Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_05-cv-00285/USCOURTS-caed-1_05-cv-00285-3/pdf.json

Parties Involved:
Lorne McCan
Respondent
United States of America
Petitioner

Document Text:

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IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA, )

)

)

)

Petitioner, )

)

vs. )

)

)

LORNE McCAN, )

)

)

Respondent. )

)

)

No. CV-F-05-285 REC/DLB

ORDER FINDING RESPONDENT TO

BE IN CIVIL CONTEMPT OF

COURT, DIRECTING ISSUANCE OF

BENCH WARRANT FOR

RESPONDENT'S ARREST BY THE

UNITED STATES MARSHAL

SERVICE, DIRECTING UNITED

STATES MARSHAL TO BRING

RESPONDENT BEFORE THE COURT,

ORDERING RESPONDENT CONFINED

IN THE FRESNO COUNTY JAIL,

AND ORDERING RESPONDENT TO

PAY COMPENSATORY FINE TO THE

UNITED STATES

Respondent Lorne McCan was ordered to appear on August 22,

2005 at 1:30 p.m. and show cause why he should not be found in

civil contempt of court. 

No appearance by or on behalf of respondent was made. Upon

due consideration of the record in this action and for the

reasons set forth herein, the court finds respondent Lorne McCan 

Case 1:05-cv-00285-REC-DLB Document 48 Filed 09/06/05 Page 1 of 16
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to be in civil contempt of court and issues the sanctions set

forth herein.

1. Background.

The United States Magistrate Judge filed on May 10, 2005 a

recommendation that the IRS summons issued against the respondent

be enforced and that respondent be ordered to appear at a hearing

for the purpose of complying with the summons, during which

hearing the validity of any claim of the privilege against selfincrimination to questions posed to the respondent or to

documents subject to summons also may be determined. 

On May 19, 2005, respondent filed a “Notice of Appeal of

Magistrates Findigs [sic] and Recmmendations [sic] Re: Tax

Summons Enforcement, and Order re: Privilege Logs.”

By Order filed on May 24, 2005 (hereinafter referred to as

the May 24 Order or the Summons Enforcement Order), the court

deemed respondent’s notices of appeal filed on May 19, 2005 to be

objections to the Magistrate Judge’s recommendation pursuant to

Rule 72-303(b), Local Rules of Practice. The May 24 Order

enforced the IRS summons and ordered respondent to appear on June

17, 2005 at 8:00 a.m. in Courtroom 5 

there to be sworn, to give testimony, and to

produce for examining and copying the books,

checks, records, papers and other data

demanded by the summons. The examination

shall continue in the same place on July 11,

2005, at a time to be set in writing by

Revenue Agent Chynoweth or his designee. At

the hearing before Magistrate Judge Beck, any

issues regarding the Fifth Amendment

privilege against self-incrimination will be

ruled on by Magistrate Judge Beck and the

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Respondent filed a similar pleading with respect to the 1

Magistrate Judge’s findings and recommendation that the IRS summons

be enforced.

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hearing will proceed.

Respondent then filed a pleading captioned “Notice of

Acceptance as True, Returning as True and Firing in Response to

United States District Judge’s Order Dated May 23, 2005 and In

Support of Appeal of United States District Judge’s Order Dated

May 23, 2005" wherein it is stated in pertinent part:

By special appearance, only and not intended

to constitute an express nor implied waiver

of any and all Rights, privileges or

otherwise that may exist.

Secure party also referred to as general

trustee for [named respondent], notifies the

court for purposes of closure and settlement

of the account that the ‘Order Deeming

Respondent’s ‘Notice of Appeal of Magistrates

Findings [sic] and Recommendations [sic]’ To

Be Objections to Findings and Recommendation;

Enforcing IRS Summons and Directing

Respondent to Appear on Friday, June 17, 2005

at [specified time] in Courtroom 5' has been

accepted as true and returned as true and the

author has been fired, District Robert E.

Coyle. 

This pleading is signed by respondent as “Secured party third

party intervener for Lorne McCan”. Attached to this pleading is

a copy of the May 24 Order, which copy is stamped:1

I received your offer of attached May 23,

2005. I am accepting your offer as true and

I am returning Your offer as true for closure

and discharge of this Matter. I am competent

to handle my own affairs. I am declaring you

incompetent. 

You are fired.

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Respondent also filed a pleading captioned:

Notice of Acceptance for Value and Returning

for Value the Order of United States District

Judge Robert E. Coyle Dated May 23, 2005

Pursuant To, But Not Limited To, HJR 192 And

In Support of Notice of Appeal of United

States District Judge’s Order Dated May 23,

2005. 

In these pleading, respondent, again acting as “general trustee”

asserts that the court’s May 24, 2005 Order “has been accepted

for value and returned for value pursuant to but not limited to

HJR 192.”

Thereafter, on June 13, 2005, respondent filed a pleading

captioned:

Notice of Appeal of the District Court’s

Order Dated May 23, 2005. This Appeal is

Made to the Ninth Circuit Court of Appeals

The Notice of Appeal to the Ninth Circuit states that the issues

for appeal are:

1) Whether the District Court had

jurisdiction to issue the Order dated May 23,

2005, the entire record considered.

2) Whether the enforcement of the summons is

a violation of the Respondent/Appellants 5th

amendment privilege.

3) Whether the court can force the Authorized

Agent to testify on behalf of the respondent,

since the respondent is an artificial entity.

Respondent did not move this court for a stay of the Summons

Enforcement Order prior to filing the Notice of Appeal to the

Ninth Circuit. Respondent did not file a motion for a stay of

the Summons Enforcement Order until August 31, 2005. 

On June 29, 2005, the United States filed a petition to find

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respondent in civil contempt for his failure to comply with the

May 24 Order. Attached to this petition is a copy of a letter

dated June 14, 2005 addressed to respondent from Assistant United

States Attorney Himel, wherein it is stated in pertinent part:

As you know, Judge Coyle ordered you all to

appear, produce documents and testify in

Judge Beck’s courtroom in the United States

Courthouse in Fresno on June 17, 2005. The

notices of appeal filed in your names have no

effect on your obligations to comply with

Judge Coyle’s order in Fresno this Friday.

If you fail to comply, I can ask the United

States District Court to hold you in

contempt, have you arrested and brought to

Fresno, and not release you from custody

until you comply.

By copy hereof, I ask that Mr. Kaia inform

Ms. Liascos and Messrs. McCan and Innis of

this warning. Thank you for your attention

in this matter.

Also attached to the petition is the declaration of Revenue Agent

Fred Chynoweth, who avers in pertinent part:

4. At the scheduled times on June 17, 2005,

respondents failed to appear. Although I

called for [sic] respondents Innis and Booth

that day to ask whether they intended to

appear, they did not return my calls. They

neither appeared before me nor contacted me

at any time between the Orders and this

writing [executed on June 24, 2005], and in

particular they never said they were not

coming June 17.

5. The [Internal Revenue] Service keeps

records of employee time spent, by date and

case. As these records reflect, I spent 6

hours on these four cases on June 16, 2005,

and 10 hours on June 17, 2005, for a total

for those two days of 16 hours. My gross pay

is $38.09 per hour; adding my employer-paid

benefits, my agency’s total hourly personnel

cost for me is $48.45. 16 hours times $48.45

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per hour is $775.20 in personnel costs on

these cases for those days. A copy of my

travel voucher for travel to Fresno for these

cases on June 16-17, 2005 is attached ...; it

shows a total of $123.94 in travel expenses

for the trip to Fresno to receive records and

testimony from these respondents. The sum of

$775.20 in salary and benefits plus $123.94

in travel expenses is $899.14.

6. Respondents failure to comply with the

Order [sic] continues to the present.

7. The testimony and the books, records,

papers and other data demanded by the

summonses still are not in the possession of

the Internal Revenue Service.

8. The testimony and the books, records,

papers and other data demanded by the

summonses still are needed to determine the

correct tax liabilities of Mr. and Mrs.

Booth, Aligned Enterprises Trust and Alpha

Omega Trust for 1998 through 2002; and of San

Joaquin Wellness and Medical Group and

Bakersfield Properties and Trust Co. For 2001

and 2002.

Also attached to the petition is the declaration of Assistant

United States Attorney Himel, who avers in pertinent part:

2. This Court, by Orders filed May 23-25,

2005, directed respondents to appear in Judge

Beck’s courtroom on June 17, 2005 ... The

reason the appearances were to be at Judge

Beck’s courtroom was to have Judge Beck

available to decide any questions of

respondents’ claims of the privilege against

self-incrimination. To give Judge Beck the

exact questions as to which the privilege was

claimed, the United States office retained a

court reporter to appear for all four

sessions.

...

4. At the scheduled times on June 17, 2005,

respondents failed to appear. After the

times for appearance by Mr. McCan and Ms.

Liascos passed without their appearing,

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around 9:30 a.m., I called for [sic]

respondents Innis and Booth at their

workplace to ask whether they intended to

appear. They were said to be present but

busy. They did not return my calls. They

did not call me any time between the Orders

and this writing [executed on June 29, 2005],

and in particular they never said whether

they were coming June 17.

5. I keep records of my time spent on the

job. As these records reflect, I spent 7.25

hours on these four cases on June 16, 2005. 

That time was spent preparing for the

respondents’ appearances in Fresno, preparing

the case files for the trip, taking Amtrak

from Sacramento to Fresno, and meeting with

the IRS Revenue Agent.

6. I spent 7 hours on June 17, 2005. That

time was spent going from the hotel to the

federal courthouse, meeting with the IRS

Revenue Agent, telephoning the organization

where respondents Steven Booth and John Innis

work, awaiting respondents at Judge Beck’s

courtroom, going from the federal courthouse

to the Amtrak station, waiting for the train,

and taking Amtrak from Fresno to Sacramento. 

The total for these two days is 14.25 hours.

7. Under the calculation method prescribed

by my Department, to arrive at an hourly rate

for my work I take the sum of my gross pay of

$66.06 per hour, benefits at 23% of gross

pay, or $15.19 per hour, and Department

overhead of $71.49 per hour. The total rate

is $152.74 per hour. For tax cases, I.R.C. §

7430(c)(1)(B)(iii) limits attorney’s fees to

a figure found in Rev.Proc. 2004-71, Section

3.35, namely $150 per hour. The $150 hourly

rate times 14.25 hours comes to $2,137.50 as

the cost of my time spent on the cases for

the two days.

8. Additionally, a printout of my travel

voucher for travel to Fresno for these cases

on June 16-17, 2005 ... shows a total of

$197.50 in travel expenses.

9. Additionally, a copy of the court

reporter’s bill for $200.00 in appearance

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fees is attached ...

10. The sum of the $2,137.50 for my time

plus the $197.50 for my travel plus the

$200.00 for the court reporter plus the

$899.14 in the Declaration of Revenue Agent

Fred Chynoweth Re: Civil Content ... is

$3,434.14.

On July 15, 2005, the court issued to respondent an Order to

Show Cause re Contempt. The Order to Show Cause orders

respondent to appear in Courtroom 1 on August 22, 2005 at 1:30

p.m. and show cause:

1. Why the respondents, JEAN ANNETTE

LIASCOS, LORNE McCAN, V. STEVEN BOOTH, LOUISE

Q. BOOTH, and JOHN INNIS, JR., should not be

held in civil contempt of this Court for

their failure to comply with the ‘Orders

Deeming Respondent’s “Notice of Appeal of

Magistrate’s Findigs [sic] and Recmmendations

[sic]” to Be Objections to Findings and

Recommendation; Enforcing IRS Summons and

Directing Respondent to Appear on Friday,

June 17, 2005 at [times certain] in Courtroom

5' (‘Summons Enforcement Orders’).

2. Why the respondents should not be

incarcerated and order to pay a daily fine

until they comply with the Summons

Enforcement Orders, and ordered to pay a

compensatory fine to the United States.

IT IS FURTHER ORDERED that on or before

Monday, August 8, 2005 the respondents shall

file and serve a written response to the

‘Petition Re: Civil Contempt of Orders filed

May 23-25, 2005.’ Only those issues brought

into controversy by the responsive papers and

supported by declaration will be considered

at the hearing on this Order, and any

uncontested allegation in the Petition Re:

Civil Contempt will be considered admitted. 

Respondents are hereby notified that a

failure to comply with this Order will

subject respondents to possible further

sanctions for contempt of Court.

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Since the July 15, 2005 Order was served on respondent,

respondent has filed a pleading captioned “Notice of Returning

for Cause, Without Dishonor the Court’s Order Dated July 15, 2005

Re: Contempt” and/or have returned the served copy of the July

15, 2005 Order marked “returned for cause without dishonor.” In

addition, respondent filed a pleading captioned:

Notice of: Notice of Appeal Filed in Response

to the Court’s Order Dated May 23-25, 2005.

Notice That This Court Lacks Jurisdiction To

Enforce Its Order Subsequent to Appeal in the

Ninth Circuit Court.

Notice That No Agreement Exists Between

Respondent & The Court Authorizing a Civil

Contempt & Respondent Does Not Agree To The

Terms of the Proposed Agreement Dated July

15, 2005 Called An Order.

In this pleading, respondent, signing as the “authorized agent”,

asserts in pertinent part:

By special appearance, only and not intended

to constitute an neither [sic] express nor

implied waiver of any and all Rights,

privileges or otherwise that may exist.

Authorized agent for [name of specific

respondent], notifies the court for purposes

of closure and settlement of the account that

Notice Of: Notice of Appeal Filed in Response

To The Court’s Order Dated May 23-25, 2005.

Notice That This Court Lacks Jurisdiction To

Enforce Its Order Subsequent to Appeal In The

Ninth Circuit Court.

Notice That No Agreement Exists Between

Respondent & The Court Authorizing A Civil

Contempt & Respondent Does Not Agree To The

Terms Of The Proposed Agreement Dated July

15, 2005 Called An Order has been filed for a

special appearance, which is scheduled for

August 22, 2005, in dept 1 of the Federal

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Court house [sic], in Fresno, California ....

No other responses to the July 15, 2005 Order to Show Cause

have been filed by respondent. As noted, respondent did not

appear on August 22, 2005. 

2. Merits of Order to Show Cause Re: Contempt.

a. Jurisdiction.

Respondent contends that this court lacks jurisdiction to

enforce the Summons Enforcement Order by contempt because

respondent filed an appeal to the Ninth Circuit. 

Respondent’s position is without merit. Absent a stay

pending appeal, district courts have the authority to enforce

their orders including holding parties in contempt while an

appeal of the underlying enforcement order is pending. See

Maness v. Meyers, 419 U.S. 449, 458-460 (1975); Richmark Corp. V.

Timber Falling Consultants, 959 F.2d 1468, 1480 (9 Cir. 1992); th

In Re Crystal Palace Gambling Hall, Inc., 817 F.2d 1361, 1364

(9 Cir. 1987); 26 U.S.C. 7604(b). Here, because respondent did th

not apply for and obtain a stay of the Summons Enforcement Order

pending the appeal, his failure to comply with the Summons

Enforcement Order may be sanctioned by contempt.

b. Necessary Showing to Avoid Contempt.

If a person disobeys a specific and definite court order, he

may properly be adjudged in contempt. Shuffler v. Heritage Bank,

720 F.3d 1141, 1146 (9 Cir. 1983). As explained in In re th

Crystal Palace Gambling Hall, Inc., supra, 817 F.2d at 1365:

‘A person fails to act as ordered by the

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court when he fails to take “all the

reasonable steps within [his] power to insure

compliance with the [court’s] order [].”’ ...

It does not matter what the intent of the

appellants was when they disobeyed the

court’s order ... Moreover, the contempt need

not be willful ... Even though ‘[t]he sole

question is whether a party complied with the

district court’s order,’ a party can escape

contempt by demonstrating that he is unable

to comply ... Although both Crystal Palace

and the shareholders appealed, no stay was

obtained. A party cannot disobey a court

order and later argue that there were

‘exceptional circumstances’ for doing so. 

This proposed ‘good faith’ exception to the

requirement of obedience to a court order has

no basis in law, and we reject the invitation

to create such an exception.

The party alleging civil contempt must demonstrate by clear and

convincing evidence that the parties to be held in contempt

violated the court’s orders. See Federal Trade Comm’n v.

Affordable Media, LLC, 179 F.3d 1228, 1239 (9 Cir. 1999). The th

burden then shifts to the alleged contemnors to demonstrate why

they were unable to comply. A party’s inability to comply with a

court’s order constitutes a defense to a charge of civil

contempt. Id. The purpose of civil contempt is not to punish

but “to coerce the defendant into compliance with the court’s

order, and to compensate the complainant for losses sustained.” 

Whittaker Corp. V. Execuair Corp., 953 F.2d 510, 517 (9 Cir. th

1992). While the court must use the “least possible power

adequate to the end proposed,” Spallone v. United States, 493

U.S. 265, 276 (1990), it also “must consider the character and

magnitude of the harm threatened by continued contumacy, and the

probable effectiveness of any suggested sanction in bringing

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about the result desired.” Whittaker, id., 953 F.2d at 516. 

However, footdragging is an important factor in weighing the use

of a contempt sanction. See Local 28 of the Sheet Metal Workers’

Int’l Ass’n v. EEOC, 478 U.S. 421 476-477 (1986). 

Here, the record establishes that the United States has

demonstrated by clear and convincing evidence that respondent

violated the Summons Enforcement Order. Respondent did not

appear on June 17, 2005. As the court’s docket in this case

demonstrates, respondent received a copy of the Summons

Enforcement Order because respondent filed a pleading stating

that the Order “has been accepted as true and returned as true

and the author has been fired, Judge Robert E. Coyle” and that

the respective respondent is “accepting your offer as true”,

“returning Your offer as true for closure and discharge of this

Matter”, that each respondent is competent, that Judge Coyle is

declared incompetent and that Judge Coyle is “fired”. As the

docket in this case demonstrates, respondent received a copy of

the Order to Show Cause re: Contempt because respondent filed a

pleading returning the Order to Show Cause re: Contempt “for

cause without dishonor”, and a pleading stating that this court

lacks jurisdiction to hold respondents in contempt because of the

appeals, and that no agreement exists between the respondents and

the court authorizing civil contempt. However, as ruled above,

because respondent did not seek and obtain a stay of the Summons

Enforcement Order pending the appeal, the fact of the appeal is

no defense to contempt for failure to comply with the Summons

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The amount sought to be imposed on respondent as a 2

compensatory fine represents respondent’s one-fifth share of the

total expenses incurred by the United States and described in

detail supra.

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Enforcement Order. Furthermore, respondent’s contentions that

there must be an agreement between respondent and the court

before respondent can be found in contempt for his failure to

comply with the Summons Enforcement Order is frivolous. This

court has statutory and inherent authority to compel compliance

with its orders issued to parties appearing before it. Finally,

the only defense to the failure to comply with the Summons

Enforcement Order is that respondent was unable to comply. No

such showing has been made to this court.

Therefore, the United States has carried its burden of

establishing by clear and convincing evidence that respondent

Lorne McCan is in civil contempt of this court by her failure to

comply with the Summons Enforcement Order.

c. Appropriate Sanction.

The United States petitions the court to order coercive

confinement of respondent until respondent has complied with the

Summons Enforcement Order and to impose a compensatory fine of

$686.00.2

I. Coercive Confinement.

18 U.S.C. § 1826 provides in pertinent part:

(a) Whenever a witness in any proceeding

before or ancillary to any court ... refuses

without just cause to comply with an order of

the court to testify or provide other

information, including any book, paper,

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document, record, recording or other

material, the court, upon such refusal, or

when such refusal is duly brought to its

attention, may summarily order his

confinement at a suitable place until such

time as the witness is willing to give such

testimony or provide such information. No

period of such confinement shall exceed the

life of -

(1) the court proceeding ....

...

before which such refusal to comply with the

court order occurred, but in no event shall

such confinement exceed eighteen months.

(b) No person confined pursuant to subsection

(a) of this section shall be admitted to bail

pending the determination of an appeal taken

by him from the order for his confinement if

it appears that the appeal is frivolous or

taken for delay. ....

The court concludes from the record before it that coercive

confinement pursuant to Section 1826 is an appropriate sanction

to impose upon respondent for his failure to comply with the

Summons Enforcement Order. The record demonstrates that

respondent refuses to comply with orders of this court, including

refusing to appear at the Order to Show Cause hearing. 

Respondent’s refusals to comply with court orders are couched in

terms establishing respondent’s disregard for the authority of

this court and evidences that his refusal to comply with the

Summons Enforcement Order is a deliberate decision on

respondent’s part. The court is persuaded that the harsh

sanction of confinement is the only vehicle most likely to coerce

respondent into complying with the Summons Enforcement Order.

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ii. Fines.

As noted, the United States also seeks a compensatory fine

in the amount of $686.00.

Sanctions for civil contempt may be imposed to coerce

obedience to a court order, or to compensate the party pursuing

the contempt action for injuries resulting from the contemptuous

behavior or both. United States v. United Mine Workers, 300 U.S.

258, 303-304 (1947). Compensatory awards are limited “to actual

losses sustained as a result of the contumacy.” Shuffler v.

Heritage Bank, supra, 720 F.2d at 1148.

The court concludes from its review of the declarations

filed by the United States and the exhibits attached thereto that

the amount requested by the United States represents the losses

sustained by the United States as a result of respondent’s

contumacy. The court further concludes that the sanction imposed

on respondent for his civil contempt in failing to comply with

the Summons Enforcement Order will also include a monetary award

to compensate the United States for respondent’s one-fifth share

of the losses sustained by AUSA Himel, Special Agent Chynoweth,

and the United States in preparing to attend and attending the

summons enforcement proceeding scheduled for respondent on June

17, 2005. 

ACCORDINGLY:

1. Respondent Lorne McCan is found to be in civil contempt

of this court by his failure to comply with the Summons

Enforcement Order.

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2. Respondent Lorne McCan shall stand committed to and

shall be confined in the Fresno County Jail until he purges

himself of contempt by complying with the Summons Enforcement

Order, the termination of the action, or eighteen months,

whichever is earlier, unless sooner discharged from such

confinement by due process of law.

3. A warrant of arrest shall now issue in due form for the

arrest of respondent Lorne McCan, directed to the United States

marshal for the United States District Court for the Eastern

District of California, Fresno Division, and that, when arrested

by the marshal, respondent Lorne McCan, be brought before the

Court for a further hearing to determine whether respondent Lorne

McCan has complied with the Summons Enforcement Order.

4. Respondent Lorne McCan shall be entitled to the services

of appointed counsel at any further proceedings in connection

with this civil contempt proceeding if he establishes that he is

indigent and, therefore, entitled to appointed counsel. 

5. Respondent Lorne McCan shall pay a compensatory fine in

the amount of $686.00 to the United States of America, to be paid

to the United States Attorney for the Eastern District of

California. 

IT IS SO ORDERED.

Dated: September 6, 2005 /s/ Robert E. Coyle 

668554 UNITED STATES DISTRICT JUDGE

Case 1:05-cv-00285-REC-DLB Document 48 Filed 09/06/05 Page 16 of 16