BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 450 N Street, Room 121 Sacramento, California REPORTER'S TRANSCRIPT JULY 27, 2011 ITEM C4 SALES AND USE TAX APPEALS HEARINGS PETITION FOR REDETERMINATION filed by DANSIG, INC. (Case No. 493691 EA) Reported by: Beverly D. Toms CSR No. 1662 1 1 2 P R E S E N T 3 4 For the Board Jerome E. Horton of Equalization: Chairman 5 Michelle Steel 6 Vice-Chairwoman 7 Betty T. Yee Member 8 George Runner 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 Division 14 15 For Board of David Levine Equalization Staff: Tax Counsel IV 16 17 Cary Huxsoll Tax Counsel 18 19 Robert Tucker Legal Department 20 Steve Sisti 21 Sales and Use Tax Department 22 For Petitioner: Steven E. Paganetti 23 Attorney at Law 24 Donald Sigaty 25 Taxpayer 26 27 ---OOO--- 28 2 1 2 Sacramento, California 3 July 27, 2011 4 ---oOo--- 5 MR. HORTON: Let's convene today's Board of 6 Equalization meeting. 7 Ms. Olson, what is our first matter? 8 MS. OLSON: Our first item is C4, Dansig, 9 Incorporated. Please come forward. 10 Board Proceedings has received contribution 11 disclosure forms for this morning's hearings from the 12 parties, agents and participants. All forms were 13 properly completed and signed, and all parties, agents 14 and participants are on the Alpha listing provided to 15 your office. 16 MR. HORTON: Thank you very much. 17 Mr. Levine, would you please introduce the 18 issues in this case. 19 MR. LEVINE: Good morning, Chairman Horton, 20 Members. 21 MR. HORTON: Good morning. 22 MR. LEVINE: David Levine for the Appeals 23 Division. 24 The issues in this administrative protest of 25 Dansig, Inc. are whether adjustments are warranted to 26 disallowed claimed sales for sale, and whether taxpayer 27 was negligent. 28 MR. HORTON: Good morning to the appellant. 3 1 Could you please introduce yourselves for the records. 2 You will have ten minutes to make your presentation, at 3 which time we will go to the Department and return to 4 you and allow five minutes on rebuttal. 5 MR. PAGANETTI: Good morning, Mr. Chairman and 6 Members -- 7 MR. HORTON: Good morning. 8 MR. PAGANETTI: -- of the Board. My name is 9 Steven Paganetti. I'm from the law firm of Lyle, Carter 10 and Tipton. It's a Fresno law firm. We represent 11 Dansig, Inc., who is the wholesaler of lemonade. And 12 they have a manufacturing plant located in Valencia, 13 California. 14 We're here to seek justice here today because 15 of an inequitable result. And justice in my mind is 16 simply the truth plus the law equals justice. 17 In this particular case the assessment was 18 based upon an incorrect assumption that Dansig, Inc. 19 signed a subcontract agreement with the concessionaire 20 at the location of the Rose Bowl. 21 If you look at the subcontract agreement there 22 is no designation of an agent, representative, officer 23 or director of Dansig, Inc. The contract was signed by 24 a person named Lane Vallier. Lane Vallier was not an 25 officer, director or authorized agent of Dansig, Inc. 26 If you look at the signature page it simply says "by"; 27 there's no designation or anything along those lines. 28 Dansig, Inc. sold as a wholesaler to Lane 4 1 Vallier consistent with prior business relationships. 2 Dansig billed Lane Vallier on a per cup basis based upon 3 a wholesale price, which was either $1.15 or $1.35 per 4 cup. 5 Lane Vallier has his own business known as 6 Cartworks, which has its own business sales license. 7 Lane Vallier never told anyone at Dansig that he had 8 signed this contract on behalf of Dansig. All of the 9 sales that were done at the Rose Bowl, which included 10 more than just lemonade -- the money that was collected 11 was collected solely by Lane Vallier and the remainder 12 of the proceeds were transmitted to Dansig just based on 13 the wholesale lemonade sales. 14 There's an incorrect assumption of the 15 assessment that Dansig in fact signed the contract. 16 Dansig has filed a lawsuit in Orange County claiming 17 fraud and misrepresentation against Lane Vallier. 18 Unfortunately, instead of filing an answer to that 19 complaint contesting the claims that were made by Dansig 20 of the fraud and representation Lane Vallier elected to 21 file bankruptcy. 22 The inequity that's involved in this particular 23 situation is that Dansig only received $275,000. The 24 tax assessment against Dansig is for a million four. 25 I have with me Don Sigaty, who's the President 26 of Dansig, Inc., who will now make a statement. 27 MR. HORTON: Please, sir. 28 MR. SIGATY: My name is Don Sigaty and I'm the 5 1 President, Director and sole stockholder of Dansig, Inc. 2 And the only thing I sold at the Rose Bowl was wholesale 3 soft frozen lemonade. Unfortunately, Lane Vallier, who 4 I sold wholesale to at other venues without my knowledge 5 or consent signed a contract with Centerplate at the 6 Rose Bowl, and sold other items under my sales license. 7 Other items included ice cream, cotton candy, 8 cookies, hot chocolate and some other items. 9 I did not know of this agreement until after 10 the assessment was made by the State Board of 11 Equalization. Lane Vallier has never been an officer or 12 director of Dansig, Inc. 13 All of the employees who sold these items at 14 the Rose Bowl worked for and were employed by Lane 15 Vallier, who was a -- who has a separate corporation 16 called Cartworks, and its own separate sales license. 17 And they -- all of these employees were paid by Lane 18 Vallier. 19 I never received any money other than a 20 wholesale price of $1.15 for a $4 cup, and $1.35 for a 21 $5 cup. And Lane Vallier received the difference. 22 Centerplate never contacted me regarding the 23 execution of this agreement and never provided me or 24 Dansig, Inc. with any accounting concerning the sale of 25 any food items at the Rose Bowl. 26 Lane -- Lane Vallier was the individual who 27 dealt solely with Centerplate regarding the accounting, 28 collecting of funds and receipt of payment back from 6 1 Centerplate. 2 Lane Vallier never provided me with an 3 accounting of anything other than the number of cups of 4 lemonade that were sold. 5 Lane Vallier paid me the wholesale price of 6 $1.15 or $1.35 per cup sold of lemonade and kept all of 7 the other money. The money that I received was 8 $275,000. And Lane Vallier got the rest. 9 And you have an exhibit of a subcontract 10 agreement which was signed by Lane Vallier without my 11 knowledge or consent. 12 You have Exhibit 2, which is an accounting of 13 sales prepared by Centerplate, which was received by 14 Lane Vallier and never provided to me until after the 15 assessment was made. 16 Exhibit 3 is an invoice where Dansig, Inc. 17 invoices Lane Vallier for the number of cups of lemonade 18 that were sold. 19 Exhibit 4 is a billing and refund notice which 20 shows that Dansig, Inc. has paid to date $85,596. 21 Exhibit 5 is a bank statement which shows the 22 deposit of the money I received from the sale of 23 lemonade from Lane Vallier. 24 Exhibit 6 is the legal action for fraud that I 25 directed to be filed on behalf of Dansig, Inc. against 26 Lane Vallier in the Orange County Superior Court, which 27 has now been stayed because Lane Vallier has filed 28 bankruptcy. 7 1 And Exhibit 7 is the recalculation of the 2 amount of taxes which should have been assessed. 3 That's all I have to say. 4 MR. HORTON: Thank you very much. We will 5 return to you on rebuttal. 6 Would the Department please introduce 7 themselves for the record. You have ten minutes to make 8 your presentation. 9 MR. HUXSOLL: Good morning, Mr. Chairman, 10 Members -- 11 MR. HORTON: Good morning. 12 MR. HUXSOLL: -- of the Board. I'm Cary 13 Huxsoll from the Legal Department, along with Robert 14 Tucker and Steve Sisti representing staff. 15 No adjustments are warranted for the disallowed 16 sales for resale. Taxpayer does not dispute that the 17 transactions in question are subject to tax. Taxpayer 18 argues that the -- is -- has only been responsible for a 19 portion of the liabilities and claims that another 20 person, Lane Vallier, is responsible for the taxes due 21 on the remaining transactions. 22 Taxpayer has not provided documentary evidence 23 demonstrating that Mr. Vallier was the retailer on the 24 sales at issue. To the contrary, the documentary 25 evidence demonstrates the taxpayer was the retailer. 26 First, the contract with Centerplate, the Rose 27 Bowl concessionaire, is entered by taxpayer, Dansig, 28 Incorporated. This contract prohibits the taxpayer from 8 1 delegating or subcontracting its duties to any other 2 person, firm, corporation or entity without the prior 3 consent of Centerplate. 4 Petitioner acknowledged during the appeals 5 conference, as stated on page 10 of the materials that 6 it was aware during the audit period that Mr. Vallier 7 signed the subcontract agreement which indicates the 8 taxpayer is a party thereto. 9 The accounting documents from Centerplate, one 10 of which is attached as Exhibit 2 to the D & R, 11 indicates that the sales in question are made by 12 taxpayer, Dansig, Incorporated. 13 The fact that these documents indicate the 14 taxpayer is the retailer demonstrate that no approved 15 subcontract existed. This is consistent with 16 information provided to staff from the Rose Bowl during 17 its SCOP investigation that its sales -- that the sales 18 in question were made by taxpayer. 19 The evidence demonstrates the taxpayer is the 20 retailer for the sales at issue. Taxpayer has not 21 provided any documentary evidence to the contrary. We 22 concur with the recommendation of the Appeals Division. 23 Thank you. 24 MR. HORTON: Thank you very much. On rebuttal. 25 MR. PAGANETTI: Yes, thank you. 26 The whole case involves whether or not there 27 was a valid subcontract. The evidence that's been 28 presented is that there is no subcontract. Dansig, Inc. 9 1 did not have a contract with Centerplate. You can't 2 have a contract if you don't authorize the signature of 3 a contract. 4 In this particular case Lane Vallier was not 5 authorized. He defrauded Dansig. He defrauded 6 Centerplate. He signed a contract without any 7 knowledge, notice or consent to Dansig. So the basis of 8 that contract, which is the assessment, is incorrect, 9 simply because you have to have a valid contract. In 10 this particular case there was no valid contract. 11 Now, there's no statement from Lane Vallier 12 that he was authorized to enter into this agreement on 13 behalf of Dansig. There's no declaration. There's no 14 evidence presented before you which supports any 15 position that Lane Vallier was authorized to sign this 16 contract. 17 To the contrary, what you have is the statement 18 from a representative of Dansig, who is the President 19 and Director, and statement that he was not authorized 20 to sign that contract. 21 And, once again, the contract does not state 22 that it's signed by a representative of Dansig. It 23 simply says "by" and it's signed by Lane Vallier. It 24 doesn't say that he's an officer, director or authorized 25 agent. That is an invalid contract. 26 So if the State Board of Equalization, as it 27 appears, whole case is based upon the fact that there is 28 a valid subcontract we respectfully submit that that is 10 1 an incorrect position. 2 The evidence is strong that Lane Vallier 3 misrepresented to Dansig what he was doing, what the 4 deal was. And the total inequities of this is Lane 5 Vallier gets the total amount of money, puts it in his 6 pocket and then tries to stick Dansig with the total 7 tax, even though Dansig only receives 275,000. 8 We respectfully submit to the Board that the 9 assessment based upon a contract which is not valid and 10 was done without the knowledge or consent should not be 11 incorporated into an assessment. 12 Thank you. 13 MR. HORTON: Thank you very much. Mr. Runner. 14 MR. RUNNER: Yeah. Let's just walk through a 15 couple of these issues. 16 It seems me this -- that -- that we do, at 17 least -- at least part of this discussion seems to hinge 18 around the issue of this contract. 19 Let me go back to the taxpayer. In your 20 relationship with the -- Vallier, did you -- did you do 21 other business with him? Does he -- was he involved in 22 other parts of business that you were dealing with? Was 23 he -- were -- were you a wholesaler for him in other 24 transactions besides this one? 25 MR. SIGATY: Yes. 26 MR. RUNNER: And at that point did he ever in 27 any of those other relationships sign anything for you 28 as a company or as -- representing you? 11 1 MR. SIGATY: No. 2 MR. RUNNER: So this is the only -- the only 3 con -- contract that he then represented himself as 4 representing you? 5 MR. SIGATY: Yes. 6 MR. RUNNER: In terms of a relationship with 7 him, any other -- the -- the total business rep -- 8 relationship to him was just you as a wholesaler, that's 9 what you're given -- and that's what your contract with 10 him indicates? 11 MR. SIGATY: I don't have a contract with him, 12 but I'm a wholesaler to him. 13 MR. RUNNER: Okay, there's no contract with 14 him. How -- how do you -- how do you -- what do you -- 15 how does he know how much to pay you if you don't have a 16 contract? 17 MR. SIGATY: I -- he pays a per price -- per 18 cup price. When -- 19 MR. RUNNER: Okay, no contract, he just -- you 20 just -- 21 MR. SIGATY: When he does it -- 22 MR. RUNNER: -- he just says, "I need 'x' 23 amount of lemonade," you ship it out to him and then he 24 bill -- and you bill him accordingly? 25 MR. SIGATY: Yes. 26 MR. RUNNER: That seems -- okay, that's kind of 27 an interesting relationship. 28 MR. SIGATY: Well -- 12 1 MR. RUNNER: I'm trying to get through it. I 2 mean -- 3 MR. SIGATY: I do -- I -- I have a few people 4 that do little special events and that's -- that's 5 how -- 6 MR. RUNNER: That's how you do it. Okay. 7 MR. SIGATY: -- that's how we do it. 8 MR. RUNNER: Okay. Okay. 9 MR. SIGATY: I mean, it's -- 10 MR. RUNNER: Okay. Okay. 11 So there's nothing that you have in terms of 12 any -- any -- any -- your only relationship with him 13 that we would find on your books and in your 14 relationships would be basically invoices to him and 15 payments from him back to you? 16 MR. SIGATY: Yes. 17 MR. RUNNER: Okay. Let me go to -- to staff in 18 this discussion. 19 Again, it all seems to hinge around a -- around 20 the contract here. Is there any -- what is it that 21 demonstrates to us that Mr. Vallier had any kind of 22 authority to sign for the taxpayer? 23 MR. HUXSOLL: There is a specific authority 24 clause in the contract, in Section 17.5 -- 25 MR. RUNNER: Which contract are we talking 26 about now? 27 MR. HUXSOLL: The subcontract that's attached 28 as Exhibit 1, the con -- the subcontract between 13 1 Centerplate and Dansig, Incorporated -- 2 MR. RUNNER: Right. 3 MR. HUXSOLL: -- at Section 17.5 has an 4 authority clause saying the sub-concessionaire, which is 5 Dansig, represents and warrants that it is duly 6 authorized to execute, deliver and perform this 7 agreement; that it has all requisite corporate authority 8 and has taken all necessary corporate action to enter 9 into this agreement and fulfill its obligations 10 hereunder, and that the person signing this agreement on 11 behalf of sub -- sub-concessionaire is authorized to do 12 so. 13 MR. RUNNER: Okay, but that doesn't answer my 14 question. That doesn't -- I'm trying to find some 15 authority that you have that show -- show that Mr. 16 Dansig -- or Dan -- not Mr. San -- but the taxpayer gave 17 Mr. Vallier the authority to sign the contract. 18 I mean, I -- I mean, I see what the contract 19 says, and Mr. Vallier signed it, but I don't -- what 20 have -- what have we found in regards to any records, 21 any kind of relationships, any kind of anything to show 22 that this individual was indeed acting on behalf. 23 MR. TUCKER: There are a couple of things. One 24 is as noted in the Decision and Recommendation they -- 25 it's mentioned that he was aware of the contract during 26 the audit period. 27 If he wasn't a party to the contract he should 28 have brought it to the attention of the Rose Bowl. 14 1 MR. RUNNER: Okay, let me ask -- I heard that. 2 So let's just talk about -- 3 MR. TUCKER: Okay. 4 MR. RUNNER: -- that, Mr. Tucker. 5 MR. TUCKER: Well -- just one more point. 6 MR. RUNNER: Okay. Okay. 7 MR. TUCKER: The other is there's 8 inconsistency -- inconsistencies in the testimony today. 9 Here we've been told that it was only as a wholesaler. 10 However, in the lawsuit that was filed on Dansig's 11 behalf they represent that Vallier entered into an oral 12 joint venture, and that's inconsistent with a 13 wholesaler-supplier relationship. 14 So even his own explanation doesn't -- doesn't 15 match -- doesn't mesh. Which -- 16 MR. RUNNER: Okay, let's go -- let's go to 17 each -- each one of those; the first one being the -- he 18 was aware of it during -- 19 MR. TUCKER: The audit. According -- 20 MR. RUNNER: -- the audit. 21 MR. TUCKER: That was evidently brought out 22 during the appeals conference. 23 MR. RUNNER: Okay. I'm not sure exactly what 24 that means. How do you interpret that in terms of being 25 aware of it and therefore that meant that you had given 26 Dansig -- or, excuse me, given Vallier authority to 27 sign? Yes. 28 MR. SIGATY: Are you talking to me? 15 1 MR. RUNNER: Yes, the taxpayers. 2 MR. SIGATY: I became aware of it when I got 3 this assessment bill. 4 MR. RUNNER: Okay. So let me go back to -- 5 I -- I -- I guess I'm struggling with why he was -- I 6 mean, he got the assessment bill which made him aware of 7 it. 8 MR. HUXSOLL: As -- 9 MR. RUNNER: So I guess I'm struggling with the 10 idea that because he knew about it in some discussions 11 then with us is because he was made aware of it 12 because -- 13 MR. HUXSOLL: In -- 14 MR. RUNNER: -- of the contact that we made 15 with him. 16 MR. HUXSOLL: Not -- that would be inconsistent 17 with information. In the SCOP investigation the 18 information that came from the Rose Bowl to staff 19 indicated in -- in conjunction with sending spreadsheets 20 of the sales involved that Mr. -- is it Signaty -- 21 MR. SIGATY: Uh-huh. 22 MR. HUXSOLL: -- was the proper contact for 23 Dansig, Incorporated, not Lane Vallier. 24 MR. RUNNER: And who -- who gave us that 25 information? 26 MR. HUXSOLL: The Rose Bowl. The -- the -- 27 Centerplate, the -- the party that entered into the 28 contract in question. 16 1 MR. RUNNER: And -- but wouldn't they do that 2 simply because that's what the contract said? 3 MR. HUXSOLL: The contract does not have 4 Mr. Signaty's name, it has Mr. Vallier's name. And 5 they've -- they argued that Mr. Vallier entered into the 6 contract without them knowing about it. 7 However, the contact person who the Rose Bowl 8 provided to staff was Mr. Signaty, not Mr. Vallier. So 9 that contradicts his story that it was -- 10 MR. RUNNER: And did they have any 11 documentation as to how they got his name or why or 12 how -- how they -- how they came up with that? 13 MR. HUXSOLL: No, there was nothing further 14 than know that the proper per -- the contact person - 15 should be Mr. Signaty. 16 MR. RUNNER: And who was this that did that at 17 Centerplate? 18 MR. TUCKER: They're the -- 19 MR. RUNNER: I know who -- I know -- I know -- 20 I know who Centerplate is but -- 21 MR. TUCKER: Okay. 22 MR. RUNNER: -- who -- I mean, was this -- 23 MR. HUXSOLL: I would have to see the -- 24 MR. RUNNER: I mean, I'm just thinking that for 25 them to know that there has to be some document. I 26 mean -- right? I mean if -- for them to say that there 27 had to be some document that would give them that 28 information. 17 1 MR. TUCKER: The -- the contract was with 2 Dansig and so then you would assume, naturally, that the 3 contacts with Dansig would have led them to petitioner. 4 MR. RUNNER: Which exactly would be my point, 5 and that is you're -- I -- I -- I agree with that. 6 MR. TUCKER: Yeah. 7 MR. RUNNER: I agree that it all come -- comes 8 down to that -- the contract and that's how they got it, 9 and the contract was signed by Vallier. 10 So that's, I guess -- I -- I -- so that's what 11 I'm trying to figure out, was there something else 12 besides the contract that pointed then the -- the SCOP 13 team, the auditors to the taxpayer because if it's the 14 contract we're back to the problem of the taxpayer's 15 knowledge of this contract. 16 MR. HUXSOLL: Aside from the contract it's the 17 information provided by the Rose Bowl that -- 18 MR. RUNNER: And how did they -- when you say 19 that, how did he have it? 20 MR. HUXSOLL: It's -- it's from Catherine S. 21 Brown from the Centerplate and the Rose Bowl. 22 MR. RUNNER: Okay. 23 MR. HUXSOLL: The SCOP team went to 24 Centerplate -- 25 MR. RUNNER: Uh-huh. 26 MR. HUXSOLL: -- and received a master sales 27 list of vendors who were selling at events at which 28 admissions were charged at the Rose Bowl. 18 1 MR. RUNNER: Uh-huh. 2 MR. HUXSOLL: One of these companies was 3 Dansig, Incorporated. 4 MR. RUNNER: Right. 5 MR. HUXSOLL: And in giving information to 6 staff doc -- stating the sales that were made by Dansig 7 they were attached to an e-mail that said the person 8 that would be the contact person is Don Sigaty, and he 9 can be reached at 714 -- 10 MR. RUNNER: Okay. 11 MR. HUXSOLL: -- 838 0505. 12 MR. RUNNER: Okay. So it sounds -- again, I 13 don't know because they didn't provide any other 14 documentation. It sounds like it all then goes back to 15 the contract, that contact. 16 MR. TUCKER: And the contract is with Dansig. 17 MR. RUNNER: Right. Right. So it all goes 18 back to the contract -- 19 MR. TUCKER: Well -- 20 MR. RUNNER: -- and somehow the contract then 21 had this company on it and then also had the name of the 22 President on it. Or at least they could define -- they 23 could find that. 24 MR. TUCKER: And then we have other 25 inconsistencies, as well as -- if they were acting -- 26 pardon me, as a wholesaler supplier we don't have 27 invoices to show that they were acting as a wholesaler 28 supplier. There are no invoices to Vallier. 19 1 And in fact -- 2 MR. RUNNER: Let me ask -- let me ask the 3 taxpayer about that. 4 Why would you not have -- why would you not 5 have invoices then to -- to the company, to Vallier and 6 who you were in that wholesaler relationship with? 7 MR. SIGATY: He got -- he got an invoice and 8 it's -- and -- and on the invoice it says "Dansig 9 Special Events." And that's just -- I only do probably 10 six spec -- six special events a year. 11 MR. RUNNER: Okay. You say there were 12 invoices. We could not find those invoices? 13 MR. TUCKER: UnfortunatelY the "Bill To" is 14 billed to Dansig Special Events, not to Vallier. It 15 appears that it's more of an internal accounting. 16 It's -- you would think that if you were 17 selling to Mr. Vallier it would be billed directly to 18 Mr. Vallier. 19 MR. RUNNER: Okay, let me -- and just a 20 couple -- just a couple of -- of -- go down a dis -- 21 different little direction for a moment. 22 What -- what has been our contact with 23 Mr. Vallier? 24 MR. HUXSOLL: I cannot find any written 25 documentation in the record of a contact with 26 Mr. Vallier. I contacted the staff in the Van Nuys 27 district who did the SCOP audit and they informed me 28 that they recalled speaking with Mr. Vallier at the time 20 1 of the audit. However, there was -- there's no writing 2 memorializing this communication with him. 3 MR. RUNNER: So we've had no conversation with 4 Vallier? 5 MR. HUXSOLL: Nothing -- 6 MR. RUNNER: Other than -- other than -- other 7 than in the beginning with SCOP and somehow they had 8 some conversation with him? 9 MR. HUXSOLL: Correct. 10 MR. RUNNER: So have we tried to find him? 11 MR. HUXSOLL: We performed an investigation to attempt 12 to determine whether we could hold Mr. Vallier 13 accountable for the amounts at issue, but there are no 14 documents pointing to him as a -- as the retailer in 15 this case. 16 The staff looked into the possibility of Mr. 17 Vallier being accountable for these sales, but there's 18 no documentary evidence of that taking place. And this 19 taxpayer said in his -- both in his lawsuit and I 20 believe in his testimony today that everything was based 21 on an oral contract. So there -- there would be 22 nothing -- nothing written to demonstrate that that was 23 taking place. 24 MR. RUNNER: Okay, I'm done for now. 25 MR. HORTON: Member Yee. 26 MS. YEE: Thank you very much, Mr. Chairman. I 27 wanted to follow up with respect to when the Petitioner 28 first became aware of Mr. Vallier's role in all of this. 21 1 There is a provision in the contract under Article 16 2 with respect to any notices that will be issued by 3 Centerplate to the sub-concessionaire be sent to Dansig 4 to the attention of Mr. Vallier. Did you ever receive 5 such notices? 6 MR. SIGATY: No. 7 MS. YEE: Okay. And at the -- descrip -- 8 describe for us the nature of your relationship with 9 Mr. Vallier outside of this particular -- because 10 actually I was curious about kind of the wholesale 11 transactions. 12 MR. SIGATY: Oh, he does -- his corporation, 13 Cartworks, does special events. 14 MS. YEE: Uh-huh. 15 MR. SIGATY: And I sell wholesale lemonade to 16 him. And that being is I deliver it and he sells it. 17 And after he sells it he pays me on the number of cups 18 he sells. 19 MS. YEE: Okay. And you believe the agreement 20 that you entered into with him, the oral agreement, was 21 a -- a split of the gross receipts from -- 22 MR. SIGATY: No. 23 MS. YEE: -- the sale? No? 24 MR. SIGATY: No. 25 MS. YEE: Okay. 26 MR. SIGATY: It was strictly a per cup price. 27 MS. YEE: Okay. 28 MR. SIGATY: And all it was for was lemonade. 22 1 That's all I sell. 2 MS. YEE: Okay. So, per cup price. All right, 3 to the price. Your contention that the rate that was 4 charged per cup was $1.15? 5 MR. SIGATY: Yes. 6 MS. YEE: Okay. But the lemonade was actually 7 sold for $4 per cup? 8 MR. SIGATY: Yes. 9 MS. YEE: Okay. And then $1.35 when it was 10 sold for $5 a cup? 11 MR. SIGATY: Yes. 12 MS. YEE: Okay. So I guess what I'm confused 13 about is 40 per -- 47 percent of the selling price -- 14 you're now contending that 47 percent is -- is your 15 share? 16 MR. SIGATY: Yes. 17 MS. YEE: Okay. How does that equate to the 18 $1.15 or the $1.35? Am I missing something here? It 19 doesn't quite equate. 20 MR. SIGATY: Well, that's after Centerpoint 21 takes their commission out. 22 MS. YEE: And what's their commission? 23 MR. SIGATY: 45 percent. 24 MS. YEE: 45 percent? 25 MR. SIGATY: Yes. 26 MS. YEE: Okay. 27 MR. HUXSOLL: Let's see, it's 45 to 50 28 percent -- sorry -- 23 1 MS. YEE: Okay. 2 MR. HUXSOLL: -- depending on -- 3 MS. YEE: All right. And -- do you have any 4 documentation at all that suggests that Mr. Vallier was 5 acting on his own behalf in these transactions? 6 Either -- 7 MR. SIGATY: I don't know. Do I have any 8 documentation? 9 MS. YEE: Uh-huh. I mean, the fact that he has 10 signed this sub-concessionaire contract every appearance 11 of what he has entered into is that he was authorized on 12 behalf of Dansig to enter into this contract. 13 Is there anything that you have that might 14 suggest that he -- he really was the party to the 15 contract independently of Dansig? 16 MR. SIGATY: Oh, he -- he did the accounting, 17 collected the money. I mean, I was -- I was never 18 there. I mean, I didn't do anything. I got paid $1.15 19 and $1.35. He sold other products that I don't even -- 20 I don't sell. 21 MS. YEE: Department. 22 MR. SIGATY: All the employees were here -- 23 were his, I'm sorry. 24 MS. YEE: Okay. 25 MR. SIGATY: The equipment was his. I 26 basically delivered lemonade to him. 27 MS. YEE: And that was the extent of -- 28 MR. SIGATY: And then he told me what he sold. 24 1 MS. YEE: Okay. 2 MR. SIGATY: The number of cups and that's what 3 I billed him for. 4 MS. YEE: All right. 5 Department. Of Mr. Vallier's role and 6 activities in all -- in this -- these types of 7 transactions, anything that we can kind of attribute to 8 him as kind of acting on his own behalf? 9 MR. HUXSOLL: There's nothing we can attribute 10 to him acting on his own behalf. 11 MR. TUCKER: Unfortunately, the closest thing 12 we -- we've seen is -- is the lawsuit filed by 13 Petitioner. 14 MS. YEE: Right. 15 MR. TUCKER: That's the only -- only thing 16 we've seen at all. 17 MS. YEE: Okay. Okay. Thank you, Mr. 18 Chairman. 19 MR. HORTON: Thank you. 20 Member Steel. 21 MS. STEEL: I want to do the followup question. 22 So when you delivered lemonade to Mr. Vallier, that you 23 don't have any documents between you and him? 24 MR. SIGATY: No. 25 MS. STEEL: So if he ask -- he asked you for 26 deliver 100 -- 27 MR. SIGATY: Right. 28 MS. STEEL: -- then you just deliver 100. But 25 1 you don't have any documents in your office that when 2 something goes out from our office don't you put it down 3 that somebody took how many lemonades or somebody you 4 delivered -- you don't -- you don't have those documents 5 at all? 6 MR. SIGATY: No, we deliver the product to him 7 and he sells it. And we know how many he sells after he 8 sells it. It's a very -- 9 MS. STEEL: So he's the only person buys 10 lemonade from you? 11 MR. SIGATY: No, I have other people that buy 12 it. 13 MS. STEEL: So when you -- from your 14 inventory -- 15 MR. SIGATY: Right. 16 MS. STEEL: -- that you shipped something out 17 or you delivered something out -- 18 MR. SIGATY: Right. 19 MS. STEEL: -- don't you have any record that 20 who we deliver or you just -- I mean, how you can just 21 put it in your head? 22 MR. SIGATY: Okay, this is just -- this is 23 like -- this is a special event. And he says -- and by 24 the way, it's a bag of lemonade that goes out and it's 25 hand-scooped into a cup. 26 And so he will say, "I need," you know, "40 27 bags." And we take the -- we take it out to him. And 28 he sells what he sells. 26 1 MS. STEEL: Right. 2 MR. SIGATY: And then -- 3 MS. STEEL: So when you give -- 4 MR. SIGATY: -- we invoice him afterwards. 5 MS. STEEL: Those invoices has name -- 6 MR. SIGATY: They're -- 7 MS. STEEL: -- of Mr. Vallier? 8 MR. SIGATY: It has -- yeah. I mean, it will 9 have -- at the Rose Bowl it has Dansig Special Events. 10 It will have -- if he's at -- he may be doing a Miramar 11 Air Show. 12 MS. STEEL: Uh-huh. 13 MR. SIGATY: I'll have "Dansig Special Events, 14 Miramar Air Show." 15 MS. STEEL: So you put "Dansig Special Event," 16 but you never put "Dansig Special Event" somebody took 17 it? 18 MR. SIGATY: No. 19 MS. STEEL: Okay. Let me ask just one thing 20 that on the subcontract, in the back that Mr. Vallier 21 signed there's the address of 17772 Irvine Boulevard. 22 Whose address is that? 23 MR. SIGATY: That was an address that I had -- 24 MS. STEEL: So you knew this -- 25 MR. SIGATY: -- probably 12 years ago. 26 MS. STEEL: Okay, so this is that known 27 address. So if you -- if you signed -- I mean if he 28 signed any paperworks you must got some letters from the 27 1 Centerpiece to your office. 2 MR. SIGATY: I never received -- 3 MS. STEEL: Because -- 4 MR. SIGATY: -- anything from Centerpoint. 5 MS. STEEL: So Mr. Vallier didn't use his own 6 address but he used Dansig, Incorporated address here -- 7 MR. SIGATY: Uh-huh. 8 MS. STEEL: -- on the subcontract? 9 MR. SIGATY: Uh-huh. 10 MS. STEEL: So -- okay. Just last question, 11 that it's 47 percent you got and 52 percent to Mr. 12 Vallier. $1.35 and $1.15 that excluded and then rest of 13 it that divided by 47/53 or that was included on the 14 100 -- $1.15 and $1.35, from the sales price? 15 What's that 47 percent from what? Total sales 16 or -- 17 MR. SIGATY: No, from the $4 sale after 18 Centerpoint -- 19 MS. STEEL: After that doll -- 20 MR. SIGATY: -- takes their profit. 21 MS. STEEL: Okay. Centerpoint takes profit and 22 then 47 percent of total price. So if it's $4, 45 23 percent Centerpiece took and then out of 57 percent you 24 took 47 percent and then 53 percent to Mr. Vallier? 25 MR. SIGATY: Yes, ma'am. 26 MS. STEEL: Is that right? 27 Okay, thank you. 28 Thank you, Mr. Chair. 28 1 MR. HORTON: Thank you. There is a difference 2 in description of relationship on the lawsuit. Can you 3 speak to that difference? 4 MR. PAGANETTI: Actually, he didn't prepare the 5 lawsuit. The lawsuit using the term as mentioned as 6 "joint venture" can mean a bunch of different things, 7 depending on what the relationship is of the joint 8 venture. 9 If you go through the specific allegations, 10 however, of the complaint, the specific allegations 11 clearly state what the relationship was, that Lane 12 Vallier basically was in charge of everything and that 13 he was only going to be paying Dansig, Inc. for the 14 lemonade that was sold and billed by Dansig, Inc. 15 In this particular case the unfortunate result 16 is that Lane Vallier received all the money from 17 Centerplate which would have included the amount that 18 should have been paid for taxes. Instead of paying the 19 taxes Lane Vallier kept the money. Lane Vallier was the 20 one who was in charge of all the money. He kept the 21 money. 22 It's not like Lane Vallier took the money that 23 would have been the tax and gave it to Dansig. Dansig 24 only received $275,000. Lane Vallier kept all the 25 money, all the -- all of what would have been the tax 26 and also failed to account to Dansig to say, well, look, 27 you know, you -- this is the amount of money. 28 The only thing that he gave or had a 29 1 conversation with Dansig was the number of cups that 2 were sold, and that's all Dansig received the money 3 from. 4 The price that they received was just the 5 wholesale price. 6 MR. HORTON: So it's your position that a 7 distributor-retailer relationship can be a joint 8 venture? 9 MR. PAGANETTI: It -- it can be to a certain 10 extent, yeah. That's correct. 11 MR. HORTON: Okay. 12 MR. PAGANETTI: In this -- one thing -- one 13 thing to remember, getting back to the contract, all the 14 State Board of Equalization had to do, they have the 15 address for Lane Vallier. 16 MR. HORTON: Sir -- I'm -- 17 MR. PAGANETTI: Excuse me. 18 MR. HORTON: Please. 19 The taxpayer indicated that Lane Vallue was 20 paid a commission. Can you elaborate on that? 21 MS. YEE: I think what -- 22 MR. SIGATY: Me? 23 MR. PAGANETTI: I don't know where that came 24 from. 25 MS. YEE: I think it was Centerplate was 26 being paid -- 27 MR. HORTON: Center -- my apologies, 28 Centerplate was being paid a commission. 30 1 MR. PAGANETTI: That was their share. They -- 2 they receive a percentage as being the concessionaire. 3 MR. HORTON: Anything codifying that agreement 4 relative to the commission? The contract. 5 MR. PAGANETTI: It would be the contract, 6 itself. 7 The contract would -- would show what the 8 percentage is and how much Centerplate received from 9 the -- the sales of all of the food items. 10 MR. HORTON: Do -- 11 MR. PAGANETTI: It included other than 12 lemonade. 13 MR. HORTON: Do you allow for spoilage, waste, 14 in your calculation as to what percentage that you 15 receive or is it based on the quantity sold? 16 MR. SIGATY: It's based on the quantity sold. 17 MR. HORTON: So irrespective of whether all of 18 it is actually sold you still receive your commission 19 based on the quantity? 20 MR. SIGATY: Yeah, and I don't think it -- a 21 commission that I -- 22 MR. HORTON: What -- whatever it is. 23 MR. SIGATY: I mean -- I mean I get a price per 24 cup. If you -- you know, that's -- I get what I charge 25 for. 26 MR. HORTON: Okay. Any way of measuring 27 whether or not you're being treated fairly? 28 MR. SIGATY: Yes. 31 1 MR. HORTON: How? 2 MR. SIGATY: We know within five to ten percent 3 how many cups are sold out of a bag of our product. 4 MR. HORTON: So, theoretically he could cheat 5 you five to ten percent? 6 MR. SIGATY: Yeah, but -- 7 MR. HORTON: That doesn't happen? 8 MR. SIGATY: -- he never did. 9 MR. HORTON: He never did. You were pretty 10 comfortable with the relationship? 11 MR. SIGATY: Yes. 12 MR. HORTON: Okay. 13 MS. STEEL: I have a quick -- quick question. 14 MR. HORTON: I'll come back and -- seems like 15 everybody is getting -- okay. 16 MR. RUNNER: I think we're going to do this one 17 more round, huh? 18 MR. HORTON: Okay. All right. All right. You 19 guys, I lost my train of thought. 20 The -- to the Department. The lawsuit, is 21 there -- or other than that the -- the notion of fraud 22 or embezzlement of funds is there anything within the 23 lawsuit that codifies the relationship, that pursuant to 24 this a relationship was established, an agreement was 25 made and they go on to describe the relationship? 26 MR. HUXSOLL: Yes, in paragraph 6 of the 27 contract it says, "On or about January 2006 in the 28 County of Orange, State of California, Plaintiff Dansig 32 1 and Defendants Vallier, inclus -- Does 1 through 15 2 inclusive, entered into an oral joint venture wherein 3 Plaintiff Dansig and Vallier agree to sell lemonade at 4 the Rose Bowl located in Pasadena, California. Under 5 the joint venture agreements Defendant Vallier and Does 6 1 through 15 inclusive were to receive 53 percent of the 7 lemonade sales and Dansig would receive 47 percent after 8 expenses." 9 MR. HORTON: So there is mention of -- of 10 accounting for the expenses? 11 All right. Member Steel. Ms. Mandel. 12 MS. STEEL: To the taxpayer, that when you 13 pay -- I mean when Mr. Vallier paid the Centerpiece how 14 did accounting went back and forth? 15 MR. SIGATY: How did the accounting go back and 16 forth at -- 17 MS. STEEL: Right, that 45 percent. 18 MR. SIGATY: -- Centerplate? 19 MS. STEEL: You knew that's 45 percent. So how 20 that money goes there? That how -- how the Dansig paid 21 the 45 percent to Centerpiece? 22 MR. SIGATY: The -- he would take the money in. 23 MS. STEEL: Uh-huh. 24 MR. SIGATY: He's to do an event there. And 25 they would take the money. Total -- 26 MS. STEEL: We're talking about cash here? 27 MR. SIGATY: Yes, all cash. 28 MS. STEEL: Okay. So give to Centerpiece and 33 1 he brings back rest of it and then tell you that, "I 2 sold $100 today and then I gave $45 to Centerpiece 3 cash"? 4 MR. SIGATY: No, I -- he never told me that. 5 He just told me how many cups he sold and that's what I 6 billed him for. 7 MS. STEEL: So you and Mr. Vallier has employee 8 and employer relationship, kind of? 9 MR. SIGATY: No. He's not an employee of 10 mine. 11 MS. STEEL: Okay. I still -- 12 MR. SIGATY: I mean, he -- you know, he's the 13 wholesaler. I mean, he does his own thing and he sells 14 my lemonade. 15 MS. STEEL: Okay, you're the wholesaler and 16 he's the retailer? 17 MR. SIGATY: Yes, he's the wholesaler. 18 MS. STEEL: So you just -- 19 MR. SIGATY: I mean retailer. 20 MS. STEEL: -- trusted to him whatever he 21 really needed then he -- because you supposed to get 22 whatever sales and then get -- take 45 percent out. So 23 you knew that it has to go to Centerpiece, 45 percent of 24 the total sales go out, and then you get rest of it for 25 47 percent. 26 MR. SIGATY: Yes. Most events that you do you 27 pay the person a -- it's called rent or commission or -- 28 at the event you're doing. 34 1 MS. STEEL: So you didn't know that there is 2 subcontract was out there, but you knew that he was 3 paying 45 percent to Rose Bowl? 4 MR. SIGATY: I knew he was just saying a 5 percentage, I -- yeah. Yes. 6 MS. STEEL: Okay. Thank you. 7 MR. HORTON: Thank you. Ms. Mandel. 8 MS. MANDEL: I -- I think -- I think I have two 9 questions. So he would tell you there was an event and 10 he needed the lemonade and you would send him bags of 11 lemonade and later he tells you how many cups of 12 lemonade he sold, because I take it it's like granular 13 and you add water or something or -- 14 MR. SIGATY: No, it's -- 15 MS. MANDEL: Or is it actually -- 16 MR. SIGATY: -- it's -- it's slushy. 17 MS. MANDEL: -- liquid, it's slushy? Okay. 18 MR. SIGATY: It's slushy lemonade. 19 MS. MANDEL: I need to go to more fairs or 20 something. Okay. 21 So -- so, what -- what happens with the stuff 22 he doesn't use? You get it -- 23 MR. SIGATY: We take it back. 24 MS. MANDEL: You get it back? 25 MR. SIGATY: Yeah. 26 MS. MANDEL: You take it back? 27 MR. SIGATY: Yes. 28 MS. MANDEL: Okay. Now, my other question, 35 1 which I don't know who it really goes to. Maybe it -- 2 that -- because I'm hearing different things. 3 I understand that the D & R, the Appeals 4 Decision and Recommendation says that the Petitioner 5 acknowledged being aware of this contract during the 6 audit period. And he's saying, "I didn't know of the 7 contract until I got the Notice of Determination." 8 So I'm just curious what it was that he might 9 have said at the appeals conference -- I mean, what -- 10 what is it that -- that sort of factual conclusion, 11 what's underlying that factual conclusion? I'm trying 12 to figure out if there was -- you know where I'm going, 13 I can tell. 14 MR. LEVINE: I can -- I can explain. Assuming 15 that the stories haven't changed, and I assume they 16 haven't, I think that the conference-holder heard 17 audit -- got it during the audit and thought audit 18 period. I think the D & R is wrong. Again, unless we 19 have a change in the story. 20 But it is something that is -- I'd like not to 21 say easy to do, but happens. There's obviously a big 22 difference -- 23 MS. MANDEL: That -- that it was -- 24 MR. LEVINE: -- between audit and audit period 25 and I have to say that that was a -- an important factor 26 in my allowing this to come to the Board, because I 27 think that if he knew of this contract during the audit 28 period, that's -- 36 1 MS. MANDEL: Like when the -- when the sales 2 were actually -- 3 MR. LEVINE: -- that's fatal -- 4 MS. MANDEL: -- when he was doing the 5 relationship. 6 MR. LEVINE: -- that's fatal to -- to his 7 position. 8 MR. RUNNER: Right. Right. 9 MS. MANDEL: Right. 10 MR. LEVINE: But I think -- and he can address 11 what he remembers telling the conference-holder -- I 12 think there was some miscommunication and that's what 13 the conference-holder heard. 14 MS. MANDEL: Do the conference-holders -- 15 MR. LEVINE: We don't record these -- 16 MS. MANDEL: Right. Do they keep notes -- 17 MR. LEVINE: Not with the general -- 18 MS. MANDEL: -- or once they're done they don't 19 keep notes? 20 MR. LEVINE: Many conference-holders have 21 notes. I think most do. When I've asked questions I 22 often get the "Let me check my notes," so there could 23 very well be notes. 24 MS. MANDEL: So there could be notes to -- 25 because that's -- that's -- I mean, I understand that 26 the contract has his address and the contract has Lane 27 as the person to whose attention -- and I understand 28 that Centerplate said to our guys that this gentleman is 37 1 the contact. But I'm just curious about -- that was a 2 pretty flat statement that we're all, I think, relying 3 on. 4 So I'm just curious if there's any way to -- 5 do -- who was at the conference? Was the taxpayer 6 and -- Mr. Paganetti -- 7 MR. LEVINE: Mr. Paganetti. 8 MS. MANDEL: -- Paganetti was the -- 9 MR. LEVINE: So we didn't have the taxpayer in 10 front of us. 11 MS. MANDEL: Okay. Someone else can go while 12 I'm thinking. 13 MR. HORTON: Member Yee. 14 MS. YEE: Thank you, Mr. Chairman. Question 15 for the Department. Did we take any independent look at 16 Mr. Vallier and his business, Cartworks? 17 MR. HUXSOLL: The -- 18 MS. YEE: I mean -- and what I'm specifically 19 interested in is these particular transactions that took 20 place pursuant to the contract that he entered into with 21 Centerplate and obviously taking care of all of the 22 transactions related to that without Dansig's knowledge. 23 Did we take a look at Cartworks in terms of whether any 24 of that flowed through Cartworks? 25 MR. HUXSOLL: I -- I looked at Cartworks's 26 Sales and Use Tax returns and they were not reporting 27 these sales on their returns. 28 MS. YEE: Okay. 38 1 MR. HUXSOLL: Staff did investigate whether 2 they could go after Mr. Vallier but there was nothing 3 connecting him -- no documentary evidence connecting him 4 to the sale. 5 MS. YEE: No, I understand. 6 MR. HUXSOLL: No. 7 MS. YEE: I didn't know whether just as a 8 matter of just looking at Cartworks independently 9 whether anything -- if that had happened and if anything 10 unusual showed up. 11 MR. HUXSOLL: I'm not aware of anything beyond 12 that investigation of Mr. Vallier. 13 MS. YEE: Okay. Thank you. 14 MS. MANDEL: I'm still thinking. 15 MR. HORTON: Okay. Mr. Runner. 16 MR. RUNNER: Yeah. A couple -- a couple of 17 items here. Let me -- chase -- chase down for me how - 18 how this went when you were with Centerplate. 19 Sales would be made by Mr. Vallier. Cash would 20 come in for those sales. 21 How would he settle up with Centerplate? Do 22 you know? I mean, maybe -- it's not your business but I 23 mean do you know how he settled up with what -- whatever 24 it was going to be that their -- their percentage? How 25 did he settle up with them? 26 MR. SIGATY: They take -- he takes this money 27 to them and they take their -- 28 MR. RUNNER: So he takes cash in? 39 1 MR. SIGATY: Yes. 2 MR. RUNNER: Okay. He -- so at the end of the 3 day he takes cash in and says, okay, here's your -- 4 here's your whatever it is, 45 -- 50 percent, is that 5 how we understand that? 6 MR. HUXSOLL: Yes, and -- and then it's -- the 7 document that Centerplate uses is the one attached as 8 Exhibit 2. That's the daily -- that's completed at the 9 the end of each -- 10 MR. RUNNER: Okay. So at the end of each day 11 he goes in, gives -- gives -- gives the cash at that 12 point? 13 MR. HUXSOLL: Uh-huh. Correct. 14 MR. RUNNER: And -- and, again, this is for 15 more than lemonade, correct? 16 MR. HUXSOLL: Yes, this is for -- well, 17 depending on the date of the event, some events there 18 was only lemonade, but there's a list of products -- 19 MR. RUNNER: Right. 20 MR. HUXSOLL: -- and it included Haagen Dazs 21 bars, hot chocolate -- 22 MR. RUNNER: So -- so -- okay. So, he would go 23 in and give cash for all of those things? 24 MR. HUXSOLL: Yes, they have an established 25 price for each of those things and the quantity sold. 26 MR. RUNNER: Okay. 27 MR. HUXSOLL: And then -- 28 MR. RUNNER: How would he typically then 40 1 give -- get to you money? Would he come back in and -- 2 and walk into your office and pay you out in cash? 3 MR. SIGATY: No. 4 MR. RUNNER: Okay. He would write a check? 5 MR. SIGATY: No. 6 MR. RUNNER: No? Okay. 7 MR. SIGATY: He would deposit the cash into 8 Wells Fargo or Union Bank into my account, for the 9 number of cups that were sold. 10 MR. RUNNER: He would deposit cash into your 11 account for the number of cups that were sold? 12 MR. SIGATY: Yes. 13 MR. RUNNER: Do you have -- do we have receipts 14 of those deposits? 15 MR. SIGATY: Yes. I have bank statements that 16 were submitted. 17 MR. RUNNER: Okay. And we've seen those? 18 Okay. 19 MR. HUXSOLL: Yes. 20 MR. RUNNER: Let me ask you this then, since -- 21 since he was selling more than lemonade -- correct? 22 MR. HUXSOLL: Correct. 23 MR. RUNNER: -- I'm trying to remember in this 24 situation aren't -- aren't we actually holding this 25 taxpayer accountable for the Sales Tax on the things 26 other than lemonade? 27 MR. HUXSOLL: Yes. 28 MR. RUNNER: Do we have any -- any indian -- do 41 1 we have any indication -- we've got the indication that 2 he got money for lemonade. 3 MS. YEE: Right. 4 MR. RUNNER: Do we have any indication that he 5 got money for anything else? 6 MR. HUXSOLL: That the -- this taxpayer? 7 MR. RUNNER: Yes. 8 MR. HUXSOLL: We -- we only have the invoi -- 9 the internal invoices measured by the cups of lemonade, 10 but there's -- there's nothing showing a deposit on the 11 food or a collection on the food amount other than the 12 fact that these payments are being made and the 13 documents indicate that Dansig is making the sales of 14 these amounts -- of these products. 15 MR. RUNNER: Okay. 16 MR. HUXSOLL: And that's one of them. 17 MR. RUNNER: Again, this to me it's going back 18 to the core of the taxpayer's argument here in regards 19 to how engaged he was. 20 But we have -- we have no documentation that he 21 received any money from any of these other sales -- 22 MR. HUXSOLL: Well -- 23 MR. RUNNER: -- other than lemonade. 24 MR. HUXSOLL: Well, there's the -- the daily 25 accounting in which the cash was transferred between 26 the -- centerplate and Dansig, Incorporated. We don't 27 have the sub -- it has a spot for -- 28 MR. RUNNER: Oh, let -- 42 1 MR. HUXSOLL: -- sub-concessionaires. 2 MR. RUNNER: -- let's go back to that. The -- 3 that daily is because of the relationship, this all goes 4 back to the contract. The reason why you're using 5 Dansig there is because Vallier represented -- acted 6 like he was representing Dansig, right? So -- 7 MR. HUXSOLL: Well, that's our understanding of 8 the contract. 9 MR. RUNNER: Right, right. Okay. So my 10 question, though, is but we do know specifically of -- 11 of the deposits that were made into -- into Dansig's 12 account and have we balanced that out to where we 13 believe those -- those deposits were only for lemonade? 14 MR. HUXSOLL: The deposits in the account match 15 the invoices that Petitioner has provided in -- or 16 taxpayer has provided in terms of the volume of lemonade 17 sold. 18 MR. RUNNER: So, again, I'm struggling as to 19 why it is then that we clearly, at least in that case, 20 see that they -- that -- that this taxpayer didn't 21 receive any money from the thing. Again, I'm putting -- 22 putting tax -- lemonade aside -- didn't receive any 23 money from the other non-lemonade sales, is that -- do 24 we have anything that says that -- do we have anything 25 that shows that this taxpayer received anything other 26 than -- other than going -- don't take me back to the 27 contract because the contract is the issue of dispute, 28 as far as I'm concerned. 43 1 Is there anything other -- any other -- any 2 other bank accounts, anything that shows that? 3 MR. HUXSOLL: There's the -- there's the daily 4 payment in terms of the gross sales of food made at 5 the -- 6 MR. RUNNER: Between Vallier -- again -- again, 7 that -- but that -- that to me in my head right now is 8 between Centerplate and Vallier. 9 MR. HUXSOLL: That's -- it's between 10 Centerplate and Dansig, based on -- 11 MR. RUNNER: Because of the contract, right? 12 MR. HUXSOLL: Because of the contract that was 13 entered into with Mr. Vallier that has an authority 14 clause -- 15 MR. RUNNER: Okay. Okay. We're -- okay. 16 MR. HUXSOLL: -- with Centerplate. And the -- 17 MR. RUNNER: We're kind of getting circular 18 here so I'm going to go down a different path. 19 Mr. Levine, did you have a thought? 20 MR. LEVINE: I would just like to give you my 21 opinion here. 22 MR. RUNNER: Okay. 23 MR. LEVINE: It is all in the contract. 24 MR. RUNNER: Yeah. 25 MR. LEVINE: If the con -- there -- here's two 26 possibilities. Vallier can't -- Centerplate won't 27 contract with him. He says to petitioner -- or taxpayer 28 if I can do this in your name they'll make the deal. So 44 1 if that's what happened taxpayer loses everything 2 because Dansig allowed him to sign it and everything -- 3 whether he sold it or got any money he's responsible for 4 everything. 5 On the other hand, if Vallier signed the 6 contract without his knowledge, he never knew about it, 7 then it would be my opinion that despite his concession 8 on the lemonade that he would not be liable for 9 anything. 10 MR. RUNNER: Okay. 11 MR. LEVINE: Because he'd be -- 12 MR. RUNNER: Because it go -- 13 MR. LEVINE: -- all or nothing. 14 MR. RUNNER: Because it all hinges on the 15 contract? 16 MR. LEVINE: All hinges on the contract. 17 MR. RUNNER: So let me -- let me follow down 18 that path just a moment then because they -- we seem to 19 have at least a -- trying to struggle with this idea of 20 when there was knowledge of the contract. 21 Taxpayer says, "I wasn't knowledgeable about 22 the contract until I was -- I was told by the BOE." Is 23 that correct? 24 MR. SIGATY: Yes. 25 MR. RUNNER: Knowledgeable of a contract that 26 was signed by -- by -- in your name. So that's when you 27 found out about it? 28 MR. HORTON: Please -- please, Mr. Runner. 45 1 MR. RUNNER: Pardon? 2 MR. HORTON: Sir, could you move your mike just 3 a little bit further -- 4 MR. SIGATY: Oh, I'm sorry. 5 MR. HORTON: -- so we can be sure it's on the 6 record. 7 MR. RUNNER: Okay. Thank you. 8 MR. SIGATY: Yes. 9 MR. RUNNER: Okay. So that's when you became 10 aware of it? 11 MR. SIGATY: Yes. 12 MR. RUNNER: Am I hearing that in some of our 13 records our records indicate that he knew about it 14 during the audit? 15 MR. HUXSOLL: Well, the -- the -- aside from 16 the statement made during the appeals conference that 17 there's the dispute as to what was said that it would go 18 back to the information provided by Rose Bowl -- 19 MR. RUNNER: Right. 20 MR. HUXSOLL: -- indicating that he, not Mr. 21 Vallier, was the contract person for -- for Dansig, 22 Incorporated. 23 MR. RUNNER: Okay. Again -- okay, again, 24 that's going back to the contract and that's the 25 issue -- the core of the discussion. 26 MR. TUCKER: Actually -- 27 MR. RUNNER: No? 28 MR. TUCKER: -- no, that's not the contract, 46 1 that's based on actual conversations with the Rose Bowl 2 concession. 3 MR. RUNNER: But again -- but, again, I would 4 submit that that could be because of the contract 5 because that's who's listed on the contract. 6 MR. TUCKER: He's not listed on the contract. 7 MR. RUNNER: His company is listed on the 8 contract. 9 MR. TUCKER: His company is listed on the 10 contract. But Mr. Vallier is listed as the contact on 11 the contract. 12 MR. RUNNER: But we have no evidence -- I mean, 13 I'm trying to think what else we have other than a 14 conversation that says, oh, Dansig, that's -- I mean, I 15 don't know if these people knew Dansig from before. 16 See, I -- I don't know what they may have known 17 previous to that, say, oh, Dansig's in it? Oh, that's 18 Mr. So-and-so. 19 MR. TUCKER: The -- the other problems we have, 20 Mr. Runner, that -- we have invoices which if you -- if 21 you had a -- whatever, a wholesaler-retailer 22 relationship -- 23 MR. RUNNER: Yes. 24 MR. TUCKER: -- you would have that invoice 25 listed to the retailer and the complication we have here 26 is each one of these invoices is to Dansig Special 27 Events. It is not to Mr. Vallier, not to any other 28 person. 47 1 MR. RUNNER: Okay, let me go back to Mr. 2 Levine. 3 Mr. Levine, if indeed -- if indeed the taxpayer 4 found out about this, his first view of this contract 5 was made to him by -- after we -- by -- by the B -- by 6 the BOE, so he would have no knowledge of this contract, 7 what in your opinion would be the taxpayer's liability? 8 MR. LEVINE: Well, we -- we do have 9 the complications of the invoice and -- 10 MR. RUNNER: Right. 11 MR. LEVINE: -- that can go either way, but I 12 think it all hinges on the contract. If he was not 13 aware of the contract then at least from my perspective 14 it's hard to -- there's the joint venture thing, but 15 that can go either way. It bears on whether he knew 16 about the contract or not. 17 MR. RUNNER: Okay. 18 MR. LEVINE: But if -- 19 MR. RUNNER: Let me ask you this. Since -- 20 MR. LEVINE: -- if he did not know that that 21 contract was out there with his company's name on it and 22 there is no other evidence indicating that he was doing 23 anything other than selling raw lemonade in bags to his 24 normal retailer, I think it would be a grant. 25 MR. RUNNER: Okay. Let me ask you this then. 26 Because I'm not sure how we prove this. And so let me 27 ask you about this step. Would the taxpayer be willing 28 to swear under penalty of perjury that your knowledge of 48 1 this contract came when you were told by the Board of 2 Equalization? 3 MR. SIGATY: Yes. 4 MR. RUNNER: Can we swear? 5 MR. HORTON: I -- 6 MS. OLSON: Would you please -- 7 MR. HORTON: Members -- 8 MR. RUNNER: Why -- why would we not want to do 9 that? 10 MR. HORTON: I mean, if we -- there's a way in 11 which we can accomplish this, I think. We can -- we can 12 have the taxpayer sworn in -- 13 MR. RUNNER: Uh-huh. 14 MR. HORTON: -- and then we can ask him a 15 series of questions and he can respond. Or he can draft 16 a document and indicate at some point that under penalty 17 of perjury and so forth. I don't necessarily believe 18 that a verbal statement will meet the objective. 19 MR. RUNNER: Well, I guess -- 20 MR. HORTON: But -- 21 MR. RUNNER: I don't know what -- 22 MR. HORTON: Again, let -- let me -- 23 MR. RUNNER: Yeah. 24 MR. HORTON: -- let me qualify that, it's 25 just -- I don't want to participate in the -- in the 26 process to -- and so, the taxpayer can actually make any 27 statement, anyway, they want to. 28 So I don't want to steer it one way or the 49 1 other, if you will. 2 MR. RUNNER: Well, let me ask -- let me ask our 3 counsel -- our -- Mr. Levine, the weight of a sworn 4 testimony is more significant than just testimony given 5 without -- under penalty of perjury? 6 MR. LEVINE: I'd say that traditionally, yeah, 7 the Board's probably accepted that, and it's my 8 experience that if someone is going to tell the truth 9 they will, and if they're going to lie, they're going to 10 lie. 11 So, personally, for me, it doesn't make a lot 12 of difference. But the Board has sworn people in and 13 had them say it under oath. Especially if you're going 14 to make a decision based on his statement it doesn't 15 hurt to put it under penalty of perjury to have a little 16 threat there. 17 MS. MANDEL: Mr. Horton. 18 MR. HORTON: Let -- let me allow Mr. Runner to 19 continue that thought unless you wanted to -- 20 MS. MANDEL: Well, I -- 21 MR. HORTON: -- bring some clarification. 22 MS. MANDEL: Yeah, I -- I -- I -- I took your 23 commentary to indicate that you were looking for 24 testimony that would have adequate factual foundation 25 without leading conclusory questions from the Board. 26 That's what I -- 27 MR. HORTON: Yes. 28 MS. MANDEL: That's what I was hearing you say. 50 1 MR. HORTON: Yes. 2 MR. LEVINE: And I would suggest if you did 3 that the Department should have an opportunity to 4 cross-examine him with respect to whatever issues they 5 think are open questions, just to tie up loose ends. 6 MR. RUNNER: Well, again, I -- I mean, the 7 problem that we're coming down to is it's all coming 8 down to this contract and when this taxpayer was made 9 aware of this contract. 10 Now, the difficulty with that is I -- I -- I 11 don't think anybody has any -- any evidence one way or 12 another. And so I'm just interested to know to what 13 point this taxpayer is willing to stand up and say 14 that's what the -- that's the truth. 15 MS. MANDEL: I -- I think we -- we understand 16 that. I think what the Chair was talking about, 17 normally if you have a declaration of somebody, whether 18 it's written or oral, you would want them to sort of lay 19 out the underlying facts. 20 I -- I -- I -- I can -- what I hear is that -- 21 that your view likely as well there's just this 22 ultimate -- ultimate fact but there were other things 23 that were going on during the audit period in the 24 relationship between the -- Dansig and Mr. Val -- Mr. 25 Vallier. And sort of what that might go to what 26 Petitioner may or may not have been aware of to draw 27 some sense of an ultimate -- of the Board's view of the 28 ultimate factual statement that he may wind up making, 51 1 which is I did -- which is what he had said today, that 2 I did not -- you know, I first heard about this from the 3 Board. And we do have the sort of difficulty with the 4 way the appeals thing was written up without, you know, 5 seeing the notes. 6 And I would note that the paper from -- the 7 paper from Centerplate has both Dansig and Cart's name 8 on it. 9 But I think that's kind of been the -- the 10 cross-examine -- so it's like there's -- there's -- 11 there's often more to the underyling story that gets 12 someone to the ultimate point and it sounded like people 13 wanted to -- you know, to be able to judge how you feel 14 about the ultimate point, whether you -- whether you 15 think there's a -- a -- all the sort of surrounding 16 facts will give you a sense of -- of, you know, judging 17 what your sense is in addition to the gentleman's 18 demeanor and everything else -- what your sense is of -- 19 of his statement of the ultimate point. 20 MR. RUNNER: What -- what I -- what I think I 21 heard was from Mr. Levine saying that the knowledge of 22 the contract was significant in his decision to move 23 this to the Board. 24 MR. LEVINE: It was. 25 MS. MANDEL: It was. 26 MR. RUNNER: Okay. So that's to me -- so I 27 understand we've got all this other -- I understand we 28 have all these other issues that are part of it, but 52 1 that's kind of where I was coming from as to why this -- 2 the contract and -- and then the knowledge of the 3 contract -- 4 MS. MANDEL: No, under -- 5 MR. RUNNER: -- was a critical issue. 6 MS. MANDEL: No, it is a critical issue and -- 7 and -- and I understand that -- that -- that what I'm 8 sort of getting a sense of is that -- that the only -- 9 the only thing that -- that you might, you know, take is 10 the ultimate statement of fact on that single point. 11 And what I was hearing from -- from the Chair and what I 12 think generally we would look to as sort of lawyers if 13 we were looking at a whole writedown of a dec -- 14 declaration is you want to -- or whether he says it out 15 loud, you want to be able to -- to judge overall how you 16 feel about -- you know, whether it's under penalty of 17 perjury or not, whether you -- because when someone 18 stands up in a courtroom they're doing it under penalty 19 of perjury, but just because they say it doesn't 20 necessarily mean -- right? 21 So a lot of times you want to have more -- am I 22 going like in a crazy way, Mr. -- I mean, this is the 23 sense -- 24 MR. LEVINE: I think that the -- 25 MS. MANDEL: -- this is what I heard from the 26 Chair that he was interested in, and we would generally 27 be interested in hearing a little bit more about sort of 28 what -- what went on and when -- when -- under what 53 1 circumstances did this come to light and what was the 2 relationship at the time of the audit period, and who 3 gave what to whom and -- 4 MR. RUNNER: Well, let me ask you go -- 5 MS. MANDEL: So, there would be more things 6 that you might normally see than just the ultimate 7 statement -- 8 MR. RUNNER: Let me -- again, maybe -- maybe 9 the way to get through this -- 10 MR. HORTON: No, thank you very much. 11 Members, if we -- if it's the desire to have 12 the taxpayer sworn in we will do so. But we will need 13 to be able to get the full context of that testimony. 14 In and of itself that may be inherently to the 15 disadvantage of the taxpayer because a series of 16 questions without him able to be prepared by his 17 representative may lead to statements that may -- 18 MR. RUNNER: Well, Mr. Chair, let me ask 19 then if -- 20 MR. HORTON: -- (inaudible) So what I would 21 suggest is that we continue to ask the questions that we 22 would like to get the answers to and allow the taxpayer 23 to respond to those questions and we would rely that 24 such that he is before this body that everything that he 25 says is taken under oath and is recorded and presumed to 26 be his best representation of the truth. 27 MR. RUNNER: Just -- again, not -- my 28 understanding that he's not under oath right now, 54 1 correct? 2 MR. HORTON: How about -- 3 MR. LEVINE: That's correct. 4 MR. HORTON: How about this? 5 MR. RUNNER: Okay. 6 MR. HORTON: How about this? 7 MR. RUNNER: So he's not under -- 8 MR. HORTON: How about this, Mr. Runner. 9 MR. RUNNER: All right. 10 MR. HORTON: I am not going down that line. 11 MR. RUNNER: Well -- 12 MR. HORTON: So -- 13 MR. RUNNER: Well, hold -- let me -- Mr. Chair, 14 hang on just a minute on this discussion. 15 Let me just again, for my clarification, do we 16 have the ability to tell somebody that they can't swear 17 under penalty -- penalty of perjury or is that something 18 that the taxpayer gets to decide? 19 MR. LEVINE: Normally the Chair is in charge of 20 the running of the meeting. 21 MR. RUNNER: No -- well, but if the taxpayer 22 chose to say, "I would" -- "I will" -- "I am so 23 convinced that I'm willing to do this, I" -- "I would 24 like to swear under penalty," we would not permit him to 25 do it? 26 MR. LEVINE: Again, that's up to the -- 27 MR. RUNNER: Okay. 28 MR. LEVINE: -- Chair -- 55 1 MR. RUNNER: Okay. Okay, that's fine. 2 MR. LEVINE: -- they have to be sworn. 3 MR. RUNNER: So let me go down this -- again, I 4 think -- again, I -- you know, I think a taxpayer 5 deserves every break they can get, and if they're 6 willing to go on the record I think that's an important 7 statement. 8 And I do believe -- just a minute, Mr. Chair -- 9 and I do believe that -- that that's an important part 10 of our discussions here. 11 But in light of that maybe the best path to go 12 down would be in -- that, again, the cruxt of this issue 13 seems about -- to be about knowledge of the contract. 14 MR. HORTON: Okay. 15 MR. RUNNER: And, again, that wasn't my 16 comment, that was from Appeals. So -- 17 MR. HORTON: Got it, Mr. -- 18 MR. RUNNER: -- maybe the issue -- maybe the 19 issue for us -- 20 MR. HORTON: -- Mr. Runner. 21 MR. RUNNER: -- is to -- hang on just a minute. 22 MR. HORTON: I -- 23 MR. RUNNER: Can I finish my point, though? 24 MR. HORTON: No. I -- 25 MR. RUNNER: Well -- 26 MR. HORTON: -- I am compelled to just bring a 27 little clarity because you have somewhat reframed the 28 debate and the discussion. 56 1 Just for the benefit of the taxpayer, if the -- 2 if the taxpayer had chose to ask his client questions 3 under penalty of perjury and requested that they be 4 sworn in from the onset and to go on record they 5 certainly would have had that opportunity, and I don't 6 think it's wise for us to give guidance to the 7 taxpayer's representative on how best to represent their 8 client. 9 MR. RUNNER: I -- I -- 10 MR. HORTON: One finish. And so even at this 11 juncture after the lawyer for the taxpayer has sort of 12 listened to the debate, and I think he has a keen sense 13 of what the law is and what the exposure to his client 14 would be -- I simply don't want to expose the client. 15 It's not about a denying his rights and so forth. 16 If the request had came from the taxpayer's 17 representative I would have considered that differently. 18 MR. RUNNER: Let me just again conclude then 19 with -- 20 MR. PAGANETTI: If I may, Members of the 21 Board -- 22 MR. RUNNER: Pardon? 23 MR. PAGANETTI: If I may. 24 MR. RUNNER: Yeah. 25 MR. PAGANETTI: We -- we have the statements 26 from Mr. Sigaty that he didn't know about the existence 27 of the contract until after the assessment was made. 28 The State Board of Equalization records would have 57 1 information documented in writing if they had had a 2 communication with Mr. Sigaty during the assessment 3 period and documented what those communications were, 4 which would include whether or not Mr. Sigaty talked 5 about the existence of the contract, was presented with 6 the contract or anything regarding the contract. 7 I don't believe based on the information I have 8 that the Board during any investigation had any direct 9 communication with Mr. Sigaty where it was talked about 10 this subcontract. So that the only thing from the 11 records even of the State Board of Equalization, 12 themselves, would be the fact that there was no 13 communication with Mr. Sigaty concerning the fact that 14 there was this subcontract that was signed by Lane 15 Vallier purportedly on behalf of Dansig. 16 MR. RUNNER: Okay. Mr. Levine. 17 Mr. Runner. 18 MR. RUNNER: Yeah, I'd go back to Mr. Levine; I 19 think he had a point on that, and then I'll just 20 conclude real quick. 21 MR. LEVINE: Well, on that, that -- we're not 22 talking about the knowledge of the Board vis-a-vis Mr. 23 Sigaty. But one possible alternative is if you send 24 this back for a 30-30-30 we'd be happy to look at it 25 again. 26 One approach would be Department writes up 27 questions it wants answered. Comes to me. I'll add any 28 that I think are necessary. Taxpayer responds. If they 58 1 do it under -- declaration under penalty of perjury that 2 will have that little bit of extra persuasiveness. And 3 then we'll come back with a recommendation that if they 4 convince us it would be to grant. And if not, it would 5 be to deny. And the Board would make the final 6 decision. 7 MR. RUNNER: Thank you. And, actually, that 8 was going to be my -- my -- my thought to conclusion, is 9 to maybe then the best way to take this out would be to 10 go ahead and take a little more time, to go ahead and do 11 a 30-30-30, find out what the information is. And we 12 both -- we have the records there -- find out to what 13 then dialogue that can go on between the taxpayer and 14 the -- and the Department for those questions that the 15 Chair is concerned about, then that there is examination 16 on both sides of that, and that time could -- could 17 maybe be helpful. 18 So, you know, I think that -- that at least 19 from my perspective could solve the problem in regards 20 to coming to at least the nugget of issue we're looking 21 for. 22 I don't know if the taxpayer's feeling about 23 that is. 24 MR. PAGANETTI: Well, respectfully, Members of 25 the Board, one of the prejudices is my client's under an 26 agreement to keep paying on a monthly basis, which has 27 a -- had a severe economic impact on his business. 28 And the amount of money that he's paid so far is 59 1 $85,000. 2 And even in -- we think is the -- any potential 3 tax would be less than 40,000. So, he's already paid 4 more than 45,000 of what the -- any potential tax could 5 be if -- even if the Board was to assume that he was not 6 a wholesaler and responsible for just the sales of 7 lemonade. 8 So we would ask that there be a suspension, at 9 least as to those payments, to be fair. 10 MR. RUNNER: Is -- at 30-30 -- again, I just 11 don't know what the process has been here in the past, 12 but when we've gone to 30-30s where there is an 13 agreement at that point -- a payment agreement in place, 14 do we have the ability to -- Mr. Levine, do we have the 15 ability to suspend the payments while we're in that time 16 period? 17 MR. LEVINE: Well -- 18 MR. RUNNER: Again, interest is still accruing 19 I assume and some of those other things potentially, but 20 how about the payments, themselves? 21 MR. LEVINE: I've never heard of that happening 22 but the Board has the authority to -- if the Board 23 directs staff not to -- to attempt collection and to 24 have negative implications for a three-month delay that 25 is the Board's prerogative. 26 MR. RUNNER: How -- how much are the payments? 27 What -- what's the agreement you have right now? 28 MR. SIGATY: 2,000. 60 1 MR. PAGANETTI: 2,000 per month. 2 MR. RUNNER: Okay. Thank you. 3 MR. HORTON: Okay. Member Mandel. 4 MS. MANDEL: Thank you. As -- I thought -- and 5 now I can't find the pieces of paper here with -- so, 6 I -- I -- 7 MR. HORTON: Want me to come back? 8 MS. MANDEL: I thought -- no, I thought I had a 9 copy of that lawsuit in front of me. I thought I saw it 10 earlier today, but maybe I didn't and I just lost a 11 piece of paper, and maybe you read it and I could 12 picture it in my own mind. 13 MR. PAGANETTI: It should -- 14 MS. MANDEL: Oh. 15 MR. PAGANETTI: -- should be one of the 16 exhibits. 17 MS. MANDEL: Okay. Well, then I have too many 18 pieces of paper in front of me. 19 Because there was the assertion, I thought, in 20 that -- that I heard about a -- this -- this idea of the 21 oral joint venture. 22 MR. PAGANETTI: There -- there's also 23 alternative allegations in the complaint which states 24 that Lane Vallier was not authorized to enter into the 25 contract with -- 26 MS. MANDEL: Okay. 27 MR. PAGANETTI: -- Centerplate. 28 When you -- when you prepare a lawsuit you try 61 1 to incorporate all of the possible -- 2 MS. MANDEL: Right. Right. 3 MR. PAGANETTI: -- legal theories in it. It 4 was not -- it was not a complaint that was verified. 5 MS. MANDEL: Okay. 6 And -- and I know that there was this sort of, 7 you know, concession of, well, okay, at -- at the most I 8 should be liable for the lemonade sales and not the 9 other sales. And that -- that kind of ties in, I guess, 10 with a joint venture concept, but maybe you did that 11 just because he's a lemonade guy. 12 I'm trying to understand a little bit about 13 the -- that concession. 14 MR. PAGANETTI: I don't -- I don't think 15 there's a concession about whether or not -- the 16 position of Dansig is they -- they were a wholesaler. 17 MS. MANDEL: Okay. 18 MR. PAGANETTI: The -- part of the problem is, 19 is that there hasn't been any real discovery performed 20 as to how Lane Vallier actually got all the money, to 21 what extent the exact dime that Lane Vallier received. 22 But the only thing we know for sure is that Dansig 23 received 275,000. 24 Now, the exact balance that Lane Vallier 25 received we don't know because we have never been 26 provided with the exact accounting other than from 27 deductive calculations of looking at what the Board 28 assessed as being this total sales. 62 1 Now that we have the contract that Lane Vallier 2 signed without the knowledge or consent of Dansig you 3 can backtrack in the percentage that Centerplate took, 4 and then we can make some assumptions as to what the 5 total amount Lane Vallier received, which would be the 6 difference from what Centerplate took, what we were 7 paid, 275,000. 8 MS. MANDEL: Okay. Because the way -- the way 9 the case comes -- comes to us is with a concurred amount 10 on the front page, that there was a concurrence on the 11 lemonade sales. So that's -- 12 MR. PAGANETTI: We're -- we're making 13 assumption that that's correct, but we don't -- 14 MS. MANDEL: Well, I mean a concurrence that -- 15 not with -- not just with respect to whatever the dollar 16 number is, but that -- that -- that he's agreeing that 17 he should have to pay the tax on the lemonade sales. 18 That's the way it was written up to us. And -- 19 MR. PAGANETTI: Once again, respectfully our 20 position is, is that -- 21 MS. MANDEL: You're -- that he's just a 22 wholesaler -- 23 MR. PAGANETTI: Wholesaler. But -- 24 MS. MANDEL: -- and he's not liable for 25 anything? 26 MR. PAGANETTI: We're saying if in fact he was 27 not a wholesaler under whatever circumstance -- 28 MS. MANDEL: Right. Then it should just be the 63 1 lemonade? 2 MR. PAGANETTI: Correct. 3 MS. MANDEL: Okay. And then I -- I do note 4 that the way the Centerplate Rose Bowl people reported 5 their daily thing, you know, we keep -- Department keeps 6 saying that it's Dansig, Dansig, Dansig, but it's 7 Dansig, Inc. with "Carts" in parentheses, and Cart -- 8 isn't Carts the name of the company of -- 9 MR. PAGANETTI: Vallier. 10 MS. MANDEL: -- Vallier? 11 MR. PAGANETTI: Yeah. 12 MS. MANDEL: Yeah, Mr. -- 13 MR. HUXSOLL: Carts is referring to -- there's 14 a different commission paid to Centerplate based on 15 whether it sold out of the cart location or out of what 16 I assume is the walk-around vendor. 17 So they have different print-ups -- 18 MS. MANDEL: So what -- 19 MR. HUXSOLL: -- made for -- Centerplate gets, 20 I believe, 50 percent based on sales from carts, but 45 21 percent on sales from vendors. And that's in Section 22 4.2 of the contract. And so -- 23 MS. MANDEL: So, but -- 24 MR. HUXSOLL: -- they -- 25 MS. MANDEL: -- when they do that and we happen 26 to have this guy whose own business is called 27 Cart-something, I forget what it was called. 28 MR. PAGANETTI: Cartworks. 64 1 MS. MANDEL: -- Cartworks, do we know -- how do 2 we know that the reference to carts in parentheses after 3 Dansig is a reference to they sell it from carts and not 4 a reference to it's the Carts guy who's -- who's here 5 with us? 6 MR. HUXSOLL: Because in Section 4.2 of the 7 contract -- 8 MS. MANDEL: No, I'm not talking about the 9 contract. 10 MR. HUXSOLL: No, I'm -- I'm going to tie it 11 back to -- 12 MS. MANDEL: Okay. 13 MR. HUXSOLL: 4.2 of the contract refers to 14 Centerplate getting commissions of 50 percent for carts 15 and 45 percent for vending. While you only have one 16 printout in the exhibits, they've -- the documents 17 they've provided include like an invoice from January 4, 18 2006, which I believe is the one -- 19 MS. MANDEL: Who's -- who's -- who's "they"? 20 MR. HUXSOLL: Dansig provided these documents 21 that are attached as Exhibit 2 and 3 and the subcontract 22 to staff. 23 MS. MANDEL: Dansig provided the subcontract? 24 MR. HUXSOLL: Dansig provided the subcontract 25 to staff. 26 MS. MANDEL: Dansig provided the contract that 27 we've been talking about for the last like half hour? 28 MR. HUXSOLL: Yes. 65 1 MS. MANDEL: Dansig from Mr. Sigaty provided 2 the contract? 3 MR. HUXSOLL: Yes, you'll see on the -- 4 MS. MANDEL: Or Mr. Pagan -- 5 MR. PAGANETTI: It's through our office. We -- 6 we got -- 7 MS. MANDEL: Through their lawyer? The 8 lawyer -- 9 MR. PAGANETTI: Yeah, we got the contract -- 10 MS. MANDEL: I'm sorry -- 11 MR. PAGANETTI: -- after -- 12 MS. MANDEL: -- I'm messing everybody's names. 13 MR. PAGANETTI: Sorry. The contract -- we 14 received the contract after the State Board of 15 Equalization assessment was made. 16 MS. MANDEL: And who did you receive the 17 contract from? Where did you get it? 18 MR. PAGANETTI: I got it from Mr. Sigaty, who 19 got it through the -- through the State Board. 20 MS. MANDEL: Okay. 21 Mr. Sigaty -- 22 MR. SIGATY: Right. 23 MR. PAGANETTI: She's going to ask you a 24 question. 25 MS. MANDEL: -- did you -- who did you -- did 26 you telephone or write and request a copy of a contract 27 from somebody -- 28 MR. SIGATY: No. 66 1 MS. MANDEL: -- or did you speak to somebody in 2 person? 3 MR. SIGATY: No. 4 MS. MANDEL: Where did you get a copy of this 5 contract, this -- 6 MR. SIGATY: From Lane Vallier. 7 MS. MANDEL: And how -- how did you -- can 8 you -- how did you contact him to get it? 9 MR. SIGATY: I got a tax bill from the State 10 Board of Equalization and I go, what is this? 11 MS. MANDEL: When you opened the bill you go 12 "what is this," or you -- what did you do? 13 MR. SIGATY: I go, "What is" -- 14 MS. MANDEL: Did you go -- 15 MR. SIGATY: -- I'm -- I'm going -- 16 MS. MANDEL: Did you go see him? Did you -- 17 what did you -- can you -- 18 MR. SIGATY: I called him on the phone. 19 MS. MANDEL: And can you tell us a little bit 20 more about that? 21 MR. SIGATY: I said, "What is this $150,000 22 bill for?" 23 MS. MANDEL: And what kind of reaction did you 24 get? 25 MR. SIGATY: He goes -- I don't know what he 26 said. I said it's from the State Board of Equalization 27 for items that were sold at the Rose Bowl. 28 MS. MANDEL: And how did you know it was for 67 1 items sold at the Rose Bowl? 2 MR. SIGATY: Because it came with a -- I don't 3 know what all that paperwork was. 4 MS. MANDEL: It came with more than -- 5 MR. SIGATY: It came with more than just a -- 6 MS. MANDEL: -- just like a dollar figure on 7 it? 8 MR. SIGATY: Well, I mean that was the front 9 page. 10 MS. MANDEL: And so how did the contract come 11 into the discussion? 12 MR. SIGATY: I asked him, I said what -- you 13 know, I said, "What do you have" -- I mean, "What do you 14 have? I -- I know nothing of this. I have delivered 15 lemonade to you and you have paid me on a per cup basis 16 and now I get a tax bill for $150,000." 17 That -- that contract was not sent to me. 18 Okay. He faxed it over to me. He had the contract. 19 MS. MANDEL: The -- he faxed it to you? 20 MR. SIGATY: Yes. 21 MS. MANDEL: The copy of the contract that we 22 have was only showing a -- 23 MR. SIGATY: You -- you know what, I -- he may 24 have sent it in the mail. I mean, I'm just saying he -- 25 I received that contract from Lane Vallier. 26 MS. MANDEL: Okay. And where are -- you're -- 27 you're based in Fresno, right, Mr. -- 28 MR. PAGANETTI: Correct. 68 1 MS. MANDEL: Okay. And -- and where are you 2 based? 3 MR. SIGATY: Tustin. 4 MS. MANDEL: Tustin. Do you remember how you 5 gave the contract to your counsel? Or does counsel -- I 6 mean, my question is the only -- the contract that we 7 have is showing a -- is just showing a -- a fax from the 8 law firm, and -- and that's in August of '09. 9 Okay. I got distracted somewhere. So were 10 there other notices from the Rose Bowl that showed 11 something other than "carts" in the parentheses -- 12 MR. HUXSOLL: Yes. 13 MS. MANDEL: -- or you were going to try to 14 tell me why wasn't Lane -- Mr. Lane Vallier's company 15 being referenced in some purported -- 16 MR. HUXSOLL: Yes, I -- and I was going back to 17 the contract because the contract provides different 18 commissions for sales by carts and vending. In Section 19 4.2 they're referred to as carts and vending. 20 So, on say January 4, 2006 I have two daily 21 calculations provided by Centerplate, the -- the 22 accounting similar to those attached I believe as 23 Exhibit 2. 24 MS. MANDEL: Yes. 25 MR. HUXSOLL: Yes. One of them says Dansig, 26 Incorporated carts, and that has a 50 percent commission 27 calculated down below. 28 The other says Dansig, Incorporated vending and 69 1 it's calculated with a 45 percent commission. 2 So the reference to carts goes back to the 3 commission for sales by the carts as opposed to the 4 sales by the vending. 5 MS. MANDEL: All right. Thank you. 6 MR. HORTON: Member Steel. 7 MS. STEEL: I want to go back to the contract. 8 You didn't know there is a Centerplate contract was 9 there until that you got a letter or you got a call from 10 BOE. How do you know that -- that -- that Dansig had to 11 pay 45 percent commission to Centerplate, or Rose Bowl? 12 MR. SIGATY: Lane Vallier told me that. 13 MS. STEEL: After you got audited? Or before? 14 So you didn't know there is a contract but -- 15 MR. SIGATY: I didn't know there was a 16 contract. 17 MS. STEEL: -- he told you that it has to be 45 18 percent of the commission has to be paid. So you knew 19 that 45 percent was before the contract, or after the 20 contract -- 21 MR. SIGATY: No. 22 MS. STEEL: -- that you saw it? 23 MR. SIGATY: I -- I have talked to Lane 24 Vallier. He's obviously been at the Rose Bowl. 25 MS. STEEL: Uh-huh. 26 MR. SIGATY: Okay? 27 MS. STEEL: So he said that -- 28 MR. SIGATY: For three years that he did this. 70 1 MS. STEEL: Okay. 2 MR. SIGATY: And he told me what the commission 3 at the Rose Bowl was. 4 MS. STEEL: Okay. But how -- how about other 5 events, like -- you know, I see other events here that 6 they deposit -- deposited some -- like shows. 7 MR. SIGATY: Right. Right. 8 MS. STEEL: What's the commission usually for 9 those? 10 MR. SIGATY: It varies from -- 11 MS. STEEL: Is it almost same? 12 MR. SIGATY: It varies from 50 percent to 45 13 percent to 47 percent. 14 MS. STEEL: So when you heard that -- Vallier 15 told you that it's 45 percent it's like most of other 16 events were same, so you knew that -- but you don't need 17 any contract with the other events? 18 MR. SIGATY: No. 19 MS. STEEL: So you just verbally those events 20 that they tell you that, you know, you have to pay 45 21 percent? 22 MR. SIGATY: Yes. 23 MS. STEEL: So you thought that Rose Bowl was 24 the same? 25 MR. SIGATY: Yes. 26 MS. STEEL: Oh, okay. 27 MR. SIGATY: Most of these events are weekend 28 events. 71 1 MS. STEEL: Okay. So you knew that those 2 special events that usually they're asking 45 percent to 3 50 percent, so you thought without contract that he was 4 paying it? 5 MR. SIGATY: Yes. 6 MS. STEEL: Okay. Thank you. 7 MR. HORTON: Okay. Did the -- the Department 8 seek to get copies of income tax returns? 9 MR. HUXSOLL: The Department, not at the time 10 of the audit. The taxpayer did provide an income tax 11 return in conjunction with his installment. 12 MR. TUCKER: This wasn't necessarily an audit, 13 it was simply a filled billing order, so there was not a 14 full audit investigation. 15 So this was based on a SCOP investigation -- 16 MR. HORTON: Got it. 17 MR. TUCKER: -- that occurred. 18 MR. HORTON: Got it. The lawsuit, Section 6 19 wherein it refers to a liability for sales tax -- let's 20 see if I can find it. It seems to indicate that of this 21 joint venture one party had the responsibility for 22 conducting all of the accounting, including resuits -- 23 receipts of total payments less espense -- expenses and 24 that the -- that both parties agree to be responsible 25 for their prorated share of any taxes and expenses. 26 Can you elaborate on what that means? 27 MR. PAGANETTI: Those are general allegations. 28 You have to go through the totality of the complaint. 72 1 If you look under the fraud and misrepresentation 2 allegations there is -- there are separate factual 3 allegations regarding the -- 4 MR. HORTON: I mean it goes on to say -- and 5 before you make the statement -- it goes on to say, "And 6 expenses associated with their percentage of sales." 7 Specifically making reference to the sales. Therefore 8 alluding to the Sales Tax. 9 And then it goes on later on to say that each 10 party was theoretically responsible for their share of 11 the Sales Tax. Specifically. 12 MR. PAGANETTI: Yeah, after the -- after the 13 assessment was made Lane Vallier said he was going to 14 take care of the payment of the taxes if -- 15 MR. HORTON: No, no, this makes reference to 16 the contractual relationship. 17 MR. PAGANETTI: Right. 18 MR. HORTON: It says that you had a contractual 19 relationship prior to the Board of Equalization engaging 20 that established these -- these terms of 21 responsibilities. 22 MR. PAGANETTI: That's correct. 23 MR. HORTON: And so that contractual 24 relationship, oral or otherwise, said that the taxpayer 25 was responsible for their -- based on this -- 26 MR. PAGANETTI: Right. 27 MR. HORTON: -- their prorated share of the 28 Sales Tax. 73 1 MR. PAGANETTI: Correct. 2 And then also if you go to the other causes of 3 action, one of which is fraud and misrepresentation, 4 there's the allegations that there was this contract 5 signed which was then known at the time of the filing, 6 that Lane Vallier was not authorized to enter into that 7 agreement on behalf of Dansig. 8 MR. HORTON: Enter into what agreement? 9 MR. PAGANETTI: The agreement with Centerplate. 10 MR. HORTON: So, it's your position that you 11 were defrauded? 12 MR. PAGANETTI: Correct. 13 MR. HORTON: To the Department. If there was 14 a -- I mean the taxpayer said there was a contractual 15 relationship, be it oral or written, and that 16 contractual relationship related to the sales of 17 lemonade only, not to authorizing a party to sell 18 something other than lemonade, and that that individual 19 took out a permit and opted to begin to sell a number of 20 other things; what would be the liability, if any? 21 MR. TUCKER: I think we'd need to fully 22 investigate. If they were selling beyond the scope of 23 what their contractual agreement is and it was wholly 24 and completely outside then we're merely speculating. 25 We'd want to look at the factual basis. 26 MR. HORTON: Okay. 27 MR. TUCKER: But -- but here we're looking at 28 there was included -- incorporated into paragraph 6, 74 1 which is incorporated into each of the causes of action, 2 they were operating -- if this is to be believed, they 3 were operating as a joint venture, as a partnership in 4 which they would have been jointly and severally liable 5 for the debts. 6 MR. PAGANETTI: Only for the lemonade. 7 MR. HORTON: Question of the taxpayer. Were 8 you aware that -- that your partner or -- was selling 9 something other than lemonade? 10 MR. SIGATY: No. 11 MR. HORTON: It wasn't aware to you. You 12 thought all -- you didn't know he was selling cotton 13 candy, hot dogs -- 14 MR. SIGATY: No. 15 MR. HORTON: -- and so forth? 16 MR. SIGATY: No. 17 MR. HORTON: Is the lawsuit -- I read part of 18 it here, but I think I'll just ask a question. Is the 19 lawsuit for your share of any of the other sales made by 20 your partner? 21 MR. PAGANETTI: No, it's not. The lawsuit is 22 for the reimbursement for the tax that's been assessed 23 and -- and there's also declaratory relief requiring him 24 to be obligated to -- to pay for all of the sales of 25 lemonade which were his portion and also for everything 26 else. 27 The fact is instead of fi -- filing an answer 28 or anything denying any of the allegations, Mr. Vallier 75 1 chose to file bankruptcy and named Dansig as a creditor. 2 MR. HORTON: So you're not -- you're not -- 3 you're not seeking to recapture -- made whole on the 4 fraudulent act of intentionally conceding the fact that 5 they were selling food items in addition to lemonade and 6 you may bear? 7 MR. PAGANETTI: We're not seeking recovery of 8 those proceeds, no. We're -- we're saying that it was 9 concealed that that's what he was doing which resulted 10 now in Dansig being assessed a tax from the sales of 11 food items other than lemonade, which were not part of 12 any business relationship with Dansig. 13 Dansig is a manufacturer of lemonade only. 14 Their plant's located in Vallejo. 15 MR. HORTON: So what happens if you win the 16 lawsuit and they grant you pay the -- all of the tax 17 to -- and that the Board decides that only the tax is 18 due on the lemonade. So just to put numbers to it, 19 hypothetical numbers -- 20 MR. PAGANETTI: Right. 21 MR. HORTON: -- let's presume that the tax on 22 the lemonade is -- the lawsuit is for $100,000 -- what's 23 the amount? 24 MR. PAGANETTI: It -- it's for whatever the -- 25 the amount of the assessment is. Ultimate -- 26 MR. HORTON: What's the assessment amount? 27 MR. LEVINE: 121,000. 28 MR. PAGANETTI: Right. 76 1 MR. LEVINE: In tax. 2 MR. HORTON: 121,000. If the Board rules 3 that -- which would be interesting, but if the Board 4 rules that the tax would be due on just the sale of 5 lemonade made by this retailer, and that your 6 relationship with the -- that the -- your partner was 7 acting outside of his authority under the contract and 8 theoretically should have opened up a separate permit 9 and sold the non-lemonade items under a separate permit 10 and that the taxpayer had no knowledge that this 11 individual was selling lemonade, hot dogs and anything 12 else he could sell in order to -- in order to complement 13 the sale of lemonade and that amount was 40,000; and the 14 Court ruled that you were entitled to the entire 120,000 15 because as -- or the amount of the tax liability because 16 as stipulated in the cause of action is that it's a 17 joint partnership and that you were defrauded, and you 18 were defrauded the entire amount of the tax, which 19 somewhat indicates that a sense of entitlement to a 20 prorated share or some share of the entire amount of the 21 tax. 22 MR. PAGANETTI: The -- the damage is not 23 finally determined because we don't know what the 24 outcome of the Board is. So -- 25 MR. HORTON: No, I'm just -- the -- the lawsuit 26 is asking for this. 27 MR. PAGANETTI: Well, because we don't know 28 what the outcome of the -- what the Board is going to do 77 1 because there's been no final determination because 2 we're going through these series of hearings. 3 But theoretically if -- if this Board were to 4 determine that the total tax Dansig owes is $39,000 then 5 the damage would -- and -- and as part of that decision 6 if Dansig doesn't recover what it's already paid then 7 that would be its damage. It would be the $39,000 tax 8 that was owed and determined by the Board and paid. 9 MR. HORTON: You -- you would modify your 10 lawsuit? 11 MR. RUNNER: Uh-huh. 12 MR. PAGANETTI: Right. 13 MR. RUNNER: Amend it. 14 MR. PAGANETTI: Yes. Because we don't -- 15 MR. HORTON: Amend the lawsuit. 16 MR. PAGANETTI: -- know what the final outcome 17 is. 18 But the -- the damages will only be whatever 19 tax he has to pay which were over and beyond what it 20 should have been assessed. 21 MR. HORTON: Okay. 22 MR. PAGANETTI: If any. 23 MR. HORTON: Okay. 24 MR. PAGANETTI: But we don't know what the 25 outcome is yet, so that's why it's -- you put general 26 allegations as according to proof. 27 MR. HORTON: Got it. Question of the 28 Department. Is there any evidence that we can somehow 78 1 make a determination that this partnership -- that the 2 partner in this relation -- joint venture acted outside 3 of his authority and -- wow. 4 I mean, every time I try to frame this 5 question, you know, it's a leading question and that I 6 think I know the answer, but I'm just trying to get the 7 facts on the table. 8 Okay, let me see if there's another way I can 9 do this. 10 MS. MANDEL: What, where, when. 11 MR. HORTON: Let's say hypothetically the 12 retailer hires or has a partnership, it's -- but is not 13 aware that a -- that his partner is now selling items 14 other than what their partnership was established to 15 sell; totally not aware. 16 And so he has been defrauded. Is there a basis 17 in law that allows us to relieve the partner that is not 18 aware of -- aware of a contractual relationship that 19 relates to the -- according to the lawsuit relates to an 20 allocation of responsibility on a prorated share as it 21 relates to sales tax and accounting and so forth, but 22 not aware of the others and decided to file a lawsuit of 23 embezzlement, defraud and so forth -- is there a way 24 under the Sales Tax law that we can relieve that person 25 of the liability? 26 MR. TUCKER: Mr. Horton, in the first place 27 we're not convinced this was a joint venture. We're 28 still operating under the premise that these were sales 79 1 by Dansig. 2 In the event it were proven that this were -- 3 or determined that this was a joint venture and they 4 were acting as a partnership, in general Dansig would be 5 jointly and severally liable for the whole liability. 6 However, if there were some sort of act of 7 fraud that were taking place outside and that it was 8 outside the scope of the partnership perhaps you could 9 determine that the partnership was not the actual 10 retailer, that it was someone acting on their own 11 behalf. 12 But once again that's so beyond the scope of 13 what we're looking at today. Today we're simply looking 14 at Dansig, whether or not they are the retailer and for 15 the reasons stated numerous times we believe that Dansig 16 is the retailer. And it goes back to the contract, to 17 the invoices, to contacts with the Rose Bowel, et 18 cetera. 19 MR. HORTON: Okay. Thank you. 20 MS. MANDEL: Can -- can I ask one more thing? 21 MR. HORTON: Ms. Mandel. 22 MS. MANDEL: Sorry. I said one more so I 23 better just make it one more, so you better make a clear 24 answer. 25 MR. TUCKER: I'll try. 26 MS. MANDEL: Did we ever ask the Rose Bowl 27 where they -- where or from whom they got Mr. Sigaty's 28 name to give us? 80 1 MR. HUXSOLL: Not that I'm aware of. 2 MS. MANDEL: Thank you. 3 MR. HORTON: Thank you. Further discussion, 4 Members? 5 Hearing none is there a motion? 6 MS. YEE: Move to take the matter under 7 submission. 8 MR. HORTON: Moved by Ms. Yee to take the 9 matter under submission. Second by Mr. Runner. 10 Without objection, Members, such will be the 11 order. 12 Sir, thank you so very much for your 13 presentation here today. The Board will take your 14 matter under consideration later on this evening and 15 send you a written report of our decision. 16 This has been very helpful. Thank you. 17 ---oOo--- 18 19 20 21 22 23 24 25 26 27 28 81 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 27, 2011 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 81 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: August 18, 2010. 17 18 19 ____________________________ 20 BEVERLY D. TOMS 21 Hearing Reporter 22 23 24 25 26 27 28 82