1 IN THE CIRCUIT COURT OF THE STATE OF OREGON 2 FOR THE COUNTY OF WASHINGTON 3 4 STATE OF OREGON, ) ) 5 Plaintiff, ) ) 6 vs. ) No. C940322CR ) 7 RANDAL LEE SCHWARTZ, ) ) 8 Defendant. ) 9 10 11 TRANSCRIPT OF PROCEEDINGS 12 13 BE IT REMEMBERED THAT on the 8th day 14 of January, 1996, the above-entitled matter came on 15 for Hearing before the HONORABLE ALAN C. BONEBRAKE, 16 a Circuit Court Judge. 17 18 APPEARANCES 19 MR. THOMAS J. TINTERA Deputy District Attorney 20 Representing the Plaintiff 21 MR. MARC SUSSMAN Attorney at Law 22 Representing the Defendant 23 24 25 2 1 MORNING SESSION 2 BEGINNING AT 9:15 A.M. 3 JANUARY 8, 1996 4 5 MR. TINTERA: This is the time set 6 for restitution hearing in State v. Randal Lee 7 Schwartz, case number C940322CR. Mr. Schwartz is 8 present, he's not not in custody and is appearing 9 with counsel Marc Sussman, and State is appearing 10 through Tom Tintera and we're ready to go forward. 11 THE COURT: Ready to proceed? 12 MR. SUSSMAN: Morning, Your Honor. 13 We are ready to proceed. 14 THE COURT: I apologize for the 15 delay. I read the memo that you had submitted, 16 Mr. Sussman, and it's probably on my desk, but I 17 couldn't find it before coming out, but my notes do 18 reflect that we started with some information and I 19 had my notes from September 11 retrieved and there 20 was the testimony of Mr. Woodard and there was an 21 exhibit, Exhibit No. 1, and Lynda has gone down to 22 get that out of the exhibit room. 23 There was also the testimony of 24 James Diebele and Cindy Scheel, I believe, and I 25 have reviewed those very briefly. 3 1 Any opening comments? 2 MR. TINTERA: Judge, what we're 3 looking at is putting back Intel in a monetarily 4 whole state after the damage that Mr. Schwartz has 5 inflicted on the company. We're looking at both 6 attorneys' fees that the victim in this case 7 rightfully so consulted counsel before or about 8 their various options because of Randal Schwartz' 9 illegal conduct within the corporate confines. 10 Corporations are entitled to do that. 11 The case law supports restitution, 12 State v. Mahoney, which I believe I have cited, and 13 I've given cites to the court as to case law that I 14 will be relying upon. 15 State v. Mahoney supports attorneys' 16 fees as damages that can be recovered at a 17 restitution format. 18 We're also requesting that the court 19 to require the defendant repay the cost that Intel 20 incurred as the court will find out, both a 21 burdened cost, which is the corporate cost, not 22 necessarily what an individual gets paid, but the 23 total cost of that individual to the corporation 24 for people that were diverted in the total of 25 400-plus hours. Their labor was diverted to 4 1 correct the criminal misdeeds of Mr. Schwartz. 2 We have, I believe, four witnesses. 3 One, I anticipate, will be by telephone. 4 THE COURT: Mr. Sussman, any opening 5 comments? 6 MR. SUSSMAN: Your Honor, our 7 position on the restitution is set out in the 8 memorandum. I would note that, just to reiterate 9 one point made in the memorandum in response to 10 counsel's comments about State v. Mahoney, our 11 position is set out in the memorandum and our 12 position is State v. Mahoney is not good law in 13 light of State v. O'Brien being essentially 14 reaffirmed in Raymond v. Feldman that, in essence, 15 State v. Mahoney was -- the premise for that was 16 overruled in that case, as pointed out in the 17 footnote, in our footnote in the discussion of that 18 case in the memorandum. 19 We have to wait to see what the rest 20 of the State's evidence is as far as whether it 21 meets the burden of what costs to Intel were those 22 that would be recoverable, special damages 23 attributable to the conduct for which Mr. Schwartz 24 was convicted. 25 THE COURT: Call your first witness. 5 1 MR. TINTERA: Lisa Domenico. 2 LISA DOMENICO 3 called as a witness on behalf of the Plaintiff, 4 having been first duly sworn under oath, was 5 examined and testified as follows: 6 7 THE CLERK: State your full name and 8 spell it for the record, please. 9 THE WITNESS: Lisa Domenico. 10 D-o-m-e-n-i-c-o. 11 12 DIRECT EXAMINATION 13 14 BY MR. TINTERA: 15 Q Miss Domenico, how are you employed? 16 A I'm a senior financial analyst with the 17 Information Technology Group at Intel. 18 Q And who held that position before you 19 did? 20 A Nathan Townsend. 21 Q And how long have you held the position? 22 A I've held it 10 months. 23 Q And in regard to -- Could you explain to 24 the court the pay structure at Intel? In other 25 words, do people get an hourly rate? 6 1 A Yeah. People are paid a salary or an 2 hourly rate depending upon if they are exempt or 3 nonexempt with the company. 4 Q And are there ranges, numbered ranges, 5 that determine that hourly rate? 6 A Yes. They have a grade level. Depending 7 on the grade level and the responsibility that goes 8 with it, their pay is accordingly. 9 Q Does that grade level, hourly or monthly 10 rate, reflect the cost to the Intel Corporation for 11 that employee? 12 A No, it does not. 13 Q Could you explain that answer, please? 14 A The additional costs of an employee to 15 Intel is also the taxes and benefits that are, that 16 an employee is entitled to as being an employee of 17 Intel. So there are social security taxes, there 18 are benefits that are paid to an employee which, as 19 far as the costs to Intel, is greater than the 20 amount that is paid to an employee. 21 Q Could you explain to the court the terms 22 burdened and unburdened? 23 A Unburdened would be the hourly rate that 24 an employee receives. A burdened rate would be the 25 full cost to Intel for that employee. 7 1 MR. TINTERA: Could you mark this as 2 State's Exhibit 2? 3 BY MR. TINTERA: 4 Q Could you identify State's Exhibit 2, 5 please? 6 A Yes. This is what I prepared to find out 7 what the hourly rate was at the time the incident 8 occurred. 9 Q So those are the hourly rates for the 10 various grade levels in November of 1993? 11 A Yes. 12 MR. TINTERA: I would offer State's 13 Exhibit 2. 14 MR. SUSSMAN: No objection. 15 THE COURT: No. 2 is received. 16 MR. TINTERA: Thank you. Those are 17 the only questions I have. 18 THE COURT: Would you hand the 19 exhibit up, please? 20 Mr. Sussman. 21 22 23 24 25 8 1 CROSS-EXAMINATION 2 3 BY MR. SUSSMAN: 4 Q Do you know anything about the, how Intel 5 characterized the expenses that we're dealing with 6 in relation to Mr. Schwartz' activities on its 1994 7 State and Federal income taxes? 8 A I'm not familiar with that. 9 MR. SUSSMAN: I have nothing else. 10 THE COURT: Anything else? 11 MR. TINTERA: No, Your Honor. 12 THE COURT: Thank you. You may step 13 down. 14 Call your next witness. 15 MR. TINTERA: Clyde Stites. 16 (Witness sworn) 17 18 CLYDE STITES 19 called as a witness on behalf of the Plaintiff, 20 having been first duly sworn under oath, was 21 examined and testified as follows: 22 23 THE CLERK: State your full name and 24 spell it for the record, please. 25 THE WITNESS: Clyde Stites. 9 1 C-l-y-d-e. S-t-i-t-e-s. 2 3 DIRECT EXAMINATION 4 5 BY MR. TINTERA: 6 Q Mr. Stites, in November of 1993, how were 7 you employed? 8 A I was employed by Intel Corporation in 9 the corporate security unit at the Oregon site. 10 Q And did you have any participation in 11 investigating the felony crimes that Mr. Schwartz 12 has committed against the Intel Corporation? 13 A I did, sir. 14 Q And in the course of -- In 25 words or 15 less, what did you do in regard to that 16 investigation? I don't want to limit you to 25 17 words, but if you could give a brief summary. 18 A I was first advised of the circumstance 19 when I was in Phoenix. I was assigned as the 20 Oregon site investigator for corporate 21 investigation. We held a preliminary meeting 22 immediately. I returned to Oregon and a team was 23 set up under the direction of our corporate legal 24 manager, Rick Pierce, and we commenced an active 25 investigation and analysis of the circumstances. 10 1 Q Now, after the investigation, after the 2 dust had settled on that, did you do anything to 3 compile the amount of time that the Intel 4 Corporation had spent, averted, to put right what 5 Mr. Schwartz had rendered wrong? 6 A Being mindful that over two years had 7 passed, my responses in the context to the best of 8 my recollection, and that recollection is that Rick 9 Pierce asked that I contact everyone that was 10 involved in the investigation to forward to me the 11 number of hours that they had worked and what their 12 hourly rate was. 13 Q Now, did that information just include 14 hours or associated expenses such as travel time? 15 A I asked them to include their capital 16 expenditures, related expenses as well as their 17 hourly rate. 18 Q Are you familiar with the person named 19 Rick Cower? 20 A I am. 21 Q And do you know where his principal 22 office is in the Intel Corporation? 23 A Yes. Rich Cower is with Corporate 24 Information Security located in Folsom, California. 25 Q Do you know if he was brought up to 11 1 Oregon on this particular case to investigate it? 2 A Yes, he was. And on more than one 3 occasion. 4 Q And, as an example, would the sums that 5 we're requesting from Mr. Cower include the cost of 6 his air transportation to and from California? 7 A I'm uncertain. 8 Q If I could show you State's Exhibit 1. 9 Are you familiar with this summary? 10 A Yes, I am. 11 Q And what is that? 12 A This is a copy of an electronic mail 13 message from Nathan Townsend, the business and 14 fiscal manager for Information Technology Group, to 15 me entitled Investigation and it's dated March 20, 16 1994, and it is a cost estimate including time and 17 materials of the individuals involved in dealing 18 with the Schwartz situation. 19 MR. TINTERA: I would offer State's 20 Exhibit 1, Your Honor. 21 THE COURT: That's from the last 22 hearing? 23 MR. TINTERA: Do you have that 24 already? 25 THE COURT: We have marked it 12 1 received previously. 2 MR. TINTERA: Well, could I look at 3 that? It may be the same. I had forgotten we'd 4 offered a document. Yes, that is the same. If we 5 can use State's Exhibit 1 from the September 11 6 hearing. 7 THE COURT: It was received at that 8 time. Yes, it has been previously received. 9 BY MR. TINTERA: 10 Q Were there any specific directions that 11 you gave to people that were involved in the -- in 12 both investigating and correcting the wrongs of 13 Mr. Schwartz in regard to compiling their time or 14 expenses, do you remember? 15 A None other than those that I just 16 related, i.e. to include their salary and the 17 number of hours that they had expended and 18 additionally the related cost that they incurred in 19 the investigation. However, I can't go to a level 20 of detail beyond that. 21 MR. TINTERA: Thank you. That's all 22 the questions I have. 23 THE COURT: Mr. Sussman. 24 25 13 1 CROSS-EXAMINATION 2 3 BY MR. SUSSMAN: 4 Q Mr. Stites, you had testified that you 5 directed the people on this list on Exhibit 1 to 6 submit their hours and hourly rate of pay. 7 A Yes, at the direction of Rick Pierce, our 8 corporate -- 9 Q I'll show you what will be marked for 10 identification as Defendant's Exhibit 101. Have 11 you seen this memorandum? 12 A Yes, I have. 13 Q This is a memorandum which -- and would 14 you identify that memorandum? 15 A Yes. This is another E mail message and 16 this is to -- is authorized by Rich Cower to a 17 number of people and it's titled Cost Associated 18 with Information Security incident. Is that 19 adequate identification for you? 20 Q And was this a follow-up with the same 21 information that you were asked to request? 22 A My recollection on that is, I called Rich 23 Cower and asked him to contact the people within 24 the corporate Information Security Group for the 25 same type of information that I had asked from the 14 1 balance of the team. 2 Q Your position there was that you were a 3 full-time salaried employee? 4 A Yes. 5 Q And you were a full-time salaried 6 employee in November of 1993? 7 A Yes. 8 Q And what was your annual salary in 9 November of 1993? 10 A My base salary or my total compensation 11 salary? 12 Q Your wage, the amount of salary that you 13 were paid. 14 A And what I'm asking you, there are two 15 salaries: There is a base hourly rate and then 16 there is a rate that includes executive bonuses and 17 stock participation. 18 Q What is your base salary rate? 19 A About 55,000. 20 Q And you were designated to be the Oregon 21 site investigator for corporate security? 22 A Yes. 23 Q And your full-time job was to investigate 24 matters relating to corporate security? 25 A Yes. 15 1 Q And so investigating a security breach, 2 which is the one involving Mr. Schwartz, was part 3 of your normal activities; is that right? 4 A I wouldn't use the word normal, but it's 5 within the domain of my responsibilities at that 6 time. 7 Q How many people were on the team that was 8 set up by Rick Pierce that was involved in 9 investigating the situation? 10 A Would you repeat the question, please? 11 Q Yes. Let me clarify. You mentioned that 12 Rick Pierce and you had set up a team of people to 13 investigate the security incident. 14 A Yes. 15 Q How many people were on that team? 16 A It varied from during the term of the 17 investigation. I would almost have to respond to 18 you in this fashion. There was Rick, myself, Rich 19 Cower in Corporate Information Security, Mark 20 Morrissey, John Kent, John Gray. I'd say initially 21 my best recollection would be somewhere between 22 seven to eight. Janice Bolden, who is a paralegal 23 with corporate legal. 24 Q You were up here for meetings that took 25 place then immediately after the incident was 16 1 discovered or there was some meetings that took 2 place on Friday and then again on Monday before the 3 police were notified? 4 A Before the what? 5 Q On the Friday after the incident was 6 discovered, you were participating in meetings with 7 this team here in Oregon? 8 A Yes. 9 Q And how many people were at those 10 meetings? 11 A The initial meeting? 12 Q Yes. Were there different people 13 involved, is that what I'm hearing you say? 14 A Yes, there were. The initial meeting, my 15 best recollection was that there was somewhere 16 between six and eight Intel people and then there 17 were representatives from the prosecutor's office 18 and police detectives as well. I'm sorry, the 19 police detectives and the prosecutor came into the 20 second meeting that we had here in Oregon, not the 21 first. 22 Q In response to your specific request for 23 the number of hours worked and the salary of the 24 individuals who worked on the incident involving 25 Mr. Schwartz and related costs, did you get 17 1 specific E mail or other messages with that 2 information? 3 A I don't understand the question. 4 Q You testified that you had asked the 5 people involved in investigating this incident to 6 provide you with a list of hours they worked on the 7 incident, their salary and any related costs. 8 A Yes. 9 Q Do you have -- Did you receive any 10 documentation of any kind with that specific 11 information? 12 A My best recollection is that I did 13 receive several responses and that I forwarded that 14 information. Nate Townsend was given the final 15 responsibility for putting together the cost and I 16 forwarded the data that I had received to 17 Mr. Townsend. 18 Q So there was a detailed breakdown of the 19 specific hours and the specific tasks, specific 20 costs, specific materials and specific rates of 21 pay? 22 A The detail, the level of detail was that 23 that I had originally requested, which was the 24 number of hours and hourly rate and I can't recall 25 a description of what each person -- as a matter of 18 1 fact, there was not a description at the time from 2 the person responding as to what their role was in 3 the investigation. 4 Q So there was also no description then of 5 the specific tasks each person was performing? 6 A No, not in response to my E mail. 7 Q And that was never compiled, was it, the 8 specific detail of tasks each person performed in 9 relation to this incident? 10 A It may not have been broken out. In the 11 case file, it outlined everyone's participation, 12 who did what and in what chronology used there. 13 But was it a separate document produced just to 14 that? Not to my knowledge. Excuse me, I want to 15 correct myself on that. Just this morning, I saw a 16 document that addressed in part what the break-out 17 of some of the responsibilities were, and I just 18 glanced at it briefly, but it was not in response 19 to my E mail. 20 Q You mentioned there were six to eight 21 people at the initial meeting, Intel employees. 22 Were those six to eight people the same people 23 meeting with the detectives and the prosecutors? 24 A Are you asking me about six to eight 25 people? 19 1 Q Yeah. Were they the same people? 2 A I'm not sure. Substantially, yes. There 3 may have been one or two additional people that 4 came to the second meeting that weren't at the 5 first. I'm unsure. I am certain that we had a 6 prosecutor and police detectives at the second 7 meeting that we didn't have at the first meeting. 8 And I had mentioned that there was a meeting before 9 the one we had here in Oregon and when I was in 10 Phoenix, and there was an intersite telephone 11 meeting, a conference that took place that involved 12 people from several sites. 13 MR. SUSSMAN: Thank you. Nothing 14 further. 15 16 REDIRECT EXAMINATION 17 18 BY MR. TINTERA: 19 Q Mr. Stites, is Rich Cower an employee of 20 the security group that you were heading here in 21 Oregon? 22 A No. Rich Cower is a manager within the 23 Corporate Information Security Group. 24 Q And why was he brought on in this 25 investigation? 20 1 A Because of his expertise in computer 2 security. 3 MR. TINTERA: Do you have State's 4 Exhibit 1, Your Honor? 5 THE COURT: I have a copy of it. 6 MR. TINTERA: Could I borrow that? 7 BY MR. TINTERA: 8 Q If you could look at the list of 9 individuals referenced in State's Exhibit 1, is 10 there anyone on that list besides yourself that was 11 part of the Oregon security team? 12 MR. SUSSMAN: Your Honor, I'll 13 object. This is beyond the scope of the 14 cross-examination. It's not proper redirect. 15 THE COURT: I'm going to allow it. 16 I'll allow you to cross-examine on this if you 17 wish. Go ahead. 18 THE WITNESS: Yes, there are some 19 people. I guess it depends how we define the team. 20 The Oregon team or those of us that dealt with it 21 locally? I see we have Bob Brown, who was a 22 sergeant from the Los Angeles Sheriff's Department 23 that we brought up to process the McIntosh computer 24 that was seized at Mr. Schwartz' home. I see 25 Carlene Ellis, who is a corporate vice president, 21 1 that wasn't part of the Oregon team but is a senior 2 manager with the corporation. Jeff Sedayo is not 3 based here in Oregon and had a passing involvement 4 with it. 5 With the Oregon team, some of this 6 work was done by people at other sites and there is 7 a name here that I'm not familiar with. 8 BY MR. TINTERA: 9 Q And one thing that I neglected to ask 10 you, was there also State's Exhibit 3, can you 11 identify that? 12 A Yes. This is an electronic mail message 13 that I sent to John Woodard, an attorney with 14 corporate legal organization in Oregon, on November 15 22nd of 1995, titled Additional Expenses and it's a 16 memorandum that was a result of an examination of a 17 case file looking for expenses that had not been 18 previously identified. 19 Q Is that for an expense associated with 20 the investigation of the crimes committed by Randal 21 Schwartz? 22 A It is. 23 MR. TINTERA: Thank you. Offer 24 State's Exhibit 3. 25 MR. SUSSMAN: No objection. 22 1 THE COURT: Three is received. Any 2 further direct? 3 MR. TINTERA: No, Your Honor. 4 THE COURT: Mr. Sussman. 5 6 RECROSS-EXAMINATION 7 8 BY MR. SUSSMAN: 9 Q On the memorandum that was dated November 10 22nd, 1995, you note that, for instance, one of the 11 things that's not listed as an expense is Rose 12 Odiker spending hours constructing the case 13 notebooks. 14 A Yes. 15 Q Are these the case notebooks that were 16 constructed during the prosecution of the case for 17 the preparation of the trial? 18 A Yes. 19 MR. SUSSMAN: Thank you. Nothing 20 further. 21 MR. TINTERA: No further questions. 22 THE COURT: Thank you. You may step 23 down. 24 Call your next witness. 25 THE WITNESS: Shall I leave this 23 1 here? 2 THE COURT: No. I'll take that. 3 MR. TINTERA: Like to call Nate 4 Townsend as a telephone witness, if I could. And 5 he should be at 649-9270. 6 (Whereupon the witness was attempted 7 to be contacted by telephone.) 8 Mr. Townsend, this is Tom Tintera 9 from the Washington County District Attorney's 10 Office and we're wondering if we could ask you some 11 questions. 12 Your Honor, I don't remember the 13 procedure in regard to swearing. 14 THE COURT: Mr. Townsend, I'm Al 15 Bonebrake, I'm a judge here, and we're conducting a 16 hearing in this case of State v. Schwartz. Would 17 you raise your hand and take an oath to tell the 18 truth, please? 19 THE WITNESS: Okay. 20 21 22 23 24 25 24 1 NATHAN OWEN TOWNSEND 2 called as a witness on behalf of the Plaintiff, 3 having been first duly sworn under oath, was 4 examined and testified as follows: 5 6 THE CLERK: State your full name and 7 spell it for the record, please. 8 THE WITNESS: Nathan Owen Townsend. 9 N-a-t-h-a-n. T-o-w-n-s-e-n-d. 10 11 DIRECT EXAMINATION 12 13 BY MR. TINTERA: 14 Q The reporter has asked me to make sure 15 that you maintain a high level of your voice so he 16 can pick up what you are saying. All right? 17 A Okay. 18 Q In 1993, 1994, how were you employed? 19 A I was employed by Intel as a financial 20 analyst. 21 Q In the course of those duties, did you 22 compile some figures in regard to costs associated 23 with the criminal acts of Randal Schwartz? 24 A Yes, I did. 25 Q And what was the basis for your compiling 25 1 those costs? What did you use? 2 A Basically the product we used was trying 3 to estimate the cost of the effort associated with 4 each of the individuals involved as well as any 5 software or hardware costs that might have been 6 involved. 7 What we did, the investigator at the 8 time selected the amount of time that was used by 9 each individual that was involved in the 10 investigation and also in the cleanup associated 11 with the action, the time of the staff, the amount 12 of the time the people put in it and established -- 13 we used a burdened Intel rate for each of the 14 individuals. That burdened rate was based on their 15 grade level and all of the benefits that go along 16 with being an Intel employee, so it was a fully 17 burdened cost associated with that figure. 18 The additional costs were any 19 hardware, such as hard drives, that had to be 20 purchased, any scrap material that had to be 21 disposed of, any software that had to be purchased 22 at the time of recovery from the actions of the 23 individual. 24 Q And after you compiled that information, 25 what did you do with it? 26 1 A I passed it along to Clyde Stites and the 2 attorney at the time, Rick Pierce. 3 Q And do you recall that memo? 4 A I don't. At this point, it's been so 5 long and I haven't been with Intel for almost a 6 year now, so those documents that I created, I 7 can't remember, nor do I know where they are, those 8 documents that I created. 9 Q Did the costs that you compiled, you 10 mentioned additional hardware, did it also include 11 any travel costs that may have been associated? 12 A Yeah. I know in the case of at least two 13 individuals, one was an investigator from Folsom 14 and another one was an individual in Oregon, both 15 involved some travel, I believe, back and forth 16 from California. 17 Q And those are included in your memo to 18 Mr. Stites? 19 A Right. 20 Q Where did you receive the information as 21 to the hours that people had put in, both 22 investigating and correcting the wrongs of 23 Mr. Schwartz? 24 A Well, the way it was received was both 25 Clyde and Rick Pierce sent memos to people who were 27 1 involved telling them to send E mail to me with the 2 number of hours they worked and any specific 3 actions they may have taken in regard to the 4 actions. 5 Q And that's what you compiled and sent to 6 Mr. Stites? 7 A Right. 8 MR. TINTERA: Thank you. I don't 9 have any more questions. Don't hang up. The 10 defense attorney may want to ask you one or two 11 things. 12 THE WITNESS: Okay. 13 THE COURT: Mr. Sussman. 14 MR. SUSSMAN: Thank you, Your Honor. 15 16 CROSS-EXAMINATION 17 18 BY MR. SUSSMAN: 19 Q Morning, Mr. Townsend. 20 A Morning. 21 Q Few questions for you. Were you asked to 22 make this list up of the time spent and those 23 associated costs for the specific incident 24 involving Randal Schwartz only? In other words, 25 was this something that you routinely did as part 28 1 of your work as a financial analyst, to prepare a 2 list of costs? 3 A I see what you're saying. No. I'm not 4 sure exactly how to answer the question. What I 5 can do is tell you what my job was and this 6 specific instance was outside of the normal. Intel 7 doesn't have this. This is part of my -- it was 8 out of that. Part of my job was estimating the 9 cost of projects and forecasting expenses, monthly 10 expenses, quarterly expenses associated with 11 payroll, all of the burdened costs that go along 12 with payroll, the expenses associated with all 13 of -- the expenses associated with the project 14 whether they are RND or operating expenses. So the 15 calculating expenses associated with the project 16 was not new, but this was the first time that I 17 ever worked on an estimate for a legal action. 18 Q And you were specifically asked then to 19 prepare an estimate for the cost for a legal 20 action? 21 A Yes. 22 Q Now, you were then asked to prepare the 23 total of all costs associated with the incident 24 involving Randal Schwartz? 25 A Yes. I believe -- Yeah, I believe that's 29 1 the way you'd word it, yeah. 2 Q In your other cost projections for 3 projects, do you base -- are those based on details 4 given to you of the number of hours estimated by 5 the individuals involved? 6 A Yes, it is. 7 Q Did you have a -- In making up this list 8 on this message that you sent to Clyde Stites with 9 this project costs, did you have the detailed list 10 from the individuals of what specific time they 11 spent on various aspects of this incident? 12 A Yes, I did. They sent me an E mail with 13 the number of hours that -- each individual sent me 14 an E mail that specified the number of hours and a 15 description of what actions were taken. 16 Q Did you have the breakdown of each 17 individual's rate, the salary rate where they stood 18 in the compensation? 19 A I knew what their grade level was. 20 Q The grade level, right. 21 A I was aware of their grade level. If I 22 wasn't aware of -- I did not know the specific 23 payroll because they were outside of the 24 department, but I did know that someone of their 25 pay grade, what the range would be. 30 1 Q We've been provided with a document from 2 your successor showing a Grade Level 5, the rate 3 was $20.38 an hour. Was that an average rate or 4 was that high or low? 5 A For a Grade 5? That would probably be 6 middle to low. The other thing I might add to that 7 is, if that is the rate per hour, I do not believe 8 that is a fully burdened rate. By fully burdened, 9 I mean any -- 10 Q We've gotten that testimony and that 11 wasn't the question. 12 In the instructions for you to 13 prepare this, was there any guidance given in what 14 work had to be done on this particular project you 15 were costing out? 16 A No, not really. The guidelines were 17 basically to collect the time and hardware and 18 software with a description of the agency action. 19 Q Just one last question on the issue of 20 burden v. unburdened rate. I asked you a question 21 about Grade Level 5 which you said was the $20.38 22 an hour was the unburdened rate. What multiplier 23 do you use then to come up with the burdened rate 24 of pay for a person at that grade level? 25 A Yeah, it's usually about 1.3. 31 1 Q For each grade level? 2 A Well, for example, if someone had a pay 3 rate of $25 per hour, you would multiply the $25 4 per hour times 1.3, roughly. I don't know what the 5 multiplier is at this time and I had been using it 6 at that particular time. I don't recall exactly 7 what the multiplier was. It's been over a year 8 now. 9 Q But at that time, you figured it was 10 about 1.3? 11 A I would guess it would be about 1.3. 12 Q Was that the same multiplier for each 13 grade level? 14 A For each -- for $25 per hour, it would be 15 multiplied by 1.3 to come out with an hourly wage 16 for the -- 17 Q For the burdened? 18 A For the burdened, yes. 19 Q The Grade Level 10 showed an hourly rate 20 of $41.23 an hour. Would you use the same 1.3 21 multiplier on that? 22 A Yeah. 23 MR. SUSSMAN: Thank you. Nothing 24 further. 25 32 1 REDIRECT EXAMINATION 2 3 BY MR. TINTERA: 4 Q This is Tom Tintera again. You used the 5 word estimate. Were these figures estimated or 6 were these based on actual hours and costs 7 submitted to you? 8 A Supposed to be based on actual time 9 expended and the hourly or the burdened rate at the 10 time. 11 Q So are these estimates or not? 12 A I would say probably still, yes, due to 13 the fact that someone may be rounding up or down on 14 their time and the hourly rate may vary between one 15 department and the other. 16 Q But you based them on the figures that 17 were submitted to you? 18 A That's correct. 19 MR. TINTERA: Thank you. That's all 20 I have. 21 MR. SUSSMAN: Nothing further. 22 THE COURT: Thank you. 23 Call your next witness. 24 MR. TINTERA: Call John Woodard. 25 33 1 JOHN WOODARD 2 called as a witness on behalf of the Plaintiff, 3 having been first duly sworn under oath, was 4 examined and testified as follows: 5 6 THE CLERK: State your full name and 7 spell it for the record, please. 8 THE WITNESS: John Woodard. 9 W-o-o-d-a-r-d. 10 11 DIRECT EXAMINATION 12 13 BY MR. TINTERA: 14 Q How are you employed? 15 A By Intel Corporation as a legal counsel, 16 in house. 17 Q And in the course of your duties, did you 18 compile for submission to the court the amount of 19 attorneys' fees, outside attorneys' fees that the 20 Intel Corporation expended in regard to the 21 criminal activities of Randal Schwartz? 22 A Yes, I did. 23 Q And could you summarize what those were 24 for the court? 25 A At the time of the incident, we contacted 34 1 an outside attorney firm, Miller, Nash in Portland 2 to determine what, if any, legal action we had as a 3 result of what we were learning in the 4 investigation of Mr. Schwartz' activities. So the 5 bills include their counsel to us as to what our 6 options were and what protections were available 7 under the law. 8 Then, subsequently, there was a 9 small amount of time in advising us with respect to 10 some discovery requests and then follow-up. I 11 summarized them on a sheet that I provided to both 12 of you. 13 Q Do you have that summary with you? 14 A Yes, I do. 15 Q Could you show that to me? 16 A It's the top page only in my yellow 17 folder. I sent each of you a copy. 18 Q So we're talking about this sheet? 19 A Yes. 20 Q That's your summary of the legal 21 expenses? 22 A Yes. 23 (Pause on the record.) 24 Q And State's Exhibit 4 is what? 25 A That's my summary that I prepared and 35 1 then sent to both yourself and to Mr. Sussman as to 2 what expenses that I was able to, as connected with 3 this, that were out of the normal, diversions of 4 people from their normal duties. 5 Q And the legal fees reference there for 6 outside counsel? 7 A Yes. 8 Q And what were -- Are there any other 9 associated costs? Is this the amount that was done 10 to work on questions involving the criminal 11 activities of Randal Schwartz? 12 A Yes, and our rights or options as this 13 proceeded. 14 Q There are some that are listed here as 15 discovery and protective order, what was that all 16 about? 17 A That was when we got some discovery 18 requests that we felt would have been exposing very 19 sensitive proprietary information that we couldn't 20 see had anything to do with the case, so we sought 21 legal counsel as to what our options were which 22 ultimately resulted in determination by defense 23 counsel that it wasn't relevant. 24 Q Were there any of these costs incurred 25 for Intel pursuing civil litigation against 36 1 Mr. Schwartz? 2 A No. 3 Q State's Exhibit 2, or No. 1, I have a 4 copy of it, were you involved at all in compiling 5 this information? 6 A No, I was not. 7 Q And have you done anything to determine 8 what the basis of this summary request is? 9 A Yes, I have. 10 Q And what would that be? 11 A I questioned a couple individuals. I 12 spoke at length with Nate Townsend, who you just 13 talked to, and spoke with Lisa and other people to 14 determine what we had done here. 15 Q For instance, in regard to Mark 16 Morrissey, the hours and the amount requested come 17 out to an hourly fee of somewhere around $165 an 18 hour. 19 Q Did you check into that to see how it is 20 that that figure became as large as it is? 21 A Yeah. I don't believe it's an hourly 22 fee. That was the number of hours and the total of 23 their fully burdened rate plus any out-of-pocket 24 expenses that those individuals paid for. In 25 Mark's case, on his charge account went some 37 1 soft -- 2 MR. SUSSMAN: Question in aid of 3 objection? 4 EXAMINATION IN AID OF OBJECTION 5 BY MR. SUSSMAN: 6 Q Did you get a detailed breakdown from 7 Mr. Morrissey as to what went into that figure? 8 A No, I didn't. I got an oral breakdown. 9 He told me orally. 10 MR. SUSSMAN: I object to the 11 testimony about what these people are telling 12 Mr. Woodard now. We could have the witnesses to 13 testify to that, and I would object on hearsay. 14 MR. TINTERA: At sentencing, hearsay 15 rules do not apply according to the Evidence Code. 16 THE COURT: Well, when the court is 17 conducting a restitution hearing and acting as a 18 fact finder, it's part of the sentencing hearing, 19 but -- well, does anybody want to argue that? I am 20 involved as a fact finder in this process. 21 MR. TINTERA: I believe you can rely 22 on hearsay. I'm relying on the Evidence Code that 23 at sentencing proceedings, and the only exclusions 24 are aggravation of sentence in regard to -- I don't 25 have the Evidence Code in front of me, but 38 1 according to 101, the section dealing with 2 sentencing, the only excluding factors are 3 aggravation of sentence hearing. 4 The defendant has been sentenced. 5 This is ancillary to the sentencing proceedings, 6 Judge, and hearsay does not apply. 7 MR. SUSSMAN: Your Honor, this is 8 very much akin to an evidentiary hearing that the 9 court would have to make, say, pretrial. In this 10 case, it is ancillary to a sentencing proceeding 11 because you have to make factual findings as to 12 whether or not expenses or costs that are being 13 requested are factually, causally connected to the 14 defense without relying on -- you have no way to 15 determine the reliability of that information 16 without the witnesses here and this is a case where 17 I think the rules of evidence should be applied to 18 protect the integrity of the fact finding 19 proceeding. 20 THE COURT: Well, I'm not sure what 21 the answer is. You've argued very capably. Maybe 22 I need to read the rule. 23 Based upon my reading of Rule 101, I 24 don't believe that the rule against hearsay applies 25 in a sentencing proceeding and so I'm overruling 39 1 the objection that was made. Go ahead. 2 BY MR. TINTERA: 3 Q Mr. Woodard, I was asking you about if 4 you could, if you received information about Mark 5 Morrissey and the total there. What did you learn 6 from Mr. Morrissey when you spoke to him about the 7 expenses incurred? 8 A Mr. Morrissey told me that basically 9 exactly what this things says in the header, that 10 he had a certain number of hours. He also had a 11 number of expenditures and that those expenditures 12 that he submitted were indirectly related to this 13 investigation and determining how to correct the 14 damage that had been done. 15 Q Could you give Judge Bonebrake an example 16 of the expenditures? 17 A Yeah. I understand that Mark told me 18 they had to purchase some special software and 19 pieces of hardware to go to the Sheriff's 20 Department to assist in and reviewing the seized 21 disk to see if there was identifiable, valuable 22 intellectual property from Intel on the disks. 23 Q And that's included in his submission in 24 State's Exhibit 1? 25 A Yes, it is. 40 1 Q Mr. Woodard, in fact, does State's 2 Exhibit 1 include all the costs incurred by Intel? 3 A No, it doesn't. There are, I would say, 4 significant other costs. Those are the ones that I 5 believe were subject to restitution, as near as I, 6 could determine. But I noticed looking at that 7 today that some individuals that I know, for 8 instance, a John Kent who testified here in trial 9 was primarily involved initially in the thing and I 10 noticed that some of his time showed up there and 11 he put a significant effort in it in identifying 12 the problem and correcting it. 13 Q Based on your review of the information, 14 both of this case and this restitution request, has 15 there been any padding of this amount? 16 A No. I think quite the opposite. 17 MR. SUSSMAN: I object to that. 18 THE COURT: Sustained. 19 MR. TINTERA: Those are the only 20 questions I have. 21 THE COURT: Mr. Sussman. 22 23 24 25 41 1 CROSS-EXAMINATION 2 3 BY MR. SUSSMAN: 4 Q When did this conversation with Mark 5 Morrissey take place? 6 A The one that I just related was Friday 7 afternoon. 8 Q And presumably, then, Mr. Morrissey 9 expended this time on this matter in November of 10 1993? 11 A No. 12 Q The expenses that Mr. Morrissey 13 reportedly incurred were incurred around November 14 of 1993? 15 A I'm not sure how many weeks following 16 that November timeframe that Mark was still 17 involved in actually repairing the damage or 18 checking the systems to determine how widespread 19 the activity had been. 20 Q So you had no idea what he had to do to 21 check the consequences of Mr. Schwartz' conduct? 22 A That's correct. 23 Q The software that you described that was 24 purchased, was that software something that still 25 has residual use after it's purchased by Intel? 42 1 A Not to Intel. It had to do -- the reason 2 we had to go buy it was it was Apple. We don't 3 work with Apple and don't have their stuff. 4 Q So what happened to the software? What 5 was done with it afterwards? 6 A I honestly don't know. 7 Q Was it donated to the Washington County 8 Sheriff's Office? 9 A I said I don't know. 10 Q Were you on staff as corporate counsel in 11 November of 1993 when this incident occurred? 12 A Yes, I was. 13 Q Before that time, what was your 14 experience? 15 A I was -- I had been working there about 16 two years prior to that. 17 Q Did you have experience as a civil 18 litigator prior to -- 19 A I have done some civil litigation. 20 Mostly involved in corporate transactional work. 21 Q Were you and Mr. Pierce the only 22 attorneys on staff at Intel? 23 A No. 24 Q Do you have attorneys on staff who have 25 experience in civil litigation? 43 1 A No. I -- 2 MR. TINTERA: What's the relevance? 3 The question is whether the victim can make a 4 choice, when their rights are violated in a 5 criminal nature, to seek outside counsel, whether 6 they are counsel or not. That was a choice made 7 here. Whether they had other avenues available to 8 them has no relevance. 9 THE COURT: How is that relevant? 10 MR. SUSSMAN: Your Honor, without 11 conceding that they are entitled to do that, if 12 there is a theory for those attorneys' fees being 13 recoverable civilly, they would still have to show 14 they were reasonable and necessary in a civil case 15 in order to recover those fees. 16 In this particular case, we intend 17 to show that most of the areas that were requested 18 in the investigation in this case were matters that 19 were in the knowledge or capability of the counsel 20 there or were available through the District 21 Attorney's Office and would have been reasonable 22 and necessary even if they were proper subjects of 23 restitution. 24 THE COURT: I'm sustaining the 25 objection. It's not relevant. 44 1 BY MR. SUSSMAN: 2 Q Your comment that there is no, you don't 3 use Apple equipment at Intel, is that based on your 4 direct knowledge? 5 A Let me rephrase that. Intel per se 6 doesn't purchase used Apple equipment. I know that 7 some people, for instance, Mr. Schwartz, had an 8 Apple laptop that he carried back and forth to 9 work. Some people do use it for whatever reason. 10 Q You were asked to identify your notes 11 about the summary of the attorney fees. What was 12 that summary based upon? Was that based upon 13 billings? 14 A On the billings that I provided you also, 15 yes. 16 MR. SUSSMAN: Nothing further. I'm 17 sorry. There is one other question. 18 BY MR. SUSSMAN: 19 Q Do you know how, what Intel's marginal 20 tax rate was for the year of 1993? 21 A Absolutely no idea. 22 Q Do you know how the expenses associated 23 with the incident involving Mr. Schwartz were 24 treated for income tax purposes? 25 A No, I do not. 45 1 MR. SUSSMAN: Thank you. Nothing 2 further. 3 THE COURT: Mr. Tintera. 4 5 REDIRECT EXAMINATION 6 7 BY MR. TINTERA: 8 Q Can you identify what has been marked as 9 State's Exhibit 5? 10 A Yes. 11 Q What are those? 12 A Those are copies of the billings that we 13 received from Miller, Nash for the work they did in 14 connection with this matter. 15 Q And this was the basis for your summary 16 of the, State's Exhibit 4, of legal expenses? 17 A Yes. 18 MR. TINTERA: Offer State's Exhibit 19 5. 20 MR. SUSSMAN: No objection. 21 THE COURT: Five is received. 22 MR. TINTERA: I don't remember if 23 I've offered State's Exhibit 4, but I would offer 24 that. 25 MR. SUSSMAN: I would object to four 46 1 as being cumulative of -- Exhibit 5 covers the 2 detail of what is contained in Exhibit 4. 3 MR. TINTERA: Judge, summaries of 4 complex -- 5 THE COURT: I'll receive No. 4. 6 Any other questions of this witness? 7 MR. TINTERA: No, Your Honor. 8 THE COURT: Mr. Sussman, any other 9 questions? 10 MR. SUSSMAN: Nothing further. 11 THE COURT: Thank you. You may step 12 down. 13 Call your next witness. 14 MR. TINTERA: That's it, Judge. 15 THE COURT: Any witnesses, 16 Mr. Sussman? 17 MR. SUSSMAN: I'd like to call one 18 witness. Like to call Nelson Maxwell. 19 20 21 22 23 24 25 47 1 NELSON MAXWELL 2 called as a witness on behalf of the Defendant, 3 having been first duly sworn under oath, was 4 examined and testified as follows: 5 6 THE CLERK: State your full name and 7 spell it for the record, please. 8 THE WITNESS: Nelson Alvoid Maxwell. 9 A-l-v-o-i-d. M-a-x-w-e-l-l. 10 11 DIRECT EXAMINATION 12 13 BY MR. SUSSMAN: 14 Q Mr. Maxwell, would you tell the court 15 what your occupational background is? 16 A I have an MBA from Stanford Business 17 School and worked in the executive department of 18 the Southern Pacific. Been the transportation 19 economist for the Western Highway Institute and 20 been in business for myself and currently run a 21 computerized investment service. 22 Q In the course of your duties as a 23 corporate financial analyst, are you familiar with 24 how corporations treat losses or expenditures such 25 as employee time or other out-of-pocket expenses in 48 1 an investigation such as has been described as 2 relating to Randal Schwartz? 3 A These are regular expenses of the 4 employees of the corporation who are carrying out 5 the business of the corporation and they are tax 6 deductible. 7 Q Have you taken a look at the financial 8 report for Intel for the tax year 1993? 9 A Yes, I have. 10 Q What was Intel's marginal tax rate for 11 1993 tax year? 12 A The average tax rate was just short of 35 13 percent. The marginal tax rate doesn't show on 14 that report. 15 Q The average tax rate then would cover 16 what? 17 A It would be the tax rate after tax 18 credits and deductions and writeoffs. 19 Q And would the expenses described to the 20 court involving Mr. Schwartz have been expenses 21 that would have been deducted to get the rate down 22 to the 35 percent? 23 MR. TINTERA: I'd like to ask a 24 question in aid of objection. 25 THE COURT: You may. 49 1 EXAMINATION IN AID OF OBJECTION 2 BY MR. TINTERA: 3 Q Do you have any personal knowledge as to 4 whether these expenses were claimed by the Intel 5 Corporation? 6 A No, I do not. 7 MR. TINTERA: He's not in a position 8 to speculate. 9 THE COURT: Sustained. 10 BY MR. SUSSMAN: 11 Q Were they also the kinds of expenses that 12 were ordinary business expenses that are claimed by 13 corporations, in your experience, as deductible 14 expenses? 15 A Yes. 16 Q Just to clarify something, would looking 17 at Intel's 1993 tax year report, would these kinds 18 of -- based on your experience, would these kinds 19 of expenses described have been deducted before you 20 got to the 35 percent rate? 21 A Yes. 22 Q And before you got to that, before these 23 were treated as -- before you got to the 35 percent 24 rate, reducing the taxes by these expenses, what 25 would be the tax rate that the corporation would 50 1 start with? 2 A Federal and state? 3 Q Yes. 4 A Average of about 55 percent, to the best 5 of my recollection. 6 MR. SUSSMAN: Thank you. Nothing 7 further. 8 9 CROSS-EXAMINATION 10 11 BY MR. TINTERA: 12 Q Mr. Maxwell, in a corporate environment, 13 however, the income and outgo and deductions, those 14 all have to be put into the tax picture; is that 15 fair? 16 A Yes. 17 Q So if Intel also repaid money in the form 18 of restitution, they're going to have to adjust 19 their taxes; isn't that fair? 20 A I don't know if restitution is taxable. 21 Q So what you think this comes in -- let's 22 say the judge orders $70,000 to Intel, do you think 23 they would consider that as a bonus? 24 A If it's not taxable, it would be counted 25 as nontaxable income. 51 1 Q Don't you think if they took that as a 2 loss back in 1993, they would have to go back in 3 accordance with the tax laws and adjust that if 4 that loss has been corrected through action of the 5 court? 6 A I don't know. I don't know how it's 7 handled. 8 Q If you were advising a business and they 9 received $50,000 two years after they suffered a 10 loss due to criminal conduct, wouldn't you advise 11 them to go back and amend that tax form to reflect 12 what they took as a loss has now been corrected? 13 Wouldn't you advise a business to do that? 14 A I would advise them to go to their tax 15 advisor. 16 Q You're not a tax advisor? 17 A No. 18 Q You're not qualified to talk to us about 19 the various tax effects of payments into a company? 20 You can't tell us what the tax ramifications are in 21 regard to various payments or outgoes of a company? 22 A I don't know whether restitution is tax 23 deductible or whether there is tax paid on it or 24 not. 25 Q So you're not a tax expert? 52 1 A No. 2 MR. TINTERA: Thank you. 3 MR. SUSSMAN: Nothing further. 4 THE COURT: Thank you. You may step 5 down. Any further evidence, Mr. Sussman? 6 MR. SUSSMAN: Your Honor, I had -- 7 there was an affidavit that Mr. Schwartz prepared 8 and it had not previously been submitted to the 9 court -- you were coming out -- detailing his 10 financial circumstances and in dealing with the 11 ability to pay. I'd like to have Mr. Schwartz 12 execute that now. 13 THE COURT: You may. 14 MR. SUSSMAN: I've provided 15 Mr. Tintera a copy of this and we would offer that 16 as Defendant's Exhibit -- 17 THE CLERK: Defendant's Exhibit 102. 18 MR. SUSSMAN: -- 102. There were 19 also two letters that were submitted to the court 20 that I believe the court may have seen. 21 Mr. Tintera has received copies of these previously 22 from Edward Sager and a copy of a letter from 23 Steven Talbott at O'Reilly and Associates. 24 THE COURT: I have those. 25 MR. SUSSMAN: I would like to have 53 1 those be part of the record. So if we could have 2 them marked. 3 THE COURT: They will be marked. 4 The affidavit of Randal Schwartz, Defendant's 5 Exhibit 102, and the two letters will be 103 and 6 104. 7 THE CLERK: Correct. 8 THE COURT: Mr. Tintera. 9 MR. TINTERA: I object to 103 and 10 104. I would like to cross-examine Mr. Schwartz in 11 regard to this affidavit. If that's not allowed to 12 me, I object to its admissibility. 13 THE COURT: The request is to ask 14 questions of Mr. Schwartz. Would Mr. Schwartz 15 agree to answering questions with regard to the 16 affidavit? 17 MR. SUSSMAN: The court already 18 ruled this is admissible. I don't think this is 19 something we could -- 20 THE COURT: Are you saying he does 21 not agree to be cross-examined? 22 MR. SUSSMAN: I see no need to have 23 him cross-examined on this. 24 THE COURT: The exhibit will be 25 received and I'll consider the fact that he hasn't 54 1 been cross-examined on this affidavit in giving 2 weight to it. Anything else? 3 MR. SUSSMAN: Nothing for the 4 defense, Your Honor. 5 THE COURT: Mr. Tintera, argument. 6 MR. TINTERA: I do have some 7 rebuttal evidence in regard to that affidavit. 8 THE COURT: I'd like to take a short 9 break. 10 (The court was in recess.) 11 THE COURT: Mr. Tintera. 12 MR. TINTERA: The defense, I don't 13 know if they have offered 101. 14 MR. SUSSMAN: No, I hadn't. 15 MR. TINTERA: Do you want that in 16 evidence? 17 MR. SUSSMAN: We hadn't offered it. 18 MR. TINTERA: I think it should be 19 part of the record. We don't oppose to it. 20 MR. SUSSMAN: The occasion hasn't 21 come up to do that. 22 MR. TINTERA: I just didn't want it 23 to be overlooked. 24 THE COURT: You are offering 101? 25 MR. SUSSMAN: Yes. 55 1 THE COURT: 101 is received. 2 MR. TINTERA: I would like to call 3 John Woodard briefly. 4 THE COURT: You are still under 5 oath. Resume the stand, please. 6 7 JOHN WOODARD 8 recalled as a witness on behalf of the Plaintiff, 9 having been previously duly sworn under oath, was 10 further examined and testified as follows in 11 rebuttal: 12 13 THE CLERK: State your full name and 14 spell it for the record, please. 15 16 DIRECT EXAMINATION 17 18 BY MR. TINTERA: 19 Q Mr. Woodard, ask you to review an 20 affidavit by Randal Schwartz that has just been 21 sworn to, apparently here in court. Did you review 22 that affidavit? 23 A I read it over quickly. 24 Q Do you have any information as to 25 Mr. Schwartz' employment recently in regard to in 56 1 particular a California company called Silicon 2 Graphics? 3 A The affidavit made it sound much less 4 significant than Mr. Schwartz did when he was 5 telling an attorney in our legal department about 6 the job. 7 Q How did this occur and what information 8 do you have? 9 A On a recent flight to California, 10 Mr. Schwartz sat next to one of our attorneys and 11 spent the flight telling him about his great new 12 job at Silicon Graphics, so I was under the 13 impression it was much more significant than the 14 affidavit makes it sound to be. 15 Q The affidavit makes it -- says that he 16 has had no contact and lists Silicon Graphics. Do 17 you note that? 18 A He told Jim that he had a job there, that 19 he was commuting back and forth and had an 20 important job at Silicon Graphics. 21 MR. TINTERA: Thank you. That's all 22 the questions I have. 23 THE COURT: Mr. Sussman. 24 25 57 1 CROSS-EXAMINATION 2 3 BY MR. SUSSMAN: 4 Q Did your source tell you what 5 Mr. Schwartz was talking about was a protocol class 6 that he was teaching at -- 7 A He conveyed to me what Randal told him, 8 that he had a job at Silicon Graphics and he was 9 commuting back and forth. 10 THE COURT: Who was the person? 11 THE WITNESS: James Jacobson, a 12 patent attorney in our office. 13 BY MR. SUSSMAN: 14 Q It wasn't clear one way or the other 15 whether that was a regular job or whether it was a 16 job teaching a class? 17 A The impression Jim got from the 18 conversation was he had a regular job because he 19 questioned me about whether that was permitted. 20 MR. SUSSMAN: Nothing further. 21 MR. TINTERA: No further questions. 22 THE COURT: Thank you. You may step 23 down. 24 MR. TINTERA: I have no other 25 evidence to offer. 58 1 THE COURT: Mr. Sussman, any other 2 evidence? 3 MR. SUSSMAN: I'll have Mr. Schwartz 4 testify to clarify this issue. 5 THE COURT: Step forward, please. 6 7 RANDAL LEE SCHWARTZ 8 called as a witness on behalf of the Defendant, 9 having been first duly sworn under oath, was 10 examined and testified as follows: 11 12 THE CLERK: State your full name and 13 spell it for the record, please. 14 THE WITNESS: Randal Lee Schwartz. 15 S-c-h-w-a-r-t-z. 16 17 DIRECT EXAMINATION 18 19 BY MR. SUSSMAN: 20 Q Mr. Schwartz, do you recall having a 21 conversation with this fellow, Mr. Jacobson? 22 A I don't recall any specific conversation 23 with him, no. 24 Q Do you have a position, a regular full 25 time, regular job with Silicon Graphics? 59 1 A No, I don't. No, I don't. 2 Q Do you have any kind of employment 3 arrangement with Silicon Graphics? 4 A I have a contract that from time to time 5 Silicon Graphics can enlist my services to provide 6 protocol classes. 7 Q And in the affidavit, it doesn't make any 8 specific reference to who hired you to do the 9 protocol classes, do any of the classes that are 10 referenced in your affidavit refer to classes at 11 Silicon Graphics? 12 A Yes. 13 Q When are you teaching a class there? 14 A The affidavit refers to a class in 15 December. There were actually two classes in 16 December. That was the ones that said if the 17 inventory permits, we'll teach an additional class. 18 Those are both for Silicon Graphics. I have a 19 class coming up at the end of January and the 20 affidavit refers to that. 21 MR. SUSSMAN: Nothing further. 22 23 24 25 60 1 CROSS-EXAMINATION 2 3 BY MR. TINTERA: 4 Q Your affidavit says that, mentions 5 Silicon Graphics as one of the places you had 6 reasonable expectations of continuing to provide 7 services; is that correct? 8 A I believe so. 9 Q And then in the next paragraph, it says, 10 "I've had no further inquiries or interest in my 11 services from the aforementioned business"; is that 12 correct? 13 A Not without looking at the affidavit, I 14 can't tell exactly how that relates. 15 Q That's not accurate, is it? 16 A I don't know. You'd have to read the 17 statement again and let me understand it. 18 THE COURT: Do you have the 19 affidavit? It's Exhibit 102. Hand it to the 20 witness. Which paragraph? 21 MR. TINTERA: Page 3, Line 15 and 22 16. 23 THE WITNESS: I believe that's 24 referring to the Motorola and New York Times 25 cancelling my contracts. That's what I understood 61 1 when they signed it. 2 BY MR. TINTERA: 3 Q Does this include your income activities 4 in the last few months? 5 A Does what include it? 6 Q Does this affidavit include your income 7 producing activities for the last few months? 8 A We prepared this statement for December. 9 It was completely accurate at that point. I 10 reviewed it briefly this morning. I believe it was 11 still accurate. 12 Q So have you been in Florida to conduct 13 any classes in the last couple months, particularly 14 towards the beginning of November? 15 A I've never taught a class in Florida. I 16 went down to attend a computer conference to which 17 I was a presenter. 18 Q Is that different? When you are a 19 presenter, is that different from teaching people? 20 A Yes. 21 Q And were you paid for that? 22 A No. In fact, I paid my own way to get 23 there. 24 Q So you're incurring additional expenses 25 in going out of the state for free, is that 62 1 essentially it? 2 A For free? I'm not sure what that means. 3 Q You didn't get paid for it. 4 A No. I was not paid. I was presenting a 5 talk. 6 MR. TINTERA: Thank you. That's all 7 I have. 8 MR. SUSSMAN: Nothing further. 9 THE COURT: Thank you. You may step 10 down. 11 THE COURT: Any further evidence? 12 Hearing none, I'll hear argument. Mr. Tintera. 13 MR. TINTERA: Your Honor, I think 14 the State has established the basis for all of the 15 restitution that we're requesting. Damage to the 16 Intel Corporation, I think, is $64,717 and 17 attorneys' fees of $9,635.75. I'd ask the court to 18 rely on the documents. I totaled those myself. 19 State v. Mahoney has been 20 Shepherdised. It has not been overruled. I 21 Shepherdised it this morning. Review was denied by 22 the Oregon Supreme Court. 316 OR 1942, 1993 case, 23 or denial of review. 24 Attorney's fees are special damages 25 and they are recoverable. The victim is entitled 63 1 to seek legal counsel as to what their rights and 2 remedies are when they are the victim of a crime. 3 That's exactly what Intel Corporation did and I 4 think State v. Mahoney supports them being 5 compensated for their attorneys' fees in that 6 regard. It wasn't done for civil litigation. It 7 was done because of the criminal acts of Randal 8 Schwartz. 9 State v. Louden indicates that labor 10 costs must be directly attributable to the 11 defendant's activities. That's exactly what is 12 reflected through the request of Defendant's 101, 13 the E mail, for activities spent correcting the 14 wrongs committed to the corporation by 15 Mr. Schwartz' criminal acts and the investigation 16 of those. That is allowed. State v. Louden is 17 good law. 18 And I think State v. Lindsly, 106 OR 19 AP 459, is perhaps most constructive in regard to 20 restitution for a number of reasons. Lindsly deals 21 with computer crime involving Pacific Northwest 22 Bell. There was $1,000 in long distance calls. 23 However, there was almost $36,000 in investigative 24 expenses and that just demonstrates to the court 25 the amount of criminal damages perpetrated on 64 1 corporations by these types of activities and that 2 the extraordinary costs that it takes to put right 3 what criminals do to corporations and this is no 4 different. That was in regard to use of -- sounded 5 like use of passwords, but in compiling a thousand 6 dollars worth of long distance calls and it cost 7 GTE $35,840 to investigate and put things back 8 together. 9 The situation is similar here. The 10 totals are larger, but Mr. Schwartz' extent of 11 access, as the court recalls, was worldwide with 12 regard to the Intel Corporation. The passwords 13 that he had access to for various places in Intel 14 did go around the world and those systems had to be 15 changed and fixed to correct the criminal acts of 16 Mr. Schwartz. 17 As it states on Page 462 of State v. 18 Lindsly, "Investigation of defendant's computer 19 system break-in required expertise and specialized 20 technology. Defendant caused damage to the system 21 because he retrieved and used valid passwords which 22 had to be replaced. 23 As the State's brief explains, 24 "because computer crime cannot effectively be 25 investigated or countered without diverting 65 1 substantial resources within the victim 2 corporation, the consumption of those resources is 3 a damage directly attributable to the defendant's 4 criminal activities." The court concludes, "The 5 investigatory expenses qualify as pecuniary damages 6 under ORS 137.103 Sub 2." 7 So I think we've established that 8 these costs are directly related to the criminal 9 activities of Mr. Schwartz. 10 As far as his ability to pay, he's 11 demonstrated that he has an ability to generate 12 income. That income -- that ability may be 13 suffering a back step due to his, him being a felon 14 now. However, he's apparently taking efforts to 15 travel across the country at his own expense to 16 spread his name. I assume that's what he was 17 doing. I didn't attend that conference. But 18 spread his name and make himself known and so we 19 would anticipate that those activities would 20 generate income for him and that he should put 21 Intel, make Intel whole by the payment of this 22 restitution. 23 THE COURT: Mr. Sussman. 24 MR. SUSSMAN: Thank you, Your Honor. 25 There are a few fundamental issues for the court in 66 1 dealing with restitution here. Start by saying 2 that Mr. Schwartz is not here denying the 3 responsibility for restitution, which is properly 4 established under the statutes and under the case 5 law. 6 The problem that we'd present to the 7 court is that the State has not met its burden of 8 establishing what pecuniary damages were directly 9 attributable to Mr. Schwartz' activity with the 10 evidence that was presented to the court. In fact, 11 the evidence that was presented to you today, 12 although greater in quantity, was not different, 13 much different in quality from the information 14 presented at the sentencing hearing which the court 15 at that time recognized and had some problems about 16 sufficiency. 17 The burden is on the State to show 18 that Mr. Schwartz' activities were the actual cause 19 of certain damages and what those specific damages 20 were, and the problem that we run into in terms of 21 the evidence presented on behalf of Intel's 22 expenses. 23 Intel's costs on behalf of the State 24 fall into several categories. First there is no 25 distinction made and no detail made to show what 67 1 work was done, what was the nature of the work done 2 to show that it was directly related and 3 attributable to Mr. Schwartz' conduct, so there was 4 no way for us to respond to that. There was -- and 5 there was no detail even to the point of providing 6 what presumably would have been readily available, 7 the breakdowns of the costs for the materials that 8 are lumped in here. We don't have any summaries or 9 any receipts showing what the materials were 10 expended. If in fact there was travel time, we 11 have no information about -- no evidence of what 12 that was, what the basis of that was, not only to 13 be able to establish the expense itself, but also 14 for the court to be able to determine whether those 15 expenses were related to Mr. Schwartz' conduct 16 here. 17 Additionally, we have the problem of 18 determining what is in the breakdown of all of 19 these hours involved, of what was necessary, for 20 instance, in order to reconfigure machines, if that 21 was required in order to remove Mr. Schwartz' 22 access to the DNS servers or to purge the machines 23 at Hawthorne Farms that Mark Morrissey supervised 24 and how much time was expended on that or expended 25 on reviewing the files to determine if there was 68 1 anything there. There is no breakdown, no way for 2 the court to make a determination about what 3 activities actually occurred that were necessary 4 and a necessary response to deal with the conduct 5 that Mr. Schwartz was found guilty of. 6 So to that extent, the State hasn't 7 met its burden of showing that the total sum that 8 is being requested is, are the pecuniary damages 9 that are directly attributable to Mr. Schwartz' 10 activities. 11 Now, the -- even in that figure, I 12 think there is room for questioning the sum that 13 was presented. The figure before the court is 14 based upon the burdened compensation rates of these 15 employees, but we have no evidence to show what the 16 compensation rates were for each of them, and to 17 the extent that we do have some evidence, it's 18 conflicting with the figures that the court has. 19 For instance, if you look at State's 20 Exhibit 1 where we have the number of hours and 21 time consumed and materials and costs which are 22 lumping in both expenses and materials, we're told 23 Mark Morrissey's hourly rate at 131 hours comes out 24 to a rate of about $165 an hour. 25 Before he broke that down, it would 69 1 look like $165 an hour. We have some testimony 2 suggesting materials and supplies, but we don't 3 know because we have no receipts or anything to 4 show what that included. 5 For Rich Cower, you have a rate of 6 approximately $195 an hour. For Carlene Ellis, who 7 is slightly below the middle of that ring, we have 8 a rate that comes out that would approximate $250 9 an hour with no detail about what was done or what 10 was involved in that and yet we have from 11 Mr. Townsend, the author of this, that the 12 multiplier from the hourly rate for figuring out 13 what the total compensation package is for these 14 employees is 1.3 above the hourly rate. 15 You do have from Intel it's hourly 16 rate figures in State's Exhibit No. 2 and those 17 range from the grade level of five up to 10 of 18 $20.38 an hour up to $41 an hour. At that 19 multiplier, even at the highest rate for all of the 20 hours that are involved here, you come out to a 21 figure that's a little bit above $22,000. 22 In another example of where the 23 evidence doesn't necessarily support these figures, 24 Clyde Stites testified that his base salary is 25 $55,000 and his time is being billed out at $75 an 70 1 hour if we break that down. The correlation isn't 2 there for the court to make that meaningful 3 distinction in order to make a proper determination 4 about what was the time that was necessary to 5 respond to Mr. Schwartz' activities and what is the 6 true cost of that. 7 I would submit to the court that 8 even if -- with accepting the premise of certain 9 expenses, if we accept the premise that certain 10 expenses may be legitimate under State v. Lindsly 11 as investigation expenses or expenses under Louden, 12 expenses that are necessary to correct a system 13 which has been altered or damaged in some way, that 14 those are the -- in Louden we had the actual costs 15 of the labor rate for the people who had to repair 16 the line. In Lindsly, you can't tell that from the 17 opinion, but from the briefs, it appears that that 18 was a breakdown of actual time and expenses, even 19 if we accept that. 20 What we have presented to you now is 21 a situation that is closer to those expenses in 22 State v. Heath, which were not properly the subject 23 of restitution. That was the case that involved 24 the loggers' protest and the logging company sought 25 restitution for the down time for the trucks and 71 1 administrative personnel who had to deal with this 2 protest and it included all of the built-in 3 corporate overhead, the unburdened expenditure as 4 well. 5 The court in that case said many of 6 these are expenses that would have had to be 7 expended anyway, that these were part of the 8 corporate overhead which existed regardless and 9 they were not proper subject of restitution. 10 The unburdened expenses, I would 11 submit to the court, fall into that category and 12 are not properly the subject of the restitution 13 that's sought here. Even if you do take that, the 14 evidence before you is that the figure is a much 15 lower figure. If we can work off the multiplier 16 presented by the evidence that you have from 17 Intel's witnesses, the figure is much lower than 18 the amounts that are sought by Intel. 19 That figure that I referred to, the 20 $22,000 figure, is the amount based on the 426 21 hours of time at the top salary grade level and so 22 we have no breakdown of all these people about what 23 their salary grade was for us to make a meaningful 24 determination as to what their actual cost, the 25 actual cost of their time, their wage rates would 72 1 be for Intel based on the figures that we have. 2 Finally, with respect to the issue 3 of restitution, in State v. Lindsly, I would point 4 out that Lindsly is, to some extent, 5 distinguishable from the facts in this case because 6 Lindsly dealt with an outside break-in into the 7 telephone company. It was argued in the briefs and 8 it was suggested, indicated in the opinion that the 9 telephone company neither had the internal 10 resources nor was in the business of dealing with 11 computer security. Therefore, the required 12 expertise was not within the company to investigate 13 this so that these additional expenses were 14 legitimate. 15 In Intel's case, some of those 16 expenses that are being sought are not only -- are 17 the normal, appear to be the normal kinds of 18 activities of a number of the managers or people 19 who are employed at Intel. Certainly, Mr. Stites' 20 job is investigating incidents and working on 21 corporate security. This is precisely the type of 22 thing that his normal job would cover. Some of 23 Rich Cower's time, which involves checking in 24 corporate security, this would seem to be within 25 the normal scope of their employment. But the 73 1 problem that we come back to is, we can't tell from 2 employees like Rich Cower or Mark Morrissey or 3 administrator's whose job normally involve 4 maintaining the security of their systems, how much 5 of the time involved is distinguishable in terms of 6 work that was required specifically because of 7 changes that had to be made based on Mr. Schwartz' 8 activities and things that they would normally have 9 done anyway. That's the problem that's presented 10 to the court in terms of the evidence before you 11 and we submit the State has failed to meets its 12 burden. 13 I suggest if the court finds that 14 there is evidence in the report to make a finding 15 of restitution, that the court rely on hourly rates 16 that are submitted in Exhibit 2. Plus, adding no 17 more than the multiplier provided. But even then, 18 I would suggest to the court that the total number 19 of hours submitted by Intel is not a reliable 20 figure and there isn't any evidentiary basis for 21 applying restitution based on all of those hours. 22 As far as the attorneys' fees, my 23 memorandum has discussed the case law holding that 24 attorneys' fees are not the subject of restitution. 25 As I suggested earlier, the Mahoney 74 1 case was a case that grew out of an employment -- 2 is distinguishable and I suggest is not 3 controlling. It was a case that grew out of an 4 employment relationship situation where the victim 5 in that case sought counsel for determining what 6 rights she had because of the possible sexual 7 harassment situation that came up and was advised 8 on criminal and civil remedies. 9 The court in that case did rule and 10 did hold as Mr. Tintera has argued, but Judge 11 Joseph's dissent in that case was that this case is 12 in distinguishable from State v. O'Brien. There is 13 no truly sound rational way to distinguish it from 14 O'Brien. O'Brien was reaffirmed by reference in 15 Raymond v. Feldman and would suggest that the 16 comments of Judge Joseph in his dissent were 17 effectively recognized and accepted by the court in 18 its discussion on Raymond v. Feldman and there is 19 no way to treat those kinds of attorneys' fees in a 20 civil case as damages. They would be recoverable 21 as attorneys' fees unless provided for specifically 22 by statute. I think a fair reading of the law does 23 not support an application of attorneys' fees. 24 THE COURT: Thank you. Mr. Tintera. 25 MR. TINTERA: All through these 75 1 proceedings, the defendant has refused to accept 2 responsibility for anything that he's done. I 3 reference his affidavit. We talked about it a 4 little bit, but on Page 3 of the affidavit, it says 5 that, "These are the companies that I thought I 6 might be working with," and one of them is Silicon 7 Graphics. 8 And then in Paragraph 12, it says, 9 "Since my conviction, I've received letters from 10 Motorola, Inc., New York Times canceling my 11 contacts." Then says, "I've received no further 12 inquiries or interests for my services from the 13 other aforementioned businesses." 14 We know that's a lie. He just 15 doesn't want the court to know about his income 16 from Silicon Graphics. He doesn't want to take 17 responsibility for that and yet he's willing to 18 travel across the country at his own expense to be, 19 as he put it, a presenter for some computers in 20 Tampa, Florida. 21 So once again, Mr. Schwartz does not 22 want to take responsibility for what he's done. He 23 doesn't want -- didn't want to at sentencing accept 24 criminal responsibility that what he's done is a 25 crime. He still doesn't want to do that and he 76 1 doesn't want to pay Intel a penny for what he's 2 done even though they've spent thousands to correct 3 the criminal acts that he perpetrated on them. 4 As far as the sustainability of our 5 burden, Defendant's 101 gives the marching orders 6 to people that Mr. Townsend contacted and he 7 testified that he took the hours and the expenses 8 that were submitted and as part of his duties 9 compiled the State's Exhibit 1, which is a summary 10 of his compilation of the records that he received 11 and that has been testified to. 12 We have the specific investigation 13 document that's in evidence as to what their costs 14 were in this particular case and you have the 15 attorneys' fees that were submitted through exhibit 16 and by testimony of John Woodard. 17 I'm not going to reiterate what the 18 case law says, except to say that those cases are 19 valid cases in the State of Oregon. They have not 20 been overturned. 21 I know we can't give much weight one 22 way or the other, but State v. Mahoney has had 23 review denied as to the point, so they're good law 24 and so I'm asking the court to follow those cases 25 and follow the law and impose restitution. 77 1 MR. SUSSMAN: Your Honor, may I 2 respond? I promise they will be brief points. 3 No. 1, the point about the exhibit, 4 the point made from Exhibit 101 and also from 5 Mr. Stites, the comment about Mr. Stites and the 6 marching orders, our information is that -- our 7 position is that information was insufficient to 8 provide the basis to make the findings necessary on 9 its restitution finding. It, in effect, shows that 10 the evidence, the information just isn't there. 11 The State hasn't met the burden. 12 And to the extent that the 13 information of specific detail was provided, it 14 hasn't been presented to the court. 15 No. 2, on the attorneys' fees issue, 16 I would also ask, if the court does follow the 17 State's request for imposition of request on 18 attorneys' fees, I would make a distinction between 19 those attorneys' fees that are, that were incurred 20 at the beginning of the case in the December 1993 21 billing statement from Miller, Nash which dealt 22 with the initial consultation and advice about 23 restitution and about what the remedies were. 24 I would suggest that they are not 25 entitled to attorneys' fees, in any event, for 78 1 attorneys' fees and resisting a subpoena while the 2 case was being litigated. 3 Finally, I would like to clarify the 4 issue on Mr. Schwartz' affidavit. If it was 5 inartfully drafted, what was intended to be 6 conveyed to the court was that Mr. Schwartz has not 7 received any further inquiries from those companies 8 listed for his services as a systems administrator. 9 He had indicated in the affidavit that he has been 10 teaching classes, and as to clarify to the court 11 that services were for future classes but not for 12 the work that made up this business with Intel and 13 prior to this conviction in the case. 14 That's all, Your Honor. 15 THE COURT: Thank you. Anything 16 else, Mr. Tintera? 17 MR. TINTERA: Just briefly, Judge. 18 I don't want to go back and forth, but when you 19 think about the attorneys' fees, I think the 20 corporate, corporation had a right to protect 21 itself from overbroad subpoenas, to protect itself 22 from -- to protect its trade secrets and that is 23 essentially what it was doing in regard to that. 24 That was not done for the purpose of litigation. 25 It was done for corporate reasons in regard to 79 1 protecting itself during the, I guess the pretrial 2 motion in regard to the criminal case. 3 Once again, they are receiving 4 advice of counsel in regard to their rights as a 5 victim in a criminal case and I believe those costs 6 are recoverable. 7 THE COURT: I see some billings here 8 for research law regarding contact with jury 9 following trial. What's that all about? Is that 10 something that you are seeking recovery for? 11 MR. TINTERA: No. 12 THE COURT: Well, it's in here. 13 MR. TINTERA: Cross it out. 14 THE COURT: Oh. See how easy this 15 is, Mr. Sussman? He's already conceded I can 16 remove about $5 out of here. 17 MR. TINTERA: Judge, I should bring 18 up, having listened to Clyde Stites, I think 19 counsel is right, that his figure is pretty much 20 encompassed in his job description. I don't agree 21 with the other people that are listed, but with 22 Mr. Stites, I do agree on that. 23 THE COURT: So what's that amount 24 now? 25 MR. TINTERA: It's $5,025. I don't 80 1 know what his costs are, but in listening to his 2 testimony, I think that his activities in this case 3 were within his job description, unlike the others. 4 THE COURT: That's listed on Exhibit 5 1? 6 MR. TINTERA: Yes, it is. 7 (Pause on the record) 8 THE COURT: One of the nice things 9 about having the complete billing from Miller, Nash 10 is when I rule here, if the Court of Appeals or 11 Supreme Court does disagree with some of it, not 12 all of it, they have the ability to back out some 13 of the numbers because of the justification for all 14 of the amounts are all included here and wouldn't 15 require a rehearing. All the hourly expenses and 16 the hourly rates are usually computed. 17 These are all interesting questions. 18 The case law seems to be a bit indefinite. If, in 19 fact, the courts intended to overrule the decision 20 in Mahoney, it would have been nice if they had 21 done it in clear words and at least mention the 22 name of the case. Leaves the trial court in the 23 dilemma of not knowing specifically what the law is 24 when they do that. 25 Appears that Mahoney is still good 81 1 law. Mr. Sussman makes the point that it should be 2 restricted to the facts of that case, which is sort 3 of a unique case. 4 I'm going to find and I do find in 5 this case that with the exception of the amounts we 6 just discussed here today, the remaining amounts 7 that have been requested by Intel are pecuniary 8 damages that may be recovered as part of 9 restitution in this case. They involve 10 investigative expenses, that is employee 11 compensation plus miscellaneous expenses that have 12 been spent by the employees for travel expenses, 13 meals, lodging. There is a couple expenses for 14 some hardware and software that were required as a 15 part of the investigation in this matter. 16 Attorneys' fees for outside counsel, house counsel 17 house counsel expenses and salaries, travel 18 expenses, et cetera. Already mentioned the 19 hardware-software that was necessary to be 20 purchased. These are pecuniary losses that have 21 been suffered. 22 There are special damages that could 23 be recovered and I am going to order that 24 restitution to Intel for those expenses, after 25 deduction of the amounts that we've talked about 82 1 for Mr. Stites, they now total $59,692 will be 2 recovered and they are the amounts of restitution. 3 I'm ordering the defendant to pay to 4 Intel the expense of outside counsel, the Miller, 5 Nash firm. I have deducted from that, and I've 6 looked at the billings dated October 17, 1995, 7 $601.18. And the billing dated August 11, 1995, in 8 the amount of $255.12, because, by any stretch of 9 the imagination, they don't appear to be 10 recoverable as restitution. Those amounts leave 11 $8,779.45 for the expense of the Miller, Nash firm 12 in advising Intel in this rather complex matter and 13 the total of those two amounts, the direct expenses 14 incurred by Intel plus the outside counsel expense 15 total $68,471.45, if my math is correct. 16 And I find that those are pecuniary 17 losses suffered by Intel as a result of the actions 18 of the defendant. His actions directly caused that 19 expenditure of money and that is a pecuniary loss 20 that may be recovered by them and I find that that 21 amount actually has been incurred as damages by the 22 Intel Corporation. 23 The only remaining question has to 24 do with the defendant's ability to pay. The 25 defendant is a bright young man, single, 83 1 responsible only for his support. He has his own 2 corporation that's involved in the contracting with 3 the high-tech industry for services and he also 4 makes a substantial income from publishing and from 5 teaching of the computer language known as Perl, 6 P-e-r-l, and it's understandable that more recently 7 this year his income has been reduced some. He 8 spent a lot of time, obviously, the record will 9 show, in this court and spent a lot of time 10 conferring with counsel and I'm sure that the fact 11 that this case has been pending has been a burden 12 and imposed on his travel ability, ability to 13 travel has been restricted. 14 I recall as well that as part of the 15 conditions of probation in this case that I 16 ordered, as I recall, that he must advise 17 prospective employers of the fact of his conviction 18 and that, obviously, will have some future impact 19 on his employability. But, apparently, hasn't 20 foreclosed that possibility because he still has 21 jobs and he has income. 22 And I have reviewed the affidavit 23 that he's prepared. I don't believe he's lied, 24 but, nevertheless, it does appear that his income 25 is down and that's understandable. We wouldn't 84 1 expect that given the year that he's been through 2 here that his income would have been substantially 3 in excess of what he's earned in the past. 4 I believe we determined previously 5 that the crime seriousness for Count 1, the one I'm 6 dealing with now, criminal seriousness 5 is a 7 period of two years probation and we're looking at 8 the total of restitution of $68,471.45 cents which, 9 if paid off over two years, would require him to 10 pay $34,000 a year in restitution. 11 He does have equity in a house. I 12 know he has bills. I reviewed his affidavit. He 13 does have a substantial earning capacity. The 14 court does have the ability to extend the period of 15 probation if necessary to permit the fulfillment of 16 the terms and conditions of probation and they 17 could be in this case extended up to five years if 18 necessary. 19 The defendant does, as I've said, 20 have a substantial earning capacity, has a unique 21 talent and he is a single person and he does have 22 the ability to pay the amounts of restitution that 23 I am going to order in this case and that is the 24 previously determined amount of $68,471.454. That 25 will be repaid according to a schedule to be set by 85 1 his probation officer after he and the probation 2 officer have reviewed his necessary monthly 3 expenditures and income, et cetera. He can pay 4 that in monthly installments. 5 As I said before, if it looks like 6 toward the end of the period of probation, he's not 7 going to have the ability to pay it off entirely 8 within that period of time, the court could and 9 will consider an extension, if necessary, to give 10 him the ability to pay that at some future date. 11 That's my order. Any questions? 12 MR. TINTERA: Your Honor, is the 13 court including the $3,614.25 for Pacific 14 Investigations. 15 THE COURT: Isn't that included 16 within those amounts? 17 MR. TINTERA: No, it is not. It is 18 not included in State's Exhibit 1. It is an 19 indication that I received after. It was after 20 that document was drawn up. 21 THE COURT: Well, if I didn't 22 include it in there, it was through and oversight. 23 Nevertheless, the amount of restitution I've 24 ordered so far is so substantial that including 25 anything else on there in addition would cause it 86 1 to be really so burdensome as to be beyond the 2 defendant's ability to pay, so I'm not adding that 3 on. That goes on Count 1. I'll put that on Count 4 1. 5 MR. SUSSMAN: Your Honor, given the 6 fact that I think there is a legitimate issue -- 7 THE COURT: There is. 8 MR. SUSSMAN: -- on restitution that 9 will be on appeal, I would ask the court to stay 10 the payment of the restitution while the appeal is 11 pending. 12 THE COURT: If we do that, then the 13 whole two years is going to be used up or it may be 14 and then we're going to have the probation running 15 out. 16 MR. SUSSMAN: Of course, an 17 alternative would be to have him pay it into an 18 account. 19 THE COURT: Assuming I have that 20 authority. I'd like to address that issue, if it 21 is an issue in this case, after he's met with the 22 probation department and they've arrived at what 23 they believe and he believes he can pay monthly. 24 We may not be talking huge amounts of money here. 25 I don't know. In other words, it may be that 87 1 because of his present circumstance right now that 2 the payments starting out will be quite low. Let's 3 have him do that. 4 And I wonder if I have the 5 authority, after I've signed a judgment, to stay? 6 I do have the authority to modify the conditions of 7 probation. 8 MR. SUSSMAN: Until we file a notice 9 of appeal. 10 THE COURT: Well, even after -- 11 that's right. I think I have the ability even to 12 modify it even after the judgment is signed and as 13 a sanction. I do, as a matter of fact. I'm 14 relatively certain of that. At least since I'm the 15 one that would be in a position of enforcing any 16 conditions of probation, I certainly could overlook 17 it if that was necessary. 18 I'd like to have him meet -- let's 19 go ahead and I want the judgment prepared. He can 20 meet with the probation department. After he has 21 worked with them and determined what sort of 22 payments might be made, if you want to apply to 23 some, for some other arrangement, I'll consider 24 nearly anything while the matter is pending. In 25 other words, if the payment is small initially, I 88 1 might not. But if, in fact, he will be paying huge 2 sums of money into the court to be paid to Intel 3 immediately, I might consider some alternative such 4 as having them held in some secure fashion so they 5 would be available to Intel immediately if the 6 decision is affirmed or if, in fact, there is a 7 reversal or modification of the sentence held 8 subject -- so that some portion of it could be 9 returned appropriately and I'd be pleased to work 10 with all sides on that. For now, the order will be 11 as I've announced it. 12 MR. TINTERA: Judge, like you to 13 check your records. I don't believe Count 1 is -- 14 I think that was one that the court may have 15 declared to be an A misdemeanor. I think Counts 2 16 and 3 are the felony counts. 17 THE COURT: That could be. As I 18 recall, we didn't have a judgment yet prepared or 19 order prepared from that hearing, did we? 20 MR. TINTERA: I thought we did. I 21 couldn't find it in my files. 22 THE COURT: I couldn't find one. I 23 think you're right. I did declare that to be an A 24 misdemeanor, I think. 25 MR. SUSSMAN: Your Honor, that's my 89 1 recollection, also, that Count 1 was declared a 2 misdemeanor. 3 THE COURT: I don't find a record of 4 that, but I think that's right, so let's put it on 5 Count 2. Restitution will be on Count 2. That's 6 all. Thank you. 7 MR. TINTERA: Thank you, Judge. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 90 1 STATE OF OREGON ) ) ss. 2 County of Washington ) 3 4 5 I, Frank R. Rosales, CSR, the 6 undersigned, do hereby certify that on the date so 7 stated in the before-captioned matter, I was an 8 Official Court Reporter for the Twentieth Judicial 9 District of the State of Oregon and that as such, I 10 did make a record by means of Stenotype of the 11 before-captioned matter and that the foregoing 12 transcript is a true and accurate record of said 13 proceedings. 14 DATED this 15th day of January, 15 1997. 16 17 18 ____________________________ 19 Frank R. Rosales, CSR Official Court Reporter 20 21 22 23 24 25