0001 1 THIS IS AN 2 UNCERTIFIED ROUGH DRAFT 3 OF IN RE LABMD, INC. TRIAL VOLUME 8, 4 TAKEN JUNE 12, 2014. 5 6 THE FINAL TRANSCRIPT MAY VARY 7 WITH REGARD TO PAGE/LINE NUMBERING 8 AS WELL AS SUBSTANTIVE CONTENT. 9 10 THE COURT REPORTER RESERVES THE 11 RIGHT TO MAKE ANY AND ALL CHANGES 12 NECESSARY TO PROVIDE AN ACCURATE 13 FINAL TRANSCRIPT. 14 15 THEREFORE, THIS DRAFT IS FOR 16 INTERNAL LAW FIRM PREPARATION ONLY 17 AND SHOULD NOT BE CITED TO THE COURT, 18 COUNSEL, OR OTHER WITNESSES WITHOUT 19 APPROPRIATE DISCLOSURES. 20 21 ACCEPTANCE OF THIS DRAFT TRANSCRIPT 22 CONSTITUTES A FINAL TRANSCRIPT ORDER. 0002 1 P R O C E E D I N G S 2 - - - - - 3 JUDGE CHAPPELL: Let me call to order or recall 4 Docket 9357. And actually we're reconvening after our 5 recess. 6 All right. Hit me with it. What have you got? 7 MR. SHERMAN: Good morning, Your Honor. 8 JUDGE CHAPPELL: Good morning. 9 MR. SHERMAN: When we were last here, the court 10 graciously granted a recess to let certain things 11 transpire. I think the main issue was whether or not a 12 witness which respondent had called would receive 13 immunity for his testimony between now and the time of 14 break. He has not at this particular point, 15 Your Honor. 16 To that issue specifically, it would be our 17 position to ask the court for an additional week based 18 on information that we've received from the oversight 19 committee with regard to them further proceeding with 20 their investigation. 21 JUDGE CHAPPELL: Is that the same information 22 source that said it would only be two weeks? 23 MR. SHERMAN: That is the exact same source, 24 Your Honor. And I do recall your statement on the 25 record that ofttimes that source does not move as 0003 1 quickly as they promise, and you've been proven right. 2 JUDGE CHAPPELL: Unfortunately. 3 So we have no witness today. 4 MR. SHERMAN: We do have a witness today, 5 Your Honor. 6 JUDGE CHAPPELL: Who is that? 7 MR. SHERMAN: Mr. Rick Wallace. And we're 8 prepared to proceed, should this court deem it 9 appropriate for us to proceed, to put him on the stand. 10 His attorney of course is here. It's my understanding 11 that he will invoke his Fifth Amendment rights. 12 JUDGE CHAPPELL: For everything or certain 13 areas? 14 MR. SHERMAN: For everything other than I 15 believe his name, his previous place of employment. 16 JUDGE CHAPPELL: Do you intend to request that I 17 go through the attorney general, that we invoke our 18 process for immunity? 19 MR. SHERMAN: I do not, Judge. I believe that 20 if put on the stand and asked the questions in the 21 manner that I intend to ask, we would then request that 22 the court make whatever inferences the court may make 23 under these circumstances. 24 JUDGE CHAPPELL: Well, if all he's going to give 25 us is his name, that's a lot of inferencing. 0004 1 MR. SHERMAN: I understand that, Your Honor. 2 Your Honor, while you consider that, it may be 3 appropriate for me to move on to the other issue which I 4 think the court should be advised of. 5 The court recalls that the issue of the 6 testimony of Mr. Robert Boback was raised the last time 7 we were before the court, and Mr. Boback was unavailable 8 to come back and give live testimony. At least 9 according to his attorney, his trip to Africa was to 10 begin on June 8 and end on June 24. 11 Given those factors, there was an agreement 12 amongst the parties, with the court's permission, to 13 take the deposition of Mr. Boback for what I believed to 14 be hearing testimony purposes. 15 We set that deposition for June 7, which was a 16 Saturday, in Pittsburgh. We traveled to Pittsburgh, and 17 we took testimony from Mr. Boback. 18 It was my position -- and I stated it on the 19 record -- that this deposition was taken for trial 20 testimony purposes only and that the rules that apply to 21 trial testimony or hearing testimony in this case should 22 apply to that particular deposition. 23 JUDGE CHAPPELL: If you have a motion, it should 24 have been made in writing. You shouldn't have waited 25 until today if you're intending to make a motion right 0005 1 now on the record, if that's where you're going. It 2 should have been done in writing because we're up to 3 June 12 and you're referring to June 7. 4 MR. SHERMAN: I'm not making a motion, 5 Your Honor. I'm just bringing the court's attention to 6 several objections that were raised during that 7 testimony. 8 We intend to present that particular deposition 9 transcript as an exhibit, Exhibit CX 541, which would be 10 the next exhibit we would present, in lieu of Mr. Boback 11 coming in here and testifying live. 12 What I am making the court aware of is that 13 complaint counsel and counsel for Mr. Boback decided 14 that they were going to treat that deposition as a 15 discovery deposition, which I thought was outside the 16 scope of what the court had permitted us to do for those 17 purposes on that day. And in doing so, Mr. Boback's 18 attorney made objections on the record which he 19 obviously would not have been able to do in this forum. 20 Complaint counsel attempted to bring in precisely the 21 evidence which you and complaint counsel discussed on 22 the record, which you said was not going to happen, and 23 so -- 24 JUDGE CHAPPELL: I believe what I said was not 25 going to happen was I wasn't going to allow a deposition 0006 1 for that purpose. However, if the man came here and 2 took the stand, he would be allowed to ask the 3 questions -- he's a fact witnesses. They would be 4 allowed to ask him certain things. 5 So my standard will be was he asked something at 6 that deposition that he could not have been asked under 7 our rules had he taken the stand. That will be the 8 standard I apply. 9 MR. SHERMAN: I believe he was. I believe he 10 was asked questions that were outside of the scope of 11 the cross-examination that I conducted in that 12 particular deposition. 13 JUDGE CHAPPELL: Well, there you go. If you're 14 correct, then that testimony will not be considered. 15 MR. SHERMAN: I'm alerting the court to those 16 issues. 17 JUDGE CHAPPELL: And I can't make a prospective 18 ruling without seeing anything, but had he been here and 19 had an objection been made outside the scope, I would 20 have dealt with that. And you know the rule in this 21 court. Everybody should know by now. You don't go 22 outside the scope of direct. 23 MR. SHERMAN: I understand, Your Honor. But I'm 24 simply raising that that when the exhibit comes in the 25 court would be aware that these issues exist there. 0007 1 JUDGE CHAPPELL: Do you want to respond? 2 MS. VANDRUFF: I do, Your Honor. Thank you. 3 JUDGE CHAPPELL: I want to hear the government's 4 response to everything, the delay, the deposition 5 tactics, whatever. Let's go. 6 MS. VANDRUFF: Well, with respect to the delay, 7 Your Honor, we believe that it's appropriate if 8 respondent intends to call Mr. Wallace as a witness that 9 they invoke the commission's rules pursuant to rule 3.39 10 because that relief has been available to respondent 11 since the first notice that they received that 12 Mr. Wallace would be invoking his constitutional rights. 13 I don't know when that was, but it was at some point 14 prior to our last appearance before Your Honor on 15 May 30. And we think that certainly that at this time 16 there's no reason to not for respondent to not avail of 17 itself of that provision of the commission's rules. And 18 any inference -- Mr. Sherman's suggestion that the 19 court -- 20 JUDGE CHAPPELL: Wait, wait, wait. 21 So it's the government's position that on a 22 representation that a witness will take the Fifth, you 23 expect the attorney calling the witness to invoke the 24 burdensome machinery to apply for immunity? And I do 25 mean burdensome. 0008 1 We don't have a witness who's taken the stand 2 and asked for Fifth Amendment immunity. That's not 3 happened or Fifth Amendment protection or an immunity 4 request. We're not there yet. 5 MS. VANDRUFF: Your Honor, where we are, it's my 6 understanding anyway, is that counsel for Mr. Wallace 7 has advised both counsel for respondent and complaint 8 counsel that if he were to be called to the stand that 9 he would invoke his constitutional privileges and would 10 provide testimony only regarding his name and his former 11 place of employment. 12 JUDGE CHAPPELL: You said his attorney said 13 that. We don't know what Mr. Wallace is saying, do we? 14 MS. VANDRUFF: That's correct, Your Honor. I 15 have not received any testimony from Mr. Wallace. 16 JUDGE CHAPPELL: Go ahead. 17 MS. VANDRUFF: So with respect to our proceeding 18 today, to the extent that Mr. Sherman and I are both 19 correct that Mr. Wallace intends to invoke his 20 constitutional rights, we believe that it's appropriate 21 at this time for respondent to invoke the provision of 22 rule 3.39 and we would today is the first indication 23 that we've received of any sort that respondent is 24 asking this court to draw inferences from Mr. Wallace's 25 invocation of the Fifth Amendment. We would oppose that 0009 1 and ask that we be given an opportunity to brief it. I 2 think that that is contrary to the law with respect to 3 the circumstances under which any inference could be 4 drawn. He's not a party to this matter. He's a third 5 party and his relationship to the parties -- well, I 6 think that any inference would be inappropriate. But we 7 would like the opportunity to understand exactly what 8 respondent is asking this court, what inferences the 9 respondent is asking this court to draw and to be 10 provided with the opportunity to brief that. 11 JUDGE CHAPPELL: All right. First of all, I 12 understand the video depo was taken? 13 MR. SHERMAN: That's correct, Your Honor. 14 JUDGE CHAPPELL: Then the court is going to 15 require the video as well as the transcript if that's 16 offered into evidence. 17 MR. SHERMAN: Yes, sir. 18 JUDGE CHAPPELL: In case any credibility 19 findings are needed to be supported on appeal. 20 Let's talk about Mr. Wallace. Is his attorney 21 here today? 22 MS. DICKIE: Yes, Your Honor. 23 JUDGE CHAPPELL: All right. Update me. 24 MS. DICKIE: Good morning, Your Honor. I'm 25 Lauren Dickie with Quinn Emanuel on behalf of 0010 1 Rick Wallace. 2 The representations by both parties today are 3 correct. If Mr. Wallace was called to the stand, he 4 would indeed invoke his Fifth Amendment rights and 5 assert his Fifth Amendment rights and stand on those 6 grounds and not answer questions. 7 JUDGE CHAPPELL: Did you attend the deposition 8 of Mr. Boback? 9 MS. DICKIE: I did not, Your Honor. 10 JUDGE CHAPPELL: Are you aware of what happened 11 that day? 12 MS. DICKIE: Some of it. 13 JUDGE CHAPPELL: Mr. Sherman, did anyone invoke 14 the Fifth Amendment rights at that deposition of 15 Mr. Boback? 16 MR. SHERMAN: No, sir. 17 JUDGE CHAPPELL: Are you intending to go into 18 any areas with Mr. Wallace that were not covered with 19 Mr. Boback? 20 MR. SHERMAN: That were not covered? 21 JUDGE CHAPPELL: Right. 22 MR. SHERMAN: I do not believe so. 23 JUDGE ^ CHAPPELL: Is Mr. Wallace in the 24 building. 25 MS. DICKIE: He's not, Your Honor, but he's very 0011 1 close, within five minutes. 2 JUDGE CHAPPELL: What's the status of his 3 immunity deal. 4 MS. DICKIE: Yes, Your Honor there's some things 5 I can represent publicly and there's sores that if 6 Your Honor requests more detail we would request an 7 in camera discussion. 8 JUDGE CHAPPELL: Let's have the public version 9 first we have a room full of spectators. 10 MS. DICKIE: Congress is investigating Tiversa 11 and as part of that they are interviewing individuals 12 and considering immunity for one or more individuals. 13 JUDGE CHAPPELL: Are you aware of whether they 14 have requested Mr. Boback's -- his attendance at these 15 hearings? Has Mr. Boback gotten a letter. 16 MS. DICKIE: My understanding is yes. I have 17 not had a direct discussion with Mr. Boback's attorney 18 or Mr. Boback, but my understanding is that yes and that 19 he's had discussions he or his attorneys have had 20 discussions with the committee. 21 JUDGE CHAPPELL: But we know, Mr. Boback even 22 having gotten the letter did not invoke his 23 Fifth Amendment rights. 24 MS. DICKIE: I have not heard that he did but 25 again I have not had direct conversations with limb or 0012 1 his attorney about that. 2 JUDGE CHAPPELL: I think we just heard that we 3 did not. You heard that; correct? 4 MS. DICKIE: I did. 5 JUDGE CHAPPELL: What is Mr. Wallace's position 6 with Tiversa? 7 MS. DICKIE: He's not currently working at 8 Tiversa. He's no longer employed there. 9 JUDGE CHAPPELL: When did he work there and what 10 was his title. 11 MS. DICKIE: He worked there my understanding is 12 he worked there from about 2008 to 2014. He had various 13 titles within that, but the most recent one was director 14 of special operations. 15 JUDGE CHAPPELL: Special ops? 16 MS. DICKIE: Yes. 17 JUDGE CHAPPELL: Interesting. 18 19 MS. DICKIE: Your Honor, I can also represent 20 that the committee of oversight sent a letter to the FTC 21 yesterday ceasing several parties here today about the 22 investigation and informing them that it was going on 23 and the steps that were being taken. I can make 24 additional in camera representations about specifically 25 Mr. Wallace's participation and where we expect and what 0013 1 we expect to be doing in the next week in the coming 2 weeks on this process. 3 JUDGE CHAPPELL: Did not anyone think I would be 4 interested in seeing this letter? I'm asking you. 5 You're representing the government. I just heard that 6 you got a letter regarding this witness. Why don't I 7 see the letter. 8 MS. VANDRUFF: I'm sorry, Your Honor. The 9 witness about whom the letter relates the Mr. Boback. I 10 received a copy from our office of congressional 11 relations and from Ms. Dickie last evening after 5:30 12 and I would be happy to hand up a copy. We think, 13 though, that this is not admissible for any purpose in 14 this matter. 15 JUDGE CHAPPELL: Does it regard Mr. Wallace at 16 all. 17 MS. VANDRUFF: It does not regard Mr. Wallace or 18 I should say there is no reference to Mr. Wallace in 19 this letter. 20 JUDGE CHAPPELL: Did you not tell me it regarded 21 Mr. Wallace? 22 MS. DICKIE: I don't believe those were the 23 words I used. I believe I said the committee had sent a 24 letter to the FTC. 25 JUDGE CHAPPELL: Forget what words you used. I 0014 1 can go back and read them, but I don't have time. 2 So is your position this letter has anything to 3 do with Mr. Wallace? 4 MS. DICKIE: The letter states that Tiversa is 5 being investigated by the committee and I can make ex 6 parte representations about Mr. Wallace's participation 7 in that and that is what I was trying to convey to the 8 court. But no, the letter does not specifically 9 reference Mr. Wallace. 10 MR. SHERMAN: Your Honor, if I may. 11 The letter does specifically, based on my 12 knowledge of the case, I believe the letter does 13 specifically reference interaction between Mr. Wallace 14 and Mr. Boback to which Mr. Boback testified at a 15 recorded statement that he gave to the oversight 16 committee. There are some issues with the consistency 17 of that information as it was testified to by Mr. Boback 18 previously and as it was testified to or given to the 19 committee when Mr. Boback appeared before the committee. 20 JUDGE CHAPPELL: And the last time we were here 21 Mr. Wallace was supposed to testify on June 5, did that 22 occur? 23 MS. DICKIE: It was not testimony, Your Honor. 24 He has had a meeting with the committee. 25 JUDGE CHAPPELL: And has that occurred. 0015 1 MS. DICKIE: That meeting has occurred. 2 JUDGE CHAPPELL: And to your knowledge, is 3 anything pending with that committee regarding 4 Mr. Wallace. 5 MS. DICKIE: Yes, we are still in the process of 6 working with the committee. We don't have any promises 7 or letters stating that he is going to get immunity. We 8 are working with them. We have additional participation 9 planned that I can make additional representations to 10 the court in camera if allowed, but this process is 11 ongoing and we're actively participating with the 12 committee. 13 JUDGE CHAPPELL: So he was not questioned under 14 oath. 15 MS. DICKIE: He's not been questioned under 16 oath. 17 JUDGE CHAPPELL: He didn't invoke his right to 18 Fifth Amendment protection at this meeting? 19 MS. DICKIE: All of the meetings have been 20 protected by an attorney proffer. 21 JUDGE CHAPPELL: And is there any indication 22 Mr. Wallace is going to be recalled in front of this 23 committee? 24 MS. DICKIE: Yes. 25 JUDGE CHAPPELL: Let me see the letter. 0016 1 MS. DICKIE: Yes, Your Honor. May I approach? 2 JUDGE CHAPPELL: Yes. 3 (Pause in the proceedings.) 4 JUDGE CHAPPELL: Ms. VanDruff, what part of this 5 letter do you think is not relevant to this proceeding? 6 Stand up and address that question immediately. I just 7 read paragraph 2. I want to hear from you. 8 MS. VANDRUFF: Your Honor, I didn't say it 9 wasn't relevant, Your Honor. And Mr. Sherman is also 10 copied on this letter and it is Mr. Sherman who raised 11 the issue of Mr. Wallace this morning. To the extent 12 that Mr. Sherman believed that this letter was relevant 13 to Your Honor's -- 14 JUDGE CHAPPELL: You would agree this letter 15 refers to the 1718 File. 16 MS. VANDRUFF: Absolutely, Your Honor. 17 JUDGE CHAPPELL: In black-and-white, it's right 18 there. You would agree it refers to testimony being 19 accurate or not regarding this case. 20 MS. VANDRUFF: Yes, Your Honor. I made no 21 representation to the contrary. 22 JUDGE CHAPPELL: Yet you didn't talk about the 23 letter until I asked you; is that correct? 24 MS. VANDRUFF: Your Honor. 25 JUDGE CHAPPELL: Until this lady brought it up. 0017 1 MS. VANDRUFF: The issue that Your Honor -- 2 JUDGE CHAPPELL: Were you going to sit there and 3 not tell me about this letter? Were you going to do 4 that if I hadn't asked you? That's what I want to know. 5 MS. VANDRUFF: Your Honor, I was prepared to 6 address this letter today. Mr. Wallace is not our 7 witness, nor is Mr. Boback, and so if it was in the 8 interest of -- I don't know. 9 JUDGE CHAPPELL: You don't think in the interest 10 of truth this information should be disclosed to this 11 court in this proceeding? 12 MS. VANDRUFF: I was not withholding the 13 information, Your Honor. 14 JUDGE CHAPPELL: We're trying to get to the 15 truth here, aren't we? 16 MS. VANDRUFF: Of course we are. 17 JUDGE CHAPPELL: You don't think this letter 18 touches on this matter in truth on this matter that 19 we're having a trial. You were not going to bring up 20 this letter; is that correct? 21 MS. VANDRUFF: No, Your Honor, that is not what 22 I said. No. That is not the position of the 23 government, of course not. 24 JUDGE CHAPPELL: Then you had plans to offer 25 this letter because it's relevant? Is that what you're 0018 1 doing? 2 MS. VANDRUFF: Excuse me, Your Honor? 3 JUDGE CHAPPELL: You had plans to offer this as 4 an exhibit? 5 MS. VANDRUFF: Your Honor, I don't think that it 6 is admissible for any purpose in this matter because it 7 is hearsay. Nonetheless, I think it's appropriate in 8 the context of Ms. Dickie's representations to the court 9 regarding Mr. Wallace and the conduct of the committee 10 for Your Honor to have been advised about the current 11 state of the committee's investigation. 12 JUDGE CHAPPELL: This is a letter to the head of 13 the FTC. 14 MS. VANDRUFF: Correct. 15 JUDGE CHAPPELL: Talking about fundamental 16 matters in this proceeding about truth or veracity, 17 fundamental matters of a source that's been very helpful 18 to the government I might add in its case based on what 19 I've heard. I'm very disappointed this was not brought 20 to my attention by the government. Go ahead. 21 MS. VANDRUFF: I apologize, Your Honor. 22 Thank you. 23 MS. DICKIE: Yes, Your Honor. I believe that we 24 were talking about the status of the investigation and 25 where Mr. Wallace stood and from the letter you can see 0019 1 that there's an active investigation going on and I can 2 represent that Mr. Wallace is -- has participated and 3 will continue to participate and I can provide any 4 further details the court might want in camera. 5 JUDGE CHAPPELL: Mr. Sherman, what's your 6 position on this letter? 7 MR. SHERMAN: Your Honor, my position on this 8 letter is that it comports with the representations that 9 I made on very limited factual evidence last time we 10 were before this court, that in fact there are some 11 serious, serious misgivings about the quality of the 12 evidence which is central to the FTC's case. What we 13 now have is a letter from the oversight committee. 14 JUDGE CHAPPELL: Remember, we are in public 15 session. 16 MR. SHERMAN: What we now have is a letter from 17 the oversight committee questioning just that. And so 18 my position on the letter, Your Honor, as it relates to 19 this proceeding, is that we are in a position either to 20 call Mr. Wallace today, put him on the stand and let him 21 invoke his Fifth Amendment privileges. We have 22 requested this court to stay or continue the matter so 23 that this committee can continue its work and decide 24 what we think would be in short order to give 25 Mr. Wallace the immunity necessary for him to come here 0020 1 and in the public interest tell what he knows. 2 We have no idea what the 3.39 procedures are 3 past making the application or requesting this court to 4 do so. 5 JUDGE CHAPPELL: Well, I can't imagine that 6 procedure or process is quicker than anything that's 7 going to happen with Congress. 8 MR. SHERMAN: That's the point I was getting 9 ready to make, Your Honor. 10 MS. VANDRUFF: And if I may, Your Honor, the 11 statute under which Congress can seek immunity is 12 18 U.S.C. 6005 which is referenced in the letter that's 13 before Your Honor. By my read of the statute, the 14 Congress can only get a grant of use immunity and I'm 15 not confident that it would extend to Mr. Wallace's 16 testimony before this tribunal. To the extent that 17 Mr. Wallace does seek immunity in this tribunal, I 18 believe that he must do so -- excuse me -- that 19 respondent must seek that immunity through rule 3.39. 20 MR. SHERMAN: It's my understanding, however, 21 Your Honor, that part of the process with the oversight 22 committee is that once that vote is taken, it is 23 reviewed by the Department of Justice, such that if the 24 Department of Justice reviews and approves and if 25 Ms. VanDruff is correct, it seems to me that that would 0021 1 speed up the process under 3.39 if they have already 2 approved the immunity through some other process. 3 JUDGE CHAPPELL: That would appear logical, sir, 4 but as we all know, sometimes logic doesn't dictate 5 things in these proceedings. 6 Regarding your request for immunity, are you 7 attempting to include this proceeding? 8 MS. DICKIE: Your Honor, we are not that far in 9 the process to be able to speak to the scope of the 10 immunity that. 11 JUDGE CHAPPELL: After two weeks? 12 MS. DICKIE: No, Your Honor. It's quite 13 extensive the amount of work that we've had to do and 14 the discussions have been quite comprehensive, but we 15 are not at a place where I can speak to the scope that 16 Congress would be willing or what under the law we would 17 be allowed to even ask for. We're not there yet. 18 JUDGE CHAPPELL: I would expect that this letter 19 would be a joint exhibit by the parties. 20 MR. SHERMAN: I have no objection. 21 JUDGE CHAPPELL: And I'll entertain whether or 22 not it should be in camera. What's your position on 23 that. 24 MS. VANDRUFF: Your Honor, we don't object to 25 the court receiving this document, but I don't believe 0022 1 it's admissible for any permissible purpose. It is 2 hearsay. It is statements by the chair of on. 3 JUDGE CHAPPELL: This is what we're going to do. 4 Do I have an offer of this letter as an exhibit. 5 MR. SHERMAN: Your Honor, I move that the 6 exhibit be offered as an exhibit. 7 JUDGE CHAPPELL: What's your legal basis? 8 MR. SHERMAN: My legal basis, Your Honor, is 9 that it is relevant to the heart of this matter and that 10 the court can give it whatever weight the court deems 11 necessary. It is relevant. 12 JUDGE CHAPPELL: Okay. And what's the exhibit 13 number, RX what? 14 MR. SHERMAN: If it's going to be an RX exhibit, 15 it would be a CX exhibit if we are offering it, 16 Your Honor. 17 MS. VANDRUFF: Your Honor, no. It would be an 18 RX exhibit. 19 MR. SHERMAN: Or it would be a joint exhibit, 20 Joint Exhibit. 21 JUDGE CHAPPELL: If she's not offering it, 22 you're offering it, it's an RX. It won't be a JX unless 23 both parties agree and I don't hear that. 24 MR. SHERMAN: That's correct. So it would be 25 RX 542, Your Honor. 0023 1 JUDGE CHAPPELL: All right. Here's what I'm 2 going to do I have an offer of RX 542. I wanted that to 3 be in writing. I want to know your positions in 4 writing. 5 MS. VANDRUFF: Will we have an opportunity to 6 respond, Your Honor? 7 JUDGE CHAPPELL: Of course. 8 MS. VANDRUFF: Thank you, Your Honor. 9 JUDGE CHAPPELL: In writing versus in writing. 10 That's the way we do things. 11 MS. VANDRUFF: Thank you, Your Honor. 12 JUDGE CHAPPELL: Is this my copy? 13 MS. DICKIE: Yes, Your Honor. 14 JUDGE CHAPPELL: Thank you. 15 JUDGE CHAPPELL: Mr. Sherman, I want to make 16 sure that you or your staff or the ones doing all the 17 work have adequate time to file a motion regarding 18 admitting this exhibit. How much time do you think you 19 need? Do you want to confer? 20 MR. SHERMAN: Your Honor, if we could have until 21 Wednesday of next week is. 22 JUDGE CHAPPELL: All right. Before I deal with 23 that, Ms. VanDruff, I have an offer of RX 542. State on 24 the record what your objection is. 25 MS. VANDRUFF: I'm sorry, Your Honor, because I 0024 1 must confess I've gotten lost, RX 542 was the letter. 2 Your Honor, it's complaint counsel's position 3 and we object to the admission of RX 542 because it is 4 hearsay. The substance of Chairman Issa's comments to 5 the -- 6 JUDGE CHAPPELL: That's all I need to know. 7 Your basis is hearsay, and that's all I want briefed, 8 why it's not hearsay or it is hearsay. 9 MS. VANDRUFF: And Your Honor, there's also the 10 issue of hearsay within hearsay. 11 JUDGE CHAPPELL: Well, that's covered by 12 hearsay. 13 MS. VANDRUFF: It is indeed. 14 JUDGE CHAPPELL: That way, we can make it more 15 efficient. We deal with the objection that's pending. 16 MS. VANDRUFF: And Your Honor, if respondent is 17 going to file a motion on Wednesday, when would you like 18 complaint counsel's response? 19 JUDGE CHAPPELL: Do you need until Wednesday to 20 address the hearsay aspect only? 21 MR. SHERMAN: I think it can be done earlier if 22 the court would like it. We have tomorrow is Friday; 23 correct? 24 JUDGE CHAPPELL: I believe. Yes. 25 MR. SHERMAN: We could have it to the court by 0025 1 end of business on Monday. 2 JUDGE CHAPPELL: And how much time do you need 3 to respond keeping in mind you can be working on it the 4 whole time. We know what the issue is. 5 MS. VANDRUFF: Certainly, Your Honor. We will 6 respond on Tuesday. 7 JUDGE CHAPPELL: Is Tuesday close of business 8 adequate? 9 MS. VANDRUFF: Close of business Tuesday we will 10 respond, yes, Your Honor. 11 JUDGE CHAPPELL: Then I will take this offer of 12 RX 542 under advisement. 13 MS. VANDRUFF: Thank you, Your Honor. 14 JUDGE CHAPPELL: Now what we have to deal with 15 is what to do about Mr. Wallace. 16 I'm not sure it's going to expedite anything to 17 have him take the stand and invoke the Fifth but I also 18 don't like to hold this proceeding open for one witness. 19 It's your position, Mr. Sherman, his testimony is 20 crucial to your case? 21 MR. SHERMAN: We absolutely believe it is 22 crucial to our defense, Your Honor. 23 JUDGE CHAPPELL: What do you propose, we 24 reconvene once a week because of Mr. Wallace? 25 MR. SHERMAN: Given these circumstances, 0026 1 Your Honor, and I'm going to speak generally -- at the 2 beginning of the case in my opening statement I 3 indicated that what I believe that the government would 4 fail to prove is likely to cause substantial consumer 5 injury. 6 If Mr. Wallace's testimony as I believe it to be 7 comes into evidence and he is allowed to state it given 8 immunity, I believe that it will eliminate a core 9 section of the government's evidence. 10 JUDGE CHAPPELL: Well, based on the evidence 11 I've heard, what can he address other than how the 12 government got the information from Tiversa? And am I 13 correct, that's the issue he's supposed to testify 14 regarding? 15 MR. SHERMAN: That's correct. How he got the 16 information. And I think he can also address the 17 veracity of that information, whether or not in fact 18 that information is what it purports to be. And without 19 that information and without that piece of evidence, I 20 would submit that the government has a very slim chance 21 of proving that LabMD participated in an unfair 22 practice, that being its data security, and that the 23 state of LabMD's data security was likely to cause 24 substantial consumer injury. 25 JUDGE CHAPPELL: Tiversa was responsible for the 0027 1 1718 File; is that correct? 2 MR. SHERMAN: They were responsible for 3 providing it to the FTC. They in fact were the ones who 4 possessed it prior to giving it to the FTC. 5 JUDGE CHAPPELL: Ms. VanDruff. 6 MS. VANDRUFF: Yes, Your Honor. 7 JUDGE CHAPPELL: Your case is based on what 8 physical evidence other than the 1718 File? 9 MS. VANDRUFF: Physical evidence. I'm not sure 10 how to address that question, Your Honor. 11 JUDGE CHAPPELL: Documents. 12 MS. VANDRUFF: Pardon me? 13 JUDGE CHAPPELL: Documents. 14 MS. VANDRUFF: We have presented substantial 15 proofs on the state of LabMD's security. 16 JUDGE CHAPPELL: I'm not asking for a closing 17 argument. 18 MS. VANDRUFF: No. 19 JUDGE CHAPPELL: I'm asking what documents your 20 case is based on. We got the 1718 File. We all know 21 what that is, we do among us. What other documents 22 regarding information about customers that was released? 23 MS. VANDRUFF: So if you're asking specifically 24 about the unauthorized disclosure of information. 25 JUDGE CHAPPELL: That's right. 0028 1 MS. VANDRUFF: Is that Your Honor's question? 2 Because there are certainly many other documents that 3 are probative of the elements in our case. 4 But with respect to specific unauthorized 5 disclosures, there are two known specific unauthorized 6 disclosures. The first is of the 1718 File, which 7 Mr. Boback testified at his deposition was found at four 8 IP locations and more recently provided -- 9 JUDGE CHAPPELL: I don't need to know any of the 10 details. 11 MS. VANDRUFF: I understand. I know. 12 JUDGE CHAPPELL: Just give me the documents. 13 MS. VANDRUFF: And that is the 1718 File. And 14 the other unauthorized disclosure about the -- that is 15 known is the unauthorized disclosure of the information 16 that was found by the Sacramento Police Department. 17 JUDGE CHAPPELL: And the Sacramento police 18 information we'll call that, was that information that 19 was included in the 1718 File? 20 MS. VANDRUFF: It was not coextensive, 21 Your Honor, no. 22 JUDGE CHAPPELL: All right. You may have told 23 me this already, but do you think you'll know something 24 in a week? 25 MS. DICKIE: Your Honor, I believe that we will 0029 1 be able to make additional representations about the 2 progress and we hope that we will have a more final 3 determination by next week. However, based on how 4 things have gone and how Congress moves and the fact 5 that immunity requires a two-thirds vote of the full 6 committee, I think it would be prudent to give a little 7 more time than a week, so that we are not back in this 8 same position next week, or a process by which the 9 parties could inform the court where we are next week. 10 JUDGE CHAPPELL: We're going to take a short 11 recess, and I'm going to ponder these issues. But I 12 want you to consider this, a status update every 13 Wednesday so we don't have to have this whole dog and 14 pony show going here with all these people expecting to 15 hear a trial and there isn't one, so think about that. 16 We're going to take a break. We're going to 17 reconvene at 10:30. 18 We're in recess. 19 (Recess) 20 JUDGE CHAPPELL: Let's go back on the record. 21 Call your next witness, Mr. Sherman. 22 MR. SHERMAN: Mr. Rick Wallace, please. 23 MS. VANDRUFF: Your Honor, if I may inquire, I 24 understand that Your Honor has asked that Mr. Wallace be 25 prepared to take the stand. Are you -- were you 0030 1 planning to let Mr. Sherman conduct his full 2 examination. 3 JUDGE CHAPPELL: It's his witness. 4 MS. VANDRUFF: Okay. And Your Honor, in that 5 respect, Mr. Sherman and I conferred prior to gaveling 6 in. May we approach, Your Honor? There is an issue on 7 which I that the court would benefit from having some 8 additional information. 9 JUDGE CHAPPELL: All right. 10 MS. VANDRUFF: Thank you, Your Honor. 11 (Discussion at the bench, off the public 12 record.) --- 2 (End off off-the-public-record discussion.) 3 (Sidebar discussion off the record.) 4 JUDGE CHAPPELL: The parties' attorneys and I 5 just had a discussion regarding the testimony of this 6 witness and how we think we should proceed to serve the 7 best interest of the public. Those of you sitting out 8 here, you didn't miss anything. Mr. Wallace, if you 9 would take the stand. Is there a motion regarding this 10 witness, Mr. Sherman. 11 MR. SHERMAN: Yes, Your Honor. After conferring 12 with complaint counsel and conferencing with His Honor, 13 there's a joint motion that upon the invoking of 14 Mr. Wallace's Fifth Amendment protections that we would 15 cease our questioning at that time and delay any further 16 questioning until such time as Mr. Wallace is either 17 granted or not granted immunity so that he can come in 18 and within the public interest testify fully to what his 19 knowledge is. 20 JUDGE CHAPPELL: Is that correct, Mr. VanDruff? 21 MS. VANDRUFF: Thank you, Your Honor. 22 Consistent with the bench conference that we had with 23 Your Honor, that is correct. 24 JUDGE CHAPPELL: And I'll grant that motion. 25 And should the /-PB witness invoke, we will then hold 0039 1 all testimony until we reconvene with a grant of 2 immunity if we get to that point. 3 MR. SHERMAN: Thank you, Your Honor. 4 MS. VANDRUFF: Thank you. 5 MS. DICKIE: May I make two representations on 6 behalf of my client. 7 JUDGE CHAPPELL: 8 MS. DICKIE: First that he doesn't hear that 9 well through his right ear to the extent the parties can 10 keep their voices up and be aware of that and 11 Mr. Wallace if you can't hear, just let me know and the 12 second is his counsel has provided with him with a sheet 13 of paper Fifth Amendment rights to the extent he pulls 14 that piece of paper out and reads from it we wanted the 15 court and the parties to know what that was. 16 JUDGE CHAPPELL: And based on the motion I just 17 granted, the joint motion, once he does invoke, if he 18 does, that will end the questioning for today. 19 MS. DICKIE: Understood, Your Honor. 20 JUDGE CHAPPELL: Josett, have you sworn the 21 witness. 22 Whereupon -- 23 ^ ^ ^ Name name 24 a witness, called for examination, having been first 25 duly sworn, was examined and testified as follows: 0040 1 DIRECT EXAMINATION 2 BY MR. SHERMAN: 3 Q. Good morning, Mr. Wallace. 4 A. Good morning. 5 Q. My name is William Sherman. I represent the 6 respondent LabMD in this matter. For the record, could 7 you state and spell your full name, please? 8 A. Sure. Richard Wallace. It's R I C H A are D W 9 A L LA CE. 10 Q. Mr. Wallace, were you at one time employed by a 11 company known as Tiversa? 12 A. Yes. 13 Q. What was the length of time starting with your 14 start date to your end date of your employment with 15 Tiversa? 16 A. I started with Tiversa in July of 2007 and was 17 employed through February of this year. 18 Q. Mr. Wallace, what was your job title at Tiversa? 19 A. Per my counsel, I respectfully invoke the 20 Fifth Amendment. 21 JUDGE CHAPPELL: Sir, is it your intent not to 22 answer any further questions you're invoking your 23 protection under the Fifth Amendment. 24 THE WITNESS: I didn't hear, I'm sorry. 25 JUDGE CHAPPELL: Josett, would you read the 0041 1 question? 2 (The record was read as follows:) 3 "QUESTION: ^" 4 THE WITNESS: Yes, ma'am. 5 JUDGE CHAPPELL: All right. Thank you, sir. 6 You're excused. 7 Ms. Dickie, hold on, please. 8 MS. DICKIE: Yes, Your Honor. 9 MR. SHERMAN: She was going to walk her client 10 out and come right back in, Judge. 11 JUDGE CHAPPELL: All right. 12 All right. Under commission rule 3.39, should 13 respondent's counsel request an order requiring 14 Mr. Wallace to testify and grant immunity, I will need a 15 written motion from respondent demonstrating that the 16 testimony sought from Mr. Wallace may be necessary to 17 the public interest. Do you intend to make such a 18 motion? 19 MR. SHERMAN: I do, Your Honor. And we will 20 make such motion at such time that it is in the best 21 interest of our client and also in the best interest of 22 justice in this case. 23 JUDGE CHAPPELL: All right. And does the 24 government oppose the motion? When it is filed will the 25 government oppose? 0042 1 MS. VANDRUFF: Your Honor, the government does 2 not intend to oppose the motion. Complaint counsel 3 believes, however, that the appropriate time to file 4 that motion is at present. 5 JUDGE CHAPPELL: All right. Thank you. 6 MS. VANDRUFF: Thank you, Your Honor. 7 JUDGE CHAPPELL: And when those filings are 8 made, if and when they are, I'll consider those, I'll 9 consider the filings and whether to request through the 10 commission's liaison officer approval by the 11 United States attorney general for the issuance of a 12 order requiring Mr. Wallace to testify and granting 13 Mr. Wallace immunity. 14 And since the respondent has requested the 15 testimony of Mr. Wallace and also requested that we 16 recess or delay this proceeding so they can elicit that 17 testimony, I have no idea what Mr. Wallace is going to 18 say, but I believe in the interest of justice respondent 19 has the right to have this testimony presented and I 20 believe the interest of the truth which we're all trying 21 to get to the bottom of here, what is the truth, we need 22 to hear this gentleman's testimony in the event he can 23 get immunity and decides to testify. And regarding 24 that, I'm going to ask the parties to give me a status 25 report every Wednesday no later than 5:00 p.m. and 0043 1 Ms. Dickie, I'm going to ask you to coordinate with 2 Ms. VanDruff and Mr. Sherman so that they will know, 3 which is the main reason we want a status report, I need 4 to know what's going on with Mr. Wallace down the 5 street, whether he has immunity through the committee 6 and indeed whether that immunity extends to this 7 proceeding. 8 MS. DICKIE: Yes, Your Honor. That's fine. 9 JUDGE CHAPPELL: What's the status of the Boback 10 deposition? Has that been offered? 11 MR. SHERMAN: Your Honor, I did want to address 12 that. I believe that I might have labeled that CX 541, 13 and it should be RX 541. And with that housekeeping 14 matter, I would request that it be admitted into 15 evidence. 16 MS. VANDRUFF: And Your Honor, complaint counsel 17 doesn't oppose the admission of Mr. Boback's deposition 18 testimony. However, there is sensitive both sensitive 19 personal information and sensitive health information 20 addressed in the transcript. At the time of the 21 deposition, I asked for Mr. Sherman's consent to file an 22 in camera motion and it wasn't clear what respondent's 23 position would be with respect to that and so prior to 24 its admission, I would either ask again for respondent's 25 consent or complaint counsel move unilaterally that the 0044 1 testimony be treated in camera because of the sensitive 2 nature of certain answers to questions. 3 JUDGE CHAPPELL: You're saying that parts of the 4 testimony should be in camera. 5 MS. VANDRUFF: That's correct, Your Honor. 6 JUDGE CHAPPELL: Then I will wait to get your 7 motion for in camera treatment and then we'll. 8 MS. VANDRUFF: Prior to admitting the document. 9 JUDGE CHAPPELL: I'm going to admit the 10 document. 11 MS. VANDRUFF: Okay. 12 JUDGE CHAPPELL: But it's not going to be made 13 public. I'm giving /EUFT provisional grant of in camera 14 treatment which gives us twenty days. 15 MS. VANDRUFF: Thank you, Your Honor. 16 JUDGE CHAPPELL: And also regarding JX 3 which 17 was a previous letter from the House committee, I gave 18 that document provisional in camera treatment. Then I 19 understand the party that offered it stated on the 20 record he didn't care if it was public, so I want the 21 parties to know that as of June 23, it will be made part 22 of the public record unless I get a motion for in camera 23 treatment. That's JX 3. 24 MS. VANDRUFF: Your Honor, will there be an 25 opportunity for complaint counsel to receive a copy of 0045 1 that document? I still don't have it. You permitted me 2 to approach and read the document, but I don't have a 3 copy of the document. 4 JUDGE CHAPPELL: Do you have it, Mr. Sherman? 5 Ms. Dickie, would you provide a copy of that letter to 6 the parties' attorneys. 7 MS. DICKIE: Yes. 8 JUDGE CHAPPELL: Thank you. 9 MS. VANDRUFF: Thank you, Your Honor. And I 10 don't know that we have a motion, but we will evaluate 11 it on the basis of receiving the document. 12 JUDGE CHAPPELL: It is a joint exhibit. It's 13 JX 3. 14 MS. VANDRUFF: Yes, Your Honor. Thank you. 15 JUDGE CHAPPELL: Anything further? 16 MR. SHERMAN: Nothing further at this time, 17 Your Honor. 18 MS. VANDRUFF: Nothing further, at this time, 19 Your Honor. 20 JUDGE CHAPPELL: All right. We will. 21 JUDGE CHAPPELL: What was the exhibit number of 22 the Boback depo? 23 MR. SHERMAN: RX 541. 24 JUDGE CHAPPELL: RX 541 is admitted and again at 25 this time with provisional in camera treatment until I 0046 1 get a motion. 2 (RX Exhibit Number number was admitted into 3 evidence.) 4 JUDGE CHAPPELL: All right. We will await the 5 status report and eventually I will need to make a 6 determination when we will reconvene. I'm unaware at 7 this time when that will be. The public has a right to 8 take part in these proceedings. I haven't decided for 9 /SHAOURBGS but I may well issue an order on the public 10 record for the date and time we will reconvene this 11 hearing. Anything further? 12 MR. SHERMAN: Nothing further, Your Honor. 13 MS. VANDRUFF: Nothing further, Your Honor. 14 JUDGE CHAPPELL: Until we meet again we're in 15 recess. 16 *****END OF ROUGH DRAFT***** 17