# Appendix — Bates v. State Bar of Ariz.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1977
- **Citation:** 433 U.S. 350

## Text

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 eals on
say a murder conviction, or appeal on some
antitrust violation --

Q. All right. Let's take an appeal on
a murder conviction. I have just been
through one of those.

A. Well, that's it, basically. You'd

want to make sure that you are comparing,

what? Like cases.

205

An appeal, the price charged for an
appeal on a murder conviction in one state,
where there is a ban on advertising and an
appeal on a murder conviction in a state
where there is no such ban.

Then, the second --

(139) Q. So now, we have got all mur-
der cases in banning states, and all murder
cases in nonbanning states; is that right?
We are going to compare those?

A. The prices charged for appealing of
such a case.

Q. Right.

A. The second dimension on which you'd

want to standardize is basically the lawyer

doing the appeal. Is the lawyer in each case

as comparable as you can make it?
Obviously, there is not going to be

perfect comparability. You can statisti-

cally account for some degrees of incompar-

ability.

So, remember in the eyeglasses, remember

206
they tried to explain the price differences
based on what?
Wot just the ban on advertising but on
the characteristics of the person buying.
Now, this is a little bit different.
Namely, you try to be standardizing on

lawyers.

Do you want me to anticipate another
question?

Q. No, I'd rather you didn't, if you
don't mind. It would be easier if I asked
them and you answer them.

Isn't it true, unless we can standard-
ize the murders and the lawyers, we can't
make that study? Isn't that true? Yes or
no?

A. No.

Q. Then, explain.

(140) A. My answer is no, if you are
going to make me say "Yes" or "No".

Q. Then, explain. Make your comment.

A. I'll make an analogy. Just as I

207
responded earlier to the fact that there is

no such thing as perfect competition; on

the other hand, you can use a littie judgment

in terms of whether claiming something is
basically workably competitive and some-
thing is not.

The same thing is true here. You are
never going to get two perfectly comparable
lawyers. In fact, by definition, they'd
have to be one in the same person divided
up into two people in carna to have that.
But you can try to get two degrees of law-
yers as comparable as possible, the same
number of years, the same number of cases
handled on appeal, the same numer of cases
won; so on and so forth.

Q. Let's pause for a moment to be sure
I understand. We have to be able to stan-
dardize the murders and the lawyers both,
murder cases and the lawyers somehow, in
order to be able to make this kind of

study; isn't that true?

208

A. You have to make some attempt at
standardization, that is correct.

Q. I'll ask you to assume for a mo-
ment, hypothetically, that that can't be
done, you can't (141) standardize the mur-
ders and you can't standardize the lawyers.
If that hypotheses is true, you can't have
that kind of study.

A. That is correct.

Q. If that is so, it would be impos-
sible to demonstrate by any means known to
you that advertising had an effect by way
of lowering prices; isn't that so?

A. With certainty, that's correct.

Q. Now, if I advise you that to take,
first of all, murders, that is a matter in
which I can't suppose that you would have
expertise, reasonably; so just let me honest-
ly advise you they range terribly from
matters that are so open and shut that a
couple of hours will dispose of it, what we

call Anders cases, to matters which may

209
take many people months of hard work.

Are you aware of the eytreme range of
difficulty that there may be in murder
cases?

A. Certainly. I can imagine that,
sure.

Q. Can you accept the assumption
comfortably.that they are about as far away
from standard items poured out of a bottle
as you can get, in terms of the degree of
nonstandardization which they have?

Can you accept that?

A. Yes. I make the analoyy of students,
they are about as wide a range of skill and
interest as you can get.

(142) Q. A pretty diverse lot?

A. Yes.

Q. Now, are there any empirical studies
which have been made of the effect of adver-
tising on the price of wholly nonstandard

items?

A. No, and it would be inappropriate to

210

do so.
Q. You testified that if there were

advertising, it would lead to price com-

petition for lawyers. Was that your opinion?

A. That's my opinion, yes.

Q. Did you also, I think, testify that
it was your opinion that such competition
would increase the quality of legal ser-
vices?

A. It certainly wouldn't, in my opin-
ion, decrease it, and it might very well
increase it, yes.

Q. But that is based wholly upon the
studies, so far as there is any factual
basis for that in the sale of standard
items; isn't that true?

A. No, not entirely true.

Q. Name any other study on which you
base that opinion?

A. It's not a study, it's basically
sort of logical set of reasoning. Namely,

that since I conclude that it wil: have an

211 ©
effect on competition -- all right --
namely, increased competition, and on the
assumption that a (143) seller always wants
to do what? Sell his product or service.
In this case, service.

He is going to do what?

He is going to attempt to sell the
very best service at the lowest proba! le
price, in order to do what?

To attract the business.

Q. Do you have an opinion as to wheth-
er competition exists at the present time
amongst lawyers?

A. Yes, I do have an opinion?

Q. What is that opinion?

A. It doesn't exist.

Q. There is no competition among
lawyers; is that your opinion?

A. There is no workable degree of com-
petition among lawyers, that is correct.
That is my opinion.

Q. Do you base that on readings of any

212
particular sort?

A. No, I base it on one very simple
fact, and that is, entry to the legal pro-
fession is not relatively free, and without
such entry there cannot be a high degree of
workable competition.

Q. What to you mean when you say entry
is not free?

A. You, one, have to first go to law
school -- you can better inform me here --
you have to pass a bar exam, right? And I
guess, in most states, to even be accepted
(144) for a bar exam you have to go to law
school.

Namely, you cannot set up the practice
of law in many states simply because you
know the state of law. You have to have
done what?

You have to have gone to law school
and passed the bar exam, and law school
admissions; they are not open; they are

limited.

213

Q. I advise you that there are ap-
proximately 4,000 attorneys admitted to the
Bar in this state, all of whom have gone to
law school; taken the bar examination and
been admitted -- substantially all; any
exceptions are too minor to matter, and it
is, I believe, the opinion that you were
expressing that there is no competition
among those 4,000 lawyers?

A. No workable degree of competition.
That is correct.

MR. FRANK: I have no further questions.

EXAMINATION
BY MR. CANBY:

Q. By “workable degree of competi-
tion", you were referring to the definitions
you gave at the beginning of your testimony?

A. Yes.

Q. Is that right?

(145) A. Yes, plus the common miscon-
ception among noneconomists that the number

of sellers in competition are synonymous

214
and that just is not the case.

Q. But, in other words, you are giving
an economic definition of workable competition?

A. That's right.

Q. You were asked a hypothetical on
whether you could make a study wher legal
services could not be standardized. Your
answer as I understand it, was "No".

You were asked to accept it as a hypo-
thetical. Do you accept the proposition
that legal services cannot be standardized?

A. No, I don't,

Q. Do you think it would depend at all
on the legal service in question?

A. Yes. Some services will be able to
be made more comparable than others, cer-
tainly.

Writing a simple will, seems to me, to
be a service that might lend itself to
greater comparability across peopie than
Say handling a first degree murder case.

Q. Would you say that the more routin-

215
ization -- if that's a word -- that there is,
the easier it would be to establish compar-
ability?

A. Yes, certainly.

(146) Q. Even though there is no work-
able competition among lawyers, because of
restricted entry, would price competition
bring the existing system cioser to work-
able competition?

A. Certainly, because one aspect of
workable competition is the price charged,
ant I have no doubt that for same quality
service the price would fall.

Q. One further question: If you would
assume that it is the practice of many
attorneys for many services to quote a flat
fee or a flat hourly rate before they en-
bark on the work, when they are first talk-
ing with the client; assume that practice
for the question; then, assume that lawyers
advertise that information in media of

public distribution, like newpapers; would

216
that have any effect on the economics of
the practice?

A. Yes, indeed. In fact, there is a
very comparable type situation to what you
are getting at in defense contracts. It's
known as cost plus fixed fee. Okay.

That is, we'll sort of add up the cost;

you pay whatever they turn out to be, plus
a certain profit that we stipulate or that
we stipulate or that we agree versus what
is called a firm fixed fee contract. Name-
ly, to the government you bid so much money

to produce whatever stated amount of tanks

217

That, obviously, from the seller's
point of view -- and I can't even imagine
any seller in the private market that
wouldn't always like to operate on what? A
cost plus fixed fee basis, but competition
prevents that. Competition doesn't allow
it. The same thing here you are talking
about in terms of law.

Q. Well, I think that's one of the
things my question involves.

The other is, let's say as a lawyer, a
particular lawyer is willing to tell an in-

dividual client whenever one comes to his

or ships or whatever. Okay. office that he will do an uncontested divorce

Then, obviously, you base your fee on for $250, and that is his means of informing

what you (147) project costs to be. Okay. his potential client. Isn't that just as

If you actually end up doing, what? competitive as advertising in the newspaper?

Not incurring that many costs, your profits A. Charging it without advertising is

go up. If your costs are hisher than what what you are saying? I didn't understand.

you anticipated the fee charged the govern- Q. I'm saying is there a difference

ment, is still fixed, and so your profits between stating your fee when the client

do what? Go down. All right. comes to you -- is there a difference be-

218
tween competitive effect between statinc
(148) when the client comes to you and
stating your fee in the “Phoenix Republic"?

A. Slightly, and it's the cost to the
consumer of acquiring such information.
Namely, if it's allowed in the newspaper -- all
right -- a person can obtain such price
information by simply doing what? Picking
up the newspaper and maybe flipping from
page 2 to page 3 to page 4 -- okay -- and
finding out, comparing between Lawyer l,
Lawyer 2 and Lawyer 3.

If that is not stated in the news-
paper, but only stated in the office, upon
walking in, how, then, does one acquire how
much Laywer 1, 2 and 3 charges?

He has to go to Lawyer 1's firm; go to
Lawyer 2's firm, and use up what scarce
time and resources he has in gathering that
information; information that most likely,
under those circumstances, won't be obtain-

ed, as is clearly the case in retail drugs.

219

Right now, even though retaii drugs in
many states can't be advertised, you can ac-
quire the price information -- not over the
phone -- I tried that in Washington, D.C.;
they wouldn't give me the information over
the phone. I had to appear in person.

Why does a producer require you to do
this? Because he knows by requiring you to
come in person raises the price of inform-
ation thus reducing the probability (149)
you are gathering the information, thus
reducing your market, to have to appe2~. to
acquire the information, thus increasing
the price to the consumer.

MR. CANBY: No further questions.

MR. FRANK: No questions.

THE CHAIRMAN: Does any member of the
Committee have a question of the witness?

Mr. Canby, will you call your next
witness or take whatever action is appro-
priate.

Thank you, Mr. Cox. Nice to see you.

220

(Witness excused.)

MR. CANBY: I will now recall Mr. Bates
and Mr. O'Steen; if we can do it the same
way this time.

THE CIIAIRMAN: The witnesses O'Steen and
Bates may resume the stand.

x «kee

BERNARD VAN O'STEEN, a Respondent,
resumes the stand and testifies further as
follows:

JOHN R. BATES, a Respondent, resumes
the stand and testifies further as foliows:

THE CHAIRMAN: You gentlemen are re-
minded you are (150) still under oath in
these proceedings.

EXAMINATION
BY MR. CANBY:

Q. One or two preliminary questions.
You both stated that you graduated from
‘Arizona State University.

You were cum laude, weren't you,

Mr. O'Steen?

221
A. BY MR. O'STEEN: Yes.
Q. Mr. Bates, I recall you won some

sort of an award at graduation. What was

A. BY MR. BATES: I was chosen by the
faculty as being the top student in my
class.

Q. You went to work for Legal Aid for
approximately two years, thereafter?

A. BY MR. BATES: Close to it.

Q. A year and a half.

In your present practice, have you
taken any cases for no fee at all? Mr.
O'Steen, perhaps can answer it.

A. BY MR. O'STEEN: Yes, we have.

Q. Have you done many cases for no fee
at all?

THE CHAIRMAN: How many is “many”?

Q. BY MR. CANBY: How many cases have
you done?

A. BY MR. O'STEEN: Gosh, I'm not

really equipped to answer that question.
eo

222

We have done a fair number of cases (151)
at no fee at all, under varying circum-
stances.

THE CHAIRMAN: More than 25?

WITNESS O'STEEN: I would say more
than 25. ,

THE CHAIRMAN: More than 50?

WITNESS O'STEEN: I imagine that's
getting pretty close.

THE CHAIRMAN: All right, that’ close
enough.

Q. BY MR. CANBY: Under what circum-
stances did you do these cases?

Why, in other words, did you take it
for no fee at all?

A. BY MR. O'STEEN: Various circum-
stances. We are members of the Legal Aid

Society Referral Panel and are called upon

periodically to take cases for no fee from

the Legal Aid Society. We cooperate.
Q. Is that something for which you

volunteer?

223

A. BY MR. O'STE).ii: Yes. In addition,

we are on the Maricopa County Bar Association

Lawyer Referral Panel, and I think it's no
secret that many of the people who are
seeking attorneys through that orgarization
are not equipped to pay much of a fee, and
the panel handles cases that have come
through that source.

We have just occasionally made the
judgment, based upon our contact with a
client at the office; tha’: client was
unable to pay and in need of servic, and
we (152) have occasionally done work at no
fee that way.

The fourth category is, unhappily,
the business of not getting your money in
advance all the time.

Q. That's not really promono (sic)
work on purpose?

A. BY MR. O'STEEN: No.

Q. You are also, aren't you, Mr.

O'Steen on the Board of Public Interest Law

224
Firm here in Phoenix?

A. BY MR. O'STEEN: Yes the board of
directors.

x* «eke

Q. BY MR. CANBY: Mr. O'Steen, do you
have any idea what the effect of the adver-
tisement in the “Arizona Republic” was in
bringing clients to your office?

A. BY MR. O'STEEN: Yes, I have a very
good idea.

Q. Have you made some sort of compila-
tion of that, at my request?

A. BY MR. O'STEEN: Yes, I have.

Q. Do you have that with you?

A. BY MR. O'STEEN: Yes, I do. I'm
sorry, this was put together hastily, and
we really didn't get as many copies as we
should have, together.

THE CHAIRMAN: There is only one
necessary for the (162) record.

WITNESS O'STEEN: I should add a date on

that, if you don't mind.

225

MR. CANBY: Well, I'll ask you that.

May we mark Respondents’ Exhibit 17?

THE CHAIRMAN: Yes.

(Document marked Respondents’ Exhibit
No. 17 for identification by the Notary.)

THE CHAIRMAN: Can you give a title
for this list?

MR. CANBY: Compilation of Cases Open
Due to Advertising. That's a cumbersome
title.

THE CHAIRMAN: Okay.

Q. BY MR. CANBY: You have numbers of
cases listed in this document, which is now
Respondents’ Exhibit 17. There is a list
of cases saying, “Cases Opened After Adver-
tising". This is occupying the top half of
the page. This is total cases your office
has opened after date of publishiny ads?

A. BY MR. O'STEEN: Yes.

Q. You have a column at the lower part
of the page saying, “Cases Opened Due to

Advertising". Now, several cases are listed

226
there. Why do you list cases being “Opened
Due to Advertising"? How do you know?

A. BY MR. O'STEEN: We have an intake,
brief intake sheet that each pros >ective
client completes upon (163) ent:ring the
office, before that person sees an attor-
ney. One of the questions on thet intake
sheet is: “How did you find out about us?”
and we have reviewed those intake sheets to
arrive at those figures.

Now, the only exception to that is
that we have a special intake sheet for
prospective divorce clients. That intake
does not include the question about the
source of information about the firm.
Therefore, we don't have such information
on divorce clients, but we do have it on
all others. As you can see, there is a
correction for that.

Q. So you have opened a total of 75
cases since the ad was published; five of

those cases, if I read this correctly, were

227
domestic relations cases?

A. BY MR. O'STEEN: I believe that's
correct, yes.

Q. And you have no way of knowing why
they came to you?

A. BY MR. O'STEEN: No.

Q. That leaves 40 cases?

A. BY MR. O'STEEN: Yes.

Q. Other types?

A. BY MR. O'STEEN: Yes.

Q. Of those, you have listed by cate-
gory cases that came to you, and you list
24 out of 40 as having come to you, at
least of having answered the question on
(164) the intake sheet of coming to you
because of advertising; is that correct?

A. BY MR. O'STEEN: That's right.

Q. And the figures here were compiled
from your own intake sheets by you or per-
sons under your direction?

A. BY MR. O'STEEN: Yes.

MR. CANBY: I'll offer Respondents’

228
Exhibit 17.

MR. FRANK: May I ask a question or two
on voir dire?

THE CHAIRMAN: Yes, you may.

VOIR DIRE EXAMINATION
BY MR. FRANK:

Q. MR. O'Steen, this ad is approxi-
mately eight inches by two inches; is that
the description?

A. BY MR. O'STEEN: Eight by two col-
umn inches, I believe.

Q. Suppose, hypothetically, someone
put a two column-eight inch ad in the back
of the paper, or the same page you did,
saying, “Striped elephant on display", and
gave a place, and suppose further that the
newspaper carried on page l a story on the
wonders of the striped elephant; if that
afternoon quite a lot of people went to see
the elephant, would you be able to tell
whether it was the ad or the news story?

A. BY MR. O'STEEN: I wouldr'« be able

229
to tell.

(165) Q. In your case, you had a two
column-eight inch ad in the paper; isn‘t that
so?

A. BY MR. O'STEEN: That's right.

Q. And there were other news stories
about your ads, about the Bar and discipline
and so on, and this very matter. So, there-
for, the very existence of the ad has been
an item of rather substantial news; isn‘t
that true?

A. BY MR. O'STEEN: Yes. I think
that's a fair statement.

Q. Do you really think that you are
able, in this case, to attribute cases to
the ad any better than you could attribute
views of the striped elephant and the hypo-
thetical I gave you in the first place?

— don'+ need to answer that, I will
not object.

THE CHAIRMAN: Well, Exhibit 17 may he

received in evidence, by Mr. Canby, for

230
whatever it may be worth in these proceedings.

(Respondents' Exhibit 17 received in
evidence, )

EXAMINATION
BY MR. CANBY:

Q. What does your intake sheet ac-
tually say, the (166) question that the
people are answering which led to this
compilation?

A. BY MR. BATES: I think it says --

THE CHAIRMAN: This is Mr. Bates res-
ponding.

A. BY MR. BATES: -- it says, "Who re-
ferred you to us?" or "How did you hear
about it?" That's very close.

Q. What kind of answers did you have
put, "Due to advertising" on this sheet?

A. BY MR. BATES: Most of the people
would say, "We saw your ad," or some people
just said, “Newspaper."

Q. So, in saying "Newspaper", they can

be referring to the front paguw story or

231
they could be referring to the ad, or a
combination?

A. BY MR. BATES: However, it's pos-
sible many people already knew what we
charge, and they could only find out after
seeing our ad.

WITNESS O'STEEN: That's significant.

Q. Which they might have seen because
they read the front page story?

A. BY MR. O'STEEN: Yes.

MR. CANBY: I have no other questions.

THE CIIAIRMAN: I think we can take
judicial notice of the fact that every paper
had a front page story referring to the ad.

(167)
EXAMINATION
BY THE CHAIRi\::

Q. I want to ask this question of

either of you who is more knowledgeable

concerning the nature of the responses

which are found on the information sheet,

which you have been addressing your testi-

232
mony. Would that be you, Mr. Bates?

A. BY MR. BATES: Fine. I didn't
understand the question.

MR. CANBY: I didn't understand your
question,

THE CHAIRMAN: I haven't asked it
yet.

Q. BY THE CHAIRMAN: Prior to the time
you placed your advertisement, what kind of
responses were you finding on the inforn-
ation sheet that told you how the prospec-
tive clients had heard of you?

A. BY MR. BATES: Frequentiy, it was
just another friend, an acquaintance; they
would mention the name.

Q. Probably a prior client of yours,

a recommendation?

A. BY MR. BATES: Frequently, or a
friend of a prior client. They sometimes
would mention various agencies. LEAP is an
example, I suppose, of somebody who would

know of our existence and would mention us,

233
among other attorneys who would be avail-
able.

As you know, Legal Assista:ic
its responsibility and duty is limited to a

determination as to whether or not the
charge that has been brought against the
Respondents has been proven, We, there-
fore, think we have no choice except to
make a finding that the charge is proven,
because it really is not even disputed;
that the advertisement was placed in the
"Arizona Republic", in violation of the
applicable rule to be found in the Code
of Professional Responsibility. We, there-
fore, will make such a finding.
zx *& & ®
STIPULATED EXHIBIT
(Dated April 7, 1976)

ze*eeet

246

The following exhibit has been com-
piled from information supplied by the law
firms listed on Schedule A attached. These
firms were asked to respond to certain
questjons. The questions and each firm's
response are given. The responses are
identified by number only.

It is stipulated that the names of
the firms need not be identified with their
answers in this exhibit; further, it
is stipulated that if the persons res-
ponding on behalf of these firms were to
appear at the hearing in this matter their
testimony would be as set out in this ex-
hibit. It is also stipulated that cross
examination is waived and that this exhibit

may be admitted.

By: William C. Canby, Jr.

Attorney for Respondents
By: John P. Frank

Attorney for the State
Bar of Arizona

Dated: April 7, 1976

247

z* ek

SCHEDULE A
Rawlins, Ellis, Burrus & Kiewit
Jennings, Strouss & Salmon
Moore & Romley
Lewis and Roca
Snell & Wilmer
Langerman, Begam, Lewis, Leonard and Marks
Streich, Lene, Weeks, Cardon & French
O'Connor, Cavanagh, Anderson, Westover,
Killingsworth & Beshears
Shimmel, Hill, Bishop & Gruender
Flynn, Kimerer, Thinnes & Derrick
Mariscal, Weeks, Lehman & McIntyre
Carson, Messinger, Elliott, Laughlin &

Ragan

Gust, Rosenfeld, Divelbess & Henderson
Ryley, Carlock & Ralston

* * & ®

(1) QUESTION NO. 1. The growth of your

firm in number of lawyers and volume of work
by way of round numbers and for any period

248

you wish.

Firm No. 1, 1939-1976--three lawyers
to 57.

Firm No, 2, From two lawyers in 1948

to 17 lawyers today.
Firm No. 3. Established in 1957. At

that time it consisted of two lawyers and
one secretary. At the present time, it
consists of eleven lawyers, plus twenty-
one non=lawyer employees. The gross dollar
volume of professional services has in-
Creased by a factor of more than 30,

Firm No. 4. Began in 1969 with four
attorneys, and presently has seven,

Firm No. 5, Regarding growth, in the

early 1940's it was three lawyers. We are
now 36 partners and 13 associates,

Firm No. 6, The firm was originally

organized in 1949 and consisted of three
lawyers. At the present time, our firm
consists of twenty-four attorneys, four

law clerks and two paralegals, The staff

249
size will be increased to twenty-six on
June 1 of this year. The gross dollar
volume of professional services has in-
creased by a factor in excess of 30,

Firm No. 7. During the past twenty

five years of the existence of our firm
and its predecessors, we have grown fror
approximately five lawyers to approximately
thirty-six lawyers, and the gross dollar
volume of professional services has in-
creased by a factor of more than 20,

Firm No. 8. In the twenty-two years

of the writer's association with this firm
it has grown from a single office with five
lawyers to two offices with approximately
twenty-three lawyers. The gross dollar
volume for professional services has in-
creased by a factor in excess of twenty.
Firm No, 9, The law firm has grown
from two lawyers to our present six lawyers
since 1970 and at the same time the gross

dollar volume in this firm has increased

250

by a factor of more than 4,7.

Firm No. 10. The firm had its origin

January 1, 1959. Since that time it has
grown from three (3) attorneys to its pre-
sent size of forty-three (43). Our gross
dollar volume of professional services has
increased by a factor of approximately 60,

(la) Firm No. 11. The firm was or-

ganized in 1937 with only two lawyers,
later expanded to 19 and currently consists
of 9 lawyers, The dollar amounts, in

light of the changes in the firm, are

not readily available and probably would
not be meaningful in any event,

Firm No. 12. In answer to question

No. 1, in 26 years this firm has grown from
three to 50 lawyers. The gross dollar
volume has increased by a factor of 70 in
that time,

Firm No. 13. In the past 10 years,

the number of lawyers in this firm has ap-
proximately doubled to the present strength

251
of 23. The gross dollar volume of profes-
sional services has approximately quad~
rupled,

Firm No. 14, In 1946 there were two

lawyers in this firm, In 1953 there were
four, after one death in 1952, In 1956
there were six. Now, twenty years later,
there are sixteen active lawyers and a
retired lawyer in “of counsel" category who
is essentially inactive. During those years
we have lost one member by death and three
by withdrawal. Two in the latter cate-
gory are members of the judiciary.

In the twenty years of 1956 through
1975 the firm's annual gross receipts in-
creased by over 800%, and the annual gross
receipts per lawyer by over 300%,

(2) QUESTION NO, 2, Has your firm

ever advertised or solicited business in

any ways precluded by the Canons?
Firm No. 1. No.

Firm No, 2. No,

252

Firm No. 3. No,

Firm No, 4. Our firm has never ad-

vertised nor solicited business in any
way precluded by the Canons, and we have
no future plans to advertise or solicit,

Firm No. 5. Our firm has never ad-

vertised or solicited business in any way
precluded by the Canons,
Firm No. 6. Obviously the firm has

never advertised or solicited business in
any ways precluded by the Code of Profes-
sional Responsibility.

Firm No. 7. The firm has never ad-

vertised or solicited business in any way
precluded by the Code of Professional Res-
ponsibility.

Firm No, 8, Absolutely not.

Firm No, 9. This firm has never ad-

vertised or solicited business in any way
precluded by the Canons of Judicial Ethics.
Firm No. 10, The firm has never ad-

vertised nor solicited business in any ways

253
precluded by the Canons.
Firm No. 11. The firm has never ad-

vertised or solicited business in any ways
precluded by the Canons,
Firm No, 12. The firm has never ad-

vertised or solicited business in any way
precluded by the Canons,
Firm No, 13, No,

Firm No. 14. We have never advertised

or solicited clients or legal work in any
way precluded by the Canons of Professional
Ethics or the Code of Professional Conduct,
(3) QUESTION NO. 3, What are a few con-

crete illustrations of uncompensated ef-
fort by you or other members of your firm
for improvement of the law?

Firm No. 1. Speaking at seminars -

State Board of Bar Governors - Legal Aid -
Maricopa County Bar - Supreme Court Com-
mittees,

Firm No. 2. A member has been Chair-

man of the Mineral Section (now the Natu-

254
ral Resources Section) of the American
Bar Association; has served on the Board
of Visitors of the College of Law of
Arizona State University; and has served
on the Supreme Court's Committee on
Examinations and Admissions.

A member has been President of both
the Maricopa County Bar Association and
State Bar of Arizona and has been active
in the organization of continuing legal
education programs on behalf of the State
Bar and the Arizona Law Institute.

A member has served on the Board of
Directors of the Maricopa County Legal
Aid Society.

A member has served on the Board of
Directors of the Maricopa County Bar As-
sociation; has served nine years on the
Supreme Court's Committee on Examinations
and Admissions; has been a Lawyer Delegate
to the Ninth Circuit Judicial Conference

(serving on the Trial Practice Comnittwe

255
and presenting papers to the Conference on
several occasions); has been a member of
the Board of Visitors of the law colleges
of the University of Arizona and of Brigham
Young Univeristy; has written articles
published in the California Bar Journal and
in the Arizona Law Review; and has presen-
ted instruction in continuing legal edu-
cation programs on the Uniform Commercial
Code, the use and effect of mineral reser-
vations in patents and deeds, and other
subjects.

Other members of the firm have super-
vised and participated in the Maricopa
County Bar Association program of presenting
instruction to high school students re-
garding legal concepts; participated in
programs to explain legal concepts to grade
school students; sponsored an Explorer Post
of the Boy Scouts of America to encourage
boys to consider legal careers; partici-

pated in the Maricopa County Bar Associ-

256
ation's “Bridge the Gap" programs for re-
cent law school graduates; and partici-
pated in other State Bar and County Bar
Association activities.

(3a) Firm No. 3. Every lawyer in

our office spends a considerable percent-
age of his time in uncompensated effort

for the improvement of the law. You asked
for a few concrete illustrations. A member
served from 1967 to 1968 as President of
The American Trial Lawyers Association.
This involved close to 100% of his time

for that full year and literally thousands
of hours of uncompensated effort for many
years prior to his taking office in many
other positions which he held going back
to 1957. He has also chaired and/or ser-
ved on many committees of the State Bar of
Arizona, the Maricopa County Bar Associa-
tion, the American Bar Association, etc.
Another member's service has paralleled his

and, as you know, this member is currently

257
serving as President-Elect of The Associa-
tion of Trial Lawyers of America and will
spend close to 100% of his time dis-
charging the duties of that office for the
ensuing year. A member is currently ser-
ving as Chairman of one of the major com-
mittees of ATLA and has also devoted hun-
dreds of hours to state and county bar
association committee work. A member is
the Immediate Past President of The Arizona
Trial Lawyers Association. In short, every
lawyer in our office has performed a sub-
stantial number of services to the har,
without personal compensation, and is en-
couraged by the firm to do so.

Firm No. 4. The writer spent approxi-

mately two years on the Criminal Justice Com-
mittee, drafting the Arizona Rules of Criminal
Procedure which became effective September l,
1973. Additionally, he worked on the fol-
lowing committees: Judicial Evaluation

Committee; Subcommittee of the Uniform

258
Rules of Criminal Practice, United States
District Courts, Ninth Judicial Circuit;
City Rules Committee; Midas Program; and
the Arizona Criminal Jury Instructions Com-
mittee.

Firm No. 5. Lawyer A: Chairman, Rules

of Professional Conduct, State Bar, 2C years;
Chairman for many years, Standing Committee
to draft original rules and later amendments
to the Rules of Disciplinary Procedure;
Member, Committee on Judicial Qualifications
(reviews and takes action against juds-«s
for infractions or incompetence); Board of
Visitors, ASU Law Society; Board of Direc-
tors, ASU Law Society; Membership on Board
of Governors and Vice President of State
Bar.

Lawyer B: President and one of found-
ers of ASU Law Society.

(3b) Lawyers C & D: Committee on
Examinations and Admissions, State Bar.

Lawyer E: Local Administrative Con-

259
mittee; Board of Visitors, U of A; Board of
Directors, U of A Law College Association;
Committee on Uniform Jury Instructions;
Committee for State Bar Compulsory In-
surance; Maricopa County Bar Long-Range
Planning Committee.

Lawyer F: Board of Visitors, Rueben
Clark Law School, BYU; Ninth Circuit
Judicial Council to Study Improvement in
Administration of Justice.

Lawyer G: Member, Tax Advisory Coun-
cil to Improve Internal Revenue Act,

Lawyer H: Co-Chairman, Fee Arbitra-
tion Committee.

Lawyer I: Years of service to the
bench in devising court and judicial
procedures.

Lawyer J: Committee to Study Re-
organization of Justice of the Peace Courts.

Various firm members: Local Admini-
strative Committee for processing ethical

violations; Examiners to Local Administra-

260
tive Committees; Counsel to the State Bar
on three formal appeals to the Supreme
Court in admissions cases,

Firm No. 6. Concrete illustrations of

uncompensated effort for improvement of the
law are as follows:

(a) Active participation in the pro-
grams of the Maricopa County, State of Ari-
zona and American Bar Associations;

(b) Representation of low-income
minority people at no charge for services;

(c) Active participation in State
Bar Continuing Legal Education programs;

(d) Services as Bar counsel and Chair-
man of State Bar Administrative Local Com-
mittees;

(e) Participation as counsel and
active membership in Valley Big Brothers,
maintenance of active membership in State
and local Chamber of Commerce and numerous
civic-oriented activities.

(3c) Firm No. 7. A few illustrations

261
of uncompensated effort on the part of mem-
bers of our law firm for the improvement of
law are as follows:

Service on numerous committees of the
American Bar Association; Service on numerous
committees of the State Bar of Arizona;
Service on the Board of Directors and
numerous committees of the Maricopa County
Bar Association; Numerous articles written
for legal publications; Participation in
seminars conducted locally and throughout
the United States; Teaching in law schools;
and Testifying before numerous committees
of the State Legislature on pending legisla-
tion.

Firm No. 8. One of the principal re-

cent services performed by this firm in-
volved our participation in that certain
action entitled Ethics Opinion'No. 74

2. Mr. Harrison, you referred to soli -hip
or other classified directory shall not:

1. Appear in a box or other form of
display, or in a type of style which dif-
ferentiates it from other listings in
the same seneseied.

2. Appear in more than one place in
the same classified directory.

3. Appear under a heading other
than “Certified Public Accountant" or
"Public Accountant" where the directory is
classified re type of business occupation

Or service.

4. Be included in the yellow paces

=

60 Opinion No. 11 (5b)
61 Opinion No. ll (2a)

62 Opinion No. 1l (2a(2))

419
or business section of a telephone direc-
tory unless the member maintains a bona
fide office in the geographic area covered.
Determination of what constitutes an "area"
shall be made by referring to the positions
taken by state CPA societies in the light
of local sntteteen.

Such listing may:

1. Include the firm name, partners’
names, professional title (CPA), address
and telephone deities

2. Be included under both the geo-
graphical and alphabetical section where
the directory includes such Chg

502-4 -- Business stationery. A mem-
ber's stationery should be in keeping with

the dignity of pe profession and not list
any specialty.

63 Opinion No. 11 (2b)
64 Opinion No. 1l (2a(1))
65 Opinion No. ll (2c(2))

66 Opinion No. ll (3a)

420

The stationery may include the firm
name, address and telephone number, names
of partners, names of deceased partners
and their years of service, names of pro-
fessional staff when pre-(39)ceded by a
line to separate them from the partners,
and cities in which other offices and cor-
respondents or associates are a,"
Memberghip in the Institute or state CPA
society or associated group of CPA firms
whose name does not indicate a special]«y
may also he a In the case of multi-
office firms, it is suggested that the words,
"offices in other principal cities" (or
other appropriate wording) be used instead
of a full list of sete.” Also, it is
preferable to list only the names of part-

ners resident in the office for which the

~_—

67 Opinion No. 11 (3b(l and 2))

68 New

69 Opinion No. 1l (3c)

421
70
stationery is used.

502-5 -- Business cards. Business
cards may be used by partners, sole practi-
tioners and staff memhers. They should be
in good taste and should be limited to the
name of the person presenting the card, his
firm name, address and telephone number(s),
the words “Certified Public Accountant (s),"
or "CPA" and such words as “partner",

"manager" or “consultant” but without any
71

specialty designation.

Members not in the practice of public
accounting may use the title "Certified
Public Accountant" or "CPA" but shall not
do so when engaged in sales ne
selling or similar activities.

502-6 -- Help wanted advertisements.

A member shall not include his name in help-

70 Opinion No. 11 (3c)
71 Opinion No. 1l (4a)
72 Opinion No. 11 (4b)

422 423

wanted or situations-wanted display adver- individuals with whom professional contacts
tising on his own behalf or that of others are maintained, such as lawyers and bank-

75

in any publication. In display advertising, ers. Copies may also be supplied to job

the use of a telephone number, address, or applicants, to students considering employ-

73 76

newspaper box number is permissible. ment interviews, to nonclients who speci-

In classified advertisements other than fically request them and to educational in-
77

display, the member's name should not appear stitutions.

in boldface type, capital letters or in any If requests for multiple copies are

other manner which tends to distinguish the received and granted, the member and his
name from the body of the NT firm are responsible for any a
502-7 -- Firm publications. Newsletter:, by the party to whom they are issued.
bulletins, house organs, recruitinc brochures 502-8 -- Newsletters and publications
and other firm literature on accounting and prepared by others. A member shall not
related business subjects prepared anc dis- permit newsletters, tax booklets or similar
tributed by a firm for (40) the information publications to be imprinted with his firm's

of its staff and clients serve a useful name if they have not been prepared by his

purpose. The distribution of such material

outside the firm must be properly controlled 75 Opinion No. 9 (1) (qualifyinc phrase,

and should be restricted to clients anc "lawyers of clients,” is dropped).

76 New.

73 Opinion No. ll (6a) 77 Opinion No. 9 (1)

74 Opinion No. 11 (66) 78 Opinion No. 9 (1)

424

79
firm.

502-9 -- Responsibility for publisher's
promotional efforts. It is the responsi-
bility of a member to see that the publisher
Or others who promote distribution of
his writing, observe the boundaries of pro-
fessional dignity and make no claims that
are not truthful and in good taste. The
promotion may indicate the author's back=
ground including, for example, his education,
professional society affiliations and the
name of his —— the title of his posi-
tion and principal activities nei
However, a general designation referring
to any specialty, such as “tax expert" or
"tax consultant" may not be “a

502-10 -- Statements and information

79 Opinion No. l
80 Opinion No. 4.
81 New.

82 Opinion No. 5.

|

425
to the public press. A member shall not
directly or indirectly cultivate publicity
which advertises his or his firm's profes-
sional attainments or services. He may res=-
pond factually when approached by the press
for information concerning his firm, but he
should not use press inquiries as a means
of aggrandizing himself or his firm or of
advertising professional attainments or
services. When interviewed by a writer
or reporter, he is charged with the know-
ledge that he (41) cannot control the
journalistic use of any information he may
give and should notify the reporter of the
limitations imposed by professional
mene”

Releases and statements made by members
on subjects of public interest which may

be reported by the news media, and publicity
not initiated by a member such as that which

83 Restatement of Opinion No. 9 (4).

426
may result from public service activities,
are not considered advertising. However,
press releases concerning internal matters
in a member's firm are prohibited.

502-11 -- Participation in educational
seminars. Participation by members in pro-
grams of educational seminars, either in
person or through audiovisual techniques,
on matters within the field of competence
of CPA's is in the public interest and is
to be encouraged. Such seminars should not
be used as a means of soliciting clients.
Therefore, certain restraints must be ob-
served to avoid violation of the spirit: of

Rule 502 which prohibits solicitation and

advertising. For example, a member or his ©

firm should not:

1. Send announcements of a seminar to
nonclients or invite them to attend. How=
ever, educators may be invited to attend to
further their education.

2. Sponsor, or convey the impression

427
that he is sponsoring, a seminar which will
be attended by nonclients. However, a
member or his firm may conduct educational
seminars solely for clients and those ser-
ving his clients in a professicnal capa-
city, such as bankers and lawyers.

In addition, when a seminar is spon-
sored by others and attended by nonclients,
a member or his firm should not:

1. Solicit the opportunity to appea:
on the progran.

2. Permit the distribution of publicity
relating to the member or his firm in con-
nection with the seminar except as peri’. ed
under Interpretation 502-9,

3. Distribute firm literature which
is not directly relevant to a subject being
presented on the program by the member or
persons connected with his ieee

502-12 -- Solicitation of former

84 Opinion No. 21

428

clients. Offers by a member to provide
services after a client relationship has
been clearly termin-(42)ated, either by
completion of a nonrecurring engagement
or by direct action of the client, con-
stitute a violation of Rule 502 pro-
hibiting aii

502-13 -- Soliciting work from other
practitioners. Rule 502 does not prohibit
a member in the practice of public account-
ing from informing other practitioners of
his availability to provide them or their
clients with professional services. Be-
cause advertising comes to the attention
of the public, such offers to other prac-
titioners must be made in letter form or
by personal min.

a

502-14 -- Fees and professional stan-

dards. The following statement is required

85 Restatement of Opinion No. 20

86 Restatement of Opinion No. 7

429
to be published with the Code of Profession-
al Ethics pursuant to the Final Judgment in
the court decision referred to below:

The former prov*s.on of the Code of
Professional Ethics prohibiting competitive
bidding, Rule 3.03, was declared null and
void by the United States District Court
for the District of Columbia in a consent
judgment entered on July 6, 1972, ina
civil antitrust suit brought by the United
States against the American Institute.

In consequence, no provision of the

Code of Professional Ethics now pro-
hibits the submission of price quota-
tions for accounting services to persons
seeking such services; and such sub-
mission of price quotations is not an
unethical practice under any policy of
the Institute. To avoid misunderstand-
ing it is important to note that other-
wise unethical conduct (e.g., adver-

tising, solicitation, or substandard work)

430
is subject to disciplinary sanctions re-
gardless of whether or not such unethical
conduct is preceded by, associated with,
or followed by a submission of price quota-
tions for accounting services, Members of
the institute should also be ame that
neither the foregoing judgment nor any
policy of the Institute affects the obli-
gation of a certified public accountant
to obey applicable laws, regulations or
rules of any state or other governmenta

87
authority.

87 New.
zxereekee
BAR EXHIBIT NO, 8
ARIZONA STATE BOARD OF ACCOUNTANCY
RULES AND REGULATIONS
x reekee
(14)

IX. RULES OF PROFESSIONAL CONDUCT

xerke

431
(19)
OTHER RESPONSIBILITIES AND PRACTICES:
sek kt

(2) Solicitation and Advertising: A
certified public accountant or a public ac-
countant shall not seek to obtain clients by
solicitation. “Advertising is a form of
solicitation and is prohibited.

(a) Announcements: Publica:ion in a
newspaper, magazine or similar medium of an
announcement or what is techically known
as a “card” is prohibited. Also prohibited
is the issuance of a press release regard-
ing firm mergers, opening of new offices,
change of address or admission of new pari-
ners. Announcements of such changes may
be mailed to clients and individuals with
whom professional contacts are maintained,
such as lawyers and bankerg. Such announce-
ments should be dignified and should not
refer to fields of specialization.

(b) Office Premises: Listing of the

432

firm name in lobby directories of office
buildings and on entrance doors solely ‘for
the purpose of enabling interested. parties
to locate an office is permissible. The
listing should be in good taste and modest
in size. The indication of a specialty
such as “income tax" in such listing con-
stitutes advertising.

(c) Directories: Telephone, Classi-
fied and Trade Association: A listing in
a telephone, trade association, membersliip
or other classified directory may include
the firm name, partners' names, profes-
Sional title (CPA or PA), address and
telephone number. A listing may be in-
cluded under both the geographical and
alphabetical section where the directory
includes such sections. In no event shall
the listing:

(20) (i) Appear in a box or other

form of display, or in a type or

style which differentiates it from

433
other listings in ‘the same direc-
tory.
(ii) Appear in more than one place
in the same classified directory.
(iii) Appear under a heading other
than “certified public account-
ant" or “public accountant"
where the directory is classi-
fied by type of business occupa-
tion or service,
(iv) Be included in the yellow
pages or business section of a
telephone directory unless the
certified public accountant or
public accountant maintains a
bona fide office in the geograph-
ic area covered by the directory.
(4) Business Stationery: A certified
public accountant's or public accounta:,''‘'s
stationery should be in keeping with the
dignity of the profession and not list any
specialty. The stationery may include the

434
firm name, acdress and telephone number,
names of partners, names of deceased part-
ners and their years of servic-, names of
professional staff when precei>. by a line
to separate them from the par't:ers, and
cities in which other offices and ccr spon:
dents or associates are located. Member-
ship in the institute or state certified
public accountant society or associated
group of certified public accountant firms
whose name does not indicate a specialty
may also be shown.
| (e) Business Cards: Business car cs
may be used by partners, sole practitivuvers,
and staff members. They should be in gooi
taste and should be limited to the name of
the person presenting the card, his firm
name, address and telephone number(s), the
words “Certified Public Accountant (s),”"
"Public Accountant(s)," “CPr.", “PA", and
such words as “Partner,” “Manager" or “Con-

sultant" but without any speciality designa-

435
tion. y

Certified public accountants or public
accountants not in the practice of public
accounting may use the title "Certified
Public Accountant" or “CPA", “Public
Accountant" or “PA" on business cards or
otherwise but shall not do so when engaced
in sales promotion, selling or similar
activities.

(f) Help Wanted Advertisements: A
certified public accountant or a public
accountant shall not include his name in
help-wanted or situations-wanted display
advertising on his own behalf or that of
others in any publica-(21l)tion. In
display advertising, the use of a telephor«
number, address, or newspaper box number
is permissible.

In classified advertisements the name
of the certified public accountant or
public accountant should not appear in
boldface type, capital letters or in any

436 /
other manner which tends to distinghbish
the name from the body of the advertise-
ment. f

(g) Firm Publications: 7 ee
bulletins, house organs, recruiting
brochures and other firm literature on
accounting and related business subjects
prepared and distributed by a firm for the
information of its staff and clients serve

a useful purpose. The distribution of

such material outside the firm must be pro-

perly controlled and should be restricted
to clients and individuals with whom pro-
fessional contacts are maintained, such as
lawyers and bankers.

Copies may also be supplied to job
applicants, to students considering em-
ployment interviews, to nonclients who
specifically request them and to educa<-
tional institutions.

If requests for multiple copies are
received and granted, the certified public

437
accountant or public accountant and his
firm are responsible for any distribution
by the party to whom they are issued.

(h) Newsletters and Publications
Prepared by Others: A certified public
accountant or public accountant shall not
permit newsletters, tax booklets or simi-
lar publications to be imprinted with his
firm's name if they have not been prepared
by his firn.

(i) Responsibility for Publisher's
Promotional Efforts: It is the responsi-
bility of the certified public accountant
or public accountant to see that the pub-
lisher or others who promote distribution
of his writing, observe the boundaries of
professional dignity and make no clains
that are not truthful and in good taste.
The promotion may indicate the author's
background, including, for example, his
education, professional society affilia-
tions and the name of his firm, the title

438

of his position and principal activities
therein. However, a general designation
referring to any specialty, such as "Tax
Expert" or "Tax Consultant" may not be
used.

(j) Statements and Information to
the Public Press: A certified public ac-
countant or public accountant shall not
directly or indirectly cultivate publicity
which advertises his or his firm's profes-
sional attainments or services. He may
respond factually when approached by the
press for in-(22)formation concerning his
firm, but he should not use the press
inquiries as a means of aggrandizins him-
self or his firm or of advertising pro-
fessional attainments or services. When
interviewed by a writer or reporte:, he is
charged with the knowledge that he can.’
control the journalistic use of any in-
formation he may give and should notify the

reporter of the limitations imposed by

439
professional ethics.

Releases and statements made by cer-
tified public accountants or public accoun-
tants on. subjects of public interest whic"
may be reported by the news media, |
and publicity not initiated by the cer-
tified public accountant or public ac-
countant such as that which may res.1'
from public service activities, are not
considered advertising. However, press
releases concerning internal matters
in a certified public accountant's or
public accountant's firm are prohibited.

(k) Participation in Educational
Seminars: Participation by certified
purlic accountants or public accountants
in programs of educational seminars, either
in person or through audio-visual techni-
ques, on matters within the field of
competence of certified public accountants.
or public accountants is in the public

interest and is to be encouraged. Such

440
seminars should not be used as a means of

soliciting clients. Therefore, certain
restraints must be observed to avoid vio-
lation of the spirit of Rule 9-E(2) which
prohibits solicitation and advertising.
For example, a certified public account-
ant or public accountant should not: -

(i) Send announcements of a

seminar to nonclients or invite

them to attend. However, educators

may be invited to attend to further

their education,

(ii) Sponsor, or convey the impres-

sion that he is sponsoring, a

seminar which will be attended

by nonclients. However, a cer=-

tified public accountant or pub-

lic accountant may conduct edu-

cational seminars solely for

clients and those serving his

clients in a professional capacity

such as bankers and lawyers.

441

In addition, when a seminar is spon-
sored by others and attended by nonclients,
a certified public accountant or public ac-
countant should not:

(iii) Solicit the opportunity to

appear on the program,

(iv) Permit the distribution of

publicity relating to the certified

public accountant or public account-

ant in connection with the seminar

except as permitted under Rule 9-E

(2) Gi).

(23) (v) Distribute firm literature

which is not directly relevant to

a subject being presented on the

program by the certified public

accountant or public accountant or

persons connected with his firm.

(1) Solicitation of Former Clients:
Offers by a certified public accountant or
public accountant to provide services after

a client relationship has been clearly ter-

442

minated, either by completion of a nonce
curring engagement or by direct action of
the client, constitute a violation of this
rule.

(m) Soliciting Work from Other Prac-
titioners: This rule does not prohibit
a certified public accountant or public
accountant from informing other practition-
ers of the availability to provide them or
their clients with professional services.
Because advertising comes to the attentiv:
of the public, such offers to other prac-
titioners must be mace in letter form or
by personal contact,

* * *& ®
BAR EXHIBIT NO. 9
ETHICAL STANDARDS OF THE
ACCOUNTING PROFESSION
BY: JOHN L. CAREY AND
WILLIAM 0. DOHERTY
American Institute of Certified

Public Accountants

443
(47)
x* * &
SEC. 29 == ADVERTIS(::G
The general prohibition against adver-
tising is accepted today without much ques-
tion. To be sure, there is nothing illegal
or ‘mmoral about advertising as such, but
it is almost universally regarded as unpro-
fessional.
Younger accountants are sometimes
tempted to advertise or solicii, and the,
may suspect that the rules are a resuli

of a conspiracy among their older colleasues

to protect themselves against new ptition.

Actually the rule against advertising
has many sound reasons to support it. In
the first place, advertising would not bene-
fit the young practitioner. If it were
generally permitted, the larger, well-estab~
lished firms could afford to advertise on
a scale that would throw the younc prac-
titioner wholly in the shade. Secondly,

444

advertising is commercial. Professional

accounting service is not a tangible product

to be sold like any commodity. Its value
depends on the knowledge, skill and (48)
honesty of the CPA. Who would be impressed
with a man's own statement that he is
intelligent, skillful and honest? Lastly,
advertising does not pay. The accountants
in the early days who tried it agreed for
the most part that it did not attract
clients. |

Rule 3.01 of the Institute's Code of
Professional Ethics forbids advertising.

It reads as follows:

A member or associate shall not adver-
tise his professional attainments or ser-
vices.

Publication in a newspaper, mayazine
Or similar medium of an announcement or
what is technically known as a card is
prohibited,

A listing in a directory is restricted

445

to the name, title, address and telephone
number of the person or firm, and it shall
not appear in a box, or other form of dis-
play or in a type or style which differen-
tiates it from other listincs in the same
directory. Listing of the same name in
more hen one place in a classified direc-
tory is prohibited.

SEC. 30 == CLASS OF SERVICE

Nothing is said in Rule 3.01 about the
inclusion of descriptions on letterheads or
elsewhere of classes of services rendered,
such as audits, taxes, and systems. The
committee on professional ethics, on the
assumption that most people are aware of
the usual services performed by CPA's,
has interpreted Rule 3.01 to prohibit.
the association with a member's name of
designations indicating special skills
or the particular services he is prepared
to render.* Previously,the American In-

* Opinion No. 1l, page 20

446
stitute had agreed that a member should be
prohibited from describing himself as a
"tax consultant" or "tax expert" or from
using any similar self-designation in the
field of taxation.**
** Opinion No. 5, page 193.

x ke*eek

BAR EXHIBIT NO. 10
x* * &
AMENDED DISCIPLINARY RULE
On February 17th, 1976, the House of
Delegates of the American Bar Associatio;)
amended Disciplinary Rule 2-102(A) (6) to
read as follows:
(New material italicized; deleted
material bracketed):
TEXT OF THE AMENDED DISCI?..)!s:ARY RULI
As adopted, it amends D.R. 2-102 (A)
(5) and (6), the principal amendment beinc
Of 2-102(A) (6), which enumerates listable
information and which now reads (new materia’

italicized; deleted material bracketed):

447
(6) A listing in a reputable law list,

[or] legal directory, a directory published

by a state, county or local bar association,

or the classified section of telephone com-

pany directories giving brief biographical

and other informative data. A law list or
any directory is not reputable if its
management or contents are likey to be
misleading or injurious to the public or
to the profession. A law list or any

directory is conclusively established to

be reputable if it is certified by the
American Bar Association as being in
compliance with its rules and standards.
The published data may incluus only the
following: name, including name of law
firm and names of professional associates;
addresses and telephone numbers; one or
more fields of law in which the lawyer or
law firm concentrates[;], a statement that
practice is limited to one or more fields

of law [;], or a statement that the lawyer

448
or law firm specializes in a particular

field of law or law practice, to the extent

permitted by the authority having juris-

diction under state law over the subject

and _ in accordance with rules prescribed by

that authority; [but only if authorized under

DR 2-105(A) (4)] date and place of birth;
date and place of admission to the bar of
state and federal courts; schools attended,
with dates of graduation, degrees, and other
scholastic distinctions; public or quasi-
public offices; military service; posts of
honor; legal authorships; legal teaching
positions; memberships, offices, committee
assignments, and section memberships in
bar associations; memberships and offices
in legal fraternities and legal societies;
technical and professional licenses; men-
berships in scientific, technical and pro-
fessional associations and societies;
foreign language ability; names and ad=-

dresses of references, and, with their

449
consent, names of clients regularly re-

presented[.]; whether credit cards or

other credit arrangemercs are accepted;

office and other hours of availability; a

a statement of legal fees for an initiai

consultation or the availability upon re-

quest of a written schedule of fees or an

estimate of the fee to be charged for the

Specific services; provided, all such pub-

lished data shall be disseminated only to

the extent and in such format and language

uniformly applicable to all lawyers, as

prescribed by the authority having jurisdic-

tion by state law over the subject.

x*eetke

RESPONDENTS EXHIBIT NO. 11
(TEXT: LETTER
TO ARIZONA STATE
BOARD OF ACCOUNTANCY]
x kkk
Gentlemen:

As your legal representative we feel

450
it is our obligation to write concerning a
matter about which the Attorney General has
given you advice several times over the
past years. Because of recent legal
developments , the advice rendered to
you by this office on this matter on pre-
vious occasions is no longer applicable.

[Prior Opinions]

We refer in particular to Rule 9-E
(6), now designated as A.C.R.R. R4-1-56.
E.6 of the Arizona State Board of Accoun-
tancy Rules and Regulations. This Rule
prohibits competitive bidding by Certified
Public Accountants on the ground that it
is not in the public interest, is a form
of solicitation and is unprofessional. The
anticompetitive effect of the rule is clear.
There is no doubt that it would violate the
federal and state antitrust laws if adopted
by private individuals. The only remainirg
issue is the effect of Rule R4-1=-56.E.6 on

that conclusion. On July 25, 1966, the

451

Attorney General rendered an opinion at

your request concluding that the predeces-

sor to Rule R4-1-56.E.6 had the effect
of law since its promulgation was within
the authority of the State Board of Ac-
countancy and that the rule did not con-
flict with the anti-trust law of the
State of Arizona. See Cpinion No. 66-
29L [1966 TRADE CASES 471,880]. On

May 7, 1971, this office wrote you a
letter stating that the Board's rule
against competitive bidding did not
violate either the federal or state
antitrust laws. Basically, the letter
confirmed Attorney General Opinion No.
66-29-L. Finally, on January 2, 1974,
the Attorney General approved and cer-
tified this Rule which was adopted by the
Arizona State Board of Accountancy on
December 27, 1973.

[Court Decisions]

-,

Because of recent legal developments,

452
Rule R4-1-56.E.6 is unlawful under the
federal and Arizona antitrust laws, and
is void and beyond the scope of the
Board's authority. The two most import-
ant developments involve actions by the
United States Supreme Court and the Arizona
Legislature. Many years ago the United
States Supreme Court held that certain
types of activities were immune from the
federal antitrust laws if those activities
were authorized by a state pursuant to a
valid exercise of its police powers.

Parker v. Brown [1940-1943 TRADE CASES

456,250], 317 U.S. 341 (1943). There was
much confusion and debate, however, over
the nature and extent of the state action
that was required in order to produce in-
munity. On June 16, 1975, the United
States Supreme Court finally dealt with
this problem again and some of the con-

fusion has been clarified. In Goldfarb v.

Virginia State Bar [1975-1 TRADE CASES

453

460,355, 95 S. Ct. 2004 A.R.S. §32-703 (A)
has delegated power to the Accountancy
Board to adopt "rules of conduct appropri-
ate to establish and maintain a high stan-
dard of integrity and dignity in public
accounting," that statute is not sufficient
to satisfy the requirements delineated by
the Supreme Court in Goldfarb. Although.

the Virginia Legislature had empowered the
Supreme Court of Virginia to regulate the
conduct of the legal profession, the United
States Supreme Court found no immunity from
federal antitrust prosecution since there
was no state statute referring specifically
to fees. That situation is analogous to
the one presented by A.R.S. §32-703 (A).
Neither that statute nor any other pro-
vision of the statutes dealing with ac-
countancy refer specifically to the prices
charged by Certified Public Accountants;
nor do they manifest a clear intention of

the Arizona Legislature to abandon compe-

454

tition in the provision of accountancy
services. Thus, Rule R4-1=-56.E.6 would not
provide immunity from federal antitrust
prosecution and is therefore unlawful and
void. Moreover, Rule R4-1-56.E.6. is also
unlawful under the Arizona Antitrust Law,
A.R.S. §§44-1401 et. seq. if the state
action doctrine, as clarified by the
United States Supreme Court in Goldfarb,
is applied to resolve conflict between the
Arizona Antitrust Law and Rule R4-1-56.E.6.

However, it is likely that a narrower
doctrine should be used to resclve the lat-
ter conflict. The state action doctrine
was developed in the context of confl-«ts
between the federal antitrust laws and
exercises of state police power. Because
of the considerations of federalism it

would seem appropriate to allow a cer*ai»

455
tions are not present in an attempt to
resolve a conflict between the Arizona
Antitrust Law and another act of the Ari-
zona Legislature or regulation of a state
agency. The problem there is simply a
conflict between the legislative ex-
pressions of one body, and the probiei
is one of determininy the inteit of the
Legislature as to which statute ought
to control. Normally when a legislature
wishes to create an exemption from the
antitrust laws it enacts an express im-
munity provision as part of the anti-
trust law or, more commonly, as part of
the particular regulatory schene.

[New State Antitrust Law]

In the Spring of 1974, the Arizona
Legislature enacted the present Antitrus:

Law. A.R.S. §§ 44-1401 to 44-1413. Its

measure of latitude to states in the actions at that time are very pertiner*+ in

exercise of their police powers absent any regard to the question of whether Rule R4-

constitutional objection. These considera- 1-56.E.6 affects the application of the

456

Arizona Antitrust Law to the activities of
accountants. In the Senate Judiciary Com-
mittee a broad general amendment was offered
that would have created an exemption from
the Arizona Antitrust Law because of Rule
R4-1-56.E.6. That amendment was rejected.
Moreover, the Senate Judiciary Committee
did accept and the ful: Legislature enacted
several provisions granting exemption from
the Arizona Antitrust Law because of the

regulatory power and activities of parti-

cular state agencies. See, e.g., A.R.S. §40-

286. (Public service corporations holding
certificates of Public Convenience and
Necessity granted by the Arizona Corpor-
ation Commission.) In total five express
exemptions in separate statutes and one
limited express exemption in the antitrust
law itself (A.R.S. §44-1404) were enacted
when the current Arizona Antitrust Law was
passed. None of them deals with Certified

Public Accountants and their regulation by

457
the State Board of Accountancy. Moreover,
at that time it was expressly pointed out
to the Senate Judiciary Committee that it
might be appropriate to include some exemp-

tions for professions and occupations regu-

- lated under Title 32. However, the Legis-

lature chose to include no exemptions re-
garding regulation under Title 32. While
it is possible to find an implied repeal
of an antitrust statute, they are uncommon

and “strongly disfavored". See Otter Tail

Power Co. v. United States [1973=-l TRADE

CASES 474-373], 410 U.S. 366, 93 S. Ct.
1022 (1973). Moreover, in this parti-
cular case an implied repeal is not even
theoretically possible since the Arizona
Antitrust Law was passed subsequent to the
enactment of A.R.S. §32-703(A) and the pro-
mulgation of Rule R4-1-56.E.6. Thus, in
light of the legislative history regarding
the recent passage of the Arizona Antitrust

Law it is clear that the Arizona Legislature

458
did not intend that there be any exen,’ icnr
from the Antitrust Law because of Rule R4-l-
56.E.6 or any otiicer regulation by the State
Board of Accountancy. This is thus a second
reason supporting the conclusion that Rule
R4-1-56.E.6 is unlawful and void.

[Absence of Immunity]

In summary, we feel that, as a result
of the decision by the United States Supreme

Court in the Goldfarb case and the action

by the Arizona Legislature in enacting the
Arizona Antitrust Law, Rule R4-1-56.E.6
would provide no immunity for privat: in-
dividuals from prosecution unde: both the
federal and state antitrust laws ane is
therefore unlawful and void. In light of
our conclusion we advise and recommend
that you proceed as quickly as possible
to repeal Rule R4-1-56.E.6.

Sincerely,

Bruce E. Babbit
The Attorney General

459

kkk
RESPONDENTS’ EXHIBIT NO. 12

(1)
ARIZONA LEGAL SERVICES
ANSWERS ABOUT ALS

BYLAWS AND PARTICIPATING
ATTORNEY RULES

kkk
(2)

ATTORNEY'S INFORMATION MANUAL
PREPAID LEGAL SERVICES PROGRAM
CONFIDENTAL
kkk
(3)

WHAT IS THE ARIZONA LEGAL SERVICES
PREPAID AND GROUP LEGAL SERVICES PLAN?

ALS Prepaid and Group Legal Services
Plan is Arizona's Prepaid Legal Expense
Insurance Program--an open panel, free-
choice-of-attorney prepaid legal insurance
program.

Arizona Legal Services, Inc. (ALS)
is a non-profit corporation created, spon=-

sored and initially funded by the Arizona

460

State Bar. The Board of Directors is com-
posed, at this time, of members of the
State Bar who were elected to the Board by
members of the State Bar's Group and Pre-
paid Legal Committee. As the program de-
velops, provision has been made in the
corporate charter for lay people to serve
on the Board of Directors also.

| ALS Prepaid and Group Legal Services
Plan is the product of three years of re-
search and developmental work by the Ari-
zona State Bar's Committee on Prepaid
Legal Services and other interested and
dedicated members of the bar. A good deal
of work and research has also been con-
tributed by Midwest Mutual, who is under-
writing the program.

ALS Prepaid and Group Legal Services

Plan is the legal profession's response to
a pressing public need. People in the mid-
dle and lower-=middle income groups--ap-

proximately 70% of our population-~are not

461

getting lawyer's services when and to the
extent they should. Sometimes this is be-
cause they cannot afford these services;
sometimes because they think they canno~
afford the services; sometimes because they
do not even know that they have a legal
probles or that a lawyer should help them.

ALS Prepaid and Group Legal Services
Plan is a comprehensive program of insurance
service and education to meet this need.
The program is underwritten by Midwest
Mutual Insurance Company, a Best's A+
rated nonassessable mutual insurance con-
pany, which has independently done sub-
Stantial developmental work on logal (sic)
cost insurance.

ALS Prepaid and Group Legal Services
Plan will be issued to qualified groups and
in the name of Midwest, policies insuring
group members (and their dependents if
they wish) against the costs of covered

legal services. ALS will then provide the

462

group members a panel of "Participatine
Attorneys" who will furnish the covered
legal services, plus related educational
and administrative services.

WHAT ARE “PARTICIPATING ATTORNEYS"?

Participating Attorneys are those at-
torneys who agree to provide the services
covered under the policies of legal costs
insurance underwritten by Midwest Mutual
and issued through Arizona Legal Services,
Inc., and to accept payment under those
policies as payment in full. Each in-

sured will be free to select any Partici-

pating Attorney they wish. A list of Parti-

Cipating Attorneys will be provided to

representatives of insured groups, and Ari-

zona Legal Services, Inc. will operate a
program for insureds who do not have or do
not know a Participating Attorney from
whom the insured is free to select the
Participating Attorney of his choice.

(4)WHO CAN BE AN ARIZONA LEGAL

463
SERVICES, INC. PARTICIPATING ATTORNLY

*Any active member of the Arizona State
Bar who meets the requirements and acsrers
to the terms of the ALS Participatin=: At-
torney Rules, policies and procedures can
be an ALS Participatin« Attorney.

*The requirements to become an ALS
Participating Attorney include the following:

--Agreement to the methods and rates
of payment for covered services as from
time to time established by ALS:

--Maintaining an office for the full
Or part-time private practice of law within
Arizona;

--Agreement to continue as a Partici-
pating Attorney for one year from the date
of enrollment;

--Agreement to provide services to ALS
insureds--subject to the attorney's right
to reject a client on any reasonable grounds.

*The requirements to become a Partici-

pating Attorney are contained in the ALS

464 . 465

Participating Attorney Rules, which accom- middle income people, through labor unions,
pany this information. consumer groups and other associations, as
WHY SHOULD YOU BE A well as individually, are becominy in-

PARTICIPATING ATTORNEY?
creasingly aware of the necessity for bet-

*Because the public needs your help.

ter delivery of legal services. They are

Studies have shown that people in the middle
becoming increasingly concerned about this

and lower-middle income groups are not re-
problem and are requesting--in many cases

ceiving lawyer's services when and to the
now demanding=--that the legal profession

extent they should. This is largely be-
take the lead in providing a solution.

cause of cost or fear of cost. People do
There is increasin; evidence that prepaid

not budget for unexpected legal problems.
legal services in some form, or possibly

They do not obtain essential legal
other solutions which do not involve lawyers

advice or representation before they get 7 oN Ss
at all, are inevitable. It is in the best

in trouble or before their legal problems
interest of both the public and the leyai

become severe and beyond their economic
profession, it is imperative, that the

capabilities. Prepaid legal services,
profession take the lead in making certain

and your participation will meet and
that essential legal services are readily

serve their now unmet needs.
available to all the public, in accordance

*Because the legal profession needs

with basic ethical precepts.
your help, and because the Bar must pro=

*Because ALS needs your help. If ALS

vide a better method of delivering legal
is to succeed as Arizona‘s open panel, free-

services to more people. Middle and lower- ; .
choice-of-attorney program it is essential

466
that a very substantial majority of our
private practitioners become Participating
Attorneys.

(5) *Because it can directly benefit

you.

ALS Prepaid and Group Legal Services
Plan is the way to bring you together with
an untapped and potentially vast source of
clients. As ALS grows, you and other Ari-
zona lawyers will be able to provide in-
creasingly essential legal services to a
growing number of middle and lower-middle
income Arizonans. The payment for your
Services will be “guaranteed" subject to
the policy benefits and methods of payment
discussed below. This can mean elimination
of "uncollectables" and no more time-con-
Suming and expensive collection propia...
Even for your existing clients, if as they
become ALS insureds, you will be able to
provide legal services which they could

not previously afford or which you could

467
not provide on an economic basis.

HOW DO YOU ENROLL AS AN
ALS PARTICIPATING ATTORNEY

After you have reviewed the materials
provided, please complete the enclosed ap-
lication form and submit it to Arizona
Legal Services, Inc., P. 0. Box 7283,
Phoenix, Arizona 850ll.

There is no charge to beccne an ALS
Participating Attorney.

HOW WILL THE ALS PROGRAM WORK?

Concurrent with ALS's issuance of an
ALS/Midwest insurance policy to a qualified
group, ALS will enter into a “Direct Ser-
vice Contract" with the group. Under that
Contract, ALS will furnish to the insured
group members its panel of Participating
Attorneys--the attorneys who have agreed to
provide the covered legal services at no
cost to the insureds (beyond the premiums
already paid by or for them). The indivi-

dual insureds will b

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_0545%3A02. Public record. Not legal advice.