A Texas appellate court ruled that a state public accounting licensing board that penalized three accountants involved in the Enron scandal properly conducted a public vote on the sanctions in accordance with the state open meetings law, even though some of the deliberations had been conducted in executive session.
The accountants argued the board improperly deliberated on the sanctions during executive sessions, making the board’s subsequent orders revoking two of the accountants’ professional certificates and temporarily suspending the certificate and license of the third voidable under a provision in the open meetings law that permits such a remedy for "[a]n action taken" by a public body that violated the law.
However, the court, relying on a prior interpretation of that provision, ruled that it required the accountants to prove the actual action they were trying to void – the final vote on the orders – was made in violation of the open meetings law, and since the vote had been taken properly, the orders could stand. The court rejected the argument that even proving a meeting violated the open meetings law would "necessarily render voidable all related subsequent actions by a governmental body.”
The orders followed board deliberations on whether the accountants – Carl Bass, Patricia Grutzmacher, and Thomas Bauer – had improperly conducted financial audits of the now-defunct Enron Corporation in 1997 and 1998, and if so, how they would be penalized. At the time of the audit, the three were employees of Arthur Andersen LLP, then one of the world’s largest consulting and accounting firms.
In four public meetings, the board considered whether to follow the findings and recommendations for sanctions made by a panel of state administrative law judges who had first heard the case. The judges found the accountants had “made serious mistakes in professional judgment,” as stated by the court, but recommended that Bass and Bauer be permitted to continue practicing public accountancy and that the charges against Grutzmacher be dismissed.
At each meeting, the board entered executive sessions, invoking an exception to the open meetings law that permits governmental bodies to consult privately with their attorneys in specific situations, including seeking advice on matters subject to the attorney-client privilege.
William Treacy, the board’s executive director, says the board carefully conducted the meetings to conform to the open meetings act's requirements.
However, the accountants alleged the board illegally called these executive sessions, deliberated on the orders in private, then reopened the meeting "only to ratify the [b]oard members’ ‘secret straw poll.’” After the orders were issued, the accountants filed suit against the board, alleging — among other claims — violation of the open meetings law.
The lower court held the board violated the law, voided its orders, and enjoined the board from taking future action against the accountants.
However, the appellate court reversed, relying on the law's requirement that "final action, decision, or vote on a matter deliberated in a close meeting" be conducted in an open meeting with proper notice. According to the court, this meant that to establish the orders violated the law, the accountants had to demonstrate that "the actual vote or decision" to adopt them was not made in a public meeting; however, the final vote had been taken in public session.
Additionally, the court cited the board members' “substantive and extensive” public deliberations before the vote as evidence that they had not made their final decisions on the orders in executive session. For example, according to meeting transcripts, the board made public decisions on the orders at the third meeting immediately following public deliberation, then publicly instructed its attorney to construct draft orders. In the fourth meeting, the board publicly discussed the drafts and proposed changes, then publicly voted on the final versions.
The court acknowledged without much elaboration that under its interpretation of the law, “a group could defeat the Act’s purpose by expressing their opinions in a closed session and then confirming the majority position by unanimous vote in the open session.” However, it went on to say that “if a governmental body [was] engaged in this practice, it would usually be detected.”
Tracey said he does not know whether the accountants will appeal the ruling, and counsel for the accountants declined to comment for this story.
The case has been remanded to the lower court for adjudication of the remainder of the accountants’ claims against the board.
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