1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 AUGUST 29, 2017 10 11 ITEM B1 12 CORPORATE FRANCHISE AND PERSONAL INCOME TAX HEARING 13 APPEAL OF 14 GILBERT P. HYATT 15 NO. 435770 16 17 AGAINST PROPOSED ASSESSMENT OF 18 ADDITIONAL INCOME TAX 19 20 21 22 23 24 25 Reported by: Jillian M. Sumner 26 CSR No. 13619 27 Kathleen Skidgel 28 CSR No. 9039 1 1 P R E S E N T 2 For the Board of Equalization: Diane L. Harkey 3 Chairwoman 4 Sen. George Runner (Ret.) Vice Chair 5 Fiona Ma, CPA 6 Member 7 Jerome E. Horton Member 8 Betty T. Yee 9 State Controller 10 Joann Richmond Chief 11 Board Proceedings Division 12 Henry D. Nanjo 13 Acting Chief Counsel 14 For Appeals Bureau: Grant Thompson Tax Counsel IV 15 Legal Department 16 For Franchise Tax Board: Bill Hilson 17 Tax Counsel 18 Scott DePeel Tax Counsel 19 Ann Hodges 20 Tax Counsel 21 For Appellant: Gilbert P. Hyatt Taxpayer 22 Edwin P. Antolin 23 Attorney 24 Michael W. Kern Representative 25 Bill Leonard 26 Representative 27 ---oOo--- 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 AUGUST 29, 2017 4 ---oOo--- 5 MS. RICHMOND: Our first item on this 6 morning's agenda is Item B, Corporate Franchise 7 Personal Income Tax Appeals Hearings; Item B1 is 8 Gilbert P. Hyatt. And they're already sitting at 9 the table. 10 Board Proceedings has received contribution 11 disclosure forms for today's hearings from the 12 parties, participants and agents. All forms are 13 properly completed and signed, and no disqualifying 14 contributions were disclosed. All parties, 15 participants and agents are on the alpha list 16 provided to your office. 17 Each person sitting at the table will be 18 asked to introduce themselves and, if necessary, 19 their affiliation with the taxpayer, for the record. 20 Sixty minutes is allocated for the 21 taxpayer's opening presentation, followed by sixty 22 minutes for the Franchise Tax Board's presentation, 23 and fifteen minutes is allocated to the taxpayer for 24 rebuttal. 25 Chairwoman Harkey. 26 MS. HARKEY: Thank you. 27 Mr. Thompson, will you please introduce the 28 issues in this case. 3 1 MR. THOMPSON: Yes. Grant Thompson with 2 the Appeals Bureau. 3 As you know, there are four issues in this 4 appeal. The first issue is whether appellant was a 5 resident of California from September 26, '91 6 through the end of that year. 7 The second issue is whether appellant is 8 taxable based on the source of his income. 9 The third issue is whether FTB has 10 demonstrated that it properly imposed the fraud 11 penalty. 12 And the last issue is whether appellant has 13 shown a legal basis for the abatement of interest. 14 Thank you. 15 MS. HARKEY: Thank you very much. 16 Welcome to State Board of Equalization. 17 You have -- this is to the appellant -- you have 60 18 minutes to make your initial presentation. You'll 19 have an additional 15 minutes on rebuttal. 20 Please introduce yourselves for the record. 21 MR. ANTOLIN: Good morning, Chairwoman 22 Harkey and Members of the Board. My name is 23 Edwin Antolin for appellant, Gilbert Hyatt. To my 24 far right is Mr. Hyatt; my immediate right is 25 Mr. Mike Kern, also representing Mr. Hyatt; and to 26 my left is Bill Leonard, also representing Mr. 27 Hyatt. 28 We welcome the opportunity to present the 4 1 case. 2 Mr. Hyatt. 3 MR. HYATT: I've waited 20 years for this 4 opportunity. 5 MS. HARKEY: I think you need to speak into 6 the microphone, because this is being transcribed. 7 Thank you. 8 MR. HYATT: I've waited 20 years for this 9 opportunity. And I thank you for your being 10 interested in it. 11 This is a timeline. And in 1990, I decided 12 to move. It was a devastating year for me, and I 13 needed to change my life. And in 1991 I prepared to 14 move and did move. And then at the end of 1991 and 15 in 1992 I set up my residence in Las Vegas. I 16 bought my house. And now after 25 years I still 17 reside in Las Vegas, and I intend to reside in Las 18 Vegas for the rest of my life. 19 I'm sorry that you can't see the details 20 here. But in 1990 I was still mourning my mother's 21 death. She passed away shortly before my son was 22 murdered in March 1990. I was a consultant to the 23 aerospace industry, which went into a major 24 depression due to the demise of the Soviet Union. 25 And my consultant evaporated, so I was essentially 26 without a source of income. 27 The patent issued to my single-chip 28 computer, and it -- I had a poster on that. But I 5 1 was attacked by my adversaries in the computer 2 industry, and that took a lot out of things. 3 And in the end of 1990, Sheldon Adelson, 4 who's since become one of the richest men in the 5 world, invited me to come and speak and offered me, 6 essentially, a job as a consultant in virtual 7 reality for his resorts. 8 So I decided -- I looked around Las Vegas 9 at that time, and decided to move. And that was in 10 November of 1990. I went back to Las Vegas and 11 prepared to move, prepared my house, got rid of a 12 lot of old things. I had furnished my house as a 13 frugal inventor through garage sales and the like. 14 And I just got rid of a lot of that old stuff and 15 gave away a lot of it, threw away some of it, gave 16 some to charity, packed a lot of it up, and then 17 made arrangements to sell my house. Which I'll 18 discuss in detail later. 19 And in the end of September '91 I moved to 20 Las Vegas. I went into a hotel for two-and-a-half 21 weeks while I found an apartment. I moved into my 22 apartment for -- on a six-month lease, continued to 23 look for houses. Found a house, bought it, and 24 moved into it in 19 -- in April 3rd, 1991. 25 And the FTB says when I moved into my house 26 I became a Nevada resident. Of course, that's very 27 interesting. That I have to buy a house and move 28 into it in order to become a Nevada resident. But 6 1 that's their holding. 2 There were a lot of activities in that 3 period of time. There is what is called the 4 disputed period. The disputed period ranges from 5 September 26, 1991 when I moved into Las -- when I 6 moved to Las Vegas, to April 3rd, 1992 when I moved 7 into my purchased house that I still reside in to 8 this day. 9 The 1991 disputed period is just loaded 10 with details. Here's the timeline. A lot of 11 activities that I will go through, and lines linking 12 the activities in with the various dates. 13 I moved to Las Vegas on September 26, 1991. 14 I resided in a hotel for two-and-a-half weeks, the 15 Continental Hotel. They got advice -- all of this 16 is well documented through documentation through 17 affidavits and declarations and the like, and by 18 expert witnesses, such as the two -- the two tax 19 assessors from Orange County who testified to the 20 sale of my house. And these expert witnesses are 21 really solid, and they have no real contrary 22 evidence. So I would hope that it would be taken 23 for surface value. 24 In addition to the expert -- the various 25 expert witnesses that I have, I also have about a 26 150 friends, colleagues, and just contacts who 27 stepped forward and signed affidavits and 28 declarations under penalty of perjury or under oath 7 1 to all of these things. So everything I'm telling 2 you today is very, very well documented. It's solid 3 evidence. It's eyewitness testimony. It's direct 4 documentary evidence and the like. 5 You will hear that I did not produce any 6 documentation at all. Not -- and, quote, "nary a 7 one." That's absolutely untrue. There are 8 thousands and thousands of pages on very, very 9 serious documentation that I've produced that I will 10 discuss with you. And all of that is very well 11 supported by the documentation, and by the -- by the 12 testimony under penalty of perjury or oath by the 13 witnesses. 14 Shortly about a week after I moved to 15 Las Vegas I had a meeting with Rabbi and Mrs. Heck, 16 attended -- the next day attended services at 17 Temple Beth Am, which they officiated until his 18 retirement in about 20 -- to '06 to '08. I 19 continued to attend services at Temple Beth Am. 20 In addition, I joined Temple Ner Tamid. 21 And on November of -- November 15th and continued to 22 attend services thereto -- and to this day I'm one 23 of the longest continuing members of Temple Ner 24 Tamid. 25 In fact, in -- about three years ago, 26 Rabbi Axelrod, who welcomed me as an initial member 27 in 1991, had a 23-year anniversary for me as a 28 long-term member of the synagogue. 8 1 I opened -- I leased a apartment in Wagon 2 Trails Apartments. I stayed there for a better part 3 of six months until I moved into my Las Vegas house. 4 I opened utilities there, I opened electric and 5 telephone services. And trash service and water 6 service was included in the apartment. And I 7 resided there for about six months through the whole 8 1991 disputed period, and for several months 9 thereafter. 10 In the late October, shortly after I moved 11 into the apartment, five visitors who were attending 12 convicts, my old colleagues and friends, visited me 13 at my apartment. 14 In 1992, which you'll hear about later, 15 Rabbi and Rebbetzin Heck visited me and testified to 16 visiting me in my apartment. A couple of my 17 colleagues and friends, Barry Lee and Robert 18 Kazmaier, stayed with me in my apartment in '91 for 19 about five days. Three for one; two days for the 20 other. And the next year they stayed with me in my 21 apartment for several other -- for several 22 additional days. 23 You'll hear that it was a one-bedroom 24 apartment and -- over and over and over again. 25 That's absolutely untrue. It was a two-bedroom 26 apartment. And my guests stayed in my spare bedroom 27 as they testified to. 28 So take with a grain of salt all the things 9 1 you hear. They have been rebutted. They are 2 essentially lawyers' arguments making up stories. 3 But I provided the actual testimony of the witnesses 4 and the documentation that's swore, and affidavits, 5 and under penalty of perjury and declarations to 6 support my evidence to contradict these lawyers' 7 arguments that are unsupported. 8 I made -- let's see -- I had numerous 9 telephone conversations, faxes and mail to and from 10 Las Vegas -- to and from my Las Vegas apartment. 11 And all these are very well documented. I attended 12 the convent show at the end of October. 13 I -- shortly after moving into my 14 apartment, I opened a checking account on October 15 25th, and another checking account later in the year 16 down here. And I wrote numerous checks during the 17 disputed period. Actually by actual account, 80 18 checks for my rent, for my utilities, for my living 19 expenses. They were -- these checks had my 20 address -- my name and address imprinted upon them, 21 my Nevada address, the bank's Nevada address, and 22 they constitute important evidence of my continued 23 life in Las Vegas. 24 You'll hear that there were none. There 25 are no checks. The checks were suppressed. 26 Absolutely not. All of these were produced and 27 disregarded. 28 In a -- as I said, I regularly attended 10 1 services at Temple Ner Tamid, as I was also sharing 2 my time between Temple Ner Tamid and Temple Beth Am. 3 I did make several trips to California, but 4 these were temporary and transitory trips. Many of 5 them one-day trips. In several cases I stayed 6 overnight, such as I have -- I produced motel 7 receipts for my overnight stays. 8 The indoor swap meet was a regular place 9 for me. I shopped regularly there. And I have 10 testimony to my friends and colleagues who ran shops 11 and regularly accommodated me there. They took good 12 care of me. They gave me special prices. And one 13 in particular helped me furnish my house with all 14 kinds of artifacts, artifacts such as fossils and 15 seashells, and a big stuffed fish that he had 16 caught. Because we're both interested in 17 outdoor-type activities. And those things still are 18 in my Tara Avenue Las Vegas house that I still 19 reside in. 20 I was car shopping in Las Vegas and I 21 needed another car -- I wanted another car. Started 22 shopping here. I had some various activities that 23 are testified to. November 23rd, December 18th and 24 30th were -- some of my friends and colleagues in 25 Las Vegas went car shopping with me. 26 And as you'll hear in the 1992 disputed 27 period, I purchased my '92 Toyota. I registered it 28 and insured it in Nevada. And, believe it or not, I 11 1 still own the car, still drive the car today. It's 2 a beautiful little car. And -- and it continues to 3 be registered and insured in Nevada after 25 years. 4 My son Dan visited me for the Thanksgiving 5 week. He worked on my old car to get -- try and get 6 it -- as he called it -- smogged, so that I could 7 get it registered. 8 And I signed several agreements for -- oh, 9 I had -- sorry, I forgot to mention it. 10 Before moving, I got rid of my -- the 11 burden of my patents, my license, giving exclusive 12 authority to license my patents to Philips, the 13 multinational company, who was one of the experts in 14 international licensing activities. 15 That was a couple of months before my move. 16 And I think it was in July of '91. And they took 17 over the licensing activities for my patents. They 18 committed to $36 million in '91, money to enforce 19 the patents. And they promised me that they would 20 enforce them, and they did. But they said it might 21 take years of litigation before I received any. 22 Patent litigation was notorious in that timeframe. 23 Philips put -- to identify me, they put my 24 old post office box address on the license -- what 25 they call draft licensing agreements, which actually 26 got signed and became final ones. And that was only 27 for identification of me in a preamble. 28 They then -- I complained loudly about 12 1 that, and by December '91, they started putting my 2 apartment address on the licensed agreements and 3 telling the licensees that this was my residence. 4 So that's all very well documented. And 5 then in December and January they switched over and 6 started using my Nevada addresses. 7 Again, Barry Lee stayed at my apartment for 8 three days in December. Bob Kazmaier stayed at my 9 apartment for five days in November. 10 I had worked on a submarine ballistic 11 missile launch program as a consultant. Bob was 12 trying to sell off the system and a submarine in the 13 South Pacific, and he needed my help. So he came up 14 to Las Vegas and stayed with me while I worked with 15 him to explain the designs that I had done so that 16 he could go and sell off the system. 17 So -- and he testified to those -- excuse 18 me -- to these -- to staying with me for five days 19 while we worked on that. 20 On November 27th my son and I -- my son, 21 who was visiting me, and I went to the Nevada DMV. 22 I got my Nevada driver's license. I had registered 23 to vote, and I signed an affidavit of Nevada 24 residence. I had already been living in Nevada for 25 several months. And the affidavit and Nevada 26 residency is questioned as to being too early or 27 something like that, but it was solid, and these 28 are -- and I think you'll find the evidence is clear 13 1 that I did properly get my Nevada's driver's license 2 and voter registration. And I voted in Las Vegas. 3 I found a place I really liked, the Tara 4 Avenue property. A beautiful house almost brand 5 new, almost 5,400 square feet. They had built it -- 6 the owner's had built it for themselves. They were 7 in the construction business. And they really did a 8 fine -- but they had to sell it. 9 I started visiting them. I made friends 10 with them. I visited them as early as I think -- 11 yeah, October 28th, and again on November 17th and 12 23rd. And they showed me around. They let me look 13 at the property. 14 I made a purchase order -- purchase offer 15 on December 14th. We negotiated that for a short 16 while in 1992. I got that house and that property 17 into escrow in March '92, which you'll hear about. 18 And escrow closed on it, and I still reside there to 19 the present day. 20 So the house that I live in today in 21 Las Vegas I first saw in October of 1991. I 22 continued to see it and walk through it with my 23 Realtor and with the sellers who I made friends 24 with. And, again, I'll repeat, I made a purchase 25 offer at the end of 1991, and I closed escrow at the 26 end of the '92 disputed period. 27 The Realtor who purchased that property for 28 me or on my behalf, Mr. McGuire, testified that he 14 1 had walked through numerous properties with me 2 through October through the end of '91. And, in 3 fact, he even put a statement into the purchase 4 order, because he had had previous dealings with the 5 pur -- sellers. He said I have shown the purchaser 6 many properties -- many properties, quote. That was 7 his representation to them, so they know that he's 8 not representing them. And that's a great 9 statement, because he did. 10 So there -- just Mr. McGuire showed me many 11 properties in this timeframe. And then Mr. 12 Shoemaker, who was another Realtor, he made a bunch 13 of offers for me, he also became my friend. He 14 showed me numerous properties through this various 15 period of time. 16 They were trying to get me a good price, so 17 I made ten purchase offers in '91 and '92 on 18 properties. I was anxious to get a property. I 19 wanted to move out of my apartment, and -- but I 20 also wanted a good deal. And I was also enjoying 21 the work with my realtor friends in finding a house 22 and getting a good buy on a house. 23 In addition, Mr. Shoemaker advised me to 24 find an escrow officer who I was comfortable with. 25 And after checking around a little bit, I made 26 friends with Joanne Frank, who is a friend of mine 27 today. That was something in this timeframe. 28 I had numerous meetings with her. She 15 1 personally advised me on these properties I was 2 making offers on. And through 1991 into 1992, she 3 was my escrow officer on the Tara Avenue property, 4 and she closed it in two-and-a-half weeks. Because 5 I really wanted to get out of my apartment and into 6 that beautiful, beautiful house. 7 And she's -- so therefore I have -- those 8 are illustrations of lots of the different 9 activities that I had in Nevada in 1991 -- in the 10 1991 disputed period. 11 The, um -- my former house in California, 12 which I sold on October 1, 1991, which is on this 13 timeline -- I didn't mention that -- is -- this is 14 where my house is, says Hyatt former house. It's a 15 short cul-de-sac street called Jennifer Circle. 16 Here are a bunch of my neighbors. I was on the 17 neighborhood watch. Here's my old car with the 18 neighborhood watch bumper sticker on it. 19 Twenty-two of my neighbors testified under 20 penalty of perjury that I had moved away in 1991. I 21 was gone from Jennifer Circle. I had sold this 22 house on October 1. I have -- you'll hear a lot of 23 evidence to that effect. And here is all of these 24 neighbors. Not every neighbor on the street, but 25 the 22 who I could still reach, who would testify, 26 they all testified I was gone in 1991. I wasn't 27 there. 28 So not only was I resident of Nevada, I was 16 1 not a resident -- I was not even present in the 2 California neighborhood. And there's been no 3 allegations that I had any other abode in California 4 other than this house. And all these neighbors 5 verified that I wasn't living there. 6 If you would permit, I'd like to continue. 7 The Bragg factor is very important. And 8 I'd like to briefly go through it. 9 Since I moved to Las Vegas in September 10 1991, I did not use a California address on my tax 11 returns, I did not claim California residency on my 12 tax returns. I did not register my automobiles in 13 California. I did not get a California driver's 14 license or voter registration. I did not vote in 15 California. I did not have minor children in 16 California schools. I did not open any California 17 bank or savings accounts. I did not get a 18 membership in a California social, religious or 19 professional organizations. I did not get any 20 California dentist or accountants or attorney 21 services. 22 I did get a California medical services for 23 cancer surgery, that was discovered contemporaneous 24 with my move, and I had that in a California 25 hospital, as many Nevadians do. 26 I was not employed in California. I did 27 not maintain or own business interests in 28 California. I did not obtain any new California 17 1 business licenses. I did not have investment real 2 property in California. I did not have a spouse, I 3 was long ago divorced. And I did not have any minor 4 children. 5 I -- my day -- the days I spent in 6 California, which were relatively few, were for 7 temporary and transitory purposes, which I have 8 solid evidence on. I did not have a California 9 origin for my checking account transactions and 10 credit card transactions. 11 I did sign a few investment account drafts, 12 and I made or authorized some credit card 13 transactions. But my main credit card transactions 14 and all of my checking account transactions were in 15 Nevada. 16 Now to identify the converse about what I 17 did do, not what I didn't do, I timely cancelled my 18 homeowner's property tax exemption on my former 19 residence that I sold in October 1, 1991. That's in 20 Tab 16. 21 There is binders with lots of documentation 22 that supports the statements that I'm making. And I 23 would, to the extent that you are interested in the 24 hard copies, I'll refer to the Tabs. 25 My homeowner -- cancellation on my 26 homeowner's property tax exemption is Tab 16. And, 27 again, I did not have a spouse or any minor children 28 since I moved to Las Vegas in September of 1991. 18 1 Since I moved to Las Vegas in September 2 1991 I used only my Nevada, Las Vegas address on my 3 tax returns, both federal and state. And only in 4 Nevada as my state of residence for the past -- and 5 for the 1991 part-year tax return. Please make note 6 that was a part-year tax return notifying the FTB 7 that I had moved. And I have continually filed my 8 tax returns in Nevada for the past 25-plus years. 9 Mr. Kern is my Nevada CPA. He's sitting 10 here. He's been -- and he has filed my tax returns 11 in Nevada. 12 I only -- and since I moved, I only 13 registered my automobiles in Nevada, Tab 46. I only 14 obtained driver's license and voter registration in 15 Nevada, Tab 43. I only voted in Nevada, Tabs 44 and 16 48. I only opened checking account and savings 17 accounts in Nevada, and I only opened Nevada situs 18 investment accounts, in Tabs 40 and 41. 19 I only -- I only formed memberships and 20 social and religious organizations in Nevada, 21 including joining the Temple Ner Tamid and the Las 22 Vegas -- Las Vegas Computer Users Group. And even 23 though I didn't join them, I worked very closely 24 with the Nevada Development Agency with the 25 government -- with the governor of Nevada, and with 26 many other persons and entities. 27 I mostly obtained Nevada professional 28 services such as dentists, accountants, doctors and 19 1 attorneys in Nevada. 2 I obtained -- oh, I didn't mention on the 3 timeline. I engaged a Nevada attorney, Ken 4 Wallison, who still represents me to this day, 25 5 years later. That was in November, and I engaged 6 him in November '91. 7 I obtained some California legal services 8 for California proceedings, but that was only for 9 California proceedings. And I did have some medical 10 services for cancer treatment and surgery, Tabs 45 11 to 47. 12 But, again, I mostly obtained Nevada -- 13 professional services in Nevada. In fact, I 14 produced to the FTB, and they totally disregarded 15 it, a identification -- a list and description of 16 over 100 -- over 100 non-California professionals 17 that I worked with through the disputed periods. 18 It's not surprising -- I can't see how 19 they -- and, in fact, what happens is in con -- 20 contrast to that, they then said that some of 21 Philips' California professionals were my California 22 professionals, three of them. Which they were not, 23 they were Philips. And they never addressed the 24 hundred non-California professionals that I had 25 nationwide in the -- during the disputed periods. 26 The origin or the Bragg factors discussed, 27 the origin point of my checking account and credit 28 account transactions was Las Vegas, Tab 64 through 20 1 65. 2 I was not employed, and I did not maintain 3 or own business interests or investment real estate. 4 I obtained dozens -- and according to the 5 Bragg factors, I obtained dozens of affidavits and 6 declarations from third parties attesting to my 7 presence and community involvement in Las Vegas, 8 Tabs 20 -- Tabs 66 and 67. 9 For example, as you'll hear shortly, 72 10 witnesses testified about my move away in 1981. 11 Seventy-two witness all agreed to that. Of course, 12 their declarations were significantly longer and 13 more detailed than just that. 14 Thirty-seven witnesses to my stay in the 15 Las Vegas hotel. 16 Two witnesses, as I've testified, testified 17 to staying overnight in my Las Vegas apartment. And 18 that's the total of 16 days for two visits by each 19 of these two colleagues of mine, and 16 days total. 20 They stayed at my apartment in my spare bedroom. 21 Thirty-nine testified about telephoning me 22 in my Las Vegas apartment. 23 Forty-one testified about me house hunting 24 in Las Vegas. 25 So there's an awful lot of testimony, 26 tremendous amount of testimony from the people I've 27 worked with and had relationships with. 28 Relative to Jennifer Circle, the Kim 21 1 family, Mr. and Mrs. Kim and their sons June and 2 John, all wrote declarations under penalty of 3 perjury that I had moved away in 1981. The Neuners, 4 Mr. and Mrs. Neuner and their son Jeremy all wrote 5 declarations that I had moved away in 1991. I was 6 close to both the Neuners and the Kims and others. 7 The Amadors, Mona Amador was a close friend 8 of mine. And she and three of her children wrote 9 declarations that I had moved away in 1991. 10 All of these people, often husband and 11 wife, and maybe in some cases children, testified 12 under penalty of perjury to that fact. 13 My telephone records and the origin point 14 of my telephone calls were in Las Vegas, Tab 114. 15 You'll hear a lot about suppression of telephone 16 records. There was no suppression of telephone 17 records. My telephone -- my Nevada telephone 18 records were produced. And I think they're shown in 19 Tab 114. 20 However, what they're really talking about 21 is telephone records from California. Well, I can't 22 produce telephone records from California. I sold 23 the house and there was a private lady who had 24 purchased it, and they're not my telephone records 25 that the FTB is talking about. The telephone 26 records that they want from California, which I 27 can't get because I didn't receive them. 28 Relative to the last point on the Bragg 22 1 factors, during the 190-day disputed period, which 2 is shown in Tab 27, I had 129 full days in Nevada as 3 a resident, zero full days in California as a 4 resident, 37 part days in Nevada and part days in 5 California, for temporary and transitory purposes, 6 such as cancer surgery out of California hospital, 7 having to attend court hearings on my mother's 8 estate when I was an executor for it, and the like. 9 Based upon the Bragg factors, I don't 10 understand how anyone in good faith could suggest 11 that I was a California resident during the disputed 12 periods or thereafter. 13 My contentions, the summary -- the hearing 14 summaries talk about appellant's contentions and 15 FTB's contentions. This is very unfair, because my 16 contentions, I represent to you, are supported by 17 extensive evidence, thousands of pages of 18 authenticated and described documents, 150 witnesses 19 testifying in over 220 declarations and affidavits, 20 20 depositions taken by the FTB to try and shake my 21 witnesses. And then they gave up because my 22 witnesses were unshakable, because they were 23 testifying to the true facts. And the FT -- and 24 they would not be intimidated. 25 I moved to Las Vegas on September 26th, 26 1991, resided continuously in Las Vegas for the past 27 26 years, continuously. I never moved back to 28 California, and I intend to reside in Las Vegas for 23 1 the rest of my life. 2 I sold my California house on October 1, 3 1991, and I'd like to describe that. 4 I had previous -- I sold the house by 5 myself without a realtor and without an escrow. And 6 that's the second house I sold by myself. I 7 previously sold my Westchester house by myself 8 without a realtor or an escrow. And I sold the 9 Jennifer Circle house by myself to a close friend 10 and colleague who I had known for a lot of years, 11 both her and her parents. 12 And she took a burden off of my shoulders, 13 because it -- the house was in very poor condition, 14 and she had to put on a new roof. The basement -- 15 it had a basement, and it was flooding whenever it 16 rained. And it was -- I had not properly taken care 17 of it. So she bought it as is and got a good price 18 on it, got a good discount. But I was able to move 19 to Las Vegas without the burden of fixing up the old 20 house. 21 I made arrangements to sell the Jennifer 22 Circle house in the summer of '91 to this lady, 23 Grace Jeng. She got her employer very late to 24 negotiate the details and the price of the sale. 25 She wanted to purchase it for a low price because it 26 was a fixer-upper. It was -- she wanted it really 27 badly because she's an Asian lady and because it was 28 near a very affluent Asian community. So it was a 24 1 desirable property for her. 2 I engaged in a real estate attorney, 3 Matt Bailey, who assisted me with the legal aspects 4 of selling the house. I had a closing on October 1, 5 1991. I received a down payment and a note, and on 6 that note I received six years of monthly payments, 7 regularly, which are well documented. And then at 8 the end of those six years, I received a balloon 9 payment paying it off in full. 10 I delivered -- I signed and delivered a 11 grant deed to Ms. Jeng, which I'm told makes the 12 sale of the house official. Incidentally, this is 13 extremely important because there -- the Jennifer 14 Circle house is the only abode that I had in 15 California other than hotels and motels for 16 temporary purposes. And the FTB has never contended 17 that I had any other abode in California. Their 18 contentions are that I didn't sell the house and 19 that I didn't move. 20 So it's all circled around the Jennifer 21 Circle house. And all of the evidence shows that it 22 was sold and that I wasn't there. 23 I disclosed the sale to the Jennifer Circle 24 house on my 1991 income tax return, and I carried 25 over the profit on the sale to my Las Vegas house. 26 See Tab 15. 27 And please make note I did file a part-year 28 1991 tax return telling everyone that I was -- that 25 1 I had moved away from California. 2 I filed a homeowner's exemption termination 3 notice stating that I will no longer occupy the 4 Jennifer Circle house, and I had already moved in 5 October 1991. See Tab 16. 6 Ms. Jeng did not want to record the 7 transaction, because she was a single lady, and 8 because she -- with her Asian background was very -- 9 tried to live her life confidentially. 10 Then in 1993 she decided to record the 11 deed, so I accompanied her to a notary and signed a 12 notary log. She recorded the sale papers. See Tab 13 12 -- see Tab 12. 14 There's been complaints that the notary 15 signed a false notarization. Well, first of all, 16 the notary testified that she may have made a 17 mistake, an inadvertent error in dating the 18 notarization. But that should have -- and even with 19 -- I was -- had no part of that. That should not 20 have any effect on the legitimacy of the sale. 21 Even the lead auditor in the FTB audit 22 agreed, quote -- she said, quote, "The taxpayer sold 23 the house -- sold the La Palma house on 10/1/91 24 before he purchased the house in Las Vegas during 25 April of 1992." That's in Tab 8. The auditor 26 agreed that I had sold the house. I'm the taxpayer, 27 of course. 28 As I said, and I won't repeat that $15,000 26 1 down payment, six years of monthly payments and a 2 payoff for the balloon payment. 3 The tax assessors for the last 38 years who 4 dealt with that property, they're elected tax 5 assessors, Bradley Jacobs and Webster Guillory, one 6 succeeded the other. They're both retired now, of 7 course. They testified that it was a legitimate 8 sale, all the paperwork was in order, and that -- 9 and they were satisfied. 10 The FTB has not provided any expert 11 testimony like I have to that effect. All the FTB 12 has is lawyers' arguments and misinterpreting 13 documentation, and that's -- okay. 14 Mr. Jacobs testified, quote, "When Mr. 15 Hyatt delivered the signed grant deed to Ms. Jeng, 16 the sale of the 7841 Jennifer Circle property to 17 Ms. Jeng was completed to the satisfaction of the 18 Orange County assessor's office." 19 Mr. Guillory, the successor, followed 20 Mr. Jacobs statements, as we'll talk about later. 21 He also -- both of them -- let's see -- there was 22 another challenge that because Ms. Jeng filed a 23 preliminary change of ownership report that -- that 24 -- they say she did not change -- file a change of 25 ownership report, but she filed a preliminary change 26 of ownership report. And Mr. Guillory and Jacobs 27 testified that if you file a preliminary change of 28 ownership report, that you don't have to file a 27 1 change of ownership report. That's in Tab 11. 2 ---oOo--- 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 28 1 ---oOo--- 2 MR. HYATT: Many other witnesses testified 3 to my house sale in October 1991. 4 Barry Lee testified: 5 "I helped Gil sell the Jennifer Circle 6 property to Grace Jeng and I know that 7 Grace Jeng purchased the Jennifer Circle 8 house and lived alone in the house." 9 And: 10 "I helped Grace Jeng convince Gill to 11 sell the La Palma house to her and he did 12 so." 13 Oh my gosh. 14 Unfortunately, I've got so much to tell 15 you, so many facts, so much information, and so 16 little time, and I'm not sure what to do. I have 17 details on the, um -- um, the 150 witnesses and how 18 they, um -- what they testified to, in very brief 19 form, relative to the enormous amount of documentary 20 evidence. 21 I filed thousands of pages of licensing 22 documents. The FTB says that those were suppressed 23 until the Philips documents in 2011. 24 Absolutely untrue. 25 I filed thousands of pages of licensing 26 documents and sourcing affidavits by the three -- by 27 the four witnesses that had the most knowledge of 28 the licensing program. And these were totally 29 1 disregarded, except to the fact -- 2 And I filed thousands of pages of what the 3 FTB calls contemporary documentary evidence. They 4 said there was no contemporary documentary evidence. 5 Absolutely untrue. 6 Thousands of pages. Thousands. Three 7 affidavits, with hundreds of pages of -- of 8 testimony on each and every one of these documents, 9 not only mentioning them, but describing them and 10 authenticating them. 11 There is no CD -- we call it CDE for short. 12 They say there is no CDE. Absolutely not. 13 In addition, I have -- tab 62 is very 14 helpful. It's a, um -- got a -- it's a table of 15 1100 documents from 1991 to this disputed period 16 1992 that I received or generated in Las Vegas with 17 my Las Vegas addresses on them; 1100 documents. 18 They say there's no CDE, no CD -- "narry a 19 one" is their term, one of their terms. There's 20 1100 in this table in tab 62. And all of those, all 21 of those have been produced and they're -- and 22 almost all of them are attached to my CDE 23 affidavits. 24 More than 300 pieces of mail for 1991 that 25 I received in Las Vegas; that's tab 63, a table 26 listing them. And of course we attached all of -- 27 copies of all of them. 28 Three hundred checks that I wrote -- that I 30 1 signed in Las Vegas. These were on my Las Vegas 2 checking accounts, by my -- in Nevada, by my Las 3 Vegas banks, 300 checks. 4 They say there's no contemporaneous doc -- 5 CDE. That's tab 64, with a table of the checks, and 6 I believe all the check -- copies of the checks are 7 all attached. 8 And there were many credit card 9 transactions in Las Vegas. 10 I've just run out of time. All of this 11 testimonial evidence, the 22 witnesses who testified 12 to my moving from Las Vegas in 1991, the, um -- the 13 72 witnesses who testified, which -- which included 14 the 22 neighbors. These are neighbors. These are 15 neighbors here. They're supplemented by others to 16 give 72 witnesses testified to my moving from Las 17 Vegas in 1992 -- 1990 -- I'm sorry, to 1991. I 18 misspoke. Please bear with me. 19 The hearing summaries asked me to tell 20 about six days that I changed on my calendar. And 21 what happened is the FTB first produced the calendar 22 that I had to rebut. And it's the reply -- 2010 23 reply brief, which was many years after the -- the 24 events that took place. So I did my best trying to 25 rebut their calendar with my calendar. 26 Then they went out and subpoenaed Philips 27 for a second time, got some new documentation. 28 Looking at this documentation, I noted that some of 31 1 these had to be updated. 2 So four of them I realized for the 3 consideration that they were -- that I had made a 4 round trip to California for a meeting on four of 5 those days. I made another round trip on an event 6 for November 6th, and I flew round-trip to Las Vegas 7 to San Francisco in return for a meeting with 8 Philips and the Sony representatives. 9 So these corrections are just based upon 10 the FTB's not bringing up the issues until almost 11 two decades into the proceeding, almost three 12 decades after the events, and then producing more 13 documentation so that we could update these 14 estimates. 15 The fraud penalties are absolutely wrong. 16 I did not commit a fraud. I did not. I moved to 17 Las Vegas. I believed I was a Nevada -- a Las Vegas 18 resident. I was a Las Vegas resident. 19 It, um -- it looks like I'm running out of 20 time. I beg the Board to give me a little bit more 21 time, please, to talk about fraud and sourcing. 22 They're so important. 23 MS. HARKEY: You have five more minutes. 24 And so if you run to the end of that, I'm sure we'll 25 allow you a few more minutes. But if you, um -- 26 whatever we allow you, we also have to allow the 27 FTB, sir. 28 So, you know, I am not opposed to granting 32 1 additional time. Just understand that they will 2 also get additional time. 3 MR. HYATT: I understand. That's fair. 4 MS. HARKEY: Okay. 5 MR. HYATT: Thank you. 6 MS. HARKEY: Thank you. 7 MR. HYATT: The hearing summary says that 8 the burden is upon -- is upon respondent, the FTB, 9 to prove by clear and convincing evidence that 10 appellant committed civil fraud. Fraud implies bad 11 faith, intentional wrongdoing, and a sinister 12 motive, and taxpayer must -- and the taxpayer must 13 have specific intent to evade a tax. 14 There -- I did not commit a fraud. There 15 is no bad faith. There is no wrongdoing. There is 16 no sinister motive. 17 I moved to Las Vegas on September 26th, 18 1991, and I have lived there continuously through 19 the present time. 20 I may not have done everything perfectly. 21 I tend to want to do things by myself, without -- 22 and, um -- but that is not fraud. There is no 23 sinister motive, absolutely none. I wanted to move 24 to Las Vegas. I wanted to create a new life. 25 The hearing summary also says in order to 26 prevail on this issue, FTB will need to show by 27 clear and convincing evidence that appellant knew he 28 continued to be a California resident, which they 33 1 have never done. 2 You've seen -- or heard a lot about all of 3 my evidence to the contrary. 4 Continuing acting in bad faith with intent 5 to deceive and evade tax believed to be owing. 6 Falsely reporting that he had moved to Nevada. 7 As noted above, clear and convincing 8 evidence has been defined as explicit and 9 unequivocal, leaving no substantial doubt and 10 sufficiently strong to command the unhesitating 11 assent of every reasonable mind. 12 Well, the FTB wouldn't agree to the fraud 13 penalties. Every reasonable mind, more than just 14 reasonable minds, the two audit -- the two reviewers 15 who reviewed the two audits, the two years, did not 16 challenge, question the fraud penalties. 17 The 1991 reviewer said we are assessing the 18 fraud penalty, although I'm not sure it's warranted. 19 I believe the taxpayer -- the TP, may have left 20 California in 12/91. 21 The '92 reviewer, Ron, said -- and this is 22 out of suppressed documents that we fine -- I 23 finally recovered from the FTB through the Nevada 24 litigation. Rhonda, the -- Rhonda was the reviewer. 25 Rhonda has reviewed the case and disagrees with 26 issuing the fraud penalty. 27 That should be dispositive. She doesn't 28 think the penalty should be issued for failure to 34 1 file a return when the taxpayer feels he 2 essentially -- he was essentially a nonresident. 3 And I'll grant you that's a '92 one and 4 should come up for the next year, but these two sort 5 of merged together. 6 In addition, the FTB brought together the 7 Embry task force, top level people, including the 8 auditor. And, um, in 1995 -- the 1995 audit, and 9 they determined that there was explicit doubt that 10 the FTB's 1991 residency case against me and that 11 the 1992 residency case, they didn't have a 1992 12 residency case. 13 The FTB hid all of these documents from me, 14 but I recovered them in the Nevada litigation. I 15 filed a tort case against them when my lawyers 16 realized what they were doing to me. 17 The, um -- the Nevada jury awarded me a 18 $250 million punitive damage adjustment -- judgment 19 against the FTB, in addition to the compensary 20 damages. And the Nevada jury and the Nevada Supreme 21 Court confirmed that the FTB had perpetrated a fraud 22 on me, not me on them. 23 I did not commit a fraud in California. I 24 intended to move. I did move. And I still reside 25 in Las Vegas to the present, and I intend to reside 26 there for the rest of my life. 27 Whatever the Board decides on residency, 28 there should be no doubt that I believed that I -- 35 1 and I still fully believe, that I was a Nevada 2 resident as of September 1991. And because I really 3 did believe that, whether -- whatever the Board 4 decides the facts are on the residency, they must -- 5 you must decide against the fraud penalty. 6 Similarly, whatever the Board finds 7 regarding sourcing, there should be no doubt that I 8 fully believed that I did not have California source 9 income. In fact the FTB even says that they will 10 give for sourcing Nevada residency for the whole 11 disputed period. They want it both ways. If I was 12 a California resident, they want taxes. If I wasn't 13 a California resident, they want taxes. They -- and 14 they want my money. 15 In addition, the FTB never assessed fraud 16 for sourcing. Fraud penalties came up in the Notice 17 of Proposed Assessments. They did not have 18 sourcing. Sourcing came in at the end of the 19 protests and they never addressed the fraud penalty 20 for sourcing. 21 So if the Board were to decide California 22 sourcing, which I know that you don't have the 23 evidence to do that, the -- you still can't assess a 24 fraud penalty against me for sourcing assessment 25 because it never was assessed by the FTB. 26 And again, fraud, just Jennifer Circle and 27 all those declarations under penalty of perjury that 28 I moved away should be convincing, not only of 36 1 residency but certainly that there was no fraud. 2 Again, my contentions are supported by 3 enormous amounts of documentary evidence and 4 eyewitness and expert witness testimony. 5 The FTB's contentions are supported by 6 false, made-up arguments by attorneys with very 7 little testimony and to the -- and misrepresenting 8 what the documents mean. 9 To the extent that they have private 10 investigator declarations, those private 11 investigators have been rebutted. Their statements 12 have been rebutted by the witnesses, and they -- 13 they have -- and they are false. The -- in fact one 14 of their private investigators called my witnesses 15 liars because they contradicted his made-up stories. 16 We're short on time, so let me -- I would 17 like to skip the law on, uh -- on sourcing and talk 18 to you about the sourcing issue. 19 The -- the FTB's sourcing assessments will 20 go down in history as the most bizarre sourcing 21 assessments ever. California sourcing with the 22 license activity touches Nevada, New York, Texas, 23 the Netherlands, Japan, but does not touch 24 California. And let me describe this. 25 I was prepared to move away from 26 California. I licensed Philips in New York and in 27 the Netherlands to sublicense my patents to others. 28 I gave Philips exclusive authority to sublicense my 37 1 patents. I no longer could license my patents 2 before I -- when I moved. 3 Philips hired Mahr Leonard in Texas to, 4 uh -- and gave it exclusive li -- negotiating rights 5 to negotiate licenses. And these licenses were 6 negotiated on my patents to Japanese companies, not 7 California companies, to Japanese companies. 8 Meanwhile, I moved to Las Vegas and I sold 9 my California house. I told Philips and Mahr 10 Leonard about my move and I gave them my Las Vegas 11 contact information. 12 FTB deems me to be a Nevada resident for 13 licensing purposes. My patents and investment 14 accounts were intangibles and, thus, took on a 15 Nevada situs because it followed my undisputed 16 deemed Nevada residency. So all the intangibles 17 were in Las Vegas with me. 18 Philips arranged to have my licensing fees 19 wire-transferred to my Nevada situs investment 20 accounts, all of them, with two exceptions; they 21 paid me checks that they owed me and those checks 22 were not wire-transferred. One of those checks I 23 received before I moved and I paid California taxes 24 on it. 25 I used my Nevada situs investment accounts 26 in part to purchase my Las Vegas house, which I 27 reside in to this day and continue -- will continue 28 forever. 38 1 Certainly there are touches to California 2 after I moved in September of '91. And I'm not 3 precluded from going to California to visit my -- to 4 visit friends, to have court hearings or whatever. 5 But not for licensing, not for licensing. The 6 licensing was done in New York and in Japan and in 7 Texas, but not by me and not in California. 8 Well, where does California sourcing come 9 in? Well, you'll hear a lot about it. But it's 10 only in the minds of the FTB lawyers who have 11 fabricated many different types of concepts, which 12 I'm sure you're going to hear about and maybe I'll 13 have a chance to, if time permits, to tell you the 14 truth about them. 15 There's just so much to tell about 16 sourcing. 17 May I -- may I continue for a short while, 18 knowing that the FTB will have some more time? 19 MS. HARKEY: Yes, you may. I would remind 20 you that you will have a chance on rebuttal to 21 speak. You will also be asked, I'm sure, several 22 questions from Members up here that might allow you 23 to elaborate. Because I'm sure there's going to be 24 questions from us. 25 So exercise your judgment. This is a 26 highly visible case. I don't want to deny you your 27 chance to speak. I just want to offer you those 28 considerations. 39 1 MR. HYATT: Thank you. I understand that. 2 But it's so important to get this information out. 3 And in rebuttal the FTB has all of these extreme 4 concepts that I'll -- I need to have a little bit of 5 time to rebut. 6 So -- 7 MS. HARKEY: You make -- you make the 8 decision. I'm not going to deny you your right to 9 speak. Just understand they'll have the same amount 10 of time and we will be back to you on rebuttal. 11 MR. HYATT: Thank you. 12 I did not have California source income 13 after I moved in September '91. 14 FTB brought together the Embry task force 15 in 1995, which confirmed that they did not have a 16 sourcing case against me. Of course they hid that 17 from me, and I had -- that determination, and I had 18 had to get it through the Nevada tort case. But the 19 Embry task force was very, very important because it 20 analyzed the, um -- uh, the -- the licensing 21 agreements and the, um, Philips agreement and the 22 like. 23 I licensed my patents to Philips well 24 before my move in July 1991, in the July 1991 25 Philips agreement. Philips was headquartered in New 26 York, not in California. They had exclusive 27 sublicensing -- exclusive authorization to 28 sublicense them. And they did that from New York, 40 1 they did that from the Netherlands. They engaged 2 Mahr Leonard in Texas who made trips to Japan for 3 it. I didn't. 4 Philips had a worldwide licensing 5 organization and a worldwide licensing experience 6 and capability. See tab 66. 7 I gave them exclusive sublicensing 8 authority and they took over the licensing of my 9 patents. I had to give them a representation in the 10 July '91 licensing agreement that I would not 11 compete with them and that I would not essentially 12 do any licensing activity. 13 And I did not breach that agreement. I -- 14 I would not -- I would have been absolutely foolish 15 to do so. Here was the -- one of the best licensing 16 entities in the world putting enormous resources 17 into licensing my patents. And I never would have 18 competed -- I never would have breached the 19 agreement with them. 20 In fact, when they asked me to sign some 21 agreements for them and indemnified me for that, I 22 agreed because I bent over backwards to accommodate 23 Philips because I was fully dependent upon them to 24 license my patents. 25 They engaged Mahr Leonard to help them, and 26 together -- and Philips and Mahr Leonard, as -- 27 their licensing experts traveled the world to 28 license my patents. I did not. I was -- I was 41 1 re -- I was rebuilding my life in Las Vegas. 2 Philips asked me to sign some license 3 agreements with them, and you'll hear a lot about 4 that, and I did because they indemnified me and 5 because I wanted to be cooperative with them. And I 6 later found out that they had cross-licensing 7 relationships and therefore that's -- and for some 8 reason that's why they wanted me to do so. 9 So you're going to hear a lot about my 10 signing several of the license agreements on behalf 11 of Philips, but that does not give me -- cause a 12 licensing business. 13 I did not sign any of the license 14 agreements in California. And there's no evidence 15 of that. I signed two of them in Virginia when I 16 was on a trip to the patent office, and I signed 17 several others at my home in Las Vegas. So there's 18 no California connection there. 19 The fact that I signed some license 20 agreements before Philips should not be a California 21 licensing business. 22 Mahr Leonard put my Cerritos P.O. Box in 23 the preambles of some of the license agreements to 24 identify me. You're going to hear a lot about that. 25 But this was only the P.O. Box. This was only in 26 the preambles to identify me, and I complained 27 loudly about this. Philips and Mahr Leonard knew 28 that I had moved to Las Vegas, and they eventually 42 1 corrected those and put my apartment address down. 2 Philips told me it was only a draft 3 agreement and those addresses would be corrected. 4 As I said, I complained loudly about 'em and they 5 did eventually correct them. 6 Philips managed, financed, and operated the 7 Philips licensing program. I was the inventor. I 8 had to cooperate with them when prospective 9 licensees wanted to meet the inventor. 10 And I don't have the poster, but it, um -- 11 it is, um -- um, I am a little embarrassed, but I 12 need to say it to the Board. I was a very famous 13 inventor and there's a lot of press and other things 14 having to do with it. I had a poster, but it's -- I 15 can't find it. Don't have the time for it. 16 So the fact that I helped Philips and that 17 I met with some of the licensees is as an inventor, 18 not as running a licensing business. 19 Philips -- you'll hear that -- okay -- that 20 I knew about the licensing and that's incorrect. 21 Mahr Leonard would never tell me the status because 22 it said it's too uncertain and that it didn't want 23 to give false hopes. 24 Philips told me expressly, and it's in 25 declarations, that they expected years of 26 litigation. And they put in ten years of -- of 27 payments to me, subject to not -- contingent upon 28 not getting licenses so that would keep me going 43 1 until they did get licenses and it runs out for ten 2 years. So there was no expectation that there would 3 be any licenses soon, although you'll hear a lot 4 about that. Ten years of payments to me to the 5 extent that they -- if they did not get -- until 6 they got licenses. 7 Again, I -- I turned over my patents to 8 Philips in July '91, before my move. Philips had 9 exclusive authorization to sublicense them. 10 Nothing that you're told that I did in the 11 interim can make me into the licensing entity. 12 Philips was the exclusive licensing entity. I 13 helped them, and maybe I wasn't too careful in some 14 of the things but -- and then, also, you'll hear a 15 lot about Philips still sending information to the 16 California addresses. You'll find that those were 17 mis -- admittedly mis -- undisputedly misaddressed 18 documents. So please don't put any credibility on 19 those undisputably misaddressed documents that 20 Philips inadvertently sent to the California 21 addresses. 22 I will give you closing if I might. I 23 provided enormous amounts of evidence to the FTB, 24 and particularly CDE evidence which was totally 25 disregarded. They say, Mr. Hyatt's story regarding 26 his alleged move is only corroborated by affidavits. 27 Yes, "only." He has simp -- Mr. Hyatt has simply 28 not produced contemporaneous documentation -- well, 44 1 they didn't look at it, that's why they say that -- 2 through March 1992, with nary a paper trail. 3 The binder is only a very, very small part 4 of it. And many of those pages have 16 pages 5 reduced on them. Nary a paper trail. 6 What we discovered in the Nevada tort case 7 is some private meetings that the residency 8 supervisors had. They said the problem of having a 9 vendetta attitude about taxpayers was discussed. It 10 is important to follow department procedures and not 11 be accused -- not be in the position of accused of 12 following a personal -- a personal agenda to quote, 13 to get, quote, get, unquote, a taxpayer. They 14 quote -- they had it quoted. 15 The evidence in this case is that the 16 auditor said that she is going to get me, and the 17 FTB has spent the last 20 or so years trying to get 18 me. 19 The, um -- the motives, you've got to 20 understand their motives and weight their evidence 21 and their disregard -- and their disregard for my 22 evidence accordingly. They disregarded my evidence. 23 They made up their own. They disregarded my eye 24 witnesses, my expert witnesses. They have lawyer 25 arguments made up that are false, that misrepresent 26 the documentation, take it out of context and 27 misstate it. 28 Thank you very much for listening to me and 45 1 giving me some extra time for the opening. I'll -- 2 I really appreciate your interest and your 3 consideration. 4 MS. HARKEY: Thank you very much. 5 Members, I'm going to call for five minutes 6 before we get into the FTB testimony. Is that 7 agreeable? 8 Okay. Thank you. We'll recess for five 9 minutes and be right back. 10 (Recess taken.) 11 ---oOo--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 46 1 ---oOo--- 2 MS. HARKEY: Okay. I think we're about to 3 resume. 4 FTB, are your bodies in place? 5 Okay. Thank you. 6 Okay. We are calling back to order now. 7 And, FTB, you will have an hour to an 8 hour-and-a-half to make your presentation. I think 9 it's an hour and 25. 10 MR. HILSON: Thank you. I don't know that 11 I'll use it all. Hopefully not. But thank you very 12 much. 13 MS. HARKEY: Please introduce yourself. 14 MR. HILSON: I will do that. 15 Good morning, Chairwoman Harkey and Members 16 of the Board of Equalization. My name is William 17 Hilson, and here with my colleagues, Scott DePeel, 18 Ann Hodges, who represent the Franchise Tax Board in 19 this matter. 20 After years of what we believe is 21 unnecessary delay caused primarily by the appellant, 22 we welcome this opportunity to provide you with 23 presentation of facts based upon objective, 24 contemporaneous documents, documents which were 25 created by the appellant and his business partners 26 during their joint pursuit of hundreds of millions 27 of dollars from Japanese corporations during 1991 28 and 1992. 47 1 The documents have been dated, they are 2 signed, and they tell us where the appellant was in 3 a number of ways, including addresses on mail being 4 sent to him, addresses, telephone, and telefax 5 numbers on mail signed by him and sent by him, and 6 addresses provided in multimillion-dollar contracts. 7 The documents may not possess a human 8 voice, but they speak loudly, clearly, and with 9 infallible memory. The documents tell a story, one 10 which we submit leads to the inescapable conclusion 11 that the assessments made by the Franchise Tax Board 12 in this matter, including the penalty assessments, 13 are appropriate and must be sustained. 14 During this presentation, I'll be focusing 15 on what this case is all about, Hyatt's whereabouts 16 and income-producing activities during 1991 and 17 1992, and the concentrated efforts that were 18 undertaken to keep FTB away from those documents. 19 I will not be spending a lot of time with 20 respect to what happened in Las Vegas other than to 21 tell you that the extent Mr. Hyatt has referenced, a 22 multimillion-dollar judgment that was entered 23 against the FTB, Nevada Supreme Court threw out more 24 than 99 percent of that. 25 After that was done, with what the Nevada 26 Supreme Court didn't try and defashion a remedy in 27 this case, the FTB asked the Legislative Supreme 28 Court to take a look at it. The highest court in 48 1 this land. 2 On one hand, after review of it, and the 3 way it all was happening, and what the Nevada 4 Supreme Court said it was going to do eight years 5 earlier and what it actually did, and what happened 6 during the trial, the Supreme Court, in ruling in 7 favor of the FTB concludes as follows: 8 "For these reasons, in so far as Nevada 9 Supreme Court has declined to apply California law 10 in favor of a special rule of Nevada law that is 11 hostile to its sister states, we find its decision 12 unconstitutional. And we vacate its judgment and 13 remand the case for further proceedings not 14 inconsistent with this opinion." 15 That aiding came down from the highest 16 court in this land April of 2016. It has been 17 sitting in front of Nevada Supreme Court since that 18 time. Nothing has happened in so far as reinstating 19 the judgment or remanding the matter back to the 20 District Court for trial or whatever it is that the 21 Nevada Supreme Court may do. 22 The simple fact of the matter is there is 23 no fraud judgment against FTB. For the extent that 24 it was there, it was vacated by the Supreme Court. 25 Moving on, the -- as you know, there's also 26 another piece of litigation between FTB and 27 Mr. Hyatt, and also involves you as individual Board 28 members. And that's a case that was commenced here 49 1 in Federal Court in Sacramento after the -- after 2 attorneys representing both the individual Board 3 Members and FTB, and attorneys representing you as 4 individual Members of the Board of Equalization, got 5 it thrown out, the case was appealed to the Ninth 6 District -- Ninth Circuit Court of Appeal in 7 San Francisco. 8 That case was argued during an early 9 portion of this year, and during the commentary that 10 was going back and forth between the lawyers, 11 Chief Justice Fletcher made an observation that I 12 think is very succinct and very germane to this 13 case. 14 Judge Fletcher stated, "The underlying 15 question of whether he was a resident at a relevant 16 time is a pretty simple question. I should think 17 most of the evidence is documentary, and most of the 18 evidence would be in his possession." 19 FTB wholeheartedly agrees with Judge 20 Fletcher's observations. Where the appellant was, 21 what he was doing during 1991, is revealed in the 22 documents, many, many of which were not provided to 23 FTB by appellant or his representatives during the 24 audit or during the protest, and were never seen by 25 a Nevada jury. 26 These documents include communications to 27 and from his business colleagues, Japanese 28 corporations, and government agencies in both the 50 1 United States and Japan. 2 The volume and frequency with which these 3 documents include a La Palma, California street 4 address, a Cerritos, California post office box, and 5 California telephone and telefax numbers belonging 6 to the appellant is simply staggering. 7 Equally staggering is the uniform absence 8 of any reference to a Nevada street address, Nevada 9 post office box, or Nevada telephone and telefax 10 numbers in this business correspondence. 11 During this presentation you will see 12 repeated references to 7841 Jennifer Circle, 13 La Palma, California, a house appellant purchased in 14 1986. 15 The two telephone numbers associated with 16 the house, a phone number area code (714) 995-1087, 17 and a telefax number of area code (213) 809-1087. 18 That area code having been changed to 310 sometime 19 in 1992 after the split of the 213 area code in 20 Los Angeles, and to post office box 3357 Cerritos, 21 California. 22 You will also hear repeated references to 23 Philips USA and Mahr Leonard, two companies retained 24 by Mr. Hyatt to assist him in his pursuit of the 25 Japanese corporations. 26 Finally, you will hear repeated references 27 to the name Grace Jeng, a friend and longtime 28 associate of Mr. Hyatt. Among other things, Grace 51 1 Jeng obtained the Cerritos post office box of Mr. 2 Hyatt during 1986, has on occasion worked for him 3 for up to 100 hours per week, and is the person whom 4 supposedly sells the Jennifer Circle home on 5 October 1st, 1991. 6 The majority of the business documents I 7 will be sharing with you come from more than 7,000 8 pages of materials FTB obtained from a company 9 called Philips USA during the year 2011, a date 10 which is more than 17 years after the commencement 11 of the audit, four years after the conclusion of the 12 protest, and three years after the conclusion of the 13 Nevada trial. 14 The fact the documents are significant and 15 worthy of your careful scrutiny is proven by the 16 fact appellant contested FTB's obtain -- a right to 17 obtain and use those documents in the courts of the 18 state of New York for more than four years. 19 Why doesn't the appellant want us to look 20 at this objective contemporaneous business 21 documents, documents which should clearly 22 memorialize his departure from the state of 23 California during 1991? It's because the documents 24 do just the opposite. They show he's -- he never 25 left. 26 The documents very clearly tell the story 27 about the business arrangement that appellant had 28 with Philips, in arm of an international 52 1 conglomerate, that paid him $800,000 during July of 2 1991, and several Japanese companies, companies 3 which paid him in California more than 19 -- $96 4 million during 1991. 5 This case arises from appellant having been 6 granted a significant electronics patent by the 7 United States Patent Office on July 17th, 1990. 8 This was Patent No. 4942516, which I will be 9 referring to as the 516 patent. 10 The award of the patent to Mr. Hyatt was 11 contested by a Texas instrument employee named 12 Gary Boone during March of 1991. The notice of that 13 contest was provided to Mr. Hyatt by means of the 14 United States Patent Office mailing to Mr. Hyatt's 15 long-term patent lawyer in Los Angeles, Gregory 16 Roth. 17 Mr. Boone ultimately wins the patent 18 interference contest during 1999 when the United 19 States Supreme Court declined review of a Federal 20 Appeals Court decision in favor of Mr. Boone. 21 After appellant was awarded the 516 patent, 22 the appellant and his long-time patent lawyer began 23 seeking compensation from Japanese electronics 24 manufacturers for the use of his patent technology. 25 The first Japanese corporation to enter into any 26 kind of a patent-related arrangement was Pioneer 27 Electronics Corporation. 28 During June 1991, with a sum of $300,000, 53 1 appellant gave Pioneer the option to enter into a 2 patent license agreement with him through August 3 1991. At or about this time, Mr. Roth tells 4 appellant, tells Pioneer, on behalf of Mr. Hyatt, 5 that Mr. Hyatt wants the payment made by means of an 6 electronic funds transfer to Mr. Roth's client trust 7 account in Los Angeles. 8 On August 29th, 1991, the appellant 9 executes a formal acknowledgment of the receipt of 10 $300,000 from Pioneer, a document in which he 11 affirmatively states he's living at the Jennifer 12 Circle home in La Palma. 13 Following this success with Pioneer, 14 appellant and his attorney embarked upon a business 15 plan they had designed that required significant 16 compensation from businesses that had made use of 17 the microprocess of technology covered by the 516 18 patent, with a focus on the Japanese consumer 19 electronics manufacturers. 20 The implementation of that plan included 21 appellant contracting with two entities for 22 professional assistance in dealing with the Japanese 23 corporations, Mahr Leonard in Texas, and U.S. 24 Philips Corporations in New York. 25 The contract with Philips was executed on 26 -- by appellant on July 24th, 1991. His signature 27 being attested to by Grace Jeng. The contract gave 28 Philips specific permissive use, and non-exclusive 54 1 subleasing right with respect to 23 of appellants 2 patents. 3 Thirteen of those patents were called 4 computer patents, nine of them were called LCD 5 patents, and one was called a microprocessor patent, 6 the 516. 7 Mr. Hyatt retained all rights with respect 8 to his other patents, 35 of which are expressly 9 accepted from the scope of the contract. 10 With respect to sublicensing, the agreement 11 specifies that Mr. Hyatt and Philips were to each 12 use their best efforts in pursuing contracts with 13 Japanese corporations, and to communicate with each 14 other on a regular basis, so as to arrive at 15 mutually satisfactory model sublicenses, ultimately 16 to be approved by Mr. Hyatt. 17 That contract tells us, no uncertain terms, 18 that Mr. Hyatt was residing at Jennifer Circle in 19 La Palma. And in Exhibit A, thereto, confirms the 20 focus on the Japanese corporations and reveals a 21 plan to waive claims of prior patent infringement in 22 exchange for monetary compensation. 23 MS. HARKEY: Not -- not to interrupt you, 24 but when there's a display put up, could our camera 25 focus on our display so we can read it on our 26 monitors here? That's real important for us. 27 Who's got their film on me right now? If 28 you could put it on that, it would be very helpful. 55 1 Can we get that? We had -- we had them for 2 Mr. Hyatt. 3 There we go. Okay. Thank you very much. 4 That's good. That way we can read what you're 5 noting. Thank you. 6 MR. HILSON: Thank you for helping me out. 7 Appreciate it. 8 Okay. As I was saying, with respect to 9 sublicensing, the agreement specified that Mr. Hyatt 10 and Philips were to each use their best efforts in 11 pursuing contracts to the Japanese Corporations and 12 communicate with each other on a regular basis so as 13 to arrive at mutually satisfactory sublicenses to be 14 approved by the appellant. 15 That contract tells us in no uncertain 16 terms, Mr. Hyatt is at Jennifer Circle in La Palma 17 and confirms in Exhibit A, thereto, focus on 18 Japanese corporations and reveals the plan to waive 19 claims by a patent infringement in exchange for 20 monetary compensation. 21 The extent that the contract talks about 22 exclusive subleasing rights to Philips, it is with 23 respect to the 9 computer patents, not the remaining 24 14. And as we'll get into as I proceed, it really 25 doesn't matter, because the contracts that Mr. Hyatt 26 signs with the Japanese corporations all include 24 27 patents, not 23. 28 Mr. Hyatt himself has acknowledged that no 56 1 new information or technology was being transferred 2 to the Japanese companies pursuant to the licensing 3 agreements. And that for payments, the companies 4 were getting freedom from being sued patent 5 infringement. 6 The details of the business plan, a plan 7 which was clearly conceived and implemented while 8 appellant was admittedly in California, are clearly 9 revealed in Exhibit A to the July 1991 contract with 10 Philips. 11 FTB specifically requested that appellant 12 provide a copy of Exhibit A on multiple occasions, 13 commencing on December 31st, 1999. Fourteen months 14 later, FTB was told that Mr. Hyatt was unable to 15 locate the document. This is one of the documents 16 FTB obtained from Philips during the summer months 17 of 2011 or some ten years later. It was also a 18 document which simply should have been given to FTB 19 ten years earlier. 20 Pursuant to the contract, Philips agreed to 21 provide Mr. Hyatt with an immediate payment of 22 $800,000, and agreed to pay the legal fees Mr. Hyatt 23 would incur in defense of the Boone patent contest. 24 Contract also provides that after the 25 deduction of combined respective expenses, Mr. Hyatt 26 and Philips were to share the paid licensing fees on 27 a 50/50 basis. Mahr Leonard was to be paid 15 28 percent of the gross fees paid by Japanese companies 57 1 pursuant to contracts negotiated by Mahr Leonard. 2 On September 24th, 1991 Mr. Hyatt and 3 Philips, as a joint contracting party, both executed 4 a contract with Mahr Leonard, a contract which 5 expressly authorized Mahr Leonard to continue the 6 negotiation efforts it had learned to take it on 7 behalf of appellant with seven electronics -- seven 8 Japanese electronics manufacturers. 9 We've been told repeatedly that the 10 appellant had no expectation of entering into 11 contracts with Japanese companies for receiving 12 moneys from them until it had actually happened. 13 Mr. Hyatt has specifically stated that 14 although I did hope to eventually grant licensing 15 income for my patents, I had no expectation that it 16 would happen so soon after my move to Nevada. 17 Ten years later, FTB obtains documents 18 which paint a totally different story. One of the 19 concealed documents FTB received from Philips is 20 dated September 25th, 1991 one day after the joint 21 contract between Mr. Hyatt and Philips with Mahr 22 Leonard, and reports the then current financial 23 reward expectations, a Hyatt and Philips and Mahr 24 Leonard team had with respect to the Japanese 25 corporations. The document unequivocally reveals 26 that the appellant was about to come into a minimum 27 of $80.5 million in licensing fees. 28 Five days later -- five days later, by 58 1 means of a letter addressed to appellant at his 2 Jennifer Circle, La Palma home, the $80.5 million 3 expectations rose to 86 as the expected payments 4 from Matsushita and Sharp have grown by 2.5 million 5 and 3 million respectively. 6 Every one of these companies ends up 7 signing a contract with Mr. Hyatt. And with only 8 the exception of Oki Electric remitting payment to 9 Mr. Hyatt during 1991; Fujitsu, $15 million; 10 Matsushita, $25 million; NEC $16.5 million; Oki, 11 even though it doesn't come in until '92 and '93, 10 12 million; Sharp -- Sharp ends up being 17.8 million, 13 for a total in excess of $88 plus million. 14 It is during this week of very good news 15 that the appellant allegedly leaves California, be 16 it on September 24th, 25th, 26th, all of which 17 predate the October 1st date contained within this 18 1991 part-year tax return. 19 Proof of appellants presence in California 20 throughout the last week of September 1991 is found 21 in the September 26th doctor's appointment in Los 22 Alamitos, California. The records for which have 23 appellant residing at Jennifer Circle having a 24 Cerritos, California post office box and claiming 25 ownership of the phone number at Jennifer Circle. 26 The 26th also sees appellant sending his 27 patent agents copies of articles from that days 28 Los Angeles Times from his Jennifer Circle home. 59 1 On the following day, appellant makes an 2 appearance before a California notary public in 3 La Palma at a bank approximately a mile to a 4 mile-and-a-half away from his home, with appellant 5 representing in the notary's journal that he resides 6 at Jennifer Circle. 7 On September 30th, the appellant executes 8 an Orange County Superior Court filing in connection 9 with the probate of his mother's estate, stating 10 under penalty of perjury that the document was 11 signed in La Palma, meets with his attorney -- meets 12 with an attorney, Roger McCaffrey in Anaheim, and 13 admittedly spends the night at Jennifer Circle that 14 evening. 15 Regardless of which of the four "I left 16 California on blank dates" you might choose, it's 17 clear the appellant claims he had severed all 18 residence contacts with California not later than 19 September 30th, 1991. However, the objective 20 contemporaneous documentation demonstrates something 21 different. 22 During October, the appellant appends his 23 signature to business and business-related 24 correspondence through which he confirms his 25 presence in California on 17 different occasions 26 between October 3rd and October 28th. On five of 27 those occasions ranging between October 18th and 28 October 26th, he represents he's living at Jennifer 60 1 Circle. 2 One example of such a representation is an 3 October 18th letter he sends to Sharp. On an 4 additional 12 occasions ranging between October 3rd 5 and 28th, he appends his signature to business and 6 business-related documents stating him being 7 contacted via the Cerritos post office box and the 8 Jennifer Circle telephone and/or telefax lines. 9 Use of the Jennifer Circle home address is 10 included in contractual agreements with Philips and 11 Japanese taxing authorities use of post office box 12 includes correspondence with Philips, contracts with 13 Fujitsu and Oki Electric, which are worth a combined 14 $25 million, and four distinct filings with the 15 United States patents. 16 When we look at incoming correspondence, we 17 see apartment lease documents being sent to the 18 Jennifer Circle fax machine, Philips correspondence 19 addressed both his Jennifer Circle home and Cerritos 20 post office box, and U.S. Patent Office 21 correspondence sent as directed to the Cerritos Post 22 Office Box. 23 Personal activities such as banking, 24 dining, doctors's appointments, business travel 25 beginning and end points are plentiful and 26 consistently in California. A summer of the 27 appellant's objectively documented business and 28 personal presence in Southern California during 61 1 October 1991 looks something like this: October 1st 2 -- 3 Have you got it? 4 MS. HARKEY: Yes. Thank you. 5 MR. HILSON: October 1st, court appearance 6 in Santa Ana. On the 2nd, makes a bank deposit in 7 Cerritos, California and dines at a Mr. Stox 8 restaurant in Anaheim. 9 On that day, one of his business partners 10 represents to the Japanese Corporation Sharp that 11 appellants lives at Jennifer Circle in La Palma. 12 On the 3rd, appellant writes to Philips 13 stating he could be contacted via his Cerritos post 14 office box and/or Jennifer Circle phone number. 15 On the 6th, he participates in the business 16 promotional photoshoot at his Jennifer Circle home. 17 On the 7th, we have a -- we see him dining 18 in Anaheim and sending a fax to Philips, again, 19 utilizing the Cerritos post office box and Jennifer 20 Circle phone number. 21 On the 9th, we have a doctor's visit in 22 Long Beach and proposed leasing documents pertaining 23 to a partially subsidized apartment complex in 24 Las Vegas is faxed to appellant via the Jennifer 25 Circle fax machine. 26 On the 10th, we're dining in Cypress. 27 On the 13th, we've got a pharmacy purchase 28 in La Palma. 62 1 On the 14th, there's quite a bit of 2 activity. Several things happen. The 14th sees the 3 appellant pay the full 1991 and 19 -- year '91 and 4 '92 Orange County real property taxes on his 5 Jennifer Circle home, a house he supposedly sold to 6 Grace Jeng two weeks earlier. He signs contracts 7 with the Japanese Corporations Fujitsu and Oki with 8 a combined 25 million, both of which state his 9 mailing address as the Cerritos post office box. 10 Philips signs a supplement to his contract 11 with appellant, a document which tells us the 12 appellant resides at Jennifer Circle. 13 This is also a day where appellant begins a 14 multi-day business trip to the east coast in Texas 15 departing from LAX, not Las Vegas, tells a Virginia 16 hotel that he's from Cerritos, California and sends 17 three documents to the United States Patent Office, 18 telling them in each document that he can be 19 contacted via the Cerritos post office box and his 20 Jennifer Circle phone number. 21 Fujitsu is the first of six Japanese 22 corporations to sign patent licensing contracts with 23 the appellant during 1991. The contract tells us 24 the appellant is in Cerritos, identifies the 24 25 patents involved, not 23, contains a waiver of 26 potential claims for patent infringement, specifies 27 that 15 millions is to be paid by the end of 28 October, and the payment is to be made by wire 63 1 transfer to the client trust account, that is his 2 long-time Los Angeles lawyer, and specifies that 3 questions regarding the agreement and the parties 4 performance of contractual obligations are to be 5 determined by California law. 6 Contemporaneous objective documentations 7 tells us a similar story with respect to appellants 8 presence in California during the second half of 9 October. 10 On the 15th, the U.S. Patent Office sends 11 him correspondence, as directed, to the Cerritos 12 post office box. 13 On the 18th, 19th, and 21st, appellant 14 makes three separate representations that he lives 15 at Jennifer Circle. Those representations are made 16 to the Sharp Corporation, a car rental agency, and a 17 Japanese taxing authority. 18 On the 21st, Philips also sends him 19 correspondence at Jennifer Circle. 20 On the 23rd, you see the appellant 21 returning to California, starting with a limousine 22 ride from upstate New York, Philips headquarters, to 23 Newark, return to LAX, not Las Vegas, where he meets 24 with his Los Angeles lawyer. 25 On the 24th, Philips signs another 26 supplement to his contract with the appellant, an 27 agreement which states the appellants residing at 28 Jennifer Circle, and faxes correspondence to him in 64 1 California via the Jennifer Circle fax machine. 2 Two days later, the 26th, appellant signs 3 the two supplemental contracts with Philips, twice 4 reaffirming he resides at Jennifer Circle, and dines 5 in Cerritos. 6 The 26th is also a day where the appellant, 7 twice more, sends correspondence to the U.S. Patent 8 Office using the Cerritos post office box and 9 Jennifer Circle phone number. 10 On the 27th, he again offers 11 correspondence, utilizing the Cerritos post office 12 box as his point of contact. 13 He confers with his California lawyers on 14 the 28th and 29th regarding the topic of taxes, 15 likely in anticipation of the receipt of $15 million 16 from Fujitsu on the following day. The Fujitsu 17 payment is wired to appellant via his Los Angeles 18 lawyer on the 31st, that would also include Oki 19 signing its $10 million contract, which it sends to 20 appellant at his Jennifer Circle home, not to 21 Philips or anywhere else. 22 The day also sees appellant attend a 23 doctor's appointment in Ford (phonetic). 24 Notwithstanding this continuous consistent 25 use of California street addresses, California post 26 office boxes, California telephone and telefax 27 numbers in what is now a multimillion dollar 28 California patent licensing business, and engaging 65 1 in documented, ongoing personal activity within the 2 La Palma California area, appellant insists he was 3 long gone from California by the end of October 4 1991. 5 In support of the assertion, appellant 6 contends he submitted a change of address request 7 with the United States Post Office on October 21st, 8 1991, allegedly requesting that mail addressed to 9 him at Jennifer Circle and a Cyprus, not Cerritos, a 10 Cyprus California post office box be forwarded to a 11 post office box located in Las Vegas. That alleged 12 submission contains no post office stamp or other 13 indication that it was actually submitted or 14 received by the post office. 15 Significantly, the appellant did not 16 request any changes with respect to his Cerritos, 17 California post office box, for which he is 18 continuously conducting his affairs with Philips, 19 Mahr Leonard, the United States Patent Office, and 20 the Japanese corporations. 21 More importantly, the appellant cannot 22 point us to a single piece of mail that was actually 23 forwarded to Nevada during 1991. And as you will 24 see, this business correspondence continues to be 25 both sent to and from Jennifer Circle throughout 26 1991. 27 FTB inquired of the post office during 28 September of 1995 as to whether mail was being 66 1 delivered to Gilbert Hyatt at the Jennifer Circle 2 street address. The written reply submitted to FTB 3 by the post office confirmed mail was still being 4 delivered to him at Jennifer circle. 5 As such, it's not surprising to see Mr. 6 Kern forwarding FTB audit correspondence to Mr. 7 Hyatt via the Jennifer Circle fax machine on August 8 23rd -- August 19th, 1993, May 24th, May 27th, 1994, 9 and February 6th, 1995. 10 The second one I referenced specifically 11 requested copies of correspondences between Mr. 12 Hyatt and Philips subsequent to the signing of the 13 Philips agreement. The documents we had to fight to 14 get in New York, or -- and in addition we see Mr. 15 Collin communicating with him by means of the very 16 same California telefax line during May 1995. 17 The documents very clearly and objectively 18 demonstrate more than 30 instances where Mr. Hyatt 19 is conducting his personal and business life in and 20 around La Palma, California during October 1991. 21 It is the presence of that contemporaneous 22 documentation against of which the appellants 23 account of his alleged relocation to Las Vegas must 24 be evaluated. Let's stop at the purported sale of 25 the Jennifer Circle home to Grace Jeng. 26 FTB's auditors were told this sale occurred 27 on October 1st, 1991. And that its significant 28 terms were the sales price of $175,000, which was to 67 1 be paid by mean of the $15,000 downpayment, and a 2 promissory note in the amount of $160,000. Payment 3 of which was to be made within five years and 4 secured by a deed of trust upon the property. 5 This transaction was and is characterized 6 by many peculiarities. No written contract, no 7 title insurance, no escrow, no appraisals, no 8 inspections regarding the condition of the property. 9 In fact, there's no proof the $15,000 downpayment 10 was ever made or the promissory note has in 11 actuality been paid off. 12 Ms. Jeng has testified that she made the 13 $15,000 downpayment by providing Mr. Hyatt with one 14 or more checks. Copies of that check or checks have 15 never been provided. 16 Mr. Hyatt represented during November of 17 2000 that a December 14, 1991 deposit of $15,000 18 into one of his bank accounts was Ms. Jeng's 19 downpayment. When FTB demonstrated that this 20 transaction was merely a transfer of $15,000 by Mr. 21 Hyatt from one of his accounts to another, FTB was 22 told that appellant was, quote/unquote, researching 23 the matter. Ten years later, that research is yet 24 to reveal proof of the downpayment. 25 Similarly, the documentary evidence of 26 Ms. Jeng having made payments on the $160,000 27 promissory note is standing. There's no evidence 28 that she made any payments on the note during 1991. 68 1 Nevertheless, FTB has been told the note 2 was paid in full. However, during April of 2017 in 3 preparation for the May hearing in this matter, we 4 went out and obtained a litigation guarantee report 5 from the Southern California title company. That 6 report reveals that more than 20 years after the 7 full repayment of the note was due, the deed of 8 trust securing that repayment remains in encumbrance 9 against Ms. Jeng's title to the company. 10 The deed purporting to memorialize this 11 transaction is equally suspect. Originally given an 12 unrecorded copy of the deed and deed of trust by 13 appellants CPA, neither of which include official 14 recording information or the signature and seal of a 15 California notary public, FTB obtained certified 16 copies of those documents from the Orange County 17 Recorders's Office. Those documents purported to 18 have been notarized October 1st, 1991, but were not 19 recorded until June of 1993. 20 California Government Code Section 8204 21 expressly provides that notary commissions are good 22 four years from the date of issuance. However, the 23 notary stamp on these documents state the notary's 24 commission expires December 5th, 1995, more than 25 four years and two months after October 1st, 1991. 26 How can it be that the notary seal didn't 27 expire for another four years and two months? 28 There's only one answer; the acknowledgment is 69 1 backdated. It's fraudulent. 2 The note we -- we obtained and examined the 3 notary's transaction journals for October, including 4 the one for October 1st, 1991. Although that 5 journal confirms the appellant obtained notary 6 services in California on September 27th, 7 conspicuously missing from that journal are entries 8 pertaining to Mr. Hyatt and/or Ms. Jeng on October 9 1st, 1991. We find them, however, in a notary 10 journal for June 10th, 1993. 11 Moreover, in the column next to Mr. Hyatt's 12 signature, the notary includes the comment that 13 Mr. Hyatt has safe deposit boxes with the bank at 14 which he works. Boxes were paid as maintained for 15 almost two years following the purported sale of his 16 home to Ms. Jeng. 17 Six days later, the backdated documents 18 were recorded in the office of the Orange County 19 Recorder. Those documents memorialized commission 20 of a fraud. The documents contained false 21 representations, and Mr. Hyatt and Ms. Jeng let 22 those falsehoods be anchored into the public records 23 of the state. The recording of those falsehoods is 24 not an accident, as the deed and deed of trust could 25 only have been notarized and made part of the 26 official records of the Orange County Recorder's 27 Office pursuant to a request by or on behalf of Mr. 28 Hyatt or Ms. Jeng. 70 1 "We didn't know" simply isn't an answer. 2 Six days expired before the documents were recorded. 3 Moreover, it really doesn't matter where the idea to 4 backdate the notary acknowledgements come from -- 5 came from. The fraudulent nature of what they were 6 doing was obvious to each of them, and any one of 7 them could have prevented it by insisting that the 8 documents reflect true state of affairs. 9 Two weeks after the purported sale, Mr. 10 Hyatt paid the '91 and '92 real property taxes on 11 the Jennifer Circle house. He makes a mortgage 12 payment on the Jennifer Circle property during 13 December of 1991. And when he terminates his 14 homeowner's exemption on Jennifer Circle during 15 1992, he states only that the Jennifer Circle was no 16 longer his principle residence, affirmatively 17 declining to state he had sold the property. That's 18 Tab 16 in the binder that they gave you this 19 morning. 20 Mr. Hyatt and Ms. Jeng have both failed to 21 provide bills, provide bills or similar statements 22 which would have confirmed the commencement or 23 termination of things, such as telephone service at 24 Jennifer Circle. 25 This of course leads to the question why. 26 Why would the two parties for a real estate 27 transaction which they claim occurred on October 28 1st, 1991, cause backdated documents to be filed 71 1 with the county recorder and refuse to produce 2 service invoices consistent with the change in 3 ownership of the property? 4 We submit that the logical, obvious answer 5 is to create a record of a transaction that didn't 6 occur. 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 72 1 ---oOo--- 2 MR. HILSON: Mr. Hyatt's claimed departure 3 from California somewhere between September 24th and 4 October 1st necessarily raises the question of 5 "Where did he go?" 6 On August 4th, 1993 one of Mr. Hyatt's 7 accountants advised us that the taxpayer actually 8 left California on September 25th, 1991 and lived 9 and worked out of 3225 South Pecos Road, Apartment 10 237, in Las Vegas, until he acquired his home in Las 11 Vegas in April of 1992. This address was to the 12 Wagon Trails apartment complex, which at the time 13 was an apartment complex which included HUD 14 subsidized tenancies. 15 The actual lease agreement, however, 16 reveals that this representation was inaccurate and 17 that Mr. Hyatt's actual occupancy of the apartment 18 was to commence on November 1st, 1991, with the 19 possibility of early occupancy as soon as October 20 20th, 1991. However, no receipts or utility bills 21 have ever been produced so as to confirm when or if 22 the appellant ever actually started living there. 23 Mr. Hyatt left southern California, not Las 24 Vegas, for a 10-day business trip to the east coast 25 and Texas on October 14th. During the audit, FTB 26 asked appellant to explain and document his 27 whereabouts from September 24th, 1991 through 28 October 14th, 1991. 73 1 That question was first posed to the 2 appellant on October 2nd, 1995. No answer was 3 provided. In fact, the audit of the 1991 tax year 4 concluded in April of 1996 without the question 5 having been answered. 6 FTB persisted in trying to get an answer to 7 the question and, finally, at pages 48 and 49 of 8 106-page letter dated June 3rd -- June 30, 2000, 9 appellant's representative revealed that the 10 appellant had allegedly stayed at the Continental 11 Hotel in Las Vegas. That revelation was made 12 without any documentary substantiation whatsoever; 13 no hotel invoices or receipts, no credit card 14 statements, no anything, including no explanation as 15 to why it took four years and 11 months to answer 16 the question. 17 During May of 2000, FTB's litigation 18 lawyers in the suit in Nevada, commenced by 19 Mr. Hyatt, took the deposition of the appellant's 20 Nevada CPA Mr. Kern in connection with the Nevada 21 lawsuit. 22 During that deposition, Mr. Kern testified 23 that he knew about the Continental Hotel story 24 shortly after FTB issued the Notice of Proposed 25 Assessment relative to 1991, during 1996, 26 information the appellant had not previously shared 27 with him. 28 By virtue of a protective order issued 74 1 in Nevada -- by the Nevada District Court in the 2 Nevada litigation, FTB's lawyers could not pass that 3 information along to FTB's protest hearing officer 4 without Mr. Hyatt's consent. When FTB's litigation 5 lawyers asked permission to share the Continental 6 Hotel story with the protest hearing officer, the 7 answer provided, "No." 8 Six weeks later the disclosure's buried in 9 the middle of a 106-page letter. When asked why the 10 stay at the Continental Hotel was not disclosed 11 earlier, the answer was that because the expl -- was 12 because the explanation was without contemporaneous 13 corroboration, appellant was afraid the story 14 wouldn't be believed. So they fixed the problem by 15 concealing it for another four years. 16 The story, if true, should have been 17 revealed in 1995, with or without corroboration. 18 Licensed professionals certainly should have done so 19 during 1996. It didn't happen. 20 After the con -- after the story was 21 revealed, FTB learned that the bankruptcy judge had 22 authorized the destruction of the hotel records a 23 year earlier. FTB subsequently learned from the 24 Controller of the Continental Hotel that during her 25 tenure at the hotel all of the records were kept in 26 a neat and orderly fashion. More importantly, the 27 records were kept by the hotel from five to six 28 years following the record date. Thus, if an 75 1 individual had stayed at the hotel in 1991, all of 2 the records of that stay would have been retained 3 until 1996 or 1997. 4 Not surprisingly, the Controller advised 5 that she did not recall ever receiving a request 6 from Mr. Kern's accounting firm or from Mr. Hyatt to 7 look for records. Had the unsubstantiated story not 8 been withheld from FTB for five years, records 9 regarding Mr. Hyatt's claimed stay at the 10 Continental Hotel would have been both available and 11 retrievable by FTB. Instead, FTB was once again 12 unable to obtain any contemporaneous objective 13 records verifying that Mr. Hyatt was in Las Vegas. 14 In addition to the three-week hole at the 15 very beginning of the claimed relocation to Las 16 Vegas during September of 1991, there are other -- 17 there are several other problems with the Wagon 18 Trail story. Although the appellant is supposedly 19 at the Continental Hotel, unsigned lease documents 20 are sent to him via the telefax at the Jennifer 21 Circle fax machine on October 9th. It's signed and 22 returned to Las Vegas by October 13th, which is the 23 eve of the appellant's ten-day business trip, which 24 begins and ends at LAX, not Las Vegas. 25 By this time, the appellant is a 26 millionaire and he's about to sign a contract with 27 Fujitsu for which he will be making another 15 28 million in 18 days, yet he rents an apartment in a 76 1 partially HUD subsidized low-income facility located 2 in a socioeconomic area which simply does not 3 compare with La Palma, California in any way. In 4 fact, the Fujitsu contract is signed one day 5 following the Wagon Trails lease. 6 These facts render it no surprise that the 7 manager of the apartment complex has no recollection 8 of any interaction she may have had with appellant 9 which she attributes to the infrequency with which 10 she saw him at the complex and to the passage of 11 time. 12 FTB's inquiry into purchases made 13 pertaining to furnishing the apartment with 14 amenities necessary for everyday life resulted in 15 Ms. Jeng telling us she made all of the purchases at 16 garage sales, for cash, no receipts, including the 17 expenditure of about $20 for a used box spring and 18 mattress. Consistent with Jennifer Circle and the 19 Continental Hotel story, things such as utility 20 bills have never been provided. 21 Moving to -- move on to November. During 22 November we see a continuation of appellant's 23 extensive business and personal activities in 24 southern California where you see him append his 25 signature to numerous pieces of business and 26 business-related correspondence through which he 27 represents he can be found either at the Jennifer 28 Circle house phone number, telefax number or via the 77 1 Cerritos post office box. An example of 2 correspondence stating he has at Jennifer Circle is 3 addressed to Sharp Corporation and dated November 4 20th, 1991. 5 There are at least 12 examples of such 6 conduct involving the Cerritos post office box, 7 including mailings to the United States post -- 8 United States Patent Office, Japanese corporations 9 and Philips. 10 When we look at incoming correspondence, we 11 see business documents being sent to Jennifer Circle 12 by means of mail, telefax, and express mail delivery 13 services, as well as to the Cerritos post office 14 box. These documents include originally signed 15 contracts, communications from Philips, Japanese 16 corporations, service providers and the United 17 States Patent Office. We also see meetings with 18 California lawyers, dining and business travel 19 beginning and ending in California. 20 A summary of appellant's objectively 21 documented business and personal presence in 22 southern California during November 1991 looks 23 something like this. 24 On November 4th, the appellant -- excuse 25 me. On the 1st, the appellant sends business 26 correspondence to the United States Patent Office. 27 On -- on the 4th, he again sends three 28 separate mailings to the United States Patent 78 1 Office, all of which are telling them to contact him 2 through Cerritos or the Jennifer Circle phone 3 number. 4 On the 4th, the appellant also requests, 5 obtains, and signs an invoice for a multi service -- 6 multi-hour service upon a commercial photocopy 7 machine located in the Jennifer Circle home. 8 November 4th also sees the appellant sign a 9 $25 million contract with Matsushita. Consistent 10 with Fujitsu and Oki, the Matsushita contract is 11 signed by appellant, makes no mention of Philips 12 whatsoever, states the appellant's mailing address 13 is Cerritos, California, contains a waiver of right 14 to sue -- right to pursue patent infringement 15 claims, relates to 24 patents, not 23, calls for 16 payment by wire transfer to the appellant's lawyer 17 in 11 days, and states that contractual claims and 18 disputes are to be resolved pursuant to California 19 law. 20 On this very day, November 4th, we also 21 start to get some insight as to how the appellant is 22 running his southern California business and we 23 find -- as we find an internal Philips fax machine 24 is gen -- fax message is generated, which reveals 25 that appellant was threatening to withhold from 26 Philips millions of dollars he had received from 27 Fujitsu on October 31st, 1991. 28 In that writing, one of the Philips 79 1 in-house lawyers advises three of his colleagues 2 that he is forwarding to them a supplemental 3 agreement drafted by Mr. Hyatt's lawyer in 4 consultant -- in consultation with Mr. Hyatt's tax 5 advisors. The letter states, quote: 6 "We need to finalize the language of 7 the supplemental agreement and sign it 8 before Gil Hyatt will remit to us the 9 Phillips' share of the monies received from 10 Fujitsu." 11 The following day, Philips sends to 12 appellant's Los Angeles lawyer a letter and two 13 copies of a draft, Hyatt Philips Supplemental 14 Agreement, already signed by Philips for review and 15 possible signature by Mr. Hyatt. 16 In addition to again telling us that 17 Mr. Hyatt is residing at 7841 Jennifer Circle in La 18 Palma, the proposed agreement does three things of 19 note: 20 One, the agreement proposes to let 21 Mr. Hyatt undertake contracts in his own name with 22 Fujitsu, Oki, Sharp, Matsushita, NEC and Sony; 23 Two, the agreement states that Hyatt may 24 receive funds paid under those license agreements, 25 in his own name and for his own account; 26 And three, that the agreement proposes to 27 have Philips hold Hyatt harmless for taking the 28 contracts in his own name, save and except to any 80 1 claim relating to or liability for any taxes due or 2 payable by item. 3 The proposed agreement makes it perfectly 4 clear Philips knows the appellant is still in the 5 State of California. 6 On the same day, November 5th, Philips also 7 sends a telefax to both Mr. Hyatt and his lawyer. 8 The telefax to Mr. Hyatt utilizes the (213) 809-1087 9 fax line, a.k.a. the Jennifer Circle fax machine. 10 November 6 sees another independent service 11 provider send an invoice to Mr. Hyatt at his 12 Cerritos post office box, and a press release is 13 issued stating the appellant is of La Palma, 14 California. 15 The 15 million disbursed -- received from 16 Fujitsu is disbursed on November 7th, 1991 by 17 Mr. Hyatt. He sends Mahr Leonard a check for their 18 15 percent of the $15 million, together with a cover 19 letter congratulating them for their successful 20 efforts and tells them he can be contacted at his 21 Cerritos post office box and the Jennifer Circle 22 telephone number. 23 The $2.25 million check is drawn on a Palo 24 Alto account belonging to Mr. Hyatt and states that 25 he resides at 7841 Jennifer Circle, La Palma. 26 He also sends Philips a cover letter and 27 expense report and two checks totaling more than 28 seven and a half million dollars. As with Mahr 81 1 Leonard, appellant states he can be contacted 2 through his Cerritos post office box and the 3 Jennifer Circle telephone number. The two checks 4 are drawn on the same account, which -- and also 5 state he's at Jennifer Circle in La Palma. 6 The 8th sees him dining in Cerritos. 7 On the 9th he serves as the Grand Marshal 8 at the La Palma Day Parade. 9 The 10th, again, we're dining in Cerritos. 10 On the 12th, patent lawyers representing 11 Hitachi, another target, telefax a letter to 12 Mr. Hyatt via the Jennifer Circle fax machine 13 regarding a meeting to be held in Los Angeles on 14 December 16th, 1991. 15 On the 5th -- on the 14th, Matsushita signs 16 its contract with Mr. Hyatt, obligating itself to 17 pay Mr. Hyatt $25 million the very next day and 18 sends the signed agreement to Mr. Hyatt at his 19 Jennifer Circle, La Palma, California home on 20 November 15th. 21 As with its three predecessors, the 22 Matsushita contract pertains to 24 patents, not 23, 23 makes no mention of Philips or the State of Nevada, 24 states appellant's mailing address is Cerritos, 25 contains a patent infringement claim waiver, calls 26 for payment to be made by wire transfer to his Los 27 Angeles lawyer's trust account, and states that the 28 disputes are to be resolved by California law. 82 1 Sharp signs the first of two contracts with 2 Mr. Hyatt on November 15th, through which the 3 appellant will be paid more than $17 million in 35 4 days. With the exception of the amount of money to 5 be paid to Mr. Hyatt, the Sharp contract is 6 substantially similar to its predecessors. 7 The second half of November is similar. On 8 the 18th, Mr. Hyatt takes a business flight from LAX 9 to New York. On the 20th he takes a return flight 10 to LAX. On the 20th, he also authors two letters to 11 Sharp, stating in both of them that he's residing at 12 his Jennifer Circle home. 13 The 22nd we see United States Patent Office 14 sending correspondence to Cerritos post office box. 15 We see the appellant corr -- sending correspondence 16 to Philips; again, the Cerritos post office box. 17 The 23rd, Philips sends a Fedex to 18 appellant at Jennifer Circle. 19 On the 24th, the appellant sends the 20 original Matsushita contract to Philips and 21 physically disburses the $25 million paid by 22 Matsushita. As with Fujitsu, it's Mr. Hyatt who 23 disburses the money. 24 He authors a cover letter and two checks to 25 Philips, totaling more than $10.6 million. The 26 stated contact information is again the Cerritos 27 post office box and the Cerrit -- and the Jennifer 28 Circle phone number. The checks are drawn on the 83 1 same account and state Mr. Hyatt resides at Jennifer 2 Circle. 3 Same thing happens, on the same day, with 4 respect to Mahr Leonard and disbursing their 15 5 percent. 6 On the 26th, Pioneer faxes a letter to Mr. 7 Hyatt regarding the option agreement at Jennifer 8 Circle, and he meets with his -- on that date he 9 also meets with his Los Angeles lawyer and dines in 10 Cerritos. 11 On the 27th, Philips sends an expense 12 report to Mr. Hyatt at the Jennifer Circle house. 13 On the 29th, appellant signs a second 14 contract with Sharp, again, representing that he's 15 to be contacted through the Cerritos post office 16 box. Philips sends a Fedex to Jennifer Circle, and 17 he again meets with his Los Angeles lawyer. 18 We are now a full two months beyond 19 Mr. Hyatt's claimed departure from California, and 20 yet we see -- yet we see -- fail to see a single 21 reference to Nevada in any of his business 22 correspondence or contracts. 23 And by this point it's beyond clear that 24 Philips, Mahr Leonard, Matsushita, Sharp, Hitachi, 25 Pioneer, the United States Patent Office, his 26 lawyer, and perhaps the attendees of the La Palma 27 Day Parade all think he's in California. 28 Let's move on to December. 84 1 Summary of appellant's December -- of the 2 objective documents pertaining to December would 3 look something like this. 4 On December 2nd, we see Philips using both 5 the Jennifer Circle street address and telefax 6 machine in correspondence to Mr. Hyatt. We, again, 7 see the appellant used the Cerritos post office box 8 with the United States Patent Office, and the 9 appellant makes the mortgage payment on his Jennifer 10 Circle home. 11 On December 3rd and 4th, we see the 12 appellant paying for meals in Buena Park and 13 Cerritos on three separate occasions. 14 On the 5th, he visits his safe deposit 15 boxes in La Palma and engages in banking in 16 Lakewood, California. 17 December documents also reveal that patent 18 licensing fees are continuing to roll in through 19 California. Specifically, on December 6 Sharp 20 authors a letter advising it will be remitting more 21 than seven -- more than $17.8 million to appellant's 22 Los Angeles lawyer's trust account on December 20th. 23 On the 10th, the appellant signs contracts 24 with Sony and NEC. Both of these agreements recite 25 that his mailing address is the apartment complex in 26 Las Vegas, but none of the other significant terms 27 change. Both are signed by Mr. Hyatt and Mr. Hyatt 28 only. Both pertain to 24 patents, not 23. Neither 85 1 makes any reference to Philips in any way. Both 2 call for the payment of money to appellant via his 3 Los Angeles lawyer's trust account and specified 4 disputes are to be resolved under California law. 5 Moreover, notwithstanding the recital of 6 the Las Vegas apartment address in the contracts, on 7 December 10th we see -- we see appellant visiting 8 his safe deposit boxes in La Palma and Philips 9 faxing to appellant a letter regarding these very 10 same contracts, addressed to him at his Jennifer 11 Circle home. 12 On the 13th, Philips faxes to appellant a 13 letter, again, addressed to him at his Jennifer 14 Circle home, the very next day. 15 On the 16th, Mr. Hyatt and his lawyer meet 16 with representatives of Hitachi at the Hotel Bel-Air 17 in Los Angeles on the 16th. 18 On the 17th, we see him attend a court 19 hearing in Santa Ana, engage in banking in Orange, 20 California and, once again, be the California 21 addressee on correspondence from the United States 22 Patent Office. 23 December 20th has Philips sending 24 correspondence -- excuse me -- via Federal Express 25 to his Jennifer Circle home, Hyatt sending a letter 26 to his Cerritos, California post office box, and 27 Sharp Corporation remitting $17.8 million to Los 28 Angeles in satisfaction of its contractual monetary 86 1 obligations to Mr. Hyatt. 2 On December 24th, Sony remits a $24 million 3 payment to Los Angeles in satisfaction of its 4 contractual monetary obligations to Mr. Hyatt. 5 On December 25th, we see business 6 correspondence sent to Mr. Hyatt at his Cerritos, 7 California post office box by Hitachi, and an 8 original contract sent by Sharp to Mr. Hyatt at his 9 Jennifer Circle home. 10 The 26th, he opens an investment account in 11 Mountain View. 12 On the 27th, NEC remits its -- remits its 13 $16.5 million payment to Los Angeles in satisfaction 14 of its contractual monetary obligations to 15 Mr. Hyatt. 16 On the 28th, we see him engage in banking 17 in Cerritos. 18 On the 30th, three times, correspondence to 19 the United States Patent Office, directing that he 20 be contacted through the Cerritos post office box 21 and Jennifer Circle phone number. 22 On December 31st has Philips faxing yet 23 another letter addressed to Mr. Hyatt at his 24 Jennifer Circle home via the Jennifer Circle fax 25 machine, Mr. Hyatt making another bank deposit in 26 Cerritos, his Los Angeles lawyer addressing to him 27 at Cerritos -- at the Cerritos post office box a 28 bill for services, and the Franklin Fund sending its 87 1 December 31st, 1991 account statement, which 2 outlines millions of dollars of banking activity 3 during December to him at Jennifer Circle. 4 January 31st also sees Philips address a 5 letter to Mr. Hyatt at his Cerritos post office box 6 and send it to him via telefax. In that letter -- 7 Excuse me. I missed a transition. 8 The best way to finish up the contact and 9 the continuing contact in California in 1991 is to 10 look at a couple of documents from early in 1992. 11 Specifically, the one -- the one I'm going to now is 12 dated January 31st, 1992. 13 It's a letter from -- it's a letter from 14 Philips to Mr. Hyatt, sent to him at his Cerritos 15 post office box and addressed to him at Cerritos and 16 sent to him via telefax. 17 In that letter, Philips asked Mr. Hyatt to 18 prepare and execute a letter to Toshiba, another 19 target, so as to confirm Philips negotiating 20 authority with respect to 23 patents. Philips 21 advises Mr. Hyatt that they've enclosed a form of 22 letter to be sent to Toshiba, or ghost written it 23 for him, which letter specifically includes the 24 proviso that it is to be, quote, "written on Gilbert 25 Hyatt stationery." 26 That enclosed form of letter conspicuously 27 does not contain any return address or return 28 contact information for Mr. Hyatt. 88 1 Mr. Hyatt honors Philips' request and puts 2 the suggested language on Gilbert Hyatt's stationery 3 in a letter to Toshiba, dated February 3rd, 1992. 4 That letter contains Mr. Hyatt's signature, it also 5 includes the return address of Post Office Box 3357, 6 Cerritos. 7 I don't want to spend a whole lot of time 8 with 1991 with respect to the sourcing, because I 9 think I've addressed it in terms of what has been 10 going on with all of these contracts and the work 11 and where it's being done and how it's being done. 12 But the fact of the matter is, it's all 13 California. The patents, every one of them was 14 obtained while Mr. Hyatt was in California. They 15 were issued to him while he was in California. He 16 decided to transmute them from a piece of paper that 17 was an award of a patent to a money-making 18 enterprise and he did that throughout California, 19 throughout 1991. It's clear. 20 He was involved. He was involved in this 21 business; he exerted control over it. He, at one 22 point with the first advent of money, he's -- he's 23 withholding money from Philips to get what he wants 24 out of Philips. The claim that it was all Philips, 25 I'm sorry, just does not comport with that conduct. 26 Thereafter we see the monies, the monies 27 are all -- all the money comes into California. All 28 of the money is disbursed by Mr. Hyatt except for 89 1 the money that came in at the end of December, which 2 even though it's all here before the 31st and even 3 though before -- even though the Mahr Leonard 15 4 percents are wire transferred to Texas the day the 5 money hit Los Angeles, the remainder goes to Philips 6 New York where it stays there until January 14th. 7 But in any event, this business is clearly 8 all in and all dependent upon California. The 9 contracts, every aspect of it, California. Reliance 10 upon California laws for interpretation of the 11 contract and resolution of problem -- of problems. 12 This business was and is solely in California. 13 We move on to the fraud penalty. There's 14 one word that can summarize this case and the 15 consistent intentional conduct over its 22 -- over 16 its 22-year history. That word is "concealment." 17 It starts right at the beginning of this case. 18 When did you leave California and where did 19 you go? The answer provided that the appellant went 20 to Las Vegas where he lived and worked out of an 21 apartment. FTB asked for documentation and we find 22 a three-week gap in the story. 23 Where were you during that three-week 24 period? A simple answer -- a simple question that 25 deserved a simple answer. 26 Five years later, we get the Continental 27 Hotel story. No documents have ever been produced 28 to support that claim. We tried to get them and 90 1 learned records were destroyed pursuant to a 2 bankruptcy court order. 3 To further support the story, we were told 4 the appellant sold his house. Where are the 5 documents? None, except a Deed and a Deed of Trust, 6 neither of which is recorded with the Orange County 7 Recorder until June of 1993. When they are, they 8 included back-dated notary acknowledgements. 9 The Philips documents, never produced. We 10 find out about them. They start becoming germane. 11 What happens? We end up in a four-year court 12 battle. Why? We've shown you why. 13 The Philips documents clearly show 14 everything done from California with Mr. Hyatt and 15 his California lawyers playing significant roles. 16 The pattern is consistent and simply cannot 17 be called innocent or accidental. We submit the 18 conduct was contention -- was intentional and it 19 supports the imposition of the fraud penalty. 20 Interest abatement. FTB is of the point of 21 view that interest abatement is simply inappropriate 22 in this case. In determining whether interest 23 should be abated, your Board considers whether FTB 24 abused its discretion in not abating interest. The 25 short answer is no. FTB did not abuse its 26 discretion and there are no ground under the law to 27 abate interest in this case. 28 The law provides FTB may abate interest 91 1 only to the extent the interest is attributable to 2 an unreasonable error or delay committed by FTB in 3 the performance of an administerial act. An 4 important limitation to this rule is an error or 5 delay can be considered only if no significant 6 aspect of that error or delay can be contributable 7 to the appellant. That is clearly not the situation 8 in this case. 9 Appellant timely protested the issuance of 10 the Notice of Proposed Assessment during October of 11 1997. In a little more than two months thereafter, 12 appellant filed the lawsuit in Nevada during January 13 1998. 14 In connection with that lawsuit, appellant 15 obtained a Nevada court order permitting him to 16 unilaterally determine what evidence FTB's 17 litigation lawyers could share with the protest 18 hearing officer. The basic answer was "none" as 19 exemplified by the refusal to let Mr. Kern's 20 deposition testimony regarding the Continental Hotel 21 be shared. 22 During 2002, FTB issued an administrative 23 subpoena seeking the information that we knew was 24 out there but our litigation lawyers couldn't give 25 us. The matter ended up in the California courts 26 with appellant opposing us every step of the way. 27 After the superior court said we could have 28 'em, appeal to the Third District Court of Appeal. 92 1 On December 31st, 2003, the California Third 2 District Court of Appeals said there was absolutely 3 no reason why our protest hearing officer couldn't 4 have the information and the materials started 5 coming over the wall, so to speak. However, FTB had 6 to issue at least one more administrative subpoena 7 and threatened to do a third before things started 8 to move. 9 After the conclusion of the protest and the 10 beginning of these appeals, appellant requested 11 extensions to perfect the appeal. And when the 12 significance of the Philips documents became 13 apparent, it became another four-year court battle 14 in the State of New York. 15 There were limitations imposed upon FTB as 16 to the scope of the subpoena, but the reali -- in 17 the final analysis the courts of New York told us we 18 could have the documents pertaining to 1991 and 19 1992. The result, an appeal. The result, FTB can 20 have the documents. 21 I go back to my opening comments about that 22 Justice Fletcher's observations in the Ninth 23 Circuit. The underlying question here of whether he 24 was a resident at the relevant time is a pretty 25 simple one. I should think most of the evidence is 26 documentary and most of the evidence would be in his 27 possession. 28 We, again, submit that Judge Fletcher was 93 1 right; the evidence is documentary, and while the 2 appellant didn't give it to us, there's no question 3 he could have obtained it from Philips and given it 4 to FTB or directed FTB's auditors to go get it from 5 Philips. Had he been so inclined and cooperative, 6 these documents could have been examined and a 7 thorough audit could have been completed many, many 8 years ago. 9 Instead, FTB was met with delay after 10 delay, including contested litigation in both 11 California and New York to get documents with courts 12 of both states that said we were -- we were entitled 13 to. 14 The strategy and the associated delays was 15 not accidental but calculated. And to claim that 16 the responsibility for the delays lies solely with 17 FTB is just -- is simply unreasonable. 18 The fight to keep FTB away from the 19 documents and the truth they revealed was without 20 merit, as is the request -- as is this request for 21 interest abatement. 22 In conclusion, we submit though -- we 23 submit that even though they did not have voluminous 24 day-to-day business correspondence we have shared 25 with you today, FTB's auditors had enough 26 information to get it right. 27 We submit the documentary evidence we have 28 shared with you is not only persuasive but 94 1 compelling. The documents don't lie. Their 2 memories can't fade and no number of 3 decades-after-the-fact declarations can change the 4 accuracy of what these contemporaneous documents 5 tell us. 6 Day after day, deal after deal, entity 7 after entity, the documents tell us in no uncertain 8 terms that appellant and his business were here and 9 thriving, and that his failure to pay his fair share 10 of taxes to the state that facilitated his rise to 11 wealth during 1991 is inappropriate and cannot be 12 tolerated. 13 For these reasons, we ask you to affirm the 14 assessments made by FTB for tax year 1991 in their 15 entirety. 16 Thank you. 17 MS. HARKEY: Thank you. 18 To the appellant, you now have 15 minutes 19 to respond or rebut. 20 MR. HYATT: Chairperson, with what you've 21 just heard -- it is so absurd -- I need more time to 22 deal with it. Because this will be a, um -- I 23 believe a historic hearing, and you need to hear my 24 rebuttal. And I cannot give even a partial rebuttal 25 to these horrible misstatements that have been made 26 in this fast-flowing narrative. 27 May I have more time? And may I request 28 that -- let me keep going until you want to cut me 95 1 off? 2 MS. HARKEY: Mr. Hyatt, you've got two -- 3 you've got two professional staff or professional 4 hired individuals here. Will either -- can either 5 one of them make a case for you on any of these 6 items? 7 MR. HYATT: They are not prepared with the 8 facts that I have lived with for all of these years. 9 May I defend myself? 10 MS. HARKEY: You may, of course, defend 11 yourself. 12 I'll give you a half hour, and then I know 13 that the Members will have a lot of questions. So I 14 would ask you to take the half hour, if you need the 15 whole half hour, and then let the Members ask you 16 questions. 17 You will have ample time to respond and 18 bring in other data at that time. 19 Is that agreeable to you? 20 MR. HYATT: Thank you very much. I -- yes. 21 Whatever you decide, I will adhere to. 22 MS. HARKEY: Okay. 23 MR. HYATT: May I? 24 MS. HARKEY: You may, sir. Thank you. 25 MR. HYATT: I can't believe that the FTB 26 would continue to make such misrepresentations to 27 the Board, make such half-truths, out-of-context 28 statements, and totally ignoring the contrary, 96 1 direct documentary evidence and eyewitness evidence 2 that I've produced. And I would like to give you 3 some idea of the -- how they have manipulated the 4 facts to miscast. 5 We -- they have made many of these 6 arguments in their second additional briefings and 7 we have rebutted them in great detail with thousands 8 of pages or rebuttal and 10,000 -- and an estimate 9 of 10,000 pages of documentary evidence, not to 10 mention enormous amounts of testimonial evidence, 11 and they have totally disregarded our rebuttals, 12 repeating to you the -- these misrepresentations and 13 half-truths. 14 For example, they say they got the, um, 15 Philips documents because I suppressed them. 16 Absolutely untrue. Absolutely untrue. 17 They had an audit and they got the 18 documents they asked for at the audit. 19 Excuse me for -- I will -- I will tone it 20 down. Excuse me. I apologize. I'm just so 21 disappointed that they would do this to the Board. 22 I know they could do it to me in briefing, but not 23 to the Board in open argument. 24 In the audit, they asked for the documents 25 they wanted and they got them. Then in about 2006 26 or thereabouts, we provided three sourcing 27 affidavits by the three people who were closest 28 watching this, four affidavits, including Algy 97 1 Tamoshunas, the gentleman in charge of the Philips 2 licensing program. And on those four affidavits had 3 possibly a thousand pages of licensing documents 4 that we produced to them voluntarily. They never 5 responded to that. They never asked for any more. 6 What they did was came out with a subpoena about 7 2006 to Philips and -- to Philips. 8 And actually, I think there were three 9 subpoenas. But then they cancelled those subpoenas. 10 They could have gotten what they got in 2011 in 11 2006, or they could have at least used the material, 12 the tremendous amount of material that I provided to 13 them around 2006. 14 And -- but then, after fully knowing about 15 Philips from the opening of the audit and having all 16 of that tremendous amount of documentation that I 17 produced to them on the Philips material, there were 18 actually something, I think I produced something 19 like, um -- um -- close to over 15,000 pages of 20 documents on the licensing programs in that time 21 frame. 22 They then come out in 2011, which is, what, 23 20 -- 20 years after the licensing program at issue 24 now and subpoena Philips again. And then they 25 accuse me of withholding, suppressing that 26 information. I never suppressed it. I produced all 27 that I had that was relevant. 28 Philips kept more information and had more 98 1 information and more drafts and so, therefore, they 2 had a lot more information. And I was a little 3 bit -- I did not keep a lot of the information, the 4 documentation when I lived in my motel -- my ho -- 5 sorry, my apartment. 6 So then making these statements that I 7 suppressed it, I did not suppress anything. They 8 were not interested until the twelfth hour. They 9 delayed. They delayed for decades. And then they 10 put out their case. 11 Their case now is not their case at audit. 12 It's not their case in the protest, and it's not 13 even their case in their opening and reply briefs. 14 It's their new case to the Board. 15 Now, relative to the -- all of these things 16 that they're saying, most of them did come up in the 17 second additional briefing. And, as I said, we 18 provided very significant rebuttal to all of it. 19 And instead of considering that rebuttal as a tax 20 agency should, they have totally disregarded it and 21 they have, again, misrepresented the facts. 22 In response to their second additional 23 briefing, they have an Attachment A, which lays out 24 their, um -- their chronology. We have a -- a 25 approximately 4,000 pages rebuttal to that 26 Attachment A and with enormous amounts of evidence, 27 and they -- and that shows over 2,000 statements 28 of -- and showings of false -- false evidence. And 99 1 false statements, false statements on their part. 2 I've said enough about that. I would like 3 to -- so, but that Philips document thing is 4 representative of their misrepresentations, their 5 half-truths and their -- I can't believe, I would 6 not put another name to it. 7 They -- they talk about the Wagon Trails 8 person who did not remember ever seeing me. Okay. 9 So they talked -- there is no -- she, in her 10 declaration, that is Clara Kopp, she said I had a 11 lot of residents. I had hundreds of residents. I 12 was not -- I would have been fired if I watched -- 13 if I spied on residents. I didn't know what anyone 14 was doing. And, besides, I couldn't see Mr. Hyatt's 15 apartment because there was this big building in 16 between my office and his apartment. 17 And they're saying she never saw him, so 18 therefore he didn't live there. That's -- you know, 19 she didn't see me. But the re -- but she wasn't 20 looking for me and she couldn't have seen me unless 21 she walked out of her office and walked around this 22 big apartment, this big apartment building to look 23 at my apartment. 24 So it's a small point, just one point, but 25 it's representative of where they falsify the, um -- 26 the evidence. They -- and they then disregard the 27 truth. 28 We have several declarations with diagrams, 100 1 which I don't have up here, diagrams showing her 2 office, my apartment, and this big building in 3 between the two of them. 4 ---oOo--- 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 101 1 ---oOo--- 2 MR. HYATT: Philips -- let's see -- I gave 3 Philips negotiating authority. Oh, really? That's 4 absolutely untrue. I did not give them negotiating 5 authority. I did not. They solved their discussion 6 with these false phrases that misrepresent what 7 really happened. 8 I gave Philips exclusive authority to 9 sublicense my patents. I gave them exclusive 10 authority, and they did that. Negotiating was part 11 of it. And they gave Mahr Leonard exclusive 12 negotiating authority for a limited amount of time, 13 but -- but they did not have -- Philips did not have 14 negotiating authority. I gave them full 15 sublicensing authority to sublicense my patents. 16 And there are just hundreds and hundreds of 17 these misstatements salting the record that makes it 18 sound worse, makes it sound bad. And it's not bad. 19 There is a lot of background. It's out of context. 20 They're half truths, and they're false use of words. 21 Another small, but illustrative thing, they 22 keep talking about 24 and 23 patents. "It wasn't 23 23 patents, it was 24 patents," they keep saying. 24 Well, the truth of the matter is my license 25 to Philips was for 23 patents. Philips asked me if 26 I could throw another patent in because a licensee 27 would sign a license agreement if I did so. 28 So I threw in another patent, and, 102 1 therefore -- for that one and for a few licenses, 2 they got 24 patents. But then Philips referred -- 3 then Philips referred it back to the 23. 4 So why is it so important, and why make so 5 much of it, and why say it so many times that 6 essentially there were -- it wasn't 23 patents, it 7 was 24? 8 Well, it's out of context. Sometimes it 9 was 23, sometimes it was 24, I threw in an extra 10 patent. Why is that such a big thing? But they 11 make it sound like that is a horrible misstatement 12 or something on my part. 13 Let's see. They keep using the terms that 14 I told them to reach me at my former California 15 house or that I represent that I lived at that 16 house. That's absolutely not true. The documents 17 that they're looking at are misaddressed documents 18 by Philips, admittedly misaddressed documents, 19 uncontroverted misaddressed documents. And they say 20 nothing about my living there or my -- that they can 21 reach me there or anything. It's just an address on 22 a piece of paper. An address on a piece of paper is 23 not a representation by me that I'm living there. 24 It's not a misrepresentation by me that I can be 25 reached there. It is just either an old heading on 26 an old document, on an old form letter that I might 27 have used, or an admittedly and undisputedly 28 misaddressed document by Philips. 103 1 And this was a big thing previously, but 2 not in the hearing here. But it is very, very 3 important that the Board understand the context of 4 that. 5 I gave -- told Philips and Mahr Leonard 6 that I had moved in early October, and they have 7 testified to that under penalty of perjury. And Mr. 8 -- no, under all of these cases -- yeah, under 9 penalty of perjury or under oath. 10 They then acknowledged that I had given 11 them a change of address when I moved into my 12 apartment several weeks later. And Mr. Tamoshunas 13 in his affidavit -- he was a lead Philips' licensing 14 attorney on what they called the Hyatt licensing 15 program, the Philips licensing program. And he 16 stated that he did have a change of address, and 17 that any -- any correspondence that was sent to the 18 California addresses was inadvertent errors by his 19 staff. He -- that's sworn statement by the key 20 licensing gentleman at Philips. 21 And the FTB has never, never challenged 22 that. And we have briefed it. That is -- we call 23 it undisputed, misaddressed envelope, and 24 misaddressed correspondence, because it is 25 admitted -- it is misaddressed correspondence that 26 Philips admitted to, and that FTB has never 27 challenged in that context. 28 They've been talking about the addresses, 104 1 the addresses, or they keep talking about, "He told 2 them to reach him at Jennifer Circle." 3 Well, not only did I not tell anyone to do 4 so, but Philips admitted that they -- that that's an 5 inadvertent misaddressing. And the FTB has never 6 told the Board this. They've hid that fact from the 7 Board, as well as they've hid hundreds and hundreds 8 of other facts. 9 The concealment of the Continental Hotel is 10 one of the most absurd things I can imagine. You 11 know, there's so many of them -- excuse me. But it 12 is an absurd situation. I stayed there for 13 two-and-a-half weeks. I went there -- I traveled 14 there with a van tour, and the van tours represented 15 blocks of rooms and handed out keys, and they did 16 not register with the hotel. That was the practice 17 of the tours at that time. 18 The hotels rented blocks of rooms and did 19 not register the tour people. And, in fact, there's 20 a lot of evidence that they used fictitious names 21 because they didn't want to give people's names of 22 who was on the tour. 23 So they just made -- anyway, with that 24 said, they did not register these tour people, 25 fictitious names or not, with the hotel. 26 Okay. So -- I -- and I told them that. 27 And they're saying I concealed the evidence until it 28 was destroyed. There was no evidence. I didn't 105 1 sign the register; I didn't sign anything. No one 2 had my name. The tour companies did not want my 3 name. All they wanted was my payment. 4 So I paid, I was transported to Las Vegas. 5 I was given a key to our room, and I spent my time 6 in the room. 7 There was no -- I'm sorry. I apologize. 8 Please bear with me. I've lived this for almost 20 9 years, and I finally have a chance to say it. 10 So I stayed there for two-and-a-half weeks. 11 Two-and-a-half weeks doesn't mean much. No money 12 came in then, but they keep saying -- okay. 13 Let me tell you the absurdity -- if there 14 was a document, I would have been the first person 15 to find that document, because it would have shown 16 that I was staying -- it would have confirmed that I 17 was staying in Las Vegas at that time. I would not 18 have concealed that, but I told them there wasn't 19 any such document. And they keep saying the 20 documents were destroyed. There were no documents. 21 And I wouldn't have concealed them and let them be 22 destroyed if there was any, because I needed that 23 document. 24 I can't believe how they could have the 25 gall to continue to make that absurd statement in 26 the briefings. And now -- now to make that absurd 27 statement to the Board. 28 Then, there's this thing about concealing 106 1 that. And I might as well continue with that hotel 2 situation. 3 They said, "Well, we asked for it, and we 4 asked for it, and we asked for it, and they never 5 tell us." Well, no, they didn't. They ran a secret 6 audit. They were out to get me, as they said they 7 would. And that was a -- as they said, as I think I 8 read you before -- the admitted vendetta attitude of 9 the auditors. They ran at a secret audit, they 10 investigated a lot of these things that they now 11 accuse me of withholding. 12 And then without ever meeting with me and 13 having an interview with me, and without ever 14 bringing up a fraud issue, they came out with a 15 determination letter -- a determination letter that 16 not only had all these facts of things that never 17 happened and that they made up, but they had a fraud 18 penalty for all kinds of horrible things that were 19 absolutely false, and that they subsequently have 20 dropped all but a couple of them. 21 Okay. So it was a secret audit. What they 22 asked for, they got. They never asked for any more. 23 Now -- and then they delayed and delayed and 24 delayed, and now they're accusing me of being 25 responsible. 26 Well, relative to what happened in those 27 two weeks, they never -- well, it never was two 28 weeks. What they did ask for was -- and this was 107 1 after the determination letter, after the audit was 2 over, they're sort of cleaning up their act a little 3 bit. They asked for -- essentially send us the 4 documents that as to where you stayed from your move 5 to on November 1. 6 Okay. I looked for the documents, and I 7 found a lot of documents, and I sent it to them. 8 The documents I had had mostly to do with the -- my 9 apartment. And I sent them to them. They asked for 10 it, and I sent it. And it was through November 1, 11 which included my apartment documents. 12 Now -- and because I didn't have any 13 documents on the hotel stay, I didn't have any 14 documents to send them. And that's what they 15 wanted. If they had asked for -- okay, so now they 16 say I didn't tell them. 17 Well, again, it was a secret audit. "Where 18 did you stay?" was something, I believe -- I may be 19 wrong, I have to check -- came up after the 20 determination letter. After the determination 21 letter was over my attorneys were very, very -- my 22 representatives were very disappointed. And they 23 were looking to the protest, which we were preparing 24 for. And then to ask for more information at that 25 time seemed inappropriate. But we got them to them. 26 So the New York and the -- and the 27 California court things, about documents. Both of 28 them, they say, and they won, and I had to give them 108 1 the documents. No, no. That's not true. 2 Absolutely not true. They are -- were overly broad. 3 They had overly broad subpoenas in both cases. And 4 we objected to that overbroadness, and the Courts 5 took out the overbroad aspects of those subpoenas. 6 So, therefore, one could -- and they never 7 told the Board this, because it goes against their 8 global statements that they won and I lost. And 9 they can't say that if they admit that they lost in 10 part, and I won in part. 11 Also, relative to the Philips documents, 12 the Philips attorneys were my -- my attorneys also. 13 They -- and we worked that way through the licensing 14 program. They represented me, they advised me, and 15 I contended that that was privileged information. 16 The New York court said it wasn't. But it 17 was not a matter that I resisted giving them 18 documents that they were entitled to. It was that I 19 had a right to object to their overly broad 20 subpoenas, which I won on. And I had a right to -- 21 right to claim privileged communication, which I 22 lost on. Because of what I believe are 23 technicalities in the New York law. 24 We tried to get it covered by Nevada law, 25 but New York courts -- anyway, we -- strike that. 26 Sorry about that. 27 So here is all these -- okay. They keep 28 talking about Los Angeles lawyers. No. Philips 109 1 engaged -- Philips engaged with Pretty Schroeder Law 2 Firm, and Pretty Schroeder Law Firm was put into the 3 license agreements as the recipient of the licensing 4 funds for the 1991 income. And they had a trust 5 account for the benefit of Philips -- for the 6 benefit of Philips. And that is throughout the 7 briefing. 8 And Philips, they invoiced Philips for 9 those services, they were paid by Philips, and they 10 represented Philips. And we provided in some 11 documentation that they were engaged by Philips. 12 In addition, when I looked at the 13 Philips -- I was permitted to look at the Philips 14 documents in New York, and I saw some very 15 significant documents that establish that the 16 British order was Phillip's law firm. But then when 17 the FTB cherry-picked Philips' documents -- there 18 were 30 boxes -- cherry-picked down to several boxes 19 of documents, those documents were not included. 20 And I wasn't permitted to go in at that time and try 21 and subpoena more documents from Philips. So there 22 is suppression of documents is on the FTB's head, 23 not on mine. 24 I notice that the FTB has relied very 25 heavily on fraud factors throughout this whole 26 proceeding. And the auditor put in what I counted 27 up to be something like 60 of them. And all but one 28 of them, I think, still pertains -- persists. Sixty 110 1 down to ten, and only one remaining, and nine are 2 brand new. I may be wrong, there may have been two. 3 But I note that the FTB has not told the 4 Board about the fraud factors, and I plan on dealing 5 with that. 6 But their -- they have based their fraud 7 penalty in the past on these ten fraud factors. I 8 generated an affidavit in 2010 that went through 9 these ten fraud factors in detail showing contrary 10 evidence, showing that I -- that they were false. 11 And because the FTB has to prove fraud with 12 clear and convincing evidence, my counter evidence 13 should be -- and I hope the Board will accept it -- 14 should be -- should dis -- mean that they have not 15 provided clear and convincing evidence, because 16 their evidence is disputed. 17 But the fact is that they never addressed 18 my affidavit or my -- my showing that those ten 19 fraud factors are false. And I would hope that the 20 Board would take that as a -- an admission that the 21 FTB cannot support either the 60 fraud factors that 22 it had originally, or the 10 fraud factors that it 23 alleges now. 24 And many of these fraud factors are not 25 fraud factors. Most of them, they are attorney 26 arguments on things that are in the residency case. 27 For example, one of them is a -- the sale 28 of the house issue. Well, that's not a fraud 111 1 factor, that's an argument whether the evidence is 2 sufficient to -- for the sale of the house, not -- 3 but they need to get some fraud factors in there, so 4 they created a bunch of them. And I think it's a 5 blatant misrepresentation to call residency 6 arguments factors of fraud. 7 But it's even more important that the FTB 8 has come out with this litany of things that they're 9 telling the Board as if they're true and if they're 10 falsehoods on my part. And that's absolutely 11 untrue. 12 They are, again, misrepresentations or half 13 truths, or out of context that have been thoroughly 14 rebutted. And now to come to the Board and repeat 15 these things without qualifying them to the Board as 16 to what is contrary is -- is just not good faith. 17 Their -- they came out with so many -- the 18 notary -- please bear with me while I tell you about 19 the notary, at Tabs 81 and 131. 20 They keep saying the notary false -- that I 21 falsely -- something to the effect that I falsely 22 had the sale documents notarized. That's absolutely 23 untrue. The testimony is -- by the notary is very 24 clear. 25 What happened is -- I represent to the 26 Board what happened is the purchaser, Grace Jeng, 27 decided to have the documents notarized, asked me to 28 join her at the notaries, which I did. I went in 112 1 and signed the notary log, and I left. I didn't 2 pay -- I didn't read what the notary did. I didn't 3 get a copy of what she did. And I just signed her 4 book. The notary may or may not -- I don't 5 understand the notarization process. 6 So she signed it with a date, with the 7 October 1, '91 date, even though it was being 8 notarized in 1993. She says that she may have made 9 a mistake by acknowledging '91 -- a '91 document, by 10 using that '91 date in her notary stamp, if you 11 permit me to call it that. She said that was 12 inadvertent. She's never falsely notarized 13 anything. She never would if anyone asked her to, 14 and that I didn't ask her to do so. And I 15 certainly -- I didn't ask her to do so. I didn't 16 need it. I didn't want it, and I didn't use it. 17 The FTB says I gave them an unnotarized 18 document. Well, I gave them an unnotarized document 19 because that's all I had. I did not have a copy of 20 the notarized one. That's the one Ms. Jeng took 21 with her to have it recorded. And I did not use 22 that -- that inadvertent error by the notary to any 23 advantage of mine. It's the FTB that went in, got a 24 copy of the notarized document, and starts yelling, 25 "Fraud, fraud, fraud." 26 There was no fraud. It was a simple error 27 by a notary that I wasn't aware of and that I didn't 28 use to my advantage. 113 1 MS. LOPEZ: Time has expired. 2 MS. HARKEY: Okay. 3 Members -- thank you very much for your 4 presentation. 5 Members, I would like to call for a 6 45-minute recess before we ask our groups of 7 questions. Is that agreeable? 8 Okay. We'll be back here at 1:35. 9 Thank you very much. 10 In the meantime, FTB, could you make 11 photocopies of those charts that you presented on 12 the dates, the month, dates, the transactions? 13 MR. HILSON: What I used on the boards? 14 MS. HARKEY: Yeah. I don't need all of the 15 other -- 16 MR. HILSON: What I used on the boards? 17 MS. HARKEY: Right. 18 MR. HILSON: A complete set? 19 MS. HARKEY: Yeah. 20 MR. HILSON: Okay. 21 MS. HARKEY: Not all of the boards, but 22 those -- those -- just the dates and the times -- or 23 the dates. 24 MR. HILSON: Oh, the monthly summaries? 25 MS. HARKEY: Monthly summaries. 26 MR. HILSON: As opposed to all "X" number 27 of whatever they were. 28 MS. HARKEY: Right. I'd like to review 114 1 them, and I'm sure the other Board Members would. 2 And give them to the appellant as well. 3 MR. HILSON: Sure. 4 MS. HARKEY: Thank you. 5 (Recess taken.) 6 ---oOo--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 115 1 ---oOo--- 2 MR. NANJO: Good afternoon, Chairwoman 3 Harkey, Members of the Board. My name is Henry 4 Nanjo. I'm the Acting BOE Chief Counsel. 5 I understand that there was a lack of 6 clarity over the ex parte rules down in Irvine, and 7 I just wanted to take this opportunity to clarify. 8 We have since received an Attorney 9 General's opinion that makes it clear that the ex 10 parte rules that apply to this Board only applies 11 prospectively from July 1st, 2017 on. So there is 12 no obligation to make any kind of ex parte 13 disclosures prior to that date. 14 Therefore, as matters are called for 15 hearing, Members should disclose any ex parte 16 communications that you may have had or members of 17 your staff may have had with either of the parties 18 in the matters that you're hearing from July 1st, 19 on. 20 MR. RUNNER: Okay. 21 MR. NANJO: We could go ahead and go -- Ms. 22 Richmond can call the matters and if the Board 23 Members would like to disclose something, they can 24 do so at that time. But there's no need to 25 individually poll the Members before each matter. 26 So, hope that clarifies things for the 27 Board and makes the proceedings go a little more 28 smoothly this time. 116 1 MS. MA: Thank you. 2 MS. HARKEY: Thank you. 3 MR. RUNNER: Thank you. 4 MS. HARKEY: Incidentally, I'm very 5 impressed with our Acting Chief Counsel. I've had a 6 couple conversations with him, and he's good. 7 MR. NANJO: Thank you. 8 MS. HARKEY: You're welcome. 9 Okay. We're going to begin. We've brought 10 this back now to Board Member questions. 11 And who would like to go first? 12 Thank you, Controller Yee. 13 MS. YEE: Thank you, Madam Chair. 14 I think maybe just a threshold question 15 because certainly as adjudicators of this matter, I 16 know I, for one, have concerns when there are 17 allegations of suppression of evidence. And I 18 wanted to get clear about what that means for both 19 sides. 20 And I think, from my perspective, evidence 21 was a little hard in coming forward and being 22 presented to the respondent from the appellant. And 23 I think, Mr. Hyatt, you may have interpreted some of 24 the court protective orders as keeping you from 25 being able to release certain types of documents. 26 But I wanted to at least get clear about what that 27 means, just so as we look at the facts that are 28 before us by the context in terms of how each of the 117 1 parties are perceiving those facts. 2 MR. HYATT: Member Yee, may I comment? 3 MS. YEE: Please. 4 MR. HYATT: There are numerous suppression 5 issues where the -- one of them is in the New York 6 litigation. Another one is in the subpoena in 7 California court. 8 Relative to the New York subpoena, there 9 was the issues of overbroad subpoenas, which we won 10 on and we received court orders to keep irrelevant 11 information out of the -- out of the public. 12 And then there was the issue of privileged 13 information, which we lost on and all of that 14 information was provided. However, there is 15 a sup -- all those documents were permitted to be 16 produced and supposedly were. 17 However, after reviewing the documents at 18 Philips, what FTB produced to the Board was a subset 19 of those, a very small subset, which excluded 20 documents that were very helpful to me, and I 21 believe that -- that FTB only produced a -- if you 22 excuse the expression, the term of art, 23 cherry-picked the Philips documents to get their 24 best documents out of 30 boxes at Philips down to 25 three that supported their position and not the -- 26 including the documents that supported my 27 position. 28 MS. YEE: Okay. And I mean -- 118 1 MR. HYATT: There were other suppression 2 issues, Member Yee. 3 MS. YEE: Mm-hmm. All right. 4 MR. HYATT: Sorry. 5 MS. YEE: Okay. No, I -- I understand. 6 I mean there have been a lot of documents 7 that have been put forth as relates to this matter, 8 both within the legal court context, as well as just 9 the adjudicatory context here. And I just find, you 10 know, kind of allegations of suppression a little 11 concerning because there was a lot of information. 12 But I think a lot of information has already been 13 kind of in the public domain. 14 And so, Mr. Hilson, can you comment, 15 because I know there were subpoenas also issued, you 16 know, over the course of the matter. 17 MR. HILSON: Sure. Let me start with the 18 New York -- 19 MS. YEE: Yeah. 20 MR. HILSON: -- situation. 21 Basically what happened was, as I indicated 22 in my presentation, as early as 1993 our auditors 23 had asked for all subsequent follow-up 24 correspondence between Mr. Hyatt and various 25 contracting parties, including Philips. They -- it 26 certainly -- it wasn't given. Certainly the -- the 27 bulk of what I talked about this morning was -- was 28 not in there. There were some contracts or portions 119 1 of contracts. 2 MS. YEE: Mm-hmm. 3 MR. HILSON: But the bulk of it wasn't in 4 there. 5 What -- we end up we're in the Nevada 6 litigation, and the significance of Philips waned at 7 one point because Mr. Hyatt's economic damages loss, 8 the business interruption losses was kicked out of 9 the case. 10 When we get to 2010 or so, all of a sudden 11 we start seeing lots of declarations coming in, in 12 the appeal stage, including declarations from Mr. 13 Tamoshunas, who is one of the Philips attorneys on 14 it. And Mr. Tamoshunas' affidavit was such that it 15 was, like, okay, we have to talk to this guy. We 16 got to get the Philips documents. 17 And we issued a subpoena. And we asked for 18 documents covering the entire relationship period 19 between Mr. Hyatt and Philips, which was 1991 20 through 1997 or thereabouts, when they terminated. 21 The -- there was a motion to quash the 22 subpoena on the basis that FTB had no jurisdiction 23 to go forward with it under 19504 in the first 24 place. That -- that contention was soundly 25 rejected. There was a -- there was a motion to 26 limit the scope of the subpoena, and as I mentioned 27 ultimately that's what happened. It was limited to 28 1991 and 1992. 120 1 MS. YEE: Right. 2 MR. HILSON: It ended up being somewhere 3 between 7,000 and 8,000 pages of paper. We passed 4 all of that paper on to BOE. Unfortunately, when we 5 did so, there was a handful of documents that 6 shouldn't have been in there. Just, you know, we 7 missed it. 8 The end result of that was a contempt 9 citation back into New York asking not that, you 10 know, we be chastised for the 10 or 15 pages, but 11 that we not be able to use any of it. 12 That motion was rejected in its totali -- 13 in its totality, with the exception that we did get 14 chastised for including the documents we shouldn't 15 have. Basically the court was saying no excuse. 16 MS. YEE: Mm-hmm. 17 MR. HILSON: But the -- the first go-around 18 the court limited to -- limited it to 1991 and 1992. 19 That was appealed and the courts exercised the 20 discretion, was sustained. 21 The second -- the second one, the contempt 22 citation, I don't think that was appealed. I think 23 that was the end of it. But it was -- but there 24 were delays being involved in it. And it was, as I 25 said, it was all documentation that -- it's the 26 whole thing. It was -- it was all of it. We had 27 some of it, but most of it we did not. 28 MS. YEE: Mm-hmm. Okay. 121 1 Mr. Hyatt? 2 MR. HYATT: Member Yee, that -- that 3 statement that in '93 they requested all documents 4 from Philips, that is an absolute falsehood. 5 What happened, the truth of the matter is, 6 and I'm very familiar with this, that the first 7 auditor, out of three, requested very, very specific 8 documents. He was -- because of the 9 confidentiality, he was invited to my tax attorney's 10 office. He looked at the documents and he was 11 satisfied and he went back. 12 They were -- they were only superficially 13 interested in licensing documents. They were -- did 14 not ask for all documents, and they did not ask for 15 Philips. I don't think they asked. I don't 16 remember them asking anyway. And it definitely was 17 not "all documents." 18 We produced all documents that we had, 19 including from Mr. -- um -- uh -- Roth, who is a 20 licensing attorney for Philips, and, um -- and mine, 21 and voluntarily, in 2006. And we didn't suppress 22 any of it. 23 And the FTB held off getting -- held off on 24 sourcing. There was no sourcing issue in the case 25 until about two -- until the end of the protest when 26 they, um, out of the blue made a sourcing 27 assessment. 28 Actually, we found out that sourcing was 122 1 thought of in secret, in a secret Embry task force 2 in 1995 and they said that there was no sourcing, 3 the FTB did not have a sourcing case. And then 4 Philips, out of the blue, came up with sourcing at 5 the end of the protest, without ever auditing or 6 protesting the sourcing issue. It was all brand new 7 at that point. 8 So it's the FTB that hid their positions. 9 They did a secret audit. They did a -- where they 10 sprung a fraud penalty on me. They did not -- they 11 refused to give me their supposed devastating 12 affidavits, which were not affidavits at all. They 13 were signed -- one of them, for instance, was a 14 signed document that without -- not an affidavit, 15 but by my ex-wife, that said very little. 16 But they made their fraud -- their audit 17 assessment on those documents and then refused to 18 give them to us so that we couldn't even describe -- 19 we couldn't even argue them in our protest letter 20 when we protested because they would not give us the 21 audit file and their evidence at that time. 22 So they -- I contend that they suppressed 23 that information to deprive me of an ability to 24 write a good protest letter, and we had to -- we 25 had -- let's see. And much of the information, like 26 the Embry task force letters and like the, um -- the 27 reviewers' very helpful statements about no fraud, 28 two reviewers, those were all withheld from us. 123 1 They were taken out of the audit file. And then 2 when we got the audit file, we didn't know about 3 that and we didn't know about it until we got 4 discovery in the Nevada tort case. 5 So speaking about suppression of evidence, 6 that's crucial evidence and they suppressed it, and 7 we needed a court order to get that from them. 8 MS. YEE: Okay. I think I have a good feel 9 for where both sides are coming from. 10 So, to the respondent, the sourcing issue 11 from your perspective is really just to get at the 12 nature of the appellant's involvement in the 13 business and the -- and to determine kind of the 14 larger issue with respect to -- 15 MR. HILSON: Yes, that's correct. And 16 by -- our records reveal that at one of the protest 17 hearing sessions in early 2000 or thereabouts the 18 sourcing came up, and it's pretty much been 19 contested since then. Certainly it's been contested 20 all the way through this appeal. 21 MS. YEE: Yeah. 22 MR. HYATT: Your Honor, that's absolutely 23 incorrect. May I comment on that? 24 MS. YEE: Briefly, yes. 25 MR. HYATT: They did bring that up as a 26 possibility, and they -- but they never gave us a 27 sourcing assessment during the protest and never let 28 us -- gave us an opportunity to -- and never even 124 1 audited or protested that. They just made a mention 2 of it and then, surprisingly, came out with it in 3 the protest determination letters at the very end. 4 And then we called them on -- but -- and 5 you said you would give us an opportunity to deal 6 with that. And they said, no, go away, argue it to 7 the SBE. And we were burdened and your Board was 8 burdened to have to deal with the sourcing efforts 9 as a first impression because they never audited it, 10 they never protested it, and there was no record for 11 you to base it on. 12 So the burden was on us in the SBE 13 briefings and, um -- and on your legal staff to deal 14 with that. And, in fact, one of the main things I 15 hope to do, to tell you about in the '92 audit is 16 the $24 million error. They made a $24 million 17 error in the NPA, and they continued to keep that in 18 place. 19 And then in -- thanks to your legal staff 20 and an additional briefing, they finally admitted 21 that they were absolutely wrong about when the 22 income of that money. And now they have changed all 23 of that from -- in about 2016 or so, they changed 24 the $24 million error from a residency assessment to 25 now a sourcing assessment that is well after the 26 disputed period. 27 That -- and I hope to get into that in 28 great detail. Because if there's any fraud here, 125 1 that $24 million error that they refused to even 2 acknowledge and, uh -- and have never corrected the 3 assessments on it, is the epitome of fraud. 4 MS. YEE: Okay. 5 Thank you, Madam Chair. That's all I have 6 for now. 7 MS. HARKEY: Thank you. 8 Member Runner. Vice Chair Runner. 9 MR. RUNNER: Yeah, let me -- let me just, a 10 couple questions that I want to kind of go through. 11 One is a little bit about some of the -- some of the 12 court actions. And I guess I'll start with the one 13 that, again, we didn't necessarily need to go there, 14 but since FTB actually opened up with the issue of 15 the Supreme Court, and let me -- let me just get 16 some clarification on that. 17 My understanding, what was before the 18 Supreme Court was -- was not necessarily the 19 underlying issues that were brought, but was an 20 issue of discussion between one state versus another 21 state in damages. 22 So let me let both of you go, but I want to 23 know -- maybe, Mr. Hyatt, your attorney can respond 24 a little bit to that issue. 25 MR. HYATT: I'm familiar with that, and if 26 I might -- 27 MR. RUNNER: Well, you decide who can best 28 respond it. 126 1 MR. HYATT: Because Ed -- Mr. Antolin has 2 not been involved in that case and I have. 3 MR. RUNNER: Okay. So -- 4 MR. HYATT: May I respond to you? 5 MR. RUNNER: So tell me, is that -- is 6 that -- what was before the Supreme Court? 7 MR. HYATT: There were two issues between 8 the Supreme -- before the Supreme Court. There were 9 two -- 10 MR. RUNNER: Right. 11 MR. HYATT: -- Supreme Court cases. 12 MR. RUNNER: Right. 13 MR. HYATT: In the first one I won a 14 unanimous victory from the U.S. Supreme Court. 15 MR. RUNNER: And what was the issue? 16 MR. HYATT: The issue was -- there were 17 many issues. The main one was can a, uh -- can a, 18 uh, taxpayer sue the, um, the FTB in a, um -- in 19 another state. 20 MR. RUNNER: Right. 21 MR. HYATT: They were precluded from doing 22 so in California. And the answer was absolutely 23 yes, unanimously. 24 The second Supreme Court -- if I answered 25 that properly. 26 MR. RUNNER: Mm-hmm. 27 MR. HYATT: But there were many other 28 issues and they were all unanimous. 127 1 The second one, the FTB proposed three 2 points in their petition for certiorari, two of them 3 were accepted. One was -- had to do with did they 4 have to treat California the same as Nevada 5 entities. And the second was Nevada v. Hall, should 6 that be reversed. Nevada v. Hall was the key case 7 that permitted us to sue the FTB in Nevada. 8 The Nevada v. Hall that was -- 9 MR. RUNNER: Again, hold on. Let me be 10 more specific. Were all those about damages? 11 MR. HYATT: One of them was, one was not. 12 MR. RUNNER: And what was the other one? 13 MR. HYATT: Nevada v. Hall was about being 14 able to sue the FTB in Nevada. 15 MR. RUNNER: Okay. Whether or not a suit 16 could be valid. 17 MR. HYATT: Yes. 18 MR. RUNNER: But nothing about the 19 underlying causes that you brought against the 20 FTB. 21 MR. HYATT: Nothing at all. 22 MR. RUNNER: Okay. Let me go back to FTB 23 then because -- 24 MR. HYATT: Your Honor, may I comment? 25 MR. RUNNER: No, that's okay. I'm going to 26 go ahead -- I'm going to let FTB make a comment now. 27 Again, I think what started me down this 28 track was the fact that somehow in your opening you 128 1 made it sound like everybody found for the FTB. 2 When in fact, at least my understanding is that the 3 issue -- the issue that was brought before the 4 Supreme Court was dealing with whether or not a suit 5 could be taken place or whether or not damages could 6 be, not necessarily the underlying tactics that were 7 then found by the Nevada courts. 8 MR. HILSON: You're close. And Mr. Hyatt's 9 close. 10 There were two issues, and U.S. Supreme 11 Court tripped number two, not the first one. 12 MR. RUNNER: Okay. 13 MR. HILSON: They tripped number two. 14 MR. RUNNER: All right. 15 MR. HILSON: Was, number one, Should Nevada 16 v. Hall be overruled? 17 MR. RUNNER: Right. 18 MR. HILSON: Threshold question of can it 19 happen. 20 MR. RUNNER: Right. 21 MR. HILSON: That's -- they tied, it went 22 4-4 on that -- 23 MR. RUNNER: Mm-hmm, mm-hmm. 24 MR. HILSON: -- Justice Scalia's passing. 25 MR. RUNNER: Right. 26 MR. HILSON: The second issue that was 27 granted, that they took cert. on, was whether or not 28 Nevada's attempt to fashion a remedy in the -- by 129 1 the Nevada Supreme Court, which was to leave the 2 fraud case intact with more than a million-dollar 3 damage award against FTB -- 4 MR. RUNNER: Right. 5 MR. HILSON: -- and to proceed again at a 6 new trial on the question of emotional distress, 7 without a cap, violated the Constitution. 8 MR. RUNNER: Right. 9 MR. HILSON: The United States Supreme 10 Court harkened back to the first trip in which the 11 United -- which the Nevada Supreme Court said they 12 would treat us exactly as they would treat a Nevada 13 state agency. 14 The United States Supreme Court found, on 15 the second time around, that in attempting to 16 fashion the remedy where the fraud judgment stayed 17 intact with the judgment, finding us liability 18 without cap on the secondary issue was 19 unconstitutional, hostile not only to California but 20 the 49 sister states, threw it out as 21 unconstitutional, and in the process vacated 22 whatever was left of the Nevada judgment, remanding 23 it to the Nevada Supreme Court for further 24 proceedings. 25 When I said nothing has happened, briefing 26 has happened, oral argument has happened. 27 MR. RUNNER: Right. 28 MR. HILSON: But the Nevada Supreme Court 130 1 has made no further determination. 2 So, as it sits right now, there is no fraud 3 judgment against FTB. 4 MR. RUNNER: But not on the basis of the -- 5 okay. My opinion would be, but not on the basis of 6 the facts, but on the basis of jurisdiction. 7 MR. HILSON: Okay, right. 8 MR. RUNNER: Okay. I just wanted to make 9 that clear. Because I think your statement was that 10 there was no fraud, when in fact it was not -- the 11 court never decided that. The court just was 12 debating whether or not there was jurisdiction at 13 that point and that's what the court had -- had 14 dealt with. 15 Let me go -- let me go back to another 16 issue in regards -- 17 MR. HYATT: Your Honor, may I -- may I -- 18 MR. RUNNER: No, that's okay. I think 19 we've got that down. 20 MR. HYATT: Okay. 21 MR. RUNNER: Let me -- let me ask about 22 the, um -- again, the back and forth in regards to 23 some of the other court cases in regards to -- 24 because I think it was -- again, I think we've 25 got -- I'm trying to work through some of the issues 26 that I think could be overstatement on, maybe on 27 either side. Which I think would be pretty typical, 28 I get why we do that. 131 1 But let me just go ahead and just deal with 2 the issue of -- of the cases in regards to -- that 3 were taken to court in regards to the suits that 4 were taken in regards to the -- or the court cases 5 in regards to the information. 6 Did, in fact -- did, in fact, the courts 7 find some of the requests -- let me go back to 8 the -- to -- to the taxpayer. Did in fact, in your 9 opinion, or in the courts opinion, did they find 10 that the requests from the FTB were overly broad? 11 MR. HYATT: Yes, Your Honor. 12 MR. RUNNER: Okay. So -- so in that sense 13 then -- let me go back to FTB. Then the original 14 requests then by -- to the taxpayer, at least the 15 courts had decided that the FTB was overly broad in 16 the information that they were requesting? Is 17 that -- 18 MR. HILSON: Yes. 19 MR. RUNNER: Okay, okay. 20 MR. HILSON: As I said, in New York we went 21 five years -- 22 MR. RUNNER: Okay. 23 MR. HILSON: -- more than they wanted. 24 MR. RUNNER: So, again, I can -- I can -- 25 I can understand again how, again, both sides ended 26 up winning and losing in those kinds of issues. I 27 mean I think at one point a taxpayer says, "Hey, 28 look, I may want to provide you something or you can 132 1 ask me for something, but you're asking me for way 2 too much. So I'm going to go to court to figure 3 that out." 4 And so, indeed, at least what I'm 5 understanding is that's indeed what took place, is 6 the court decided, yeah. And so, as a result of 7 that, the request was narrowed. And as a result 8 whether or not it was done, you know, with 9 enthusiasm or not, the documentation was ended, 10 ended up getting there. 11 Let me go to the next issue, which again, 12 I -- I -- to me this is really about where does a 13 person -- at least part of this. Again, we're going 14 to end up separating out part of this discussion 15 between, you know, where does a person live 16 versus -- and then somewhere along the line we're 17 going to get with the issue of sourcing. 18 Let me just start with the issue of where 19 does a person live. Let's start with -- let me 20 start with the issue of the house sale. Because I 21 think what's happening here is this -- this seems to 22 be a very interesting contract of sale for a house 23 sale, which is not typically how a house is sold. 24 And as a result of that, there's a much greater 25 involvement of the seller with the buyer than 26 typically takes place. And I think that's where a 27 lot of the confusion seems to be around. 28 So let me ask you, to the taxpayer, what -- 133 1 when the house was sold, for instance -- well, let 2 me be specific. FTB says the house payment was made 3 in December. Well, that sounds unusual if a house 4 is sold to somebody else. But it's not unusual if 5 that's the terms of the sale, under a contract of 6 sale. 7 Explain to me how that sale took place and 8 why it is if indeed -- well, you can tell me that 9 maybe it wasn't done. But if indeed a payment was 10 done in December, how did that -- how does that -- 11 how does that work out then with a house that you 12 had sold? 13 MR. HYATT: First of all, I received a 14 $15,000 down payment -- 15 MR. RUNNER: Right. 16 MR. HYATT: -- at the closing, October 1, 17 1991. 18 MR. RUNNER: Right. 19 MR. HYATT: The Note said that in -- I 20 believe the Note -- and I'm speaking from memory -- 21 said -- 22 MR. RUNNER: Mm-hmm. 23 MR. HYATT: -- that the payments, the 24 monthly payments would start within a month, which 25 would have been November. And I -- 26 MR. RUNNER: These payments would be made 27 to who? 28 MR. HYATT: To me. 134 1 MR. RUNNER: To you. 2 MR. HYATT: I was holding the Note. 3 MR. RUNNER: You were holding the Note. 4 MR. HYATT: Yes. 5 MR. RUNNER: Gotcha. So these payments 6 were to be made to you. 7 MR. HYATT: Yes. 8 MR. RUNNER: Gotcha. 9 MR. HYATT: And I received them monthly, 10 starting in accordance with the Note. But because 11 of my move, I maybe had been a little bit tardy. 12 And when I deposited it, I received it in 13 November -- the first payment in November. 14 MR. RUNNER: Okay. 15 MR. HYATT: I think de -- I may have -- I 16 may or may not have deposited two in December. 17 MR. RUNNER: But the FTB said that you made 18 a payment -- 19 MR. HYATT: I made a payment? 20 MR. RUNNER: -- in December. That you made 21 a payment in December. 22 MR. HYATT: I made a payment -- 23 MR. RUNNER: On your mortgage. 24 MR. HYATT: Oh, oh, oh, oh. Okay. Yes, 25 there were two Notes. There was -- I think what 26 he's getting at is -- and confusing the issues -- I 27 owed money on my former house. And I -- and I paid 28 that off. And the buyer gave me a Note on her house 135 1 and she paid that off. 2 Relative to my owing the, um -- the bank, 3 when I was planning on selling the house, I paid off 4 half of the Note on the house. 5 MR. RUNNER: This is the Jennifer Circle 6 house? 7 MR. HYATT: The Jennifer Circle house. 8 MR. RUNNER: Okay. 9 MR. HYATT: And that was in September. 10 MR. RUNNER: Okay. 11 MR. HYATT: And then I made a -- the final 12 payment, paying the rest of it off in December. And 13 I got a re -- 14 MR. RUNNER: Okay. Now you could do 15 that -- 16 MR. HYATT: Reconveyence. 17 MR. RUNNER: You could do that because I 18 think you must have done a contract of sale on your 19 house as opposed to a regular sale where you no 20 longer have interest in that house. 21 I mean, why would you -- my question is, in 22 a normal -- in a normal situation a person would go 23 ahead and sell a house, they wouldn't be making any 24 more payments to the bank because somebody else now 25 owns the house, right? 26 MR. HYATT: Yeah. Normally -- 27 MR. RUNNER: But you kept a relationship to 28 that house into that -- into that original 136 1 mortgage. 2 MR. HYATT: Well, normally it would go 3 through escrow. 4 MR. RUNNER: Right. 5 MR. HYATT: And everything would be covered 6 at the same time. But because this was a 7 relationship between a friend and because we weren't 8 professionals, things were taken care of but not 9 instantaneously like through escrow. 10 MR. RUNNER: Right. 11 MR. HYATT: So I signed the Grant Deed and 12 delivered it so that the house was sold as of 13 October 1st. And I, um, as a supplement, I paid off 14 the money I owed on the house. 15 MR. RUNNER: Afterwards. 16 MR. HYATT: Afterwards. A couple months 17 afterwards. And everything came together fine, but 18 not instantaneously as if there was -- 19 MR. RUNNER: Because you were holding the 20 Note on the whole -- on the -- on the sale. 21 MR. HYATT: I was holding the Note from 22 the -- my sale, and I also owed -- 23 MR. RUNNER: Holding the Note on your sale 24 didn't require you then to pay off the house before 25 you sold it. 26 MR. HYATT: No, there's no such requirement 27 that I knew of. 28 MR. RUNNER: Right. Right. Right. 137 1 MR. HYATT: So I didn't do things 2 simultaneously. 3 MR. RUNNER: Right. 4 MR. HYATT: I did them -- 5 MR. RUNNER: Again, this is a very -- this 6 is not a typical house sale, is what my point would 7 be. 8 MR. HYATT: Yes, it was not typical. 9 MR. RUNNER: Because you held the Note. 10 You still kept the mortgage on the house and you had 11 a -- you had probably a contract of sale of some 12 kind with the person who bought the house from you. 13 So let me go back to the issue. The person 14 who bought the house from you was an employee of 15 yours? 16 MR. HYATT: No, absolutely not. May I -- 17 MR. RUNNER: Did she do work for you? 18 MR. HYATT: Yes, she did in previous years, 19 but not then. 20 MR. RUNNER: So tell me why it is -- why 21 would -- why would the, for instance, the -- the 22 discussions take place that were on the boards here 23 in regards to faxes that were coming to that 24 address, again, and that phone number? How -- how 25 did that take place if the person either wasn't 26 working for you or wasn't -- wasn't in some 27 agreement with you to receive things at that house? 28 MR. HYATT: She was not part of that 138 1 at all. That was between me and Philips. 2 I told Philips in early October that I had 3 moved to Las Vegas. And then when I moved into my 4 apartment and had my mailing addresses in Nevada, I 5 sent them the change of address, as I sent numerous 6 other changes of address out. 7 Philips -- 8 MR. RUNNER: How did you get these 9 correspondences that are all listed here in these 10 pages that basically said they went to that house? 11 MR. HYATT: Well, what happened is Philips' 12 staff, Philips' staff misaddressed those. And 13 that's in the affidavit of the attorney, the lead 14 attorney at Philips. They misaddressed them. I 15 complained. They -- and eventually they adjusted 16 them properly. 17 MR. RUNNER: Again, I'm not -- you've got 18 two different issues; you've got addresses and then 19 you got faxes. 20 MR. HYATT: The faxes are -- 21 MR. RUNNER: Tell me about the faxes 22 first. 23 MR. HYATT: Okay. 24 MR. RUNNER: The faxes seem to go to a 25 phone number at that house. 26 MR. HYATT: Not so, Your Honor, and let me 27 explain why. 28 MR. RUNNER: Okay, tell me. 139 1 MR. HYATT: Because I was in Las Vegas with 2 my only fax machine. 3 MR. RUNNER: Mm-hmm. 4 MR. HYATT: Philips was faxing me materials 5 that was going to my fax machine. But they still 6 had the California address on the heading and some 7 of them did go to the Jennifer Circle house. So it 8 was a -- they were not consistent and not -- and 9 made inadvertent errors in that transition period. 10 And in fact, even after they started -- 11 MR. RUNNER: Well, were these -- was this 12 fax located at the house in La Palma? 13 MR. HYATT: Not mine. I moved my fax 14 machine. 15 The testimony is that, after I moved my fax 16 machine to Las Vegas and was receiving faxes there, 17 Ms. Jeng did not have a fax machine and she needed 18 one for her consulting work. 19 MR. RUNNER: Mm-hmm. 20 MR. HYATT: So the testimony is that 21 Leetronics, who she consulted for, provided her with 22 a fax machine. So to the degree that any of the 23 faxes went to the California house, they went to her 24 fax machine. And to the degree they had my fax 25 address on it, they came to my Nevada fax machine. 26 MR. RUNNER: Okay. Let me go to the FTB 27 then. Tell me -- tell me about in this timeline the 28 items that are listed, the faxes that are listed 140 1 throughout the three months here, that are going to 2 the Jennifer Circle house. 3 MR. HILSON: Every one of them uses the 4 Jennifer Circle fax line, the phone number 5 associated with it. 6 The other side of the coin -- 7 MR. RUNNER: Which phone -- when you say a 8 phone number associated with it, is it associated 9 with the house or the individual? Tell me what you 10 mean. 11 MR. HILSON: The house. 12 MR. RUNNER: The house. 13 MS. HARKEY: 213 -- 14 MR. HILSON: The 213, whatever it is, 15 1087. 16 MR. RUNNER: And how do we know it's his 17 fax machine? 18 MR. HILSON: It's because the documents 19 that were faxed back and forth predating September 20 26, 1991; it's the same machine, it's the same 21 number. And what we haven't told -- what you 22 haven't talked about is all of the faxes that are 23 sent by Mr. Hyatt to Philips using the Cerritos post 24 office box and the 213 -- 25 MR. RUNNER: I'm less compelled on the post 26 office box. 27 MR. HILSON: Well, no. -- 28 MR. RUNNER: I'm more interested in the 141 1 location of the fax because -- 2 MR. HILSON: The fax number used is return 3 contact information, on all of the faxes that he 4 sends, is the Jennifer Circle machine. It is not a 5 702 area code. We don't see any faxes from him to 6 New York using a 702 area code. They're all 213, 7 which is Los Angeles, which is the machine at 8 Jennifer Circle. 9 MR. RUNNER: Let me ask the taxpayer, 10 how -- what -- 11 MR. HYATT: Your Honor -- 12 MR. RUNNER: How can you help us understand 13 why it is that you would be receiving and sending 14 correspondence then with the 213 and with your 15 business on it? 16 MR. HYATT: I was not. The -- I think 17 that's a misstatement, but I would have to look at 18 the documents to be sure of that. 19 Let me tell you about the fax header, the 20 fax spray that they call it. My fax spray did not 21 have my -- any of my contact information it. I 22 turned that off when I moved and didn't turn it back 23 on. 24 So you'll find a lot of the faxes do not 25 have a fax spray -- they have a fax spray, but they 26 do not -- 27 MR. RUNNER: Fax spray, is a fax spray 28 simply the item on the fax that tells you where it's 142 1 coming -- where it's coming and going to, as opposed 2 to a header. 3 MR. HYATT: It's the header -- 4 MR. RUNNER: The line across the top. 5 MR. HILSON: It's the line across the 6 top. 7 MR. RUNNER: Yeah, okay. 8 MR. HYATT: -- that the fax machine puts on 9 it. 10 Now, Philips did continue to use, on the 11 California addresses, which they said under oath 12 that were inadvertent errors by their staff. And 13 I'm not responsible for the inadvertent errors by 14 Philips' staff. And that does not prove that I was 15 at the Jennifer Circle house because I was not. 16 Just because there's an address on a document 17 doesn't mean I was present to receive it. 18 MR. RUNNER: Yeah, actually, I want to get 19 to that point because I think that's an interesting 20 issue, point. And that is -- again, that may have 21 more -- that may be a different discussion when it 22 comes to sourcing or something, right, and doesn't 23 necessarily come to the issue of residency. 24 You know of these, of these three months' 25 worth of dates, I count 17 to 20 that are actually 26 identified as being in California. The rest of them 27 are all either faxes or mail that came in to 28 California. 143 1 So I guess I'm -- again, I'm not sure. To 2 me, it's a little bit of a mix between the 3 discussion of residency and sourcing. Because 4 again, just because somebody's getting mail in a 5 P.O. Box doesn't necessarily mean that they're -- 6 they're a resident in California. 7 MR. HILSON: But there's two points. A, 8 we're talking about a multi-million-dollar business. 9 Things are happening, things are happening quickly. 10 It's all -- all of the correspondence is coming in 11 and out of California, and the correspondence that's 12 being authored -- 13 MR. RUNNER: But what's that have to do 14 with the residency? 15 MR. HILSON: Well, if you're -- if you're 16 not in California, why are you writing on documents 17 to people that you're dealing with in business that 18 the way to contact you is either at Jennifer Circle 19 or through the Jennifer Circle fax machine? You're 20 making a representation as to where you're living. 21 MR. RUNNER: Maybe. Or you're -- where you 22 do business, which is a -- which is a sourcing 23 issue, not a residency issue. 24 MR. HILSON: Well, in this situation it's 25 clearly a hands-on business. Mr. Hyatt is there. 26 He's distributing the money. He's signing these 27 contracts. 28 These contracts aren't being signed by 144 1 Philips. These monies aren't being disbursed by 2 Philips. These monies -- everything is coming 3 through California and happening in California. 4 Every time we trace the money, every time it's being 5 disbursed, it's Mr. Hyatt doing it. And everything 6 associated with those disbursals says Jennifer 7 Circle and the Cerritos post office box and the 8 Jennifer Circle fax machine. 9 MR. RUNNER: But in theory, a person can 10 run their business out of California and be a 11 resident somewhere else, correct? 12 MR. HILSON: In theory. In theory, yes. 13 MR. RUNNER: And then we're going to get 14 into a discussion about sourcing. So I guess I'm 15 trying to go right now through the discussion of 16 residency. Because, again, I think there's a bit of 17 confusion when you try to put residency and sourcing 18 all in the same document. Because I think that's 19 kind of what's taking place here. Because I think 20 we kind of have a two-step process that we're -- 21 that we need to kind of -- kind of walk through. 22 So let me -- let me ask about, again, there 23 seems to be a lot of confusion. And, again, I don't 24 know whether you're best at answering some of this 25 discussion or your attorneys are better at answering 26 it. But let me ask. I'll let -- you can decide. 27 That all this discussion about -- about the 28 correspondence at the post office box, all those 145 1 issues -- and, again, I guess a little bit about the 2 faxing that was taking place, why does it appear 3 that so much of what was happening in California if 4 indeed you were indeed a resident of -- of Nevada? 5 MR. KERN: Mr. Runner. 6 MR. RUNNER: Yes. 7 MR. KERN: Let me just refer to -- 8 MR. RUNNER: You might go ahead and take 9 your mic a little tighter. Your mic. 10 MR. KERN: Thank you, sir. 11 Let me just reference a few tabs and Mr. 12 Hyatt will pick up from here. 13 MR. RUNNER: Okay. 14 MR. KERN: Tab 34, Mr. Tamoshunas' 15 testimony was that he was given the change of 16 address, for correspondence, etcetera, but it was 17 inadvertently misaddressed. 18 Tab 35, Ms. Weart from Mahr Leonard -- 19 MR. RUNNER: Okay. Give me more detail on 20 the document. 21 MR. KERN: He will do so. 22 Tab 35, Ms. Weart from Mahr Leonard 23 testimony was that she was given the change of 24 address, but she did not -- 25 MR. RUNNER: What were the dates of -- 26 MS. HARKEY: The tab -- the tabs are here 27 in this book? 28 MR. KERN: 34 and 35 are in the binders. 146 1 MS. HARKEY: Okay. Can you take that a 2 little slower so we can -- 3 MR. RUNNER: Yeah. And I think you'd be 4 better off if you give us all the information. 5 Like, what was the date that -- that they're asking 6 to be -- that they're asking -- that they were given 7 these things on, that they said that they were -- 8 MR. HYATT: Mr. Tamoshunas said that it was 9 in the latter part of October. And that's the 10 time -- and I would clarify that when I got my -- 11 the apartment -- the address of Wagon Trails -- 12 MR. RUNNER: Okay. 13 MR. HYATT: -- I notified him of my move 14 early in October, and I gave him the address in the 15 latter part of October. 16 MR. RUNNER: Okay. 17 MR. HYATT: Ms. Weart then, that's a dec -- 18 that's her declaration, and she -- 19 MS. HARKEY: If you could -- I'm sorry. If 20 you could go from tab to your explanation -- 21 MR. HYATT: Okay. I' sorry. 22 MS. HARKEY: -- then tab to your 23 explanation, so that we can follow you. 24 MR. RUNNER: That would be much better for 25 you. 26 MR. HYATT: Mr. Tamoshunas was in -- 27 Please -- please go back to the tabs. 28 MR. KERN: I am. 147 1 MR. ANTOLIN: It's Tab 35, paragraph 25. 2 MR. RUNNER: And what's it say? 3 MR. ANTOLIN: Well, he says: 4 "Mr. Hyatt gave Philips a change of 5 address from California to Las Vegas in the 6 latter part of October 1991 and I 7 understood that he moved to Las Vegas 8 before the latter part of October 1991. 9 Any mailings from Philips personnel to 10 Mr. Hyatt at his former California 11 addresses as of October 1991 and thereafter 12 were inadvertent errors by Philips' support 13 personnel." 14 And there's a similar affidavit from -- 15 MR. RUNNER: Okay. 16 MR. ANTOLIN: -- Ms. Vicki Weart, an 17 administrative assistant at Mahr Leonard in 18 Dallas. 19 MR. RUNNER: Okay. 20 So let me go back to the FTB. Why -- why 21 would we believe that these affidavits were, I 22 guess, done fraudulently? 23 MR. HILSON: I wouldn't say fraudulently. 24 MR. RUNNER: Okay. 25 MR. HILSON: I would say, number one, look 26 at the time that's passed. We're not talking about 27 anything that is anywhere near contemporaneous. 28 Number two, Mr. Tamoshunas has testified 148 1 that he had very competent staff. 2 Number three, there's nothing in writing 3 anywhere, until we get into April of 1992, that even 4 comes close to a change of address. 5 MR. RUNNER: So you think they're just in 6 error when they made these? 7 MR. HILSON: Yes. 8 MR. RUNNER: You think they made a mistake 9 and they went ahead and signed under penalty of 10 perjury in error? 11 MR. HILSON: Yes. Because, amongst other 12 things, when we took Mr. Tamoshunas' deposition he 13 admitted when he signed the declaration he hadn't 14 looked at any of his business records. And when we 15 pressed him on details, it was "I can't remember 16 what happened 20 years ago." 17 MR. RUNNER: He didn't choose to withdraw 18 his affidavit at that point? 19 MR. HILSON: No. 20 MR. RUNNER: Is that odd? I mean if you, 21 in a -- in a deposition, if all of a sudden he's 22 questioning his -- his issue, he wouldn't say -- 23 MR. HILSON: Well, when he's -- 24 MR. RUNNER: -- he wouldn't withdraw his 25 affidavit? 26 MR. HILSON: When he's sitting there saying 27 "I don't remember," I mean what more are we going to 28 do? I mean, Mr. Tamoshunas' deposition was every 149 1 time we started digging under the content of one of 2 the paragraphs in his affidavit, the fall-back 3 response was "I don't remember; it was 20 years 4 ago." So -- 5 MR. RUNNER: Remind me about these 6 depositions. Were these depositions -- was the 7 taxpayer's representatives there at the time? 8 MR. HILSON: Oh, yeah. 9 MR. RUNNER: Let me ask the taxpayer, 10 did -- is that what you heard in regards to the 11 depositions, were -- were -- were some of these 12 people who gave you -- gave you affidavits recanting 13 a bit? 14 MR. HYATT: Absolutely not. I haven't read 15 the depositions recently, but I think that they were 16 very supportive of what they said -- 17 MR. RUNNER: Okay. 18 MR. HYATT: -- in my position. And the 19 statement is absolutely wrong when he says it wasn't 20 until way later that they changed the addresses, 21 because I want to cite two things that I don't have 22 in the tab because they're big documents. 23 In December 1991, after I had been bugging 24 them -- excuse the expression -- and complaining 25 about the -- the misaddressed materials, there were 26 four agreements that were signed that -- two of them 27 were licensing agreements that had changed my P.O. 28 Box address to my, quote, my residency address and 150 1 giving my Wagon Trails apartment address, two of 2 them. And there were two supplemental agreements 3 with Philips that did the same thing. That was just 4 a couple of months afterwards. 5 The next -- in fact, those were essentially 6 the next agreements. And then, in January, the 7 middle of January, which I think might have been the 8 next faxes from Philips -- 9 MR. RUNNER: Okay. 10 MR. HYATT: -- they had my apartment 11 address again, and telling me that this -- they were 12 wire-transferring this information. 13 So it is absolutely not a long time 14 later. 15 MR. RUNNER: Okay. 16 MR. HYATT: It was essentially -- 17 MR. RUNNER: Thank you. 18 MR. HYATT: -- contemporaneous. 19 MR. RUNNER: Thank you. 20 MR. HYATT: Reasonably after. 21 MR. RUNNER: I think -- did you have a 22 deposition in front, you were going to share with 23 me? 24 MR. HILSON: It was just one portion of it. 25 Just, you know -- 26 MR. RUNNER: I get real nervous about 27 depositions anyhow. 28 MR. HILSON: Well, it's just one -- 151 1 MR. RUNNER: I mean we've all been -- maybe 2 we all haven't been. But most of us might have been 3 in touch with a deposition or two -- 4 MR. HILSON: I've been on both -- 5 MR. RUNNER: -- and realize all kinds of 6 crazy things get said -- 7 MR. HILSON: I've been on both sides. 8 MR. RUNNER: -- in the middle of a 9 deposition. 10 MR. HILSON: Yeah. 11 MR. RUNNER: That's why I'm more 12 interested -- 13 MR. HILSON: It doesn't have to do with 14 this particular issue. 15 MR. RUNNER: Okay. 16 MR. HILSON: But it was just one example -- 17 MR. RUNNER: Okay. 18 MR. HILSON: -- of a statement. 19 MR. RUNNER: Okay. Let me ask just one 20 last question, then I'll give up my time. 21 In -- in -- in -- in your timeline you've 22 got things like dining in Cypress, pharmacy purchase 23 La Palma, dining in Cerritos, dining in Cerritos. 24 Was that -- did we get that information 25 based upon what, uh -- 26 MR. HILSON: Credit cards. 27 MR. RUNNER: Credit cards? 28 MR. HILSON: Yeah. 152 1 MR. RUNNER: Okay. 2 MR. HYATT: Your Honor, may I address that? 3 MR. RUNNER: Yes. And then I'll be done 4 for right now, yes. 5 MR. HYATT: That is in the record. It's 6 very well argued and established. And I think that 7 that information is being withheld from you. And 8 that -- 9 MR. RUNNER: What information is that? 10 MR. HYATT: The information is that my 11 credit -- I authorized Ms. Jeng to use my credit 12 cards for purposes in California. She -- and she 13 confirmed that she had used those -- she had made 14 those charges. And they -- those particular credit 15 card charges do not show I was in California. I did 16 not make those. 17 MR. RUNNER: Okay. Well, let me follow up. 18 That's interesting. I didn't think about that. 19 So you're saying that even the ones that 20 are listed here as to dining there, doing this or 21 doing that, may have been somebody else who had 22 permission to use your card? 23 MR. HYATT: That's correct. 24 MR. RUNNER: Is that historical activity 25 that this person had? I mean did you have a long 26 history of this person -- I shouldn't say long 27 history. Is that -- would that be a typical 28 behavior by this individual, to use your credit 153 1 card? 2 MR. HYATT: That was after I moved. In 3 September, I authorized that, the use of the credit 4 card for specific purposes, such as family members 5 that had to be briefed and things of that nature. 6 There were only a few of them. And they -- 7 and that's well documented in the record, that I did 8 not make those charges. 9 MR. RUNNER: Is -- let me go back to the 10 FTB then. 11 Is the only indication that we have that it 12 was actually Mr. Hyatt that made these based upon 13 the -- the statement of the credit card, or do we 14 actually have signed, you know, receipts or 15 whatever? 16 MR. HILSON: We don't have signed receipts 17 on anything; that's part of the problem with this 18 case. 19 MR. RUNNER: Okay. 20 MR. HILSON: But the -- the record that 21 he's referring to is typically -- they're -- 22 Mr. Hyatt has signed any number of affidavits. When 23 we get to the credit cards, the statement usually 24 goes something to the effect of Mr. Hyatt has no 25 independent recollection of having made this charge, 26 therefore it must have been Grace Jeng. And have 27 never been any written authorizations or anything 28 else that -- to your point, no credit card slips 154 1 signed by her or anything like that. It's just, "I 2 don't know. I don't remember. And since I don't 3 remember, it wasn't me, it had to be Grace." 4 MR. RUNNER: Well, I don't know if -- it 5 doesn't necessarily say he didn't remember because 6 he actually, I think, said he's in different places 7 than where the credit card was. 8 MR. HILSON: A lot of those you'll find 9 that there are other events in California the same 10 day. 11 MR. RUNNER: Mm-hmm. 12 MR. HYATT: Your Honor, that's incorrect. 13 I'm -- I don't have documents in front of me, but 14 I'm sure that there was nothing that said, "I don't 15 remember. It must have been someone else." 16 I think that it was very, very definite, 17 very well briefed -- 18 MR. RUNNER: Okay. 19 MR. HYATT: -- and probably in the 20 affidavit. 21 MR. RUNNER: Well, like I said, part of the 22 issue that for -- even if -- even if I take all of 23 the charges that are here on these three months, 24 and -- which were dining or banks opening or things 25 like that, that indicate a presence, it's only like 26 17 to 20 out of the 90 days. Which -- and, again, 27 just because, again, correspondence was coming to 28 some place doesn't necessarily mean that somebody 155 1 was in the state. And that's kind of where I would 2 at least would be observing right now. 3 So, anyhow, I'll stop now and somebody else 4 go. 5 ---oOo--- 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 156 1 ---oOo--- 2 MS. HARKEY: Members. 3 MR. HYATT: Your Honor, may I comment on 4 that last thing -- 5 MS. HARKEY: Excuse me, Mr. Hyatt. 6 Member Yee. 7 MS. YEE: Thank you, Member Runner. 8 I was gonna kind of drill down on each of 9 these issues to try to get to some of the residency 10 aspects. 11 And just in response to kind of the 12 bifurcation of looking at sourcing and residency, I 13 mean, there is a relationship. The relationship 14 being whether Mr. Hyatt's involvement with business 15 in state was beyond just that, that would constitute 16 a temporary or transitory purpose. So I think 17 that's the relationship we're trying to establish. 18 But with respect to the sale of the house, 19 I mean, we, through Member Runner, unusual 20 circumstance with respect to the sale, but some of 21 the requirements with respect to documenting the 22 sale of the house, for example. And I know the deed 23 wasn't recorded until quite some time after the sale 24 actually took place. But the preliminary change in 25 ownership report that should have been filed with 26 the county was filed quite a bit of time after as 27 well. Can you comment on that? 28 MR. HYATT: Yes, Your Honor. 157 1 First of all, Ms. Jeng was a very private 2 person and timid person, and she wanted to protect 3 her privacy, and she didn't want the statement of "a 4 single lady," as she told me, "a single lady," on a 5 recorded document. She was concerned for her 6 safety. She did change her mind in 1993, and asked 7 me if I would sign a notary for it, which I did. 8 The important thing is on the preliminary 9 change of ownership, first of all, the way I 10 understand the law is that it should be filed 11 contemporaneously with the recording, which is what 12 she did. And as the Mr. Bradley, Mr. Jacobs and 13 Mr. -- the two audit collectors testified to, the 14 tax assessors, that that was a proper filing, and 15 that when you file the preliminary change of 16 ownership, you don't have to file -- that's 17 sufficient. You don't have to file a change of 18 ownership, in contrast to what the FTB says. 19 That's particularly important because the 20 whole context is that I got eyewitnesses or expert 21 witnesses in those areas to testify to it, and the 22 FTB uses tax attorneys to make arguments in 23 briefings to support their positions without any 24 expert or eyewitness testimony. And that's a major 25 problem, I think, with what they're doing. 26 I have the direct evidence to prove my 27 positions, and they are making contentions, lawyers 28 contentions that are misrepresenting the actual 158 1 facts. 2 MS. YEE: Can I ask Appeals, maybe can you 3 clarify that? I thought the requirements were 4 different, that the recording of the deed could be a 5 subsequent time, but had to be, because it is a 6 taxable event, some notification of change of 7 ownership. 8 MR. THOMPSON: As I said, I don't know. 9 I'd have to review the record again. 10 MR. HILSON: I believe you're correct, 11 Ms. Yee. I believe it's -- it's in the Revenue 12 Tax Code Section, and I think it's 60 days. It 13 may be even less, like, 45. 14 MR. HYATT: Your Honor, the tax assessors 15 have testified that they -- the change of ownership 16 was filed in a timely manner, and that the law says 17 that an unrecorded deed is still legitimate between 18 the parties and those who know about it. 19 MS. YEE: Okay. 20 Let me move on to the -- some of the items 21 that are on this three-page with respect to the use 22 of the La Palma address. 23 So the Japanese tax application, that was 24 signed by you, Mr. Hyatt, on October 21st -- 25 MR. HYATT: What were the words, Your 26 Honor? What kind of documents? 27 MS. YEE: It was a Japanese tax 28 application -- 159 1 MR. HYATT: Okay. There was -- may I -- 2 MS. YEE: -- on October 21st, 1991. 3 MR. HYATT: There were -- I don't 4 remember -- let's see -- there were several 5 documents that were submitted to me to sign. One of 6 which had the Jennifer Circle address on it, and a 7 couple of them I think had the P.O. Box address. 8 Now, Philips or Mahr Leonard submitted them 9 to me to sign, and I was trying to be cooperative, 10 and I signed them. They say -- nothing was 11 misrepresented. They say nothing about those being 12 my residence. They're just, if I recall, their 13 heading -- oh, the fax -- I'm sorry -- the fax one, 14 I think, is the exception. 15 MS. YEE: The document is behind you on the 16 white board. 17 MR. HYATT: Oh, thank you. Let's see. 18 Okay. That one was an early one, so the day I moved 19 into my Las Vegas apartment, I -- the -- and I just 20 signed it and sent it back. It was pre-prepared. 21 They were anxious to get a license agreement signed, 22 and I cooperated. So I should have been more 23 careful. 24 MS. YEE: Okay. Then let me continue on 25 the chronology. 26 Your stay at the Continental Hotel from 27 September 26, 1991 to October 20, 1991, speak to us 28 a little bit about that. 160 1 MR. HYATT: Okay. Actually, it was until 2 October 14th, I think, when I traveled to back east 3 to meet with Philips to the patent office and such. 4 And the -- I took a van tour to Las Vegas and got a 5 room in their block of rooms. I was -- I paid cash 6 for the van tour, as was the methodology in those 7 days, and I received the keys to the room. 8 I then traveled on the van tour back to 9 California, loaded up my trailer and pulled the 10 trailer to the Continental Hotel and stored the 11 material in my room in the Continental Hotel, and 12 then stayed there for a couple of weeks while I was 13 looking for a house or an apartment. And I did find 14 an apartment, and I did lease it for six months. 15 The -- bear with me, Your Honor. 16 The -- I then returned to California, I 17 believe, on September 30th. Because I had a court 18 hearing on the 1st on my mother's estate. I was the 19 executor of the estate. I was required to attend, 20 and I still had the keys to the house. 21 So I went there on September, I think it 22 was, 30th, the day before the hearing. I met with 23 -- let's see -- I think I met with my attorney on 24 that date to prepare for the house sale and the 25 hearing. 26 And the next day on October 1st, I had 27 the -- I attended the court proceeding, and then I 28 went back to the house. And Ms. Jeng signed the 161 1 papers, turned over the keys, took the last of my 2 possessions, put it in the trailer, and took off for 3 Las Vegas. 4 MS. YEE: Okay. 5 MR. HYATT: Excuse me, Your Honor, that's 6 all very well documented in the affidavits and 7 declarations. 8 MS. YEE: No, I appreciate that. I'm 9 having a hard time not embracing your time at the 10 Continental Hotel as being in Nevada for a temporary 11 or transitory purpose as compared to California. 12 So you went there on a van tour, you were 13 still coming back and forth, I take it you were 14 still transacting business during this time? 15 MR. HYATT: I didn't have any business to 16 transact. I was looking for a house or an 17 apartment. And my licensing -- I'm sorry -- my 18 consulting to the aerospace industry had fallen 19 apart in 1990, so I didn't even have my consulting 20 at that time. 21 I did have some contacts with the interface 22 group, which was Sheldon Adelson's operation. And I 23 was trying to get set up on the virtual reality work 24 they wanted me to do. But that really hadn't 25 started up in earnest. 26 MS. YEE: Okay. So you did not -- was 27 there anything that suggested that you were there 28 for the extended stay, that you lived at the 162 1 Continental Hotel for a period of time, aside from 2 just moving your possessions? 3 MR. HYATT: Could you ask the question 4 again, Your Honor? 5 MS. YEE: Yeah. So you initially went 6 there on a van tour, right? 7 MR. HYATT: Yes, to get a room reserved. 8 MS. YEE: Okay. So the hotel allowed you 9 to extend your stay after the van tour? 10 MR. HYATT: No, the hotel room was out of 11 the picture. The way the operation worked is the 12 hotel would lease blocks of rooms to the various 13 tours; bus tours, van tours, airplane tours. And 14 then the tour companies would pick up the vehicle, 15 get payment, transport them to Las Vegas, give them 16 the keys, and they would go to the rooms in the 17 block of rooms. So it completely bypassed the hotel 18 process. 19 MS. YEE: So that was really a temporary 20 situation? 21 MR. HYATT: I was living there, and I 22 believed the two-and-a-half weeks was permanent, 23 because I intended to stay there. I didn't have a 24 place to say, and I would hope that that was so. It 25 was no -- it's almost irrelevant, because there 26 wasn't any income in that period of time. 27 MS. YEE: Okay. We're just trying to 28 establish where you had domicile or -- and then the 163 1 Wagon Trails apartment for the six months, 2 subsequently. Anything -- you didn't have any 3 contemporaneous documents that would indicate that 4 you actually moved into the apartment? 5 MR. HYATT: Oh, absolutely not. 6 MS. YEE: Because? 7 MR. HYATT: I have -- I have several 8 agreements that were done. And the first one is 9 signed in October 8th, I believe. Another one 10 before I left on my trip about the October 14th. I 11 then have additional documents that were signed on 12 October 21st -- 13 MS. YEE: I'm sorry. Back up for me a 14 little bit. I lost you there. 15 So I had asked whether you had any 16 contemporaneous documents to support that you 17 actually moved into the apartment, and you're 18 talking about agreements signed. So -- 19 MS. HARKEY: I think he means absolutely, 20 yes, he did. 21 You said absolutely not, that you did not 22 have documents. But you started -- 23 MS. YEE: Explain what these agreements are 24 that you're referring to. 25 MR. HYATT: The agreements for the lease of 26 the apartment, and then there was another agreement 27 that we signed and was witnessed on October 21st 28 when I actually took possession of the apartment. 164 1 The licensing agent has filed a 2 declaration, and there are other declarations of, as 3 I said in my timeline, of five people testified that 4 they had visited me in my apartment in October, two 5 for '91 testified to staying overnight at my 6 apartment for about five days. 7 MS. YEE: Were there any contemporaneous 8 documents from that time, or are these all after the 9 fact? 10 MR. HYATT: My payments to Wagon Trails, I 11 produced these to the FTB. And I -- and I had 12 utilities. The -- in particular the telephone and 13 the electric company bills -- checks. And the, as I 14 mentioned, the water and trash were included in the 15 apartment rental. 16 MS. YEE: Okay. 17 Franchise Tax Board, do we have -- 18 MR. HYATT: Excuse me, Your Honor -- 19 MS. YEE: -- contemporaneous documentation 20 on the Wagon Trail? 21 MR. HILSON: None. None whatsoever. 22 MS. YEE: All right. Let me try to piece 23 together some other pieces, Madam Chair, with this 24 last series of questions for Mr. Hyatt. 25 With respect to getting established in 26 Nevada, speak to us about when you took care of 27 affairs like re-registering your vehicles and 28 re-registering to vote. 165 1 MR. HYATT: Yes. I got my driver's license 2 and my voter registration, I think it was in 3 November when my son and I went to the Nevada DMV. 4 My son had tried to get my old car -- what he called 5 smogged, passing the smog test. So I couldn't get 6 that registered at that time. So it wasn't until he 7 came back in later months and did get it smogged 8 that I got it registered. 9 However, in the interim, during the 10 disputed period, I purchased a brand new car, which 11 was registered in Nevada and insured in Nevada. 12 MS. YEE: Okay. And then how about your 13 voter registration? 14 MR. HYATT: I got my voter registration in 15 November, the same time I got my driver's license. 16 And I voted in the next election. And for a whole 17 group of elections subsequent to that in Nevada. 18 None in California. 19 MS. YEE: I think we've got some 20 discrepancy on some of the dates -- voter 21 registration. 22 MR. HILSON: We -- we are aware that Mr. 23 Hyatt registered to vote sometime in November. He 24 also registered a vehicle at that time. However, 25 DMV records in California show his driver's license 26 remained in effect in California until 1993, as did 27 the registration of his car. 28 MR. HYATT: Your Honor, that's absolutely 166 1 untrue -- absolutely untrue. There is no documents 2 in California that I have ever seen that said that 3 I -- that my driver's license remained in tact in 4 California. 5 I want to tell you what really happened. 6 When I went to the Nevada DMV, I filled out the 7 paperwork, and I got a -- well -- and they took my 8 California driver's license. They asked to see it, 9 and they took it, and they put it in a box. And I'm 10 lead to believe they sent that box back to 11 California. They would not give me a Nevada 12 driver's license until I turned over my California 13 driver's license. And there cannot be anything that 14 says that my California driver's license was still 15 in tact. California may not have made a record of 16 the fact that I turned over my California driver's 17 license, but I did. 18 So it's a -- it's -- it's, at best, 19 misrepresenting what actually happened, and at 20 worst, a falsehood that my California driver's 21 license was still in effect. 22 MS. YEE: Okay. And then the last 23 question, if I could. 24 So the relationship that you had with 25 Philips going forward, I thought I had heard you 26 speak to us about giving Philips full authority to 27 take over the licensing plan, is that correct? 28 MR. HYATT: Yes, Your Honor. Slightly 167 1 different if I might put it in the licensing words. 2 I gave them full authority. I'm sorry -- 3 I'm sorry -- the word that they use is exclusive 4 authority to sublicense my patents. There were two 5 facets to it. I gave Philips a license to use it, 6 which had much of the exclusivity with it. 7 No, I'm sorry. I gave Philips a 8 nonexclusive license to use it. It had to be 9 nonexclusive to sublicense it to others. And then I 10 gave them exclusive authority to sublicense to 11 others. And I couldn't even license my own patents 12 after that, because they had exclusive authority to 13 sublicense it. 14 And then they gave Mahr Leonard, who was 15 working for them, exclusive negotiating rights, and 16 Mahr Leonard is the one who went out and negotiated 17 the licenses for 1991. They had only a short 1991 18 period. 19 So here there are two exclusivities that 20 I -- that I respected, because these were great 21 licensing entities. And I would have been in breach 22 of both of them if I had any kind of a licensing 23 business going. 24 MS. YEE: So you were completely out of it? 25 You had no exercise or control at that point? 26 MR. HYATT: Your Honor, I -- I had to be in 27 the loop because I was the inventor, and they had 28 obligations to me to report on their income, keep me 168 1 informed as to what they were doing, give me 2 quarterly financial statements, and a whole bunch of 3 other things. And I was the inventor, and a lot of 4 the licensees wanted to meet the inventor. And I 5 cooperated on that. 6 So I can't say I was completely out of the 7 loop. I actually was. But I was in the loop as the 8 inventor, and I was in the loop to help Philips in 9 doing things like they wanted me to sign agreements, 10 and in a few cases to distribute funds for them. 11 MS. YEE: So you were still making, I 12 guess, judgments about terms and conditions of some 13 of these sublicenses? 14 MR. HYATT: No, Your Honor. They were 15 drafted by Mahr Leonard. And actually there's a 16 real good chain of correspondence. Mahr Leonard 17 sent the -- negotiated the agreement which they had 18 exclusive rights to do, and they sent the negotiated 19 agreement to Philips, and Philips approved them as 20 they required in the Mahr Leonard agreement. 21 And then Philips, for the ones they wanted 22 me to sign, sent me a letter with the license 23 agreement in saying, "Here is a draft license 24 agreement that -- and we approve it. Please sign it 25 and send it to Mahr Leonard." 26 MS. YEE: So you didn't have to exercise 27 any judgment or control, those were satisfactory to 28 you? 169 1 MR. HYATT: Not only did I not have to, I 2 couldn't, because Philips was very, very strict on 3 what they permitted me to do. And I followed that 4 to the letter. Because, Your Honor, I had the 5 greatest licensing people in the world working on 6 this. Philips had worldwide licensing, worldwide 7 organizations with great licensing people, including 8 in Japan. And Mahr Leonard had a tremendous success 9 with others, not with mine, in licensing. I was so 10 thrilled to get these people to take over my patents 11 and to try and license them. 12 And Philips even told me -- and this was 13 part of the arrangement and the agreement -- that 14 they expected years of litigation, of patent 15 litigation before they would get any income. And 16 they even arranged to have ten years of payments to 17 me until they got licenses of a certain amount. So 18 I had ten years of support if they with weren't able 19 to license them soon. 20 MS. YEE: Mr. Hilson, your understanding? 21 MR. HILSON: Entirely different. The -- 22 and I'm looking at the agreement with Philips, 23 article two talks about the license to Philips. At 24 the risk of oversimplification, it's entirely 25 nonexclusive as to all 23 patents. 26 Article four deals with sublicensing 27 rights. And if I may quote, "I hereby grant to 28 Philips the right to license others on a 170 1 nonexclusive basis under all licensable patents, 2 under all fields of use, and the exclusive right to 3 license others on a nonexclusive basis under 4 computer patents." 5 Computer patents is defined at Section 1.1 6 of the agreement, and it itemizes thirteen patents. 7 I won't bore you with all of the numbers. As I 8 pointed, the -- so there's only exclusive rights 9 with respect to nine. 10 As I pointed out in my presentation, every 11 one of the contracts I talked about this morning 12 involves 24 patents, not 23. The 24th patent is 13 included in the contract under the list of excluded 14 Hyatt patents in Article 10. The very last one of 15 them that is itemized is Patent No. 4954951. You 16 will find the 951 patent in every one of those 1991 17 contracts. 18 The significance of it is that every one of 19 these contracts contained a waiver of rights of the 20 contracting party of rights to go after the Japanese 21 corporation involved for prior patent infringement. 22 Philips could not give that waiver with respect to 23 the 951 patent. Mr. Hyatt had to be involved, had 24 -- Mr. Hyatt had to sign those contracts. 25 MR. HYATT: Your Honor, there were several 26 very, very bad misrepresentations. May I be 27 permitted -- 28 MS. YEE: Actually, no, I'm fine. 171 1 Mr. Hilson was actually referring to the agreement 2 which was clarifying the question I asked. 3 That's all I have for now, Madam Chair. 4 Thank you. 5 MR. HYATT: Your Honor, may I -- 6 MS. HARKEY: Thank you -- 7 MR. HYATT: -- the misrepresentations? 8 MS. HARKEY: You'll get another 9 opportunity, sir. There's still more Members. 10 Member Horton. 11 MR. HYATT: Thank you. 12 MR. HORTON: Thank you, Madam Chair. 13 My question sort of goes to changes in 14 domicile and residence first. And I do sort of draw 15 distinction there. I don't know that residency is 16 dispositive to the issue in front of us necessarily. 17 But question of the appellant, you know, at 18 what point do you believe that you had established 19 domicile in Las Vegas and relinquished your domicile 20 in California, and what actually took place? 21 And I ask that question in content, and ask 22 if you can tie that into the timeline in which the 23 transactions between Philips or the deals were 24 consummated, so that -- when I say consummated, I 25 mean that the revenue was actually received. 26 Because that's the point in time in which the tax is 27 triggered. 28 So the question becomes where did you have 172 1 domicile and when the revenue was actually received? 2 MR. HYATT: Thank you, Your Honor. 3 First of all, my attorneys determined that 4 it was my change of domicile was September 26, 1991 5 based upon two things: Intent, they told me. And 6 my intent went back to 1990. But I didn't have a 7 place to lay my head, as they put it, in Nevada 8 until mid -- late September 1991. 9 So that is the time that they chose as my 10 change in domicile when I had both the intent and a 11 place to lay my head. 12 Relative to the timing with Philips, I had 13 arranged to -- I had transferred the licensing 14 rights for the patents to -- to Philips in July, 15 1991. And it's my -- but I did not transfer the 16 ownership of the patents, which I did not sell them 17 to patents. I did not sell Philips the patents. I 18 gave a -- what is a very common in the field, if I 19 might tell you, Your Honor, I gave a license to 20 patent to Philips to use the patents on a 21 nonexclusive basis, and a right to sublicense the 22 patent, exclusive rights to sublicense the patents 23 to other entities on a nonexclusive basis. 24 And that's where non-exclusivity comes in. 25 Because if Philips had an exclusive, then that would 26 have interfered with the sublicensing. If they had 27 exclusive rights. And if the -- and they had to 28 license the sublicenses on a nonexclusive basis so 173 1 they wouldn't lose their licensing rights when you 2 give exclusive rights. 3 So even though it sounds bad that the 4 agreement said nonexclusive, nonexclusive, that's 5 part of the process. But the important -- the 6 licensing process, you can't keep the rights to 7 license when you give someone else an exclusive 8 thing. Except I gave Philips exclusive authority to 9 sublicense the patents. And that was confirmed by 10 several letters that they had me sign to sublicenses 11 confirming that they had exclusive authority to 12 license those patents to those sublicenses. 13 MR. HORTON: So presuming that you had 14 control over the licensing, presuming, why not delay 15 the consummation of the deal to correspond with the 16 time you purchased a home or correspond with the 17 time you leased the property? 18 I mean, it seemed to me if your intent was 19 to -- was to minimize your tax liability and you had 20 control over it, if you had no income, it wouldn't 21 be a taxable event. 22 MR. HYATT: Well, the facts are a little 23 bit more complex than that. But basically Philips 24 did make a payment to me when they took the license 25 in July. And I fully declared that -- 26 MR. HORTON: And that payment was in 27 October 18th; is that correct? 28 MR. HYATT: The first license agreement was 174 1 with Philips. And they made a payment in July 1991. 2 And I declared that on my tax return and paid taxes 3 on it. 4 Then sublicensing started up in -- I think 5 the first ones were in October, November, and then 6 December. 7 So there were two levels, the Philips 8 license, which came earlier, and Philips was 9 sublicensed to others that came later. 10 MR. HORTON: To the sale of your home, when 11 you sold the home, I believe it was your testimony 12 that you carried the note; is that what you were 13 trying to say? 14 MR. HYATT: That's correct. I had a note 15 and a trust -- I'm not familiar with the term -- 16 trust something or other -- 17 MR. HORTON: Deed of trust. 18 MR. HYATT: Deed of trust. 19 Your Honor, I didn't finish answering your 20 other question because I got sidetracked. May I 21 answer that, which would keep me from delaying? 22 MR. HORTON: Sure. 23 MR. HYATT: Your Honor, you must understand 24 my condition back in those days. I was in a very 25 difficult interference proceeding. Philips took 26 that over. I couldn't afford to do that myself. I 27 -- Mahr Leonard had totally failed to license my 28 patents, and, therefore, I needed to get Philips to 175 1 take over responsibility for the interference 2 proceeding to pay off all the bills that I owed on 3 that, which they took on as part of the agreement. 4 And they told me that -- 5 ---oOo--- 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 176 1 ---oOo--- 2 MR. HORTON: Sure. 3 MR. HYATT: -- what would keep me from 4 delaying? 5 MR. HORTON: Sure. 6 MR. HYATT: Your Honor, you must understand 7 my condition back in those days. I was in a very 8 difficult interference proceeding. Philips took 9 that over. I couldn't afford to do that myself. 10 I, um -- Mahr Leonard had totally failed to 11 license my patents, and therefore I needed to get 12 Philips to take over responsibility for the 13 interference proceeding, pay off all the bills that 14 I owed on that, which they took on as part of the 15 agreement. 16 And, um -- and they told me that I -- that 17 there'd be years of litigation before they were -- 18 would expect to get licenses. So in my state of 19 mind at that time, there was nothing immediate other 20 than Philips taking on the responsibilities, taking 21 them off my shoulders. And I couldn't afford them, 22 the licensing -- the interference program litigation 23 was very expensive. And it gave me the opportunity 24 to move to Las Vegas and create a new life. 25 I was in actually very difficult emotional 26 situations in 1990, with all those things I told you 27 about, and then in 1991 with the interference being 28 a horrible load on my shoulders, and the Mahr 177 1 Leonard licensing activities, which I had engaged 2 them earlier having failed. 3 So I was real anxious to have Philips take 4 it over. And I was still a frugal inventor and, 5 um -- and some people think I still am. I'm a child 6 of the depression generation. And the, um -- my 7 expectation was I wanted to get licenses. I didn't 8 want to avoid taxes. 9 Taxes are -- I've always paid my taxes, and 10 taxes are a reasonable part of life. The thought 11 was not to avoid taxes. The thought was to get the 12 burden of the interference and the licensing off my 13 shoulders and to get -- and to start up a new 14 life. 15 MR. HORTON: Okay. Your stay at the 16 Continental Hotel, what -- do you have any 17 documentary evidence that you stayed there? You've 18 testified that you had the lease and you consummated 19 the lease. Any other document; utility bills that 20 you paid? 21 MR. HYATT: Yes. 22 MR. HORTON: Anything else? 23 MR. HYATT: I'm sorry. Your Honor, may I 24 correct it? I stayed at the Continental Hotel, and 25 then I moved into Wagon Trails. 26 MR. HORTON: Apologies. I mean it was 27 Wagon Trails. 28 MR. HYATT: And that's -- and it was Wagon 178 1 Trails Apartments that I had the, um -- the lease 2 documents, six-month lease. 3 MR. HORTON: And, to the Department, how do 4 you refute those documents? 5 MR. HYATT: Say that again, Your Honor? 6 MR. HORTON: How do you -- how do you -- 7 MR. HILSON: There are no documents. 8 MR. HORTON: There are no lease agreements? 9 MR. HILSON: Well, we've got the lease 10 agreement. The lease agreement says it starts 11 November 1st, maybe with early occupancy as early as 12 October 20th. That's what it says. But on the 13 doc -- on the lease documents itself you see it's 14 faxed into California, to the -- to the fax machine 15 at Jennifer Circle. 16 MR. HORTON: I'll get to that later. But 17 you have a copy of the lease documents. 18 MR. HILSON: Yes. 19 MR. HORTON: Showing that he leased the 20 property. Now whether he -- 21 MR. HILSON: Correct. 22 MR. HORTON: Whether he -- 23 MR. HILSON: Whether he was there -- 24 MR. HORTON: -- established permanent 25 residency is another question. 26 MR. HILSON: And things like utility bills, 27 where are the phone bills? Where -- where -- any of 28 that. None of it's ever been produced. 179 1 MR. HORTON: Those documents don't exist? 2 MR. HILSON: Correct. 3 MR. HORTON: To -- 4 MR. HYATT: Your Honor, that's only a part 5 of the story. Those documents don't exist. But I 6 have my checks to the electric company and to the 7 telephone company, and I produced those. 8 MR. HORTON: Have those been provided to 9 the Department? 10 MR. HYATT: Oh, of course, Your Honor. I 11 gave them both good and -- 12 MR. HORTON: Those aren't considered -- 13 MR. HILSON: We find them in round numbers, 14 like a hundred dollars. 15 MR. HORTON: But the payee is the -- 16 MR. HILSON: Yeah, the payee is the utility 17 company. For what service or what or when, what 18 property is not identified. 19 MR. HYATT: But there is a Nevada utility 20 companies. 21 MR. HORTON: No, I get it. 22 MR. HYATT: I mean, it's either Nevada 23 apartment or California house. There is nothing 24 else in the case where they indicate I might have 25 stayed. 26 MR. HORTON: You received several pieces of 27 communications at your San Diego -- at the San Diego 28 site. 180 1 MR. HYATT: Your Honor, I'm a little bit 2 hard of hearing and you're very soft-spoken. 3 MR. HORTON: Apologies. 4 You received several communications in 5 California, to your La Palma site, from the Philips 6 investment company and others. Was any of those 7 communications revert -- I mean sent -- re-sent to 8 you or -- 9 MR. HYATT: Um -- 10 MR. HORTON: How did you -- did you 11 ultimately receive those? Or did the person -- I 12 don't want to put words in your mouth. So, how -- 13 were those documents ever redirected elsewhere? 14 MR. HYATT: Your Honor, many of the faxes I 15 received on my fax machine in Las Vegas. 16 MR. HORTON: You have evidence of that? 17 MR. HYATT: No. Because I was in a -- in 18 an apartment and trying to get situated, I didn't 19 save those papers. I didn't start saving the papers 20 until Mr. Kern, my CPA, told me that that was 21 important. I didn't think that was important and I 22 wasn't careful. 23 MR. HORTON: Did -- 24 MR. HYATT: I'm sorry. 25 MR. HORTON: Apologies. The documents sent 26 to California, were they redirected elsewhere? How 27 did you ultimately receive those? Those are 28 important documents. How did you -- 181 1 MR. HYATT: I had a change of address with 2 the post office to the Jennifer Circle house. And 3 all the things that were sent to the Jennifer Circle 4 house by the post office came to me in Nevada. And 5 I produced examples of that -- the envelopes that I 6 had, was able to preserve after Mr. Kern told me to 7 do so, with the post office's change of address on 8 there. 9 MR. HORTON: Let me make sure I understand 10 your testimony. 11 Documents were sent -- let's say Document A 12 was sent to the California location and it was never 13 redirected anywhere. You just put in a notice of 14 change of address with Philips and they sent you 15 Document A to another address in Las Vegas? 16 MR. HYATT: Your Honor, let me explain that 17 a little bit better. I'm sorry I confused you. 18 In addition to the change of address to 19 Philips where I did get documents in Las Vegas but 20 don't have copies of them, because as I explained I 21 was in a -- I wasn't careful, I also received faxes 22 in Las Vegas. And I -- and the most relevant one, I 23 put in a change of address to my -- to the post 24 office to redirect the mail from my -- that was sent 25 to the Jennifer Circle house, redirect that to Las 26 Vegas. And what happened is I got a bunch of mail 27 that was addressed to the Jennifer Circle house, but 28 it had stickers from the post -- from the office on 182 1 it that redirected it to my Nevada address. 2 MR. HORTON: Do you have those documents? 3 MR. HYATT: I have many of them. 4 MR. HORTON: And you've provided them to 5 the FTB? 6 MR. HYATT: Yes. 7 MR. HORTON: FTB? 8 MR. HILSON: Not a one. We don't see -- as 9 I said in my presentation, we have not seen one 10 piece of forwarded mail during 1991. We don't see 11 any until after April of 1992. 12 MR. HYATT: Your Honor, may I answer that? 13 I engaged my Nevada CPA, who is still my 14 CPA after 26 years, in mid-March 1992. And he 15 advised me to save those documents. I had not been 16 saving them since. So therefore, it would have 17 started the -- all of my mail and my envelopes, 18 redirected envelopes and all of that, I started 19 saving when Mr. Kern advised me to do so, in March 20 '92. 21 MR. HORTON: Okay. 22 MR. HYATT: That's -- that's why he doesn't 23 have -- the FTB doesn't have earlier ones, because I 24 wasn't saving them. I didn't realize I needed 25 them. 26 MR. HORTON: If I understand FTB's 27 testimony, these are documents that indicate that 28 you are -- very important transactions, that -- 183 1 Maybe I'll just ask the question. 2 FTB, what were the documents that were sent 3 to California? 4 MR. HILSON: Well, there are any number of 5 telefaxes that is -- or correspondence on a daily 6 basis or a near daily basis, going both ways, in and 7 out. But significantly, the originally signed 8 contracts by the Japanese companies, such as Oki and 9 I believe Matsushita, are signed -- signed wherever 10 in Japan, and then they're sent to Jennifer Circle. 11 And these contracts are signed by Mr. Hyatt. 12 There's no -- there's no indication of Philips 13 anywhere in any of them. Somebody had to tell the 14 Japanese corporations to send those documents back 15 to Jennifer Circle. 16 MR. HORTON: No, that's -- that's -- that's 17 really not my concern as to what the communications 18 was between the parties. I'm trying to -- 19 MR. HYATT: But, Your Honor, it's such a 20 misstatement. 21 MR. HORTON: -- kind of focus on what the 22 actual facts are. 23 So this particular document between the 24 Japanese company, do you have it in your possession? 25 MR. HYATT: Excuse me, Your Honor. Do I 26 have what? 27 MR. HORTON: The document that the 28 Department is referencing that was sent to the 184 1 La Palma location, codifying the transaction between 2 the Japanese company, I believe, Philips? 3 MR. HYATT: The -- I'm sorry. 4 MR. HORTON: Do you have that document? 5 MR. HYATT: I have a lot of documents, but 6 they weren't sent there. 7 What happened, the protocol was this: Mahr 8 Leonard would negotiate the agreement. When it 9 was -- then they would send it to Philips to 10 approve. Philips would then send me a draft, what 11 they called a draft, that was approved and asked me 12 to sign it for -- not -- there was -- and there was 13 no Japanese company signature on it. Absolutely 14 none. 15 So there -- and I then took that draft 16 agreement that I signed and I sent it to Mahr 17 Leonard, because they were going to go to Japan and 18 use that as authority to indicate that they were 19 authorized. 20 The surprise here -- and it's not funny, 21 it's very serious -- the surprise is the Japanese 22 companies took those agreements and said this is too 23 good to lose because they got a fantastic paid-up 24 licensed deal, and they signed these draft 25 agreements that I had signed to support -- 26 MR. HORTON: Apologies, but it's not -- I'm 27 not really asking the question. It's kind of like a 28 yes or no. 185 1 MR. HYATT: Excuse me, Your Honor. And 2 then they sent them to, um -- to Mahr Leonard, not 3 to me. 4 MR. HORTON: Okay. 5 The change of address. Philip has provided 6 an affidavit that there was -- that they received a 7 change of address. And as I understand the 8 testimony of the Department, is that they actually 9 questioned Philip -- or I mean -- excuse me, on the 10 change of address. 11 Did -- do you have a statement from them 12 that the -- of any sort, that the original affidavit 13 was incorrect? 14 MR. HILSON: I have their files -- 15 MR. HORTON: For the timeline in which they 16 received it? 17 MR. HILSON: I have their files. There's 18 nothing in there in the way of change of address 19 until April of 1992. 20 And as I indicated, Mr. Tamoshunas has 21 testified that his staff was competent. And every 22 time we tried to drill down into the substance of 23 his affidavit, we got an "I don't remember. It was 24 20 years ago." 25 MR. HYATT: He's muddying the water. Well, 26 I'm not sure what this April '92 is. But the, um -- 27 I gave -- 28 MR. HORTON: I mean -- apologies. 186 1 MR. HYATT: I'm sorry, Your Honor. 2 MR. HORTON: I mean it seemed that the 3 Department could've just had him sign a document 4 saying that we didn't -- I did not testify or I 5 didn't -- don't agree that he received a change of 6 address. That didn't occur. We just -- 7 I mean because we're not really privy to 8 the questions that were asked and how they were -- 9 MR. HILSON: And I'm not going to sit here 10 and tell you what -- 11 MR. HORTON: And so -- if I may -- 12 MR. HILSON: I'm sorry. 13 MR. HORTON: -- with your permission. 14 So we're left to rely on the actual 15 documentation that evolved from the conversation. 16 And it would seem to me that if the objective was to 17 rebuke that, that the documentation -- some sort of 18 document would have evolved to say, "No, that's not 19 the case, I was wrong." 20 MR. HILSON: And I don't have that. 21 MR. HORTON: Okay. 22 MR. HYATT: Your Honor, I feel -- I'm 23 compelled to comment on that. Because that is not 24 on this and this alone. It is the whole case that 25 is permeated with this. And I'd like to make a very 26 short statement on that. 27 MR. HORTON: Please. Focus on the short 28 statement. 187 1 MR. HYATT: My -- my attorneys have worked 2 very, very, very hard to get what they call direct 3 evidence and eyewitness testimony and expert 4 testimony under penalty of perjury and oath and 5 authenticated documents and all. And these have all 6 been presented, as such, to the FTB. 7 The FTB has done it totally different. 8 They've essentially said -- they've -- what they 9 have actually done is they have not provided any 10 direct evidence. They have taken documents and they 11 have interpreted them by their tax attorneys as if 12 their tax attorneys are experts and, uh -- and 13 interpreted them always -- I -- I would like to say 14 a hundred percent of the time -- in their favor 15 against me. Not giving me a single, um -- positive, 16 and misrepresenting them. And only as FTB -- mostly 17 is either FTB attorneys arguing it or as paid 18 private investigators who my witnesses have said are 19 misrepresented the facts. 20 MR. HORTON: Did the, um, FTB -- did the 21 Department seek to cross-examine any of witnesses 22 mentioned by the appellant? 23 MR. HYATT: May I answer that, Your Honor? 24 There are 20 of them. 25 MR. HORTON: Thank you. 26 MS. HARKEY: Sir. 27 MR. HORTON: And if -- 28 MR. HYATT: I apologize. 188 1 MR. HORTON: If I may continue. 2 And if so, how many did they cross-examine 3 and what was the results of that activity? 4 MR. HILSON: We took depositions of 5 somewhere between 10 and 20 of these affiants. 6 We got things like they were being 7 approached by Mr. Hyatt, trying -- and asked to 8 recreate memories. 9 The first few depositions that we took, we 10 got some information out of these -- these people. 11 As it progressed, these people all of a sudden were 12 being represented by attorneys, all of which were 13 associated -- the attorneys always represented with 14 Mr. -- associated with Mr. Hyatt. 15 The level of cooperation within the 16 depositions kept deteriorating to the point where 17 when we started to get to the nitty-gritty, they 18 would be instructed not to answer questions. 19 So really, it became an exercise in 20 futility and we stopped doing it. 21 MR. HYATT: Your Honor, that's a 22 misrepre -- there are several misrepresentations. 23 Please give me a chance to respond to them. 24 MR. HORTON: Twenty out of how many? 25 MR. HILSON: Two hundred and 26 thirty-nine dec -- 239 affiants -- affidavits. 27 There are -- the -- of that total, there are 28 multiple by several people. I couldn't tell you off 189 1 the top of my head, sir, the number of individual 2 affiants. 3 MR. HORTON: The affidavits seemed to fall 4 into certain categories where there are 77 from this 5 category, 26 from this category. 6 Was the, um -- the affidavits that you 7 examined, were they representative of each question, 8 each concern? Or were they just random? 9 MR. HILSON: From my perspective, they were 10 random and designed to fill holes in the story. 11 MR. HYATT: Your Honor, may I speak? 12 MR. HORTON: Sure. 13 MR. HYATT: First of all, the objections 14 that the FTB was getting were not objections because 15 of trying to withhold information. They were 16 objections specifically to privileged information. 17 These witnesses had engaged their own 18 attorneys who helped them write their declarations. 19 And any -- and the objections were when the FTB was 20 getting into privileged information. 21 So it's a misrepresentation that we were 22 withholding -- if the implication is we were 23 withholding information. 24 MR. HORTON: The Department's testified 25 just now that these lawyers were -- or implied that 26 these -- and apologies if I'm wrong -- that these 27 lawyers were somehow associated with you, that began 28 to represent these individuals. What say you to 190 1 that? 2 MR. HYATT: Your Honor, that's a -- that's 3 a correct statement. However, the incor -- the 4 thing they don't say is that these attorneys were 5 engaged by the -- by the witnesses because they knew 6 the case and it was convenient. They were engaged 7 by the witnesses, and their duty was to the 8 witnesses as attorneys representing them, not to 9 me. 10 MR. HORTON: You wouldn't know the answer 11 to this question unless you were a person that did 12 it, but who paid for the attorneys? 13 MR. HYATT: I did, Your Honor. I did. But 14 here I was up against a problem with witnesses who 15 were being intimidated by the FTB. One of them, 16 you'll hear about. And in fact it was a notary. 17 She testified that I was afraid for my life and for 18 my family because of the -- because the FTB told her 19 that I was an important person, showed her pictures, 20 and, uh -- and then said and I did not like people 21 saying things about me. 22 They -- and she said I was scared to death 23 and I was afraid for my family. 24 So, um, there is -- 25 MR. HORTON: Thank you, Madam Chair. 26 That's it for now. 27 MS. HARKEY: Thank you. 28 Member Ma, do you have any questions? Or 191 1 would you like -- 2 Okay. I have -- I have just one point of 3 clarification. It looks like -- 4 MR. RUNNER: I do have. 5 MS. HARKEY: -- Member Runner's got one. 6 Back in '91/'92, the headers on fax 7 machines -- I have on good authority -- were 8 something that you really had to change yourself. 9 That the 213 being sent to a Nevada address, if you 10 had moved your fax, you would have had to change 11 your own header. 12 So it goes to the point of some these faxes 13 going back and forth. If you can look at, review 14 these documents that the FTB has with all of the 15 faxes, did you respond to those faxes? Because I'm 16 not sure the header on the top is conclusive back 17 then, as to where they actually went. If you took 18 your fax machine with you to Las Vegas and did not 19 in fact change your header, it would probably still 20 indicate the 213. 21 MR. HYATT: Your Honor, the, um, faxes 22 before my move did have 213, or whatever the phone 23 number was. But after my move, when I moved, I 24 changed it to delete the header. So they -- the 25 ones after my move have been changed, but I believe 26 that they don't -- they're not informative other 27 than the fact that they've been changed because I 28 did move. 192 1 MS. HARKEY: Okay. Well, I guess my 2 question is when these faxes came to -- not mail, 3 but when the faxes came to the 213 number, how did 4 you get notified of anything? 5 MR. HYATT: Some of them I never did 6 receive, I believe. Other ones were given to me or 7 sent to me by the purchaser. 8 MS. HARKEY: Okay. I'm going to come back, 9 but let me -- 10 MR. HORTON: Madam Chair, I just want a 11 point of clarification on my question. The question 12 about who paid for it was just -- was not to imply, 13 because I don't believe that the person who 14 actually -- who paid for it is dispositive of their 15 representation. The attorney's required to 16 represent their client and irrespective where the 17 compensation came from. 18 I just wanted to -- clarification as to 19 what was the reason that they requested a lawyer, 20 from your perspective. 21 MS. HARKEY: Okay, thank you. 22 Member Runner? 23 MR. RUNNER: Yeah, just to follow up on 24 some comments that were made earlier, and going back 25 to the lease and utility issue, payments on the -- 26 at the apartment. Because, again, I was trying 27 to -- I was getting some different -- kind of 28 different indications. At first I thought I heard 193 1 FTB say that there was no documentation. And then 2 later you came back and said that there was. There 3 was a lease, correct? 4 MR. HILSON: Yeah, we've always -- we've 5 always acknowledged the lease. 6 MR. RUNNER: Okay. So he had a lease, and 7 there were utility payments. Were those 8 contemporaneous utility payments? 9 MR. HILSON: There's -- there are checks 10 that would be contemporaneous. 11 MR. RUNNER: And who were those checks made 12 out to? 13 MR. HILSON: They were made out to Nevada 14 entities. What they were -- 15 MR. RUNNER: Nevada utilities? 16 MR. HILSON: Yes. Whether they had 17 anything to do with this particular property or not, 18 we don't know. We've never seen any of the bills. 19 MR. RUNNER: I'm a bit amused right now 20 because you want evidence from the taxpayer that he 21 had utilities paid for, and now you're saying, "You 22 give us your check and now we don't even know if 23 that's a relevant check to a utility company." 24 How does he win that argument? 25 MR. HILSON: Well, we've got -- as we move 26 into the purchase of the house, we find, number one, 27 that the house is in the name of Mr. Kern, a Kern 28 Trust, and we find the utilities are in the name of 194 1 Grace Jeng. 2 It's -- all we ever asked for was an 3 electric bill or a phone bill. 4 MR. RUNNER: Well, hold on. Again, bills 5 are harder to find than checks usually. I mean it's 6 hard to reconstruct a bill. But a check, you can go 7 back and get from your bank. 8 So -- so, again -- 9 MR. HILSON: Yes, we have checks. 10 MR. RUNNER: Okay. And so -- and so you 11 would believe that those would be being presented by 12 the taxpayer fraudulently? 13 MR. HILSON: No. 14 MR. RUNNER: Oh, okay. Then they are 15 okay. 16 MR. HILSON: There are some contemporaneous 17 evidence. As I said, when they're in round amounts 18 of hundred dollars, they sound like a deposit. They 19 don't sound like -- 20 MR. RUNNER: He deposited money to a 21 utility? 22 MR. HILSON: A security deposit in advance, 23 as opposed to a monthly bill. 24 MR. RUNNER: So you would say that they 25 made a deposit, so they turned on the utilities. 26 MR. HILSON: Something showing actual 27 possession and usage. 28 MR. RUNNER: They turn on the utilities, 195 1 potentially with a deposit. And then what? Then 2 there were no more costs -- I've never heard of 3 that. 4 See, even if you have a -- even if you 5 never use your apartment or your utility, you still 6 get a bill for it. It's never zero. 7 MR. HILSON: And it's very rarely an even 8 hundred dollars. 9 MR. RUNNER: Right. But I think what 10 you're telling me now is it may have been a 11 deposit. 12 MR. HILSON: Exactly. An initial 13 deposit. 14 MR. RUNNER: A deposit that never then 15 opened up any utility? 16 MR. HILSON: From there, it becomes very 17 squirrely. It -- I would -- I would -- 18 MR. RUNNER: There are lots of squirrely 19 things about this case, aren't there? 20 MR. HILSON: I would like -- I would like 21 to be able to sit there -- sit here and tell you, 22 "We saw the deposit and we were able to track out 23 payments and pay-downs against the deposit" or 24 whatever. It wasn't there. 25 MR. RUNNER: Okay. Okay. 26 MR. HILSON: That's all. 27 MR. RUNNER: But the point was -- 28 MR. HILSON: That's my point. 196 1 MR. RUNNER: I guess the point for me is 2 that you had -- we had a contract and there were 3 some payments to some utilities. 4 Now we keep saying there's -- there was 5 like one for a hundred dollars. Was there more than 6 one? Were all the -- were they all for a hundred 7 dollars? Were they all even? 8 MR. HILSON: There's at least two for an 9 even hundred dollars. And those are the ones that 10 seemed like -- 11 MR. RUNNER: Were there more? 12 MR. HILSON: There may be. I honestly 13 don't know. 14 MR. RUNNER: Well, do you have -- you don't 15 know what you have? 16 MR. HILSON: I know we have tons of 17 checks. 18 MR. RUNNER: Okay. So there could be -- 19 you could have checks -- 20 MR. HILSON: Yes, we could have some. 21 MR. RUNNER: So you could have checks for 22 utilities that are not an even number? 23 MR. HILSON: Yes. 24 MR. RUNNER: Okay. 25 Let me ask you this -- 26 I guess I'm -- the other issue I'm 27 concerned about is, is there -- you seem to greatly 28 have -- again, for the FTB, like there -- I almost 197 1 feel like you're talking about a grand conspiracy 2 amongst those who gave affidavits. That somehow 3 they were all somehow in -- in -- in -- you know, in 4 the deal to cover up or to -- to -- to kind of 5 bolster the story by the taxpayer. 6 MR. HILSON: We have real problems with the 7 credibility of the affidavits. They don't start 8 showing up in any kind of meaningful fashion for 20 9 years. And then they come forward with great 10 detail, plugging holes in things that -- as it went 11 along, we would have affidavits allowing -- 12 MR. RUNNER: So you would believe that 13 there's a conspiracy there. 14 MR. HILSON: I don't want to use the word 15 conspiracy, but -- 16 MR. RUNNER: Did they -- well, let me -- 17 let me frame it this way then: You would believe 18 that they coordinated their efforts in order to 19 falsify the events that took place? 20 MR. HILSON: I believe that it's not 21 coincidental that the affidavits consistently plug 22 holes in stories or contradict. 23 MR. RUNNER: And you would believe that 24 these people coordinated their efforts? 25 MR. HILSON: Someone did. 26 MR. RUNNER: Okay. So that would be -- 27 wouldn't that -- isn't that, by definition, a 28 conspiracy? 198 1 MR. HILSON: I don't think so. 2 MR. RUNNER: Oh, okay. 3 I don't know. It just seems odd to me that 4 somebody would try to rebuild and you have so many 5 players that would be willing to kind of participate 6 at that point to -- to try to build that up. 7 Let me ask about the issue of -- what -- 8 what -- what was the delay -- what was the reason 9 for affidavits showing up later? What -- what 10 motivated you to need to do that? 11 MR. HYATT: Thank you, Your Honor. I was 12 preparing to present that. 13 The FTB did a secret audit. They didn't 14 request very much. We gave them what they did. 15 They never came up with a calendar during the audit. 16 And then decades later when they were before the 17 Board, your Board, they all of a sudden in their 18 reply brief, in their reply brief they came up with 19 a detailed calendar, a day-by-day calendar. They 20 never had a day-by-day calendar previously. 21 So they came up with it to sort of, if you 22 excuse the expression, to -- if I -- anyway, and it 23 essentially was a blindsiding type of move. 24 So here I have this calendar with 190 days 25 for two tax periods and with day-by-day detailed 26 made up stories. And I and my attorneys had to go 27 out and find tax -- to find witnesses and 28 documentation at this very late date who remembered 199 1 what had happened. And a lot of them didn't 2 remember. A lot of them had died. In fact there is 3 a Ninth Circuit case right now on latches on that 4 issue. 5 But, so we tried very hard to get evidence. 6 And we provided that evidence in response to the 7 FTB's delayed -- 8 MR. RUNNER: The evidence you're referring 9 to is the -- 10 MR. HYATT: The affidavits -- 11 MR. RUNNER: -- the affidavits. 12 MR. HYATT: -- and declarations, among 13 other things, in response to the FTB's very late 14 day-by-day calendar. 15 MR. RUNNER: Okay. Thank you. 16 MS. HARKEY: Okay. I'll take a few rounds 17 here and may come back. 18 I, first, am very interested in the 19 residency. That's where I started. And, to me, I 20 wanted to be very, very sure about the sale of the 21 house. I think that that's a key thing. Not that 22 the house is mandatory that the house be sold, but 23 because residency is not -- or domicile is not of 24 that requirement. 25 I believe the requirement is somewhat 26 different and I had that lined out. Okay. But I'll 27 get back to that because I've got so much paper here 28 now. 200 1 What I wanted to -- in September, 2 Mr. Hyatt, you said you paid off half of the 3 house. 4 MR. HYATT: Yes, approximately half. 5 MS. HARKEY: Okay. In December you paid 6 off the remainder of the mortgage. 7 Member Runner suggested that you were under 8 some contract of sale. And a contract can be oral 9 or written. 10 Did you have any particular contract? Was 11 there anything written between you Ms. Jeng or did 12 you just have the Grant Deed and the Deed of Trust? 13 MR. HYATT: Oh, there was agreements. For 14 instance, things that I would leave in the house. 15 And I also agreed to have some repairs made, 16 although the house was essentially sold as-is. 17 The, um -- the repairs were made and I did 18 pay for them. Things like the flooding basement and 19 the roof, I did not pay for. Those were very 20 expensive and I did not agree to pay for those. 21 The -- there -- let's see, um -- 22 MS. HARKEY: What about the payment -- 23 MR. HYATT: So there was essentially verbal 24 agreements. 25 MS. HARKEY: -- of the taxes? 26 MR. HYATT: I'm sorry, Your Honor. 27 MS. HARKEY: Did you pay the whole tax year 28 1991-'92; so you made a payment for the April 201 1 payment of taxes, you made that in the '91 year? 2 MR. HYATT: I believe what happened, Your 3 Honor, is that I paid half of the '91 tax year while 4 I was still in the middle of 1991. And I had agreed 5 to pay for the rest of the year with the purchaser, 6 who then took over the tax payments in 1992. 7 And in fact the tax assessors both checked 8 that out and verified that the purchaser had taken 9 over the property tax payments as of '92 through 10 when they signed their declarations. And she still 11 does it now. 12 MS. HARKEY: Okay. I -- I also reviewed in 13 depth the, uh -- the notary. It's not necessary, 14 according to either assessor and also according to 15 my knowledge, but I wanted to get something else 16 verified, that a Note and a Deed of Trust be 17 recorded; that's not necessary for a transfer of 18 title to take place. 19 It's considered transferred when -- and 20 actually I believe that the recordation is to 21 protect the grantee, not the grantor. It's to 22 protect their -- their -- their right to the 23 property. 24 I looked at the notary and I looked at her 25 acknowledgement, and I also looked at the book, the 26 notary's log on page 17. And it says 6/10/93 27 acknowledgement, 6/10/93 acknowledgement, Grant Deed 28 Hyatt and Jeng. 202 1 And then if you go across the page, it 2 tells the addresses. 3 And then page 37 on the Note -- or, excuse 4 me, page -- on page 18, which is the cross, the 5 section, it states here that the -- that there was 6 a -- the Deed was dated in '91, and although she 7 signs it here, she puts it in her book as of 8 6/10/93. 9 And when I read through her acknowl -- her 10 testimony, her declaration, she said she made a 11 mistake, she had notarized it as '93 in her book. 12 But actually, you know, it was '91 when she signed 13 it. 14 But that -- that kind of explains that 15 several-year gap. I do believe she's credible in 16 stating that. The document was already presigned. 17 She knew you from being a client in the bank, a 18 customer in the bank, and she probably took other -- 19 other items. 20 But so she relied -- what she probably 21 shouldn't have done is a pre-existing signature. 22 But nonetheless, these documents were signed in '91. 23 I think that Bradley Jacobs goes into, in 24 quite detail. He was the assessor or previous 25 assessor. And then the assessor, which was Webster 26 Guillory, verifies Mr. Jacobs' testimony, his -- his 27 declaration. And he says that, 28 "The Orange County Recorder's Office 203 1 required the signed Grant Deed to be 2 notarized prior to recording but it did not 3 require notarization of the Grant Deed for 4 the sale of the property. 5 "From the standpoint of the Orange 6 County Assessor's Office, the documents 7 show that the sale of 7841 Jennifer Circle 8 property was completed on October 1, 1991 9 by the delivery of the signed Grant Deed. 10 "Signed Grant Deed was notarized and 11 signed, and notarized Grant Deed was 12 recorded on June 16th, 1993. From the 13 standpoint of Orange County Assessor's 14 Office the recording constitutes a legal 15 recording on June 16th, 1993." 16 And it says, 17 "From the standpoint of the assessor's 18 office, title to real property could be 19 transferred without recording the transfer 20 title documents. I note the California law 21 states, 'An unrecorded instrument is valid 22 between the parties thereto and those who 23 have notice thereof.'" 24 The payoff of the First Trust Deed, it's -- 25 you know, generally lenders will require that if you 26 sell the property, you pay them off. Generally it 27 will require that. That's just kind of standard. 28 But the assessor didn't verify that, but he 204 1 did verify that the amount of the lien, the Trust 2 Deed was so low that the lender probably did not 3 choose to call the loan, if the lender even really 4 knew that you had sold the property. Because 5 without recordation and without notice to the 6 lender, to the mortgagor, which you -- it doesn't 7 appear that you did, the lender would not have 8 known. 9 So that's -- you know, that's how we got 10 noticed was we got a notice from a title company 11 that -- you know, because we were on the loan. 12 He says, "I know of no requirement that a 13 sale of property be recorded at all, much less that 14 it be recorded at the time of sale of the property." 15 And so the -- it says, "From the standpoint 16 of the Orange County Assessor, recording of the 17 Grant Deed in 1993 was proper." 18 They also go into the exemption, a 19 Homeowners' Exemption Termination Notice signed by 20 Mr. Hyatt on February 10th, 1992 for the sale of the 21 Jennifer Circle property. And he says that the 22 Homeowner Exemption Termination Notice did not have 23 to be filed to constitute a legal transfer. But he 24 did file it on February 10th, 1992, which was in -- 25 within the requirement. 26 The Homeowners' Exemption Termination 27 Notice is intended for the assessment of property 28 taxes, not to determine the legitimacy of the sale 205 1 of a property. 2 So the assessment of property taxes, notice 3 of termination was filed properly and within a legal 4 time frame as required. And that's why Ms. Jeng 5 became liable for the taxes then. 6 There's just a lot more in this declaration 7 that pretty much shoots down a lot of the argument 8 with regard to the house. 9 Grace -- Grace -- is it Jeng -- Grace Jeng 10 does seem to fill in blanks everywhere for 11 Mr. Hyatt. So, would you explain to me, Mr. Hyatt, 12 your relationship with her? 13 What -- why -- in her declaration, for 14 instance, you know, there's talk about the apartment 15 rental, the utilities, the moving of furniture, the 16 this, that and the other, as well as the acquisition 17 of the house. 18 What did Grace Jeng do for you? 19 MR. HYATT: My relationship with her 20 started in the early 1980s. She was referred to me 21 as a intern and she worked on technical projects. 22 She was a mathematics student at one of the local 23 universities. 24 The, um -- in the subsequent years, just 25 before the sale of my house, she was working for my 26 colleague Barry Lee who ran Leetronics, a consulting 27 company, as a -- as kind of an independent 28 consultant. 206 1 She and her parents, who I knew, were 2 interested in buying the house because it was a very 3 favorable location. It was near a very affluent 4 Asian community. And, um -- although it wasn't in 5 that community; I forget the name of it. It's been 6 too many years. 7 So she as a consultant for Leetronics, was 8 interested in buying the house. Barry Lee, her boss 9 there, testified he, um -- he was helping her and he 10 negotiated with me. She wanted to buy it for a low 11 price as a fixer-upper, did not want me to fix it up 12 and was willing to take it as-is. 13 And Barry Lee presented that to me. There 14 were some points to work out. She wanted certain 15 things left in the house, also. And, uh -- and 16 after we settled those, when I came back in -- on 17 October 1st, we had a closing. 18 Does that answer the question? I'm not 19 trying to be evasive. 20 MS. HARKEY: Right. She seems to indicate 21 that she spent time with you in Las Vegas and 22 actually helped you find a place to live, I mean all 23 the other things that she did beforehand. 24 What -- what happened? How -- how did she 25 come to, in essence, facilitate your move to Las 26 Vegas? 27 Because her declaration is -- is -- if you 28 would like to refer to it, you might want to. Her 207 1 declaration is pretty clear with all of the -- let 2 me see if I can find it. 3 That's Darlene Beer. The notary. 4 Where is she? She's in here. Hold on. 5 Here's -- here's the first one. 6 Okay. 5/18 of 2001, the La Palma house 7 needed a lot of work. The basement was flooding. 8 About August of 1991, I suggested to Mr. Hyatt that 9 he sell me the house as-is with a reduction in price 10 and he agreed. I suggest to Mr. Hyatt he make a 11 direct sell to me rather than a realtor. 12 She talks about the public records. She 13 says she bought your house in October of '91. And 14 then she said she was personally involved in 15 purchasing furniture for your apartment in October 16 of '91, that she assisted you with house-hunting? 17 MR. HYATT: Yes. May I speak? 18 MS. HARKEY: Oh, please do. I'm trying to 19 get from you what -- what exactly, what she did, why 20 she continued to do it after you moved out-of-state, 21 what was the -- what was the motivation? 22 MR. HYATT: Well, she was a personal 23 friend. And my long-term girlfriend at the time, 24 Caroline Cosgrove, and she were also friends. And 25 Caroline was helping me get set up in Las Vegas 26 because she was an expert on the Internet as it -- 27 as it was structured then, and a lot of other 28 things. And, um, but she was stuck in California 208 1 working for the university. And she and Grace 2 arranged for Grace to help me in Las Vegas. 3 The -- I was supposed to move into the 4 apartment on -- on October 20th because I had, in 5 addition to my six-month lease which they required 6 to start on the 1st of the month, they gave me -- 7 they rented me the apartment for an additional ten 8 days so I could move in earlier. 9 But at that time I had to travel back east 10 on a trip to the patent office. So what happened is 11 she moved me out of my Wagon -- out of -- I'm sorry, 12 out of my hotel room, into the apartment earlier. 13 And then when I returned, on -- on October 21st, I 14 signed the papers with Clara Kopp, the licensing 15 agent, and I took possession of the apartment and 16 did the other things that I testified to, got my 17 change of address, my post office box, signed some 18 papers that Clara Kopp witnessed. And, um -- and 19 then started calling my -- my friends and relatives 20 and colleagues and giving them my new contact 21 information. 22 If I might, I have over a hundred changes 23 of address, both verbal and written, and that -- to 24 let everyone know that I was in Las Vegas and to 25 contact me there. I think that's significant. 26 ---oOo--- 27 28 209 1 ---oOo--- 2 MS. HARKEY: McCaffrey. He is very 3 specific because he was your attorney on your 4 mother's estate? 5 MR. HYATT: Yes. 6 MS. HARKEY: And his declaration is very 7 specific because he has -- did he have notes, or how 8 did he comprise his declaration from his calendar, 9 or what did he use? Do you know? 10 MR. HYATT: I think, yes, his calendar and 11 his notes and his files and his memory. 12 MS. HARKEY: So I think his -- his 13 declaration explains the court appearance in Santa 14 Ana on the 1st of October and also the December. 15 The personal banking, if you got a check 16 that was sent to the Cerritos address or one of the 17 California addresses, what happened to those checks? 18 MR. HYATT: I don't recall getting one 19 through those -- through the California addresses. 20 I don't think checks -- I don't think I got any 21 checks through those addresses. 22 I did get checks through my Las Vegas -- 23 I'm sorry -- through my Las Vegas addresses. Like 24 when Philips paid me after the -- after I moved and 25 the second licensing agreement, I believe they 26 mailed me the check, and I deposited it in my Nevada 27 situs accounts. 28 One reason I keep saying Nevada situs is 210 1 because in addition to my Nevada -- my Las Vegas 2 banks from my checking account and savings account, 3 my investment adviser set me up in investment or 4 families like federated and the like that had 5 investment accounts, mutual funds and things of that 6 nature. And they weren't in Las Vegas, they were 7 nationwide. So that's why I keep saying Nevada 8 situs rather than Nevada, to be truthful. 9 MS. HARKEY: Okay. 10 One question to the FTB. 11 I think you indicated that checks were 12 deposited in California, at California banks. Can 13 you elaborate that? 14 MR. HILSON: There are any number of 15 checks -- any number of -- 16 MS. HARKEY: In '91. 17 MR. HILSON: Yeah. There are any number of 18 bank records indicating deposits in and around 19 Cerritos. 20 MR. HYATT: Your Honor, he's refreshed my 21 memory. Not any number of, but a few. A small 22 number of them. Those were investment accounts that 23 I had, money market funds and things like that. I 24 was in the process of closing those out. And I did 25 close them out a short while later. Because they 26 weren't -- not because they were in California, but 27 because they were just investment accounts, but 28 because they -- money market accounts just weren't 211 1 suitable for my investment adviser to work with. 2 And what happened is Ms. Jeng was helping 3 me out because I didn't have secretarial help or 4 such. And when I gave her a check to deposit in my 5 account, I assumed it would be deposited in my 6 Nevada account. And this was only a few checks. 7 And apparently what she did was took them back and 8 deposited them in my California -- my California 9 situs -- pardon me -- my Nevada situs accounts in 10 California. 11 MS. HARKEY: Okay. I found the -- the 12 question for residency is not whether or when you 13 sold your house in California, but whether you 14 intended to permanently move to Nevada when you 15 claim you did. So that's the residency issue. 16 I have another question. With Ms. Jeng's 17 $15,000 downpayment, where did that come from? How 18 did that -- there's an inference that maybe it might 19 have been a check cashed by you given to her. 20 MR. HYATT: Absolutely untrue -- untrue. I 21 don't remember that inference. But she gave me a 22 $15,000 check. I believe that she got the funds 23 from her parents who were involved in the purchase, 24 and -- involved superficially. 25 And because the issue of the deposit did 26 not come up until a decade or two later, I was 27 unable to trace where it went to. But I believe it 28 went into an account at the digital electronics 212 1 corporation. Because my attorneys were in the 2 process of closing it down. And I think that there 3 needed to be a payment alone to them with that. So 4 I made the pay -- and that's where I believe it went 5 to. 6 MS. HARKEY: FTB, do you have anything on 7 the deposit, the $15,000 deposit? 8 MR. HILSON: We have Ms. Jeng's testimony 9 that she did it by one or more checks. Those checks 10 have never ever been -- have never been produced. 11 We had Mr. Hyatt in 2000 tell us -- try to say, 12 "Well, here's a $15,000 deposit into account X." 13 Protest hearing officer went back through 14 the records and found that all it was a transfer 15 from his account Y into his account X. We were told 16 thereafter that they would research it, and we're 17 still sitting here. We have never seen any proof of 18 that $15,000 downpayment ever. 19 MR. HYATT: Your Honor, may I comment? 20 MS. HARKEY: Yes, please. 21 MR. HYATT: The FTB makes a lot of these 22 things that they haven't gotten, but they don't tell 23 you that they never brought up these issues during 24 the audit. They never made those requests. These 25 came up many years later, sometimes decades later 26 when these things were impossible to track. 27 So it's not on my back, it's on their back 28 that they didn't ask for them in a timely manner. 213 1 And the fact that I can't come up with the 2 evidence -- with all the evidence -- I came up with 3 a lot of it. The fact that I can't come up with 100 4 percent of it decades later should not be my 5 responsibility. 6 MS. HARKEY: Okay. The -- the next 7 indication, or one of the items we noticed, the FTB 8 had a private investigator in Nevada. 9 MR. HILSON: Correct. 10 MS. HARKEY: Okay. That did -- for lack of 11 a better term -- dumpster diving? 12 MR. HILSON: They were auditors. 13 MS. HARKEY: Okay. There's nothing -- we 14 call it dumpster diving when they're doing it 15 politically. Because when the trash is out on the 16 side, it becomes public. 17 What -- what I'd like to know is when we 18 reviewed the audit of that, there was no indication 19 whether they found, you know, in the apartment unit 20 what they found, or the house -- the house, 21 actually, in La Palma -- what they found. Did they 22 find -- 23 MR. HILSON: No, let me straighten it out. 24 It was a field visit in Las Vegas. It was at the 25 Tara property -- 26 MS. HARKEY: Okay. 27 MR. HILSON: -- that Mr. Hyatt purchased in 28 April of 1992. What the auditors had said 214 1 consistently is they got there, they knocked on the 2 door, there was nobody home. The garbage service 3 was coming through the street at the time, they 4 stopped him, they asked him, you know, "What kind of 5 service do you get here?" The answer was, "We get a 6 bag every once in a while." And they questioned 7 whether anybody really lived there. 8 This also ended up being -- and then what 9 happens is there were two auditors on that trip. 10 One of them was a woman named Candice Glass 11 (phonetic). Candice Glass ends up being fired by 12 the FTB. And years later, here she is testifying 13 that they went through the garbage and ransacked his 14 mail. 15 What the auditors have said with respect to 16 the mail was, "Wait a minute, there's a steel box 17 out in front. How in the world could we have 18 ransacked mail?" What they did is they looked at a 19 package that was on the doorstep to see who the 20 addressee on it was. Other than Ms. Glass, there is 21 absolutely nothing else to corroborate any of this 22 testimony. None of the neighbors in the cul-de-sac, 23 etc., etc. It's been spun, and obviously become a 24 -- it's become part of this case. 25 MS. HARKEY: We reviewed so much -- 26 MR. HILSON: I know, but -- 27 MS. HARKEY: -- it was just one more little 28 piece that I had to put together. 215 1 MR. HILSON: But that -- that's the 2 explanation the auditors have put forth consistently 3 from day one. 4 MS. HARKEY: Okay. Thank you. 5 MR. HYATT: Your Honor, I feel compelled to 6 answer that. There are so many misstatements in 7 there, and I would like to mention a couple of 8 them. 9 MS. HARKEY: Please. 10 MR. HYATT: This was a -- a visit that was 11 after the audit. The auditor and her -- and her 12 colleague dropped by the house and rummaged through 13 trash. That's when that occurred. The audit was 14 all finished. The -- the auditor took a trophy 15 picture of her colleague -- look at Tab 72 -- it's a 16 trophy picture of her colleague in front of my Tara 17 Avenue house. 18 At first the auditor denied stopping by 19 there. When she realized that the witness -- the -- 20 that we had evidence that she had, she said, "Oh. 21 Well, okay. It was just a drive by." And then we 22 produced in the deposition -- my attorneys produced 23 this trophy picture. And she said, "Okay. I stopped 24 off and took a picture." 25 And the evidence is that she also rummaged 26 through the trash, looked in my windows, and a whole 27 bunch of other things. So it's absolutely untrue 28 what was represented. That was a totally different 216 1 time and a totally different event. 2 MS. HARKEY: Okay. Let me tell you what I 3 find really compelling is the number of affidavits, 4 only because I think to sign something -- of the 5 neighbors that surrounded in the local residence -- 6 to sign something under, you know, liability of 7 perjury that if it's incorrect, the declaration is 8 very formal. And a declaration signed that refutes 9 the FTB has got that level of so much more, I think, 10 intimidation. Because nobody wants to sign 11 anything, and just willy-nilly, and have the FTB -- 12 and there's thoughts the FTB might come audit them 13 or do something. I mean, that's just kind of 14 standard feelings of the general populace. 15 So I find all of these declarations to be 16 very compelling when they state they knew that you 17 moved, they didn't see you anymore, your neighbor on 18 one side, neighbor on the other side. 19 But I am still -- I am a bit concerned over 20 the faxes going to Jennifer Circle. I think that 21 Ms. Jeng explains a lot of these things, but a lot 22 of these things in her declaration as to what 23 happened, how she did it, you know. She deposited 24 the check for you, or she got some cash for you, or 25 she went and picked up prescriptions for you. So I 26 think that it's obvious the relationship is more 27 than just, you know -- she was facilitating you on a 28 friendship basis. 217 1 The Continental Hotel, the FTB states in 2 essence that it took five years to find out where 3 you had stayed during that time. Is that a true 4 statement? Five years? What is the story behind 5 that? 6 MR. HYATT: Thank you, Your Honor. That's 7 a very, very good point. And that's a falsehood by 8 the FTB. What happened is the FTB never asked about 9 that during the audit, never, never, never. 10 What happened is after the determination 11 letter and the fraud penalty were assessed and we 12 were working on the protest letter, she comes -- the 13 auditor comes through and says, essentially, what 14 they call an IDS, asking for the information on what 15 -- on where I stayed through November 1. And I sent 16 all -- and it said documentation. We knew the 17 auditor wanted the documentation, not to talk. 18 So we sent her a package of information on 19 where I stayed, which was through November 1 -- 20 sorry. And that was to a large degree the Wagon 21 Trails materials. 22 We continued to try and find something that 23 would indicate the Continental Hotel, but weren't 24 able to because there essentially was no record of 25 that, as I explained before. 26 When -- when we found out that they were 27 complaining about that, the auditor never mentioned 28 the -- that specific timeframe, and we had sent her 218 1 the documents that we had, then we addressed it and 2 gave her the information. I gave them the 3 information, and then subsequently when they weren't 4 satisfied, provided affidavits -- provided 5 declarations from the Continental Hotel people that 6 explained it a little bit more thoroughly. 7 MR. HILSON: The request was made in 1995, 8 the audit for 1991 didn't conclude until 1996. It 9 was clearly asked during the audit. 10 MR. HYATT: Your Honor, that's not correct. 11 As far as we were concerned, when they gave me a 12 determination letter on August 2nd, 1991 with a 13 fraud penalty, and they were -- and we took that as 14 being a final determination. And it was a final 15 determination letter. And everything that followed 16 that was just their cleaning up their records. But 17 they had already made up their minds. That was the 18 end of it. 19 MS. HARKEY: Okay. I can understand your 20 saying that. There's always two sides to the story 21 here. I can understand why you might think that. 22 I think that you explained the licensing 23 exclusive and nonexclusive pretty clearly, and the 24 -- and explained it to me. Because they were 25 nonexclusive, but you explained where the 26 exclusivity came. They had exclusive rights to 27 sublease -- sublicense, rather, in Section 4 of the 28 4.1 of Philips contract. So your saying they had 219 1 exclusive rights kind of ties to that. Not the -- 2 and you explained the difference between the 3 nonexclusive in their ability to actually negotiate 4 the contracts with others. 5 MR. HYATT: Your Honor, if I might clarify 6 that -- 7 MS. HARKEY: Sure. Please. 8 MR. HYATT: -- because I don't want to be 9 accused of misstating it. 10 There were two aspects. There was the 11 exclusive licensing rights, and Philips had some 12 exclusive rights and some nonexclusive rights to 13 sublicense. But the way that it worked out, we had 14 a working relationship where they had exclusive 15 authority. And the way that they handled that with 16 their licensees is they had me sign letters to their 17 licensees stating that Philips -- that they had 18 exclusive licensing authority. And I signed those 19 because they were in effect -- they -- even though 20 it wasn't 100 percent exclusive through the 21 Phillip's licensing agreement, it was 100 percent 22 exclusive through the way we operated, that I would 23 never go and compete with Philips, and I respected 24 Philips' commitments and exclusive authority. 25 So I just wanted to explain that, so 26 that -- because it's a important term. 27 MS. HARKEY: Okay. And then in -- one more 28 point on the affidavit of Algy Tamoshunas -- 220 1 MR. HYATT: Tamoshunas, Your Honor. 2 MS. HARKEY: Tamoshunas. He says on page 9 3 line 11, "Mr. Hyatt gave Philips a change of address 4 from California to Las Vegas in the latter part of 5 October '91. And I understood he moved to Las Vegas 6 before the latter part of October '91. Any mailings 7 from Philips personnel to Mr. Hyatt's former 8 California address as of October '91 and thereafter 9 were inadvertent errors by Philips support 10 personnel, even though Mr. Hyatt's Las Vegas street 11 address was recited in the Philips documents 12 starting on November '91 and continuing thereafter. 13 Philips occasionally and inadvertently sent other 14 correspondence to Mr. Hyatt using his former 15 California address." 16 And then he goes on to say that Mahr 17 Leonard drafted six patent agreements, submitted 18 them to Philips for approval, and Philips approved 19 them and requested Mr. Hyatt sign them. Even though 20 Philips knew by the end of October in 1991, Mr. 21 Hyatt had moved to Las Vegas, Philips approved the 22 Sharp patent agreement, Sharp -- assigned by Mr. 23 Hyatt October 28th, '91 and the Matsushita patent 24 agreement signed by Mr. Hyatt November '91, because 25 I understood the two listings of Mr. Hyatt's prior 26 address of the preambles were immaterial to the 27 patent agreements. 28 So I think he kind of says they did get -- 221 1 I'm sure he wouldn't sign this if it weren't 2 accurate. So they did get the change of address. 3 So for right now I will turn this over to 4 Member Ma. 5 MS. MA: Thank you. I would just like to 6 also follow up on some of the questions about 7 Ms. Jeng. 8 To the Franchise Tax Board, I'm looking at 9 a letter dated April 1st, 1996. And page 3 it says, 10 "We have also obtained three affidavits that 11 Ms. Jeng lives with Mr. Hyatt." 12 What affidavits is that referring to? 13 MR. DEPEEL: Those were three -- excuse 14 me -- those were three, Member Ma -- those were 15 three interviews that were conducted during the 16 audit of 1995. That was including Elizabeth Hyatt, 17 his daughter, his brother, and his ex-wife, if I'm 18 understanding your question. 19 MS. MA: So they said that -- 20 MR. DEPEEL: These weren't affidavits, they 21 were witness statements. And one of them was signed 22 by his daughter, though, and there were two auditors 23 that were present for each interview. 24 MS. MA: And so were they living together 25 in the La Palma house or the Las Vegas house? 26 MR. DEPEEL: Well, if I'm understanding 27 your question, I think if you're narrowing down on 28 Elizabeth Hyatt, his daughter, she's the one who 222 1 said they were living together. 2 MS. MA: And they didn't give a specific 3 time? 4 MR. DEPEEL: Mr. Hyatt claims, and there is 5 some indication of this, that they were estranged at 6 the time, that the first visit to Tara, the Las 7 Vegas home, was in July or June of 1992. And she 8 did not at least see him personally on a frequent 9 basis during the disputed period. 10 MS. MA: Okay. 11 MR. HILSON: If I understand your question 12 was Ms. Jeng and Mr. Hyatt living together. 13 MR. DEPEEL: Well, she visited in June of 14 '92 in Las Vegas and Ms. Jeng was present at the 15 time in Las Vegas at the Tara house. 16 MS. MA: Okay. But what does that mean? 17 We have obtained three affidavits that Ms. Jeng 18 lives with Mr. Hyatt. Are they not affidavits? Are 19 they not signed statements? Are they -- 20 MR. DEPEEL: They're witness statements and 21 one of them is signed. 22 MS. MA: Okay. Who signed? 23 MR. DEPEEL: Elizabeth Hyatt signed one of 24 the statements, and the other two are interviews by 25 the auditor. And that included the brother of Mr. 26 Hyatt and also the ex-wife, Mrs. -- 27 MR. HYATT: Your Honor, that's incorrect. 28 May I? 223 1 MS. MA: Okay. 2 MR. HYATT: There were three documents that 3 are signed -- and I believe they're signed. And 4 maybe to my detriment that they're signed, but I 5 have to correct his statement. One of them was my 6 ex-wife, one was my estranged brother, and the other 7 was my estranged daughter. They -- they really said 8 very little, and -- but they were hidden from me 9 during the audit, and talked about as being 10 devastating affidavits, when, in fact, they were 11 meaningless witness statements. And when I finally 12 got them and realized that they were nothing, that 13 was part of my audit file, that was part of my 14 attorney's decision to file the Nevada tort suit 15 because it seemed very clear that the audit was a 16 trumped up bad faith act. And we filed the tort 17 suit. 18 And if I might mention, we got a $250 19 million punitive damage assessment from the jury. 20 Whether or not the fraud allegation was reversed by 21 the U.S. Supreme Court, that's presently before the 22 Nevada Supreme Court to decide. That is not a 23 given, as the FTB would have you believe. That is 24 very much contested. And the -- and the jury heard 25 the facts, and they decided that the FTB had done 26 many horrible things, came down with many different 27 affirmations of causes of action. 28 And in addition to the 200 -- as part of 224 1 the -- and the 250 million penalty -- punitive 2 damage award was part of a $480 million award 3 totally. 4 So it was a jury that heard the facts and 5 was offended, regardless of whether either of the 6 supreme courts found that for technicalities, they 7 had to cut it back. 8 MS. MA: Okay. So did Ms. Jeng live in the 9 Jennifer Circle house? 10 MR. HYATT: She did after she bought it, 11 but never before. She was a very prim and proper 12 young Asian lady, and she did not live there until 13 she bought it. 14 MS. MA: So she never stayed over, had a 15 bedroom, stayed in that Jennifer Circle house before 16 October 1st? 17 MR. HYATT: That's absolutely correct. 18 And, in fact, my girlfriend Caroline Cosgrove never 19 would have put up with anything like that. 20 MS. MA: Okay. So then after October 1st, 21 where did you stay when you came to California? 22 MR. HYATT: I stayed -- I liked to stay at 23 a motel. I forget the name of it right now. It was 24 right next to Knott's Berry Farm. And the reason -- 25 and the FTB says that's a low-class motel. But 26 Knott's Berry Farm was very dear to me because 27 that's where I spent a lot of time with my mother 28 who I was very close to who was departed. 225 1 And I stayed at that motel, and I spent 2 time walking through Knott's Berry Farm and 3 reminiscing and such. 4 MS. MA: Okay. So you never stayed in the 5 Jennifer Circle house after October 1st? 6 MR. HYATT: That's correct. I did have one 7 visit there where I had coffee. That was about a 8 year -- somewhat a year after I sold it. I was 9 picking up Ms. Jeng for an event with the Russian 10 head of the space program, that congressman 11 Rohrabacher, that she was helping Congressman 12 Rohrabacher with. And I helped sponsor him here. 13 So I drove down from Las Vegas, picked her up and 14 took her to that event. And I was in the house at 15 that time. But that was the only time that I've 16 been in the house since I sold it. 17 MS. MA: So are you still friendly with 18 Ms. Jeng or do business -- 19 MR. HYATT: Oh, yes. Like Mr. Kern, I make 20 friends for long times. 21 MS. MA: Okay. Has she ever lived in your 22 Las Vegas house? 23 MR. HYATT: Absolutely not. 24 MS. MA: Because when you Google her, it 25 comes up La Palma and also under your Las Vegas 26 house. 27 MR. HYATT: She comes out on my Las Vegas 28 house? 226 1 MS. MA: Yeah, her name comes out under 2 both addresses. 3 Okay. So to the Franchise Tax Board, you 4 talk about all the different contracts and -- 5 MR. HYATT: Your Honor, may I interrupt on 6 that point? She owns a property in Las Vegas, could 7 it be -- but it's not the Tara house. Could it be 8 that when you Google her that her Las Vegas house 9 comes up? 10 MS. MA: I'm not sure. I was looking 11 earlier. I was wondering where she was. 12 MR. HYATT: She does have a property in Las 13 Vegas that she lives at, and she's got two 14 properties in Las Vegas and still owns the one in 15 Jennifer Circle. 16 I'm sorry to interrupt you, but I thought 17 that was very important. 18 MS. MA: Okay. 19 So the Franchise Tax Board, you showed all 20 these different documents and invoices and bills, 21 and they still show the Jennifer Circle house. 22 MR. HILSON: Correct. 23 MS. MA: At what point did those addresses 24 stop? You know, all those companies, the contracts, 25 at what point did they not use the Jennifer Circle 26 house? 27 MR. HILSON: Fujitsu, Matsushita, Oki, they 28 use Jennifer Circle all the way through. Some of 227 1 them, you know -- some of them were paid and done. 2 The three that are paid in December, Sharp, uses the 3 California contact. Sony and NEC use the Nevada 4 apartment address. But everything else -- nothing 5 else has changed. The faxes don't stop using 6 Cerritos until sometime -- well, they continue on 7 and on. They start to tail off significantly once 8 we get into April of 1992. But through that -- 9 through that time they are very, very consistent. 10 As is the Philips correspondence, as is the 11 faxes going out from Mr. Hyatt. They continue to 12 use the Cerritos post office box, and either these 13 Jennifer Circle fax machine or phone number or a 14 combination of the two. It's consistent. That 15 really doesn't change until after we hit April of 16 1992. 17 MS. MA: And there was one invoice from one 18 of his attorneys. 19 MR. HILSON: There are several invoices 20 from Mr. Roth. I believe what I showed you was both 21 at the end of November and at the end of December, 22 Mr. Roth sends billings to Mr. Hyatt at the Cerritos 23 post office box. 24 MS. MA: At the P.O. Box, but not at the 25 house. 26 MR. HILSON: Correct. 27 MS. MA: Okay. And then the contracts, the 28 subcontracts, what are they called? 228 1 MR. HILSON: The licensing agreements? 2 MS. MA: Sublicensing. It talks about 3 protections in California. 4 MR. HILSON: Right. 5 MS. MA: Why would it say protections in 6 California, and not protect -- 7 MR. HILSON: Basically what it says is any 8 disputes between Mr. Hyatt and/or the Japanese 9 corporation would be determined in accordance with 10 California law. It's a contractual provision 11 basically saying, "If we have a dispute, California 12 law will be used to resolve it." 13 MS. MA: Could they have put Nevada law -- 14 MR. HILSON: Yes. 15 MS. MA: -- or Delaware law? 16 MR. HILSON: Yes. Or New York law. 17 MS. MA: Okay. His attorneys -- where was 18 his attorney? 19 MR. HILSON: I'm sorry. 20 MS. MA: His attorneys were -- 21 MR. HILSON: Los Angeles. 22 MR. HYATT: Your Honor, may I comment on 23 that? 24 MS. MA: One more question, Mr. Hyatt. 25 Based on the documents you provided in 26 October and November, it shows you stayed in your 27 Nevada apartment Wagon House -- Wagon Trail all but 28 seven nights -- all but seven nights. The seven you 229 1 did not stay, you were traveling in Virginia, Texas 2 and New York. 3 And then in November it shows you stayed 4 every night in your Wagon Trail apartment except two 5 nights. Yet I see -- or based on the Franchise Tax 6 Board calendars, it shows you flying around, you 7 have meetings, so how is that possible? Were you 8 driving every day back home to Nevada? 9 MR. HYATT: There were several roundtrip 10 drives. There was one airplane flight that was 11 roundtrip one day. The -- there were several that 12 were misrepresentations that we explained. Mr. Roth 13 had several -- the FTB said he had several meetings. 14 But he verified that those were telephone 15 conferences, and that his secretary had put meetings 16 in the invoices. 17 So there -- I made a couple of corrections, 18 or my attorneys did. Because -- please bear with 19 me -- the FTB, as I mentioned, first introduced 20 their calendar in brief to the SPV probably 15 years 21 after the events. We needed to respond to those 22 calendars, and we did. 23 And then when the FTB got the Philips 24 documents and there was additional information we 25 got that reminded me that I did have some other 26 meetings also, and, therefore, we made corrections. 27 It's that simple. 28 MS. HARKEY: I have a question. 230 1 Mr. Hyatt, when did you return -- or when 2 did you retain your attorney to begin conducting all 3 of this business, all of the contracts? 4 MR. HYATT: Excuse me -- the licensing? 5 MS. HARKEY: Right. Just roughly. 6 MR. HYATT: Actually, I relied heavily on 7 the Philips attorneys to do that work. Never had I 8 thought I had a privileged relationship with them. 9 Mr. Tamoshunas did much of that work, Mr. Roth was, 10 I believe, representing both sides. He and Mr. 11 Tamoshunas were hammering out the agreement. 12 I'd like to share something with you. 13 MS. HARKEY: Tell me about Mr. Roth. When 14 did you contact him? How long did you retain him? 15 What was the story with Mr. Roth? 16 MR. HYATT: I met Mr. Roth in 1970. That 17 was many, many, many decades ago. He was retained 18 by a company to write a patent application for me, 19 and I've kept up a relationship with him since. 20 MS. HARKEY: Did you have professional 21 relationship with him in 1991? Was he handling 22 transactions for you? 23 MR. HYATT: His law firm was handling the 24 interference proceeding. And what happened was they 25 had built up a big bill, and Philips took that over 26 when they -- when we signed the agreement, that was 27 part of the relationship. So -- and they engaged 28 Pretty Schroeder, Mr. Roth's law firm at that time. 231 1 So I never had a formal engagement. 2 MS. HARKEY: What kind of date -- what date 3 was that, thereabouts, something? 4 MR. HYATT: The Philips agreement was 5 signed on -- actually a couple days by different 6 parties. But July 24th is the given date. And then 7 we have a document from Pretty Schroeder that 8 confirms that they -- that Philips was a client of 9 theirs. 10 MS. HARKEY: Okay. And did they intercept 11 any kind of checks or whatnot, any of your payments? 12 ---oOo--- 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 232 1 ---oOo--- 2 MR. HYATT: Okay. There was a, um -- some 3 old bills that got carried over with Pretty 4 Schroeder, work that they had done that Philips had 5 not taken over. And about the end of '91, they sent 6 me an invoice. 7 There were actually, um -- and -- let's 8 see. 9 MS. HARKEY: Okay. Well, the reason I'm 10 asking is I'm trying to figure out on the -- let me 11 see. 12 It says that you went to, um -- on the 23rd 13 of October, a limousine to Newark, returned to LAX, 14 meets with LA lawyer. 15 So you went -- you flew out back east prior 16 to that. Begin your business trip to the east coast 17 on the 14th. Texas via LAX. 18 So you left on the 14th from LAX, on the 19 14th of October, from LAX. And then it says on the 20 23rd you came back, returned to LAX, and you met 21 with LA lawyer. 22 Who's the LA lawyer? 23 MR. HYATT: Um, the, um -- let's see, the 24 23rd. 25 MS. HARKEY: That was October. 26 MR. HYATT: Yeah, that was -- 27 MS. HARKEY: So who would you have met 28 with? 233 1 MR. HYATT: That was -- that was Mr. Roth; 2 he was Philips's attorney. They paid for that, and 3 I believe that comes up on a Philips -- on an 4 invoice from Pretty Schroeder to Philips. 5 MS. HARKEY: Okay. That -- that kind of 6 explains a big chunk here that I was questioning. 7 I'm trying to figure out what LA lawyer, what you 8 went back and forth from LA for, and I think that 9 kind of explains that. 10 The first few days -- because, as you know, 11 residency or what we're dealing with, nine months 12 has to be -- you claim nine months are relatively 13 less than -- less than -- you didn't start the tenth 14 month in California, that you left during the nine 15 months. 16 So on the first day, day one, you had a 17 court appearance in Santa Ana. And that was an 18 estate matter. And that I can see verified by your 19 attorney that that was with regard to your mother. 20 You did some personal banking in Cerritos 21 and dining in Anaheim, on the 2nd. So did you stay 22 overnight somewhere in -- when you went -- after you 23 went to court in Santa Ana? 24 MR. HYATT: No. That dining was not me. 25 That was someone else using my credit card. 26 MS. HARKEY: That was Grace, okay. 27 The correspondence I'm kind of negating, as 28 Member Runner is, because that's -- could be back 234 1 and forth. 2 The business -- business promotional 3 photoshoot at Jennifer Circle on the 6th; what is -- 4 what was that about? 5 MR. HYATT: That's a, um -- a falsity. 6 There was no photoshoot. There are no photos. 7 What happened -- and there's a lot of 8 testimony on that -- is Philips's PR person, 9 Mr. McHenry, called me and asked me to go to Fashion 10 Island in Newport Beach for a photoshoot. And I 11 told him no, I was too tied up in Las Vegas, I can't 12 make it, I cancelled it. 13 So the Fashion Island one was ended. And 14 for some reason there seems to be something at 15 Jennifer Circle where the photographer says he went 16 there. But he misdescribes a lot of things, such as 17 the, um -- the layout of the house, the condition of 18 the house. He says there were no prominent features 19 that I had. He never saw me. He says I was a big 20 guy. He didn't notice my facial hair. 21 MS. HARKEY: Okay. That's -- that's fine. 22 This is an FTB citing. 23 So, business promotional photoshoot at 24 Jennifer Circle on the 6th, FTB, October 6th? 25 MR. HILSON: It comes from the photographer 26 himself. He says he was there. He says Mr. Hyatt 27 was there. He says the house was full of furniture 28 and looked like it was being lived in by Mr. Hyatt. 235 1 We got -- that comes from the photographer 2 himself. 3 MS. HARKEY: Okay. So it's possible he was 4 famous and they were taking a picture of his little 5 house on Jennifer Circle, because this -- 6 MR. HILSON: No. This was supposed to be a 7 photoshoot of Mr. Hyatt -- 8 MS. HARKEY: Of Mr. Hyatt. 9 MR. HILSON: -- not the -- not the home. 10 MS. HARKEY: That's an affidavit from a 11 photographer, or what is it? 12 MR. DePEEL: It's an actual deposition. 13 MS. HARKEY: A deposition. 14 MR. HILSON: His deposition. 15 MS. HARKEY: Okay, a deposition. 16 MR. HYATT: And, Your Honor, we have -- we 17 have affidavits of the other people. 18 For instance, this photographer says he 19 worked for one that I had previously used and that 20 he had turned over the photos to him and things like 21 that. And the other photographer signed, I believe, 22 two declarations detailing things out. He says no, 23 that's absolutely untrue. 24 What this, um -- gentleman says, um, did 25 not happen. He didn't get any photographs from him. 26 He didn't turn over the Hyatt engagement photoshoot 27 to him or anything like that. 28 So there's -- that's heavily contested by a 236 1 photographer who has some correspondence but has no 2 photographs and nothing that, um -- that really 3 links me in with a photoshoot at that house. 4 MS. HARKEY: Okay. Thank you. 5 Members, there's a lot of documentation 6 here. I've gone through reams, and I'm not sure 7 where the Members will fall. But I do wish to 8 state -- I do not believe there was fraud here. I 9 think there's enough back and forth, and I don't 10 think that the FTB has proven fraud. They have to 11 have "with the intent to deceive" and "sufficiently 12 strong to command the unhesitating assent of every 13 reasonable mind." 14 I think the fraud is a hard one to prove. 15 So I'll just stop with that. 16 MR. HYATT: Your Honor, Tab 42 -- 17 MS. HARKEY: I think -- I think we're 18 through. Thank you, sir. 19 MR. HYATT: Sorry. 20 MS. HARKEY: Okay. 21 MR. RUNNER: Yeah, I'm -- I'm trying to -- 22 I don't know if there's other questions that 23 people -- Members have. 24 MS. HARKEY: We can take -- 25 MR. RUNNER: I'm trying to figure out 26 where -- what -- in terms of what would be our 27 most -- 28 MS. HARKEY: We can -- 237 1 MR. RUNNER: -- process to go through if we 2 want to take specific items, like the issue of 3 fraud, and make a -- see if there's consensus on 4 that. And then kind of at that point whether or not 5 we want to then make a further decision and see if 6 there's a understanding of, uh -- or an agreement or 7 what the discussions are in regards to residency. 8 And then I suppose at that point, depending upon 9 what the relevance of that is, we could go on to the 10 issue of -- of the sourcing of the income. 11 That -- and, again, this gets a little more 12 confusing 'cause we're -- have another item -- 13 MS. HARKEY: We have another item, very -- 14 MR. RUNNER: -- which deals with the next 15 year. 16 MS. HARKEY: Very similar. 17 MR. RUNNER: And quite frankly, depending 18 upon the decisions of this particular year, could 19 determine what happens in that subsequent issue. 20 MS. HARKEY: I'm -- I'm thinking we could 21 take this under submission, or we could decide part 22 of this or some of this, which might make the next 23 hearing a little bit simpler. 24 So I'll leave that up to the Members. But 25 I would like to make a motion with regard to the 26 fraud. I do not find fraud. I would like to grant 27 the appeal with regard to fraud to the taxpayer. 28 MR. RUNNER: I would second that. 238 1 MS. HARKEY: Is there any objection to 2 that? 3 MS. YEE: Objection. 4 MS. HARKEY: Okay. So the motion was made 5 by myself, seconded by Member Runner. 6 Without objection, fraud is granted -- 7 MS. YEE: Actually, I objected. 8 MS. RICHMOND: Ms. Yee objected. 9 MS. HARKEY: Oh, you did object? 10 Oh, there was an objection. I'm sorry. 11 There was an objection. Okay. Didn't hear that 12 right. 13 So, please call the roll. 14 MS. RICHMOND: Chairwoman Harkey -- 15 MS. MA: Wait. Can we -- 16 MS. HARKEY: Sure. 17 MS. MA: Before you do, can we ask our 18 attorneys, give us a definition of fraud? 19 MR. THOMPSON: Just give me a moment. I 20 want to refer to the hearing summary. 21 I think you've heard some of this language 22 before. But the statute provides that the penalty 23 shall be applicable for the portion of the 24 underpayment attributable to fraud. And the case 25 law indicates that fraud implies bad faith, 26 intentional wrongdoing and a sinister motive. The 27 taxpayer must have the specific intent to evade a 28 tax believed to be owed. 239 1 It may be proved by circumstantial 2 evidence, and the taxpayer's entire course of 3 conduct may establish the requisite fraudulent 4 intent. 5 However -- I'm not going to go on forever 6 here, but I'm going to hit the highlights. 7 Just one moment. 8 Because often there's not direct evidence, 9 the Ninth Circuit has inferred intent from various 10 kinds of circumstantial evidence -- which are 11 referred to as badges of fraud -- such as 12 understating income, inadequate records, failure to 13 file tax returns, implausible or inconsistent 14 explanations of behavior, concealing assets and a 15 failure to cooperate with tax authorities. 16 And I think the last point I would note is 17 that, although fraud may be established by 18 circumstantial evidence, it is never presumed or 19 imputed; and it will not be sustained upon 20 circumstances that, at most, create only a suspicion 21 of fraud. 22 MS. HARKEY: So leaving no substantial 23 doubt, sufficiently strong. 24 Do you wish to continue or do you want to 25 vote? Anybody else got a comment? 26 Will you call the roll, please? 27 MS. RICHMOND: Chairwoman Harkey. 28 MS. HARKEY: Aye. 240 1 MS. RICHMOND: Mr. Runner. 2 MR. RUNNER: Aye. 3 MS. RICHMOND: Mr. Horton. 4 MR. HORTON: Aye. 5 MS. RICHMOND: Ms. Ma. 6 MS. MA: And is "aye" not fraud? 7 MS. HARKEY: "Aye" is not fraud. 8 MR. RUNNER: "Aye" is not fraud. 9 MS. MA: Aye. 10 MS. RICHMOND: Ms. Yee? 11 MS. YEE: No. 12 MS. RICHMOND: Motion carries. 13 MS. HARKEY: Okay. The fraud's gone. 14 Now, do you want to -- do Members want to 15 continue on this? 16 MR. RUNNER: Let me -- let me just a test 17 to see where we -- I mean, again, just to try to see 18 if we can take things off -- on or off the table. 19 Let me, I would make a motion, and we can 20 discuss it or take the vote. And, again, I think 21 it'll determine where we would go next, either way. 22 That we -- that establish residency in 23 Nevada on October 20th. 24 MS. HARKEY: October 20th? 25 MR. RUNNER: Mm-hmm. That would be the 26 date to which the lease, the -- the, uh -- the 27 movement to the apartment complex. 28 MS. HARKEY: I would second that. 241 1 MR. RUNNER: Let me -- and I'll speak to 2 that real quickly. 3 MS. HARKEY: Now you can make comments, 4 everybody. 5 MR. RUNNER: Yeah. 6 You know, at least -- I'm compelled by at 7 least the evidence that I have seen, along with some 8 of the -- some of the affidavit, that indeed there 9 was residency established at that point. 10 That I question some of the issues in 11 regards to the earlier residency dates. I'm not 12 compelled -- I just don't think there's enough 13 issues or evidence showing that. 14 I believe that the -- the contract for the 15 apartment, the later on, later on -- although it's a 16 later date, but it indicates to me that that was 17 part of the process in moving over there, included 18 the driver's license issues, the voter issues. I am 19 compelled by the fact that there were some checks 20 that were to utility companies there. 21 I -- I -- I think -- you know, I think it 22 was a confusing house sale. I mean confusing in the 23 sense of how houses are normally sold. But it seems 24 to me that it is -- it was a unique contract of 25 sale, which again is not totally unusual. They're 26 typic -- people sell houses particularly if they own 27 the house or if they have a great deal of equity, do 28 a wraparound mortgage of some kind, other kinds of 242 1 things in order to do that and leave the original 2 mortgage intact. 3 It's probably even more unique in the sense 4 that it was a known person who he was dealing with. 5 And so it was a very unusual sale, but I'm compelled 6 to believe the sale based upon the testimony of the, 7 um -- the affidavits. 8 I'm -- I have a hard time dismissing that 9 many affidavits. I don't know what the motivation 10 of people would be to so unilaterally take positions 11 with the -- for the taxpayer, at least in their 12 opinions. 13 I guess I'm not troubled, but I think it 14 makes sense to me as to why the affidavits were so 15 late, because these were -- he was responding back 16 to what the FTB said. So that's what required the 17 affidavits to be done at those dates. 18 So anyhow, based upon that, I think 19 residency established on the, um -- on the date of 20 October 20th is a reasonable date for residency. 21 And again, I think we can go from there to other 22 issues, in regards to sourcing or other issues. But 23 at that point we can just deal with the residency 24 issue first. That's the reason for my motion. 25 MS. YEE: Madam Chair. 26 MS. HARKEY: Yes. 27 MS. YEE: Is there a second on that motion? 28 MS. HARKEY: I made a second. 243 1 MS. YEE: Okay. If I could speak to this. 2 This case is actually quite interesting, 3 and residency cases are some of the most difficult 4 ones that this body hears. But I have to say, this 5 particular case was intriguing to me because I had a 6 hard time really separating the, um -- the business 7 activity from the presence of the appellant. 8 And from my perspective, there just seemed 9 to be this continuation of business activity in 10 California. And the gaps in, you know, some of the 11 information that wasn't furnished, some of the 12 inconsistencies in terms of some of the statements 13 in evidence provided, the records are spotty at 14 best, and just kind of the history of where this 15 matter has been. 16 You know, I think -- and I -- it wouldn't 17 have changed the outcome, but I wish we had taken 18 the fraud penalty up last. Because, to me, it 19 speaks to kind of the whole, you know, kind of the 20 comprehensiveness of the issues in this matter. 21 But I -- I just believe there was 22 overwhelming presence of business activity still in 23 California. I mean you look at the agreements, you 24 look at the role that Mr. Hyatt continued to play, 25 and the fact that he still had control and the 26 ability to make decisions relative to these patent 27 leases, to me, is compelling. 28 The dates, I mean, there wasn't even, to 244 1 me, anything that was substantial enough to at least 2 suggest to me that he had any kind of presence other 3 than transitory, temporary in Nevada until much 4 later. 5 So, I'm going to oppose the motion. As I 6 said, I think this is one where it's really hard to 7 bifurcate the issues because they really do tell the 8 entire story, in my mind, of what was going on. 9 MR. HORTON: Madam Chair. 10 MS. HARKEY: Member Ma. 11 MS. MA: I'm sorry. 12 MR. HORTON: Sure. 13 MS. MA: Sorry. So, as a CPA, you know, I 14 always say tax planning is not tax evasion. And 15 residency cases really need to be clear and concise 16 when they happen. I agree with Member Yee that the 17 dates were too coincidental and too close. 18 The Philips agreement was signed on July 19 15th. Taxpayer got a big sum of money. They signed 20 a second supplemental agreement on October 30th, 21 knowing that they were going to get more sums of 22 money. And I think the taxpayer was probably 23 advised to sever ties completely, but it didn't 24 happen. In my mind it was blurred, staying at a 25 hotel, signing a lease, wasn't really a move to a 26 new residence. 27 I think when he did buy his home on April 28 3rd, 1992, he did purchase a house. He did move in. 245 1 He did buy all the furniture. You know, at that 2 point I think he really intended to make that his 3 permanent residence and stay. 4 But everything else was preparing to move. 5 I still think he had closer connections to 6 California. I don't see clear proof of a concurrent 7 situation to abandon the old domicile and establish 8 a new one, given that I think Ms. Jeng was still 9 working with him. The addresses were still going 10 to, you know, the old house. The faxes were still 11 going to the old house, and there was clearly no 12 severing of California connections, in that when you 13 go through all the Bragg factors, you would like to 14 see those type of exact severing of ties and real 15 permanent residence in another state. 16 And so I just think it's, like Ms. Yee, 17 it's too close. I get tax planning, as I said, is 18 not tax evasion. But it just wasn't, for me, in my 19 mind, completely done until April 3rd, 1992. 20 MS. YEE: Madam Chair, you know what's 21 troubling, I just find -- I mean we've sat here for 22 a good part of the day and I really appreciate 23 everyone's patience. But just the lack of 24 contemporaneous evidence is just beyond me. 25 You're a sophisticated businessman, 26 Mr. Hyatt. And I don't know where these records are 27 or whether they ever existed, but we just -- I mean 28 I just expect more. You know, to have these gaps 246 1 filled in after the fact, conveniently, and -- I 2 mean this is -- I mean, for me, I just expected a 3 lot more. 4 And then you look at kind of this 5 three-month assessment of your whereabouts and 6 there's a lot of business activity here that speaks 7 to your presence in California. And I mean short 8 of -- I mean just some real kind of solid 9 contemporaneous evidence that this all didn't 10 happen, I mean this -- you were still running a 11 business out of California. And that's what I'm 12 troubled by, is that the evidence really is very 13 weak in terms of contemporaneous support for your 14 assertion. 15 MS. HARKEY: Member Horton. 16 MR. HORTON: Question of the Appeals first. 17 Relative to an affirmative determination as 18 to the Jennifer Circle home, whether it was sold or 19 not, is that dispositive to domicile? 20 MR. THOMPSON: Well, it could. If you 21 found it was sold on October 1 and that he intended 22 to move, then those acts combined would be a shift 23 in domicile. But if you found that it was not sold 24 on October 1 and they didn't sit down and exchange 25 the Deed, of course then, you know, would not 26 indicate a change of domicile on October 1. 27 MR. HORTON: The, um -- in these issues of 28 domicile, we often are forced, as a result of the 247 1 Braggs factor, to look at the preponderance of the 2 evidence. 3 It's inherently challenging to dispute 238 4 affidavits. And particularly -- not to say that 5 they aren't questionable -- but from an auditor 6 perspective, you know, which is kind of like the 7 root of my experience, as well as real estate, once 8 there -- once there is a perception of impeachment 9 of 238 documents, I believe the Department is 10 compelled to go the step further, to actually -- 11 actually impeach those documents with evidence that 12 contradicts those documents. 13 The -- there -- there is evidence on both 14 sides that -- contemporaneous evidence on both 15 sides. There's evidence of a lease that took place. 16 There's evidence of utility payments that take 17 place. Of course that is disputed, but that's also 18 supported by various different affidavits that 19 indicate that the action did take place. 20 And so, unless there is evidence to dispute 21 that, which -- or to impeach that, it creates an 22 inherent challenge, which is always the case when we 23 don't necessarily have the opportunity to delve 24 beyond what information is provided in the records 25 and so forth. So, we're sort of left with the 26 testimony and whether or not that testimony is 27 credible. 28 And so -- which was the reason that I 248 1 didn't support the fraud, because I felt the 2 testimony was credible. And so if that's my 3 position and there's no evidence to impeach 239 4 affidavits, then it becomes inherently challenging, 5 unless there is some documentation that says 6 otherwise. 7 The activity that occurred in California is 8 in and of itself is questionable based on a 9 temporary period in time in which information flowed 10 into California, which could have flowed outside of 11 California. 12 Now, the stay in the hotel does not appear 13 to be an establishment of -- of domicile in Nevada. 14 And then, so one kind of has to go to what the 15 intent of the party was and when that intent was 16 established. And clearly hindsight is somewhat 17 20/20. He's been living there for 26 years. 18 So this is a difficult one. I mean this 19 is -- I would've -- quite frankly, I would've liked 20 the Department to have done -- delved into the 21 affidavits a little bit more and actually impeached 22 them, and presented at least something to say that 23 we've been able to impeach these testimonies. 24 Here's a document that says these testimonies are 25 not legitimate, they're fraudulent to some degree. 26 And then I would have liked that the 27 Department actually segregated the testimonies and 28 then subpoenaed witnesses on each area to at least 249 1 to have had one area in which they impeached the 2 testimony. 3 I mean if I were to -- I guess part of the 4 roles and responsibility is to -- is to sort of 5 interject your own personal perspective. But I have 6 a tendency just to try to look at the facts that are 7 before me. And the preponderance of the evidence in 8 the Braggs case, changing voter registration, 9 changing -- even though you've got a time lapse of 10 some sort, registration was changed, vehicle 11 registration changed. You have to submit that. 12 And as Member Ma indicated, I have actually 13 no problem with tax planning; I think it's wise to 14 do so. And if Mr. Hyatt had the control over the 15 business transaction, then, quite frankly, if he was 16 intentionally trying to -- to -- to -- to -- to 17 minimize his tax liability, he would have deferred 18 the consummation of the transaction, which he had -- 19 if he had control over it, he would have deferred 20 that in order to assure that he met all of the 21 requirements. 22 The fact that the house was sold or not, he 23 didn't pay for the repair of the roof, didn't pay 24 for the repair of the damages. Absolutely nothing 25 wrong with him carrying the Note, paying for the 26 mortgage. That is typical of a real estate 27 transaction where you go in and you ask the property 28 owner to carry the note and continue to make their 250 1 payments. It's appropriate. 2 So to challenge the appropriateness of 3 that, cause -- gives me pause as well. As to the -- 4 I'll leave that alone. 5 So, anyway, those are my concerns and it 6 makes it somewhat challenging to say that there's 7 fraud here. And if you can't say that there's fraud 8 here, then inadvertently you're saying that the 9 testimony has some merit. 10 Anyway, thank you, Madam Chair. 11 MS. HARKEY: Thank you, all. 12 Now we're going to call the vote on -- I 13 believe the motion was by Member Runner, seconded by 14 myself -- the residency was established as of 15 October 20th and the signing of the lease in Las 16 Vegas. 17 Would you like to call the vote, please, 18 Ms. Richmond? 19 MS. RICHMOND: Chairwoman Harkey. 20 MS. HARKEY: Aye. 21 MS. RICHMOND: Mr. Runner. 22 MR. RUNNER: Aye. 23 MS. RICHMOND: Mr. Horton. 24 MR. HORTON: Aye. 25 MS. RICHMOND: Ms. Ma. 26 MS. MA: No. 27 MS. RICHMOND: Ms. Yee? 28 MS. YEE: No. 251 1 MS. RICHMOND: Motion carries. 2 MS. HARKEY: That's for '91. 3 Now, the next is going to be on sourcing, I 4 guess. 5 Is that the way you want to handle it, 6 Member Runner, sourcing? 7 MR. RUNNER: Well, at this point I mean I'm 8 prepared to, based -- 9 I mean, let's see, what have we done here 10 so far? 11 MS. HARKEY: We've eliminated the fraud 12 penalty. 13 MR. RUNNER: And the residency. 14 MS. HARKEY: And residency. We've 15 established residency -- 16 MR. RUNNER: Sourcing issue -- 17 MS. HARKEY: -- as October 20th, which 18 really applies more to the '92 year coming up than 19 it does to the '91 year. Residency is nine 20 months. 21 MR. THOMPSON: I do think you'll have to 22 address sourcing. 23 MR. RUNNER: Sourcing. 24 MR. THOMPSON: Yeah, for '91 as well. 25 MR. RUNNER: Okay. 26 MS. HARKEY: Sourcing. 27 MR. RUNNER: Okay. So I guess that's the 28 discussion in the next -- the -- yes. So I think 252 1 that would be the appropriate discussion for us, to 2 continue on with '91. 3 MR. THOMPSON: Yes, I think so. 4 MR. RUNNER: Okay. 5 Let me -- let me just -- can I ask -- I 6 have a question to counsel, or to Appeals, Madam 7 Chair? 8 MS. HARKEY: Sure. 9 MR. RUNNER: I'm trying to work through 10 what that means in regards to when somebody actually 11 earns their -- their money. Is it the agreement 12 that's made? Is it when the check gets in their 13 hands? 14 MR. THOMPSON: Typically for a cash basis 15 taxpayer, when they actually received the cash. 16 MR. RUNNER: So it's the cash in their 17 hands. 18 MR. THOMPSON: Yeah. There are exceptions, 19 but that's the general rule. 20 MR. RUNNER: Okay. So cash in their hands. 21 So if this cash got into his hands while he 22 was a resident in Nevada -- 23 MR. THOMPSON: Yeah. I mean I should 24 add -- 25 MR. RUNNER: -- does that solve the 26 sourcing problem? 27 MR. THOMPSON: I should add if he has an 28 unrestricted right to control the, um -- the assets, 253 1 which is probably what FTB is over there thinking, 2 you know, you might consider that an exception to 3 cash in the hand. 4 MR. RUNNER: Okay, but -- okay. Let's just 5 assume we're going to go with cash in the hand right 6 now. 7 MR. THOMPSON: Okay. 8 MR. RUNNER: If the cash in the hand takes 9 place while he's a resident in Nevada -- 10 MR. THOMPSON: Right. 11 MR. RUNNER: -- does that answer the 12 sourcing question? 13 MR. THOMPSON: No. Then you're in the land 14 of the sourcing, right, because -- 15 MR. RUNNER: Okay. Okay, so -- 16 MS. MA: Is it intangibles? 17 MR. RUNNER: So, yeah. Tell me -- help -- 18 MR. THOMPSON: Yeah, just a high level, as 19 I understand it, and I'm sure the parties will speak 20 up if I get it wrong. 21 MR. RUNNER: Okay. 22 MR. THOMPSON: I think there's two basic 23 sourcing arguments, and they're similar but 24 distinct. One of the arguments is that the 25 intangible, the patents, established a business 26 situs in California. 27 And let he back up there and say the 28 general rule is that when someone moves, the 254 1 intangible moves with them. That's the general 2 rule. And the exception that FTB is arguing is that 3 if the intangible has established a business situs, 4 meaning it's an integral part of the business in 5 California, then the income may be sourced to 6 California. So that's number one. 7 And then a second sourcing argument, as I 8 understand it, is that Hyatt was operating a 9 business from California and, therefore, that the 10 income from the business should be apportioned and 11 sourced on the basis of having a California 12 source. 13 MR. RUNNER: Okay. Let me -- let me -- let 14 me do this, maybe at least we can -- let me go to 15 the taxpayer or the taxpayer representative, again 16 who can answer the question about sourcing best. 17 Tell me why this income should not be sourced? 18 MS. HARKEY: Let me be sure -- let me be 19 sure that we're reopening the public -- 20 MR. RUNNER: Oh. 21 MS. HARKEY: -- hearing because we did 22 close it for votes. 23 MR. RUNNER: Okay. 24 MS. HARKEY: So I'd like to reopen the 25 public hearing. Do I have a second for that? 26 Yeah, I guess Member Runner will second. 27 MR. RUNNER: Oh, yes. Yes. 28 MS. HARKEY: Okay. 255 1 MR. RUNNER: I'm sorry. Yeah. 2 MS. HARKEY: We okay? Okay. I'm sorry. I 3 just wanted to be sure we stick to -- 4 MR. RUNNER: I hear you. 5 MS. HARKEY: -- very formal proceeding. 6 MR. RUNNER: Right. 7 MS. HARKEY: Thank you. 8 Go on, Member Runner. I'm sorry. 9 MR. RUNNER: Is that -- was that without 10 objection then? 11 MS. HARKEY: Yeah. There are no 12 objections. 13 MR. RUNNER: Okay. So let me go -- let me 14 go back to the taxpayer then in terms of the 15 sourcing issue and, again, who can best answer that 16 question as to -- for you or your team. 17 Why should this not be sourced, in your 18 opinion, to California? 19 MR. HYATT: Your Honor, I gave my full 20 exclusive rights to -- authority to Philips in July. 21 I had no ability to license it. 22 The -- Philips had control in New York and 23 in Eindhoven. They brought in Mahr Leonard, who did 24 the licensing work, who was in Texas. They licensed 25 Japanese companies. 26 The money, the funds, even though they did 27 go through a California law firm, it was to a 28 account that was a trust account in trust for the 256 1 benefit of Philips, effectively to Philips. 2 I was, for sourcing, a Nevada resident, 3 given by the FTB for sourcing they had to deem me a 4 Nevada resident. 5 And right now, thank you for -- thanks to 6 the Board, I was not a California resident at all 7 when I received that money. 8 MR. RUNNER: So -- so let me ask you, see 9 if I'm hearing you correctly. 10 MR. HYATT: There's no California involved. 11 MR. RUNNER: So -- well, again, that's -- 12 yeah, that's what we're discussing here. 13 So is the fact that you're trying to say is 14 you had no control, you were not running the 15 business in necessary in order for you to get a 16 check. 17 MR. HYATT: Yes, I was not running the 18 business. I was only the inventor, essentially, and 19 Philips had exclusive authority to do the license 20 and control everything. 21 MR. RUNNER: So you were not making 22 day-to-day decisions in regards to what to do or how 23 the li -- where the license -- no, excuse me. How 24 to say that. 25 You weren't making -- negotiating what the 26 license -- what the fees were going to be, what the 27 costs were going to be; you weren't negotiating any 28 of those. 257 1 MR. HYATT: That's correct. I had -- 2 MR. RUNNER: You were simply getting a 3 check when it is that they made an agreement? 4 MR. HYATT: Yes. After they got paid, they 5 had three months to pay me. That's all. 6 MS. YEE: Madam Chair. 7 MR. RUNNER: Okay. So, again, let's -- 8 that's -- that's my -- that's, again -- okay. 9 So that would be -- let me go back to 10 Appeals real quick on that discussion then. 11 If somebody is just getting a check, this 12 is to Appeals, if somebody's just getting a check, 13 they're not negotiating, they're not operating a 14 business as such, they're not making business 15 decisions, is that a California business? 16 MR. THOMPSON: You know, in that 17 hypothetical, that would not be substantial and 18 continuous enough, I think, to establish -- 19 MR. RUNNER: Okay. 20 MR. THOMPSON: -- a California business. 21 MR. RUNNER: So if that would -- if that 22 would be the case -- 23 MR. THOMPSON: Yeah. 24 MR. RUNNER: -- as he described it, that 25 would not be, okay. 26 So let me go back -- let me go to FTB real 27 quick then. 28 Tell me why he was actively engaged in 258 1 business in the State of California during this 2 time? 3 MR. HILSON: Well, as we pointed out, 4 number one, every one of these contracts is 5 California, only California. Everything about it is 6 California. 7 The agreement with Philips flat out says 8 they have -- they have rights to use 23 of the 9 patents. They have rights to sublicense 23 of the 10 patents. These contracts all involved 24 patents. 11 All of these contracts include a waiver of 12 the right to sue for patent infringement. Philips 13 can't give the -- that waiver for all 24 patents 14 because they don't have contractual rights. They 15 don't have any interest in patent number 24. 16 When you look at the -- when you look at 17 what has happened here, everything that's going on 18 is through California. The contracts are signed in 19 California. The document review is all being done 20 in California. The monies come into California. 21 They are distributed out of California, distributed 22 out of California by Mr. Hyatt. 23 All of this is done and documented with 24 correspondence showing all of this activity, showing 25 all of this control in California. In fact, once 26 the money starts coming in, the first thing that 27 happens is we have Mr. Hyatt threatening to withhold 28 payment to Philips of their seven and a half million 259 1 dollars. To sit there and say it's just simply "I'm 2 getting a check" doesn't match up with what the 3 facts are or what the correspondence has shown. 4 MR. RUNNER: Under -- under that thought 5 then you would believe, FTB would believe that even 6 money that was received after he moved into his 7 house in Nevada would be California-sourced 8 income. 9 MR. HILSON: Potentially so, yes. 10 MR. RUNNER: Well, yes or no? 11 MR. HILSON: Oh, yeah. I mean we're going 12 to get into that with the Hitachi contract in 13 1992. 14 MR. RUNNER: Okay. 15 Let me ask just one final question, then 16 I'm done. 17 What -- what was the decision then that was 18 brought back on the Umbry (verbatim) audit -- Embry 19 audit task force that concluded in 1995 that it was 20 not -- it was not a sourcing discussion at issue? 21 What was the -- what facts changed or what was the 22 issue that -- 23 MR. HILSON: They didn't have the facts. 24 They didn't have what we've been sitting here 25 talking about this afternoon. 26 They knew about Fujitsu. They might have 27 known about Matsushita. They didn't have any of the 28 correspondence. They didn't know how the business 260 1 was being operated. They didn't know about 2 Mr. Hyatt's involvement in paying the fees. They 3 didn't know -- they didn't know about the checks 4 coming in and out. They didn't know about Sony. 5 They didn't know about NEC. They didn't have the 6 information. It was -- it was a snapshot at that 7 point in time. 8 MR. RUNNER: Just to clarify, when you say 9 "the checks coming in and out," that's not relevant 10 to sourcing, is it? 11 MR. HILSON: Well, I think so. 12 MR. RUNNER: Why? 13 MR. HILSON: Well, if the -- if the checks 14 are mandated through a contract executed in 15 California and protected by the application of 16 California, dictating it comes into California, and 17 it does, and it is then disbursed to the people that 18 have an interest in that payment and all of that is 19 happening from California, that is clearly the 20 operation of a California business and an indication 21 that everything to do with this business has a 22 business situs in California. 23 MR. RUNNER: Let me ask Appeals at that 24 point then, if a contract is done that has -- that 25 is made in California, a contract that is signed in 26 California and has some payments attached to it into 27 the future, do all those future payments that are a 28 part of that contract then become California-sourced 261 1 income? 2 MR. THOMPSON: I think that's a little bit 3 of a separate issue. I think the -- and I can -- 4 MR. RUNNER: Okay. 5 MR. THOMPSON: I think that relates a 6 little bit to -- FTB makes what I understand to be a 7 separate argument that's sort of a residency 8 argument that the date of signing should control. 9 And the sourcing argument, as I understand it, is 10 that he was running a business from California and 11 that these intangibles were an integral part of that 12 business. And that's how the cash in and out are 13 fitting into FTB's -- 14 MR. RUNNER: So the discussion really comes 15 down to not the contracts but whether he was 16 actively engaged in running the business? 17 MR. THOMPSON: I think so, for sourcing 18 purposes. Whether -- 19 MR. RUNNER: For sourcing purposes, because 20 that's what really we're talking about now. 21 MR. THOMPSON: Right, yeah. 22 MR. RUNNER: Okay. So -- so the fact that 23 a contract was signed in California, that there 24 would be -- the fact that any disputes needed to be 25 in a California court, those itself then are not -- 26 do not create California sourcing. 27 MR. THOMPSON: Yeah. As a general matter 28 I'm not aware of case law that sourcing is 262 1 established -- 2 MR. RUNNER: Okay. So it really comes down 3 to, again, whether or not you are actively making 4 decisions about your business. 5 MR. THOMPSON: Right. If you're running -- 6 MR. RUNNER: Operating a business. 7 MR. THOMPSON: -- a business, integral to 8 the business, it's that kind of standard. 9 MR. RUNNER: Okay. Let me go back to the 10 taxpayer and I'll conclude. 11 What kind of active decisions were you 12 making? I mean I see a lot of correspondence back 13 and forth. You know, there's certainly faxes and 14 letters and all of those kind of things. But what 15 kind of active decisions were you making in running 16 your business, which would be in the -- I guess the 17 business would be licensing, controlling and 18 licensing your -- your -- your invention. 19 What were you doing to actively make 20 decisions, whether or not you should sign this 21 contract with some company, whether or not to do -- 22 whether or not to negotiate the price, what -- what 23 were you doing that you would say would be actively 24 controlling it and operating your business? 25 MR. HYATT: Nothing. I didn't have a 26 business. Philips asked me to sign the contracts, 27 so I did. The -- it was their decision. Mahr 28 Leonard created the draft license agreements. They 263 1 put the California P.O. Box address on the -- in the 2 preambles of the licenses. 3 They sent the negotiated agreement. They 4 created and sent the negotiated agreements to 5 Philips. Philips reviewed them and sent me a letter 6 saying we approve it, please sign it. We will, um, 7 indemnify you and hold you harmless. And I said 8 yes, sir. Good luck. 9 MR. RUNNER: Okay, thank you. 10 MS. YEE: Madam Chair. 11 MS. HARKEY: Yes. Controller Yee. 12 MS. YEE: So, Mr. Hyatt, I want to just ask 13 you what this section of the contract means. This 14 is section 4.2. And it reads: 15 "Philips and Hyatt shall consult with 16 each other and use their best to efforts to 17 agree on the terms and conditions of 18 sublicenses to be granted by Philips, 19 pursuant the section 4.1 for the various 20 product categories and/or activities 21 covered by this licensable patents. In 22 particular, the parties shall endeavor to 23 arrive at mutually satisfactory model 24 sublicenses for such product categories 25 and/or activities. 26 "When approved by Hyatt" -- you're 27 approving them -- "such model, sublicense 28 or sublicenses, hereinafter approved 264 1 sublicense, shall serve as the basis for 2 Philips to sublicense others for the 3 appropriate product category or activity." 4 That's a condition of what Philips can do. 5 I mean it all turns on your approval. 6 MR. HYATT: May I? 7 MS. YEE: I'd like to hear. 8 MR. HYATT: What happened is there was 9 suspicion back and forth when they nego -- when the 10 Philips agreement was being negotiated. So there 11 had to be some guidelines. 12 Philips could not come up with guidelines 13 as to what they needed for -- for everything. There 14 were some variations. I could not sign a blanket 15 license agreement that gave them rights to do 16 everything. 17 So the way that it was worked out is they 18 would come up with their prototype, which they did, 19 and I agreed to that. And they went forward and 20 licensed the prototype. 21 They also said, but there's going to be 22 some contingencies. And my, uh -- and my concern 23 was -- and with some contingencies, and they needed 24 to be able to modify it. So that dealt with the 25 modifications to the -- to the prototype license 26 agreement that Philips might need. 27 The issue never came up because the 28 prototype license agreement, as the FTB keeps 265 1 saying, each one was the same as the next and the 2 next and the next. It was a prototype agreement. 3 It was pre-agreed to. There was no need for me to 4 agree to anything different. Philips never 5 presented that issue to me. 6 MS. YEE: So approval here is just your 7 signature? 8 MR. HYATT: The approval is my signature? 9 No, I didn't need to sign it. In fact, you'll hear 10 tomorrow that most of the money that came in, in 11 1992, I didn't have anything to do with. Philips 12 did that all themselves. 13 MS. YEE: Okay. This suggests there's 14 active consultation, which then provides the basis 15 for what Philips can do relative to other 16 sublicenses and then also the, you know, 17 compensation, the royalty. 18 So, I mean, it's a lot kind of embedded in 19 here. And I'm just trying to tease it out in terms 20 of your role in this because this suggests that you 21 had a very active role. 22 MR. HYATT: Well, first of all, it was 23 necessary to be sure that Philips used -- either 24 used the prototype agreement, which I didn't have to 25 deal with, or if they were going to make major 26 changes to it, to get my approval. So they couldn't 27 give away my licenses to my patents. I had to 28 protect myself. 266 1 Relative to the amounts of money, the same 2 thing happened. Philips could have conceptually, if 3 they had blanket authority, reduced the license 4 agreements to almost nothingless and given them 5 away. 6 So what happened is they had a formula for 7 the amounts of money and they had a prototype 8 agreement. And as long as they maintained those 9 within reason, then they had full authority. 10 It's only when they had to make major 11 changes in the agreements or the formula for the 12 amounts that they were charging that, uh -- that I 13 got involved. And in fact the records, the 14 documents show that there was a lot of work put into 15 Philips's prototype agreements and those prototype 16 agreements lasted for the whole program until it 17 ended. 18 The prototype was a good one and it was 19 never contested. I never had to give approval for 20 it. And the formulas were, um -- were well 21 established. 22 Would you like to -- the formulas were very 23 simple. The running royalty agreement was one 24 percent, and the paid-up license agreement was 25 something like three percent of one year, sales, 26 infringing sales, something like that. 27 So as long as Philips stuck to the 28 prototype and the formulas, which were -- I didn't 267 1 get involved. I didn't want to get involved. I was 2 really happy with what they were doing. 3 MS. YEE: Franchise Tax Board, your 4 understanding? 5 MR. HILSON: I think you're correct in the 6 portions of the contract that you looked to. And I 7 think deeper delving would reveal that this is all 8 part of the business plan that was developed by 9 Mr. Hyatt and Mr. Roth before they had -- before 10 they had gotten ahold of Philips and entered into 11 the contracts with Philips. All of this was 12 designed and devised before it -- before they got 13 the heavyweights to come in and assist with it. 14 And so to sit there and say that I had no 15 involvement, no role, it just simply is -- is -- 16 it's belied by the reality and it's -- it's in the 17 Exhibit A. These things were there. The -- the 18 whole idea of giving away the patent infringement 19 claims in terms for cash, all of that -- all of that 20 is brought into play before they sign on with 21 Philips, and the basic framework is all there. It's 22 implemented, nurtured and brought into fruition 23 after Philips comes on board. But this is all done 24 during '91 or before. 25 MS. YEE: All right. Thank you, Madam 26 Chair. 27 MS. HARKEY: Okay. 28 Yes. Member Ma. 268 1 MS. MA: To the Franchise Tax Board, if you 2 could review legal ruling number 145, dated June 3 27th, 1958, regarding royalty income as source, it's 4 pretty similar to this case. How is it different? 5 MR. HILSON: I honestly can't answer the 6 question. I'm not familiar -- 7 MS. HARKEY: Well, can we -- 8 MS. MA: Oh. 9 MS. HARKEY: Can we get that rule from 10 Appeals, maybe? 11 MR. THOMPSON: It'll take me a few minutes 12 to find it. 13 MS. HARKEY: I think it's a relevant 14 question. 15 MS. MA: Yeah. Legal ruling number 145 16 issued by the California Franchise Tax Board on June 17 27th, 1958. 18 MR. RUNNER: How do you -- what do you see? 19 MS. MA: Well, basis is taxpayer, a 20 nonresident of California, licensed X to conduct his 21 copyrighted courses in a prescribed area of 22 California. Although the contract appears to give X 23 an exclusive right to conduct the classes in X's 24 particular area, taxpayer retained the right to 25 conduct certain other courses in said area. 26 However, it appears that this right was never 27 exercised. 28 Under the contract, X agreed to pay a 269 1 royalty of 12 percent of the gross proceeds of this 2 course. Advice is requested as to whether the 3 royalties are income from California sources. 4 So it goes down and it basically concludes 5 that under the circumstances the royalties received 6 from X are not taxable under the personal income tax 7 law as income from California sources. 8 MR. HILSON: I honestly don't know what the 9 analysis was or -- 10 MS. HARKEY: We'll pull it up. 11 MR. RUNNER: I have a quick follow-up 12 question, too, for the taxpayer. 13 MS. HARKEY: Sure. 14 MR. RUNNER: I don't know if Member Horton 15 wants to -- 16 MR. HORTON: While they're looking, a 17 question of the Department. 18 If the -- if -- if -- I don't like asking 19 hypotheticals. So let me just, in this particular 20 case, Philips clearly is an agent of the appellant. 21 And presuming that that is the case, that Philips is 22 an agent of the appellant, is that sufficient in and 23 of itself to have activity in California that would 24 establish sourcing in California? 25 MR. HILSON: Well, I think it all goes back 26 to running the business in California, yes. 27 MR. HORTON: Let me stress the hypothetical 28 to -- to -- to -- to the case that Member Ma is 270 1 referencing wherein, let's say as of October 20th of 2 1999, the taxpayer is domiciled in Nevada and still 3 transaction -- transacting business in California 4 through their agent Philips, what would be your 5 opinion as to how that would affect the sourcing 6 issue? 7 MR. HILSON: Well, again, if we're talking 8 about just a -- you know, a right to collect 9 something -- 10 MR. HORTON: No, no, no. 11 MR. HILSON: But if you're running a 12 business -- 13 MR. HORTON: The participation takes place 14 outside of the State of California, you have an 15 agent in the State of California that is executing 16 to some degree, at some point you have a right of 17 refusal or right of acceptance and that is executed 18 through your agent, your California-based agent. 19 MR. HILSON: Well, if the business activity 20 is being conducted in California and the control is 21 being exercised from out of state, reaching over the 22 state border, into California, yeah, you're still 23 conducting a business in California. 24 MR. HORTON: And to the question of 25 conducting that business through an agent that's 26 operating out of California? 27 MR. HILSON: An agent operating out of 28 California, meaning physically situated in 271 1 California? 2 MR. HORTON: Physically situated in 3 California, transactions taking place in 4 California. 5 MR. HILSON: Same thing. Because the -- 6 the agent is responsible to you. It's an arm of 7 you. 8 And, Ms. Ma, I really think that that is 9 probably the answer to this distinction between the 10 situation in the legal ruling and this is this is an 11 ongoing operation of a business. It is transmuting 12 a patent, which is just essentially a piece of 13 paper, into an ongoing business, running it, 14 operating it, controlling it from and in 15 California. 16 MR. HORTON: Um, Madam Ma, with your 17 permission. 18 The -- the same question -- well, let me -- 19 Mr. Hyatt, what say you as to the role of Philips 20 and -- and transacting the business under question? 21 MR. HYATT: Thank you, Your Honor. 22 It's a very, very good point. There was no 23 agent in California. If Philips was considered to 24 be an agent, they operated out of New York and 25 Eindhoven. 26 All of the licensing done in 1991 disputed 27 period was done by Mahr Leonard, and they worked out 28 of Texas, not California. They had no place in 272 1 California. 2 There was no agent in California. If there 3 were any agents, they were in Texas and in New York 4 and Eindhoven. And the Board has very generously 5 given me -- and thank you personally -- the Nevada 6 residence as of October 20th. I was doing 7 everything in Nevada there. And so it was from New 8 York and Texas to Nevada. 9 I don't see where a California agent comes 10 in or there's anything to that effect. 11 MR. HORTON: Question of the Department. 12 What transactions took place in California to 13 constitute California sourcing, aside from the 14 allegation that he lived in California? 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 273 1 ---oOo--- 2 MR. HILSON: Well, all of the business 3 correspondence is going through California. It's 4 coming through Southern California. Mr. Roth is 5 here, he's in Los Angeles, he's reviewing, he's 6 exercising the documents. He's making sure the 7 money is coming in, he's getting it, he's 8 transmitting it to Mr. Hyatt. Mr. Hyatt from there 9 is disbursing it all out of California. 10 MR. HORTON: Disbursing it meaning that Mr. 11 Hyatt actually wrote the checks, signed the checks? 12 MR. HILSON: Correct. 13 MR. HORTON: Because I think you had 14 evidence to that effect. 15 MR. HILSON: Yes. 16 Mr. Hyatt. 17 Thank you, Madam Chair. 18 MS. HARKEY: Yes. 19 MR. HYATT: Your Honor, there definitely 20 was some licenses that I did disperse the income on 21 behalf of Philips, three of them. But most of them 22 not. There was, for example, three licenses -- 23 MR. HORTON: In your explanation you say -- 24 apologies for interrupting. But in your explanation 25 as continued, did you indicate the dates and times 26 of those three? 27 MR. HYATT: Yeah, the three that I did 28 distribute? 274 1 MR. HORTON: Yes. 2 MR. HYATT: Yes. I think that they were 3 Fujitsu, Oki and Matsushita. But then in December 4 there were three more. I never touched that money. 5 Philips never asked me to distribute it. It went 6 from the Japanese Company to their trust account at 7 the law firm, and then were instructed to transmit 8 it straight to Philips. I never got involved in 9 that. And then Philips figured out what the -- what 10 I'm due. 11 And then in 1992 -- which you'll hear about 12 shortly depending upon your decision here -- in 13 1992, Philips wire transferred those into my 14 companies. 15 So their statement that all of the 1991 16 income I distributed is absolutely untrue. And I 17 think the major portions of it were sent right to 18 Philips, and Philips distributed my share to me. 19 MR. HORTON: Did you participate in 20 negotiations in any form or fashion? Your 21 participation was limited to basically a veto power? 22 MR. HYATT: Your Honor, I did not do any 23 negotiations. I was precluded from that. From 24 1991 -- 25 MR. HORTON: When you say you were 26 precluded, what precluded you? 27 MR. HYATT: From 1991 Mahr Leonard had 28 exclusive negotiating rights. And Philips had 275 1 exclusive total rights, total authority for the 2 licensing. It was -- I had nothing. I couldn't 3 license my own patents. I couldn't even negotiate 4 for fear of breaching these agreements. 5 And these were very, very valuable 6 agreements to me. And there's no purpose for me to 7 negotiate them or license them. I'm an inventor, 8 I'm not a licensing specialist. And here were 9 world-class licensing attorneys, and companies with 10 world connections taking on the licensing of my 11 patents. It's -- it's just absurd for them to 12 allege that I would try and preempt these great 13 licensing experts, and as a amateur get involved in 14 there and interfere with them. 15 MR. HORTON: You -- you testified earlier 16 that in the interest of protecting your interest, 17 you retained certain rights and controls. 18 MR. HYATT: Yes, you're right, Your Honor. 19 But what happened is Philips was investing a lot in 20 here, not only in money, but in their reputation 21 worldwide, and they needed protection. 22 So what they said was, "Let's come up with 23 a prototype agreement and acceptable fees. And as 24 long as we're within that area, we don't need 25 Hyatt's approval." 26 But to protect me, I needed approval if 27 they got way off from that. If they gave -- if they 28 gave free licenses to the patents, for example, I 276 1 needed approval for that, because I had only 2 approved in the license agreement the three percent 3 full paid-up royalty and one percent running 4 royalty. 5 So those are apples and oranges. Those 6 were boundary conditions that we had agreed to, and 7 they never were exceeded, and they were just 8 theoretical. 9 MR. HORTON: Question to the Department. 10 What if this -- the right to reject did 11 exist, but was never executed, and wasn't executed 12 in this case? The testimony of the appellant is 13 that he never executed that right. 14 MR. HILSON: It's still an element of 15 control. 16 MR. HORTON: And the appellant indicated 17 that there was language to indemnify. Can you speak 18 to that language? 19 MR. HILSON: There is -- there is language 20 in supplements suggesting that in exchange for 21 Mr. Hyatt taking these contracts in his own name, 22 Philips will indemnify him for doing so. 23 But, however, as I pointed out before, that 24 language really doesn't make a whole lot of sense, 25 because we're talking about 24 patents in all of 26 these contracts. And that 24th patent was exclusive 27 to Mr. Hyatt. It's the reason why he is signing 28 these contracts, because Philips can't give that 277 1 waiver of the patent infringement right. That's 2 that last 951 patent that is excluded from the 3 Philips contract. It is absolute control by Mr. 4 Hyatt. 5 MR. HORTON: So the indemnification clause 6 has no significance? 7 MR. HILSON: Yes. 8 MR. HYATT: Your Honor, may I respond to a 9 misstatement? 10 MR. HORTON: Yes. 11 MR. HYATT: There was no suggestion of 12 indemnification. Philips wanted me to help it, 13 because it was having concerns with its 14 cross-licensees. So it asked me to sign, and -- so 15 that its cross-licensees would not know that they 16 were behind it. 17 So what happened was they had exclusive -- 18 essentially exclusive authority. And in order to 19 give me the -- in order for me to sign those, they 20 gave me what was called supplemental agreements. 21 Every time they asked me to sign something, they 22 gave me a supplemental agreement that drew the 23 boundaries of what I could do and gave me 24 authorization. 25 Because I didn't have authorization to sign 26 those myself. I didn't have the authority to do so. 27 They had to do that with supplemental agreements. 28 And the supplemental agreements, Your Honor, 278 1 specifically said -- it wasn't a suggestion. Not at 2 all. It was an absolute legal commitment that they 3 would indemnify me and hold me harmless for anything 4 having to do with my signing of these agreements on 5 their behalf. 6 MS. HARKEY: Member -- 7 MS. MA: Okay. Is this on? Can you hear 8 me? Is this one -- maybe this one. 9 Okay. So here -- I guess to the Franchise 10 Tax Board, how is this -- and I understand I'm 11 trying to get through this business situs arises 12 from the owner of the intangible imploring the 13 intangible as an integral portion of the business 14 activity of the regular place so that it becomes 15 identified of the economic structure of that place 16 and loses its identity with the domicile of the 17 owner. 18 And that was in Holly Sugar Corp v. 19 McColgan, 1941. 20 So I'm having -- intangible, to me, is 21 licensing a patent, you know, copyright, which I 22 think he did. But when you talk about the patent 23 being an integral portion of the business activity 24 of a regular place, part of the economic structure 25 of that place, and loses the identify with the 26 domicile of the owner, like, I don't -- I don't see 27 he has an office that, you know, that there's like 28 an active trade or business going on. 279 1 You know, I think when he was developing 2 the patent, yes, right, he had a business, he had an 3 office. He did a lot of work and filings and paying 4 checks. But after he developed his patent, and he 5 licensed it, how is that still an integral part of 6 an active trade or business? 7 MR. HILSON: When he developed the patents 8 and got the approvals, it was all done through his 9 house. The house was his place of business. 10 The intangible is the patent itself. If we 11 were talking about -- if he had sold the patent and 12 we were talking about income that was the result of 13 selling the patent, yes, it's an intangible. It 14 follows the domicile. 15 However, what we have done here is we're 16 not selling the patent. We're transmuting it into 17 an income producing -- we're -- we're transmuting it 18 into income production. And that is being done, 19 once again, through the Jennifer Circle house. 20 All of the communications -- the -- all of 21 the communications are going back and forth that 22 way. The contracts, once they're signed by the 23 Japanese are all going to Jennifer Circle. Hitachi 24 comes on board and announces its interest by means 25 of a telefax to Jennifer Circle. 26 This business has been conducted in such a 27 way that the patents and the rights and the way 28 that -- and the ability to get in and want to do 280 1 something and make some use of it is all through 2 California. This business is being operated and is 3 in California. 4 MS. MA: So it would be consistent with my 5 comments before if I am focused on all of the 6 addresses, the fax numbers from all of these 7 contracts, legal documents going to the Jennifer 8 address, then I would consider this a trade or 9 business? 10 MR. HILSON: Correct. 11 MS. MA: Okay. 12 MS. HARKEY: I just would like to say I do 13 appreciate exhuming this legal ruling 145, because I 14 believe it was royalty income for that, and this 15 speaks to when he moves, it moves. And that's 16 June 27th, 1958, legal ruling No. 145, California 17 Franchise Tax Board, royalty income received by a 18 non-resident for exclusive licensing agreement of a 19 copyright item -- and this could be a patent 20 item -- for use in California is not income from 21 sources in this state. 22 So I think with the mere change of 23 copyright or patent, meaning the same thing, it's 24 intellectual property, that this speaks pretty 25 clearly. 26 Did you ever find this? I can send you 27 the -- 28 MR. THOMPSON: Yes, thank you. 281 1 MS. HARKEY: Okay. Thank you. 2 So did you want Appeals to opine? 3 MR. RUNNER: Yeah. 4 MR. THOMPSON: The only reaction I would 5 have is that the ruling assumes something that's at 6 issue here. Because it says, "Nor does the taxpayer 7 conduct a trade or business in California in such a 8 manner as to give income source to the state." 9 And I think a lot of the discussion here is 10 about whether that occurred. And the legal ruling 11 just assumes that was not established. So -- 12 MS. HARKEY: Okay. If we just establish 13 that as of 10/20/91 he's a Nevada resident, if the 14 contracts are dated after this date, then should 15 they still be sourced to California? 16 MR. THOMPSON: For the purposes of the 17 sourcing inquiry and whether there's a business 18 situs or business operated in California, I guess I 19 hesitate to see the date of the contracts as 20 decisive, I want to say. I mean, I guess you could 21 find the contracts are being signed so frequently in 22 California, that arises to a trade or business. But 23 what I'm weary of is the idea that because you sign 24 a licensing contract in California, that by itself 25 means it's California sourced income forever. And 26 that would be too broad. It has to be tied to this 27 trade or business standard, that it's an integral 28 part of a trade or business in California. 282 1 MS. HARKEY: Okay. 2 Board Members, do we have any motions or 3 anything else to entertain here? 4 MR. RUNNER: I think I want to tease out 5 the discussion of trade or business a little bit 6 because that's a credible issue. 7 MS. HARKEY: Okay. You're not ready yet. 8 MR. RUNNER: So just signing the contract 9 is not enough. The idea, again, is that you're 10 actively operating -- well, I'll let Appeals. 11 What are some of the issues that would 12 indicate the active operating of a business in the 13 state of California? 14 MR. THOMPSON: I hate to say this, but it's 15 a very facts and circumstances-oriented kind of 16 question. When you start to ask is someone engaged 17 in a trade or business, I think what the Case Law 18 indicates is it needs to be an activity that's 19 substantial and continuous in active in nature. And 20 it's hard, you know, to get more specific in the -- 21 MR. RUNNER: So I guess what we have 22 established here is there's -- let me see if I 23 understand this. What we do is we have some faxes 24 that are going back and forth. We have mail that's 25 being delivered in California. Even though we have 26 testimony, I mean, affidavits signed correcting the 27 address, we do have from some of these same 28 companies. So we'd have to not believe the 283 1 affidavits that were signed, that they were 2 incorrectly corresponding to his California address. 3 We'd also have to believe that he's running 4 a business out of a house that he doesn't own 5 anymore. Because we've already established the fact 6 that he's a Nevada resident. That seems like an 7 awfully big leap from both of those issues. 8 Again, you'd have to dismiss the 9 affidavits, because that whole argument is based 10 upon the affidavit -- or based upon the fact that 11 the affidavits were -- or that -- excuse me -- that 12 the mailings were correct, to which the people who 13 made the mails and the fax said they were incorrect 14 because of a mistake. And you have to establish the 15 fact he was running a business to which he was not a 16 resident of. And those are two pretty big leaps for 17 me. 18 MS. YEE: Madam Chair. 19 MS. HARKEY: Yes, Ms. Yee. 20 MS. YEE: I think to characterize what was 21 happening of the Jennifer Circle location was just 22 correspondence going back and forth is a major 23 understatement. We had contracts that were actually 24 getting executed, and payments being made. And it's 25 much more substantial than correspondence going back 26 and forth. I mean, this is like running a 27 business. 28 MR. RUNNER: I don't think we've got any 284 1 evidence that contracts were signed at Jennifer 2 Circle. 3 MS. YEE: Well, there's supplements to 4 contract -- Philips signs supplemental contract goes 5 to Jennifer Circle. 6 MR. RUNNER: They went there, but I don't 7 think they were signed there. 8 MS. YEE: Helen executes Sharp contract -- 9 oh, that's Cerritos. Let's see. But it's more than 10 just correspondence is what I'm saying. I mean, 11 there's actually, like -- this is transactions 12 around contracts. 13 MS. HARKEY: That is the debate, and, 14 hence, we have to -- if anybody would like to make a 15 motion we can throw it up and see what we've got. 16 MS. YEE: I'll make a motion for discussion 17 purposes. I'm happy to make a motion on the issue 18 of sourcing. 19 MR. RUNNER: That's what's on the table. 20 MS. YEE: I'll move to sustain the 21 Franchise Tax Board. 22 MS. HARKEY: Is there a second for that? 23 MS. MA: It would be consistent with my 24 first argument. I second. 25 MS. HARKEY: Okay. 26 MR. HORTON: Let me explorer this a little 27 bit to Appeals. 28 Well, to the Department, any evidence that 285 1 the contract was actually executed in California 2 regardless of where the residency is? Was a 3 document signed in California to consummate a 4 contractual relationship, and then shipped from 5 California or mailed from California back to the 6 parties? Or is the evidence that we have is just 7 the mailing of the document to a California 8 location? 9 MR. HILSON: The agreements in the -- the 10 agreement between Mr. Hyatt and Mr. -- Mr. Hyatt and 11 Philips and the supplements recite Mr. Hyatt's 12 presence and address at Jennifer Circle. They're 13 signed by him. Where they're signed -- where he was 14 when he signed them, I don't know. 15 The contracts signed by the Japanese, I'm 16 assuming are signed in Japan, and then were sent to 17 Jennifer Circle. Where Mr. Hyatt was when he signed 18 those individual contracts, I do not know. 19 MR. HORTON: We don't know. 20 The alleged payments by Mr. Hyatt or their 21 agents, are they -- were the payments out of a 22 California bank or -- yeah? 23 MR. HILSON: They're all drawn on a Palo -- 24 I believe a Palo Alto account. They are all signed 25 by Mr. Hyatt, dated by Mr. Hyatt, and reflect an 26 address of Jennifer Circle. 27 So I believe that is evidence that, yes, 28 they were paid from Jennifer Circle. 286 1 MR. HORTON: Question of Appeals. 2 Going from memory here, which I probably 3 shouldn't do, but is it possible to actually 4 transact business in California and reside outside 5 of California? 6 And I'll ask the question about the 7 intangible. You can answer the question about the 8 intangible where the law establishes the business 9 for the intangible versus tangible, that we can 10 physically, you know, identify. 11 MR. THOMPSON: I mean, yeah, I would think 12 there could be circumstances once a taxpayer resides 13 outside of California. Of what directs the 14 operation on the business, I don't know. It's kind 15 of a factual question. 16 MR. HORTON: Yeah. Other than -- and I'm 17 being redundant, but just to make sure that I've 18 given the Department an opportunity to respond. 19 Other than the mailing of the document, which has 20 been alleged to be incorrectly mailed to this 21 California site, and it's been alleged that the 22 document was ultimately received somewhere in Nevada 23 as a result of a forwarding of this document or 24 somehow he received it, maybe Ms. Jeng delivered it, 25 I don't know. We haven't explored that. Any 26 contemporaneous evidence that something took place 27 other than the mailing here in California relative 28 to doing business in California? 287 1 MR. HILSON: Well, there's all the meetings 2 with the lawyers, and the lawyers reviewing and 3 drafting documents. 4 MR. HORTON: And where did that take place? 5 MR. HILSON: Los Angeles. 6 MR. HORTON: Okay. 7 Mr. Hyatt. 8 MR. HYATT: Thank you, Your Honor. 9 There are a whole bunch of things. First 10 of all, the evidence in the record is very clear. 11 For the six license agreements that I signed in 12 1991, two of them were signed in Virginia from Mahr 13 Leonard overnighted them to my hotel in Virginia, 14 and I signed them and sent them back to them. 15 The other four were signed in my Las Vegas 16 apartment and sent back to Mahr Leonard. 17 So none of them -- and a lot of this was 18 premised on my signing all those agreements in 19 California. That's absolutely untrue, and the 20 evidence shows that very, very clearly. 21 MR. HORTON: What -- what evidence? 22 MR. HYATT: The affidavits and -- 23 MR. HORTON: You have affidavits that you 24 mailed the document from a Nevada location? 25 MR. HYATT: Yes, and that I signed them in 26 Nevada, and because I lived in Nevada. 27 MR. HORTON: Who affirmed that? I don't 28 remember reading -- I read them all and I don't 288 1 remember reading -- 2 MR. HYATT: I -- they were my affidavits. 3 But they are in the record, the FTB knows it, and 4 they're misrepresenting. And that's the only 5 evidence that's there. And I'm the only eyewitness. 6 So whether you believe me or not, the fact is that 7 it's a misrepresentation that there is no -- that 8 the -- that they were signed in California in view 9 of there being the only evidence being my 10 affidavits, where I actually did sign them. But I 11 think there is also evidence that two of them were 12 -- other evidence that two of them were signed in 13 Virginia. 14 MR. HORTON: What evidence do you have that 15 two of them were signed in Virginia? 16 MR. HYATT: I think that Mahr Leonard -- 17 I'm sorry -- Dave Leonard of Mahr Leonard may have 18 put in his declaration that he mailed them, he sent 19 -- overnighted them to my Virginia hotel. 20 But I'm not sure of that. I would have to 21 check his declaration to be sure. 22 MR. HORTON: Given the significance of 23 these transactions, by chance did you send the 24 document by registered mail or anything like that? 25 MR. HYATT: Your Honor, let me describe 26 what -- the protocol. Mahr Leonard were really 27 professionals, and to be absolutely sure, they not 28 only sent me the agreement, they also sent me a 289 1 returned mailer that was pre-addressed and 2 authorized charging to their account. 3 So what happened is I got the agreements, I 4 read through them, I signed and dated them, put them 5 in the envelope that they sent me, and dropped it in 6 the mail -- dropped it in the overnight. 7 MR. HORTON: Does the Department have a 8 copy of these agreements, the signed agreements, and 9 the date that it was signed? 10 MR. HILSON: The contracts? 11 MR. HORTON: Yeah. 12 MR. HILSON: Yeah, we've got copies of the 13 contracts. 14 MR. HORTON: And when were they signed? 15 MR. HILSON: Fujitsu was signed in October, 16 Matsushita was signed in November. The other two -- 17 Sharp was also signed in November, both contracts; 18 Oki was signed in October; Sony and NEC were signed 19 in December. 20 MR. HORTON: Question to the appellant. 21 The business plan that was developed, you 22 discussed, kind of developed that with your lawyer, 23 Mr. Braggs, I believe -- I mean, not Braggs -- 24 MR. HYATT: To a certain degree, Your 25 Honor. What happened was Philips wanted some 26 guidelines as to what they could do. And we asked 27 Mahr Leonard, who had been doing unsuccessfully some 28 licensing, I engaged them in December of 1990, and 290 1 they utterly failed. But they drafted a description 2 of what they thought that Philips should be held to. 3 I sent that to Philips, Philips -- Mahr Leonard sent 4 that to me, I sent that to Philips, Philips edited 5 it to what they were comfortable with, and they put 6 it into the July Philips agreement. 7 MR. HORTON: Can the Department describe 8 the negotiations that took place here in California? 9 MR. HYATT: Excuse me, Your Honor? 10 MR. HORTON: To the Department, if they can 11 describe -- FTB, if they can describe the 12 negotiations that took place here in California. 13 MR. HILSON: All I can tell you is -- I can 14 summarize for you what's in the legal billings and 15 in the descriptions that were there. And it ranges 16 from conversations with the Japanese, negotiation 17 sessions with the Japanese, drafting documents, 18 editing documents, conversations and meetings with 19 Mr. Hyatt. 20 MS. HARKEY: I have something here that I'd 21 like to share. 22 MR. HORTON: Yeah, go ahead. 23 MS. HARKEY: Okay. It was exhumed by a 24 member. It's a memorandum dated August 21st, 1995. 25 This is an FTB memorandum. And it talks about the 26 facts. It's from Monica Embry, and it's to Allan 27 Shigemitsu, Sheila Cox, Rebekah Medina, Richard 28 Gould, and it talks about the facts and the audit 291 1 issues and the residency, and that says trade or 2 business situs is the second page, page 2. 3 "We discussed the possibility of 4 determining the taxpayer was in a trade or business 5 developing patents and selling licenses. The 6 taxpayer was reporting all his legal expenses for 7 protecting the patent on Schedule C. The taxpayer's 8 corporation did all the marketing for the license. 9 Both the trade or business and the business situs 10 exception to the Mobilia Doctrine require as a 11 threshold matter that the owner of intangible be 12 engaged in trade or business. 13 "The business situs exception requires 14 further mobilization of the intangible to the place 15 where the business is conducted. Although the 16 taxpayer may have developed other patents, we found 17 very few facts to support a position that the 18 taxpayer was in the trade or business developing 19 patents. 20 "Additionally, since a licensing agent can 21 move the patents after the rights were obtained, the 22 taxpayer was not involved in any further 23 localization of patents, if any, in California. 24 "For these reasons, we agree there was 25 little evidence to support the position the taxpayer 26 was in a trade or business of developing patents, or 27 that the patents had required a business situs in 28 California." 292 1 And this was a review of the audit. They 2 met on June 1995 -- June 6th, 1995 to discuss 3 possible audit positions available for case. So 4 this is the case, and this is the FTB memo about 5 business situs. 6 MR. HILSON: That is correct. And as I 7 mentioned earlier, this was done during the audit. 8 This was at a time when the auditors and the review 9 team didn't have the documentation that we obtained 10 in 2011 revealing the extent of what was going on 11 here and how these business negotiations were being 12 conducted, where they were being conducted, and the 13 fact that all this was being run through California, 14 in particular, localized to La Palma. 15 MS. HARKEY: What they're saying, though, 16 is that this wasn't a trade or a business anymore, 17 it was a royalty. It was a patent. And that's 18 really what they're saying, that he's not involved 19 in any business in California. He's not involved in 20 the business of developing these things. He was 21 licensing patents which were royalty, and they did 22 not determine that this had acquired a business 23 situs. 24 So I understand what you're saying, but I'm 25 reading it here. And this is pretty close to the 26 time the analysis was made. So maybe there are 27 other things coming forth, but I don't think it 28 changes the fact the royalty income was derived 293 1 from -- it was not derived from a trade or business 2 conducted in California, it was derived from 3 licensing patent. So with that -- 4 MR. RUNNER: Just a quick question. To 5 clarify the locations of the contracts being signed. 6 So what do we have evidence-wise that shows the 7 contracts were actually signed in California? 8 MR. HILSON: As I mentioned all I have -- 9 the Japanese contracts, I don't know where Japan 10 signed -- 11 MR. RUNNER: Okay. 12 MR. HILSON: -- I don't know where Mr. 13 Hyatt signed them. 14 MR. RUNNER: Okay. 15 MR. HILSON: The contract with Philips -- 16 the supplements to the contracts with Philips recite 17 that he has at Jennifer Circle. Whether he actually 18 signed them at Jennifer Circle or somewhere else, I 19 don't know. 20 MR. RUNNER: Well, okay. They site that's 21 where they were sent to? 22 MR. HILSON: It sites where he is of and 23 living. 24 MR. RUNNER: But doesn't -- okay. So -- 25 let me get -- just to get an idea of what that was, 26 that was an amendment to a contract? 27 MR. HILSON: The original contract, July 28 24th, 1991 has Mr. Hyatt residing at Jennifer 294 1 Circle. 2 MR. RUNNER: It doesn't say that, it just 3 happens to have that address on it, right? 4 MR. HILSON: An individual residing at -- 5 MR. RUNNER: Oh, okay. Gotcha. 6 MR. HILSON: And that continues in the 7 supplements. As I said, I don't know -- 8 MR. RUNNER: Okay. I see what you're 9 saying. You're saying that in those supplements and 10 whatnot, they were describing him as a resident of 11 that address. 12 MR. HILSON: Correct. 13 MR. RUNNER: As to whether or not he signed 14 it at that address, we don't know. 15 MR. HILSON: Correct. 16 MR. RUNNER: And is that the same -- who is 17 that one from? 18 MR. HILSON: Those are the -- that's the 19 contract with Philips. 20 MR. RUNNER: Okay. And Philips is the same 21 one that gave the -- Philips is the same one -- is 22 that the same individual, then, the same company, 23 the same individual that did the affidavit that they 24 had done that by mistake? 25 MR. HILSON: Yes. 26 MR. RUNNER: Okay. 27 MR. HILSON: Certainly not in July, but 28 perhaps it's one of these other -- you assume that 295 1 -- I don't recall off the top of my head what date. 2 MR. RUNNER: I'm just having difficulty at 3 this point, if we're trying to -- if we are trying 4 to then decide that this is a sourcing issue based 5 upon doing business in the state of California, and 6 we have an affidavit from the person who -- and 7 we're basically using his correspondence to say, 8 "Look, he's doing business in California." But the 9 guy who sent it says, "We made a mistake. That's 10 not where he -- that's not where was. That's not 11 where he lived." 12 That, to me, I mean -- am I missing 13 something there? 14 MR. HILSON: Yes, it's another 15 representation of where this business is and where 16 it's being done. 17 MR. RUNNER: Yes, but the guy said he made 18 a mistake. 19 MR. HILSON: Mr. Hyatt signed the contract. 20 MR. RUNNER: Well, let me ask you, why 21 would you sign the contract that basically had an 22 address that was incorrect on it? 23 MR. HYATT: Well, first of all, there were 24 several. The first thing I'd like to point out is a 25 bunch of these contracts, supposedly, had my Nevada 26 apartment address and expressly says -- and these 27 were all in the preambles. These were not the 28 addresses to contact me at in the preamble just to 296 1 identify me. 2 But it says expressly, "Mr. Hyatt residing 3 at the Pecos (phonetic) address," which was my 4 apartment. All of the ones -- the ones in December, 5 I finally got Phillips to correct it. 6 So what happened is Philips had initial 7 supplemental agreements in October, and they rushed 8 those through because Mahr Leonard wanted them for a 9 trip to Japan. So I signed what they sent me, which 10 was -- 11 MR. RUNNER: What was the date of those -- 12 that one? 13 MR. HYATT: Pardon me? 14 MR. RUNNER: What was the date of that one? 15 MR. HYATT: Those were a couple in mid and 16 the end of October, I believe. I'm speaking from 17 memory. 18 So -- but what happened -- 19 MR. RUNNER: Mid and end of October, okay, 20 '91. 21 MR. HYATT: And the one in mid October -- 22 okay. 23 So I signed those, and supplemental 24 agreements, and gave them to Philips, sent them back 25 to Philips. I signed them in Nevada and I sent them 26 back to Philips. And they had the -- I think they 27 had the California P.O. Box address in there, but 28 I'm not sure. However, I kept insisting that 297 1 Philips correct all of these address mistakes. And, 2 therefore, when they came through with the next 3 round of agreements in December, the NEC and Sony 4 agreements had my Pecos street address for my 5 apartment in there. And the two supplemental 6 agreements, I believe, also had my Pecos address. 7 So Philips finally started to get it right. 8 MR. RUNNER: Okay. Let me ask -- thank 9 you. 10 Let me follow up on that. 11 Would the FTB, then, be less compelled on 12 that issue if indeed the addresses were correct in 13 those -- in the subsequent contracts, that they 14 listed the Las Vegas address? 15 I guess my question is if you are compelled 16 to believe he was doing business in California 17 because of the preamble of what he signed, had 18 the -- had the California address, but then the 19 others following up on that had the correct Las 20 Vegas address, would you -- would we feel then the 21 next ones, the following ones were correct and, 22 therefore, were not California sourced income? 23 MR. HILSON: No, because when these next 24 ones come out, the day that these things are being 25 signed, or that they're executed or reciting they're 26 created, there's correspondence going right to 27 Jennifer Circle. 28 So the localization of Jennifer Circle and 298 1 its involvement in this business continues. It 2 never goes away. Regardless of whether the 3 residency may have changed, Jennifer Circle and its 4 involvement with this business continues. 5 MR. RUNNER: Okay. And, again, it's based 6 upon then -- again, the hurdle that I'm having is 7 based upon the fact the people who are sending that 8 correspondence said they sent it to the wrong 9 place. 10 MS. HARKEY: Yeah. Members, I may have 11 gotten us a little bit off track here. We had a 12 motion and a second, and we opened up the public 13 hearing again and didn't announce it. So I want to 14 go back and see if the motion and the second are 15 still in play? Okay. 16 Then we need to bring it back to the Board, 17 and we can have a Board discussion. But I think 18 that -- that we need to move on the motion and a 19 second, or have a Board discussion. 20 MR. HORTON: Madam Chair, I ask the maker 21 of the motion to temporary rescind their motion to 22 allow a discussion of the matter to see if we could 23 solicit additional information that may not be part 24 of the testimony prior to the motion. 25 MS. HARKEY: I think we've done a lot of 26 that. So if you would rescind your motion -- 27 MS. YEE: I'm happy to rescind the motion. 28 What I would ask is whether maybe we could define 299 1 and narrow what it is that we're taking under 2 submission to consider. We're kind of drawing 3 straws here on issues that I don't believe are 4 relevant. 5 MS. HARKEY: It's supposed to be just the 6 sourcing, whether it was California sourced. Now 7 we've already established that two of the Philips 8 supplemental agreements were dated 10/31/1991 and 9 signed 12/12/91. Another was dated and signed in 10 '92. And all three were well after we established 11 residency. We already established residency at 12 10/20/91. So that's kind -- we're just dealing with 13 the sourcing. 14 You made a motion for the FTB. 15 MS. MA: No, I'm happy to rescind the 16 motion. I just wanted to -- I'm troubled by kind of 17 a lot of things that are surfacing. One, I think 18 we're getting lost in terms of how to look at 19 things. 20 And context, I think, Madam Chair, you were 21 siting a 1995 memo that had a conclusion well before 22 any Philips documents were provided. This legal 23 ruling that surfaced today, I had no context to put 24 that in, no idea what the facts were that led to the 25 legal ruling in 1958. And I really get nervous 26 about that without the whole, kind of, analysis of 27 that. 28 So I'm happy to put the motion over or to 300 1 take this under submission. But just to kind of 2 narrow what the issue is before us. 3 ---oOo--- 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 301 1 ---oOo--- 2 MS. HARKEY: Right. I understand your 3 reticence, and I appreciate -- I appreciate that. 4 I do think there's substance to what we're 5 bringing up. Because if the position of FTB was 6 once one way based on current with the audit and 7 then changed later, I think that's important with 8 regard to sourcing. 9 And so that's why we -- this is all in the 10 file. All of this was in the file -- 11 MS. YEE: Mm-hmm. No, I agree. 12 MS. HARKEY: -- came out of an exhibit. 13 MS. YEE: I agree. And there's been a 14 chronology of events that have taken place that I 15 just want to be sure we put in the proper context. 16 MS. HARKEY: I understand. Thank you. 17 MR. HORTON: Madam Chair, if I may. 18 MS. HARKEY: Yes. 19 MR. HORTON: Maybe a question of Appeals 20 will sort of help clarify this. 21 At least -- I don't necessarily share the 22 same concerns in the line of questioning, but my 23 question sort of goes to whether or not -- whether 24 or not an intangible is automatically situs at the 25 resident, or can the intangible acquire a business 26 situs separate from the residence? 27 My understanding is, is that that happens 28 all the time. So there is no compe -- I'm just -- 302 1 compelling reason to -- to determine sourcing based 2 on determination of domicile. 3 If there is a business situs, my 4 understanding of the testimony thus far is that 5 negotiations took place with a lawyer here in 6 California, um, decisions were made, plans were 7 made. Patents were developed here in California. 8 So, what's your understanding of the law? 9 MR. THOMPSON: Yes. I think the general 10 rule is that intellectual property and income 11 therefrom follows the domicile of the owner. But 12 there is the business situs exception. 13 So I think it's really a factual question 14 for the Board whether that exception applies. 15 MR. HORTON: And so I don't know if we 16 really entertain the business situs and -- as always 17 when, you know, you come into these hearings, 18 there's additional discussion and information that 19 brings -- enlightens some of the testimony and some 20 of the facts that are part of the record. 21 And so I may need -- may request Members to 22 have an opportunity to go back and review those 23 documents again. And particularly in light of the 24 case law that has been submitted. Although I am 25 somewhat familiar with the case law and don't 26 necessarily believe that it is -- I believe that 27 it's relevant, but I don't know that it would change 28 my decision. 303 1 Question of the Department. Where's the 2 lawyer who developed the business plan located? 3 MR. HILSON: Los Angeles. 4 MR. HORTON: And question of the appellant. 5 The development of the patents, development of the 6 concept, the intangible, where did that take place? 7 Where were you when that happened? 8 MR. HYATT: Oh, I'm sorry, Your Honor. 9 When the business plan was developed? 10 MR. HORTON: Yeah, when the business plan 11 was developed. But the question that I actually 12 asked was when you developed this intangible, where 13 were you when that occurred? 14 MR. HYATT: I was living in California when 15 I developed -- when I got the patents. However -- 16 MR. HORTON: When you decided to -- that 17 there was a value to these patents and you began 18 to -- to -- strike that. 19 When there was a dispute over the patents, 20 when did that occur, the dispute as to who had the 21 right to the patents? 22 MR. HYATT: Is that the -- on the micro -- 23 the dispute on the microprocessor? 24 MR. HORTON: Yes. 25 MR. HYATT: That patent issued in 1990 and 26 the dispute carried on into a few years in the 27 future. 28 MR. HORTON: When did you enter into an 304 1 agreement with Philips to negotiate the licensing of 2 these patents, and where were you when that 3 occurred? 4 MR. HYATT: I was living in California at 5 that time. That was in -- the agreement was signed 6 in July, 1991, about a month or two before I moved 7 and -- but I had been talking with Philips for some 8 time before that. 9 MR. HORTON: When you were notified -- no, 10 when you were provided or there was an agreement to 11 provide you with a -- I guess -- I think I recall 12 you referring to it as a -- as a monthly payment of 13 some sort, when and where did that take place? 14 MR. HYATT: The -- the payments by Philips 15 for 10 years? 16 MR. HORTON: Yes. 17 MR. HYATT: That was in the agreement in 18 July 1991. And that was after the -- if I 19 understood your question, after the controversy on 20 the microcomputer patent issuing came into effect. 21 MR. HORTON: When you entered into an 22 agreement July 1991 with Philips to market your 23 licensing and so forth, when did the negotiations 24 take place and where? 25 MR. HYATT: They -- I believe they took 26 place at Philips's facility. And maybe in the 27 Pretty Schroeder -- Philips's facility in New York 28 and Pretty Schroeder's office in Los Angeles. 305 1 MR. HORTON: Okay. And where were -- where 2 were you at the time? 3 MR. HYATT: I was -- I was in California, 4 preparing for my move at the time. That was before 5 my move. 6 MR. HORTON: So from an accrual 7 perspective, when would you -- when would you have 8 recognized some income from this activity? 9 MR. HYATT: I rec -- 10 MR. HORTON: Not cash, but accrual. 11 MR. HYATT: Yeah. Well, I got a check for 12 $400,000 from Philips when they signed -- when they 13 signed the agreement. And I declared that on my 14 California taxes. 15 MR. HORTON: And when did that take place? 16 MR. HYATT: Sometime shortly after the July 17 24th signing, maybe within a couple of weeks of it. 18 MR. HORTON: And -- 19 MR. HYATT: But I'm guessing there, Your 20 Honor. 21 MR. HORTON: That activity was centered 22 around the business activity of -- of marketing and 23 negotiating this intangible licensing agreement, 24 true? 25 MR. HYATT: Yeah, Your Honor, this wasn't a 26 business activity with licensing and -- with -- it 27 wasn't a marketing. It was a license agreement, a 28 patent license agreement. There was no others. 306 1 MR. HORTON: So -- 2 MR. HYATT: The patent license agreement 3 gave Philips rights to use the technology and gave 4 them the rights to sublicense it. But there was no 5 marketing. 6 MR. HORTON: So given the exception to the 7 law, specifically business situs, when do you 8 believe the business started? 9 MR. HYATT: Philips started the -- what we 10 called the Philips licensing program shortly after 11 the agreements were signed. 12 MR. HORTON: Date? 13 MR. HYATT: That was in New York. 14 The date? The agreement was signed July 15 24th. I don't have any personal knowledge of 16 exactly when after that it was -- 17 MR. HORTON: And you were in California. 18 MR. HYATT: Yes, Your Honor. I was in 19 California for about another month, month and a 20 half. 21 MR. HORTON: Quite a few questions. But 22 generally speaking, question of the Department, what 23 are your thoughts about the business situs relative 24 to the activity that took place while the appellant 25 reside in California? And how does that connect to, 26 or does it, does that establish a business situs? 27 Is that business situs integral to the subsequent 28 activity in that you still have Philips continuing 307 1 to operate based on this plan, based on this 2 agreement? And the controls that are within the 3 agreement gave them some -- gave them some right 4 to -- to transact business, and that right that they 5 were given to transact some business within certain 6 parameters seems to have occurred in California. 7 Again, I want to go back and look. And all of the 8 transactions, at least the testimony I heard, was 9 within those parameters. 10 MR. HILSON: Well, Mr. Horton, as you've 11 indicated, you start -- when you start looking at 12 this and how it developed, it all starts with the 13 idea, the invention, the patent application which 14 occurred in the 1970s, the patent grant which 15 occurred in 1990, all of this time Mr. Hyatt is here 16 in California. He's got a professional relationship 17 with Mr. Roth this entire time. 18 The patent is granted. They start 19 implementing things. They -- and they develop this 20 plan to get money out of the users of the 21 microprocessor technology, wherever they come from. 22 But the business plan shows that they developed a 23 focus on the Japanese electronics manufacturers. 24 They share all of this with Philips. They 25 negotiate the rearrangement with Philips. All of 26 this is done while Mr. Hyatt is at Jennifer Circle. 27 Philips gives them an $800,000 payment, which comes 28 on the heels of a $300,000 payment from Pioneer 308 1 Electronics Corporation. 2 The business now has its seed money as part 3 of the negotiations with Philips. The business now 4 has the defense of the patent in place with Philips 5 agreeing to help bear the freight of the finances 6 involved with that. 7 The lead attorney with the defense of the 8 patent interference claim is Mr. Roth. Mr. Roth is 9 in Los Angeles. All of this -- all of this is in 10 play, and now it's time to go and press forward and 11 try to realize monies for the use of the patent 12 technology out of the Japanese. 13 That -- that is developed and designed 14 around a waiver of patent infringement claims. The 15 patent infringement claims are all for use. 16 MR. HORTON: When did that take place? 17 MR. HILSON: This is all in 1990 and 1991. 18 Long -- and it's all before Mr. Hyatt -- it's all 19 before October 20th. 20 And the -- the whole idea behind this is 21 we're going to give up past use of the technology. 22 Well, that past use of the technology all ascribes 23 to the patent rights that inure and the infringement 24 upon it prior to 1991. 25 We're not talking -- the infringement isn't 26 for -- you know, that's permissive use from a -- on 27 a go-forward basis. The remainder of it on the 28 look-back is all for prior conduct, for prior 309 1 property rights that are all inuring to and arising 2 from the State of California. 3 Then we get into it and it launches and it 4 goes. And I don't think I need to repeat myself. I 5 think I've -- I've said it many, many times how all 6 of this is localized and integrated with Jennifer 7 Circle. 8 MR. HORTON: You had to go there. 9 MR. HILSON: I told you I didn't want to 10 go. 11 MR. HORTON: So did you -- did you address 12 the business situs issue exception in your briefing? 13 MR. HILSON: Yes. 14 MR. HORTON: It sounds to me that you've 15 given the Board a little more detail than you did in 16 your briefing. So -- 17 All right. Members, personally, I'd kind 18 of like to go back and review the briefings, both 19 sides, as it relates to business situs and the 20 pertinent facts and the connection. 21 I don't necessarily believe that it's 22 required to localize it at a domicile. I think the 23 exception itself presumes that domicile can 24 actually -- a residence can actually be elsewhere 25 and you can still have a business situs in 26 California. 27 Appeals? 28 MR. THOMPSON: Yeah. I think -- yeah. 310 1 MR. HORTON: So I just don't know if the 2 arguments addressed this issue. And normally, you 3 know, I try not to bring up a new issue. But it is 4 what it is. 5 All right. That's all of my questions. 6 MS. HARKEY: Okay. I'm -- I don't know. 7 We've got another case after this. We have a 8 Taxpayer Bill of Rights, then we'll go back to the 9 second case. 10 Will that have allowed you enough time to 11 review? I mean, we can probably delay this -- we 12 can take this issue under submission until we've 13 heard the second round. It seems to be, you know, a 14 bone of contention. 15 I'm pretty firm on what I believe, but I'm 16 not going to force an issue if Members are not 17 comfortable. 18 Member Runner. 19 MR. RUNNER: Yeah, I mean I guess my 20 concern is I'm not sure, you know, putting it off 21 later to today or something or tomorrow makes much 22 difference. 23 MS. HARKEY: Makes it any clearer. 24 MR. RUNNER: Makes it any clearer. 25 I guess -- I guess I would, um -- and I 26 certainly don't think it does us any good to go to 27 the second item and deal with 1992. 28 MS. HARKEY: I agree. 311 1 MR. RUNNER: So let me -- let me -- it 2 seems to me we have two alternatives. One would be, 3 the alternative would be if we don't have enough 4 facts right now in regards to sourcing, 5 California-sourced income, is that we would go ahead 6 and continue the hearing and focus on sourcing in an 7 upcoming hearing, next month probably, and then deal 8 with that subject on its own. 9 But I guess before we would do that, I 10 would actually make a motion that we would -- that 11 we grant to the taxpayer and that the sourcing was 12 not in California. 13 MS. HARKEY: I will second that. 14 Do you have objection? 15 MS. YEE: Objection. 16 MR. HORTON: You know, I'm going to object. 17 I mean, the -- 18 MS. HARKEY: Okay. We've got a motion and 19 a second. If you want to discuss it, that's fine. 20 If you want to just take a vote and see where it 21 lies -- 22 Okay. 'Cause we're beating this around a 23 lot. 24 MR. HORTON: I don't think I need to say 25 anything other than I object. 26 MS. HARKEY: Okay. Will you take -- call 27 the roll, please? 28 MS. RICHMOND: Chairwoman Harkey. 312 1 MS. HARKEY: Aye. 2 MS. RICHMOND: Mr. Runner. 3 MR. RUNNER: Aye. 4 MS. RICHMOND: Mr. Horton. 5 MR. HORTON: Given that I don't believe I 6 have sufficient evidence to decide that one way or 7 the other, I'm going to abstain until I have that 8 opportunity. 9 MS. RICHMOND: Ms. Ma. 10 MS. MA: No. 11 MS. RICHMOND: Ms. Yee? 12 MS. YEE: No. 13 MR. RUNNER: Then I'll do another motion 14 that we continue the hearing to, uh -- to next month 15 and focus then what's left on these hearings in 16 regards to sourcing. 17 MS. HARKEY: Um -- 18 MR. HORTON: I don't know that this -- I 19 mean, this has been going on for a long time. I am 20 willing to take whatever time between -- I mean even 21 if that requires very little sleep, to try to -- 22 MS. HARKEY: Would you -- let me -- 23 MR. HORTON: -- review this. And we've got 24 a couple more days that we're going to be here. 25 MR. RUNNER: To another hearing day? 26 MS. HARKEY: Let me -- let me make a 27 suggestion -- 28 MR. HORTON: But I would -- 313 1 MS. HARKEY: -- that we determine the 2 sourcing -- we've heard -- we're closed to public 3 comments right now, right? We're through hearing 4 from everybody. We just want to analyze the data? 5 Let's make a suggestion that maybe on our 6 third day we take this up at the very end, the 7 sourcing part. Would that give you enough time? 8 MR. RUNNER: Mm-hmm. 9 MR. HORTON: That would be nice. 10 MR. RUNNER: Yeah. 11 MR. HORTON: Otherwise -- 12 MS. HARKEY: Okay. I'll make a motion then 13 that we delay the decision on the sourcing until 14 Thursday. We will take the matter under -- actually 15 we'll just take the matter under submission -- 16 MR. RUNNER: Mm-hmm. 17 MS. HARKEY: -- with regard to sourcing, 18 and allow the Members a chance to cogitate on all 19 the data, and we'll be back on Thursday for a vote 20 on it. 21 MR. RUNNER: I'm good with it. 22 MS. HARKEY: Okay? Is that a second? 23 MR. RUNNER: Second. 24 MS. HARKEY: Everybody okay? 25 Okay. No objection. 26 So, such will be the order. 27 And now, I need -- we need to call at least 28 a ten-minute break. And then we need to hear the 314 1 Taxpayer Bill of Rights. And we'll come back for 2 the second part for 1992. But I think getting 3 through '91 will definitely help '92. 4 So, ten-minute break. 5 (Recess taken.) 6 ---oOo--- 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 315 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Jillian M. Sumner, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on August 29, 2017 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1-28, 47-72, 102-115, 14 157-176, 210-232 and 274-301 constitute a complete 15 and accurate transcription of the shorthand writing. 16 17 Dated: October 30, 2017 18 19 20 ____________________________ 21 JILLIAN M. SUMNER, CSR #13619 22 Hearing Reporter 23 24 25 26 27 28 316 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Kathleen Skidgel, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on August 29, 2017 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 29-46, 73-101, 116-156, 14 177-209, 233-273 and 302-315 constitute a complete 15 and accurate transcription of the shorthand writing. 16 17 Dated: October 23, 2017 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 317