1
_________________________________________________________
NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
WAKE COUNTY SUPERIOR COURT DIVISION
_________________________________________________________
DIEBOLD ELECTION SYSTEMS, )
INC., )
)
PLAINTIFF, )
)
V. ) 05-CVS-15474
)
THE NORTH CAROLINA STATE )
BOARD OF ELECTIONS and )
THE NORTH CAROLINA OFFICE )
OF INFORMATION TECHNOLOGY )
SERVICES, )
)
DEFENDANTS, )
and )
)
JOYCE MCCLOY, )
)
DEFENDANT-INTERVENOR. )
_________________________________________________________
MOTIONS HEARING BEFORE THE HONORABLE NARLEY L. CASHWELL
_________________________________________________________
MONDAY, NOVEMBER 28, 2005
_________________________________________________________
WAKE COUNTY COURTHOUSE
316 FAYETTEVILLE STREET MALL
RALEIGH, NORTH CAROLINA
2:04 P.M.
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VOLUME 1 OF 1
PAGES 1 THROUGH 56
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2
A P P E A R A N C E S
ON BEHALF OF THE PLAINTIFF:
DOUGLAS W. HANNA, ESQUIRE
WOMBLE, CARLYLE, SANDRIDGE & RICE, PLLC
SUITE 2100
150 FAYETTEVILLE STREET MALL
POST OFFICE BOX 831
RALEIGH, NORTH CAROLINA 27602
919/755-2100
FAX 919/755-2150
ON BEHALF OF THE DEFENDANTS:
ROY COOPER
ATTORNEY GENERAL FOR THE STATE OF NORTH CAROLINA
BY: KAREN LONG
SUSAN K. NICHOLS
SPECIAL DEPUTY ATTORNEYS GENERAL
N.C. DEPARTMENT OF JUSTICE
P.O. BOX 629
RALEIGH, NORTH CAROLINA 27602-0629
ON BEHALF OF THE DEFENDANT-INTERVENOR:
DONALD H. BESKIND, ESQUIRE
TWIGGS, BESKIND, STRICKLAND & RABENAU, P.A.
150 FAYETTEVILLE STREET MALL
SUITE 1100
POST OFFICE DRAWER 30
RALEIGH, NORTH CAROLINA 27602
919/828-4357
FAX 919/833-7924
MATTHEW ZIMMERMAN
STAFF ATTORNEY
ELECTRONIC FRONTIER FOUNDATION
454 SHOTWELL STREET
SAN FRANCISCO, CALIFORNIA 94110
3
1 P R O C E E D I N G S 2:04 P.M.
2 THE COURT: All right, Madam Clerk. This
3 is 05-CVS-15474. The matter is encaptioned Diebold or
4 Diebold Election Systems, Inc., Plaintiff, versus The
5 North Carolina State Board of Elections and the North
6 Carolina Office of Information Technology Services,
7 Defendants. And the matter was commenced by the filing
8 of a Complaint for declaratory judgment and Motion for
9 temporary restraining order and preliminary injunction on
10 -- by date stamp, November the 4th, 2005. It appears to
11 be a verified complaint.
12 Thereafter, and on the fourth day of November,
13 2005, the Honorable Howard E. Manning, Jr. entered a
14 temporary restraining order. That temporary restraining
15 order was extended by order dated 17 November 2005 and
16 was -- and is on the -- is on the calendar today for
17 hearing upon the motion to convert the temporary
18 restraining order to a preliminary injunction. There is
19 also, however, filed a record a notice of motion and
20 motion to intervene on behalf of one Joyce McCloy.
21 All right. For the purposes of the record and
22 for the Clerk, and even for the Court itself, would
23 counsel for the various parties introduce themselves,
24 please.
25 MR. HANNA: Good afternoon, Your Honor.
4
1 My name is Doug Hanna, with Womble Carlyle firm here in
2 Raleigh. With me today is my associate, Sarah Buta
3 (phonetic). And we represent Diebold Election Systems,
4 Incorporated.
5 THE COURT: All right, sir. On behalf of
6 the original defendants?
7 MS. LONG: Your Honor, my name is Karen
8 Long. And with me is Susan K. Nichols. We are employees
9 of the Department of Justice representing the Defendants
10 ITS -- the State Department of Information Technology
11 Services -- and the State Board of Elections.
12 THE COURT: All right. And on behalf of
13 the moving Defendant-Intervenor?
14 MR. BESKIND: Your Honor, I am Donald
15 Beskind of the Wake County Bar. With me is Matt
16 Zimmerman, pro hoc, admitted by an earlier order of the
17 Court. And we represent Ms. Joyce McCloy, who is in the
18 audience today.
19 THE COURT: It would seem appropriate,
20 counsel, that the first matter to be addressed would be
21 the motion to intervene.
22 MR. BESKIND: We agree.
23 THE COURT: Unless there is -- all right.
24 Yes, sir.
25 MR. BESKIND: May Mr. Zimmerman argue that,
5
1 Your Honor?
2 THE COURT: Sure.
3 MR. ZIMMERMAN: Good afternoon, Your Honor.
4 Ms. McCloy has (inaudible) to intervene as matter of
5 right in case under rule 24. She has, I believe, a right
6 to intervene as a primary (inaudible) under rule 24(a).
7 She has an interest in the case, an actual impairment
8 (inaudible) protection of that interest and inadequate
9 representation of the interest by existing party. The
10 issue at stake here. The issue at stake here is a voting
11 rights law enacted specifically to protect the
12 fundamental right to vote (inaudible) voters in the
13 state. The injunction was to permit her to argue
14 arguments and place arguments that the current defendants
15 have been unable or unwilling to make, including
16 important procedural requirements related to
17 jurisdictional requirements and other substantive and
18 procedural requirements regarding the TRO and preliminary
19 injunctions.
20 Alternatively, if Ms. McCloy does not -- if
21 the Court does not find that Ms. McCloy has the right to
22 intervene as a matter of right, we ask the Court to
23 permit her to intervene permissively under rule 24(b).
24 Rule 24(b), permissive intervention, is the ability
25 (inaudible) and prompt disposition of all claims
6
1 (inaudible) litigation. It is very clear in this case
2 that if the matter is not resolved promptly, there will
3 be continuing litigation by one or more of the parties in
4 this -- in this action. We are dealing with a very tight
5 time line that began with the certification process for
6 electronic voting equipment in the State, which began in
7 October. December 1st is the deadline that the State has
8 currently set to announce the winners in this process.
9 And as I mentioned before, we believe that there are
10 several substantive and procedural arguments that Ms.
11 McCloy would like to make that have not been (inaudible)
12 that should lead to a prompt resolution of the matter.
13 THE COURT: All right. Thank you, sir.
14 Does counsel for the Plaintiff, Diebold, wish to be
15 heard?
16 MR. HANNA: Yes, sir. May I approach? I
17 would like to hand up a brief in opposition to the motion
18 to intervene, Your Honor, to which I have attached a copy
19 of the complaint just for your information, in the event
20 you don't have it before you.
21 MR. BESKIND: Do you have a copy of that
22 brief, Your Honor?
23 MR. HANNA: Your Honor, I think it would
24 be helpful to give you a little background. I think this
25 will also serve to educate the Court on the next matter,
7
1 which will be the motion for preliminary injunction. As
2 the Court may be aware, there was a new session law
3 enacted on August 26th, 2005 by the General Assembly. It
4 is the session law 2005 323.
5 It is entitled an "Act to restore public
6 confidence in the election process by requiring that the
7 State Board of Elections develop an RFP for the purchase
8 and certification of voting equipment." The actual title
9 is a little longer than that, but that is the essence of
10 it.
11 We have attached a copy of that session law as
12 Exhibit A to our complaint. Your Honor, the -- one of
13 the things that is important, I think, for the Court to
14 understand is that the -- essentially what is going to
15 happen is all the voting equipment that is being operated
16 in the State will be de-certified. There is an RFP that
17 was developed by the State Board of Elections to take
18 bids to go through the certification process anew, and to
19 create a list of vendors by which the local counties can
20 choose.
21 So just because -- Mr. Zimmerman indicated a
22 minute ago that on December 1st the winners and losers
23 will be announced. Just because you are quote/unquote
24 winner doesn't mean you actually sell any equipment to
25 the state. It just means you are authorized to, or at
8
1 least it gives you the opportunity to go through the
2 certification process, and it will allow the local
3 counties to purchase your equipment if they should so
4 choose.
5 On September 26th of 2005, the State Board of
6 Elections drafted a memo inviting the submission of
7 written questions regarding the RFP requirements. A
8 number of vendors took the opportunity to submit written
9 questions regarding that process. And my client, Diebold
10 Election Systems, Inc. -- and I will just refer to them
11 as Diebold -- also took that opportunity and responded --
12 and submitted written questions.
13 The memo that I am referring to is Exhibit B
14 to the Complaint. The actual RFP that was issued by the
15 State is Exhibit C to the Complaint.
16 Your Honor, the -- as background, Diebold
17 provides high quality voting equipment to many states and
18 counties nationwide. And, in fact, they have statewide
19 contracts to provide all voting equipment for Georgia,
20 Alaska, Maryland and Arizona. They have also
21 historically provided voting equipment in North Carolina.
22 And it is my understanding that currently 20
23 counties in North Carolina currently use Diebold voting
24 equipment. And arguably, if Diebold is, in fact, an
25 authorized vendor under the RFP, those 20 counties may
9
1 have the opportunity to upgrade their equipment, stay
2 with Diebold at a significant cost reduction than having
3 to buy all new equipment from somebody else.
4 Your Honor, just also as background, Diebold
5 has a manufacturing facility in Lexington, North
6 Carolina, that in fact manufactures the voting equipment
7 that we are discussing.
8 Now, if you look at Exhibit D to the
9 Complaint, Your Honor, Exhibit D is addendum number 2 to
10 the RFP that is dated October 25th of 2005. And turning
11 to page 5 of that Exhibit D of our Complaint, you will
12 see that there was a question posed by Diebold,
13 obviously, prior to this lawsuit being filed. And the
14 question is posed to the State of North Carolina. And
15 the question reads as follows: "The RFP and North
16 Carolina law require `all software that is
17 relevant to functionality, setup,
18 configuration and operation of the voting
19 system' to be placed in escrow in source and
20 object code format. In the Diebold voting
21 system -- the operating system -- various
22 software drivers for ancillary components such
23 as displays and carburetors and other computer
24 programs are the property of third parties and
25 not available to vendors. Nonetheless,
10
1 failure to supply the software for these
2 components is a felony, and the State Board of
3 Elections may impose a penalty of $100,000 for
4 failure to comply. How should a vendor
5 address software for ancillary components
6 developed by third parties?"
7 And the answer that became part of Addendum 2
8 that was provided by the State Board of Elections is:
9 "Vendors must agree to place in escrow in
10 source and object code format all available
11 `software that is relevant to functionality,
12 setup, configuration and operation of the
13 voting system,' and indicate in the RFP
14 response all others not available and why it
15 is not available."
16 Now the term "available" is obviously not
17 found in the statute, but this became part of the RFP.
18 We were concerned that if Diebold went ahead and
19 submitted a bid in response to this RFP, and there were
20 conflicting interpretations as to what to do about this
21 third party software. If you look at the statute itself,
22 or the session law 2005 323, that indicates that -- under
23 section 163-165.91(a), voting systems -- requirements for
24 voting system vendors and penalties, it requires that
25 there:
11
1 "It is the duty of each vendor to place in
2 escrow with an independent escrow agent
3 approved by the State Board of Elections, all
4 software that is relevant to the
5 functionality, setup, configuration, and
6 operation of the voting system, including, but
7 not limited to, a complete copy of the source
8 and program interfaces" -- I am sorry --
9 "source and executable code, build scripts"
10 -- and it goes on.
11 And also -- the statute also requires that the
12 documentation submitted in escrow shall include a list of
13 programmers responsible for creating software. So the
14 dilemma facing the vendor, or facing Diebold in this
15 case, was their -- obviously, there are portions of the
16 equipment that operates using third party software, for
17 example, Microsoft Windows.
18 Diebold doesn't have the source code to escrow
19 from some of that software, or some of those third party
20 vendors like Microsoft Windows. Even if we had the
21 source code and the executables, there would be licenses
22 that were executed between Diebold and a third party that
23 may prevent the disclosure or the escrow this
24 information.
25 Additionally, there is the obvious problem of
12
1 identifying every Microsoft programmer that worked on
2 Windows or every programmer that worked on Adobe Acrobat.
3 So those practical problems came into play. And the
4 thought process was, well, let's bring this to the
5 attention of the Court. Let's figure out what the
6 requirements are.
7 And so the declaratory judgment was filed the
8 day that the responses to the RFP was due, on the 4th.
9 And the decision by Diebold was we wouldn't submit a bid
10 unless we submitted the declaratory judgment action
11 raising the escrow issue, and raising the issue regarding
12 what to do with third party software and third party
13 source code and executables, unless we filed the DJ and
14 received protection from the Court that by submitting a
15 bid and going through the RFP process and trying to
16 comply with answer 19, with what the State Board of
17 Election is putting out as guidance, that we would not
18 subject ourselves to any criminal liability because, if
19 you look down at the penalty section under the statute,
20 willful violation of any of the duties in subsection A,
21 which is the -- discusses in part the escrow requirements
22 -- is a class G felony.
23 And clearly, once -- you know, if an
24 indictment were to be handed down, that would be the
25 damage. It wouldn't matter that there was a reasonable
13
1 excuse or even compliance with the statute.
2 So Judge Manning listened to the TRO, entered
3 the TRO, gave us until Monday. We, in fact, went ahead
4 and submitted our bid on Monday, because we had the
5 protection. We extended the TRO. We are here today to
6 convert the TRO to a preliminary injunction.
7 So that is the background leading now to this
8 first motion. Now, it is also, I think, important to
9 understand as background that we are able to escrow all
10 of our source code and executables and all of our
11 software.
12 And, in fact, there is an escrow account set
13 up right now in which our software and source code and
14 executables being used by North Carolina equipment is, in
15 fact, in escrow, and North Carolina is the beneficiary of
16 that escrow account. So the issue, I am saying, has to
17 do with the third party.
18 Now, Your Honor, with respect to the motion, a
19 couple of thing that I think are important to point out.
20 And that is Mr. Zimmerman argued, you know, that "We have
21 an interest in this case." He really kind of glossed
22 over what kind of an interest is it. Is it direct, is it
23 indirect? And as the Court knows, under Rule 24, as a
24 matter of -- to intervene as a matter of right, you have
25 to have a direct and immediate interest in the subject
14
1 matter of the litigation.
2 And we would argue that Ms. McCloy -- that
3 neither Ms. McCloy nor the Electronic Frontier
4 Foundation, which is the group that Mr. Zimmerman is
5 with, has a -- has a direct and immediate right. In
6 fact, their right, as is anybody's right -- any North
7 Carolina voter's right would be indirect in nature.
8 And as the Court knows, there are three
9 requirements that have to be met in order to intervene as
10 a matter of right. There must be a direct and immediate
11 interest relating to the property or transaction. Two,
12 denying intervention will result in a practical
13 impairment of the protection of their interest. And it
14 is our position that if you don't have a direct interest,
15 that direct interest can't be -- can't be impaired.
16 And three, that there is inadequate
17 representation of that interest by existing parties.
18 Again, Mr. Zimmerman made the argument that the current
19 Defendants are unwilling and unable to make certain
20 arguments. I didn't hear what arguments that the State
21 Board of Elections were or are unwilling to make or are
22 unable to make.
23 But it is our position that they are the
24 agency that is responsible for administering North
25 Carolina elections, and they have the duty to interpret
15
1 and enforce election laws in the state. And we believe
2 that they can adequately represent the interest of voters
3 in North Carolina. So we would ask that you deny their
4 motion to intervene as a matter of right.
5 With respect to the motion to intervene under
6 24(b), which is permissive intervention, I think it is
7 important to understand the entity -- or the individual
8 that is trying to intervene and the agenda that is being
9 advanced by Ms. McCloy and also by the Electronic
10 Frontier Foundation.
11 First off, the Court obviously has discretion
12 to allow permissive intervention. And the issue really
13 is whether there is a -- whether their claim or defense
14 has become a question of law or fact with the -- with the
15 lawsuit in question, this declaratory judgment action.
16 It is our view that the DJ action -- first of all, it is
17 not going to slow up the process, because the reason why
18 it was filed and the reason for the importance of having
19 the TOR issue is to allow the RFP process to go forward.
20 The last thing that Diebold wants to do is slow the
21 process down.
22 And that would be harmful to everybody,
23 including Diebold, because ultimately if, whatever vendor
24 is chosen will also be under a tight timetable. The
25 point is, while we are going through the process, we need
16
1 to make sure that everybody understands what the rules
2 are, and that the rules are evenly applied to every
3 vendor.
4 So when you look at the lawsuit itself to
5 figure out what are the escrow requirements, the only
6 parties that are affected would be the vendors that
7 submitted a bid -- and my understanding is it is a matter
8 of public record that there were five that were initially
9 submitted, and only three that went through the initial
10 -- the initial testing procedures -- that those vendors,
11 including, including my client, would have a right, and
12 also the State Board of Elections and Office of
13 Information Technology.
14 Now, with respect to Ms. McCloy, the question
15 is, why would she want to intervene? What are -- what
16 interest does she have that the State Board of Elections
17 could not properly -- could not properly represent? And
18 she has a -- her group has a website, and they have an
19 entire section dedicated to Diebold. It is obviously a
20 section on the website that is very critical of Diebold.
21 And there is one part on the website that has information
22 on what Diebold election systems doesn't want you to
23 know.
24 So there is clearly some agenda here to stop
25 Diebold from doing business in the State. And arguably
17
1 that it could hurt North Carolina in the sense that there
2 are 20 counties right now that operate Diebold equipment.
3 Those 20 counties may want to stay with Diebold. It may
4 be cost effective for them just to upgrade to Diebold
5 equipment. And, arguably, stopping Diebold from doing
6 business in the state just reduces the number of vendors
7 from three to two. Does that really help North Carolina
8 voters?
9 The other thing that is interesting to note,
10 Judge, is that Mr. Zimmerman and his group, the
11 Electronic Frontier Foundation, also has a website. They
12 have an entire section dedicated to Diebold that is
13 obviously critical of Diebold.
14 Mr. Zimmerman issued a media release in this
15 case right after he filed the brief to intervene and set
16 aside the TRO. And in his own media release he starts
17 talking about that EFF is going to court in North
18 Carolina to make sure Diebold complies with strict North
19 Carolina law.
20 And it is our belief that EFF is attempting to
21 publicize this unfairly and inaccurately in order to --
22 in order to -- in order to (A) probably stop Diebold from
23 being involved in the State of North Carolina selling
24 equipment, and also to arguably increase donations to
25 their group.
18
1 Obviously, EFF is not technically a part of
2 this motion, and yet there is press releases and quotes
3 from Mr. Zimmerman regarding EFF's involvement in the
4 lawsuit. It is our belief, Judge, to cut to the bottom
5 line, that the lawsuit, again, is only about what escrow
6 requirement -- what the escrow requirements are. And if
7 you look at the brief that was filed in this case by Mr.
8 Zimmerman, one of the arguments that he makes is that he
9 points out that use of third party software may
10 disqualify vendors from State certification.
11 And if that is the path that is being laid out
12 by the folks that are trying to intervene -- and there is
13 evidence that every vendor uses some third party software
14 -- might the State -- you know, is the path that is being
15 laid out for the Court that down the road here in a
16 couple of months there will be no vendor that could
17 comply with those requirements and escrow all third party
18 software and escrow source code and executables.
19 if the -- ultimately, down the road, if the
20 law is that, no, that is what the General Assembly
21 intended -- that is not really a question I am trying to
22 answer today, but if ultimately that is the conclusion,
23 then we will not be doing business in the state, because
24 we can't comply with that. And that is the point in
25 raising this lawsuit. And it is an issue that can be
19
1 worked out between Diebold and other vendors, if they so
2 choose to intervene, and the State Board of Elections.
3 So we would ask that the permissive motion to intervene
4 be denied also.
5 THE COURT: Ms. Long?
6 MS. LONG: Your Honor, the Defendants
7 have no position on this motion to intervene. We simply
8 don't want anything to slow down the procurement process,
9 which is under very tight deadlines.
10 THE COURT: All right.
11 MR. BESKIND: Your Honor, may I be heard
12 briefly in response?
13 THE COURT: You sure you want to be
14 heard?
15 MR. BESKIND: Huh?
16 THE COURT: Are you sure you want to be
17 heard?
18 MR. BESKIND: I guess I don't, Your Honor.
19 THE COURT: The Motion to Intervene, in
20 my discretion, is allowed.
21 MR. BESKIND: Thank you, Your Honor. We
22 will draft the order.
23 THE COURT: All right. Now, counsel, I
24 also need to warn you that I have an appointment this
25 afternoon which will require me to leave at 3;15.
20
1 However, that does not mean that we will not reconvene
2 this hearing tomorrow morning if we need to. I simply
3 have an appointment that has been scheduled for some
4 months that I am not going to go into the basis for, that
5 I either keep today or I don't get again for years,
6 basically.
7 So we will stop at 3:15. But that does not,
8 again, mean that any of you should feel like you are cut
9 off. We will reconvene tomorrow morning at 9:30 and
10 continue this hearing as we need to. I guess at this
11 point in time we can go through, then ---
12 MR. BESKIND: Your Honor, we would like to
13 be heard before we go forward.
14 THE COURT: Okay.
15 MR. BESKIND: One of the first things we
16 wanted to raise as intervenors was that this hearing does
17 not go forward on adequate notice. It requires five days
18 notice. There has not been five days notice. And
19 therefore this hearing is not properly scheduled.
20 THE COURT: Mr. Beskind, the question
21 that I have for you is, having now been allowed to
22 intervene in this case, and knowing this matter was
23 calendared for hearing on the temporary restraining order
24 today, how can you complain ---
25 MR. BESKIND: (Interposing) We did not it
21
1 was calendared for the temporary restraining order.
2 There was no notice to us, and we don't believe there is
3 any notice of record in the file, which would have been
4 our only other source of information.
5 THE COURT: My question, I guess, should
6 be changed a little bit. How, having been allowed to
7 intervene today, can you then complain about the lack of
8 notice when you were not a party to this lawsuit until
9 today?
10 MR. BESKIND: The State didn't get notice,
11 either, Your Honor. There is no notice on record in the
12 file, so there couldn't have been any notice.
13 THE COURT: There is nothing in the
14 orders of Judge Manning setting this hearing for today?
15 MR. BESKIND: No, Your Honor, we checked,
16 and there is not.
17 THE COURT: So what would you ask; that
18 the matter be continued?
19 MR. BESKIND: I would ask -- you know, put
20 it over to next Monday, which doesn't change the process
21 of bidding or anything else that has gone on. The State
22 can do whatever it is doing on Monday, but then we will
23 have had adequate time to prepare.
24 THE COURT: And I can -- I can continue,
25 in effect -- I would continue, in effect, in my
22
1 discretion the Temporary Restraining Order?
2 MR. BESKIND: No, Your Honor, because that
3 has expired already.
4 MR. HANNA: Judge, you can't have it both
5 ways. Either the TRO is extended, with protection we are
6 seeking, and we have the hearing next week, or we have
7 the hearing today. I believe the notice was dated -- I
8 want to say -- we had a conference call with the Judge
9 Manning regarding setting a time. He indicated that he
10 wanted it set on this calendar, and would not be in Civil
11 Court on Monday, and I believe he issued the notice
12 either Tuesday or Wednesday.
13 MR. BESKIND: Which would not be five days
14 notice.
15 MS. LONG: Your Honor, the order
16 extending the TRO, which was entered on the 17th of
17 November, but issued as a bench order by Judge Manning on
18 the 14th of November that extended the TRO until today --
19 the understanding of the State was that at that a point
20 there would be a hearing on the preliminary -- motion for
21 preliminary injunction. The State did have a
22 conversation with counsel for Diebold, Mr. Hanna,
23 sometime last week. And I am sorry, I have not gone back
24 to my log book -- Ms. Nichols was there, too -- to tell
25 you what day it was.
23
1 The State would not object to moving forward,
2 just because this distracting the State from the
3 procurement process. There are people in this hearing
4 room today who are part of that process who need to be
5 here. And I would say again, it is a very tight deadline
6 for this procurement.
7 MR. BESKIND: Your Honor, nothing we are
8 asking would change what the State is doing with regard
9 to its deadline or procedures in any way. But there are
10 a couple of things that you need to be aware of. One,
11 notice exists for the benefit of the public as well as
12 the parties, which is why it is required to be public and
13 on file. And this is a matter of significant public
14 importance.
15 The second thing is that Judge Manning only
16 had the power to extend the TRO for 10 days under the
17 law, not the 14 that he extended it for. So it expired
18 four days ago, regardless of what is in the order.
19 THE COURT: I take it, you are then
20 saying that Judge Manning's order -- your position, Mr.
21 Beskind, is that Judge Manning's order was valid for ten
22 days from the 17th of November, when he entered it?
23 MR. BESKIND: That is all it could be under
24 the statute, Your Honor.
25 MR. HANNA: The tenth day is a Sunday
24
1 under that reading. So I don't know how it could expire
2 on a Sunday. And second, it was our understanding that a
3 motion would be set this day. We were under the
4 impression that it would in front of Judge Manning until
5 I contacted him to get a time certain. And that is when
6 he indicated, no just put it on the regular calendar. And
7 that is why I issued the notice after receiving the
8 instruction from Judge Manning's assistant, no, put it on
9 -- notice it on the regular calendar set for today.
10 MR. BESKIND: I believe Your Honor's
11 recitation was -- or somebody's recitation was that he
12 did it on the 14th, but he started it on the 17th?
13 THE COURT: The order that I am looking
14 at -- the order extending the temporary restraining
15 order, Mr. Beskind, is entered under signature I
16 recognize to be Judge Manning's, entered at 2:50 p.m.,
17 the 17th day of November, 2005.
18 MR. BESKIND: Okay. So there would be ten
19 days from that time.
20 THE COURT: If you don't count the first
21 day, but you do count the last day -- is that the way it
22 works?
23 MR. BESKIND: I believe for ten days, Your
24 Honor, the first day would be 24 hours later, would be --
25 complete the first day.
25
1 THE COURT: That still puts it on either
2 a Saturday or Sunday. So you get to the following
3 Monday?
4 MR. BESKIND: I didn't know that that is
5 the case, Your Honor.
6 THE COURT: And the next question I would
7 have is, Judge Manning's order being public record, it
8 extends it until November the 27th, 2005. Wouldn't that
9 be sufficient notice?
10 MR. BESKIND: The 27th ---
11 THE COURT: (Interposing) 28th -- Excuse
12 me. Extends it to the 28th.
13 MR. BESKIND: Your Honor, no, that wouldn't
14 be notice of a hearing. That would just say that the
15 order would expire at that time. Even if you take the
16 order exactly at its face.
17 THE COURT: Tell me how your clients are
18 going to be prejudiced if we don't hold the hearing
19 today.
20 MR. BESKIND: Our clients will be
21 prejudiced if we don't ---
22 THE COURT: Your client. Well, you have
23 two clients, I guess.
24 MR. BESKIND: I mean -- the question is
25 prejudiced if we don't have it today or we do have it
26
1 today?
2 THE COURT: Do not -- if we do not have
3 it today.
4 MR. BESKIND: We won't be prejudiced at all
5 if we don't have it today.
6 THE COURT: Excuse me. I am sorry. I
7 will rephrase that. If we have it today, how are your
8 clients prejudiced?
9 MR. BESKIND: Just the amount of time that
10 is available for preparation, Your Honor. We haven't
11 seen things and documents and various other thing that
12 are going to be available today that have never been
13 provided to us. We are willing to assume the position
14 that the State is in, since we have intervened, so we are
15 not suggesting -- but I don't believe the state has that
16 material, either.
17 THE COURT: What says the State?
18 MS. LONG: Your Honor, one of the
19 requirements of the order extending the TRO was that the
20 Plaintiff had to comply with the RFP and the subsequent
21 addendums. Until today, about 12:20, the Plaintiff had
22 not complied with the RFP and the addendums by supplying
23 to the State a list of third party software it contended
24 it could not provide in escrow. So we have had
25 approximately an hour and a half to look at that.
27
1 And my understanding from the technical people
2 with whom we met with over lunch is that they have
3 additional questions relating to that list of software.
4 So I have a memo of law in response to their motion for
5 Preliminary Injunction. Because it was written
6 yesterday, it suggests that the Plaintiff has not
7 complied with the TRO. It did comply with the TRO as of
8 12:20 this afternoon. However, it just raised more
9 questions.
10 THE COURT: That is not sufficient time
11 -- I take it, your position is that is not sufficient
12 time for your clients to prepare?
13 MS. LONG: It is not sufficient time for
14 the technical people who are doing this procurement to
15 come to an understanding. But my understanding is they
16 are going to ask clarifying questions from that list,
17 including -- which have nothing to do with this
18 Preliminary Injunction, as far as I can see.
19 But our question is about "Have you contacted
20 these third party vendors? Do you have documented proof
21 they will not escrow in an independent escrow?" You
22 know, "Show us the money," in other words. Give us the
23 documentation.
24 MR. HANNA: Judge, these are all side
25 issues that really don't have any bearing on the motion
28
1 for Preliminary Injunction itself. The question of what
2 third parties may or may not be willing to do -- and I
3 can put on the record that Diebold is certainly willing
4 to contact every third party, but, no, they have not had
5 the opportunity to do so. We haven't received responses
6 from them as to whether they will permit the escrow. So
7 those are side issues that won't affect the core issue
8 today. And that is whether to convert the TRO into a
9 preliminary injunction.
10 MR. ZIMMERMAN: Your Honor, I have one
11 additional point to add.
12 THE COURT: Yes, sir.
13 MR. ZIMMERMAN: Regardless what Your Honor
14 decides on this motion, there is still one issue that can
15 be adjudicated today. It has to do with the jurisdiction
16 of the Court to even hear the claim in the first
17 instance.
18 Declaratory judgments are not advisory
19 opinions. The court is not allowed to issue advisory
20 opinions. And there must actually be a real controversy
21 arising out of a -- out of opposing contentions as with
22 respect to legal rights and liabilities.
23 Now, we have heard a lot here today, but you
24 didn't hear -- you have heard a lot about the dilemma
25 that Diebold supposedly has. Nowhere did you hear, you
29
1 know, why the statute simply shouldn't apply to them.
2 You heard a lot about what their liability should be.
3 The Court is not obligated -- not only is it
4 not obligated, but it doesn't have the jurisdiction to
5 issue mere legal advice to counsel. They have offered no
6 argument as to why the statute doesn't apply to them.
7 They have pointed out, yes, that may actually be the case
8 that third -- that parties relying on third part software
9 -- some of the vendors are relying on third party
10 software for use in their voting equipment will be unable
11 to participate in the bid process.
12 That was a decision made by the legislature.
13 It is not correct -- it is not the purview of the Court
14 to review the wisdom of that order. So what they have
15 come here today with is repeating the arguments that has
16 been made before: simply that there will be harm as a
17 result of them being unable to properly bid in this
18 process, and getting the okay from the Court to go
19 forward with their bid.
20 But nowhere do they actually argue why the
21 Court -- why the statute simply shouldn't apply. As you
22 will note in Diebold's own motion, they go to great
23 extent talking about some kind of conflicting advice that
24 Diebold has heard. But if you actually walk through what
25 they are stating, there is no actual conflicting advice
30
1 at all.
2 Diebold points to a -- (inaudible) disclaimer
3 on the RFP saying that the (inaudible) shall not include
4 additional terms and conditions in their bid response.
5 They ask -- they did, in fact, go ahead and asked the
6 State what they should do, since they couldn't comply
7 with the statute. And the State answered, I think, the
8 only way the State could, with, "Well, all right. Go
9 ahead and submit your bid. Go ahead and explain why you
10 haven't complied with the statute."
11 They never said that that advice would somehow
12 protect them from liability under the statute. They
13 didn't say that the explanation was suffice to make their
14 bid complete. So that -- just as a simple jurisdictional
15 matter, we don't think they met the very clear
16 requirements that the declaratory judgment act requires.
17 MR. HANNA: Judge, now we are getting
18 into argument regarding my client and the success of the
19 merits, which we are prepared to argue today. And the
20 simple fact is that the issue really has to do with the
21 interpretation of the statute. There is legislative
22 history that we are preparing to hand up that would
23 suggest the legislature intended for the vendors to
24 escrow all of their source code and executables. And
25 there was no mention of third parties.
31
1 The point is, we are not sure what the statute
2 really means. One interpretation is that you have to
3 escrow all third party software. We believe that the
4 State, in giving information out in the RFP says, "No,
5 you need to escrow all available, and then tell us what
6 you don't have and why."
7 And that is -- that is not the same as all
8 third party. So there is clearly a question under this
9 -- and what is even more important, if we are going to
10 get right to the heart of the matter, you cannot have a
11 statute that imposes a criminal violation on the citizens
12 of North Carolina or companies that do business in North
13 Carolina without being clear as to what conduct will
14 subject you to a criminal violation, because if the sort
15 of ---
16 THE COURT: I am sorry. Go ahead.
17 MR. HANNA: If the conduct was that by
18 just acknowledging you have third party software, and no,
19 that is not good enough. If you can't escrow it, you
20 can't participate in the process -- if that is truly the
21 law, then why wasn't that made clear in the response to
22 the question that we are submitting?
23 I mean, our key question -- clarification
24 question was very simple and straightforward, putting
25 everybody on notice, here is what our issue is. And the
32
1 response was that, no, if you can't escrow that source
2 code, don't even bother bidding, because that is a class
3 G felony.
4 There is Supreme Court of the United States
5 case law that indicates that your due process is affected
6 unless the criminal statute is clear and that the conduct
7 that is proscribed is clear. And we think it is a real
8 question here.
9 THE COURT: I don't have any question,
10 Mr. Hanna, that -- your original position was you can't
11 have a statute which declares a criminal penalty. I
12 would tell you, of course you can have statutes that
13 declare criminal penalties. What you -- what you don't
14 have here is, that cannot -- that is not a point that can
15 be raised until someone is charged with violation of the
16 criminal penalty.
17 MR. HANNA: Yes, sir. That is true.
18 THE COURT: And I can't -- I cannot tell
19 you what conduct will or will not constitute a violation
20 of a criminal law.
21 MR. HANNA: Right. And the concern ---
22 THE COURT: (Interposing) Is that not
23 what you are asking me to do?
24 MR. HANNA: No, I am asking for
25 interpretation of the statute itself.
33
1 THE COURT: You are asking me -- you are
2 asking me to tell you what conduct would not constitute a
3 violation of the statute. And I can't tell you that.
4 MR. HANNA: It is even more
5 straightforward than that. Look at the escrow
6 requirements that are going to be imposed on every
7 vendor. And the question is going to be, what are the
8 requirements? As we go through this RFP, what are the
9 requirements.
10 And there is a -- a difference or a question
11 of interpretation under the statute as to what they are
12 talking about. And if -- we are raising the issue, what
13 is -- what are the escrow requirements? Those
14 requirements may trigger a criminal violation, which is
15 why -- which is why we submitted -- or filed the DJ
16 action and felt like -- it is clear. People cannot
17 continue through the RFP process and sign a contract
18 agreeing to provide equipment to North Carolina without
19 clarification as to what the escrow requirements are.
20 Otherwise they -- because what happens, Judge,
21 is initially we raised law in front of Judge Manning. I
22 think there was some question, "What is the problem here?
23 What is your issue?" And the issue is, well, there may
24 be a third party a la Mr. Zimmerman that may come in play
25 down the road after the contract is signed that said,
34
1 "No, no, no. Despite what the State Board of Elections
2 is say -- escrow available source code and software -- we
3 believe you have to escrow all third parties. And more
4 than that, you have got to go and identify every
5 programmer for Microsoft."
6 And if they don't like what they call
7 requirements or what was actually in escrow, there is
8 nothing to keep them -- being a former Assistant District
9 Attorney -- from knocking on a local prosecutor's door
10 and saying, "They didn't comply with the law.
11 Investigate and indict." And that would be -- that is
12 the irreparable harm.
13 First of all, there is a question of what
14 conduct would be illegal. And if they got the ear of the
15 local prosecutor, that right there would be the end of
16 the game for a publically traded company, when they are
17 trying to act in good faith, come before the Court and
18 say, "What are the requirements?"
19 THE COURT: Mr. Hanna, do you have a case
20 from any jurisdiction, from any court that says that
21 prior to committing an act you can go into court and have
22 the Court determine whether or not that it is criminal or
23 not?
24 MR. HANNA: Judge, what I do have -- let
25 me see if I can answer your question as precisely as
35
1 possible. What I do have is more -- and it is in our
2 brief that I haven't handed up. But it is -- it is
3 Supreme Court case law that just indicates what the due
4 process requirements are.
5 THE COURT: I don't have any problem with
6 due process. But who raises that issue? The defendant
7 who has been criminally charged. Okay. Give me a case
8 -- give me a case where a defendant or a person has come
9 into court and got a judge in a declaratory -- in any
10 action, to determine prior to committing an act whether
11 that act was legal or not. We don't do that, I don't
12 think.
13 MR. HANNA: But courts do interpret
14 statutes.
15 THE COURT: Sure. And I don't have any
16 -- I don't have any problem with that.
17 MR. HANNA: And if the reading of the
18 statute is subject to a couple of different
19 interpretations -- and, in fact, the State Board of
20 Elections in this case is taking the approach in answers
21 to questions that become -- subsequently become the RFP
22 itself that says "What we are going to require you to do
23 is all available, and then just give us a list of what is
24 not -- of what you can't escrow and why," then there may
25 be -- or there is a difference of interpretation as to
36
1 what is going to be, at the end of the day, required by
2 the State Board of Elections, under the statute, going
3 through the certification process and escrowing
4 information.
5 And it is completely proper to raise this
6 issue, to say, "No, there is a concern that we have that
7 the requirement may be imposed as to all third party
8 software have to be escrowed. And, by the way, every
9 vendor in North Carolina, you have to identify every
10 programmer that worked on any third party software."
11 THE COURT: If that is what the statute
12 requires, and the word "shall" is used in the statute,
13 how do you get around that?
14 MR. HANNA: Well, there is a question of,
15 does the statute itself require to place in escrow all of
16 your software or all your software and third party
17 software. I mean, there ---
18 THE COURT: (Interposing) Well, is that
19 an issue -- I take Mr. -- if I can come back for a
20 second, I take Mr. Zimmerman's jurisdictional challenge
21 to be a 12(b)(6) challenge.
22 MR. BESKIND: That is exactly what it is.
23 THE COURT: What I am saying is, this
24 complaint does not allege on its face an actual
25 controversy yet.
37
1 MR. HANNA: We believe we are in the
2 midst of the RFP process, so it clearly does allege an
3 actual controversy, because we are going through the
4 certification process, which includes the escrow
5 requirements. And we need to know what those
6 requirements are as we continue to move forward with this
7 RFP process. We don't want to slow the process down, but
8 we need clarification.
9 THE COURT: Well, you know what -- you
10 know what the statute requires. The statute says
11 "shall."
12 MR. HANNA: Well, we know it says "shall
13 place in escrow all software." Is it -- there is
14 legislative history that says all of their software. So
15 is it -- we already have in escrow, right now, today, all
16 of our software and source code for equipment that is
17 being used in North Carolina. What we don't have in
18 escrow is the third party software in escrow -- and
19 source code that involves Microsoft Windows, that
20 involves other third party equipment.
21 THE COURT: If I were advising a client
22 in this situation, and I were a lawyer, and I were "the
23 lawyer" for that client, I would suggest to the client
24 that notwithstanding what any of the defendants say, that
25 you need to comply with the literal language of the
38
1 statute, because the only people that can change the
2 statute to take out those requirements is the
3 legislature.
4 MR. HANNA: I guess, again, the question,
5 though, does "all software" mean all of our software that
6 we own, or does it also include third party software?
7 Was that the intention of the legislature? Because if
8 it is the intention, Judge, the path we may be all going
9 down is nobody -- none of the three vendors that are left
10 are likely to be able to comply with that.
11 THE COURT: Mr. Hanna, without being
12 facetious at all to you, that ain't my problem.
13 MR. HANNA: I understand. But I just ---
14 THE COURT: (Interposing) That problem
15 is one those people down the street need to address and
16 should have thought about before they passed the statute.
17 But again, they frequently do not listen to other folks.
18 They do what they think is appropriate, and they don't
19 listen to people who might have some knowledge of this,
20 or some of their own lawyers that might have said, "This
21 is a problem," because lawyers are held in such low
22 regard by that body frequently that they don't stop for a
23 minute and say, "Maybe this is a problem, and maybe this
24 need to be interpreted."
25 MR. HANNA: Judge ---
39
1 THE COURT: (Interposing) And that is
2 what has happened.
3 MR. HANNA: As you indicated this
4 morning, being the ultimate pragmatist ---
5 THE COURT: Ultimate pragmatist.
6 MR. HANNA: That is something that I
7 think needs to be taken into consideration here, because
8 all we are asking for is to have a -- to have an actual
9 controversy and the protection issued by Judge Manning --
10 having that converted to a PI so that we can move forward
11 with the other two vendors -- and the protection would
12 apply to all three vendors, so that we can move forward
13 with this RFP process.
14 If we don't receive that protection here today
15 -- or, for whatever reason, the case is dismissed by the
16 Court -- then we will obviously have no alternative but
17 to withdraw from the process because of the potential
18 liability that is imposed. And the likelihood is, unless
19 this is interpreted and unless there is a decision is
20 made as to what exactly is going to be required to be
21 placed in escrow, the two remaining vendors -- they may
22 not be able to comply.
23 And you are right. Maybe the -- that is the
24 whole point. The legislature -- we don't believe it went
25 through and dealt with this particular issue: what you
40
1 could do with a third-party software in which the vendor
2 either doesn't have it to escrow or doesn't have the
3 authority under licensing agreements to escrow.
4 THE COURT: But until -- until someone
5 charges your client with a violation, how is there a
6 controversy if the controversy is, "I am fearful of
7 complying with the requirements that the defendants have
8 set up, because it may put me in a potential position of
9 violating the criminal statute?
10 MR. HANNA: Because we are in the midst
11 of -- with all due respect, you step away from the
12 criminal penalties for a moment and you look at the
13 escrow requirements that are in play, that are -- that
14 are in the RFP process as we speak, we are in the midst
15 of going through -- we submit our bid -- everybody
16 submits the bid on the fourth. We have got an extra --
17 essentially, one business day. We submitted by 12:30 on
18 the seventh.
19 There is -- 10 days ago, all -- the three
20 vendors got together and they went through testing of the
21 equipment with the State of North Carolina. We are going
22 down the road of getting certified. We are in the midst
23 of having to understand (A) before a contract is signed,
24 what the requirements are. It is -- it is -- it is
25 impossible for a vendor to go through the escrow -- to go
41
1 through the certification process, execute a contract
2 with North Carolina without understanding what the legal
3 requirements are.
4 That is why it is an actual case of
5 controversy, because it -- it will be impossible, even if
6 we are selected, to sign the contract without fully
7 understanding what our obligations are. And the guidance
8 by the State Board of Elections in addendum II is
9 conflicting, because now they are using the word
10 "available." No, no. You just have to escrow available
11 and then tell us what you don't have and why. And
12 frankly, we think that that is reasonable, but that
13 doesn't entirely answer the question. So, we are here
14 today. We filed the DJ action.
15 THE COURT: Well, let -- well, let me
16 come back and see if I can -- the statute has been
17 passed. The Defendants have told your client what is
18 required of them in order to submit a bid or proposal, or
19 whatever. And your position is, on behalf of your
20 client, that you can put in a bid, you can -- you can
21 comply with their requirements, but you are unsure if
22 those requirements would not put you in violation of
23 criminal statutes?
24 MR. HANNA: And -- and whether, down the
25 road -- exactly. We are concerned that -- well, let me
42
1 back up a minute. We asked, is it -- what do we do with
2 third party software? And the point is that the State
3 Board of Elections did not directly take that -- answer
4 that question in the RFP. They said " No, what you need
5 to do is escrow all available, and then tell us what you
6 can't and why."
7 But there was no indication as to what the
8 answer is. And so it is impossible for my client, as a
9 vendor, to move forward through the certification
10 process, sign a contract with the State of North Carolina
11 without fully understanding what are the legal
12 requirements. Does it mean -- does the statute, in fact,
13 require every vendor to place in escrow all third party
14 software and code -- source code and executables and
15 identify -- which in my opinion it is an impossibility --
16 identify every programmer who worked on the Microsoft
17 Windows operating system, every programmer who worked on
18 Adobe Acrobat. I think that that is an impossibility.
19 Certainly for us, it is an impossibility.
20 So if that is the law -- all we are trying to
21 do is get a resolution to the question as to what are
22 your requirements. If those are, in fact, the
23 requirements -- this -- entering into a preliminary
24 injunction is not going to harm anybody today, because it
25 just keeps the status quo going and it allows all of the
43
1 vendors to go through the process until we get a
2 determination as to what is required under the statute.
3 It allows the vendors to sign a contract with the State
4 of North Carolina without any jeopardy attaching.
5 THE COURT: And you -- okay. And you are
6 asking the Court to say that you can -- that your client
7 can engage in conduct which may -- which will not, by
8 court order, be criminal?
9 MR. HANNA: We are asking the Court to
10 indicate that the client -- that our client and every
11 other vendor can go through the certification process
12 without subjecting themselves to any criminal liability
13 or civil penalties until this issue is resolved, which
14 essentially, will -- would tell -- once the issue is
15 resolved, every vendor will know, "Here are the
16 requirements." Because we -- this is very
17 straightforward.
18 We are coming to the Court, and, in fact, we
19 went to the State Board of Elections prior to all of
20 this, saying "Here is our issue. We need an answer.
21 Otherwise, we will not be able to participate in the
22 process, because there would be nothing to prevent us
23 from being charged criminally. And, in order for us to
24 sign a contract, we need to understand what the
25 requirements are, because it would be foolish for a
44
1 company to sign a contract saying it will do A, B and C,
2 when it knows it can't do A, because of third party
3 software."
4 So we need to have that answer -- that
5 question answered prior to signing the contract. And,
6 yes, the criminal issues are out there, but that is only
7 one of a couple of reasons why this is an actual
8 controversy and why there is -- why there are real risks
9 and issues involving our client and, frankly, every other
10 vendor.
11 THE COURT: Mr. Hanna, it sounds as
12 though you are asking the Court, or a court, to
13 micromanage what the process is going to be, rather than
14 the legislature's delegated authority to do that, which
15 is the Board of Elections and the Information Technology
16 people. You are asking me, suppose -- is it your
17 position that every time there is a dispute between a
18 requirement that the Board imposes and whether or not you
19 client can comply with it, you come back to court -- to
20 the Court, for the Court to determine whether or not that
21 requirement is one the statute required?
22 MR. HANNA: No, we are just cutting right
23 to the chase: what does the statute require?
24 THE COURT: The statute requires
25 everything that is after the word "shall." Anything else
45
1 is up to the discretion -- anything that is after the
2 word "may" is in the discretion of the -- of the
3 Defendants.
4 MR. HANNA: And after the word "shall,"
5 does that include third party software? Did the General
6 Assembly intend for vendors to identify every programmer
7 who worked on third party software?
8 THE COURT: It would seem to me that that
9 is a determination that those folks make.
10 MR. HANNA: And we haven't received an
11 answer from those folks adequately. And so ---
12 THE COURT: You -- you contend that you
13 have not received an adequate ---
14 MR. HANNA: (Interposing) That is
15 exactly right.
16 THE COURT: You haven't indicated to me
17 that you cannot comply with what they have requested at
18 this point in time. You can't -- your concern -- your
19 client's concern is what are the extra requirements going
20 to be, as far as third party. And I -- we are not --
21 that is not controversy -- that is not an issue yet for
22 controversy, is it, until they tell you what they are
23 going to require?
24 But at this point in time, you can -- your
25 client can make a bid and your client can comply with
46
1 what they want in escrow at this point in time. Is that
2 correct?
3 MR. HANNA: Well, that is complying,
4 again, with the interpretation by the State Board of
5 Elections, but that doesn't necessarily mean they are in
6 compliance with the State statute itself, if there -- if
7 there is a question of what the statute means.
8 THE COURT: Sure.
9 MR. HANNA: And so our point is that
10 their interpretation and the way they are enforcing it
11 may be and, in fact, is different than Mr. Zimmerman's
12 argument.
13 THE COURT: And I don't have any problem
14 with that possibility at this time.
15 MR. HANNA: Yes, sir.
16 THE COURT: But until Colon Willoughby,
17 in his infinite discretion as the District Attorney for
18 this district decides that he will charge you for
19 violating a criminal statute for complying with what the
20 State -- the defendant required of you, I don't think you
21 have a -- we have an issue here yet.
22 MR. HANNA: You see, I respectfully
23 disagree, because that is down the road after we sign the
24 contract. We need to know what the requirements are in
25 the statute before we can sign the contract. We are in
47
1 the midst of the certification process and we need to
2 know what is required by the statute in order to complete
3 the certification process and sign a contract.
4 We are in the midst of the of a (inaudible)
5 process. We are in the midst of the certification
6 process. Their -- that comes first, before the criminal
7 violation.
8 THE COURT: Mr. Hanna, change the focus
9 of this a little bit.
10 MR. HANNA: Yes, sir.
11 THE COURT: We have a DJ action now filed
12 on what a contract -- what an existing contract required.
13 Can the parties to that DJ action come into court and
14 say, "What we want is the Court to interpret our
15 negotiations"? Don't you have to have an existing
16 contract before you can have a DJ action on that
17 contract? And aren't you, in effect, coming into court
18 and saying to me, "Judge, interpret the negotiations for
19 us"?
20 MR. HANNA: No, sir. The argument isn't
21 that we are filing a DJ on the contract. We are filing
22 the DJ on the statute. The argument is that the reason
23 why there is an actual case of controversy is because we
24 are in the midst of the RFP process.
25 The process itself is more than signing the
48
1 contract. It is going through the certification process,
2 which is, in fact, the escrow requirements laid out in
3 the statute. It -- we are in the midst of that. We need
4 to know what those requirements are. We need someone to
5 interpret those requirements.
6 We are not suing under DJ on the contract; it
7 is a DJ under the statute itself and a matter of
8 statutory interpretation. And again, I understand the
9 Judge's argument that, "Hey, whatever the legislature --
10 if the legislature didn't think about it, it is not my
11 problem." This is a situation where, in fact, the Court
12 can weigh in and provide helpful guidance to a statute
13 that is subject to different interpretations and can have
14 a catastrophic result, which would be that, come the
15 spring, we have no voting equipment that could be
16 certified.
17 THE COURT: But Mr. Hanna, again, I come
18 back to, would that not be true only whenever there -- an
19 issue arises after you have submitted your bid and
20 complied with what these folks require?
21 MR. HANNA: No, the issue -- my argument
22 is the issue is going on right now, because we have -- if
23 we weren't a vendor -- if we hadn't submitted a bid, I
24 would say, "Judge, you are right. We are asking -- it is
25 a theoretical exercise, because we are not even a vendor
49
1 that has submitted a bid, and we are not going through
2 the RFP process."
3 But we did submit a bid and we are in the
4 midst of the RFP process. We are getting ready to -- we
5 have already gone through and demonstrated our equipment,
6 and we are going through the testing process, so we are
7 in the midst of it. So there is an actual issue going on
8 right now. It is not a theoretical exercise by some
9 third party.
10 THE COURT: Thank you. Ms. Long, then I
11 will hear you Mr. -- go ahead.
12 MS. LONG: All right. First of all, I
13 just have a few quick points, because the hour is
14 approaching. I am puzzled by the Plaintiff's
15 representation that the answer in the addendum somehow
16 changes the interpretation of the statute. If you turn
17 to tab D on the notebook he probably handed you, it is
18 question 19. And the answer says: "Vendors must agree to
19 place in escrow source and object code format all
20 available software."
21 And the Plaintiff is arguing that changes the
22 terms of the statute, so there is an ambiguity in the
23 interpretation of the statute. It does not. This is not
24 a waiver of statutory -- statutory requirements. It is
25 simply an attempt by the agencies charged, in their
50
1 expertise, with administering this statute to learn more
2 about what the problem is. And until 12:20 this
3 afternoon, we didn't even know what third party vendors
4 they were even talking about. So that is not a waiver of
5 the statutory requirement.
6 Secondly, criminal and civil liability
7 attaches only to people who contract with the State.
8 That is the statutory language. It is not people who
9 submit bids. So there is no criminal and civil liability
10 until a contract is signed with a vendor who somehow has
11 failed to tell the State it cannot escrow the appropriate
12 software. So it is premature, Your Honor, to bring a
13 preliminary injunction.
14 And the next question I have is, why would the
15 State contract with someone who can't comply with the
16 standards the State thinks the statute requires? There
17 are two parties to a contract. I can't imagine that
18 someone who has been as open as the Plaintiff has been
19 about not being able to supply what may or may not be
20 necessary under the statute, would even be contracted
21 with.
22 But that is for the expertise of the agency,
23 which is still going through the permit process. As far
24 as I know, no -- no final decisions have been made, and
25 it is up to the agency charged with administering the
51
1 statute, in its expertise, to determine how to do that.
2 The Plaintiff is attempting to stop that
3 process. And when the Plaintiff argues that there is no
4 harm to the State if a preliminary injunction issues that
5 absolves any and all vendors from any liability for
6 essentially lying to the state, then the State is harmed.
7 We can't go through this procurement without the teeth
8 the statute provides.
9 So we are strong in opposition to a
10 preliminary injunction. And we also believe that this
11 matter has been brought prematurely. Thank you.
12 THE COURT: Yes, ma'am.
13 MR. BESKIND: Your Honor, essentially what
14 is going on here is that Diebold would like you to
15 interpret a statute for them so they can feel more
16 comfortable in going through a contractual bidding
17 process. It is the equivalent of, if there was a
18 minority set aside for highway contracts and the statute
19 was somewhat, perhaps -- and I am not even conceding that
20 it is ambiguous -- but ambiguous about what a minority
21 was. And so they came into court and asked you to define
22 what a minority was for the purpose of bidding on that
23 contract so if they entered into the contract, they
24 wouldn't be prosecuted for failing to have the requisite
25 percentage of minority people.
52
1 We don't do that. Courts -- the Superior
2 Courts of this state do not exist for that purpose. At
3 some point down the road, there will be an actual case or
4 controversy if there is a problem here. I suggest to you
5 that if they comply with the recommendations of the State
6 board, no district attorney in his right mind or her
7 right mind would ever prosecute them, because they would
8 have no chance of winning. This is really, essentially
9 at this point, a matter that is of concern to them. But
10 courts do not exist to satisfy the concerns of
11 corporations seeking to do business with the State. They
12 exist to solve real legal problems that have really
13 arisen and so on. So on that basis, we renew the motion
14 to dismiss for lack of jurisdiction.
15 MR. HANNA: Judge, just briefly.
16 THE COURT: Yes, sir. Go ahead.
17 MR. HANNA: It was argued by Ms. Long
18 that, you know, we are trying to get information to
19 determine what may or may not be required under the
20 statute. And that is the whole point, is that there is
21 confusion as to what may or may not be required.
22 In the RFP itself, the reason for the DJ
23 action and the reason why we needed to have an order
24 saying you can submit your bid and not be subject to any
25 penalties and not be subject to any criminal violation,
53
1 is because the RFP itself says that all proposals and
2 responses received shall be treated as offer to contract.
3 And the concern was that if we submit a
4 proposal that is interpreted by the State as an offer to
5 contract, that may be accepting we might have a contract,
6 and therefore -- and we have to go through the
7 certification process. So, again, it is our argument,
8 Judge, that all we are looking for is to -- is, again, to
9 be protected and under the escrow requirements until we
10 can get a determination as to what may or may not be
11 required under the statute. Thank you.
12 THE COURT: Yes, sir. Anything else, Ms.
13 Long?
14 MS. LONG: The interpretation and
15 administration of the statute has been given to the State
16 Board of Elections and the purchasing arm of Information
17 Technology Services. It is the expertise of the agency
18 which will determine what software -- what is included in
19 the definition of software that must be escrowed.
20 An RFP response that is an offer as the RFP
21 requires it to be, originally, I believe, the Plaintiff
22 objected to that and excepted (phonetic) to it. I don't
23 know the status of their -- their position now. But in
24 any event, it takes two to make a contract. If the
25 Plaintiff is up front about what it can and cannot do,
54
1 after a round of questions from the technical people at
2 the State Board of Elections, I don't believe the State
3 would accept a contract that it believed violated the
4 statute. It would be -- you know, would accept an offer
5 that violated the statute.
6 So, you know, it is up to the expertise of the
7 agency. It is premature to ask the Court to make a
8 declaratory ruling now. It is a pretty complicated
9 technical area. I, as an attorney, would be
10 uncomfortable and would want to be advised by technical
11 people. And that is exactly the process the procurement
12 at the State Board of Elections and ITS is going through.
13 It is just simply too early to have a court decide what
14 the statute means when the agency charged with
15 administering it is going through that process right now.
16 THE COURT: Mr. Beskind, Mr. Zimmerman,
17 anything else?
18 MR. BESKIND: No, Your Honor.
19 THE COURT: This is 05-CVS-15474. The
20 matter as now captioned is Diebold Election Systems,
21 Incorporated, Plaintiff versus The North Carolina State
22 Board of Elections and The North Carolina Office of
23 Information Technology Services, Defendants, and Joyce
24 McCloy, Defendant-Intervenor. The court has heard
25 arguments and statements of counsel for all parties and
55
1 reviewed the documents and records by counsel, and has
2 reviewed the complaint in this particular matter.
3 The Intervening Defendant and the Defendants
4 -- the original Defendants -- have moved and argued a
5 dismissal of this matter on the basis that the Court
6 lacks subject matter jurisdiction on the theory that
7 there is no actual case of controversy at this particular
8 time, which the Court would interpret as being really a
9 Rule 12(b)(6) motion for failure of this to stay a cause
10 of action for which relief can be granted. Counsel for
11 the Plaintiff had addressed this motion also.
12 Considering the authority of the State
13 Employees Association, Plaintiff, versus Easley, a case
14 which I don't have a cite for, but which I presided over,
15 in which that -- the Court of Appeals ruled that a court
16 does have the authority on a review of a matter for
17 whether or not either a preliminary injunction or
18 temporary restraining order to review the complaint and
19 determine on its own motion if the complaint satisfies
20 Rule 12(b)(6), the motion is allowed. Draw me an order
21 for this case, please, counsel.
22 (THE PROCEEDINGS WERE CLOSED AT 3:11 P.M.)
56
STATE OF NORTH CAROLINA
COUNTY OF NASH
C E R T I F I C A T E
I, TERRENCE X. MCGOVERN, NOTARY
PUBLIC-REPORTER, DO HEREBY CERTIFY THE FOREGOING
PROCEEDINGS WERE TRANSCRIBED UNDER MY DIRECTION, AND THAT
THE FOREGOING 55 PAGES CONSTITUTE A TRUE AND CORRECT
TRANSCRIPT OF SAID PROCEEDINGS.
I DO FURTHER CERTIFY THAT I AM NOT COUNSEL FOR
OR IN THE EMPLOYMENT OF ANY OF THE PARTIES TO THIS
ACTION, NOR AM I INTERESTED IN THE RESULTS OF THIS
ACTION.
IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY
HAND THIS 16TH DAY OF DECEMBER, 2005.
MY COMMISSION EXPIRES
JANUARY 3, 2009 TERRENCE X. MCGOVERN
NOTARY PUBLIC FOR THE
STATE OF NORTH CAROLINA