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_________________________________________________________

NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

WAKE COUNTY SUPERIOR COURT DIVISION_________________________________________________________

DIEBOLD ELECTION SYSTEMS, )INC., )

)PLAINTIFF, )

)V. ) 05-CVS-15474

)THE NORTH CAROLINA STATE )BOARD OF ELECTIONS and )

THE NORTH CAROLINA OFFICE )OF INFORMATION TECHNOLOGY )SERVICES, )

)DEFENDANTS, )

and ))

JOYCE MCCLOY, ))

DEFENDANT-INTERVENOR. )_________________________________________________________

MOTIONS HEARING BEFORE THE HONORABLE NARLEY L. CASHWELL

_________________________________________________________

MONDAY, NOVEMBER 28, 2005_________________________________________________________

WAKE COUNTY COURTHOUSE

316 FAYETTEVILLE STREET MALL

RALEIGH, NORTH CAROLINA

2:04 P.M._________________________________________________________

VOLUME 1 OF 1

PAGES 1 THROUGH 56_________________________________



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A P P E A R A N C E S

ON BEHALF OF THE PLAINTIFF:

DOUGLAS W. HANNA, ESQUIREWOMBLE, CARLYLE, SANDRIDGE & RICE, PLLCSUITE 2100150 FAYETTEVILLE STREET MALLPOST OFFICE BOX 831RALEIGH, NORTH CAROLINA 27602919/755-2100FAX 919/755-2150

ON BEHALF OF THE DEFENDANTS:

ROY COOPERATTORNEY GENERAL FOR THE STATE OF NORTH CAROLINA

BY: KAREN LONGSUSAN K. NICHOLSSPECIAL DEPUTY ATTORNEYS GENERALN.C. DEPARTMENT OF JUSTICEP.O. BOX 629RALEIGH, NORTH CAROLINA 27602-0629

ON BEHALF OF THE DEFENDANT-INTERVENOR:

DONALD H. BESKIND, ESQUIRE

TWIGGS, BESKIND, STRICKLAND & RABENAU, P.A.150 FAYETTEVILLE STREET MALLSUITE 1100POST OFFICE DRAWER 30RALEIGH, NORTH CAROLINA 27602919/828-4357FAX 919/833-7924

MATTHEW ZIMMERMANSTAFF ATTORNEYELECTRONIC FRONTIER FOUNDATION454 SHOTWELL STREETSAN FRANCISCO, CALIFORNIA 94110



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1 P R O C E E D I N G S 2:04 P.M.

2 THE COURT: All right, Madam Clerk. This

3 is 05-CVS-15474. The matter is encaptioned Diebold or

4 Diebold Election Systems, Inc., Plaintiff, versus The

5 North Carolina State Board of Elections and the North

6 Carolina Office of Information Technology Services,

7 Defendants. And the matter was commenced by the filing

8 of a Complaint for declaratory judgment and Motion for

9 temporary restraining order and preliminary injunction on

10 -- by date stamp, November the 4th, 2005. It appears to

11 be a verified complaint.

12 Thereafter, and on the fourth day of November,

13 2005, the Honorable Howard E. Manning, Jr. entered a

14 temporary restraining order. That temporary restraining

15 order was extended by order dated 17 November 2005 and

16 was -- and is on the -- is on the calendar today for

17 hearing upon the motion to convert the temporary

18 restraining order to a preliminary injunction. There is

19 also, however, filed a record a notice of motion and

20 motion to intervene on behalf of one Joyce McCloy.

21 All right. For the purposes of the record and

22 for the Clerk, and even for the Court itself, would

23 counsel for the various parties introduce themselves,

24 please.

25 MR. HANNA: Good afternoon, Your Honor.



4

1 My name is Doug Hanna, with Womble Carlyle firm here in

2 Raleigh. With me today is my associate, Sarah Buta

3 (phonetic). And we represent Diebold Election Systems,

4 Incorporated.

5 THE COURT: All right, sir. On behalf of

6 the original defendants?

7 MS. LONG: Your Honor, my name is Karen

8 Long. And with me is Susan K. Nichols. We are employees

9 of the Department of Justice representing the Defendants

10 ITS -- the State Department of Information Technology

11 Services -- and the State Board of Elections.

12 THE COURT: All right. And on behalf of

13 the moving Defendant-Intervenor?

14 MR. BESKIND: Your Honor, I am Donald

15 Beskind of the Wake County Bar. With me is Matt

16 Zimmerman, pro hoc, admitted by an earlier order of the

17 Court. And we represent Ms. Joyce McCloy, who is in the

18 audience today.

19 THE COURT: It would seem appropriate,

20 counsel, that the first matter to be addressed would be

21 the motion to intervene.

22 MR. BESKIND: We agree.

23 THE COURT: Unless there is -- all right.

24 Yes, sir.

25 MR. BESKIND: May Mr. Zimmerman argue that,



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1 Your Honor?

2 THE COURT: Sure.

3 MR. ZIMMERMAN: Good afternoon, Your Honor.

4 Ms. McCloy has (inaudible) to intervene as matter of

5 right in case under rule 24. She has, I believe, a right

6 to intervene as a primary (inaudible) under rule 24(a).

7 She has an interest in the case, an actual impairment

8 (inaudible) protection of that interest and inadequate

9 representation of the interest by existing party. The

10 issue at stake here. The issue at stake here is a voting

11 rights law enacted specifically to protect the

12 fundamental right to vote (inaudible) voters in the

13 state. The injunction was to permit her to argue

14 arguments and place arguments that the current defendants

15 have been unable or unwilling to make, including

16 important procedural requirements related to

17 jurisdictional requirements and other substantive and

18 procedural requirements regarding the TRO and preliminary

19 injunctions.

20 Alternatively, if Ms. McCloy does not -- if

21 the Court does not find that Ms. McCloy has the right to

22 intervene as a matter of right, we ask the Court to

23 permit her to intervene permissively under rule 24(b).

24 Rule 24(b), permissive intervention, is the ability

25 (inaudible) and prompt disposition of all claims



6

1 (inaudible) litigation. It is very clear in this case

2 that if the matter is not resolved promptly, there will

3 be continuing litigation by one or more of the parties in

4 this -- in this action. We are dealing with a very tight

5 time line that began with the certification process for

6 electronic voting equipment in the State, which began in

7 October. December 1st is the deadline that the State has

8 currently set to announce the winners in this process.

9 And as I mentioned before, we believe that there are

10 several substantive and procedural arguments that Ms.

11 McCloy would like to make that have not been (inaudible)

12 that should lead to a prompt resolution of the matter.

13 THE COURT: All right. Thank you, sir.

14 Does counsel for the Plaintiff, Diebold, wish to be

15 heard?

16 MR. HANNA: Yes, sir. May I approach? I

17 would like to hand up a brief in opposition to the motion

18 to intervene, Your Honor, to which I have attached a copy

19 of the complaint just for your information, in the event

20 you don't have it before you.

21 MR. BESKIND: Do you have a copy of that

22 brief, Your Honor?

23 MR. HANNA: Your Honor, I think it would

24 be helpful to give you a little background. I think this

25 will also serve to educate the Court on the next matter,



7

1 which will be the motion for preliminary injunction. As

2 the Court may be aware, there was a new session law

3 enacted on August 26th, 2005 by the General Assembly. It

4 is the session law 2005 323.

5 It is entitled an "Act to restore public

6 confidence in the election process by requiring that the

7 State Board of Elections develop an RFP for the purchase

8 and certification of voting equipment." The actual title

9 is a little longer than that, but that is the essence of

10 it.

11 We have attached a copy of that session law as

12 Exhibit A to our complaint. Your Honor, the -- one of

13 the things that is important, I think, for the Court to

14 understand is that the -- essentially what is going to

15 happen is all the voting equipment that is being operated

16 in the State will be de-certified. There is an RFP that

17 was developed by the State Board of Elections to take

18 bids to go through the certification process anew, and to

19 create a list of vendors by which the local counties can

20 choose.

21 So just because -- Mr. Zimmerman indicated a

22 minute ago that on December 1st the winners and losers

23 will be announced. Just because you are quote/unquote

24 winner doesn't mean you actually sell any equipment to

25 the state. It just means you are authorized to, or at



8

1 least it gives you the opportunity to go through the

2 certification process, and it will allow the local

3 counties to purchase your equipment if they should so

4 choose.

5 On September 26th of 2005, the State Board of

6 Elections drafted a memo inviting the submission of

7 written questions regarding the RFP requirements. A

8 number of vendors took the opportunity to submit written

9 questions regarding that process. And my client, Diebold

10 Election Systems, Inc. -- and I will just refer to them

11 as Diebold -- also took that opportunity and responded --

12 and submitted written questions.

13 The memo that I am referring to is Exhibit B

14 to the Complaint. The actual RFP that was issued by the

15 State is Exhibit C to the Complaint.

16 Your Honor, the -- as background, Diebold

17 provides high quality voting equipment to many states and

18 counties nationwide. And, in fact, they have statewide

19 contracts to provide all voting equipment for Georgia,

20 Alaska, Maryland and Arizona. They have also

21 historically provided voting equipment in North Carolina.

22 And it is my understanding that currently 20

23 counties in North Carolina currently use Diebold voting

24 equipment. And arguably, if Diebold is, in fact, an

25 authorized vendor under the RFP, those 20 counties may



9

1 have the opportunity to upgrade their equipment, stay

2 with Diebold at a significant cost reduction than having

3 to buy all new equipment from somebody else.

4 Your Honor, just also as background, Diebold

5 has a manufacturing facility in Lexington, North

6 Carolina, that in fact manufactures the voting equipment

7 that we are discussing.

8 Now, if you look at Exhibit D to the

9 Complaint, Your Honor, Exhibit D is addendum number 2 to

10 the RFP that is dated October 25th of 2005. And turning

11 to page 5 of that Exhibit D of our Complaint, you will

12 see that there was a question posed by Diebold,

13 obviously, prior to this lawsuit being filed. And the

14 question is posed to the State of North Carolina. And

15 the question reads as follows: "The RFP and North

16 Carolina law require `all software that is

17 relevant to functionality, setup,

18 configuration and operation of the voting

19 system' to be placed in escrow in source and

20 object code format. In the Diebold voting

21 system -- the operating system -- various

22 software drivers for ancillary components such

23 as displays and carburetors and other computer

24 programs are the property of third parties and

25 not available to vendors. Nonetheless,



10

1 failure to supply the software for these

2 components is a felony, and the State Board of

3 Elections may impose a penalty of $100,000 for

4 failure to comply. How should a vendor

5 address software for ancillary components

6 developed by third parties?"

7 And the answer that became part of Addendum 2

8 that was provided by the State Board of Elections is:

9 "Vendors must agree to place in escrow in

10 source and object code format all available

11 `software that is relevant to functionality,

12 setup, configuration and operation of the

13 voting system,' and indicate in the RFP

14 response all others not available and why it

15 is not available."

16 Now the term "available" is obviously not

17 found in the statute, but this became part of the RFP.

18 We were concerned that if Diebold went ahead and

19 submitted a bid in response to this RFP, and there were

20 conflicting interpretations as to what to do about this

21 third party software. If you look at the statute itself,

22 or the session law 2005 323, that indicates that -- under

23 section 163-165.91(a), voting systems -- requirements for

24 voting system vendors and penalties, it requires that

25 there:



11

1 "It is the duty of each vendor to place in

2 escrow with an independent escrow agent

3 approved by the State Board of Elections, all

4 software that is relevant to the

5 functionality, setup, configuration, and

6 operation of the voting system, including, but

7 not limited to, a complete copy of the source

8 and program interfaces" -- I am sorry --

9 "source and executable code, build scripts"

10 -- and it goes on.

11 And also -- the statute also requires that the

12 documentation submitted in escrow shall include a list of

13 programmers responsible for creating software. So the

14 dilemma facing the vendor, or facing Diebold in this

15 case, was their -- obviously, there are portions of the

16 equipment that operates using third party software, for

17 example, Microsoft Windows.

18 Diebold doesn't have the source code to escrow

19 from some of that software, or some of those third party

20 vendors like Microsoft Windows. Even if we had the

21 source code and the executables, there would be licenses

22 that were executed between Diebold and a third party that

23 may prevent the disclosure or the escrow this

24 information.

25 Additionally, there is the obvious problem of



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1 identifying every Microsoft programmer that worked on

2 Windows or every programmer that worked on Adobe Acrobat.

3 So those practical problems came into play. And the

4 thought process was, well, let's bring this to the

5 attention of the Court. Let's figure out what the

6 requirements are.

7 And so the declaratory judgment was filed the

8 day that the responses to the RFP was due, on the 4th.

9 And the decision by Diebold was we wouldn't submit a bid

10 unless we submitted the declaratory judgment action

11 raising the escrow issue, and raising the issue regarding

12 what to do with third party software and third party

13 source code and executables, unless we filed the DJ and

14 received protection from the Court that by submitting a

15 bid and going through the RFP process and trying to

16 comply with answer 19, with what the State Board of

17 Election is putting out as guidance, that we would not

18 subject ourselves to any criminal liability because, if

19 you look down at the penalty section under the statute,

20 willful violation of any of the duties in subsection A,

21 which is the -- discusses in part the escrow requirements

22 -- is a class G felony.

23 And clearly, once -- you know, if an

24 indictment were to be handed down, that would be the

25 damage. It wouldn't matter that there was a reasonable



13

1 excuse or even compliance with the statute.

2 So Judge Manning listened to the TRO, entered

3 the TRO, gave us until Monday. We, in fact, went ahead

4 and submitted our bid on Monday, because we had the

5 protection. We extended the TRO. We are here today to

6 convert the TRO to a preliminary injunction.

7 So that is the background leading now to this

8 first motion. Now, it is also, I think, important to

9 understand as background that we are able to escrow all

10 of our source code and executables and all of our

11 software.

12 And, in fact, there is an escrow account set

13 up right now in which our software and source code and

14 executables being used by North Carolina equipment is, in

15 fact, in escrow, and North Carolina is the beneficiary of

16 that escrow account. So the issue, I am saying, has to

17 do with the third party.

18 Now, Your Honor, with respect to the motion, a

19 couple of thing that I think are important to point out.

20 And that is Mr. Zimmerman argued, you know, that "We have

21 an interest in this case." He really kind of glossed

22 over what kind of an interest is it. Is it direct, is it

23 indirect? And as the Court knows, under Rule 24, as a

24 matter of -- to intervene as a matter of right, you have

25 to have a direct and immediate interest in the subject



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1 matter of the litigation.

2 And we would argue that Ms. McCloy -- that

3 neither Ms. McCloy nor the Electronic Frontier

4 Foundation, which is the group that Mr. Zimmerman is

5 with, has a -- has a direct and immediate right. In

6 fact, their right, as is anybody's right -- any North

7 Carolina voter's right would be indirect in nature.

8 And as the Court knows, there are three

9 requirements that have to be met in order to intervene as

10 a matter of right. There must be a direct and immediate

11 interest relating to the property or transaction. Two,

12 denying intervention will result in a practical

13 impairment of the protection of their interest. And it

14 is our position that if you don't have a direct interest,

15 that direct interest can't be -- can't be impaired.

16 And three, that there is inadequate

17 representation of that interest by existing parties.

18 Again, Mr. Zimmerman made the argument that the current

19 Defendants are unwilling and unable to make certain

20 arguments. I didn't hear what arguments that the State

21 Board of Elections were or are unwilling to make or are

22 unable to make.

23 But it is our position that they are the

24 agency that is responsible for administering North

25 Carolina elections, and they have the duty to interpret



15

1 and enforce election laws in the state. And we believe

2 that they can adequately represent the interest of voters

3 in North Carolina. So we would ask that you deny their

4 motion to intervene as a matter of right.

5 With respect to the motion to intervene under

6 24(b), which is permissive intervention, I think it is

7 important to understand the entity -- or the individual

8 that is trying to intervene and the agenda that is being

9 advanced by Ms. McCloy and also by the Electronic

10 Frontier Foundation.

11 First off, the Court obviously has discretion

12 to allow permissive intervention. And the issue really

13 is whether there is a -- whether their claim or defense

14 has become a question of law or fact with the -- with the

15 lawsuit in question, this declaratory judgment action.

16 It is our view that the DJ action -- first of all, it is

17 not going to slow up the process, because the reason why

18 it was filed and the reason for the importance of having

19 the TOR issue is to allow the RFP process to go forward.

20 The last thing that Diebold wants to do is slow the

21 process down.

22 And that would be harmful to everybody,

23 including Diebold, because ultimately if, whatever vendor

24 is chosen will also be under a tight timetable. The

25 point is, while we are going through the process, we need



16

1 to make sure that everybody understands what the rules

2 are, and that the rules are evenly applied to every

3 vendor.

4 So when you look at the lawsuit itself to

5 figure out what are the escrow requirements, the only

6 parties that are affected would be the vendors that

7 submitted a bid -- and my understanding is it is a matter

8 of public record that there were five that were initially

9 submitted, and only three that went through the initial

10 -- the initial testing procedures -- that those vendors,

11 including, including my client, would have a right, and

12 also the State Board of Elections and Office of

13 Information Technology.

14 Now, with respect to Ms. McCloy, the question

15 is, why would she want to intervene? What are -- what

16 interest does she have that the State Board of Elections

17 could not properly -- could not properly represent? And

18 she has a -- her group has a website, and they have an

19 entire section dedicated to Diebold. It is obviously a

20 section on the website that is very critical of Diebold.

21 And there is one part on the website that has information

22 on what Diebold election systems doesn't want you to

23 know.

24 So there is clearly some agenda here to stop

25 Diebold from doing business in the State. And arguably



17

1 that it could hurt North Carolina in the sense that there

2 are 20 counties right now that operate Diebold equipment.

3 Those 20 counties may want to stay with Diebold. It may

4 be cost effective for them just to upgrade to Diebold

5 equipment. And, arguably, stopping Diebold from doing

6 business in the state just reduces the number of vendors

7 from three to two. Does that really help North Carolina

8 voters?

9 The other thing that is interesting to note,

10 Judge, is that Mr. Zimmerman and his group, the

11 Electronic Frontier Foundation, also has a website. They

12 have an entire section dedicated to Diebold that is

13 obviously critical of Diebold.

14 Mr. Zimmerman issued a media release in this

15 case right after he filed the brief to intervene and set

16 aside the TRO. And in his own media release he starts

17 talking about that EFF is going to court in North

18 Carolina to make sure Diebold complies with strict North

19 Carolina law.

20 And it is our belief that EFF is attempting to

21 publicize this unfairly and inaccurately in order to --

22 in order to -- in order to (A) probably stop Diebold from

23 being involved in the State of North Carolina selling

24 equipment, and also to arguably increase donations to

25 their group.



18

1 Obviously, EFF is not technically a part of

2 this motion, and yet there is press releases and quotes

3 from Mr. Zimmerman regarding EFF's involvement in the

4 lawsuit. It is our belief, Judge, to cut to the bottom

5 line, that the lawsuit, again, is only about what escrow

6 requirement -- what the escrow requirements are. And if

7 you look at the brief that was filed in this case by Mr.

8 Zimmerman, one of the arguments that he makes is that he

9 points out that use of third party software may

10 disqualify vendors from State certification.

11 And if that is the path that is being laid out

12 by the folks that are trying to intervene -- and there is

13 evidence that every vendor uses some third party software

14 -- might the State -- you know, is the path that is being

15 laid out for the Court that down the road here in a

16 couple of months there will be no vendor that could

17 comply with those requirements and escrow all third party

18 software and escrow source code and executables.

19 if the -- ultimately, down the road, if the

20 law is that, no, that is what the General Assembly

21 intended -- that is not really a question I am trying to

22 answer today, but if ultimately that is the conclusion,

23 then we will not be doing business in the state, because

24 we can't comply with that. And that is the point in

25 raising this lawsuit. And it is an issue that can be



19

1 worked out between Diebold and other vendors, if they so

2 choose to intervene, and the State Board of Elections.

3 So we would ask that the permissive motion to intervene

4 be denied also.

5 THE COURT: Ms. Long?

6 MS. LONG: Your Honor, the Defendants

7 have no position on this motion to intervene. We simply

8 don't want anything to slow down the procurement process,

9 which is under very tight deadlines.

10 THE COURT: All right.

11 MR. BESKIND: Your Honor, may I be heard

12 briefly in response?

13 THE COURT: You sure you want to be

14 heard?

15 MR. BESKIND: Huh?

16 THE COURT: Are you sure you want to be

17 heard?

18 MR. BESKIND: I guess I don't, Your Honor.

19 THE COURT: The Motion to Intervene, in

20 my discretion, is allowed.

21 MR. BESKIND: Thank you, Your Honor. We

22 will draft the order.

23 THE COURT: All right. Now, counsel, I

24 also need to warn you that I have an appointment this

25 afternoon which will require me to leave at 3;15.



20

1 However, that does not mean that we will not reconvene

2 this hearing tomorrow morning if we need to. I simply

3 have an appointment that has been scheduled for some

4 months that I am not going to go into the basis for, that

5 I either keep today or I don't get again for years,

6 basically.

7 So we will stop at 3:15. But that does not,

8 again, mean that any of you should feel like you are cut

9 off. We will reconvene tomorrow morning at 9:30 and

10 continue this hearing as we need to. I guess at this

11 point in time we can go through, then ---

12 MR. BESKIND: Your Honor, we would like to

13 be heard before we go forward.

14 THE COURT: Okay.

15 MR. BESKIND: One of the first things we

16 wanted to raise as intervenors was that this hearing does

17 not go forward on adequate notice. It requires five days

18 notice. There has not been five days notice. And

19 therefore this hearing is not properly scheduled.

20 THE COURT: Mr. Beskind, the question

21 that I have for you is, having now been allowed to

22 intervene in this case, and knowing this matter was

23 calendared for hearing on the temporary restraining order

24 today, how can you complain ---

25 MR. BESKIND: (Interposing) We did not it



21

1 was calendared for the temporary restraining order.

2 There was no notice to us, and we don't believe there is

3 any notice of record in the file, which would have been

4 our only other source of information.

5 THE COURT: My question, I guess, should

6 be changed a little bit. How, having been allowed to

7 intervene today, can you then complain about the lack of

8 notice when you were not a party to this lawsuit until

9 today?

10 MR. BESKIND: The State didn't get notice,

11 either, Your Honor. There is no notice on record in the

12 file, so there couldn't have been any notice.

13 THE COURT: There is nothing in the

14 orders of Judge Manning setting this hearing for today?

15 MR. BESKIND: No, Your Honor, we checked,

16 and there is not.

17 THE COURT: So what would you ask; that

18 the matter be continued?

19 MR. BESKIND: I would ask -- you know, put

20 it over to next Monday, which doesn't change the process

21 of bidding or anything else that has gone on. The State

22 can do whatever it is doing on Monday, but then we will

23 have had adequate time to prepare.

24 THE COURT: And I can -- I can continue,

25 in effect -- I would continue, in effect, in my



22

1 discretion the Temporary Restraining Order?

2 MR. BESKIND: No, Your Honor, because that

3 has expired already.

4 MR. HANNA: Judge, you can't have it both

5 ways. Either the TRO is extended, with protection we are

6 seeking, and we have the hearing next week, or we have

7 the hearing today. I believe the notice was dated -- I

8 want to say -- we had a conference call with the Judge

9 Manning regarding setting a time. He indicated that he

10 wanted it set on this calendar, and would not be in Civil

11 Court on Monday, and I believe he issued the notice

12 either Tuesday or Wednesday.

13 MR. BESKIND: Which would not be five days

14 notice.

15 MS. LONG: Your Honor, the order

16 extending the TRO, which was entered on the 17th of

17 November, but issued as a bench order by Judge Manning on

18 the 14th of November that extended the TRO until today --

19 the understanding of the State was that at that a point

20 there would be a hearing on the preliminary -- motion for

21 preliminary injunction. The State did have a

22 conversation with counsel for Diebold, Mr. Hanna,

23 sometime last week. And I am sorry, I have not gone back

24 to my log book -- Ms. Nichols was there, too -- to tell

25 you what day it was.



23

1 The State would not object to moving forward,

2 just because this distracting the State from the

3 procurement process. There are people in this hearing

4 room today who are part of that process who need to be

5 here. And I would say again, it is a very tight deadline

6 for this procurement.

7 MR. BESKIND: Your Honor, nothing we are

8 asking would change what the State is doing with regard

9 to its deadline or procedures in any way. But there are

10 a couple of things that you need to be aware of. One,

11 notice exists for the benefit of the public as well as

12 the parties, which is why it is required to be public and

13 on file. And this is a matter of significant public

14 importance.

15 The second thing is that Judge Manning only

16 had the power to extend the TRO for 10 days under the

17 law, not the 14 that he extended it for. So it expired

18 four days ago, regardless of what is in the order.

19 THE COURT: I take it, you are then

20 saying that Judge Manning's order -- your position, Mr.

21 Beskind, is that Judge Manning's order was valid for ten

22 days from the 17th of November, when he entered it?

23 MR. BESKIND: That is all it could be under

24 the statute, Your Honor.

25 MR. HANNA: The tenth day is a Sunday



24

1 under that reading. So I don't know how it could expire

2 on a Sunday. And second, it was our understanding that a

3 motion would be set this day. We were under the

4 impression that it would in front of Judge Manning until

5 I contacted him to get a time certain. And that is when

6 he indicated, no just put it on the regular calendar. And

7 that is why I issued the notice after receiving the

8 instruction from Judge Manning's assistant, no, put it on

9 -- notice it on the regular calendar set for today.

10 MR. BESKIND: I believe Your Honor's

11 recitation was -- or somebody's recitation was that he

12 did it on the 14th, but he started it on the 17th?

13 THE COURT: The order that I am looking

14 at -- the order extending the temporary restraining

15 order, Mr. Beskind, is entered under signature I

16 recognize to be Judge Manning's, entered at 2:50 p.m.,

17 the 17th day of November, 2005.

18 MR. BESKIND: Okay. So there would be ten

19 days from that time.

20 THE COURT: If you don't count the first

21 day, but you do count the last day -- is that the way it

22 works?

23 MR. BESKIND: I believe for ten days, Your

24 Honor, the first day would be 24 hours later, would be --

25 complete the first day.



25

1 THE COURT: That still puts it on either

2 a Saturday or Sunday. So you get to the following

3 Monday?

4 MR. BESKIND: I didn't know that that is

5 the case, Your Honor.

6 THE COURT: And the next question I would

7 have is, Judge Manning's order being public record, it

8 extends it until November the 27th, 2005. Wouldn't that

9 be sufficient notice?

10 MR. BESKIND: The 27th ---

11 THE COURT: (Interposing) 28th -- Excuse

12 me. Extends it to the 28th.

13 MR. BESKIND: Your Honor, no, that wouldn't

14 be notice of a hearing. That would just say that the

15 order would expire at that time. Even if you take the

16 order exactly at its face.

17 THE COURT: Tell me how your clients are

18 going to be prejudiced if we don't hold the hearing

19 today.

20 MR. BESKIND: Our clients will be

21 prejudiced if we don't ---

22 THE COURT: Your client. Well, you have

23 two clients, I guess.

24 MR. BESKIND: I mean -- the question is

25 prejudiced if we don't have it today or we do have it



26

1 today?

2 THE COURT: Do not -- if we do not have

3 it today.

4 MR. BESKIND: We won't be prejudiced at all

5 if we don't have it today.

6 THE COURT: Excuse me. I am sorry. I

7 will rephrase that. If we have it today, how are your

8 clients prejudiced?

9 MR. BESKIND: Just the amount of time that

10 is available for preparation, Your Honor. We haven't

11 seen things and documents and various other thing that

12 are going to be available today that have never been

13 provided to us. We are willing to assume the position

14 that the State is in, since we have intervened, so we are

15 not suggesting -- but I don't believe the state has that

16 material, either.

17 THE COURT: What says the State?

18 MS. LONG: Your Honor, one of the

19 requirements of the order extending the TRO was that the

20 Plaintiff had to comply with the RFP and the subsequent

21 addendums. Until today, about 12:20, the Plaintiff had

22 not complied with the RFP and the addendums by supplying

23 to the State a list of third party software it contended

24 it could not provide in escrow. So we have had

25 approximately an hour and a half to look at that.



27

1 And my understanding from the technical people

2 with whom we met with over lunch is that they have

3 additional questions relating to that list of software.

4 So I have a memo of law in response to their motion for

5 Preliminary Injunction. Because it was written

6 yesterday, it suggests that the Plaintiff has not

7 complied with the TRO. It did comply with the TRO as of

8 12:20 this afternoon. However, it just raised more

9 questions.

10 THE COURT: That is not sufficient time

11 -- I take it, your position is that is not sufficient

12 time for your clients to prepare?

13 MS. LONG: It is not sufficient time for

14 the technical people who are doing this procurement to

15 come to an understanding. But my understanding is they

16 are going to ask clarifying questions from that list,

17 including -- which have nothing to do with this

18 Preliminary Injunction, as far as I can see.

19 But our question is about "Have you contacted

20 these third party vendors? Do you have documented proof

21 they will not escrow in an independent escrow?" You

22 know, "Show us the money," in other words. Give us the

23 documentation.

24 MR. HANNA: Judge, these are all side

25 issues that really don't have any bearing on the motion



28

1 for Preliminary Injunction itself. The question of what

2 third parties may or may not be willing to do -- and I

3 can put on the record that Diebold is certainly willing

4 to contact every third party, but, no, they have not had

5 the opportunity to do so. We haven't received responses

6 from them as to whether they will permit the escrow. So

7 those are side issues that won't affect the core issue

8 today. And that is whether to convert the TRO into a

9 preliminary injunction.

10 MR. ZIMMERMAN: Your Honor, I have one

11 additional point to add.

12 THE COURT: Yes, sir.

13 MR. ZIMMERMAN: Regardless what Your Honor

14 decides on this motion, there is still one issue that can

15 be adjudicated today. It has to do with the jurisdiction

16 of the Court to even hear the claim in the first

17 instance.

18 Declaratory judgments are not advisory

19 opinions. The court is not allowed to issue advisory

20 opinions. And there must actually be a real controversy

21 arising out of a -- out of opposing contentions as with

22 respect to legal rights and liabilities.

23 Now, we have heard a lot here today, but you

24 didn't hear -- you have heard a lot about the dilemma

25 that Diebold supposedly has. Nowhere did you hear, you



29

1 know, why the statute simply shouldn't apply to them.

2 You heard a lot about what their liability should be.

3 The Court is not obligated -- not only is it

4 not obligated, but it doesn't have the jurisdiction to

5 issue mere legal advice to counsel. They have offered no

6 argument as to why the statute doesn't apply to them.

7 They have pointed out, yes, that may actually be the case

8 that third -- that parties relying on third part software

9 -- some of the vendors are relying on third party

10 software for use in their voting equipment will be unable

11 to participate in the bid process.

12 That was a decision made by the legislature.

13 It is not correct -- it is not the purview of the Court

14 to review the wisdom of that order. So what they have

15 come here today with is repeating the arguments that has

16 been made before: simply that there will be harm as a

17 result of them being unable to properly bid in this

18 process, and getting the okay from the Court to go

19 forward with their bid.

20 But nowhere do they actually argue why the

21 Court -- why the statute simply shouldn't apply. As you

22 will note in Diebold's own motion, they go to great

23 extent talking about some kind of conflicting advice that

24 Diebold has heard. But if you actually walk through what

25 they are stating, there is no actual conflicting advice



30

1 at all.

2 Diebold points to a -- (inaudible) disclaimer

3 on the RFP saying that the (inaudible) shall not include

4 additional terms and conditions in their bid response.

5 They ask -- they did, in fact, go ahead and asked the

6 State what they should do, since they couldn't comply

7 with the statute. And the State answered, I think, the

8 only way the State could, with, "Well, all right. Go

9 ahead and submit your bid. Go ahead and explain why you

10 haven't complied with the statute."

11 They never said that that advice would somehow

12 protect them from liability under the statute. They

13 didn't say that the explanation was suffice to make their

14 bid complete. So that -- just as a simple jurisdictional

15 matter, we don't think they met the very clear

16 requirements that the declaratory judgment act requires.

17 MR. HANNA: Judge, now we are getting

18 into argument regarding my client and the success of the

19 merits, which we are prepared to argue today. And the

20 simple fact is that the issue really has to do with the

21 interpretation of the statute. There is legislative

22 history that we are preparing to hand up that would

23 suggest the legislature intended for the vendors to

24 escrow all of their source code and executables. And

25 there was no mention of third parties.



31

1 The point is, we are not sure what the statute

2 really means. One interpretation is that you have to

3 escrow all third party software. We believe that the

4 State, in giving information out in the RFP says, "No,

5 you need to escrow all available, and then tell us what

6 you don't have and why."

7 And that is -- that is not the same as all

8 third party. So there is clearly a question under this

9 -- and what is even more important, if we are going to

10 get right to the heart of the matter, you cannot have a

11 statute that imposes a criminal violation on the citizens

12 of North Carolina or companies that do business in North

13 Carolina without being clear as to what conduct will

14 subject you to a criminal violation, because if the sort

15 of ---

16 THE COURT: I am sorry. Go ahead.

17 MR. HANNA: If the conduct was that by

18 just acknowledging you have third party software, and no,

19 that is not good enough. If you can't escrow it, you

20 can't participate in the process -- if that is truly the

21 law, then why wasn't that made clear in the response to

22 the question that we are submitting?

23 I mean, our key question -- clarification

24 question was very simple and straightforward, putting

25 everybody on notice, here is what our issue is. And the



32

1 response was that, no, if you can't escrow that source

2 code, don't even bother bidding, because that is a class

3 G felony.

4 There is Supreme Court of the United States

5 case law that indicates that your due process is affected

6 unless the criminal statute is clear and that the conduct

7 that is proscribed is clear. And we think it is a real

8 question here.

9 THE COURT: I don't have any question,

10 Mr. Hanna, that -- your original position was you can't

11 have a statute which declares a criminal penalty. I

12 would tell you, of course you can have statutes that

13 declare criminal penalties. What you -- what you don't

14 have here is, that cannot -- that is not a point that can

15 be raised until someone is charged with violation of the

16 criminal penalty.

17 MR. HANNA: Yes, sir. That is true.

18 THE COURT: And I can't -- I cannot tell

19 you what conduct will or will not constitute a violation

20 of a criminal law.

21 MR. HANNA: Right. And the concern ---

22 THE COURT: (Interposing) Is that not

23 what you are asking me to do?

24 MR. HANNA: No, I am asking for

25 interpretation of the statute itself.



33

1 THE COURT: You are asking me -- you are

2 asking me to tell you what conduct would not constitute a

3 violation of the statute. And I can't tell you that.

4 MR. HANNA: It is even more

5 straightforward than that. Look at the escrow

6 requirements that are going to be imposed on every

7 vendor. And the question is going to be, what are the

8 requirements? As we go through this RFP, what are the

9 requirements.

10 And there is a -- a difference or a question

11 of interpretation under the statute as to what they are

12 talking about. And if -- we are raising the issue, what

13 is -- what are the escrow requirements? Those

14 requirements may trigger a criminal violation, which is

15 why -- which is why we submitted -- or filed the DJ

16 action and felt like -- it is clear. People cannot

17 continue through the RFP process and sign a contract

18 agreeing to provide equipment to North Carolina without

19 clarification as to what the escrow requirements are.

20 Otherwise they -- because what happens, Judge,

21 is initially we raised law in front of Judge Manning. I

22 think there was some question, "What is the problem here?

23 What is your issue?" And the issue is, well, there may

24 be a third party a la Mr. Zimmerman that may come in play

25 down the road after the contract is signed that said,



34

1 "No, no, no. Despite what the State Board of Elections

2 is say -- escrow available source code and software -- we

3 believe you have to escrow all third parties. And more

4 than that, you have got to go and identify every

5 programmer for Microsoft."

6 And if they don't like what they call

7 requirements or what was actually in escrow, there is

8 nothing to keep them -- being a former Assistant District

9 Attorney -- from knocking on a local prosecutor's door

10 and saying, "They didn't comply with the law.

11 Investigate and indict." And that would be -- that is

12 the irreparable harm.

13 First of all, there is a question of what

14 conduct would be illegal. And if they got the ear of the

15 local prosecutor, that right there would be the end of

16 the game for a publically traded company, when they are

17 trying to act in good faith, come before the Court and

18 say, "What are the requirements?"

19 THE COURT: Mr. Hanna, do you have a case

20 from any jurisdiction, from any court that says that

21 prior to committing an act you can go into court and have

22 the Court determine whether or not that it is criminal or

23 not?

24 MR. HANNA: Judge, what I do have -- let

25 me see if I can answer your question as precisely as



36

1 what is going to be, at the end of the day, required by

2 the State Board of Elections, under the statute, going

3 through the certification process and escrowing

4 information.

5 And it is completely proper to raise this

6 issue, to say, "No, there is a concern that we have that

7 the requirement may be imposed as to all third party

8 software have to be escrowed. And, by the way, every

9 vendor in North Carolina, you have to identify every

10 programmer that worked on any third party software."

11 THE COURT: If that is what the statute

12 requires, and the word "shall" is used in the statute,

13 how do you get around that?

14 MR. HANNA: Well, there is a question of,

15 does the statute itself require to place in escrow all of

16 your software or all your software and third party

17 software. I mean, there ---

18 THE COURT: (Interposing) Well, is that

19 an issue -- I take Mr. -- if I can come back for a

20 second, I take Mr. Zimmerman's jurisdictional challenge

21 to be a 12(b)(6) challenge.

22 MR. BESKIND: That is exactly what it is.

23 THE COURT: What I am saying is, this

24 complaint does not allege on its face an actual

25 controversy yet.



37

1 MR. HANNA: We believe we are in the

2 midst of the RFP process, so it clearly does allege an

3 actual controversy, because we are going through the

4 certification process, which includes the escrow

5 requirements. And we need to know what those

6 requirements are as we continue to move forward with this

7 RFP process. We don't want to slow the process down, but

8 we need clarification.

9 THE COURT: Well, you know what -- you

10 know what the statute requires. The statute says

11 "shall."

12 MR. HANNA: Well, we know it says "shall

13 place in escrow all software." Is it -- there is

14 legislative history that says all of their software. So

15 is it -- we already have in escrow, right now, today, all

16 of our software and source code for equipment that is

17 being used in North Carolina. What we don't have in

18 escrow is the third party software in escrow -- and

19 source code that involves Microsoft Windows, that

20 involves other third party equipment.

21 THE COURT: If I were advising a client

22 in this situation, and I were a lawyer, and I were "the

23 lawyer" for that client, I would suggest to the client

24 that notwithstanding what any of the defendants say, that

25 you need to comply with the literal language of the



38

1 statute, because the only people that can change the

2 statute to take out those requirements is the

3 legislature.

4 MR. HANNA: I guess, again, the question,

5 though, does "all software" mean all of our software that

6 we own, or does it also include third party software?

7 Was that the intention of the legislature? Because if

8 it is the intention, Judge, the path we may be all going

9 down is nobody -- none of the three vendors that are left

10 are likely to be able to comply with that.

11 THE COURT: Mr. Hanna, without being

12 facetious at all to you, that ain't my problem.

13 MR. HANNA: I understand. But I just ---

14 THE COURT: (Interposing) That problem

15 is one those people down the street need to address and

16 should have thought about before they passed the statute.

17 But again, they frequently do not listen to other folks.

18 They do what they think is appropriate, and they don't

19 listen to people who might have some knowledge of this,

20 or some of their own lawyers that might have said, "This

21 is a problem," because lawyers are held in such low

22 regard by that body frequently that they don't stop for a

23 minute and say, "Maybe this is a problem, and maybe this

24 need to be interpreted."

25 MR. HANNA: Judge ---



39

1 THE COURT: (Interposing) And that is

2 what has happened.

3 MR. HANNA: As you indicated this

4 morning, being the ultimate pragmatist ---

5 THE COURT: Ultimate pragmatist.

6 MR. HANNA: That is something that I

7 think needs to be taken into consideration here, because

8 all we are asking for is to have a -- to have an actual

9 controversy and the protection issued by Judge Manning --

10 having that converted to a PI so that we can move forward

11 with the other two vendors -- and the protection would

12 apply to all three vendors, so that we can move forward

13 with this RFP process.

14 If we don't receive that protection here today

15 -- or, for whatever reason, the case is dismissed by the

16 Court -- then we will obviously have no alternative but

17 to withdraw from the process because of the potential

18 liability that is imposed. And the likelihood is, unless

19 this is interpreted and unless there is a decision is

20 made as to what exactly is going to be required to be

21 placed in escrow, the two remaining vendors -- they may

22 not be able to comply.

23 And you are right. Maybe the -- that is the

24 whole point. The legislature -- we don't believe it went

25 through and dealt with this particular issue: what you



40

1 could do with a third-party software in which the vendor

2 either doesn't have it to escrow or doesn't have the

3 authority under licensing agreements to escrow.

4 THE COURT: But until -- until someone

5 charges your client with a violation, how is there a

6 controversy if the controversy is, "I am fearful of

7 complying with the requirements that the defendants have

8 set up, because it may put me in a potential position of

9 violating the criminal statute?

10 MR. HANNA: Because we are in the midst

11 of -- with all due respect, you step away from the

12 criminal penalties for a moment and you look at the

13 escrow requirements that are in play, that are -- that

14 are in the RFP process as we speak, we are in the midst

15 of going through -- we submit our bid -- everybody

16 submits the bid on the fourth. We have got an extra --

17 essentially, one business day. We submitted by 12:30 on

18 the seventh.

19 There is -- 10 days ago, all -- the three

20 vendors got together and they went through testing of the

21 equipment with the State of North Carolina. We are going

22 down the road of getting certified. We are in the midst

23 of having to understand (A) before a contract is signed,

24 what the requirements are. It is -- it is -- it is

25 impossible for a vendor to go through the escrow -- to go



41

1 through the certification process, execute a contract

2 with North Carolina without understanding what the legal

3 requirements are.

4 That is why it is an actual case of

5 controversy, because it -- it will be impossible, even if

6 we are selected, to sign the contract without fully

7 understanding what our obligations are. And the guidance

8 by the State Board of Elections in addendum II is

9 conflicting, because now they are using the word

10 "available." No, no. You just have to escrow available

11 and then tell us what you don't have and why. And

12 frankly, we think that that is reasonable, but that

13 doesn't entirely answer the question. So, we are here

14 today. We filed the DJ action.

15 THE COURT: Well, let -- well, let me

16 come back and see if I can -- the statute has been

17 passed. The Defendants have told your client what is

18 required of them in order to submit a bid or proposal, or

19 whatever. And your position is, on behalf of your

20 client, that you can put in a bid, you can -- you can

21 comply with their requirements, but you are unsure if

22 those requirements would not put you in violation of

23 criminal statutes?

24 MR. HANNA: And -- and whether, down the

25 road -- exactly. We are concerned that -- well, let me



42

1 back up a minute. We asked, is it -- what do we do with

2 third party software? And the point is that the State

3 Board of Elections did not directly take that -- answer

4 that question in the RFP. They said " No, what you need

5 to do is escrow all available, and then tell us what you

6 can't and why."

7 But there was no indication as to what the

8 answer is. And so it is impossible for my client, as a

9 vendor, to move forward through the certification

10 process, sign a contract with the State of North Carolina

11 without fully understanding what are the legal

12 requirements. Does it mean -- does the statute, in fact,

13 require every vendor to place in escrow all third party

14 software and code -- source code and executables and

15 identify -- which in my opinion it is an impossibility --

16 identify every programmer who worked on the Microsoft

17 Windows operating system, every programmer who worked on

18 Adobe Acrobat. I think that that is an impossibility.

19 Certainly for us, it is an impossibility.

20 So if that is the law -- all we are trying to

21 do is get a resolution to the question as to what are

22 your requirements. If those are, in fact, the

23 requirements -- this -- entering into a preliminary

24 injunction is not going to harm anybody today, because it

25 just keeps the status quo going and it allows all of the



43

1 vendors to go through the process until we get a

2 determination as to what is required under the statute.

3 It allows the vendors to sign a contract with the State

4 of North Carolina without any jeopardy attaching.

5 THE COURT: And you -- okay. And you are

6 asking the Court to say that you can -- that your client

7 can engage in conduct which may -- which will not, by

8 court order, be criminal?

9 MR. HANNA: We are asking the Court to

10 indicate that the client -- that our client and every

11 other vendor can go through the certification process

12 without subjecting themselves to any criminal liability

13 or civil penalties until this issue is resolved, which

14 essentially, will -- would tell -- once the issue is

15 resolved, every vendor will know, "Here are the

16 requirements." Because we -- this is very

17 straightforward.

18 We are coming to the Court, and, in fact, we

19 went to the State Board of Elections prior to all of

20 this, saying "Here is our issue. We need an answer.

21 Otherwise, we will not be able to participate in the

22 process, because there would be nothing to prevent us

23 from being charged criminally. And, in order for us to

24 sign a contract, we need to understand what the

25 requirements are, because it would be foolish for a



44

1 company to sign a contract saying it will do A, B and C,

2 when it knows it can't do A, because of third party

3 software."

4 So we need to have that answer -- that

5 question answered prior to signing the contract. And,

6 yes, the criminal issues are out there, but that is only

7 one of a couple of reasons why this is an actual

8 controversy and why there is -- why there are real risks

9 and issues involving our client and, frankly, every other

10 vendor.

11 THE COURT: Mr. Hanna, it sounds as

12 though you are asking the Court, or a court, to

13 micromanage what the process is going to be, rather than

14 the legislature's delegated authority to do that, which

15 is the Board of Elections and the Information Technology

16 people. You are asking me, suppose -- is it your

17 position that every time there is a dispute between a

18 requirement that the Board imposes and whether or not you

19 client can comply with it, you come back to court -- to

20 the Court, for the Court to determine whether or not that

21 requirement is one the statute required?

22 MR. HANNA: No, we are just cutting right

23 to the chase: what does the statute require?

24 THE COURT: The statute requires

25 everything that is after the word "shall." Anything else



45

1 is up to the discretion -- anything that is after the

2 word "may" is in the discretion of the -- of the

3 Defendants.

4 MR. HANNA: And after the word "shall,"

5 does that include third party software? Did the General

6 Assembly intend for vendors to identify every programmer

7 who worked on third party software?

8 THE COURT: It would seem to me that that

9 is a determination that those folks make.

10 MR. HANNA: And we haven't received an

11 answer from those folks adequately. And so ---

12 THE COURT: You -- you contend that you

13 have not received an adequate ---

14 MR. HANNA: (Interposing) That is

15 exactly right.

16 THE COURT: You haven't indicated to me

17 that you cannot comply with what they have requested at

18 this point in time. You can't -- your concern -- your

19 client's concern is what are the extra requirements going

20 to be, as far as third party. And I -- we are not --

21 that is not controversy -- that is not an issue yet for

22 controversy, is it, until they tell you what they are

23 going to require?

24 But at this point in time, you can -- your

25 client can make a bid and your client can comply with



46

1 what they want in escrow at this point in time. Is that

2 correct?

3 MR. HANNA: Well, that is complying,

4 again, with the interpretation by the State Board of

5 Elections, but that doesn't necessarily mean they are in

6 compliance with the State statute itself, if there -- if

7 there is a question of what the statute means.

8 THE COURT: Sure.

9 MR. HANNA: And so our point is that

10 their interpretation and the way they are enforcing it

11 may be and, in fact, is different than Mr. Zimmerman's

12 argument.

13 THE COURT: And I don't have any problem

14 with that possibility at this time.

15 MR. HANNA: Yes, sir.

16 THE COURT: But until Colon Willoughby,

17 in his infinite discretion as the District Attorney for

18 this district decides that he will charge you for

19 violating a criminal statute for complying with what the

20 State -- the defendant required of you, I don't think you

21 have a -- we have an issue here yet.

22 MR. HANNA: You see, I respectfully

23 disagree, because that is down the road after we sign the

24 contract. We need to know what the requirements are in

25 the statute before we can sign the contract. We are in



47

1 the midst of the certification process and we need to

2 know what is required by the statute in order to complete

3 the certification process and sign a contract.

4 We are in the midst of the of a (inaudible)

5 process. We are in the midst of the certification

6 process. Their -- that comes first, before the criminal

7 violation.

8 THE COURT: Mr. Hanna, change the focus

9 of this a little bit.

10 MR. HANNA: Yes, sir.

11 THE COURT: We have a DJ action now filed

12 on what a contract -- what an existing contract required.

13 Can the parties to that DJ action come into court and

14 say, "What we want is the Court to interpret our

15 negotiations"? Don't you have to have an existing

16 contract before you can have a DJ action on that

17 contract? And aren't you, in effect, coming into court

18 and saying to me, "Judge, interpret the negotiations for

19 us"?

20 MR. HANNA: No, sir. The argument isn't

21 that we are filing a DJ on the contract. We are filing

22 the DJ on the statute. The argument is that the reason

23 why there is an actual case of controversy is because we

24 are in the midst of the RFP process.

25 The process itself is more than signing the



48

1 contract. It is going through the certification process,

2 which is, in fact, the escrow requirements laid out in

3 the statute. It -- we are in the midst of that. We need

4 to know what those requirements are. We need someone to

5 interpret those requirements.

6 We are not suing under DJ on the contract; it

7 is a DJ under the statute itself and a matter of

8 statutory interpretation. And again, I understand the

9 Judge's argument that, "Hey, whatever the legislature --

10 if the legislature didn't think about it, it is not my

11 problem." This is a situation where, in fact, the Court

12 can weigh in and provide helpful guidance to a statute

13 that is subject to different interpretations and can have

14 a catastrophic result, which would be that, come the

15 spring, we have no voting equipment that could be

16 certified.

17 THE COURT: But Mr. Hanna, again, I come

18 back to, would that not be true only whenever there -- an

19 issue arises after you have submitted your bid and

20 complied with what these folks require?

21 MR. HANNA: No, the issue -- my argument

22 is the issue is going on right now, because we have -- if

23 we weren't a vendor -- if we hadn't submitted a bid, I

24 would say, "Judge, you are right. We are asking -- it is

25 a theoretical exercise, because we are not even a vendor



49

1 that has submitted a bid, and we are not going through

2 the RFP process."

3 But we did submit a bid and we are in the

4 midst of the RFP process. We are getting ready to -- we

5 have already gone through and demonstrated our equipment,

6 and we are going through the testing process, so we are

7 in the midst of it. So there is an actual issue going on

8 right now. It is not a theoretical exercise by some

9 third party.

10 THE COURT: Thank you. Ms. Long, then I

11 will hear you Mr. -- go ahead.

12 MS. LONG: All right. First of all, I

13 just have a few quick points, because the hour is

14 approaching. I am puzzled by the Plaintiff's

15 representation that the answer in the addendum somehow

16 changes the interpretation of the statute. If you turn

17 to tab D on the notebook he probably handed you, it is

18 question 19. And the answer says: "Vendors must agree to

19 place in escrow source and object code format all

20 available software."

21 And the Plaintiff is arguing that changes the

22 terms of the statute, so there is an ambiguity in the

23 interpretation of the statute. It does not. This is not

24 a waiver of statutory -- statutory requirements. It is

25 simply an attempt by the agencies charged, in their



50

1 expertise, with administering this statute to learn more

2 about what the problem is. And until 12:20 this

3 afternoon, we didn't even know what third party vendors

4 they were even talking about. So that is not a waiver of

5 the statutory requirement.

6 Secondly, criminal and civil liability

7 attaches only to people who contract with the State.

8 That is the statutory language. It is not people who

9 submit bids. So there is no criminal and civil liability

10 until a contract is signed with a vendor who somehow has

11 failed to tell the State it cannot escrow the appropriate

12 software. So it is premature, Your Honor, to bring a

13 preliminary injunction.

14 And the next question I have is, why would the

15 State contract with someone who can't comply with the

16 standards the State thinks the statute requires? There

17 are two parties to a contract. I can't imagine that

18 someone who has been as open as the Plaintiff has been

19 about not being able to supply what may or may not be

20 necessary under the statute, would even be contracted

21 with.

22 But that is for the expertise of the agency,

23 which is still going through the permit process. As far

24 as I know, no -- no final decisions have been made, and

25 it is up to the agency charged with administering the



51

1 statute, in its expertise, to determine how to do that.

2 The Plaintiff is attempting to stop that

3 process. And when the Plaintiff argues that there is no

4 harm to the State if a preliminary injunction issues that

5 absolves any and all vendors from any liability for

6 essentially lying to the state, then the State is harmed.

7 We can't go through this procurement without the teeth

8 the statute provides.

9 So we are strong in opposition to a

10 preliminary injunction. And we also believe that this

11 matter has been brought prematurely. Thank you.

12 THE COURT: Yes, ma'am.

13 MR. BESKIND: Your Honor, essentially what

14 is going on here is that Diebold would like you to

15 interpret a statute for them so they can feel more

16 comfortable in going through a contractual bidding

17 process. It is the equivalent of, if there was a

18 minority set aside for highway contracts and the statute

19 was somewhat, perhaps -- and I am not even conceding that

20 it is ambiguous -- but ambiguous about what a minority

21 was. And so they came into court and asked you to define

22 what a minority was for the purpose of bidding on that

23 contract so if they entered into the contract, they

24 wouldn't be prosecuted for failing to have the requisite

25 percentage of minority people.



52

1 We don't do that. Courts -- the Superior

2 Courts of this state do not exist for that purpose. At

3 some point down the road, there will be an actual case or

4 controversy if there is a problem here. I suggest to you

5 that if they comply with the recommendations of the State

6 board, no district attorney in his right mind or her

7 right mind would ever prosecute them, because they would

8 have no chance of winning. This is really, essentially

9 at this point, a matter that is of concern to them. But

10 courts do not exist to satisfy the concerns of

11 corporations seeking to do business with the State. They

12 exist to solve real legal problems that have really

13 arisen and so on. So on that basis, we renew the motion

14 to dismiss for lack of jurisdiction.

15 MR. HANNA: Judge, just briefly.

16 THE COURT: Yes, sir. Go ahead.

17 MR. HANNA: It was argued by Ms. Long

18 that, you know, we are trying to get information to

19 determine what may or may not be required under the

20 statute. And that is the whole point, is that there is

21 confusion as to what may or may not be required.

22 In the RFP itself, the reason for the DJ

23 action and the reason why we needed to have an order

24 saying you can submit your bid and not be subject to any

25 penalties and not be subject to any criminal violation,



53

1 is because the RFP itself says that all proposals and

2 responses received shall be treated as offer to contract.

3 And the concern was that if we submit a

4 proposal that is interpreted by the State as an offer to

5 contract, that may be accepting we might have a contract,

6 and therefore -- and we have to go through the

7 certification process. So, again, it is our argument,

8 Judge, that all we are looking for is to -- is, again, to

9 be protected and under the escrow requirements until we

10 can get a determination as to what may or may not be

11 required under the statute. Thank you.

12 THE COURT: Yes, sir. Anything else, Ms.

13 Long?

14 MS. LONG: The interpretation and

15 administration of the statute has been given to the State

16 Board of Elections and the purchasing arm of Information

17 Technology Services. It is the expertise of the agency

18 which will determine what software -- what is included in

19 the definition of software that must be escrowed.

20 An RFP response that is an offer as the RFP

21 requires it to be, originally, I believe, the Plaintiff

22 objected to that and excepted (phonetic) to it. I don't

23 know the status of their -- their position now. But in

24 any event, it takes two to make a contract. If the

25 Plaintiff is up front about what it can and cannot do,



54

1 after a round of questions from the technical people at

2 the State Board of Elections, I don't believe the State

3 would accept a contract that it believed violated the

4 statute. It would be -- you know, would accept an offer

5 that violated the statute.

6 So, you know, it is up to the expertise of the

7 agency. It is premature to ask the Court to make a

8 declaratory ruling now. It is a pretty complicated

9 technical area. I, as an attorney, would be

10 uncomfortable and would want to be advised by technical

11 people. And that is exactly the process the procurement

12 at the State Board of Elections and ITS is going through.

13 It is just simply too early to have a court decide what

14 the statute means when the agency charged with

15 administering it is going through that process right now.

16 THE COURT: Mr. Beskind, Mr. Zimmerman,

17 anything else?

18 MR. BESKIND: No, Your Honor.

19 THE COURT: This is 05-CVS-15474. The

20 matter as now captioned is Diebold Election Systems,

21 Incorporated, Plaintiff versus The North Carolina State

22 Board of Elections and The North Carolina Office of

23 Information Technology Services, Defendants, and Joyce

24 McCloy, Defendant-Intervenor. The court has heard

25 arguments and statements of counsel for all parties and



55

1 reviewed the documents and records by counsel, and has

2 reviewed the complaint in this particular matter.

3 The Intervening Defendant and the Defendants

4 -- the original Defendants -- have moved and argued a

5 dismissal of this matter on the basis that the Court

6 lacks subject matter jurisdiction on the theory that

7 there is no actual case of controversy at this particular

8 time, which the Court would interpret as being really a

9 Rule 12(b)(6) motion for failure of this to stay a cause

10 of action for which relief can be granted. Counsel for

11 the Plaintiff had addressed this motion also.

12 Considering the authority of the State

13 Employees Association, Plaintiff, versus Easley, a case

14 which I don't have a cite for, but which I presided over,

15 in which that -- the Court of Appeals ruled that a court

16 does have the authority on a review of a matter for

17 whether or not either a preliminary injunction or

18 temporary restraining order to review the complaint and

19 determine on its own motion if the complaint satisfies

20 Rule 12(b)(6), the motion is allowed. Draw me an order

21 for this case, please, counsel.

22 (THE PROCEEDINGS WERE CLOSED AT 3:11 P.M.)



56

STATE OF NORTH CAROLINA

COUNTY OF NASH

C E R T I F I C A T E

I, TERRENCE X. MCGOVERN, NOTARY

PUBLIC-REPORTER, DO HEREBY CERTIFY THE FOREGOING

PROCEEDINGS WERE TRANSCRIBED UNDER MY DIRECTION, AND THAT

THE FOREGOING 55 PAGES CONSTITUTE A TRUE AND CORRECT

TRANSCRIPT OF SAID PROCEEDINGS.

I DO FURTHER CERTIFY THAT I AM NOT COUNSEL FOR

OR IN THE EMPLOYMENT OF ANY OF THE PARTIES TO THIS

ACTION, NOR AM I INTERESTED IN THE RESULTS OF THIS

ACTION.

IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY

HAND THIS 16TH DAY OF DECEMBER, 2005.

MY COMMISSION EXPIRES

JANUARY 3, 2009 TERRENCE X. MCGOVERNNOTARY PUBLIC FOR THESTATE OF NORTH CAROLINA

eff: diebold

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