BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT JULY 14, 2010 ITEMS C8 AND C9 SALES AND USE TAX APPEALS HEARINGS PETITION FOR REDETERMINATION filed by KERRY MICHAEL LAWRENCE (Case No. 439774 KH ) and ROBERT A. SCHIMPF (Case No. 437280 KH) Reported by: Beverly D. Toms CSR No. 1662 1 1 2 P R E S E N T 3 4 For the Board Betty T. Yee of Equalization: Chair 5 Jerome E. Horton 6 Vice-Chair 7 Barbara Alby Acting Member 8 Michelle Steel 9 Member 10 Marcy Jo Mandel Appearing for John Chiang 11 State Controller (per Government Code 12 Section 7.9) 13 Diane Olson Chief, Board Proceedings 14 Division 15 For Board of Jeff Angeja 16 Equalization Staff: Tax Counsel 17 Andrew Kwee Tax Counsel 18 Kevin Hanks 19 Sales and Use Tax Department 20 Robert Tucker Legal Department 21 22 For Petitioner: Kerry Lawrence 23 Taxpayer Robert Schimpf 24 Taxpayer 25 ---OOO--- 26 27 28 2 1 Sacramento, California 2 July 14, 2010 3 ---oOo--- 4 MS. YEE: Okay, Members, let's resume the 5 meeting. Our next matter, Ms. Olson. 6 MS. OLSON: Our next two oral hearings have 7 been consolidated. So, C8, Kerry Michael Lawrence and 8 Robert A. Shrimp (phonetic), C9. How do you say it? 9 Schimpf. 10 MR. LAWRENCE: Schimpf. Shrimp he's not. 11 MS. YEE: Okay. Very well. 12 MR. LAWRENCE: But -- that would be me. 13 MS. YEE: Members, okay, we are going to 14 consolidate the hearings for item C8, Kerry Michael 15 Lawrence and C9, Robert A. Schimpf. 16 Mr. Angeja, please. 17 MR. ANGEJA: Thank you, Madam Chairwoman, 18 Members of the Board, these issues are identical so I'll 19 refer to the Petitioners collectively. 20 MS. YEE: Okay. 21 MR. ANGEJA: It involves three unresolved 22 issues. First, whether petitioners are personally 23 liable as responsible persons for the unpaid liabilities 24 of Electrical Speciality Parts Network. 25 Second, whether petitioners have established 26 reasonable cause to relieve the late payment penalties 27 and finality penalty originally assessed against the 28 corporation. 3 1 And third, whether petitioners have established 2 that interest accruing on the tax liability should be 3 relieved. 4 MS. YEE: Right. Thank you very much. 5 Good afternoon, gentlemen. 6 MR. LAWRENCE: Good afternoon. 7 MS. YEE: If you will introduce yourselves for 8 the record you have ten minutes for your presentation, 9 and thank you for your patience this afternoon. 10 MR. LAWRENCE: Well, I'm the Kerry Michael 11 Lawrence part of it, and this obviously is not the 12 shrimp but -- 13 MR. SCHIMPF: Yeah, I'm Rob -- Robert Schimpf. 14 MS. YEE: Thank you. Please proceed. 15 MR. LAWRENCE: And we were employed by 16 Electrical Specialty Parts back -- I think I was in 17 about 2000 through 2002, and Rob was a little earlier 18 than that. And we're a little confused -- well, we're a 19 lot confused as to why we're here right now. 20 We basically were just employees and acting 21 under the instructions of the people that owned the 22 company who left -- for some reason left the company and 23 took positions elsewhere. And we have one of the -- 24 one of the people that was the CEO and the President and 25 basically the majority if not all stockholder on this 26 company who basically has said in written statements 27 that she had nothing whatsoever to do with the company 28 after leaving and taking another position in 1999. And 4 1 that's the reason why we're responsible for it since we 2 were actually in the business. 3 And these -- all these accusations or whatever 4 are just hearsay, and I have presented to the Board, 5 which they never got to see before -- presented to the 6 Board written documentation from the President of the -- 7 from the banking person, from another partner, and three 8 or four documents in our own handwriting where -- that 9 came in well after 1999. 10 So I'm not sure how she can say on one hand she 11 had nothing whatsoever to do with it; on the other hand, 12 you know, sold the inventory off, closed the company 13 down, you know, and discussed all this with the bank and 14 discussed this with the other partners, and then turn 15 around and say she had nothing whatsoever to do with it. 16 So it -- it's surprising how you could say one 17 thing and another. 18 The other thing I'm a little -- I'm very 19 confused about is the way these hearings are -- are -- 20 are done. Normally if somebody's going to accuse you of 21 something or, you know, say that you're at fault for 22 something, you would be allowed to present your side of 23 the case before a determination to relieve them of 24 responsibility was made. 25 So, basically they told whatever they wanted to 26 say without any documentation, whatsoever, and they get 27 relieved of the liability and now we're sitting here and 28 we asked that question. They said, well, basically 5 1 you're here because we let them go. And that just 2 doesn't remotely seem equitable. 3 I'm -- I'm reasonably sure that if we had been 4 allowed to present or even had the opportunity to 5 present any of this they might not have accepted the 6 fact that they had nothing to do with it. We just don't 7 know what to do 8 MS. YEE: Okay. Mr. Schimpf. 9 MR. SCHIMPF: You know, basically we took 10 directions from the owners of the company. A couple of 11 them pulled out earlier than the -- the Gretchen 12 McIlvena. When she had moved to the Bay Area she was 13 still giving us directions at the company. 14 You know, it's just hard to define the reason 15 why we're here. And I'm sure that we did some stuff as 16 far as signing stuff that we were asked to do that 17 probably we shouldn't have done, but -- but I still have 18 no idea why we're here. And I'd just like to hear the 19 other side and -- and hear the Board talk now and -- and 20 tell us why. 21 MS. YEE: Okay. In your time that's still left 22 perhaps you can elaborate on the type of involvement 23 that Ms. Ibarra still had after she took employment with 24 another company. 25 MR. SCHIMPF: Well, you know, as far as -- 26 MS. YEE: I mean, give us a flavor of the types 27 of -- 28 MR. SCHIMPF: Okay. 6 1 MS. YEE: Yeah. 2 MR. SCHIMPF: Like for me -- 3 MS. YEE: That could be -- 4 MR. SCHIMPF: -- I was hired actually -- the 5 two companies merged, Lyon Enterprises and Wright 6 Wiring. Gretchen McIlvena owned Wright Wiring. Terry 7 Lyons had owned Lyon Enterprises. 8 I was their electrical support person as far as 9 technical and DC power and -- and that type of stuff. 10 When the two companies merged together, Gretchen 11 McIlvena took over the position of pretty much running 12 the -- like the CFO or CEO position of running all of 13 the -- the bookkeeping, the upper end part. 14 Terry Lyons was actually out in sales and I 15 pretty much ran the back end. So, with Gretchen she 16 pretty much was the one that basically told us how much 17 money we could spend, what we could do as far as buying 18 product. Telling us basically our everyday chores as 19 far as, you know, how the company was going to be ran. 20 And so she was the lady there. So, -- and 21 that's why we're -- we were having such a hard time 22 when -- when they said in 1999 -- she said that she had 23 left and she had nothing to do with the company. There 24 was a ton of involvement still there. She was dealing 25 with the bank. She was dealing with us on the inside, 26 telling us what to do. How to handle stuff. 27 So, that's -- that's basically what she did 28 there. 7 1 MS. YEE: Okay. Thank you. 2 MR. LAWRENCE: It also really didn't appear to 3 be any kind of an issue until she shut the company down 4 and ended up filing personal bankruptcy. And it -- 5 apparently, and I'm not -- maybe one of these many 6 attorneys in Sacramento can tell me this, that this is 7 possibly not a dischargeable in bankruptcy. Because 8 there was nothing. It was never -- nothing was ever 9 said. You know, put it on the bankruptcy go away, then 10 once the bankruptcy was filed and -- it may not have 11 been dischargeable. It was let's find somebody to be 12 responsible. And here we are. 13 MS. YEE: Okay. Thank you, Mr. Lawrence. 14 Thank you, Mr. Schimpf. Let's have the Department speak 15 and then we'll give you time on rebuttal. 16 MR. SCHIMPF: Thank you. 17 MS. YEE: Thank you. Department, please. 18 MR. KWEE: Good afternoon, Madam Chairwoman and 19 Members of the Board. I am Andrew Kwee on behalf of the 20 Board's Legal Department. With me today is Bob Tucker, 21 also with the Legal Department, and Kevin Hanks with the 22 Sales and Use Tax Department. 23 We concur with the Appeals Division's 24 recommendation. The petitioners dispute the 25 determination that they are personally responsible for 26 their remaining unpaid liabilities of the corporation, 27 ESP Network, within the meaning of Section 6829. 28 Of the four elements required to impose Section 8 1 6829, responsible person liability, petitioners dispute 2 that they were responsible and that they were willful. 3 With respect to Mr. Schimpf, the Department 4 determined that Mr. Schimpf was the responsible person 5 because Mr. Schimpf signed the fourth quarter '01 6 non-remittance Sales and Use Tax return as Presidents. 7 In August of 2000 Petitioner signed the 1999 California 8 income tax return for the corporation as President. And 9 he was reported as the highest paid officer under the 10 section labeled "Compensation of Officers." 11 Former employees also identified Mr. Schimpf as 12 the person responsible for handling Sales and Use Tax 13 matters. And Mr. Schimpf was one of only two authorized 14 signers on the corporate checking account, and he signed 15 the corporate checking account application as 16 Presidents. And the only other person on the corporate 17 checking account authorized to sign checks was the other 18 Petitioner, Mr. Lawrence. And that was as of -- 19 Mr. Lawrence was added in December 20 of 2000. 20 With respect to Mr. Lawrence, the Department 21 determined that Mr. Lawrence was a responsible person 22 for the corporation because Mr. Lawrence was again the 23 other authorized signer for the corporate checking 24 account and that was -- and he signed that application 25 as CEO on 12-20-2000. 26 The -- Mr. Lawrence also signed corporate check 27 payments to the Board for Sales and Use taxes. During 28 the liability period in 2001, former employees Christine 9 1 Kelly, Scott Webster and Fernando Ibarra also identified 2 him as a person responsible for Sales and Use Tax 3 matters when the business was terminated. According to 4 the Department records when we contacted the corporation 5 in July of 2002 to discuss the account, Mr. Schimpf 6 identified Mr. Lawrence as the person responsible for 7 handling the funds. And as noted in the D & R both the 8 Petitioners had indicated that they were responsible for 9 finan -- financial matters for the corporation. 10 Regarding willfulness, willfully failing to pay 11 or causes to be paid means voluntarily, consciously and 12 intentionally, although it need not be done with bad 13 purpose or evil motive. 14 Regarding the corporate checking account -- 15 regarding willfulness the corporate checking account 16 reflects that during the liability period at issue while 17 Mr. Lawrence and Mr. Schimpf were the only two 18 authorized signers on the corporate checking account, 19 they made or authorized payments to other creditors 20 exceeding $550,000. 21 Petitioners as the persons with the ability to 22 make Sales and Use Tax payments identified by former 23 employees as responsible persons for Sales and Use Tax 24 matters, had a duty to act -- and persons who had 25 assumed functions as a President and CEO after the 26 departure of the other corporate officers -- had a duty 27 to act on behalf of the corporation with respect to the 28 Sales and Use Tax matters. 10 1 Therefore they knew or they should have known 2 that the tax reimbursement collected from customers was 3 not being remitted to the -- was not being remitted to 4 the Board and acted in reckless disregard to such duty 5 by instead causing in excess of $550,000 to be paid to 6 other creditors. 7 Also -- regarding the claims that other 8 officers or that Ms. Ibarra was a responsible -- that 9 she continued to exert control over the corporation 10 after she resigned as an officer, we did look into the 11 other officers of the corporation that had been 12 responsible during the life of the corporation. 13 Regarding former Officer Dan Vitt, Mr. -- we 14 determined that Mr. Vitt was not a responsible person 15 because Mr. Schimpf signed as President before a notary 16 a stock buy-back and reimbursement agreement prior to 17 the liability period, which terminated former employee 18 Mr. Vitt's association with the corporation. And he 19 executed a promissory note on behalf of -- in favor of 20 Mr. Vitt on behalf of the corporation in the amount of 21 $2o,000 payable to Dan Vitt. 22 And regarding the former employee Mr. Terry 23 Lyon -- former officer Mr. Terry Lyon, the Department's 24 investigation determined that Mr. Lyon was not a 25 responsible person during the liability period because 26 he had provided a letter of resignation as a Director 27 and Officer of the corporation back in October of 2000. 28 And that was addressed to Mr. Schimpf, who he identified 11 1 as President of the corporation at that time period. 2 And then finally regarding Ms. Ibarra, she 3 was -- we did -- we actually issued a determination to 4 her. The Appeals Division determined -- concluded and 5 the Department agrees that she was not a responsible 6 person within the meaning of Section 6829 because she 7 was an authorized signer on the corporate checking 8 account with Wells Fargo during the liability period. 9 Further, we do not have documentation such as 10 Board meeting minutes or other called contemporaneous 11 documentation to show that she was responsible for 12 running the business and the Sales and Use Tax matters 13 during that period or that she actually did exert -- 14 exert -- exert such influence. 15 Ms. Ibarra provided tax returns from 2000 and 16 2001 showing that she did not receive wages from the 17 corporation during these reporting periods. She also 18 provided documentation as was indicated earlier that she 19 left prior to the liability period, at which time she 20 was employed full time in Hayward at another 21 corporation. And she -- she claimed that she left in 22 1999 because she had disputes over management with 23 Mr. Schimpf. 24 Also, there was only one other thing that I 25 wanted to mention, regarding the claim that Ms. Ibarra 26 closed the bank accounts, she was a personal guarantor 27 on a different bank -- I think it was the American River 28 Bank, and they did provide a letter that she was a 12 1 guarantor but we don't have evidence that the bank 2 prevented them from making payments during the liability 3 periods or otherwise prevented them from exerting the 4 control required to comply with the Sales and Use Tax 5 matters. 6 MS. YEE: Thank you, Mr. Kwee. 7 Can you speak to the bankruptcy issue that 8 Petitioners raised? 9 MR. KWEE: Oh, Ms. Ibarra -- the -- the 10 corporation didn't file bankruptcy, it was the -- Ms. 11 Ibarra. And then she -- we -- the -- the bankruptcy 12 didn't affect the -- her liability because her Notice of 13 Determination was issued after the -- the bankruptcy. 14 MS. YEE: Fine. Okay. 15 All right, thank you. 16 MR. KWEE: Oh, I am sorry, but her -- her 17 recommend -- her decision did go final prior to the 18 Petitioners being issued a Notice of Determination. 19 MS. YEE: Okay. Thank you. 20 Take five minutes on rebuttal. 21 MR. LAWRENCE: Yeah. Once again I'm a little 22 confused how people can make -- is there any 23 substantiate and corroborating evidence whatsoever from 24 the three employees that made comments to the fact that 25 we were the people in charge of that company? 26 I mean, there's nothing. There's no -- no 27 documentation, whatsoever. It's all basically hearsay. 28 I'm -- I'm looking at three letters, you know, 13 1 signed by Gretchen closing the company. Liquidating the 2 inventory. It's signed after the date she said she had 3 nothing to do with the company. 4 I have a letter from the bank that said that 5 she dealt with them on the financial matters through the 6 very closing of the company. 7 I have another letter that just -- I just 8 brought in today that you haven't had a chance to see 9 that said that she -- from Dan Vitt, which was the one 10 was -- was excused, was a partner that said after 1999 11 she still controlled all the business matters of the 12 company. 13 So there is some very deep inconsistencies in 14 her statements. I mean, we've provided written 15 documentation. And I don't see a shred of evidence 16 disputing what we're saying. 17 We -- we have -- we have written documentation. 18 Normally that takes precedence over hearsay. We're -- 19 we're basically just looking for a -- a fair shake. 20 There's something else I will point out. When 21 this thing first came to pass in 2002 or '3, whatever 22 they sent the original letters out, they sent them to 23 the three officers of the company, who called everyone. 24 No one would talk to each other. 25 So they called around, they asked if I had 26 heard anything, and I said no, I hadn't, but if there 27 was in fact a tax bill due that it probably would be 28 best that everybody put in some money and cleaned it up 14 1 right now. Because I know one thing, the State Board of 2 Equalization is not going away. You're going to be 3 here, it's trust fund money. 4 So we -- you know, I made that suggestion and 5 everybody agreed except for Gretchen. And she wouldn't 6 pay one cent because she filed bankruptcy. After -- and 7 this is hearsay, too. I mean, I wish I could find the 8 documentation. I have letters to the effect but I don't 9 have them with me right now. The computer crashed, 10 but -- looking for printed ones, but you know -- I'm off 11 track now. 12 MS. YEE: Okay. Mr. Schimpf -- 13 MR. LAWRENCE: So -- 14 MS. YEE: -- anything else? 15 MR. SCHIMPF: One of the things I want to say 16 about the Wells Fargo account, when Gretchen was leaving 17 to go the Bay Area because she was looking to help the 18 company for the financials because she could go over 19 there and take her income from somebody else because 20 the -- the business was basically falling as far as -- 21 with what was going on there. 22 She took us over there to Wells Fargo and -- 23 and I specifically tell -- remember her telling Kerry, 24 you know, "I'd like to make you the CEO because of the 25 fact is that, you know, you need to run this and this 26 and that." We had a lot of titles there. I'm going to 27 be right up front with you. She -- you know, I always 28 thought I was the President of -- Research and Design 15 1 there. We had a lot of different titles. 2 I don't think -- when I signed the thing as 3 President I wasn't signing it as the President of the 4 corporation. I was never on the corporation there. I 5 was never -- added to it. I -- I -- when the company 6 was started I wasn't -- well, Kerry nor I were the ones 7 that started that company. They started that company 8 and when that company got in trouble they ran. 9 And, you know, we were -- we were hopeful at 10 the end of that company to -- that we could keep it 11 going and -- and basically pay off the debts that were 12 hanging out there. But when she sent the letter that 13 basically said it's closed, it slammed us. It was done. 14 The other bank that you're talking about, 15 American River Bank, that was the main bank for the 16 company. That was where the lines were and everything 17 else for the company that they basically just said it 18 was nothing. That was the bank that -- that held the -- 19 the money for the company. That was our main lines. 20 Which we have a letter for that basically -- that states 21 that Gretchen, you know, was dealing with them the whole 22 time. So -- 23 MR. LAWRENCE: I feel like we're -- can I 24 just -- on Scott Webster, which is one of the people 25 you're using as a -- other employee, I mean if you just 26 look at -- I'm not sure what -- what -- what the 27 purposes was. If you look under number 3, and this 28 should -- this should sum it up pretty well, are there 16 1 any known business assets available for the 2 indebtedness? I'm not going to read the whole thing. 3 It says, "Rob Schimpf has vehicles and 4 property." Completely untrue. 5 And then he has a statement here, "Kerry has 6 the financial means to support the business. What the 7 heck does that mean? I don't know what that has -- it 8 looks like a witch hunt right here. I mean that -- that 9 is the most ridiculous statement. 10 I mean, the people worked in the warehouse. 11 They weren't even -- I have no idea why they would make 12 those comments but perjury comes to mind. 13 MS. YEE: Okay. Thank you very much. 14 MR. LAWRENCE: So -- thank you. 15 MS. YEE: Let me ask you a question. I'm 16 looking at this letter from Dan Vitt that suggests that 17 Gretchen was still very involved and -- and provided 18 some direction. 19 Was there any kind of written documentation of 20 when she gave direction in terms of when bills got paid 21 or when decisions got made at the company? 22 MR. LAWRENCE: Yeah, there -- there probably 23 was at one time, but you know it's eight years later, 24 everything is gone. It was basically verbal -- verbal 25 on that. 26 We were -- you know, we're just looking for 27 some equitable thing on it. 28 MS. YEE: Uh-huh. 17 1 MR. LAWRENCE: You know, we're just -- not 2 looking to bear the whole brunt of something we 3 completely feel it's not our responsibility. But we try 4 to be fair up front. We try to be fair now. We've 5 talked to everybody. 6 Basically, it's in your hands at this point. 7 MS. YEE: Uh-huh. Okay. Thank you. 8 Questions, Members? Ms. Steel, please. 9 MS. STEEL: To the Department, where is 10 Ms. Ibarra? And why we dropped her? And what's going 11 on with her? Are we going after her or -- 12 MR. KWEE: We actually had issued a Notice of 13 Determination to Ms. Ibarra but Appeals Division 14 concluded and we agreed that she was not a person 15 responsible within the meaning of Section 6829. 16 MS. STEEL: Why is that? What's -- what's that 17 section and why is that? 18 MR. KWEE: The -- the section is the section 19 that we're holding them responsible under and we 20 determined that she wasn't responsible for payment of 21 the -- that she wasn't a responsible person because she 22 wasn't an authorized signer on the corporate checking 23 account during the liability period. And we don't have 24 any documentation, such as Board minutes or other 25 contemporaneous evidence, to show that she was 26 responsible for running the business and Sales and Use 27 Tax matters during that time period or that she actually 28 exerted such influence during the liability period. 18 1 And she also provided tax returns from 2000 and 2 2001 showing that she -- she did not receive any wages 3 from the corporation during these reporting periods. 4 She did show -- provide documentation that she 5 had resigned -- I guess that's in -- it would just be, 6 but that she left in 1999 but she did provide 7 documentation that she was employed full time after that 8 period at a -- at another corporation in Hayward. And 9 that was before the liability period. 10 MS. STEEL: But she's the one that signed the 11 seller's permit. 12 MR. KWEE: That was prior to the liability 13 period, yes, she did sign the seller's permit. 14 MS. STEEL: But that seller's permit was closed 15 and then they reopened it? But they were still using 16 that. So she's the own original sign -- signer for that 17 seller's permit, right? 18 MR. KWEE: That's correct. 19 MS. STEEL: So these two taxpayers said that 20 she was still running -- 21 MR. KWEE: Yes. 22 MS. STEEL: -- the business. And even she 23 moved. 24 MR. HANKS: Ms. Steel, I think that -- the 25 difficulty that we -- we had with that individual is 26 that it appeared she removed herself from the business 27 operation, at least at the time that these liabilities 28 became due and payable to the Board. 19 1 So she was no longer President; yes, she did 2 apply for the seller's permit and had her name on -- on 3 the permit originally. 4 But -- but she wasn't a responsible party at 5 the time that these taxes became due. 6 MS. STEEL: Do you have any way occurred that 7 she send you e-mail or any orders that you cannot spend 8 more than how much and do you have any of those 9 paperworks or you -- any -- 10 MR. LAWRENCE: Un -- unfortunately, I don't. I 11 had a computer crash and she didn't do a lot of that. 12 But just to reit -- you know, just a question for my 13 esteemed colleagues -- 14 MS. STEEL: So you don't have anything? 15 MR. SCHIMPF: No, I -- I -- 16 MS. STEEL: Because you -- you -- you said -- 17 MR. SCHIMPF: Well, we -- what we do have is we 18 have the letter in here where she closed the company. 19 MR. LAWRENCE: I have letters written -- 20 MS. STEEL: I understand that part. But during 21 this time that -- 2000 -- October 2001 to October 2002 22 you -- don't you have any record that you -- you said 23 that she's the one said that don't spend more than or -- 24 so, any record that that's going to help you for -- 25 MR. LAWRENCE: We can look for them. But could 26 I make one -- the question -- 27 MR. SCHIMPF: We can -- you know, basically -- 28 MS. STEEL: Can you find it if you have a 20 1 little more time? 2 MR. LAWRENCE: Well, here's -- we'd really like 3 to get this settled, but once again I go back to the 4 question is, it's like tick for tack a little bit on 5 this. Where is the documentation that proves that she 6 didn't do that? I mean, I have -- I have these letters. 7 MS. STEEL: The burden of proof is on you. 8 MR. LAWRENCE: I have the letters that said -- 9 I mean she's already told -- she's -- and I know, I 10 don't mean to sound so whiny, but the -- 11 MS. STEEL: I understand -- 12 MR. LAWRENCE: We have letters -- 13 MS. STEEL: -- exactly why you are here. 14 MR. LAWRENCE: Yeah, we have -- 15 MS. STEEL: I -- I understand. Just -- I'm 16 just asking you one thing. If you have more time can 17 you find those paperworks? 18 MR. LAWRENCE: I -- I don't -- right now I 19 don't believe -- it's been eight years and I have the 20 computer that I was using at that time, one was stolen 21 off the desk at work and the other ones are -- are gone. 22 But my -- my question once again is if -- 23 MS. STEEL: Mr. Schimpf. 24 MR. LAWRENCE: -- in -- in absence of being 25 able to find that -- 26 MR. SCHIMPF: I -- I definitely could go back 27 and look. But as far as on paperwork and stuff that 28 pretty much when -- when, you know, the company went, 21 1 all the computers and everything went with it, you know. 2 So -- but, you know, I definitely could go back 3 and see if I have some of the old stuff that I had or, 4 you know, books that I had that where, you know, if she 5 sent me something. But it's been so long. 6 But I definitely would try, you know. But -- 7 MS. STEEL: That's really big and you need some 8 proof that she did all the -- you know, control over 9 both of you that what, you know, that has to be done for 10 your company at that time. So -- 11 MR. LAWRENCE: Right. Even though we have the 12 letters from the bank and everybody else. 13 My other question would be does the fact -- 14 mere fact that she didn't receive remuneration from the 15 company or be physically present in -- within the, you 16 know, confines of the company excuse her in any way -- 17 MS. STEEL: Well, that's the reason -- 18 MR. LAWRENCE: -- for the responsibility? 19 MS. STEEL: -- that I'm asking you to 20 prepare -- 21 MS. YEE: No, I must -- 22 MS. STEEL: -- some more documents. 23 MR. LAWRENCE: I wish I -- 24 MS. STEEL: That's going to help you. 25 MR. LAWRENCE: Okay. Believe me, I'll -- I'll 26 do my -- we'll do our best to find other -- whatever we 27 can. 28 MR. SCHIMPF: You know, some of the employees 22 1 like Daniel Vitt, he was one that was an individual that 2 actually worked more in the up front with her. 3 I'm technical. And I'll be right up front with 4 you, I've never been a bookkeeper. Straight up my wife 5 don't even give me a checking account now. I don't -- I 6 don't -- you know, I'm just not on that side of it. 7 I've always been on the technical side. 8 But Fernando, you know, which is Gretchen's 9 husband that's listed in there, you know, he was in -- 10 in the Purchasing Department. Daniel Vitt was one of 11 the main purchasers up front. 12 You know, those are the -- the people that 13 would basically take direct orders from Gretchen. As 14 far as with us, I guess -- you know, on my end of it I 15 got bit the worst because I moved over with Terry Lyons, 16 which was Lyons Enterprises. I was an original employee 17 with them. 18 So, you know, how we got the titles, I -- I saw 19 titles come across the board all over the place there. 20 The bottom line is with the Secretary of State, 21 you know, the officers were listed. In the Sales Tax 22 deal it was listed. And -- that was the case that 23 Gretchen was leaving. She was the type of a person that 24 I'm going to tell you, she would have went down and she 25 would have changed that stuff. 26 Gretchen would have went down and -- and did 27 it. She was a -- for me she was a tough woman to work 28 around, I'll be right up front with you. Her and I 23 1 didn't see eye to eye because a lot of times I was 2 trying to get parts to get customers taken care of and 3 she was trying to slow -- slow me down in the back end, 4 which -- which I understand. 5 But -- but as you can see with everything that 6 she has supplied and said -- you know, everything that 7 she had said, nobody will ever convince me that if she 8 physically left that she wouldn't have went down and 9 changed those corporate officers and she wouldn't have 10 taken herself off that sales tax thing. 11 She knew exactly when she left what she was 12 doing. And -- 13 MS. STEEL: I hear you. 14 Department, that when did we start this 15 process? 16 MR. KWEE: We initially started contacting them 17 as soon as the corporation closed in -- 18 MS. STEEL: When was that? 19 MR. KWEE: -- October of 2000 -- it was October 20 31st, 2002 is when they closed out the permit. It took 21 us a while to do investigations. Of course the first 22 time around we did go after -- issued a determination to 23 Mrs. Ibarra. It wasn't until later that we determined 24 that they were responsible persons and -- 25 MS. STEEL: When was that? 26 MR. KWEE: They -- they were -- I believe it's 27 2007 that we sent them the determination. I'll -- could 28 double check that. They -- 24 1 MS. STEEL: Did you ask these two gentlemen 2 that -- about those documents at that time, 2007? 3 MR. KWEE: They -- they were -- you know, we 4 were in contact with -- with them. The Department was 5 in contact with them and they had provided a lot of 6 letters explaining their positions with respect to 7 our -- our billing them as responsible persons. 8 MS. STEEL: Thank you. 9 MS. YEE: Thank you, Ms. Steel. 10 Other questions, Members? 11 MR. SCHIMPF: I don't -- can I say something? 12 Is it open? 13 MS. OLSON: Mr. Schimpf. 14 MR. SCHIMPF: I don't believe that I ever got 15 anything out of them until after Gretchen was done. 16 Okay. I think that -- that some of the other parties 17 did because Kerry had made mention to me that something 18 had -- but I had not seen nothing. And they let 19 Gretchen go before I even had a chance to address this. 20 Because if I would have had this chance to do this in 21 front of her I would have asked her, you know, hey, come 22 on, you know. 23 When she -- let me tell you something. When 24 this lady came, she was a very intelligent lady that 25 came from business. She was hoping that that company 26 was going to be pulled out by us and that we would have 27 did our hard work there and everything else. And when 28 it went sour she took us down with it. 25 1 And if -- if she -- I'll tell you, I honestly 2 believe if she actually thought that she left and she 3 was going to leave and be permanently gone, she would 4 have went down and did all the filing. She would 5 have -- would not have waited for anybody else to do it. 6 And I think when she went down and put us on that 7 checking account at Wells Fargo because she wanted us to 8 be able to write incidental checks, that she knew that 9 that was going to tie us to this and -- and if you go 10 back to American River Bank, if the Board would have did 11 that as far as the -- they would have saw that that was 12 the main bank account for the company. That was the -- 13 the lines of credits. That's where all the factoring 14 went through for the business. 15 And to say that that account was nothing, that 16 was the account. Wells Fargo was the incidental account 17 where the money was moved to that account. 18 And so, I don't really think the others -- the 19 whole investigation on the other side did us a fair 20 justice as far as being able to come in and tell our 21 point. 22 And -- and basically releasing the person -- I 23 think the reason that we're here. That she put us in 24 this position. 25 And so, thank you. 26 MS. YEE: Thank you. 27 MR. HORTON: Madam Chair. 28 MS. YEE: Yes, Mr. Horton. 26 1 MR. HORTON: Thank you. 2 Mr. Schimpf, you indicated that when she pulled 3 out she expected the two of you to make the company 4 work. Can you elaborate on that? 5 MR. SCHIMPF: What I mean by that is, is that 6 the company basically was having a hard time. It was 7 struggling. And Gretchen -- basically she came to me 8 and said that she -- you know, rather than her trying to 9 take pay out of the company she says, "Let me go down. 10 I'm good in the computer industry. Get a job down 11 there. And I'll help supplement the company and -- and, 12 you know, basically help -- help with the -- the pull 13 from the company to allow more money to come back into 14 the company." 15 But it -- it didn't mean that she had left the 16 company because she -- she'd sold the company to us or 17 got rid of the company or anything else. It meant that 18 she was just trying to stimulate it a little bit. 19 I think, you know, in her whole way that she 20 was trying to help it. You know what I mean, to go down 21 there and get -- get some of the bur -- burden off of 22 it. 23 But, you know -- 24 MR. HORTON: So, while -- 25 MR. SCHIMPF: What's that? 26 MR. HORTON: While she was gone or working in 27 order to supplement the company financially, what was 28 your role? 27 1 MR. SCHIMPF: You know, my role, we -- we 2 rebuilt -- we've rebuilt D. C. Motors. We do a lot 3 of -- especially wiring harnesses, we did them for the 4 CHP. We did a lot of different stuff like that. 5 My role has always been on the technical side. 6 Did I help in the office some? Yes, I did. Because we 7 were very short-staffed there. We were trying to keep 8 it alive. 9 And, you know, I would answer phones. I would 10 come in and out. If somebody asked me to do something, 11 you know, I always feel that -- you know, I -- I didn't 12 think I'd be put here in this position, to be honest 13 with you. When -- when I hear that it breaks my heart, 14 to be honest with you, because I was a hundred percent 15 there for that company trying to help that company, and 16 I just feel that Kerry and I both just got laid out, 17 knowing that we were going to get laid out and it -- 18 it just kills you because we weren't there to take 19 anything, that was for sure. We were there hopefully -- 20 and we honestly felt that the company was just going to 21 keep on going. That we were able -- we were going to be 22 able to push it on through. 23 And when we got the letter that basically said 24 that she'd sent out and closed everything up -- and with 25 her bankruptcy it took down our American River line, 26 right up front. That when she went bankrupt she was 27 insolvent. So that's what took down the American River 28 line from our bank. 28 1 So to say that she wasn't active in it, she was 2 the full signature on that American River line, one of 3 the major signatures on that line. So when that went 4 down there went our bank. There went down everything. 5 So we had no way to do anything. There was no 6 way to recover -- to -- if the money was owed to the tax 7 board or owed to vendors or anything else, there was no 8 way for us of recover it. It was done. 9 MR. HORTON: The sale -- I mean the customers 10 during the time that she was working this second job, 11 who handled -- who worked with the customers? 12 MR. SCHIMPF: As far as -- what do you mean 13 like customers? As like who bought from us? 14 MR. HORTON: Yeah. Yeah. 15 MR. SCHIMPF: I would work with some of those. 16 We had -- we had a back sales department in the back end 17 that basically was a parts room that -- that I was a 18 wholesale counter. So we had about three or four people 19 in there that were taking phone calls and everything 20 else. It was kind of one of those companies that -- you 21 know, about anybody would answer the phone and try to 22 help somebody out if they needed it. 23 So there wasn't no one person that did that. 24 MR. HORTON: And what was your role, sir? 25 MR. SCHIMPF: My role or -- excuse me. 26 MR. LAWRENCE: Mine? 27 MR. HORTON: Yes. 28 MR. LAWRENCE: I basically did whatever I had 29 1 to do, from going and selling to trying to find product, 2 to dealing with the customers. It just -- typical small 3 business. You wear any hat that had -- cleaning the 4 bathrooms, you name it. You had to do everything. 5 And as the thing went on there was less and 6 less people to do -- do the work. 7 And the only thing I can say in retrospect 8 is -- 9 MR. HORTON: How did the bills get paid? 10 Who -- who handled those? 11 MR. SCHIMPF: Okay. There was a bookkeeper 12 there that basically that she would, you know, do all of 13 the -- the preparing and all that type of stuff. And 14 then basically what would happen is, is that, you know, 15 we did sign checks, I'll tell you straight up. With the 16 Wells Fargo account that we were on that account. That 17 we weren't the ones that were saying that -- 18 MR. HORTON: Were there any other check signers 19 besides you two gentlemen? 20 MR. SCHIMPF: There was -- 21 MR. HORTON: Who signed your payroll check? 22 MR. SCHIMPF: You know something, it was done 23 through a -- 24 MR. LAWRENCE: It was a payroll company. 25 MR. SCHIMPF: It was a payroll company. It was 26 a payroll company. So -- 27 MR. LAWRENCE: That was one thing, so they had 28 me down as signing. I never signed a payroll check. I 30 1 was never on a payroll check, any account. 2 MR. HORTON: Did you sign any checks? 3 MR. LAWRENCE: Oh, I signed -- I signed checks. 4 MR. HORTON: You signed checks? 5 MR. LAWRENCE: Not payroll checks. 6 MR. HORTON: What type of checks did you sign? 7 MR. LAWRENCE: Well, they have one. I -- I 8 paid the State Board of Equalization. 9 MR. HORTON: Oh, you -- oh, okay. 10 MR. LAWRENCE: They've got my -- 11 MR. HORTON: You -- 12 MR. LAWRENCE: I've drawn a check there. 13 MR. HORTON: You also signed -- 14 MR. LAWRENCE: I mean, that should be a good 15 thing. 16 MR. SCHIMPF: Yes, sir, but the more the checks 17 that I would sign would be -- we had a lot of C.O.D.s 18 coming in, okay, that -- because they were behind with 19 their creditors. 20 So if we were ordering parts and we needed 21 parts, they'd come in C.O.D. so -- Gretchen did give us 22 that capability of doing that. I -- I will totally tell 23 you that -- that, you know, when the parts came in we'd 24 sign it. But we wouldn't dictate what we -- 25 MR. HORTON: How did she give you -- was it 26 verbal? She -- 27 MR. SCHIMPF: No, what she did was, is that 28 when she was leaving and -- and when I say leaving, when 31 1 she was moving to take the other job -- 2 MR. HORTON: Right. 3 MR. SCHIMPF: -- she basically -- her and I 4 were down in Concord. Coming back from Concord she 5 says, "You know, Rob," she says -- we were down there 6 calling on like the City of Concord. 7 She says, "You know, Rob," she says, "things 8 are getting pretty tough right now and I have an 9 opportunity to go do this." She says, "You know," she 10 says, "I'm looking at wanting to" -- you know, "moving 11 on right now. And Fernando will stay with you, my 12 husband" -- and I don't know if they were husband and 13 wife at that time. They were dating. I can't tell you 14 in that specific date, but they got married while they 15 were there at the company. 16 And -- and so basically she said, "but you're 17 going to have to go over to the bank and you're going to 18 have the capability of writing checks." 19 So, that's how I won that great position of 20 having to write the checks because if she wasn't going 21 to be there, somebody had to write the checks, you know. 22 So -- 23 MR. HORTON: Was there any limit on the amount 24 that you could write a check for? 25 MR. SCHIMPF: You know something, I -- I can't 26 tell you what the limit was on it. And I'm sure there 27 was, but I can't tell you. I have no idea what that was 28 and -- 32 1 MR. HORTON: Was she on the account, as well? 2 MR. SCHIMPF: You know something, she took 3 herself off is what I've heard now. I thought she was 4 on there. 5 MR. LAWRENCE: Wells Fargo is what they say. 6 MR. SCHIMPF: Yeah, I thought she said -- 7 but -- but at American River Bank she was American River 8 Bank. 9 Because, see, there was two different accounts, 10 okay? There was two accounts. There was one operating 11 account. And then there was another account that 12 basically was the factoring account for the business 13 where they -- the company would basically sell off their 14 invoices, like a factoring type of a deal. And that was 15 done through a management -- money management account at 16 American River Bank. 17 So, that's why I said that when she went 18 bankrupt and her bankruptcy went through and this whole 19 thing, it -- it shut down the company immediately 20 because the bank -- she was insolvent and the bank 21 basically shut down all the lines, anything that was 22 connected to her when she filed. 23 MR. LAWRENCE: The only thing I would like to 24 say is we were looking for something that was equitable. 25 In the very beginning we made -- we tried to get 26 everybody to settle and everyone was ready to settle or 27 we wouldn't be sitting here right now. 28 It was one person that wouldn't do -- 33 1 MR. HORTON: Settle on the tax? 2 MR. LAWRENCE: Yeah. When -- when they -- 3 first the letters came out to the owners who signed the 4 Sales Tax bond, which is obviously -- 5 MR. HORTON: The -- the both of you agreed to 6 settle -- 7 MR. LAWRENCE: Well, every -- yeah, we all -- 8 they came to us and we'd seemed -- at that point -- I'm 9 a great settler. Let's just get it over with. Why 10 fight it out? 11 And even though we didn't feel we were 12 obligated in any, I would -- I would be more than -- 13 MR. HORTON: Who participated in that? Who 14 persist -- participated in that decision? 15 MR. LAWRENCE: Yeah, absolutely. Which I -- 16 MR. HORTON: No, who? 17 MS. MANDEL: Who? 18 MS. YEE: Who? 19 MR. LAWRENCE: Well, everybody. 20 MR. HORTON: Who's everybody? 21 MR. LAWRENCE: Rob. Me. Terry Lyon and Dan 22 Vitt. And the only person that wouldn't do it was 23 Gretchen. 24 MR. HORTON: All of you felt -- 25 MR. LAWRENCE: All of us had said well -- 26 MR. HORTON: -- at some point that you had -- 27 MR. LAWRENCE: -- even though nobody agreed we 28 should have to, it just made -- common sense said let's 34 1 just get this over with right now and go on with our 2 lives. It was a bad experience. 3 You know, spreading that out $3,000 a person, 4 even though it seemed astronomical at that point, seemed 5 to be the smart way to fix it. I mean, it really did. 6 You know, okay, I'm not guilty but, heck, if we 7 can make this go away for a little bit of money and get 8 on with our lives that would be great. But as soon as 9 she refused everyone else said, "Aah, I'm not paying 10 this. Forget it." 11 MR. HORTON: After she refused? 12 MR. LAWRENCE: Yeah. And it just seemed like 13 a -- you know, since we'd already been in -- we've 14 already been, as we figured, responsible and we were 15 just doing what we were told, we thought that was, you 16 know, kind of a good gesture, let's just get this over 17 with. 18 And here we sit eight years later, all the 19 money and time been spent chasing this around. People 20 saying they weren't responsible, they are responsible. 21 People just -- okay, I don't get it. 22 You know -- 23 MR. HORTON: And -- 24 THE WITNESS: -- just make it equitable. 25 That's all we ask. 26 MR. HORTON: You -- you indicated you did just 27 about anything to sort of help the company out. Part of 28 that was sales. 35 1 MR. LAWRENCE: Yeah. 2 MR. HORTON: When you consummated a sale, was 3 there sales tax? 4 MR. LAWRENCE: Oh, yeah. And if they were 5 wholes -- if they were retail accounts you had to pay 6 sales tax. If they were wholesale accounts they had 7 resale cards on file. 8 MR. HORTON: So you made sure that it was 9 invoiced? 10 MR. LAWRENCE: I didn't have anything to do 11 with the invoicing part of it. 12 MR. HORTON: What did you do with the customer? 13 Did you just -- 14 MR. LAWRENCE: Well, they had -- there's people 15 in the back that invoiced them out. 16 MR. HORTON: When you -- 17 MR. LAWRENCE: I didn't actually know how to 18 run the computer system. 19 MR. HORTON: No, when you participated in sales 20 you've got a customer, you're talking to the customer, 21 you're saying -- 22 MR. LAWRENCE: A lot of it was over the phone, 23 "Hey, I need to buy," you know, XYZ. Here, sales -- 24 MR. HORTON: And what did you tell them? 25 MR. LAWRENCE: -- put it in. 26 MR. HORTON: Oh, you didn't tell the boss -- 27 MR. LAWRENCE: Yeah, I didn't -- I didn't type 28 out any any invoices or any purchase orders or any of 36 1 that stuff. 2 MR. HORTON: No, no, I didn't think you did. 3 But you didn't talk to the customer and -- 4 MR. LAWRENCE: Yeah, I've talked to the 5 customers. I talked to the creditors. I talked to 6 the -- 7 MR. HORTON: Oh, you talked to the -- 8 MR. LAWRENCE: -- people that claimed the -- 9 MR. HORTON: Your role is -- 10 MR. LAWRENCE: Yeah, when people called up -- 11 MR. HORTON: -- with the creditors? 12 MR. LAWRENCE: Well, whoever called up, you 13 know. The vendors, you talk to them when they called 14 in. 15 MR. HORTON: And what did you talk -- 16 MR. LAWRENCE: If they wanted to buy -- you 17 know, we needed to buy something. 18 MR. HORTON: The creditors. You said you 19 talked to the creditors. 20 MR. LAWRENCE: What I call vendors, is what I 21 mean. Vendors, creditors -- yeah, I mixed up the 22 terms, I guess. 23 MR. HORTON: Thank you, Madam Chair. 24 MS. YEE: Thank you, Mr. Horton. 25 Other questions, Members? 26 Okay. Hearing none may I have a motion, 27 please? 28 MR. HORTON: Move to take it under submission. 37 1 MS. YEE: Motion by Mr. Horton to take the two 2 appeals under submission. 3 Is there a second? 4 MS. MANDEL: Second. 5 MS. YEE: Second by Ms. Mandel. 6 Without objection, such will be the order. 7 Thank you both very much for coming forward. 8 MR. LAWRENCE: Thank you very much for allowing 9 us -- 10 MS. YEE: We will discuss your matter later 11 today. 12 MR. LAWRENCE: -- this opportunity. 13 MS. YEE: Thank you. 14 ---oOo--- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 38 1 REPORTER'S CERTIFICATE. 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, BEVERLY D. TOMS, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 July 14, 2010 I recorded verbatim, in shorthand, to the 10 best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding 38 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: September 13, 2010. 17 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 39