Direct Marketing Association, The v. Huber

Filing 70

DESIGNATION OF DEPOSITION TESTIMONY Excerpts from the Transcript of the Deposition of Dieter G. Gable by Plaintiff Direct Marketing Association, The. (Schaefer, Matthew)

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO The Direct Marketing Association, ) ) ) ) ) ) Plaintiff, vs. ROxy Huber, in her capacity as Executive Director, Colorado Department of Revenue, Civil Action No: 10-CV 01546 REB-CBS ) ) ) ) ) ) Defendant. ---------------------------------) DEPOSITION OF DIETER GEORGE GABLE Phoenix, Arizona November 17, 2010 (Copy) Prepared by: Meri Coash, RMR, CRR Realtime Reporter Certified Reporter #50327 Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 1 12 apologize for interrupting. 2 What is the business of Finance Law Center? 3 A. HR sourcing. 4 Q. Meaning that you place employees with -- 5 A. People. 6 Q. -- with other companies? 7 A. Yes. 8 Q. You said "Law Center." 9 10 11 12 13 It there a particular type of company for whom you place employees? A. For attorneys and in the area of experts for mortgages, mortgage-related matters. Q. Okay. The experts, though, they're intending to be employed? 14 A. Contract. 15 Q. Contract. 16 A. HR placement. 17 Q. I see. Okay. So temp, sort of? 18 19 A. Yes. 20 Q. Okay. 21 All right. Any other actively operating LLCs? 22 A. Next Step Advisors. 23 Q. Okay. 24 A. Yes. 25 Q. And where is Next Step Advisors located? LLC? Co ash & Co ash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 A. Nevada. 2 Q. All right. 3 A. 2003. 4 Q. You're currently a manager of that? 5 A. Yes. 6 Q. What is its business? 7 A. That's how I run any consulting work for myself 8 primarily. 9 Q. 13 Operations in Arizona. When was it founded? Have you engaged -- Does Next Step 10 Advisors, LLC, have any part in your engagement in this 11 case? 12 A. No. 13 Q. SO what type of consulting, 14 15 then, would you be managing for yourself through Next Step Advisors? A. Example would be work I did for the Colorado 16 lottery. Essentially work outside of the scope of what I 17 would do as TB Consulting. 18 Q. Do you have partners in TB Consulting or other -- 19 A. In TB Consulting? 20 Q. Yes. 21 A. Yes. 22 Q. Okay. 23 A. One. 24 Q. How many other people are principals, if any, in 25 How many other folks are principals of -- AZ Merchant Partners? Coash & Coash, Inc. 602-258-1440 14 Dieter George Gable - November 17, 2010 1 A. One. 2 Q. Is it the same person? 3 A. No. 4 Q. Who is it for TB? 5 A. Marcus Sipolt, S-i-p-o-I-t. 6 Q. And for AZ? 7 A. Shannon, S-h-a-n-n-o-n, Bard, B-a-r-d. 8 Q. All right. 9 Other than Finance Law Center and Next Step Advisors, any other actively operating LLCs? 10 A. I don't believe so. 11 Q. Okay. Now, you mentioned that there were some 12 that are not actively operating but may still be in 13 existence based on Arizona's treatment of LLCs. 14 inactive LLCs, are you currently a manager of any inactive 15 LLCs? So 16 A. Yes. 17 Q. Okay. 18 A. I don't even know the exact names of them. Which ones? 19 would honestly have to look that up. 20 I I can give you my best approximation and my best list of them, but 21 Q. Okay. 22 A. I honestly was not prepared for this part of -- 23 24 25 That's fine. what you were looking for. Q. Okay. Give me your best list. That's all I can ask for if that's the best you can do. Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 1 all the different variations of that. 2 IntelliChoice Home Services. 3 iteration of that. 4 5 6 There's also There might be one more I don't know. I don't recall. When you say "different iterations," does that Q. mean -A. 17 Are they dbas? No. Are they -- They are different -- IntelliChoice 7 Mortgage Services was the main one. 8 were meant to branch off, but those were never -- we never 9 did anything with them. 10 11 Q. Okay. And then other ones When did IntelliChoice Mortgage Services, LLC, come into existence? When was it founded? 12 A. 2005. 13 Q. And where was it located? 14 A. Phoenix. 15 Q. What was its business? 16 A. Mortgage origination. 17 Q. What does that mean exactly? 18 A. So mortgage origination and loan modifications. 19 So mortgage origination for the vast majority of that 20 time. 21 get your financing, that's considered mortgage 22 origination. 23 whoever they broke red it out to, Wells Fargo or 24 Fannie Mac (sic) and so forth. 25 doing mortgage origination. And that's -- When you go to a mortgage broker to So the company was doing that on behalf of Those are mortgage brokers Co ash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 A. I don't think so. 2 Q. 21 When did mortgage -- IntelliChoice Mortgage 3 Services, LLC, stop operating? 4 A. 2009. 5 Q. Okay. 6 A. It's a very long story. And why did it discontinue its operations? Bottom line is we did an 7 acquisition of a firm in California in the business of 8 loan modifications. 9 Q. Okay. 10 A. And we were licensed through the California -- 11 it's CFL. 12 what it's called. It's a corporation finance license, I think is 13 Q. Okay. 14 A. Because California has two ways to license 15 mortgage brokers. One is through the Corporation 16 Commission with a CFL license. 17 Department of Real Estate with what they call a DRE 18 license. The other is through the 19 Q. Okay. 20 A. After 21 Q. I was just going to ask, when was the acquisition 22 I'm sorry. Go ahead. of this company in California? 23 A. I believe late 2008 or early 2009. 24 Q. And what was that firm called? 25 A. Mantis, M-a-n-t-i-s, Inc. Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 22 1 Q. Okay. 2 A. San Diego. 3 Q. Was the acquisition of Mantis the manner in which 4 5 6 Where was it located? you began doing business in California? A. No. That's the manner by which we expanded into loan modifications in California. 7 Q. Okay. 8 A. Mortgage originations. 9 Q. In California? 10 A. Yes. 11 Q. Okay. 12 Prior to that, you were doing -- And was Mantis doing business in any other states than California? 13 A. I don't believe so. 14 Q. Okay. 15 16 After the acquisition, what happened with regard to the business of IntelliChoice? A. The state of California changed the rules as to 17 who was allowed to do loan modifications from allowing 18 either a CFL or a DRE licensee to only DRE licensees. 19 applied for a DRE license and for an approved contract to 20 do loan modifications, which they called an advance fee 21 agreement. 22 We We were granted the license and the contract. The legislature passed -- California 23 legislature then passed -- and I don't remember the exact 24 act, but I believe it might have been -- I should probably 25 remember it better. SB 1902 is my best guess as to what Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 20 I 0 1 23 the number was. 2 Q. When was this? 3 A. This would have been summer of '09, June of '09, 4 somewhere in that time frame. They passed that act which 5 made any advance fee agreement void, including the ones 6 approved by the state under our license. We had completed about 1,200 loan 7 8 modifications, and we had, I am thinking, about 500 called 9 in flight or in process. And essentially, we had to 10 refund the money to those people, and that put us out of 11 business. 12 Q. Okay. When you said -- When you were using the 13 term "we,ll was it including we with regard to applying for 14 a DRE license? 15 license? Who is the "we" that applied for a DRE 16 A. My partner Shannon Bard and I. 17 Q. And you obtained such a license? 18 A. Yes. 19 Q. When did you get your DRE license? 20 A. Spring of '09. 21 Q. Okay. 22 Maybe March time frame. Did the firm need to be licensed? Did IntelliChoice need to be licensed? 23 A. Absolutely. 24 Q. So did you apply on behalf of IntelliChoice or as 25 an individual? Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 A. You have to apply as both. 24 It's like an alcohol 2 license, I suppose. 3 Plus the individuals have to be vetted. 4 Q. The-- 5 A. Sorry. It's not only the establishment. I just realized we had an FHA and a VA 6 license, so even though -- I want to make sure. We may 7 have originated loans in other states where we're allowed, 8 where we, through FHA or VA, wouldn't need to be licensed 9 in that state. So we're still doing that through Arizona. 10 I mean, the operation is all in Arizona, but ultimately, 11 the customer could have been in a -- could have been in 12 Utah. 13 14 15 16 Q. When you say "Utah," is that specifically because A. A random -- a random -- It has to be in our region. 17 Q. What was your region? 18 A. So we weren't doing a 19 southwest. 20 FHA region that we operated in. So it would be -- I don't recall. It's Southwestern states is the 21 Q. It's a region defined by the FHA? 22 A. Yes. 23 24 25 So those are the two other licenses we had, was FHA and VA. Q. You also indicated that you applied for approval of an advanced fee agreement. Co ash & Coash, Inc. 602-258-1440 25 Dieter George Gable - November 17, 2010 1 A. Yes. 2 Q. Who applied for that? 3 A. The company has to apply for that. 4 Q. When did you receive that approval? 5 A. Shortly after we got approval of the DRE license. 6 Q. So you think that was in spring of '09? 7 A. Yes. 8 Q. And your recollection is that the law changed 9 10 soon after in California? A. All the rules started changing early in '09, and 11 whenever that state bill was put the nail in the coffin 12 for anybody, even if they had approved agreements by the 13 state. 14 at that time. 15 Q. So it was a -- what's called a fluid environment When were the loan modifications you've 16 described -- you say there were 1,200 or so. 17 begin contracting for the loan modification services with 18 individuals in the state of California? 19 A. State of California? When did you I don't know when exactly. 20 Most of them was -- I would say the vast majority of our 21 business was Arizona, California. 22 maybe summer of '08. 23 that exact -- 24 that, the details. 25 right. It was the fall of '08, I honestly don't I don't have I mean, I was, I guess, ill prepared for But I can Those are approximately Co ash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 30 1 Marcus Sipolt and I individually invested in the firm, and 2 then we are providing services to the company in the area 3 of conversions and ongoing advice. 4 5 6 Q. Okay. When you say "conversions," what do you mean? A. So these are when doctors convert whatever method 7 they have right now for electronic medical records, they 8 convert to this platform. 9 and converting their old data, their patient data, patient 10 11 12 It might be training the people records into a format that's usable in the system. Q. Do you have, yourself, a background in programming of software? 13 A. Yes. 14 Q. Just tell me briefly about that. 15 A. I grew up, so to speak, in the Arthur Andersen 16 what was called the management information consulting 17 division, MICD, and everybody there went through the 18 training course to learn COBOL. 19 RPG, Assembler, Machine Instructions, and Job Control 20 language. 21 other things 22 programming, because that's how everybody got trained at 23 that firm at that time. I don't know. So I programmed in COBOL, You can list a whole bunch of I've got a very good background in 24 Q. Have you programmed in Linux? 25 A. I have not. Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 37 1 case in just a moment, but just so that the question is 2 resolved, you yourself -- would you identify yourself as 3 an expert in any other areas? 4 MS. SCOVILLE: 5 THE WITNESS: 6 BY MR. 7 Q. A. No. 9 Q. Okay. Lottery systems and services. Any others? 8 Same objection. 10 SCHAEFER: Which areas of expertise are you applying in this case? 11 MS. SCOVILLE: 12 THE WITNESS: Object to the form. I believe the systems 13 integration, probably the program management as well. 14 for that matter, I suppose the running of a business and 15 realities of running a business. 16 BY MR. 17 Q. SCHAEFER: Okay. Any others? 18 MS. SCOVILLE: 19 THE WITNESS: 20 BY MR. 21 Q. And Same objection. No. SCHAEFER: Have you ever been employed by a company that 22 derives a substantial portion of its revenues from 23 direct-to-the-consumer sales of goods? 24 A. No. 25 Q. Have you ever served as an officer or a manager Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 38 1 of a company that derives a substantial portion of its 2 revenues from direct-to-the-consumer sales of goods? 3 A. Yes. 4 Q. Which company? 5 A. Fl Race Factory. 6 Q. What does Fl Race Factory sell? 7 A. Indoor karting. 8 Q. Indoor karting? 9 A. Karting. 10 Q. C-a-r-t-i-n-g? 11 A. No. Ironically, it's k-a-r. There's a slight 12 difference there. Probably only appreciated by people in 13 the industry. 14 business is consumers and companies for team-building 15 events, probably the easiest way to understand it. But they do indoor karting. Primary 16 Q. SO what do they sell? 17 A. Indoor kart racing. 18 Q. A package? 19 A. Well, they sell some goods in the sense that Are they selling a service or a good? 20 there's a pro shop that sells racing gear, and the rest is 21 services, so it's racing and entertainment. 22 kitchen, bar. 23 24 25 Q. The pro shop is located on-premise of a place that has indoor karting? A. We have a On-premise and on the web. Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 Q. 1 So But with regard -- 39 Sort of to separate 2 the service from the product for the moment, what is the 3 service they're providing? 4 of 5 A. Entertainment. 6 Q. They're providing a service Of entertainment. And it has a location here in Arizona? 7 8 A. Yes. 9 Q. Does it have locations anywhere else? 10 A. No. 11 Q. Do you provide the service of developing similar 12 businesses in other locations? 13 A. We do provide consulting services, yes. 14 Q. So if someone wants to start indoor karting, they 15 can come to you and say, "How do I do this?" 16 A. Yes. 17 Q. Do you sell franchises? 18 A. We do not. 19 Q. And you have a pro shop located at the site in 20 Arizona? 21 A. Yes. 22 Q. People can come into the store and buy there? 23 A. Yes. 24 Q. What's the average in-store inventory? 25 A. 25,000 probably. Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 40 1 Q. And how many SKUs? 2 A. You're asking a level of detail I don't know. 3 It's certainly not a grocery store. 4 thousands. 5 Q. 6 It doesn't have It has maybe -- less. Are you involved in the operation of the pro shop? 7 A. From an advisory capacity, yes. 8 Q. The pro shop is available at the Internet at what 10 A. f1racefactory.com. 11 Q. Were you involved in the development of the -- of 9 12 13 14 15 16 URL? the website at which you can find A. Yes. involved in, Q. I was involved -- I cofounded it, so I was I would say, every aspect of that business. What are the online sales of that entity? What were they in 2009? 17 A. I don't know. 18 Q. Are you aware of whether or not the 19 f1racefactory.com makes sales to consumers in Colorado? 20 A. I don't know. 21 Q. Does it have a warehouse? 22 A. It's in a warehouse, 120,000-square-foot 23 warehouse. 24 Q. 25 Where are orders that are placed over the Internet fulfilled from? Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 41 1 A. In the facility. 2 Q. Do they take goods right out of the pro shop? 3 A. Or the storage. 4 Q. How many employees work in the pro shop? 5 A. Well, everybody can work in the pro shop. The 6 pro shop is part of the operation, so total employees are 7 50. 8 cross-train people, so -- 9 10 I don't think we have it broken down by - - Q. We Who supports the operation of the website? How many employees? 11 A. We have it outsourced. 12 Q. To whom is it outsourced? 13 A. I don't know the name of the company right now. 14 Q. In connection with your work for either 15 TB Consulting or AZ Merchant Partners, LLC, have you ever 16 been engaged as a consultant by a company that derives a 17 substantial portion of its revenues from 18 direct-to-the-consumer sales of goods? 19 A. Yes. 20 Q. What were those engagements? 21 A. First one is Succeed Corporation. 22 Q. What is that? 23 A. They provide, for sake of simplicity, a 24 storefront in a box for people who want to have a web 25 presence. Co ash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 42 1 Q. Is this a software product that they sell? 2 A. Yes. 3 Q. SO if an individual wished to operate a online 4 5 store, they would potentially purchase this software? A. They would buy the software, and they could buy 6 ancillary services, which could mean everything, including 7 building out and providing things all the way down to 8 inventory for them, meaning things that they could 9 actually sell. 10 Q. Do they have product? 11 A. Through fulfillment houses. 12 13 So they're drop-shippers. Q. SO an individual who is interested in having an 14 online store but doesn't want to have the inventory 15 themselves, they basically contract with a drop-shipper 16 and utilize that inventory as their product mix? 17 A. Fulfillment. So they could have that. They 18 could have their own product; they could have a mix of it. 19 Generally, it would be -- 20 would be somebody who has a 21 affinity 22 and they build custom lures, so they would put a 23 storefront out there, 24 could then layer on top of that a whole host of fishing 25 gear things that would be drop-shipped for them through The typical consumer for that either group or personal Maybe they're, for an example, into fishing sell their custom lures, but they Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 2 3 4 43 national suppliers. Q. 2009? A. How many software packages did Succeed sell in Do you know? I don't know. So my involvement with them was 5 2007 and 2008 primarily. We helped -- We were engaged as 6 a result of the accountant coming to us. 7 in some financial -- facing some financial challenges, 8 let's say. 9 making sales in the low millions. The company was We turned around the company, and they're So I would say on a 10 number of customer bases, we're probably talking in the 11 less than 10,000-a-year category of storefronts. 12 Q. Okay. Any other engagements as a consultant with 13 companies that derive a substantial portion of their 14 revenues from direct-to-consumer sales of goods? 15 A. Well, I put -- Well, let me ask you, if it's 16 a -- if we have confidentiality agreements with a client, 17 where does that fall here with respect to disclosing a 18 company name? MS. SCOVILLE: 19 20 It's a well-known -Well, we don't have a protective order in place yet. 21 Matt, would it be sufficient if he described 22 the type of engagement without giving you the company 23 name? 24 MR. SCHAEFER: 25 THE WITNESS: Probably. Okay. Let's start there. A company that sells Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 seminars, books, CDs, DVDs, so forth and so on, both 2 domestically and internationally. 3 44 BY MR. SCHAEFER: 4 Q. What are its annual sales? 5 A. In the lOs of millions. 6 Q. Sells these through what channels? 7 A. Everything from web to affiliates, resellers. 8 Q. What was the nature of your engagement? 9 A. We developed their website, and we provide 10 hosting, meaning the technical infrastructure hosting. 11 Q. For the website? 12 A. For the website and their entire information 13 technology infrastructure. 14 e-mail and file servers and so forth. 15 16 Q. So that would be, you know, Does that mean that you actually have on-site servers at -- Is it AZ Merchant Partners? 17 A. This is through TB Consulting. 18 Q. Inside TB Consulting, the servers that provide 19 20 the hosting? A. We keep the servers at 10 Data Centers, which is 21 a -- basically a high-tier data center. 22 those at an office. 23 all the things that come with that. 24 25 Q. You wouldn't keep You would have redundant power and Did you contract out the hosting service to 10 Data Centers? Co ash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 2 3 4 5 6 7 8 9 A. 47 I believe that's the customer file, as best I understand it. Q. What is the term "householding" as that term is used in the direct marketing industry? A. My understanding of it is to aggregate purchases within a household by household members. Q. What is a "fulfillment center" as that term is used in the direct marketing industry? A. As I understand it, it's the packaging and 10 distribution supplier. I don't know if I -- The company 11 that takes the product and fulfills the order is the 12 fulfillment center, is how I think -- 13 decent definition for you. Hopefully that's a 14 Q. Are there retailers that do that for themselves? 15 A. Fulfillment for themselves? 16 Q. Have you ever been ordered by any state or state Yes. 17 agency to discontinue offering any financial service in 18 the state? 19 A. We got related to the relicensing from our CFL to 20 DRE license, the CFL 21 basically documented the fact we could not use a CFL 22 license anymore with a -- and I hope I got the term 23 right -- desist and refrain order. 24 25 Q. looking for the right word -- Your recollection is CFL, you said, was the California -- Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 1 A. 48 I believe it's the California Corporation 2 Commission, and what it is, is a consumer or corporation 3 finance lender, is what CFL stands for. When they cleared up who should do what and 4 5 under what license, that's when we relicensed ourselves 6 under DRE, and we had a DRE license, and the CFL issued a 7 desist and refrain to all CFL licensees to ensure they all 8 knew that nobody could operate with that anymore. 9 10 11 Your recollection is it was the CFL that did Q. that? Well, the thrust was that you could not use a CFL A. 12 license anymore. 13 order. 14 order. 15 Q. 16 I don't know who ultimately issued that question. Somebody at the state of California issued that Let me make sure I understand by reframing the 17 Have you ever been ordered by any state 18 agency to desist and refrain from soliciting borrowers 19 and/or performing services for borrowers or lenders in 20 connection with loans secured directly or collaterally by 21 one or more liens on real property? 22 A. Yes. MR. SCHAEFER: 23 24 25 And we'll mark as the next exhibit -(Deposition Exhibit 109 was marked for Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 20 I 0 1 Q. And finally, 53 it orders you to "Immediately desist 2 and refrain from collecting advance fees, as that term is 3 define in Section 10026 of the Code, in any form; 4 particularly with respect to loan modification, loan 5 refinance, principal reduction, foreclosure abatement or 6 short sale services, unless and until you demonstrate and 7 provide evidence satisfactory to the Commissioner that you 8 have," and then there are two conditions listed on page 5 9 of the order. Is that correct? 10 A. That is correct. 11 Q. Have you complied with or otherwise attempted to 12 provide evidence to the California Department of Real 13 Estate indicating you have complied with the two 14 conditions on page 5? 15 A. We shut down the business, so -- 16 Q. So you did not? 17 A. Did not. 18 Q. Now, does this order from the Department of Real 19 Estate change your recollection at all regarding the 20 nature of the events in California or your licensure in 21 California? 22 MS. SCOVILLE: 23 THE WITNESS: 24 BY MR. 25 Q. Object to the form. Not at all. SCHAEFER: So you believe that you obtained a license in Co ash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 54 1 California in the spring of 2009 to act as a mortgage 2 broker, a DRE license? A. 3 Yes. Honestly, you would have to -- There's a 4 whole lot of documentation you would have to look at to 5 understand how this doesn't make sense to people who were 6 going through it at the time, which is why, essentially, I 7 think the legislature finally passed that bill and said, 8 "You know what? 9 without license, with or without advance fee agreement." 10 Q. We're not allowing it in any form with or If you'll look at the first finding of fact on 11 page 2, it indicates, 12 IMS" 13 licensed by the Department in any capacity." that's IntelliChoice Mortgage Services -- "been 14 15 16 "At no time herein mentioned has Does that change your recollection about your licensure status with the Department of Real Estate? A. No. There are material errors in all of this, 17 including -- 18 would have to have a whole bunch of information to go 19 along with this. 20 when they were shutting everything down, so there are 21 material errors throughout this. 22 Q. Well, like I said, you would have you These were churned out by the department Did you receive a request from the Department of 23 Real Estate to submit information in connection with this 24 investigation? 25 A. I don't believe so, or I am certain we would have Co ash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 1 2 Q. 84 Did you have reason to interact with Ms. Huber in connection with your work for the Colorado lottery? 3 A. casually. 4 Q. How many times have you met her since the summer 5 6 Not in any substantive manner. of 2008? A. It would have been one more all-hands meeting and 7 a number of lottery board meetings. 8 board members, so I don't know what the number would be. 9 But, again, none of those would have been of any 10 She is one of the substantive interaction. 11 Q. Why did you attend the lottery board meetings? 12 A. Because they discussed things of interest and 13 14 15 we're a significant vendor to the lottery. Q. Were these public meetings that anyone could attend, or were you on the agenda? 16 A. No. 17 Q. Did you speak at any of these board meetings? 18 A. I don't believe so. 19 Q. Do you have an ongoing relationship with the 20 They were public meetings. Colorado lottery? 21 A. We do -- TB Consulting does. 22 Q. What do you do for them? 23 A. We implemented our proprietary back office system 24 25 and provide ongoing support and services. Q. Do you actually operate the back office for the Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 85 Colorado lottery? 2 A. No. 3 Q. Is that done by the employees of the Department 4 5 of Revenue? A. They are lottery employees. I don't know if they 6 are technically Department of Revenue employees or not. 7 We interact with the lottery. 8 contract being through the Department of Revenue, don't 9 have much interaction there. We really, other than the So I don't know what the -- 10 if there is a separation of Department of Revenue versus 11 their state employees. 12 13 Q. The ongoing support services that you provide, are those in the nature of IT support? 14 A. primarily. 15 Q. When you say "back office system," this is the 16 management of the lottery administration, not of the 17 lottery itself or 18 A. So this is the lottery core functions except for 19 the online terminals and systems that are at the retailer 20 and the network that goes with it. 21 Powerball, Mega Millions, Lotto, and all those games, 22 those are administered by Scientific Games using their 23 system. 24 inventory control, distribution, marketing, the retailer 25 licensing, security, billing, accounting. So with respect to We handle all the scratch ticket, accounting, Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 20 I0 1 Q. 86 How is that contract with the Colorado lottery 2 structured in terms of compensation for TB -- is it 3 TB Consulting? 4 A. Yes. It's a time and materials, with a 5 6 not-to-exceed, I believe. 7 Q. Is the not-to-exceed set on an annual basis? 8 A. On a contract basis. 9 Q. What's the term of the contract? 10 A. It is up October of 2011. 11 Q. When did it go into effect? 12 A. Would have been October 2008. 13 Q. So this is a three-year? 14 A. Three-year contract. 15 Q. What's the not-to-exceed for the three-year 16 contract? 17 A. I don't have that number handy. 18 neighborhood of probably $4 million. 19 hardware, 20 It's in the professional fees. 21 22 23 Q. third-party, and so forth, That includes TB Consulting Are you familiar with any other officials of the Colorado Department of Revenue? Actually, before I ask that, who is the 24 point person with Colorado lottery that you interact with, 25 if there is one? Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 87 1 A. Currently? 2 Q. Yes. 3 A. J.E. Lewellen, L-e-w-e-I-I-e-n, I believe. 4 Q. And was there a person in that role prior to 5 Ms. or Mr. Lewellen -- 6 A. Mr. Lewellen. 7 Q. Was there a person prior to Mr. Lewellen? 8 A. Jack Boehm, B-o-e-h-m. 9 Q. Who is the top official of the Colorado lottery, 10 if you know? 11 A. The current executive director of the lottery is 12 Abel Tapia. 13 Q. Is that an appointed position? 14 A. Yes, it is. 15 Q. Who does the appointment? Do you know? 16 Ms. Huber who makes the appointment, or is it the 17 governor? 18 A. Is it I do believe it's the executive director of the 19 Department of Revenue, so ROxy Huber would be making that 20 appointment. 21 Q. In this conference call in which individuals from 22 the Colorado Department of Revenue participated, did they 23 provide you any information in connection with the 24 preparation of your report? 25 A. They reviewed the materials that were on the Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 96 1 A. Yes. 2 Q. -- or meaning 3 A. Both. 4 Q. Did you also review the statute? 5 A. I did not review the statute. 6 Q. Did you do anything else to prepare? 7 A. No. 8 Q. How long in total did you spend preparing for 9 10 this deposition? Two hours. A. 11 MR. SCHAEFER: 12 (An off-the-record discussion ensued.) 13 14 Off the record for a moment. BY MR. SCHAEFER: Q. With regard to Exhibit 116, your report, if you 15 will turn to page 2, the Statement of Opinions, 16 opinion A 17 minimum threshold of $100,000 in gross annual Colorado 18 sales, the relatively small number of retailers are 19 subject to the Requirements." it's cap A - - you state, "Based on the Did I read that correctly? 20 A. Yes. 21 Q. The report elaborates, to a certain extent, on 22 these opinions. With regard to opinion A, there's 23 additional material on pages 5 and 6. Is that correct? 24 A. That's correct. 25 Q. Right at the bottom of the page on page 5, last Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 97 1 few words, you indicate that "the number of affected 2 retailers should be in the low thousands." 3 correct? Is that do. 4 A. I 5 Q. What do you mean by the "low thousands"? 6 A. If I draw a -- or extrapolate from the numbers 7 that are provided on sales data and see that we're going 8 from somewhere north of a billion, excluding outlying data 9 points like Amazon, but retailers with north of a billion 10 dollars of sales down to 10 million in sales so down to 11 1 percent of that -- and that encapsulates 500, that would 12 suggest to get down to 6 million is not going to be an 13 overly significant number of retailers. 14 stats that track every possible retailer, but I would 15 extrapolate out that it would be reasonable to say that 16 the number we're talking about is, as I stated, low 17 thousands and not a significant number of the entire 18 retailer base that exists in the United States or 19 elsewhere. 20 Q. 21 22 So But how many do you mean when you use the word "low thousands"? A. So there are no What number? I don't have a number for you. I think you can 23 statistically extrapolate and the argument would then be 24 whether or not that's statistically valid, because there's 25 really no data. But I think it's a minority of Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 2 98 retailers -- a small minority of retailers. Q. Can you provide a range? When you say "low 3 thousands," what's the range of numbers you're talking 4 about? 5 A. I would hesitate to give a range, but I would say 6 we can be reasonably certain that it's closer to 10,000 7 than any other much larger number. 8 9 Q. The affected retailers that we are talking about and that you're mentioning here are all those having 10 annual gross sales in Colorado in excess of a hundred 11 thousand dollars. Is that right? 12 A. That's correct. 13 Q. And I think you, on page 5, in paragraph 1 of 14 opinion A, indicate that a hundred thousand in gross sales 15 in Colorado translates into approximately $6 million in 16 total nationwide sales? 17 A. If we assume that there is a proximate 18 relationship between population and sales, it came out to 19 be just north of $6 million in sales. 20 21 Q. That's the assumption you've made for purposes of this report? 22 A. Yes. 23 Q. So when you refer to "affected retailers," you 24 are referring to retailers having sales in excess of 25 $6 million that do not collect Colorado sales tax. Coash & Coash, Inc. 602-258-1440 Is Dieter George Gable - November 17, 2010 1 99 that right? 2 A. Not necessarily. 3 Q. Okay. 4 A. I think I'm referring to retailers that have more 5 than a hundred thousand in gross sales. 6 comes into play merely to point to the fact that the 7 number of retailers should be low. Q. 8 The 6 million Fair enough. In estimating the number of affected 9 10 retailers, you're using the $6 million benchmark. 11 talking a moment ago in your answer extrapolating downward 12 from annual -- from annual sales figures that were 13 nationwide. 14 A. Yes. 15 Q. SO for purposes of approximating, you're using 16 that $6 million annual sales on a nationwide basis 17 benchmark? 18 A. You're 19 I think that's the best benchmark I could come up with to approximate how big of an issue this would be. Q. 20 So we know that we have the 500 potentially 21 affected retailers in the Internet, top 500 that you 22 identified, and of course some of them report Colorado 23 tax. So it's not going to be all 500. 24 A. I think that's 25 Is that a fair Nothing would suggest otherwise. Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 2 Q. 100 So the challenge is to identify those between 6 million and 10 million, in essence? 3 A. Essentially. 4 Q. On page 6, you indicate there are certainly 5 hundreds of thousands, at least, of total retailers, 6 because as you cite, there are even just two Internet 7 sales software -- strike that -- 8 software vendors that you're aware of have more than 9 160,000 customers between them. Two e-commerce platform 10 A. Yes. 11 Q. So we know there are at least hundreds of 12 13 thousands of retailers. A. I agree. If I can add one more facet to this, is 14 if we look at the customer base for Succeed, which was an 15 e-commerce platform, the relative number of merchants that 16 opened a web front or storefront or start selling their 17 wares to whoever they sell them to, the number that reach 18 a meaningful level of -- I would argue even six-figure 19 sales in aggregated total, forget about what locale -- is 20 a very small percentage. 21 to believe we're talking a very small number here. So, again, everything leads me 22 Q. Relative to the total number? 23 A. Relative to the total. 24 Q. Are you aware that there are some estimates that 25 place the number of e-commerce sellers total from zero on Co ash & Coash, Inc. 602-258-1440 101 Dieter George Gable - November 17,2010 1 2 up, that's something like 5 million? A. I think when you add in the hobby e-commerce 3 seller, who might be selling purely through eBay and 4 doesn't even have their own storefront, I would suspect 5 that's probably a good number as any. 6 7 Q. Okay. So you think 5 million is a reasonable estimation? 8 A. Sure. 9 Q. And as you say, even if it were only -- I can do 10 the math -- even if there were only .2 of 1 percent of all 11 of those retailers above 6 million in sales, that would be 12 10,000 retailers? 13 A. Am I allowed to use my calculator? 14 Q. Absolutely. 15 A. You say .2 of 1 percent? 16 Q. Yes, of the 5 mil. 17 A. .2 of 1 percent. 18 Q. That's right. 19 If it were half of a percent of all online 20 retailers above 6 million, then we would be at 25,000 21 potentially affected retailers? 22 23 24 MS. SCOVILLE: sure -- Object to form. Could you say that again? MR. SCHAEFER: Sure. 25 Coash & Coash, Inc. 602-258-1440 I'm not Dieter George Gable - November 17,2010 1 102 BY MR. SCHAEFER: Q. 2 Based on the same estimate of 5 million total 3 e-commerce sellers, if a half a percent of those total 4 e-commerce sellers had annual sales in excess of 5 6 million, 6 affected retailers. A. 7 it would approximately mean 25,000 potentially From a pure mathematical standpoint, I can do the 8 math and get to 25,000. From a legitimate likelihood of 9 that being the real number, I think that's without any 10 foundation I can find, at least in the statistics I looked 11 at. 12 13 14 15 16 Q. So you think something more like 10,000 is more reasonable? A. I would have no reason to believe it would be over 10,000. Q. Now, that estimate is just e-commerce vendors 17 that I mentioned. 18 Colorado law applies to other types of remote sellers? 19 20 21 22 A. Is it your understanding that the The catalog and everything I think would be, yes. Anybody selling into the state of Colorado, yes. Q. So that would be potentially other types of remote sellers affected by the law, potentially? 23 A. Absolutely. 24 Q. That would include not only catalog vendors but, 25 for example, direct-to-consumer television vendors. Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 Yes? 1 2 103 A. Yes. MS. SCOVILLE: 3 4 any notes, you sure can. 5 I think if you need to make BY MR. SCHAEFER: 6 Q. Turning to opinion B -- we may as well work with 7 the statement of it as contained in the body of your 8 report. 9 are restatements of the list at the front, are they not? The bold headings within the body of the report 10 A. They are intended to be identical, yes, sir. 11 Q. Okay. So statement B -- or opinion B, as set 12 forth on page 6, states, "Requirements provide sufficient 13 leeway for variances in approaches for compliance to allow 14 affected retailers to comply with reasonable efforts." 15 Did I read that correctly? 16 A. Yes. 17 Q. The first heading underneath opinion B concerns 18 the transactional notice. 19 Transactional Notice states, 20 generalized tax statement in the event the retailer is 21 subject to a number of taxing authorities or 22 jurisdictions. " 23 24 25 And your first subsection under "The Requirements allow for a Did I state that correctly? A. I believe so. MR. SCHAEFER: Let's mark this document as Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 115 1 A. Yes. 2 Q. So we may be talking about those as we go along, 3 some of the individual aspects of each of them. 4 wanted us to have a framework for the discussion 5 Yes. A. 6 I just Q. moving forward. So under B3, the annual disclosure to the 7 8 DOR, after referencing the Colorado Department of Revenue 9 instructions in sUbpart A, you say in subpart B, "The 10 format is a simple, well described, file that can be 11 produced with information readily available within any 12 viable eCommerce platform, using widely used Microsoft 13 product Excel or an equivalent application available for 14 free," then a citation to a couple of the documents you 15 reviewed. What do you mean by "viable eCommerce 16 17 platform" ? 18 A. Well, I would say viable in the sense -- and I 19 use "viable" throughout here to encompass applications 20 that have a meaningful life left in them. 21 there -- you could theoretically produce somebody who is 22 still running on a mainframe from the '60s and doing punch 23 cards. 24 available. 25 e-commerce platform, that should be readily available. I I suppose that would say that they may not have that readily But for somebody who's got a reasonable Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 2 Q. Okay. 116 So you mean viable in the current market environment? 3 A. Yeah. 4 Q. Okay. 5 6 You indicate that they could use Microsoft Excel or an equivalent application to produce the report. A. To produce the extract. The report's really a 7 file for the department, and you can produce that extract 8 of information using either Excel or what's available 9 through Google tools for free, 10 11 12 if somebody doesn't have that. Q. What is the format that has to go to the department? If it's not a .xls Excel file, what is it? l3 A. .csv or a comma-delimited file. 14 Q. And is that something that you can create using 15 Excel? 16 A. 17 18 You can save your file, simple as save as, and go from Excel to a comma-delimited file with no intervention. Q. Are you aware of the fact that Excel has certain 19 limitations regarding the amount of data that can be 20 contained in one Excel file? 21 A. Absolutely. 22 Q. It's a fairly large amount of data, but there is 23 a limitation, is there not? 24 A. It's a very significant amount of data. 25 Q. To your understanding, is it something like Co ash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 1 2 117 70,000 lines? A. I would not venture an exact guess, but I 3 actually would believe it's higher than that. 4 orders of magnitude, that's fine. 5 6 Q. But for Larger retailers may well have tens of thousands or even hundreds of Colorado customers. Is that true? 7 A. I'm certain that's a possibility. 8 Q. Okay. 9 10 11 If they were to reach the capacity of Excel to contain data from their house file or customer file, A. they would have to do something else, wouldn't they? I would say that the report really doesn't 12 address the requirements for somebody who has got a 13 customer base of that order of magnitude, because their 14 capabilities would probably lead me to believe that Excel 15 would not be in their normal operating procedures, that 16 they have much more sophisticated tools and would extract 17 this into a comma-delimited file using their existing 18 systems with the proverbial flip of a switch. 19 Q. There would be some cost, but it wouldn't be 20 associated with converting to an Excel file. 21 would do something else that was within their systems? 22 23 24 25 A. It would be And they I would expect a nonmeaningful number in the scheme of somebody of that size retailer. Q. Okay. I want to jump ahead in your opinions to opinion H, if you would, which is on page 11. Coash & Co ash, Inc. 602-258-1440 Opinion H Dieter George Gable - November 17,2010 118 1 is the one that sets forth some actual cost estimates. 2 on page 11, opinion H, you state as follows: 3 Requirements" -- that's a capital R. 4 term of having a definition within the scope of this 5 report. 6 capital R, you mean all of the requirements in the 7 So statute, yes? "The It's meant to be a As you use the term "the Requirements," with a 8 A. The three meaningful parts, yes. 9 Q. The transactional notice, the annual notice to 10 consumers, and the annual report to the DOR taken 11 together? 12 A. Yes. 13 Q. SO beginning again, you state, "The Requirements 14 will require additional effort by affected retailers 15 resulting in onetime, non-recurring first year, costs that 16 range from $2,571 to $6,000 (0.043 percent - 0.100 percent 17 as a percent of sales) plus annual recurring costs 18 estimated at $589 to $1,000 (0.010 percent to 19 0.017 percent as a percentage of gross annual sales) 20 " Now, those ranges of cost that you provide 21 there, you have given more detail for the manner in which 22 you calculated those in Exhibit A -- Exhibit A.1, yes? 23 A. I -- I gave more detail behind the calculations 24 but also provided the italicized parenthetical comment 25 after that to notate what retailers we're talking about. Coash & Co ash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 120 1 determined the percentage of annual sales that that 2 represented for your small seller, or did you do it the 3 other way around? 4 dollar figures identified in opinion H? 5 A. How did you -- how did you get to your Yeah, I'm not sure built up to the number. I 6 essentially took the levels of effort and the people 7 involved in that level of effort and quantified that. 8 Then I came to quantifying what is the cost of those 9 resources, tabulated that, and then afterwards attempted 10 to normalize this to give some relative meaning to the 11 numbers by putting it as a percentage of sales. 12 Q. I think that was clear, but what So it wasn't 13 you didn't do is say, "I think it's going to cost 14 X percent of sales," apply that to some number like 15 6 million, 16 A. No. 17 Q. -- range. 18 A. No. 19 Q. And as you indicate in opinion H, the then come up with a -- 20 parenthetical on page 11, it states, 21 estimated for the compliance efforts of the smallest of 22 the affected retailers." 23 "the smallest of the affected retailers," what are you 24 referring to? 25 A. "Note: I'll stop there. the costs are When you say I'm referring to the people who are marginally Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 121 1 meeting the minimum requirement, so they've exceeded the 2 threshold, but they have not gotten to the level of a top 3 500 retailer. 4 Q. Okay. 5 A. Because I think those would skew the numbers, and 6 honestly, their costs are very different because theirs 7 are, in the great scheme of things, probably difficult to 8 segregate from just doing business and just maintaining 9 their normal, day-to-day operations. 10 Q. Okay. The -- When you say the smallest, you 11 mean below the Internet 500. Is that the 6 to $10 million 12 range? 13 A. Somewhere in that range, yes. 14 Q. You go on to say, "The costs for compliance by 15 larger affected retailers is ignored as the impact, when 16 normalized on a percentage of sales basis, is expected to 17 be lower or even inconsequential." 18 A. Yes. 19 Q. Okay. Did I read that right? Now, I just want to clarify, you're not 20 saying, are you, that there are -- retailers larger than 21 the smallest retailers will incur no costs of compliance, 22 are you? 23 A. I think I stated that for the larger affected 24 retailers, when you normalize the cost, rather than take 25 the absolute cost of them doing anything, that it becomes Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 122 1 inconsequential. 2 a top-10 retailer may spend tens of millions a year in 3 server and hosting and management of their infrastructure, 4 but that number is meaningless when it gets to the smaller 5 retailer. So I'm trying to do it for the smaller 6 retailer. The larger retailers have large cost bases, and 7 whatever requirements are within this are a drop in the 8 proverbial bucket. 9 Q. And I put that in the context of and Two things I want to clarify from your answer. 10 The first is 11 just make sure, because it's slightly different from what 12 the report says. 13 I think we already confirmed, but let me When you say "the smallest retailers," 14 you're using the $6 million benchmark for purposes of your 15 discussion in your report. Is that fair to say? 16 A. Somebody who is in that ballpark -- 17 Q. Okay. 18 A. -- plus or minus. 19 Q. You're not saying, though, that a retailer with 20 $7 million in annual revenues doesn't have costs? 21 have costs? 22 A. They may be identical in cost. 23 Q. Similar to the 6 million? 24 A. Similar to, exactly. 25 Q. I think we already discussed this. They Coash & Coash, Inc. 602-258-1440 But same for Dieter George Gable - November 17, 2010 123 1 8 million, you're not saying they have no costs. 2 approximate costs as the -- in absolute terms if you like, 3 as the $6 million seller? 4 A. 5 identical. 6 Q. Same I think in absolute terms, they may be similar or The same was true up to about the 10 million 7 level, from what I understood from our prior 8 conversations. 9 costs, you agree? 10 A. Sellers with 9 million in sales have some I don't know where the delineation is. You'll, 11 I'm sure, be able to find retailers at the $6 million 12 level that are ahead of the game and can do this for a lot 13 less. 14 spend about the same who are $20-million-a-year retailers. 15 My report intended to reflect what is the impact on the 16 people who, on a percentage of sales basis, would probably 17 be mos t impacted. 18 19 Q. And there are retailers who will proportionately Okay. Your thinking in that regard is the folks outside the Internet 500, the Internet retailer? 20 A. Absolutely. 21 Q. Now, the other thing I want to clarify from that 22 is your use of the term "normalization." 23 that you're using that term based upon what you've done in 24 your report to mean as a percentage of net sales. 25 Essentially, you're normalizing costs to view them through It appears to me Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 the lens of -- as a percentage of net sales? 2 3 4 5 6 7 8 9 124 MS. SCOVILLE: Object to the form. BY MR. SCHAEFER: Q. Is that a fair statement of your use of the term "normalization"? A. And if it's not, please clarify. I think I attempted to use percentage of sales as a way to show relative impact. Q. Okay. And is that the same process as normalizing the costs, in your term? 10 A. In the way I used it, yes. 11 Q. Okay. Now, it is true, is it not, that even 12 retailers with over a billion dollars in sales will have 13 some costs, but on this percentage of sales basis, they 14 may be tiny, almost inconsequential in your 15 16 17 A. Yes. Either inconsequential or potentially immeasurable. Q. Now, there are some costs, are there not, of the 18 Colorado law that will increase with the size of the 19 retailer. 20 A. Is that a fair statement? If nothing else, if you have a lot of notices and 21 you have a billion-dollar retailer, they have more postage 22 than another retailer, yes. 23 Q. Okay. 24 A. It probably reflects their overall cost of 25 business is much higher on everything they do. Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 1 Q. 125 Just to make clear we're talking about the same 2 thing, the annual notices to the consumers is what you're 3 referring to with regard to -- if they have more notices 4 they have to send to consumers on an annual basis because 5 they are a larger retailer? 6 A. Absolutely. And they have a larger warehouse and 7 more light bills, and they have a larger warehouse and 8 more personnel. 9 be more expensive in order to generate whatever larger 10 11 Everything for them is probably going to sales number they have. Q. Okay. But they'll actually have to send out in 12 the mail more notices. 13 example, at least will cost them somewhat more, although, 14 again, it may be small to that retailer in terms of a 15 relative cost? 16 A. You're saying the postage, for I think I state in other places in the report 17 that Colorado provides flexibility where they can offset, 18 diminish, or eliminate the incremental cost. 19 Q. Right. They may have to send more annual notices if 20 21 We'll talk about that in a minute. they're larger? 22 A. I would agree. 23 Q. Okay. HI is the transactional notice. In 24 part b, you give a range for compliance with the 25 transactional notice, which reads as follows: Coash & Coash, Inc. 602-258-1440 "The cost Dieter George Gable - November 17, 2010 126 1 for compliance with the Transactional Notice Requirement, 2 if any, would range from $263 3 modifying existing Transactional Notice to comply with 4 Requirements) to $1,038 (high end for retailer having to 5 create a new Transactional Notice to comply with 6 Requirements)" Did I 7 (low end for retailer read that right? 8 A. Yes. 9 Q. Now, if you accept my representation from earlier 10 this afternoon that Colorado is the first state to 11 implement a transactional notice requirement, would you 12 agree that all retailers are -- fall into the category you 13 identify as being toward the higher end, that is, 14 retailers having to create a new transactional notice? 15 A. I do not. 16 Q. Okay. 17 A. I believe retailers who are in many jurisdictions And why not? 18 and may have mUltiple physical locations and be subject to 19 tax in multiple locations already have some form of a 20 transactional notice related to tax with respect to 21 example, we operate in Texas, Vermont, and Oklahoma, and 22 you'll be charged taxes there but not elsewhere. 23 though they don't have a transaction notice in the sense 24 of what we're talking about here, they have a 25 transactional notice related to taxes to cover their Coash & Coash, Inc. 602-258-1440 For So even Dieter George Gable - November 17, 2010 1 2 127 collecting states requirements. Q. Understood. But by the premise of this law, 3 we're talking about folks 4 not have an obligation to collect in Colorado. 5 notices that exist would make no reference to Colorado, 6 would they? 7 A. that is, retailers who do So their They would make no notice or make no reference to 8 Colorado, but they would be able to modify an existing 9 notice. And from a level of effort standpoint, it's a 10 matter of "Do I have something that we can modify, or do I 11 need to find a new place for it? 12 room for it. 13 level of effort. 14 doesn't imply that there is a modification of a generic 15 transactional notice, because that wouldn't require it. 16 That's covered in item C, which says, theoretically, if 17 they had a generic notice, there would be no cost. 18 Q. Because I have to find Now, do I need to move things around?" Right. So that's the modification part. That It So just to clarify with regard to item C, 19 you're saying, theoretically, if they had such a thing -- 20 if Colorado is the first -- then no one would? 21 A. At onset. 22 Q. Right. 23 A. But the reality is going down five years from now 24 when somebody starts a retailer and grows up and it 25 becomes a retailer subject to this, at that point they may Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 128 have one and may actually not have an incremental cost. 2 Q. Right. 3 A. So these are retailers also in the future. So I 4 understand that currently there may be none, but certainly 5 in the future, as retailers bubble up and get to that 6 mark, they may very well not have any incremental cost. 7 Q. You're talking about first-year requirements here 8 now being first year of the bill as well as first year 9 of 10 A. Yes. So I think -- I don't believe it's a fair 11 representation to say that everybody's going to be having 12 to create one. 13 are going to modify an existing multistate transactional 14 notice, and there will be people who will have to create 15 one from scratch. 16 Q. I think there are going to be people who SO in that regard, you're using the term 17 "transactional notice" here broadly, any kind of notice 18 with regard to the transaction -- any kind of notice that 19 concerns taxes on the transaction? 20 A. As one example. It's a transactional notice, 21 anything related to some sort of notification to the 22 customer about that. 23 about shipping charges or taxes, something in the general 24 area of your checkout that you can modify to -- and 25 leverage to meet the requirement. It could be that they give notices Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 130 1 specific forms that I don't recall in the Colorado 2 regulation. 3 it's all new or so substantially new. 4 Q. So I'm not entirely certain I could say that On page 12, we have the customer service 5 inquiries item there at the top of the page, item 6 number 2. 7 amend or add to their Customer Service call or web-chat 8 scripts to address inquiries from customers related to the 9 compliance with the Requirements." And you indicate that "Retailers may have to 10 subparagraph, 11 will range from $735 to $1,470." In the next "The estimated cost of this one time change Did I read those right? 12 A. Yes. 13 Q. Does the range 735 to 1470 depend on whether they 14 are amending or adding in the words that you used in the 15 first part? 16 A. I would say if they have substantially everything 17 in place, it may be lower than this cost. 18 the range of having to develop something to address this 19 specific requirement. 20 21 Q. Right. This is more in This is your report, though, right? report says it will be between 735 and 1470. Your Yes? 22 A. Exactly. 23 Q. What I would like to know, for the present 24 purpose, is, is the range from 735 to 1470 dictated by 25 what you describe in the immediately preceding paragraph Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 131 1 as being a question of whether or not they have to amend 2 or add? 3 4 5 6 A. To the extent that the report says may have to amend or add. Q. So it does depend on whether they're amending or adding? 7 A. If at all. 8 Q. Okay. 9 Is it fair to say that I'm interpreting this right to say that if they're amending, 10 their costs are lower; if they're adding, their costs are 11 higher? 12 A. Yes. 13 Q. Now, in item 3, the annual notice to consumers, 14 you make a point to indicate again that you're estimating 15 these costs for a retailer on the smaller side, 6 million 16 in magnitude, certainly outside the Internet top 500. 17 that fair? 18 A. Yes. 19 Q. You talked a moment ago about the fact that 20 larger retailers will incur costs to send the annual 21 Is notice, will they not? 22 A. Yes. 23 Q. Okay. 24 A. Subject to them having to send annual notices. 25 So -I mean, it's conceivable that somebody could have 20 million Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 132 1 in sales and not send a single notice if they happen to 2 sell a lot of lower-end ticket items and not reach that 3 threshold. 4 Q. Right. They have to have at least one customer 5 who purchases $500 from them in the state of Colorado for 6 that requirement to apply? 7 8 9 A. And they may only have 10, so to speak. I know we're talking about extremes, but -Q. Right. And, 10 in fact, you indicate there the annual 11 notice preparation and distribution requires an effort 12 with variability only in the size of the retailer and the 13 number of notices required to be sent. Is that correct? 14 A. Yes. 15 Q. They send more notices, they'll have somewhat 16 more cost associated with the actual mailing and materials 17 costs for the notice, at any rate? 18 A. Yes. To the extent that, obviously, the larger 19 retailers will I am guessing at least be afforded the 20 opportunity or take the opportunity to mitigate their 21 costs? 22 Q. Right. 23 And we'll talk about that. In subpart B, with regard to the first year, 24 you indicate, "For these retailers, the total initial one 25 time or first-year cost would be between $1,601 and $3,023 Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 133 1 or .027 percent and 0.050 percent as a percentage of gross 2 annual sales." Now, 3 that first-year cost includes costs 4 related to understanding the requirement, 5 system to produce it, settling upon the actual language to 6 use, and the mailing costs for that first year. 7 fair characterization? 8 9 A. developing a Is that a I would say that's a reasonable characterization, but I don't believe you mentioned the mechanics of it and 10 a mail merge or some sort of a process by which to bring 11 all that together in an efficient manner. 12 13 Q. That would be one other component that's included in that first year also. 14 A. Yes. 15 Q. And the range there is based upon how many 16 notices being sent in terms of the actual number of 17 notices? 18 A. Your range of costs. I believe the spreadsheet says it was 200 19 notices, which was somebody reaching. the $100,000 20 threshold and sending out exactly 200 notices to add up to 21 the hundred thousand dollars worth of sales. 22 Q. So on Exhibit A.l, your cost calculations, the 23 last set of rows under the word "Consumables, " there's an 24 indication that there are 200 annual notices. 25 A. Is that Simply by dividing the hundred thousand by 500 Co ash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 1 and saying that it happened to be that they had 500 or 2 $501 purchases times 200 customers, and that would be a 3 maximum number of notices that they would have to be 4 134 sending out. 5 6 Q. But your range of costs is based on that assumption? 7 A. On the maximum worst-case scenario. 8 Q. To make sure we get the number, it's based on the 9 assumption of 200 notices? 10 A. Yes. 11 Q. Now, in item -- sub item i under b, you indicate, 12 "Retailers who already have a generic notice to consumers 13 meeting the Annual Notice requirement would not incur a 14 '1st Year' expense but would immediately fall into the 15 'On-going' cost estimate reflected in G.3.c." 16 If you take my representation that Colorado 17 is the very first state to impose such a requirement, do 18 you agree with me that there wouldn't be, 19 year, retailers who already have a generic notice to 20 consumers that meet the annual notice requirement? 21 A. It would be highly unlikely. in the first I think this would 22 be more looking at future retailers that are becoming 23 subject to. 24 Q. 25 indicate, But agreed. Now, with regard to 3c, the ongoing cost, you "For these retailers, the on-going yearly cost Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 1 would be between $354 and $530 or 0.006 percent and 2 135 0.009 percent as a percentage of gross annual sales." Did I read that right? 3 4 A. Yes. 5 Q. And your annual sales percentages there, again, 6 are based on a company with 6 million in annual sales? 7 A. Yes. 8 Q. Am I right that the ongoing yearly costs of the 9 10 annual notice are lower because you don't have some of the first-year development costs in those later years? 11 A. Absolutely. 12 Q. SO what are the You have materials costs, 13 correct, in every year? 14 nonmaterials costs associated with the annual notice? 15 A. What are the remaining The fulfillment component of that, so the 16 extraction of data, the mail merge, the stuffing of 17 envelopes. 18 Q. 19 20 21 The human cost of stuffing envelopes. Okay. Okay. A. And I do believe -- Let me just check something real quick here. 22 I do have in here at least some management 23 time to glance at it and see whether or not there's 24 anything materially different. 25 Q. Right. So Exhibit A.1 for that annual notice Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 136 1 ongoing, it looks like you have between half an hour and 2 an hour of management time? 3 4 5 6 A. Yes. At least take a look at it and see if there's anything glaring. Q. A higher portion of the ongoing cost is in the production. Almost all of it is in the production? 7 A. Yes. 8 Q. That little exception of management. 9 A. I believe the highest cost is in the -- continues 10 to be labor, because we're talking a reasonably small 11 number of notices and, quite honestly, a very high 12 estimate of what it would take to stuff 200 notices. l3 14 Q. And just to Again, this is based on how many notices being sent? 15 A. 200 notices. 16 Q. I f we look at Exhibit A.l for a moment, the 17 spreadsheet, 18 bottom part of the table, going to the next to last column 19 for annual notice ongoing, it appears to me 20 I'm wrong -- that you have total cost of consumables. 21 would add together the paper costs of $2, 22 cost of $4, the envelope cost of $68, the mailing label 23 cost of $17, and the stamp or postage cost of $88 to get 24 the cost of consumables for the 200 notices? 25 A. just the consumables set of rows there at the tell me if You the printing Understand there is some -- for readability, Coash & Coash, Inc. 602-258-1440 I Dieter George Gable - November 17, 20 I0 1 2 didn't include any cents, but for the -Q. 137 Yes. Fair enough. And if I add those up -- you're welcome to 3 4 use your calculator if you'd like -- I think it's $179 of 5 cost associated with the 200 annual notices. 6 A. I think that's right. 7 Q. And if you were to divide that by the 200 annual 8 notices tell me if I'm wrong 9 but I think it is 89 and a half cents per notice. That is correct. 10 A. Yes. 11 Q. So the cost of per notice based on just 12 consumables and meaning materials and postage is about 89 13 and a half cents per notice? 14 A. For somebody sending out 200 annual notices. 15 Q. Okay. Now, companies that have to send more than 16 200 notices will have higher absolute costs in terms of 17 consumables, won't they? 18 A. Higher absolute costs? 19 Q. Yes. 20 A. And potentially lower per-notice cost. 21 Q. Again, I think Amazon is sort of the elephant in But yes. 22 the room in all of this discussion. If we assume the 23 population of Colorado is about 5 million -- do you 24 understand that to be the case? 25 around 5 million people? Population of Colorado, Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 20 I0 138 1 A. Around 5 million, yes. 2 Q. Would you agree with me that Amazon, the number 3 one Internet seller on the Internet top 500, may have a 4 million Colorado customers? 5 A. I would have no basis to say yes or no to that. 6 Q. Let's assume that they did -- 7 A. Okay. 8 Q. -- for purposes of the question. 9 The law -- Colorado law at issue in this case also requires that a 10 notice be provided to non-Colorado residents who ship 11 goods into Colorado as well, as long as they are over the 12 500 threshold. Is that correct? 13 A. Yes. 14 Q. SO if even only 1 percent of those million 15 customers purchased over $500 in a year, would you agree 16 with me that translates into about 10,000 customers who 17 are supposed to receive a notice? 18 A. If I -- If is a big if on the 1 percent. 19 don't know. 20 I out to be 10,000, I agree. 21 22 23 Q. But if it's 1 percent, the math would work And on a per-notice basis, it's going to be something like 89 and a half cents per notice? A. I -- I think I That would be ignoring the 24 other finding in the report, that a retailer of that size 25 would figure out a way to send out that transactional Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 2 139 notice probably at little to no cost. Q. Well, why don't you explain that to me? 3 I think that is highly questionable. 4 Because So give me your explanation of that. 5 A. Do we have the rules handy by any chance? 6 Q. I don't. 7 A. So let me just point to something real quick. 8 9 One second. Okay. If I look at the opinion J on page 14 10 and I state the opinion that "The incremental cost of 11 mailing Annual Notices can be mitigated by including other 12 information and materials for the consumer," essentially, 13 the requirement is for an annual notice to be sent -- for 14 it to be properly notated on the outside of the envelope 15 and sent first class. 16 providing inserts, some limited amount of advertisement 17 within the scope, because the limitation, as I recall, is 18 that it just not be part of a regular shipment. 19 can't be part of a shipment of goods. 20 Nothing precludes the retailer from So it And so I believe that in these cases, it 21 could either be mitigated by marketing costs or 22 third-party material that could be inserted, similar to a 23 utility statement, where you'll get a flyer advertising 24 some other things that, essentially, take the utility 25 company's cost of mailing that down significantly on a Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 140 per-piece basis. 2 And I would expect that Amazon, at that 3 size, if we're talking about the extreme ends of the 4 spectrum, would have a reasonable size incentive, if they 5 had a large order of magnitude of notices, to invest money 6 into figuring out a way to mitigate that cost. 7 Q. I take it that your understanding of the 8 9 Thank you for the explanation. statute, which is specifically in the statute, not in the 10 regulations promulgated by the department but in the 11 statute promulgated by the general assembly of the state 12 of Colorado, indicates the notice must be sent separately 13 and not as part of any other shipment. 14 A. That's what it said. 15 Q. Your belief is that permits a retailer to, 16 nevertheless, include other materials, marketing or 17 otherwise, in the envelope? 18 A. I'm not here to interpret it other than to 19 provide my perspective. 20 that a regular shipment would be a shipment of goods. 21 Could be a shipment of a catalog. 22 that would otherwise be sent. 23 think there are a number of things that would provide 24 leeway for things to be included in that notice. 25 Q. My perspective is I would expect It should be something But if it's not that, I But your assumption in this regard, your Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 143 benefits of different efforts all the time, are they not? 2 A. Absolutely. 3 Q. Are you aware that there are penalty provisions 4 specific to each requirement of the statute? 5 A. Yes. 6 Q. Are you aware that with regard to the annual 7 notice, that the failure to provide a compliant annual 8 notice subjects a retailer to a $10 notice per -- $10 9 penalty per noncompliant notice? 10 11 12 A. That is part of what the statute reads or the rules read. Q. Isn't it far more likely that retailers 13 evaluating the statute's specific direction that the 14 notice be sent separate from any other shipment, in light 15 of the $10 penalty for noncompliance, will choose to send 16 an annual notice without accompanying material? 17 MS. SCOVILLE: 18 THE WITNESS: Object to the form. The numbers used herein 19 reflect no mitigation of the cost, merely a statement that 20 the larger retailers will look to mitigate that cost. 21 no way would I expect that the marginal retailer who 22 barely meets the need and has crossed that threshold would 23 spend a whole bunch of time, energy, and money to try to 24 figure out how to mitigate the cost of 200 notices. 25 Doesn't make sense. By the time they get done figuring Coash & Coash, Inc. 602-258-1440 In Dieter George Gable - November 17, 2010 144 l o u t how to do it, they would have spent more than they 2 would have to just send the notice. When you bring up Amazon 3 and I don't know 4 what the numbers are -- at some point the threshold has 5 been crossed where somebody will look into it and probably 6 invest the time to get an attorney to look at what is or 7 isn't reasonably possible because the numbers are large 8 enough to map. 9 BY MR. SCHAEFER: 10 11 12 Q. But if they invested the time and an attorney, then they will have attorney costs. A. For the larger retailers, they'll probably have 13 attorneys doing work all day long. If I go back to my 14 days at Accenture, the attorney was working doing 15 something or another all day long. 16 for a specific item I asked a question about. I never saw a charge So the reality is the small retailers won't 17 18 invest that time and energy because it won't make any 19 sense. 20 possibly, in this area, would invest the time and energy. 21 But, again, on a percentage-of-sales basis to make it 22 meaningful 23 them, it's an insignificant extent amount. 24 25 Q. The larger retailers that have a lot of costs, a meaningful measure across the breadth of Doesn't the $10 penalty substantially raise the bar for determining that including some other information Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 2 145 with the notice would be cost-effective? A. Again, we're talking about the largest retailer. 3 They may very well ask for an opinion -- or ask for 4 clarification on this or -- 5 at those people who are much more sophisticated and have 6 almost no cost for any of the other pieces. 7 address the one that is a consumables production cost if 8 it becomes a large enough number. 9 10 Q. 13 They will One other aspect to your answer, we're talking about Internet vendors, by and large, correct? MS. SCOVILLE: 11 12 None of this report is aimed Object to the form. BY MR. SCHAEFER: Q. The affected retailers, is it your understanding 14 that most remote sales nowadays -- or remote sellers do 15 business over the Internet? 16 A. I would say that statistics would support the 17 fact that even catalog retailers have a big move towards 18 the Internet side of the business. 19 20 21 22 23 Q. Internet sellers tend to communicate with their customers in electronic means, do they not? A. That, certainly I would expect to be part of many e-commerce vendors' strategy. Q. So their strategy is to communicate bye-mail, 24 generally, because, in fact. 25 They are an electronic vendor? Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 2 3 A. 146 I would probably say some differentiate themselves by having nonelectronic communication. Q. Isn't it the case that but for this Colorado 4 requirement of sending an annual notice, the vast majority 5 of affected retailers wouldn't be sending a mailing on 6 January 31 of each year to their customers purchasing over 7 $500? 8 9 A. I would suspect that if given the choice, they would probably go with -- especially when we're talking a 10 low volume of notices would probably go with an electronic 11 communication if they had their druthers. 12 Q. Were it to cost a larger vendor 89 and a half 13 cents per notice, their costs -- say they have, in my 14 example, 10,000 notices to send. 15 retailer $8,950. That would cost that Is that a fair exercise of math? 16 MS. SCOVILLE: 17 THE WITNESS: Object to form. In your in your example, 18 yes, it's an exercise in math only. 19 extrapolate and say that that is a cost for Amazon to 20 generate sales in Colorado, I don't think that would be an 21 undue burden on the size retailer like that who has lots 22 of other costs to do business anywhere they open up shop. 23 BY MR. SCHAEFER: 24 25 Q. And that's your opinion. But if we were to We're talking, for a moment, about the cost associated, not necessarily whether Co ash & Coash, Inc .. 602-258-1440 Dieter George Gable - November 17,2010 147 1 or not the cost is an undue burden in anyone's point of 2 view. 3 compliance? 4 You're here to assess costs, are you not? A. You're asking me what the cost is. Costs of It may -- 5 You can argue dollars and undue burden. 6 bad form of my answer. 7 of sales, it is a much lower issue for somebody of that 8 size retail operation than it is for what we're talking 9 about in this report. 10 11 12 Q. Okay. Maybe that's a But with respect to a percentage You're not purporting to offer a legal opinion about the relative burden? A. No, not at all. Only to say that everything is 13 more expensive for a larger retailer who's doing 14 24 billion in business. 15 Q. While we're on Exhibit A.1 -- and, again, this is 16 informed by the content of Exhibit A within the report, 17 correct? 18 A. Yes. 19 Q. Okay. So, for example, you have in A.1, at the 20 top of your chart, the compliance effort. 21 the effort in terms of hours for different categories of 22 employees or professionals? 23 A. Categories, yes. 24 Q. Okay. You first list 25 And you give, across the various requirements, an estimate of the number of hours that Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 148 1 someone in that category would need to invest for a 2 retailer the size you were evaluating to comply? 3 A. Yes. 4 Q. If someone were to draw a different conclusion 5 about the number of hours that this would require, that 6 would have the overall effect in the way you've done the 7 math of increasing the cost if they believed the number of 8 hours was higher? 9 10 11 A. If you increase the number of hours, that would increase the cost, yes. Q. Likewise, you have, then, a set of information 12 here under the heading Cost (per hour) for each of the 13 categories of professionals or employees that you 14 identify. 15 in that sets of rows, that it's cost per hour? 16 rate of someone in that category of employee? Is it a fair understanding what the numbers are The hourly 17 A. Yes. 18 Q. SO, for example, just to take the first one, 19 management cost per hour is estimated to be $105 per hour, 20 on average? 21 A. I don't believe it's on average. I believe I 22 articulated that's on the high end, based on the high end 23 pay range plus standard benefits and payroll burden, 24 taxes. 25 Q. By saying "on average," I wasn't intending to Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 149 1 imply that it was some middle-of-the-road number. 2 companies would have higher costs, some would have lower 3 costs. 4 here you're using some approximation for all companies? 5 6 7 A. This is a number that you're using to estimate -- I'm using a high-end approximation for the companies that we're talking about here. Q. Fair enough. If someone were to conclude that, in fact, 8 9 Some the hourly rate for any of these categories was higher, 10 that would have the overall impact of increasing the cost 11 estimates, would it not? 12 A. Yes. 13 Q. Similarly, with regard to the costs of 14 consumables in the final set of rows there, you have 15 assigned certain costs of consumables. 16 conclude that consumables might be somewhat more 17 expensive, it would have the effect of increasing the 18 overall cost of the annual notice to customers? 19 A. Although that -- If someone were to On a mathematical basis, yes. 20 But on a basis that these are already on the high end of 21 these types of consumables, 22 unless it's linen envelopes and hand inscribed. 23 24 25 Q. I find it highly suspect That would be nice, wouldn't it? calligraphy. A. Calligraphy. Coash & Coash, Inc. 602-258-1440 Perhaps in Dieter George Gable - November 17, 2010 1 2 150 (A recess ensued.) BY MR. SCHAEFER: Q. 3 Okay. In your report, Mr. Gable, Exhibit 116, at 4 page 13, continuing the discussion that is under the 5 general opinion H, item 4 is the annual disclosure to the 6 DaR. 7 retailer will have to submit a file complying with the 8 Colorado Department of Revenue file layout." And as you note in subpart a, That's a fair statement of the law, is it 9 10 "Every affected not? 11 A. My interpretation of it. 12 Q. Yes. And then in subpart b, you indicate, 13 "For 14 these retailers, for costs for compliance with the Annual 15 Disclosure to DaR Requirement would range from $235 to 16 $470 or 0.004 percent and 0.008 percent as a percentage of 17 gross annual sales." 18 19 Again, those gross annual sales figures are based on the seller with 6 million in annual sales? 20 A. Yes. 21 Q. Your estimate is that a seller with 6 million in 22 annual sales would have -- you estimated approximately a 23 hundred thousand customers. 24 used? 25 MS. SCOVILLE: Is that the estimate you had Object to the form. Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 THE WITNESS: 1 2 151 Not at all. BY MR. SCHAEFER: 3 Q. Okay. 4 A. I made no assumption on number of consumers, 5 because I'm not sure that that materially impacted the 6 numbers. 7 number was a -- what I would consider, quote, unquote, 8 worst-case scenario with 200 notices adding up to exactly 9 a hundred thousand dollars worth of sales and barely 10 11 The only place where I stipulated a definitive meeting the threshold. Q. Got it. Have you ever worked with a -- with a house 12 13 file containing several hundred thousand names in any of 14 the work you've done? 15 A. Yes. 16 Q. In what part of your work? 17 A. Credit card services. 18 Q. And what kind of work were you doing with that 19 house file in that consultancy? 20 A. We were handling credit card issuance. 21 Q. So were these prospects? 22 A. No. 23 These were existing clients and clients who needed new cards, replacement cards, so forth. 24 Q. 25 Was it for a financial institution or for a retailer? Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 A. American Express. 2 Q. Okay. 152 And so what you were doing was managing an 3 effort to reissue cards upon expiration, that sort of 4 thing? 5 A. It was the entire credit card platform for their 6 very broad set of credit card offerings, everything from 7 the green card to the black card and blue card, their 8 affinity cards, Delta, everybody else. 9 10 Q. But was it with regard to These were existing cardholders receiving new plastic? 11 A. Everybody. 12 Q. Okay. Existing and prospective. Your estimated listed here in item 4 is 13 if I'm looking at Exhibit A.l, is driven entirely by time 14 spent by management and a business systems analyst? 15 A. That is correct. 16 Q. So, for example, you haven't included any 17 professional time for an accountant or lawyer with regard 18 to compliance with this requirement in the law? 19 20 21 A. I did not because the requirement is, of all of these areas, probably the most straightforward. Q. Do you think that companies will need to spend 22 time in quality assurance or quality control with respect 23 to the file that they generate for the DOR? 24 25 A. I think companies should spend time on the quality of the file irrespective of this requirement, and Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 the quality of their normal day-to-day operations is 2 153 driving this. 3 Q. Okay. To be more clear -- perhaps my question 4 wasn't a good one -- do you think they have to spend time 5 on quality assurance and quality control with regard to 6 the file extract that they need to provide to the 7 Department of Revenue? 8 9 A. I think they need to properly extract the data. If the data's bad, that has nothing to do with the If the data is good, they need to at least 10 extract. 11 verify that what they extracted is the right information. 12 Q. They do, in fact, need to spend time verifying 13 that what they have done is extracted the right 14 information. 15 A. Yes. 16 Q. And, in fact, again, the file to the DOR has to 17 include not only folks with a Colorado mailing address but 18 also all consumers who have -- who live in other states 19 who have shipped goods into Colorado. 20 A. 21 Colorado. 22 Q. Isn't that correct? I believe all-encompassing would be shipped to Okay. So it includes customers who do not reside 23 in Colorado who may have delivered goods into Colorado or 24 asked that goods be delivered in Colorado? 25 A. Absolutely. Coash & Co ash, Inc. 602-258-1440 Dieter George Gable - November 17, 2010 1 Q. 154 Would you agree with me that companies will have 2 a high degree of sensitivity to ensuring that they have 3 provided the proper list of customers to the Colorado 4 Department of Revenue in order that they not turn over 5 information to the department regarding individuals who 6 have not directed that goods be shipped into Colorado? 7 A. I think their diligence of what they are 8 submitting to the Department of Revenue is going to be 9 reflective of their day-to-day operational diligence. 10 don't think there's any more or less because of this 11 annual disclosure. 12 Q. I Well, they don't, for any other purpose, have to l3 create a data extract of individuals shipping goods into 14 Colorado, do they? 15 A. The diligence I'm not talking about that as 16 far as diligence. 17 accurate and so forth, 18 operations? 19 on a day-to-day basis, they're not suddenly going to spend 20 more time on this. And it's right or wrong, but I think 21 that was my point. Their day-to-day diligence will be 22 reflected in the quality of what they're SUbmitting either 23 to DOR or submitting as part of their other business 24 disclosure requirements. 25 Q. I'm saying that if they want to be that's part of their day-to-day If they ultimately -- we'll call it wing it I think what you're talking about is companies Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17, 20 I 0 155 1 that are careful to maintain their customer information do 2 so in a manner that they try to make sure that it's devoid 3 of mistakes, that it has the proper mailing address, that 4 they have -- the information is correct and well 5 maintained? 6 A. Yes. 7 Q. What I'm talking about is a separate issue. 8 Certainly how well they maintain their data may provide a 9 degree of additional reliability with regard to any 10 extract they take. Once they've taken an extract, would 11 you agree with me that a company, especially one that was 12 careful with its customer data, would invest time in 13 quality assurance and quality control to make sure that 14 the data that they were turning over to the Colorado 15 Department of Revenue was the only data that was required 16 and not data regarding individuals whose information need 17 not be submitted? 18 A. Yes. 19 Q. Would you agree with me that consumers in 20 general, in today's electronic commerce environment, have 21 a high degree of sensitivity around the privacy of their 22 information -- their personal information? 23 MS. SCOVILLE: 24 THE WITNESS: 25 generalization. Object to the form. I think that's a I would argue that some people transact Coash & Coash, Inc. 602-258-1440 Dieter George Gable - November 17,2010 159 1 the protection of the credit card or payment information 2 from a consumer through the order process and retention 3 and handling of that information. 4 5 Q. You're aware, are you not, that companies must undergo an audit with regard to their PCI compliance? 6 A. Once they reach a certain size, yes. 7 Q. And, in fact, 8 it's viewed as being important by companies that they successfully complete such an audit? 9 A. Yes. 10 Q. SO the changes with regard to their handling of 11 customer information, whether or not it actually dictates 12 any new measures to remain in PCI compliance, would you 13 agree with me that they may cause a retailer to review 14 their PCI compliance? 15 MS. SCOVILLE: 16 THE WITNESS: Object to the form. I don't believe any handling 17 of the information talked about within here would at all 18 make a retailer look at their PCI compliance. 19 BY MR. SCHAEFER: 20 Q. Opinion L on page 15, you indicate, "Requirements 21 will not materially impact the call volume for customer 22 inquiries regarding Transactional Notice." 23 Did I read that correctly? 24 A. Yes. 25 Q. I assume that you're not saying that you expect Coash & Coash, Inc. 602-258-1440