,
which has been carefully devised to see that
we get all of the information we have to
have in order to prepare the pleadings and
conduct the hearing. I take the necessary
information down on the information sheet;
discuss. the fee arrangements of it with the
client; inform the client (70) that a plead-
ings (sic) will be ready for signature on
a day generally two or three days therea-
fter, then we make an appointment for the
client to come back and sign the pleadings.
Q. That is the totality of your con-
versation with the client at that time?
A. BY MR. O'STEEN: Well, yes. I gave
you a very abbreviated indication of what
happens.
Q. Well, I am winding up my examination
now, and we'll tax the patience of the panel.
110
Just tell me everything tnat happens on
that conference. I want to know about it.
A. BY MR. O'STEEN: The person says, "I
want a name change.
I will ask them, "Why? What's the basis
of your desire to have the name change?
proquentiy, what has happened is a child
may have been raised by a step-father and
has now reached adulthood; over the past has
used the surname of the step-father on many
records and with many associates, and there-
fore, some confusion ensete axes the use of
two surnames on various records, and that,
of course, is a sound and justifiable basis
for legal change in name.
So, I note the reason for the request
in change in name on the form. I take down
all the additional data. (71) I cannot
remember all the data that's required in
one of those cases. It's on the information
sheet.
The other things are substantially as
lll
I related them before. We discussed fee
arrangements. Our usual requirement is that
we require one-half of the fee prior to
preparation of the pleadings, and the bal-
ance prior to the filing. That's discussed.
If other arrangements have to be made, we
discuss it; come to an agreement, and nota-
tion on the fee arrangement is made on the
information sheet.
The client is then escorted out to the
receptionist; an appointment is made for
the client to return and sign papers.
Q. Mr. O'Steen, do you ever take up
with a client whether he needs a lawyer at
all for this purpose?
A. BY MR. O'STEEN: For a change of
Q. Yes.
A. BY MR. O'STEEN: No. Wait, excuse
me, Mr. Frank. I'll have to change that
answer. Yes, I do on occasion, because when
I find that the name change is one which does
112
not require the involvement of the Superior
Court and can be handled through the Depart~-
ment of Vital Statistics, through the cor-
rection of a record, something of that sort,
I frequently will send the client on his
way with how to deal with the Department
of Vital Statistics.
(72) Q. But isn't it true that nothing
in our law requires the person to have an
attorney to get the name change?
In the Superior Court, I'm told by
the clerk that something like three out
of 10 of the name changes are handled pro
se or pro per, rather. Are you acquainted
with the fact that name changes can commonly
be obtained by individuals without the
intervention of counsel?
A. BY MR. O'STEEN: I'm aware of the
fact that it's done. I don't know how com-
petently it's handled, and furthermore, it's
not my job to inform a prospective client
that he needn't employ a lawyer to handle
113
his work. Furthermore, there are no readily
available forms or instructions for people
who wish to do that kind of work themselves.
MR. FRANK: May I consult my co-coun-
sel?
THE CHAIRMAN: Yes, sir, you may.
(Discussion off the record between Mr.
Frank and Mr. Lewis.)
MR. FRANK: I have no further questions
of these two witnesses.
MR. CANBY: You have other witnesses to
put on?
MR. FRANK: I have one, Mr. Arnold. I
can put him on or you can call them, as you
wish.
MR. CANBY: I have a few questions that
I'd like to (73) ask now, then perhaps I can
recall them as part of my case.
x*ke*keek
EXAMINATION
BY MR. CANBY:
Q. Mr. O'Steen, what do you do if some
114 115
body comes to your office with a malpractice ship?
case, medical malpractice, blotched spinal (74) A. BY MR. O'STEEN: That, also,
’
yes.
operation?
MR. O'STEEN We don't take them. Q. You refer to the printed fomnis that
A. BY . : _
do send them: you use. Are those purchased from a station-
Q. Where you ‘
A. BY MR. O'STEEN: Lawyers Referral ery store?
iati A. BY MR. O'STEEN: We purchase some
Service of the County Bar Association.
tj d another attorney had printed forms from the commercial outlets
Q. You mentione
been in your office. Did that attorney de- chat market them, but we found very early in
en .
before this advertisment that's the the going that most of them were not very
part or
f this proceeding was placed? well done; very unprofessional, and for that
subject o
reason we have devised a good many printed
A. BY MR. O'STEEN: Yes.
9. And you had no other attorney work- forms of our own, and we use them regularly
in our practice.
ing with you at that time, did you? p
Q. Did you ever keep track of how much
A. BY MR. O'STEEN: No.
You said that each attorney special- time you put into creating your own forms,
YQ. You
izes in your clinic. Are you speaking of your own systems and things like that?
° e 9 4 * ' +:
the different specialties between you and A. BY MR. O'STEEN: We havei:'t kep
track of it, but it will never pay. It's
Mr. Bates?
incredible hours of time in devisins these
A. BY MR. O'STEEN: Yes.
' - systems.
Q. Are you also speaking of the fact y
Ww. To your knowledge, does the Legal
that you confine your practice, as a partner-
116
Aid Society now take all divorce cases re~
quested by clients who meet their income
restrictions, their income qualifications?
A. BY MR. O'STEEN: No. I understand
they have narrowed their guidelines a great
deal, in terms of categorical limitations on
the types of cases they take. I don't fully
understand what those are.
Q. I don't think you had time to explain
what your personal reaction was to giving out
cards in hospitals or at the scene of acci-
dents to people who had been hit.
(75) What are you personal reactions to
that?
A. BY MR. O'STEEN: Weli, my personal
feeling about that is I don't like it. That
sort of thing is undignified and unprofes-
sional and does not serve the public interest,
in my opinion. Therefore, I'm not in favor
of it, but I hasten to add that that's not
a position on the law, it's simply a personal
reaction to that type of practice.
117
Q. Does part of your reaction have any-
thing to do with the fact that the victim
at the accident is likely to be in some sort
of emotional reaction or physical disarray?
A. BY MR. O'STEEN: That certainly
adds good reason for forbidding that type
of practice.
Q. Before you placed that advertise-
ment, did you spend any time in discussion
or study between the two of you regarding
your right to place that ad under the
First Amendment or the antitrust laws?
A. BY MR. O'STEEN: Yes, we did, con-
Siderable time.
Q. Did you devote any discussion to the
question of handbilling?
A. BY MR. O'STEEN: Leafleting of the
type that Mr. Frank suggested?
Q. Yes, going door to door with
leaflets.
A. BY MR. O'STEEN: No, we didn't
discuss that.
118
(76) Q. You said that you always ask
about life insurance in divorce proceedings,
about the possibility of life insurance?
A. BY MR. O'STEEN: Yes.
Q. Is that required by any of your
checklists?
A. BY MR. O'STEEN: Sure. We incor,.0r-
ated that on the standard divorce question-
naire, the information sheet, so that wien
an attorney obtains the information neces-
sary to process a divorce, one of the ques-
tions which must be asked is: Do you have
an agreement on that question, that iss?
Q. Divorces or dissolutions can be hard-
led pro per, can't they?
A. BY MR. O'STEEN: They can, and many
of them are.
Q. Do you have any idea how many are,
percentage?
A. BY MR. O'STEEN: I could tell you
what Commissioner Tom Novak has told me, if
there is no objection.
119
THE COMMISSIONER: That's quite all
right.
A. BY MR. O'STEEN: (Continuing) Some-
thing over 50 percent of the divorce filings
in Maricopa County are pro per.
Q. BY MR. CANBY: Contested and un-
contested?
A. BY MR. O'STEEN: That's my under-
standing, 50 percent of the total divorce
filings.
(77) MR. CANBY: That's all of the
questions I have that related to the subject
of Mr. Frank's examination. There are a
few unrelated subjects I'd like to reserve
the right to take up with these witnesses.
MR. FRANK: So stipulated.
THE CHAIRMAN: Mr. Frank, any recross?
MR. FRANK: No,
THE CHAIRMAN: I have a question or two,
if you don't mind, gentlemen?
x* keer
EXAMINATION
120
BY THE CHAIRMAN:
Q. First, do you, Mr. O'Steen, negoti-
ate fees with clients if someone comes in
and says, " A hundred and a quarter is toc
much for contested, will you take $35?"
A. BY MR. O'STEEN: We don't often ne-
gotiate fees. On occasion, under special
circumstances in an individual case, we
might make a decision to reduce a fee or
charge a fee slightly lower than our typical
fee for that type of case. As a general rule,
we don't negotiate on fees.
Q. Basically, you have what might be
called a catalog price for service?
A. BY MR. O'STEEN: You might call it
that.
Q. Would your answer be the same, Mr.
Bates?
A. BY MR. BATES: Yes, it would.
(78) Q. The second one that I'd like
to ask, and it might be difficult to ans-
wer, but I think is perhaps at the heart of
121
the whole inquiry: Mr. O'Steen, can you
tell us, if you can articulate it, the
motive or motives that you had for placing
the advertisement, in any order of priority
that you think is appropriate?
A. BY MR. O'STEEN: Well, the cbvious
one is to attract clients.
Q. And that is for the purpose of
maximizing your income; is that true?
A. BY MR. O'STEEN: No, I think that's
probably an unfair statement.
Q. I don't wish to suggest that there
is anything immoral about maximizing your
income, and it was not intended to be a
biased question, or that it would be given
anything other than the neutral consideration,
and therefore, I do not regard it as unfair.
My question, basically, is whether one of
the motives that your clinic had in placing
the advertisement was to maximize your ‘in-
come opportunity?
A. BY MR. O'STEEN: I'm bothered a
122
little by the term "maximize income oppor-
tunity". It was really a question of sur-
vival of this clinic and this type of oper-
ation. Had I been primarily motivated by
maximizing my income, I would have applied
for a job with your firm (79) or Mr. Frank's
firm, although I probably would not have been
offered a job. I would have done sometiim
like that.
I don't mind confessing to you that this
has not been a terribly profitable operation
up to this point, but we think it can be made
profitable, profitable that attorneys can
earn reasonable incomes doing this type of
work, and if that doesn't happen this clinic
concept will not survive. We have to be com-
mitted to the idea that lawyers can make
reasonable incomes from that type of work, but
basically, it was a question of income at
that point.
Q. What you are saying, the systems ap-
proach, as you have described, is not economi-
123
cally viable unless it can rely upc:: substan-
tial volume; is that true?
A. BY MR. O'STEEN: Precisely.
Q. Now, among your motives, would you
Say that at least in part you were moved by
a desire to have a better system of delivery
of legal services to persons who were in
need of legal services, who otherwise might
not avail themselves of legal services:
A. BY MR. O'STEEN: If I understand the
question, you are asking me if that was one
of our motives in doing this.
Q. In placing the advertisement.
A. BY MR. O'STEEN: Yes, it was.
Q. It was.
Do you think that you could accom) Jish the
same (80) objective without quoting prices
for services in the advertisement?
A. BY MR. O'STEEN: No, because I think
price information is absolutely essential
to an intelligent decision by a person on the
selection of a lawyer.
124
Q. Is it your judgment that it would
generate healthy and constructive competition
to the benefit of the consuming public if
multiple competitive advertisements were
placed in the media; each one attempting to
offer a comparable seryice at a lower price?
A. BY MR. O'STEEN: Yes.
Q. And you would not think that that
kind of competitive advertising might motivate
the individual clinic or practitioner to cut
the quality of service in order to be able to
reduce the price?
A. BY MR. O'STEEN: Well, I should hope
not. That has not happened in our prac*.ice,
and at the risk of sounding boastful, I think,
if anything, the careful developmen: of the sys-
tems approach that we have has caused the quality
of the work done in our office to be second to
none anywhere in the state.
I think if lawyers began to cut the quality
‘of their service, that's another problem, and
the Bar Associations are perfectly free to do,
125
and capable of dealing with that problem. That
sort of thing happens (81) today. All lawyers
are not equally competent, and the Bar Associ-
ation will have to learn to grapple with that,
I think, but, to me, is absolutely clear that
high-quality service can be done and can be
rendered at a rate below the prevailing rates
if price advertising is permitted.
THE CHAIRMAN: Does anyone have any further
questions?
MR. FRANK: One.
x eee
EXAMINATION
BY MR. FRANK:
Q. One thing, Mr. O'Steen, that I should
have taken up earlier; I think it should be on
the record. I think it's fair to say that in
putting in this ad, you and your partner have
not proceeded defiantly or either contempt-
uously by the action on your part towards the
Bar or the Supreme Court, and by stipulation
of your clients it has been agreed that you
126
would not advertise further pendinc reason-
ably rapid disposition of this matter; es-
sentially what you have done is create a test
case to determine whether you can do this or
not? Isn't that about right?
“A. BY MR. O'STEEN: That's right. We
don't — be accused of causing frivolous
litigation, and that's not (82) what we are
doing. i
We did think that what we did was essen-
tial to the survival of this concept, but it
is true that it in no way was done with any
disrespect or contempt for the State Bar or
the Supreme Court. We are delighted the
issue being so well aired.
MR. FRANK: I will now come back to
this when you consider this, or if you should
at some later time, when the Supreme Court,
the problem of penalties. So I do know this
has been a one shot, and it has been agreed
that there will not be further advertising
pending a reasonably speedy disposition of
127
the matter.
Mr. Canby, is that right?
MR. CANBY: Yes, that's our intention.
I don't recall stipulating.
THE CHAIRMAN: It is clearly understoo?,
however, that the Respondents acknowledge
and admit, for the purpose of this proceed-
ing, that the placing of the advertisement
constituted a violation of a rule of pro-
fessional conduct promulgated by the Supreme
Court of this state. Is that not true?
MR. CANBY: That's not only true, and
is admitted in our Answer, with the reser-
vation that we attack the validity of the
rule. What you say is true.
(83) THE CHAIRMAN: Do you agree with
that, Mr. O'Steen?
WITNESS O'STEEN: Yes, sir.
THE CHAIRMAN: Mr. Bates?
WITNESS BATES: Yes, sir.
MR. FRANK: Nothing further.
128
EXAMINATION
BY MR. CANBY:
Q. One question: The Chairman asked
you, Mr. O'Steen, one question, something
like that: You advertised, then, because
your clinic was not economically viable
without it?
A. BY MR. O'STEEN: I think that was
my response.
THE CHAIRMAN: The question was “not .
economically viable without a substantial
volume of business to treat with the systems
concept."
Q. BY MR. CANBY: I would add, at
those prices, or at low prices; is that
correct?
A. BY MR. O'STEEN: That's correct. I
was reading that into the question.
Q. I was trying to see what was incor-
porated in your answer. Yes.
A. BY MR. O'STEEN: Yes. The fees we
charge cause us to know that perhaps --
129
perhaps I should start over and try to re-
phrase this.
(84) Yes, it is true that it was not
economically viable for the clinic to oper-
ate at the fees charged for various services
without communication of price information
in the form we chose to do it.
Q. To increase volume?
A. BY MR. O'STEEN: In order to increase
volume.
MR. CANBY: I have no further questions.
xxkee*k tk
EXAMINATION
BY THE CHAIRMAN:
Q. Have you ever made an estimate as to
the number of pieces of business that you
have te do in a day, week or month in order
to be able to break even?
A. BY MR. O'STEEN: We know what dollar
volume we have to gross in order to break
even.
Q. Do you know what your gross dollar
130
volume is that is necessary to break even?
Can you state it?
A. BY MR. O'STi:DN: I think Mr. Bates
has that.
Q. Mr. Bates, can you answer that ques-
tion?
A. BY MR. BATES: The last time we
looked into it was several months ago, and
there have been several changes in the firm
in the use of personnel and in the use of
automatic typewriting equipment.
Do you want a figure? Is that what you
are asking?
(85) Q. I am interested in a figure,
yes.
A. BY MR. BATES: I would estimate
between $250 and $300 a day.
Q. Between $250 and $300 a day gross
fees received?
A. BY MR. BATES: Yes.
Q. Do you maintain any time records for
your time?
131
A. BY MR. BATES: In cases where we nor-
mally keep time records, yes.
Q. But there are certain cases in which
you do not keep time records?
A. BY MR. BATES: We did initia‘ly, to
find out how much time was being typica*ly in-
vested in standard cases, and we took an average
but we do not keep time records of every case
that we handle.
Q. Do your paralegals keep tine records?
A. BY MR. BATES: In our hourly rate cases,
yes.
Q. Do you have hourly rate cases?
A. BY MR. BATES: Yes.
Q. Do you have some matters that you do
not charge for a flat fee?
A. BY MR. BATES: Yes, that's correct.
Q. Would you be willing to tell the Com-
mittee what your hourly rates are?
A. BY MR. BATES: Yes. It's $40 an hour.
Q. For the lawyers?
(86) A. BY MR. BATES: For the lawyers.
132
Q. Do you charge on an hourly basis for
your legal assistants?
A. BY MR. BATES: That's $20.
Q. Is the $40 rate the same for both you
and Mr. O'Steen?
A. BY MR. BATES: Yes.
THE CHAIRMAN: That's all I have.
MR. FRANK: Nothing further.
MR. CANBY: Nothing further. I only
have a short few questions left, but I don't
think they'd logically come now.
(Discussion off the record.)
(Recess taken.)
x «kek
JAMES L. JONES, being sworn as a witness
by the Chairman, was examined and testifies as
follows:
MR. CANBY: This is a defense witness
being called out of turn.
EXAMINATION
BY MR. CANBY:
Q. Mr. Jones, would you please state your
133
full (87) name and address?
A. My name is James L. Jones. I live at
6821 North 8th Avenue, Phoenix.
Q. You have some connection, haver.'t you,
with the American Association of Retired’ Per-
sons?
A. I do.
Q. What is that position?
A. I am associated with the Phoenix Chap-
ter No. 41, and act on the Board of Directors,
and as a Legislative Chairman of this Com-
mittee.
Q. How many members has your Chapter?
A. The Chapter 41 has about 700 members.
Q. I see. Statewide, there are how many
in the Association?
A. Statewide, there are approximately
118,000 members of AARP at the present time.
Q. In your capacity as a director and
legislative liaison and as any other capacity
you have, do you have considerable contact with
the membership of your organization?
134
A. I do.
Q. Are they all retired persons?
A. No, they are not all retired persons.
The membership is open to those fifty-five years
of age and older.
(88) Q. Do you have any general estimate
of what percentage? Is the majority of them
retired?
A. Oh, yes. I'd say at least 80 percent
are retired.
Q. In your contact with these members,
do you have any general knowledge of the
economic condition of the members, generally
or of specific members?
A. I would say, generally, they are in
the lower economic spector of our population.
Q. Do the retired members of your orcan-
ization tend to be on fixed incomes?
A. Yes, they do.
Q. Are you aware whether or not the mem-
bers of your organization, with whom you are
acquainted, have need or have had occasion to
135
need legal services?
A. Yes, they do. They do have need of
legal services.
Q. How do they find that out?
A. Well, we have a Consumer Affairs
Committee, and we make studies of this sort
of thing; consultation with various memb:rs,
and offer services, such as income tax pre~-
paration services and so forth to our mem-
bership.
Q. Have you ever had occasion to advise
members of your organization who hac ques-
tions about obtaining legal services?
A. Yes, I have.
(89) Q. What is the nature of that ad-
vice?
MR. FRANK: Could I have foundation?
What kind of legal services are we talking
about?
MR. CANBY: Let's ask that.
Q. BY MR. CANBY: What kind of legal
services?
136
A. I think the legal services are the
same as any group of citizens, they would have.
I don't think they are peculiar at all, that
this is a group mainly of retired persons.
Most of us, or many of us are still active
in businesses and in social affairs, so I don't
think the legal services would be any different
than you'd find in the cross section of the
public at large.
- Q. Have you discussed the obtaining of
legal service with people, for instance, who
wanted to get a divorce, or a will?
A. A will, yes. Divorce, no.
Q. Possibly probate proceedings; some-
one had died?
A. We took a very active interest in
the probate bill that was before the legis-
lature in the session a couple of years ago.
Q. What advice do you give your members
if they ask you how to obtain legal services?
A. Well, we don't recomme:): any individual
attorney or send them to any firm of attorneys,
137
but we do suggest (90) when they do contact an
attorney that they seek to the best of their
ability to get an estimate of charges and be
sure that they understand what the expense is
going to involve.
Q. Showing you Bar Exhibi* No. 6, this
is an advertisement that appeared in the
"Arizona Republic". In your opinion, would
that advertisement be of assistance to your
members in obtaining legal services?
MR. FRANK: Objection.
May I ask a question on voir dire?
THE CHAIRMAN: Yes, you may.
VOIR DIRE EXAMINATION
BY MR. FRANK:
Q. Mr. Jones -- it's Jones, is it?
A. Correct.
Q. Mr. Jones, you have testified a
moment ago that you have not had occasion to
counsel with your members concerning divorces
and legal services. Is that what you just
told us?
138
A. I said that I personai’, have never
been called upon to discuss that type.
Q. Right. Secondly, have you ever been
called upon to discuss bankruptcy with the
members of your organization, individually?
(91) A. I have not. |
Q. Have you ever been called upon by
any of them to advise therr. concerning changes
of their names?
A. No, I have not.
MR. FRANK: I will not object, Mr.
Chairman, because we have agreec we will
make no objections, but I want the voir dire
to stand as going to the weight of this
evidence.
THE CHAIRMAN: Yes, it may.
I'd like to have the question reread to
Mr. Jones, and I'd like to have him think
about it and give an answer.
(Question read by reporter.)
A. I think it would be.
EXAMINATION (CONTINUED)
139
BY MR. CANBY:
Q. Why?
A. For the simple reason that it places
some basis of legal cost on the specially
mentioned matters, and it also has a state-
ment here, "Information regarding other
types of cases..." would be "...furnished on
request", and I think the big difficu ty in
the minds of most people seeking legal ser-
vices is what is the basis of cost, and if
you can find a clear cut statement in this,
it seems (92) to me it would be helpful.
MR. CANBY: I —— further questions.
* ££ & &
EXAMINATION
BY MR. FRANK:
Q. Mr. Jones, who was the last member
of your association who consulted you ona
need for legal services?
A. Are you expecting me to give you a
name?
THE CHAIRMAN: The question calls for a
140
name. You may say that you don't know, if
you don't know.
A. (Continuing) I'm not sure that I
could recall the name of the individue}.
Q. BY MR. FRANK: When did that hap-
pen?
A. I'd say about two weeks ago.
141
time to prepare a list like that.
As I said, I think the range would be
the same range of legal problems that con-
front any of society.
Q. But you have nothing specific at
this minute?
A. I didn't come prepared to recite a
Q. What was the last one prior to that? list of items of that character.
A. Oh, maybe a week before that. MR. ROBINETTE: Could I have one question?
Q. What was the nature of those ser- THE CHAIRMAN: Of course, Mr. Robinette.
vices in those two instances? Mr. Robinette is one of the members of
A. These were problems involving traffic the Committee who is hearing the testimony.
cases and income tax matters.
Q. Are most of the inquiries that come
to you things which would involve either
petty criminal offenses, such as traffic or
income tax? Is that the weight of them?
A. No, I don't think that would be the
case.
(93) Q. Would you give us a descrip-
tion of what the others are?
A. Well, I would have to take some
EXAMINATION
BY MR. een,
Q. Mr. Jones, you said you advised
your friends and asscciation, very properly
so, that if they see a lawyer they should
make inquiry as to what the nature of the
fees would be and what it's going to cost
them. I believe that's your testimony?
A. That's right.
Q. Have any of them ever told you that
142
when they consulted the lawyer, the lawyer
refused to discuss fees with them?
(94) A. No, they had not said that to
be the case, but it has been my experience
that some of these same people have been
unhappy with the results of being told that
the cost would be one thing, and finding
out that they were substantially more than
they had been told they would be.
Q. Of course, you don't know of your
own knowledge whether these prices listed
in the Exhibit that's been displayed to you
are higher or lower than the going rates?
A. I do not.
Q. Among lawyers, generall‘?
A. I do not.
MR. ROBINETTE: That's all.
EXAMINATION
BY THE CHAIRMAN:
Q. Could I inquire, Mr. Jones, are you
aware of a service which is implemented by
the Maricopa County Bar Associ;+tion called
143
the Lawyer Referral Service?
A. I am. We have availed ourselves of
an expert from your Lawyers Referral grou,
that appeared on a program before our monthly
meeting about two years ago.
Q. When members of your association
inguire of you from time to time concerning
how they would go about getting the services
of an attorney, do you recommend (95) that
they get in touch with the Mariccpa County
Lawyers Referral Service?
A. We do not?
Q. Can you tell us why you do not?
A. The experience that we have had with
that has not been very good.
Q. In respect to the quality of legal
services or what?
A. I think the results that I have known
about have indicated a rather lack of sub-
stantial interest on the part of the at-
torney or attorneys to whom they were sent
to; and after all, for a $10 fee you couldn't
144 145
expect to get too much, probably. BY MR. FRANK
Q. This kind of an experience has been Q. Would you state your name for the
reported back to you from people who have | record?
gone to the Lawyers Referral Service? A. Richard M. Arnold.
A. Right. Q. Mr. Arnold, you are a member of a
THE CHAIRMAN: All right. Thank you. firm of architects. Have you given the
MR. FRANK: No questions. name of that firm to the reporter during
MR. CANBY: No questions. Thank you the recess?
very much, Mr. Jones. A. No.
THE WITNESS: Thank you very much. a . THE CHAIRMAN: Would you like to do it
THE CHAIRMAN: Mr. Jones, we appreciate now?
very much your taking your time to be of MR. FRANK: I'm going to hand it to her,
help to us, Snd you may be excused. because of the spelling.
(96) THE WITNESS: Thank you. THE WITNESS: It's Guiry, Srnka, Arnold
(Witness excused.) & Sprinkle.
MR. FRANK: Mr. Chairman, I present Q. BY MR. FRANK: Mr. Arnold, how lony
Mr. Arnold. Could he be sworn, please. have you been an architect?
ea ae A. Since 1956.
RICHARD M. ARNOLD being sworn as a Q. Is there a national association of ar-
witness by the Chairman, was examined and chitects?
testifies as follows: (97) A. The American Institute of Archi-
EXAMINATION tects.
146
Q. Are you a member of that?
A. I am.
Q. Is there a state assvociation of
architects?
A. Yes.
Q. What is that?
A. Agisens Society of Architects.
. 2+ In addition to that state society,
are there local Chapters?
A. There is a Central Arizona Chapter
and a Southern Ayizona Chapter.
Q. Mr. Arnold, the national orgarization
has, I believe, a post of high profe:sional
honor for some limited number of architects
Known as Fellows. Do I have the word correct?
A. Correct.
Q. Are you a Fellow of the American In-
stitute of Architects?
A. Yes, I am.
Q. Hlow many of those ord there in the
State of Arizona?
A. I believe there are 15.
147
Q. What is the general qualification
of a Fellow? How does one become a Fellow?
A. Through service to the profession *
and to the (98) community.
Q. In?
A. Advancing architecture.
Q. Of service to the profession, have
you held any offices in more than the Ari-
zona Chapter?
A. All of them.
Q. Have you held any offices in the state
association?
A. I was president several years ago.
Q. Mr. Arnold, in the course of your work--
MR. FRANK: May we stipulate that Mr.
Arnold is a fully-informed expert on advertising
and its practice in the state, or do you
want more foundation?
MR. CANBY: No, I waive the foundation.
Q. BY MR, FRANK: Mr. Arnold, what is
the practice of the architectural profession
in respect to newspaper advertising?
148
A. It has been prohibited.
Q. For how long?
A. I think since the founding of the
Institute which was, I believe, in the late
1880's.
MR. FRANK: Mr. Chairmar:, Mr. Canby, I
ask leave to lead, because this is obvious
stuff.
Q. BY MR. FRANK: Isn't it true, Mr.
Arnold, that in connection with your profes-
sion, unlike law or (99) accounting, the
discipline is left to your associatio) and
is not enforced by the state in any way; is
that correct?
A. That is correct.
Q. So far as advertising is concerned?
A. Right.
Q. But if, in fact, an architect were
responsible for advertising, are there
disciplinary procedures within the archi-
tectural organizations to examine in to
such matters?
149
A. Yes. There are committees on ethics
in each Chapter, as well as at the national
level.
Q. What sanction Would be imposed, if
it should appear that someone were guilty
of either advertising or repeatedly adver-
tising, perhaps?
A. If it went as far as the national
level, it would probably be a censure,
which would be published in the Institute's
material. |
Q. Suppose it happened again, what
discipline would be imposed?
Can somebody be dropped from the as-
sociation?
A. Conceivably, they could be dropped
from the membership.
Q. In your profession, however, unlike
the others, I think you permit person-to-person
solicitation; don't you?
(100) A. Yes.
Q. Would you describe the kind of solici-
150
tation that architects do regard as proper?
A. Well, traditionally, they hoped
they would get known by their works, and
people would come to them or clients would
come to them. As it happens, we will make
person-to-person contact with potential
clients, and making it known what services
we offer.
Q. And by the traditions of your pro-
fession, it's perfectly proper to call on
someone == correction == call on someone
whom you believe to be about to do some
building, to interest him in engaging your
firm for that purpose, is that right?
A. That is correct.
Q. But you bar advertising to the
general public, as a whole?
A. Right.
Q. As distinguished from person-to-
person?
A. Right.
Q. Now, what is the record in this
151
community for young architects?
Do competent architects find that they
can develop careers, normally, within a
few years here?
A. It would seem so, with the number
of architects that we have in the community.
(101) Q. Well, you know the profession
thoroughly, as president and having moved
through all of the chairs all over the
state; isn't that true?
A. Yes.
Q. Is it true that quite universally
competent architects, at least from two to
five years up, are able to find a reasonable
amount of work to keep busy and make reason-
able incomes?
A. Yes.
Q. And they do that without any public
advertising?
A. That's correct. |
Q. Well, Mr. Arnold, what are the
evils of advertising, as the architectural
152
profession sees it?
How would the public interest be dis-
served?
A. It's considered to be self-lauda-
tory as through the Code of Ethics.
Q. But I want to get to the reason for
the rule. What is the loss to the commun-
ity, if any?
A. I think by the possibility of mis-
leading the public, in general.
Q. What do you regard is the capacity
of architectural advertising to mislead?
A. They could very readily oversimpli-
fy the concept of problems that the owner
would face in going about a building pro-
ject.
(102) Q. Can we be concrete about
this? Isn't it perfectly true that, for
example, you have done, I think, as I re-
call it, I think it's the library im Flag-
staff--is my memory correct--some building
in Flagstaff--that won a prize? Straighten
153
me out, because I'm speaking from memory.
A. We have done various buildings on
the campus in Flagstaff.
Q. There was one <=
A. There was a NASA project at the
Lowell Observatory.
Q. If you simply put a picture of that
building in the newspaper and put below it
as an advertisement Richard Arnold as the
architect of this building, would that
mislead anybody?
A, Just the picture itself?
Q. Just the picture and" your name,
A. I don't see that it would,
Q. What, then, would be the kind of
advertising which you think might mislead?
Will price advertising mislead?
A. Suppose it said that "Richard
Arnold designed this building on budget for
this client", that's implying that I would
always do that.
Q. Do you miss occasionally?
154
(103) A. I'm afraid bo,
Q. Mr. Arnold, I want to get to the
question of price advertising. Do you
regard price advertising of architectural
services as somehow inherently misleading?
A. Well, yes.
Q. Why?
A. Because the pricing of services
will vary all over the place as to the
nature of services and the scope of the
project, the scope of the problems that the
owner is encountering.
Q. Mr. Arnold, isn't it true that fre-
quently architects utilize a percentagy of
the cost of the building as a base portion
of the fee?
A. That is one of the measuros, right,
Q. But is it not also true that there
are in the standard agreements usec by
architects paragraph after paragrapl, run-
ning to pages for varying items which may
affect the price before the job is done?
155
A. Yes,
Q. And there are fixed price items
within the percentage, and then there are a
lot of other items which are additional
items which can unexpectedly crop up; isn't
that so?
A. That is right.
Q. And that is universs) architectural
practice (104) under forms of the contract
that are substantially always used by archi-
tects; isn't that so?
A. Quite right.
Q. Do you regard it as misleading,
then, to say, “We will build your home for
six percent of the cost"?
A. I would say it was misleading, of
course, besides being poor business,
Q. And misleading in the sense that if
you use the standard contract, it simply
won't be true, because of the miscellaneous
unanticipatable items; isn't that right?
A. Yes.
156
MR, FRANK: Your witness.
** * ©
EXAMINATION
BY MR. CANBY:
Q. Is it misleading if you advertise
that you will build a home for six percent
of cost, and then you go ahead and do it?
I mean, that you will do the architecture.
A. After the fact, it was not mis-
leading beforehand, right.
Q. Right. In other words, it was per-
formed according to the advertisement, then
that would not be misleading; is that
correct?
A. It wouldn't be misleading, It
would probably be misleading in the first
place, from a practical matter, (105) that
you are guaranteeing a price to begin with,
when you don't know what the circumstances
are,
Q. Of course, it doesn't mislead if
you adhere to that price?
157
A, True.
Q. It may be bad business, and you may
find it economically unfeasible to adhere
to that price?
A, If it was accomplished, and the owner
was not mislead (sic).
Q. Mr. Frank askec you whether it
would mislead the public to put a picture
and the name of yourself, an architect,
let's say, in the newspaper. Is that for-
bidden by the professional code of archi-
tects, now?
A. If it appears as advertisinc, yes.
Q. If you simply put in a box?
A. A paid advertising?
Q. Paid. Okay, you paid to have a
picture put in and your name, that would
be not permitted?
A. No, that's right.
Q. Are you allowed to put a sign up at
the building site with your name as arch-
itect?
158
A. Yes.
Q. The several pages of variances that
may occur in a building, is that a generally
standard form used by architects?
(106) A. Yes, it is.
Q. Do all architects use the same
percentage figure information in those
instances when they will perform the archi-
tectural services for a percentace of the
cost, along with those qualifications which
are standard?
Do all architects charge the same per-
centage?
A. No, nor for the same type project,
either.
Q. It would violate your code, would,
it, to publish a statement saying, our base
percentage for a particular type of job
described is seven percent, subject to
qualifications used in the standard archi-
tect form?
A. If it's plain advertising, it would
159
violate.
Q. It would violate.
You testified that competent architects
are able to achieve a viabi.e practice with-
in somewhere two to five years. Do any
incompetent architects manage also to achieve
viable practice? |
A. You are askinv me to make a judgment?
Q. Yes, I do, because it seems to me
the question you answered previously calls
for a judgment of whether competent archi-
tects are able to succeed.
MR. FRANK: You won't have to name
them, Dick.
Q. BY MR. CANBY: No, I won't ask you
to name them.
A. The answer is, of course.
Q. Are there architects who fail to
establish a (107) practice?
A. Yes.
Q. There are.
What are the consequences of being drop-
160
ped from membership in the association that
you mentioned?
A. Simply that you are no longer a
member or enjoy any of the privileges of
membership, or that you can use the ini-
tials AIA in conjunction with your firm
name or your Own name.
Q. If an architect advertises through
paid advertising in newspapers, is it pos-
sible that he will lose his license to
practice, to practice architecture?
A. No, that's not covered by the
statute.
MR. CANBY: I have no further ques-
tions.
MR. FRANK: Nothing further.
THE CHAIRMAN: I'd like to ask a
couple questions of Mr. Arnold.
EXAMINATION
BY THE CHAIRMAN:
Q. Does the AIA permit its members to
bid competitively for public jobs?
161
A. To my knowledge, there is no sti-
pulation in the ethics with regard to that
subject.
Q. Do I understand, then, if the Scotts-
dale School (108) District was comtemplatin«c
building a new high school, that architects
would be free to come in; be interviewed by
the Board and quote a basis for their compen-
Sation in competition with other persons?
A. I take back my first comment.
There is a prohibition as to competing on
the basis of fee.
Q. So, if Architect A appeared before
the Scottsdale Board and said, "I'll build
your school for four percent for plans and
two percent for supervision", and another
fellow came in and said, "I can beat that,
I'll do it for three and a half and two",
that would be a violation of the standard
of ethics in your profession?
A. That's right.
Q. We have been advised that the
162
Attorney General of Arizona issued an opin-
ion in which he held that it was unlawful
for the accounting profession to compete on
that basis. Are you aware of whether or
not the architecture society has been a
subject of a comparable opinion?
A. No. I have not, of an opinion being
issued.
MR. FRANK: May I make a notation for
the record, Mr. Chairman?
THE CHAIRMAN: Yes. Do you have some
knowledge about that?
MR. FRANK: I think so. The statute
which deals with competitive bidding in the
state does not apply to (109) architects,
and does apply to a number of other pro-
fessions. So that there is an expressed
difference there.
Now, the opinion of the Attorney
General deals with certain general anti-
trust matters and bypasses the state sta~
tute in a burst of enthusiasm of his own.
163 ;
Mr. Arnold, it is true that that mat-
ter has not been taken up, of the archi-
tects, by the Attorney General; whether
because of statutory difference or other-
wise, we don't know. Isn't that true?
THE CHAIRMAN: He has testified that
he is not aware that there is any such
opinion.
MR. FRANK: I thought you would like
to know the state statute is different.
THE CHAIRMAN: I understand. I also
said I understand that the Opinion of the
Attorney General did not rely upon the sta-
tutory difference; it was based upon the
antitrust law.
Q. BY THE CHAIRMAN: You testified
that the base charge made by architects, in
general, are based on a percentage of the
total amount of the contract?
A. That has been traditional.
Q. It's usually divided between a
percentage per plans and percentage for
164
supervision; is it not?
A. Yes.
(110) Q. Has your association, either
statewide or nationally, ever circulated or
published recommended minimum percentages
for various kinds of construction?
A, Yes, several years ago, but they
have been withdrawn,
Q. You have discontinued doing that;
isn't that true?
A. Right.
Q. At the present time individual
architects are free to negotiate their ‘
percentages with individual clients?
A. Or any other basis of compensation,
Q. Or any other basis.
Do you feel that there is a need in
the State of Arizona for wider delivery of
architectural services to persons who are
not now receiving needed services?
A. Yes.
Q. In general, is there much demand
165
for architectural services among the in-
digent?
A. No, not directly.
Q. For the most part, the needs for
architectural services is a direct function
of the availability of money or sources of
money for persons to build things; isn't
that right?
A. That's right,
(lil) Q. Is there such a thing as a
Legal Aid for Architectural Services for
somebody who is desperately in need of an
individual to provide him a design for
improving what might be an unsafe or un-
inhabitable structure, but he can't afford
to pay for the services?
A. Yes, the Chapter provides for that
service.
Q. This case that we are considering
involves an advertisement which places job
fees on relatively standardized services,
such as an uncontested divorce; whac is
166
known, in quotes, “Simple will". Does your
profession have that kind of standardized
product, or is it pretty much custom, based
on a Structure-by-structure difference?
A. No, it would not be standardized,
it would become very custom,
Q. So that even if you wanted to, I
gather, it probably would be impractical
for your profession to quote flat fees for
architectural services, in connection with
the design of a building, unless you were
talking about a very standardized structure?
A. That's right.
THE CHAIRMAN: That's all I have,
MR. FRANK: Nothing further.
MR. CANBY: No questions.
MR, FRANK: May the witness be excused?
(112) MR, CANBY: No objection,
THE CHAIRMAN: Mr. Arnold, you may be
excused, and thank you very much for helping,
(Witness excused, )
MR. FRANK: We rest.
167
THE CHAIRMAN: Would you like to call
your next witness, Mr. Canby?
MR. FRANK: Do you want to put in your
Exhibits, or did you do that before?
MR, CANBY: No,
THE CHAIRMAN: The only Exhibit we
have for the Respondents is a No, ll. If
you have others, would you like to have
them marked now?
MR. CANBY: My witness has a couple of
them. Let me mark this. This would be Res-
pondents' Exhibit 12,
In Mr. Harrison's deposition, he re-
fers to a brochure of the “Arizona Legal
Services". This, I believe, is the brochure,
the “Bylaws and Participating Attorney
Rules" of “Arizona Legal Services",
MR, FRANK: No objection,
THE CHAIRMAN: It's called the "Bylaws"?
MR. CANBY: The title seems to be either
"Arizona Legal Services" or “Answers About
ALS", then there is a statement, “Bylaws and
168 169
Participating Attorney Rules". For No. 15, I think I'll introduce
THE CHAIRMAN: All right, there being no Mr. Cox' vita, the present witness' resume,
ojection, (113) Respondents' Exhibit No. THE CHAIRMAN: Any objection to 13, 14
12 may be received, and 15?
(Booklet marked Respondents’ Exhibit MR. FRANK: None,
No. 12 for identification by the Notary, THE CHAIRMAN: Okay, they may be re-
and received in evidence.) ceived,
THE CHAIRMAN: Would you stand and (Booklet marked Respondents' Exhibit
raise your right hand, please, No. 13; copy of article from "Journal of
ee 6 Law & Economics" marked Respondents' Ex-
STEVEN RICHARD COX, being sworn as a hibit 14, and Vita of Steven R. Cox marked
witness by the Chairman, was examined and (114) Respondents' Exhibit 15 for identifi-
testifies as follows: cation by the Notary and received in evidence, )
MR, CANBY: Well, before I begin the ewe ne
examination, I do have now the additional EXAMINATION
material, Respondents' Exhibit 13 will be a BY MR. CANBY:
study entitled, “Restricted Advertising and Q. Mr. Cox, could we have your full name?
Competition, The Case of Retail Drugs", and A. Yes. Steven Richard Cox,
Respondents' Exhibit 14 will be a study Q. Your address?
from the “Journal of Law & Economics", titled, A. 3324 South Terrace Road, Tempe,
"The Effect of Advertising On The Price of Arizona.
Eyeglasses", Q. What is your employment?
170
A. I'm Associate Professor of Eco-
nomics at Arizona State University.
Q. We have your vita sheet. Let me
just ask one or two questions. You are in
economics. How long have you been teaching?
A. Gince 1970, the fall of 1970.
Q. You received your Doctors at
Michigan?
A. University of Michigan, in January,
1971.
Q. Do you have a4 specialized area with-
in economics?
A. Yes. It's the field known as in-
dustrial organization and public policy.
The study of American industry and the
impact of antitrust laws on competition in
industry.
Q. In your list of publications you
have recently published, is my understanding,
in the field of defective (115) advertising?
A. Yes. There are many interests,
subfields or topics in the field of the
171
industry, competitive advertising.
My most recent interest has been the
role of information in making the market
more competitive, and the effect of adver-
tising on the amount of information that
consumers have. Basically, three out of
the last four articles that I have written
and had accepted for publication have dealt
with that either theoretically or practically.
The practical use has been the study
of household detergent industry and inform-
ation in the household detergent industry.
MR. FRANK: Mr. Canby, may I ask a
question?
I'm holding your vita. Which of the
last three or four articles do you refer
to?
THE WITNESS: They are under the "Ar-
ticles Published" on page 2. They are 10,
ll, 12, and 13. I don't remember which of
the ones is not, of 10 to 13 is not dealing
with advertising.
172
MR. FRANK: Thank you. That helps me.
MR. CANBY: I'm assuming that there is
no further need to go into basic qualifica-
tions; is that correct?
(Discussion off the record.)
(116) THE CHAIRMAN: Mr. Canby, the
Committee will take into consideration not
only the testimony of Doctor Cox but also
the resume, which is Exhibit No. 15, in
reaching the conclusion that he is qualified
to express opinions in the field of his
expertise.
MR. CANBY: Thank you, Mr. Chairman.
Q. BY MR. CANBY: Mr. Cox, have you
had any occasion recently to examine any
studies relating to the effect, the econo-
mic effects on prohibitions on advertising?
A. Yes. In my research on advertising
and its impact on marketplaces I have come
across two major studies; the only two,
really, that I know of, and they are the
ones that you introduced in evidence as
173
Exhibits.
Q. Respondents' Exhibits 13 and 14, I
think we are referring to.
A. 13 and 14.
Q. To back up for a minute, you said
one of your areas of special interest was
the effect of information on the competitive
System. Would you elaborate a little on it?
A. Well, economists have a model known
as perfect competition. This model is
based on a number of assumptions. One of
the assumptions of the model is that consu-
mers have perfect information. Okay.
(117) So, whenever, of course, that
assumption breaks down and consumers don't
have perfect information, the conclusion of
the model, namely, the perfect competition
that exists breaks down.
Now, maybe without trying to be too
pedantic here and too much like a professor,
let me emphasize here that competition has
a particular meaning for economists that
174 -
lay people usually don't think about.
Namely, it's a situation in which neither
buyers or sellers interacting on a market
have control over prices that they charge.
So that, obviously, buyers are what?
They are out to get the product or the
service for the lowest possible price, but
as long as none of them have control they
can't sort of get it at too low a price, a
price that wouldn't enable a seller to operate.
Similarly, a seller wants to get it at
the highest possible price, but as long as
there is competition between sellers, they
can't charge what?
A very high price and earn what we
call monopoly profits, as a consequence.
I want to explain that, because laymen
will talk about, and businessmen will talk
about how they are subject to a great deal
of competition.
This is true, for example, in the auto
industry. They always talk about the compe-
175
tition in the auto (118) industry, but
notice from an economist's definition of
competition, namely, that no one buyer or
seller has control over price; that doesn't
pertain to the auto industry because General
Motors pretty much sets the price in the
industry and others follow suit.
Q. Does pure competition exist anywhere?
A. Perfect competition does not. One
of the reasons it doesn't exist anywhere is
that consumers don't have perfect inforina-
tion.
Q. That's one of the reasons, only?
A. Yes, one of the reasons.
On the other hand, there may be what
economists always like to refer to as work-
able competition. Namely, given sort of
the uncertainties and the imperfections
that exist in the world, you could think
of a situation--what?
In which consumers are relatively
informed and in which marketplaces are
176
relatively competitive.
So, you could go from a situation,
basically, as exists in agriculture and
farming --another industry that is probably
pretty workably competitive is textile
manufacturing--all the way to situations
which very few economists, if any, indeed
would claim are very workably competitive,
such as the auto industry, to pick out a
good industry, and then a great deal of
service industries, including doctors and
lawyers.
(119) Q. All right. Back to the
studies you mentioned. The Respondents'
Exhibit 13, which I believe you have--
Mr. Chairman has--has to do with drug ad-
vertising. Who wrote that study?
A. Professor Cady. He is a professor
of marketing at the Univeristy of Arizona.
He wrote the study, or did the study for an
institute called the American Enterprise
Institute, in Washington.
177
Q. Do you have an opinion well, before
I ask that question, I should say: Could
you give us a brief statement of what the
study says?
A. Yes. Here was a perfect opportunity
for Professor Cady to examine what impact
advertising has on the prices of prescrip-
tion drugs. The reason, it's as close to a
laboratory perfect situation as you can get
in economics is that in some states there
are bans on advertising, all the way from
say an absolute ban to say bans on price
advertising, to states where there are no
bans whatsoever on advertising.
A medical survey, or a survey had been
done by an outside marketing firm on what
people were spending on their medical ex-
penditures. People are making one of which
was what? What are you spending on drngs?
What drugs are you buying and what prices
are you paying for drugs?
(120) So, here is a perfect setting
178
for Professor Cady. Namely, he was able to
take this proce statement and look at the
prices that people were paying for 10 com-
monly prescribed drugs across states, and
was able to look at basically the mean
prices that people were paying for these
drugs in states where there was a ban on
advertising, and the mean price they were
paying for these drugs in states where
there was no such ban, and basically found
in the states where there was no ban on
advertising the mean price was about five
percent, is statistically significantly
lower where there was a ban on advertising
on prescription drug products.
Q. Do you have an opinion in regard to
the reliability of the underlying survey
regarding medical expenditures?
A. Well, the survey was --
MR. FRANK: You have lost me. What is
that underlying survey?
YQ. BY MR. CANBY: You said that --
179
A. It was done by a marketing firm here,
Q. It seems to me there are two things.
If I may explain, one is there was a pre-
existing survey dealing with how much was
being spent on drugs in various places?
A. By the R.A. Gosselin Company, mar-
keting research outfit.
(121) Q. Then this study which takes
the data, and --
A. == basically analyzes.
Q. Compares it with the effect of
various relative bans on advertising.
MR. FRANK: Thank you. I must have
missed that.
THE CHAIRMAN: Are you asking the wit-
necs to vouch for the reliability of the
data upon which the conclusions were drawn?
MR. CANBY: I'm asking for reliability,
the methods basically. In other words,
what does he think of this study.
A. I don't have any information on
the survey, the actual collection of the
180
price data. I trust that since Professor
Cady and the American Enterprise Institute,
which is a very reputable institute, used
the study, I trust that the survey were
very reliable and quite valid.
The study here, the things that Pro-
fessor Cady did with the price data were
indeed quite valid and quite reliable,
Namely, he not only looked at the price
differences between states with the ban and
without, but went beyond and said: Are
there other factors which could explain
this differential?
Basically, did we see this lower price
in states where there was no ban on adver-
tising, but that consumers for that low
price suffered some other disutility?
(122) Namely, although, you couldn't
Claim here an inferior product, because
basically the retail establishments have
nothing to do with that; that's the drug
company, but could the customer for this
181
lower price suffer any kind of service
differential?
Did they not receive -- and he looked
at four or five different services,
For example, in the states where ad-
vertising was allowed, did firms grow to
very large sizes, and those large firms not
give any kind or sort of personal type
services that a small establishment might
give?
And he looked at delivery; service;
credit; emergency service; the keeping of
records, and then amenities in terms of
waiting area where you could sort of go in
and sit down and wait for your drugs, or
whatever, and found that there was no
Statistically significant difference in
service, where the consumer in these
states where there was a ban on advertising
and thus where consumers were paying a
lower price, there was no -- in the state
where the consumers were paying a lower
182
price for the drug, they were not gettiny
any less service; they were getting just as
good service,
Q. Those were the states that tended
to be, on the average, where advertising of
prices was permitted?
A. That's right. They got it for a
lower price, and (123) no less service.
Q. Let's examine the other Exhibit,
Respondents' Exhibit 14. This has to do
with comparative price of eyeglasses. Who
was the author of this study?
A. Professor Benham. He is the pro-
fessor of economics. At the time he was at
the University of Chicago; now he is at the
University of Washington in St. Louis.
Q. Do you have an opinion about the
methods of this study?
A. It's really the same kind of thing
that Professor Cady did. He had sort of a
golden laboratory experiment. Namely,
there are some states where there is a ban
183
on the advertising of eyeglasses; other
states where there is not.
He had the advantage of having, from
an independent survey, data on the prices
people were paying for eyeglasses across),
states, and again found that difference.
Now, he did something slightly differ-
ent. He looked at -- like Cady, he lumped
sort of all the states that had any kind of
a ban, partial, absolute; any kind of a
ban, and those states that did not; found
about a five or six dollar diff rential on
a 30 to $40 pair of eyeglasses.
(124) Then, he said, “What might be
the outside figure that people will be
paying due to bans on advertising?”
So, he took a state, North Carolina,
which had an absolute ban, You couldn't
advertise anything anywhere and took states
where there were no bans, Texas and the
District of Columbia, and the differential
jumped to $19. Admittedly, this is the
184
largest kind of an increase in price that
could be expected in the ban; in this case,
an absolute ban.
Q. Did this study include fitting
glasses?
A. Yes. In fact, for some of the
sample consumers, they did not separate the
price of eyeglasses from the combined price
of the eye examination and eyeglasses. So,
here, was also involved the examination, as
well as the fitting and the prescription of
the eyeglasses.
. Was there any way of telling whether
the level of services was being differen-
tiated?
A. ‘lell, not really in terms of eye
examinations. He looked at information the
consumers that reported the prices of eye-
glasses only, and would be corrected for
the types of people buying eyeglasues.
So, somebody might claim, for exarnple,
in states where there was a ban on advert-
—_—_ —- ———
185
ising, people may have had higher income
and thus wouldn't have been, say, as re-
sponsive to prices, and so that's why the
prices are (125) higher or they might have
been older; there might have been a greater
demand for eyeglasses in those states.
Unless the price is lower, higher, so
he corrected for what he called social and
economic conditions for the individual pur-
chasers, family, and age, and so on, and
still found, what?
This price difference.
Second, where he tried to find where
maybe there is indeed a ban on advertising
and where these prices are higher, the
eyeglasses are somehow superior. Superior
in terms of glass and cut and fitting and
so on.
He did two things. One: He tried to
find out where the eyeglasses were made.
Was it made by some character who sort of
just grinded the glass, or is it some reput-
186
able firm across these states; and found,
basically, whether you are talking about
states where there is a ban or states with-
out a ban, the retail establishments were
basically getting their eyeglasses from
three major firms, Bausch and Laumb.
Then, he did a personal, I guess, sur-
vey of New Mexico and Texas, two contiguous
states; Texas being nonban; having some
ban, and really inquiring of optometrists
and so on, whether indeed the quality of
eyeglasses differ between those two states,
and found that there was none,
(126) MR. DIVELBISS: What was that
last answer?
THE WITNESS: There was none,
A. (Continuing) So, the price dif-
ferentials couldn't be explained by in-
dividual buyer characteristics, and that is
the demand in the state where there was a
ban on advertising was greater, claiming a
higher price, and there also was no quality
187
differential explaining the lower price.
Q. BY MR. CANBY: Is it fair to con-
Clude from your examination of these stu-
dies and from any other experiments that
you have done that a ban on price adver-
tising in general marketing tends to drive
up prices?
A. You are being very cautious. I can
be even stronger. The answer definitely is
yes.
In fact, as you know, economists have
a reputation for not agreeing on too many
things. Here is one area, namely, price
advertising, where I think you'd find it
very difficult, if not impossible, to get
any economist in this country to come and
sit in this chair and claim otherwise.
Namely, you get any economist you want to
go out and pick up -- all right -- and they
are going to sit in this chair and they are
going to respond, what?
Yes, price advertising is pro-com-
188
petitive and will decrease prices, and
conversely, a ban on price (127) adver-
tising will be anti-competitive and will
increase prices.
There are very few areas where they
are going to get that kind of an agreement
among economists, but here's one of them.
Q. Let me inform you that the legal
profession, generally, and the legal pro-
fession in Arizona, specifically, has a ban
on advertising to the public, which in-
cludes a ban on the advertising of prices.
Are you familiar with that fact?
A. Yes.
Q. Do you know of any studies that
have been done on the effect of the ban on
advertising in the professions?
A. No. As far as I know, there are
none. One of the primary reasons I think
there are none is that we don't have a
laboratory situation to work with; namely,
I don't know of any states where there is.
189
no such ban.
If there are any, please tell me and I
can do a study.
Q. Are there any kind of studies that
could be done on the effect of a total ban,
when the ban is total?
In other words, could any studies be
done in the legal profession, and the effect
of the advertising ban, economically?
A. Well, if you had a situation where,
say, there (128) were some states with a
total ban on advertising and other states
where the ban were not so total, they would
allow some kind of advertising, or they
would allow advertising, say, in some media,
you might be able to do the experinent, the
kind of experiment that was done here, but
you have to be fairly careful, because if,
let's say, the partial bans are such that --
well, the kind of thing that I know, the
American Bar Association, I believe, just
recently passed, stating that lawyers, as
190
far as they were concerned now, I guess,
could advertise in professionally accepte)
places or something like that.
Q. May I interrupt you. There have
been certain law lists that have always
been able to advertise, to put their names
in. They ase of limited circulation.
My understanding of the ABA change,
which is now in evidence, is that it would
be permissible for lawyers to advertise a
certified specialty in the Yellow Pages,
and a price for consultation in the Yellow
Pages.
A. That would be a little different
from the limited sources.
MR. FRANK: Pardon me. What question
is pending before the witness? I have lost
track.
Would you mind restating it.
MR. CANBY: I have to restate it.
The question is: Is there anything,
really, that (129) could be studied?
191
I interrupted his answer.
I think his answer so far: The dif-
ferences in permissibility of advertising
are marginal.
A. (Continuing) Could anythin; be
done--
MR. FRANK: Please, Mr. Chairman, I
would like, please, before the witness
answers further to have something that ends
with a question mark.
MR. CANBY: All right. I think that's
been answered adequately.
Q. BY MR. CANBY: Is one of these
Studies quite a considerable undertaking?
Let's take the drug price study.
A. The major undertakine is the gathering
of price data. From there, it's reallv not
too major an undertaking, other than sor:
of a library reserach (sic) as to what
prohibitions and what laws exist in each
state.
Q. Do you know of any body of under-
192
lying data available in the legal profes-
sion regarding legal services which would
permit such a study?
A. No.
Q. That is not something, I presume,
that can be gathered by one or two peo Lie
in a few weeks.
A. No, certainly not.
Q. Mr. Cox, let me show you Bar Ex-
hibit No. 6. That (130) is an advertise-
ment placed in the "Arizona Republic" by
the Respondents in this case.
Do you have an opinion on the com-
petitive effect of that kind of advertise-
ment, or, in fact, that advertisement?
A. Yes, indeed, I do have an opinion.
Here is a classic illustration of what
economists would call price advertising,
namely, the reporting of the goods or service
-- in this case a service being rendered
and the price that's going to be chargec
for such a service.
193
As I previously stated, I can't think
of an economist who wouldn't claim that
price advertisements do not have a competi-
tive effect.
MR. FRANK: Pardon me. What we are
now hearing is kind of removed, I think,
from the question. I don't want to make an
objection, but I wonder if we could have --
THE CHAIRMAN: Break it down.
MR. CANBY: The question and answer a
little bit more?
THE CHAIRMAN: I may say I read the
answer as being responsive to the question,
but you may proceed.
MR. CANBY: Very well.
Q. BY MR. CANBY: What is your opinion
concerning the competitive effect of a
change in the rule which would (131) permit
any attorney to advertise prices?
A. My opinion is the effect will be
one of increase in competition and a lower-
ing of prices for consumers.
194
Q. Won't that lower the quality?
A. Not if these studies hold up.
That's a much harder question to answer.
All right. But the two studies that have
been done, now, admittedly are on products
rather than services, retaii drugs and
eyeglasses, although the drucs might be a
little better example for this case at
hand, because there specifically they
looked at: Did less services accompany the
lower prices? And the answer was no.
So, I have to say it's my opinion that
the quality of services would not necess~-
arily decrease as a result of the lower
price, due to the advertising.
Q. Are there service indus. ies in the
United States that are workably competitive?
Is there any service industry?
A. Oh, sure. Any one into which basi-
cally there is not a substantial barrier to
entry of labor. The service industries are
highly labor intensive. All right.
195
The things that makes a service indus-
try tend to be anticompetitive or uncom-
petitive, not workably competitive would
be if, what?
If a laborer couldn't get into the
area. Okay.
(132) Now, I remind you of there is
no perfectly competitive Situation. There
is no situation in which you can wave your
magic wand and be a barber or a beautici#n
or whatever. All right. But anything like
tnat, you know, lawn services, barbers,
beauticians, there is relatively free entry.
As a consequence, the service industries
are workably competitive and the prices are
about as low as the source could say will
allow them to go.
Q. Is there any reason to believe that
competition affects quality in the workabiy
competitive services?
A. Yes. It increases it, which is
probably an answer you didn't suspect.
196 197
Namely, when indeed there is genuine Q. So that these are items in which
competition between sellers -- all right -- when the druggist gets the prescription, he
not only do they want to, in order to at- simply goes to the shelf; gets a large
tract customers, offer the service at the bottle; pours out some standard items and
lowest possible price, but the very best puts them in a smaller bottle and hands
service that can be offered at that price. them over and charges some money; isn't
MR. CANBY: I have no further questions. that true?
THE CHAIRMAN: Mr. Frank. A. Okay. Basically.
EXAMINATION Q. Isn't that true?
BY MR. FRANK: A. Basically.
Q. Mr. Cox, with reference to the Q. They are totally standard; inter-
study of drug prices in article 13, I be- changeable?
lieve the drugs are listed at (133) paye 8 A. The drugs aren't interchangeable.
in the article; isn't that correct? Q. No, but all Darvon Compound 65 is
THE CHAIRMAN: You meant Exhibit 13. Simply the same, and the drug company turns
MR. FRANK: Thank you. Did I mis- it out by a machine, and it goes on, doesn't
speak? Exhibit 13. it?
Q. BY MR. FRANK: Now, those are all A. Yes.
standard items produced by national manu- Q. And this is what the article is
facturers, and then distributed in locai about, the effect of pricing on standard-
drug stores; aren't they? ized items?
A. Yes, as far as I know. A. The effect of retail price.
198
Q. Now let us turn to the matter of
the eyeglass (134) study. You had some
talk about the relation of the examination
and tne eyeglasses. The fact is that this
is a study of effective advertising on the
prices of eyeglasses only and not of the
examinations; isn't it?
A. Yes.
Q. The discretionary element of exam-
ination is totally irrelevant to what this
article purports to cover?
A. Some other member -- if Benham had
been doing the survey, all he would have
asked for was the price of the eyeglasses,
because that's what he was interested in.
Now, because he hadn't done the survey; it
had been done by somebody else at some
other time, some of the consumers respond-
ing had given only the price for both
examinations and eyeglasses, but in that
case he basically just assumed that the
price for the examinations was the same
199
across these states. All right. The
variance was to the price of eyeglasses.
Q. I'd like to ask if we can agree
that what you have just said is said ex-
plicitly in the article at page 34l, the
systematic variation and total cost examined
here is assumed to reflect variation in the
cost of the eyeglasses, excluding the ex-
aminations; isn't that so?
A. That's right.
Q. What, then, they are talking about
is the business of going to the person who
manufacturers the (135) glasses after there
has been a prescription and who sells,
first of all, the frames; isn't that so.
A. Yes.
Q. And said that those frames, all of
them, came from two or three manufacturers
in the United States?
A. Not the frames, the glass itself.
Q. Where did the frames come from?
A. I don't know.
200
Q. But, at least, they are nationally
produced; they are items simply on the
shelf in the eyeglass seller's store,
aren't they?
A. Well, two parts to that question.
I don't know whether the frames are nation-
ally produced.
You are correct, yes, the frames are
there at the local retail establishment.
Q. Right. And the lenses, you say,
are all produced by three national concerns;
is that correct?
A. Well, I think the figure in there
is about 70 percent, the vast majority.
Q. And what the fellow does who is
being studied here, he takes the prescrip-
tion; takes the standard lens appropriate
for the purpose, produced by a national
manufacturer; he fits the lens into the
frames and glues it into place; isn't that
So?
A. Yes. I don't know if he glues it.
201
(136) Q. Attaches it.
A. Yes.
Q. That's his fenetien. He then --
you had some talk about fitting. The fit-
ting consists of having a fellow in a white
coat, usually, sit down across from the
customer and hands them the glasses, and
kinds of fiddles with them a little to see
if they hurt his ears; isn't that so?
A. Yes. That's basically been my ex-
perience, as well.
Q. And the sole professional judgment
that is performed by the vendor of that
item is to wiggle the frame on the glass a
little bit, where there is a wire in the
middle of it, in a gentle wa., wv ake it
fit over the ear, isn't that so?
A. Let's not be totally u
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