The opinion of the court was delivered by: LEVET
This is a motion for preliminary injunction to restrain the defendants from the promulgation or distribution of certain opinions recommending certain accounting practices which allegedly affect plaintiff's financial statements, unless a waiting period of 60 days elapses, and certain other prerequisites are complied with.
The above-named plaintiffs, public utility companies, engaged in the sale of power, seek a preliminary injunction to enjoin the defendant American Institute of Certified Public Accountants (hereinafter called 'Institute') and the individual defendants, certain officers or Committeemen of said Institute, from adopting, issuing, promulgating, circulating, printing or in any manner publishing to the members of the defendant Institute or to any members of the accountancy profession a certain proposed letter. This letter is to the effect that the said defendant Institute or its Committee on Accounting Procedure (hereinafter called 'Committee') is of the opinion or recommends that charges made to income in recognition of the deferral of income taxes should not, in accordance with generally accepted accounting principles, be credited to earned surplus or to any other account included in the stockholders' equity section of the balance sheet. The plaintiffs seek to enjoin the distribution of said letter until such time as the defendants and the Committee shall have submitted a draft thereof to certain persons; a period of not less than 60 days shall thereafter have elapsed, and the Institute's and its Committee's practices and procedures with respect to the publication of accounting research bulletins shall otherwise have been complied with.
The letter in dispute is as follows:
'American Institute of Certified Public Accountants
'To the Members of the American Institute of Certified Public Accountants
'Question has been raised with respect to the intent of the committee on accounting procedure in using the phrase 'a deferred tax account' in Accounting Research Bulletin No. 44 (revised), Declining-balance Depreciation, to indicate the account to be credited for the amount of the deferred income tax (see paragraphs 4 and 5).
'The committee used the phrase in its ordinary connotation of an account to be shown in the balance sheet as a liability or a deferred credit. A provision in recognition of the deferral of income taxes, being required for the proper determination of net income, should not at the same time result in a credit to earned surplus or to any other account included in the stockholders' equity section of the balance sheet.
'Three of the twenty-one members of the committee, Messrs. Jennings, Powell and Staub, dissented to the issuance at this time of any letter interpreting Accounting Research Bulletin No. 44 (revised).
'Committee on Accounting Procedure
'By William W. Werntz, Chairman'
By cross-motion the defendants have moved for an order pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, 28 U.S.C.A., dismissing the complaint on the ground that it fails to state a claim against them upon which relief can be granted. Since matters outside the pleadings have been presented to the court, and since the parties have submitted such proof, I am treating this motion as one for summary judgment as provided in Rule 56 of the Federal Rules of Civil Procedure.
The complaint herein, seeking permanent injunctive relief, was filed on April 15, 1958. This application apparently is based upon the following assertions of the plaintiffs:
(1) Plaintiffs, three operating electric utility companies, have recorded on their books of account, pursuant to certain alleged applicable requirements of state regulatory agencies, an aggregate of more than $ 65,000,000 in accounts designated as 'Earned Surplus Restricted for Future Federal Income Taxes.' In this connection plaintiffs contend that these amounts have been so accrued by them in accordance with accounting principles which heretofore have been generally accepted over a period of years by all of the well-known accounting firms experienced in utility accounting.
(2) The defendant Institute, through its Committee, from time to time publishes accounting research bulletins which are allegedly 'accepted' by state and federal regulatory agencies, including the Securities and Exchange Commission, members of the accounting profession and interested members of the business community as establishing the accounting principles which must be followed by the accounting profession.
(3) Prior to the present dispute in reference to pertinent accounting procedures, it is said that the Institute had adopted procedures prerequisite to the publication of such opinions and recommendations. These procedures included, it is said, the circulation of so-called 'exposure drafts of any proposed opinion' to a certain group so that the members might comment thereon, and a further procedure involving the submission ...