U.S. DEPARTMENT OF TRANSPORTATION + + + + + OFFICE OF HEARINGS + + + + + MOTION CONFERENCE

IN THE MATTER OF: FEDERAL AVIATION ADMINISTRATION COMPLAINANT, v. COVERMARK USA,
RESPONDENT. Tuesday December 11, 2012 :FAA No. :TBD :FDMS No. :FAA-2011-0488

Via Teleconference The above-entitled matter came on for hearing, pursuant to notice, at 1:30 p.m. BEFORE: THE HONORABLE J.E. SULLIVAN, U.S. ADMINISTRATIVE LAW JUDGE 1

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On Behalf of the Complainant: GERALD A. ELLIS, ESQ. of: Office of the Regional Counsel, AS0-7 Southern Region Federal Aviation Administration P.O. Box 20636 Atlanta, Georgia 30320 (718) 553-3258
On Behalf of the Respondent: KEITH ROBERTS, ESQ. of: Roberts Proprietaries, Inc. 180 West 80th Street New York, New York 10024 (917) 441-8642
ALSO PRESENT: James "Hank" Dunfee Deltrick Johnson Ryan Patanaphan Cody L. Smith

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### Opening by Judge Sullivan 4 Argument by Counsel for Agency 10 Argument by Counsel for Respondent 24 Reply by Counsel for Agency 48

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1 P-R-0-C-E-E-D-I-N-G-S 2 (1:38 p.m.) 3 JUDGE SULLIVAN: Okay. We're on 4 the record in the matter of the Federal 5 Aviation Administration, herein after referred 6 to as FAA, versus Nouveau Laboratories LLC, 7 doing business as Covermark USA. This is 8 Docket Number FAA-2011-0488. Today is 9 Tuesday, December 11, 2012. 10 And the parties have convened for 11 a summary judgment motion argument. 12 The FAA is represented by its 13 attorney of record, Gerald A. Ellis. Also 14 present at the FAA offices, sitting in as 15 observers only, are three attorneys. Their 16 names are Deltrick Johnson, Ryan Patanaphan, 17 and James Dunfee, also known as Hank Dunfee. 18 In addition, also present on behalf of the 19 Respondent, Covermark USA, is Mr. Keith 20 Roberts, the president of Roberts 21 Proprietaries, Inc. , appearing as the lay 22 representative for the Respondent. Sitting in

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### 1 as an observer at the Office of Hearings is 2 Mr. Cody L. Smith, an attorney advisor at this 3 office. 4 

### Good afternoon, Counsel. 5 

### Let's just talk a little bit. I 

### 6 have three different documents that the 7 parties have filed. I just want to make sure 8 

### that I have all the materials. I have the 9 Complainant's motion for a decision, which was 10 filed at the department's Office of Hearings 11 on October 31, 2012. The Respondent's answer 12 to motion for a decision which was received at 13 the Office of Hearings on November 16, 2012. 14 And the Complainant's reply to Respondent's 15 answer to motion for a decision received at 16 the Office of Hearings on December 3, 2012. 17 

### Mr. Ellis, did you file anything 18 else in addition to what's already been 19 identified? 20 MR. ELLIS: No, Your Honor. 21 JUDGE SULLIVAN: Okay. And Mr. 22 Roberts, did you file anything else in

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### 1 addition to what's been identified? 2 

### MR. ROBERTS: No, I did not. 3 

### JUDGE SULLIVAN: Okay. Let's talk 4 

### next about the exhibits. And based on what 5 was filed, there were three primary exhibits 6 attached to the FAA's motion for a decision. 7 Those were marked as Exhibits 1, 2, and 3. 8 

### Exhibit 1' 

### basically, was 12 9 

### pages. And on the very first page, it is 10 

### entitled, "Response to Complainant's first 11 request for discovery." Although in ensuing 12 pages there were a variety of other documents 13 that were identified and titled. 14 Exhibit 2 is a one-page document. 15 

### And it purports to be an April 5, 2011 

### 16 certificate of a completion for Rachelle Rego, 17 spelled, R as in Robert, E as in egg, Gas in 18 goat, 0 as in orange. 19 

### Exhibit 3 

### contains various 20 

### documentary evidence. It's a total of 13 21 pages. And it begins with a two-page letter 22 

### dated August 6, 2012, 

### I'm sorry 2010, 

### from the

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### 1 FAA to Rachelle Rego

_ And it ends on pages 12 2 and 13 with an undated and unsigned copy of a 3 certified mail registration to Ms. Rego for a 4 June 22, 2012 FAA letter. 5 

### So Mr. Roberts, the next questions 6 will be addressed to you. And I'm going to be 7 asking you if you have any objection to the 8 admissibility of the FAA's Exhibits 1, 2, and 9 3. 

### 10 MR. ROBERTS: No, I don't. 11 

### JUDGE SULLIVAN: Oh, okay. Well, 12 that was fast. 13 And you've had a chance to look at 14 all of them it, and you feel comfortable with 15 having them all considered as evidentiary 16 material for the purposes of this motion? 17 

### MR. ROBERTS: Yes, that's fine. 18 

### JUDGE SULLIVAN: Okay. Thank you. 19 

### I'll also note that the Respondent 20 did not file any additional exhibits. And 21 it's my understanding, Mr. Foster, that you 22 are relying on many of the exhibits that the

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(202) 234-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com8 1 FAA attached to its motion to lend strength to 2 your responses, arguments in this motion; is 3 that correct? 4 MR. ROBERTS: Did you just address 5 me as Mr. Foster? 6 JUDGE SULLIVAN: I did. I hope I 7 did. 8 MR. ROBERTS: My name is Roberts. 9 JUDGE SULLIVAN: Oh, I'm so sorry. 10 MR. ROBERTS: Did you mean me? 11 JUDGE SULLIVAN: Yes, I did. And 12 I don't know why I'm suddenly wanting to 13 change your name. It wasn't my intent. So 14 Mr. Roberts, please excuse me. The question

- 15 16 MR. ROBERTS: You don't have to-- 17 I understood what you were saying. Yes, yes, 18 I do. That's correct. 19 JUDGE SULLIVAN: Okay. Then let 20 me turn back to you, Mr. Ellis, as the moving 21 party. 22 I usually give the parties an

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### 1 opportunity to choose what works best for them 2 in terms of making an oral argument. You can 3 either take five to ten minutes making an oral 4 argument, highlighting what you would like to 5 say about your presentation in this motion, 6 right off the beginning. Or if you would like 7 I can ask you a couple of questions depending 8 

### on what your comfort level is. Which would 9 you prefer? 10 

### MR. ELLIS: Well, I don't know if 11 it would be helpful, but I can go over a 12 couple of the highlights from the motion. But 13 all of them will be basically for the purpose 14 of making the argument that there aren't any 15 true material facts in dispute anymore. 16 

### JUDGE SULLIVAN: Okay. Well, why 17 don't we do this? And I'm going to do this 18 for both you and Mr. Roberts. 19 

### Because we're on the telephone, 20 it's a little more difficult for me to 21 interpose a question when I have one. So I'm 22 going to make a little beeping sound with my

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### 1 phone. And I'm going to do that now. (Phone 2 beeping.) When you hear that, it means I want 3 

### to interrupt and ask you a question. And I 4 try not to do that during the narrative 5 portion, but every once in a while I have a 6 pressing question, and I want to jump in, and 7 ask you about it. 8 So with that in mind, Mr. Ellis, 9 you're welcome to do a narrative highlight of 10 your materials. And then if I have questions, 11 either during the narrative or after, I'll ask 12 you at that time. 13 

### So sir, please, feel free to 14 start. 15 ARGUMENT ON BEHALF OF AGENCY 16 

### MR. ELLIS: Thank you, Your Honor. 17 I appreciate that. 18 

### But our argument in the case 19 regarding the sanction, which is the, you 20 know, lone issue remaining in this case, is 21 supported by the statute itself, the Agency 22 sanction guidance and regulations.

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### 1 So we've spent most of our motion 2 explaining, you know, why the sanction, where 3 it comes from, why it's not arbitrary or 4 capricious, and why it's supported by both the 5 

### statute, the regulations, and the 6 administrator's sanction guidance. 7 

### As we also say, the case law has 8 made the determination, in the law as it is 9 right now, that the only issue that the 10 Respondent has to prove is that it doesn't 11 have the ability to pay the proposed sanction 12 after we have shown that the proposed sanction 13 is supported by the law. 14 Mr. 

### Roberts has made some 15 arguments about his company's ability to pay 16 

### the proposed sanctions. And the Agency has 17 made some counter arguments based on the 18 standards that we typically use in analyzing 19 a company's ability to pay in these cases. 20 And I can't make the arguments any 21 more clear than I did on the record. 22 So I will just say, based on what

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### 1 we have seen in response to our proposed 2 penalty, the evidence doesn't really support 3 the Respondent's argument that it can't pay 4 the penalty, especially if given some time to 5 pay it. 6 

### JUDGE SULLIVAN: Let me ask you 7 one or two questions about that. 8 

### There's a clear difference of 9 opinion between the FAA and the Respondent 10 regarding which rate to utilize in terms of 11 looking at the financial documentation that 12 the FAA has submitted in its material. 13 

### And clearly, the FAA is asking 14 that the current ratio be utilized as opposed 15 to the quick ratio that the Respondent has 16 talked about. 17 

### MR. ELLIS: Actually, we want to 18 use both the ratios, Your Honor. 19 

### JUDGE SULLIVAN: Okay. So, can 20 you explain to me how both the ratios, in your 21 opinion, support your proposal of a $10,000 22 civil penalty?

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### 1 MR. ELLIS: Yes. The first ratio 2 that we used, the current ratio, is over 1.0. 3 And anything over 1.0 typically is considered 4 to be in good shape. The quick ratio for the 5 company was about .33. 6 And Mr. Roberts is arguing that if 7 the company were to close its doors it 8 wouldn't have the ability to pay, based on 9 what that ratio is. 10 However, there was no evidence 11 presented that the company is about to close 12 its doors. So therefore, using both those 13 ratios, there's no evidence that the company 14 can't pay the penalty. 15 

### JUDGE SULLIVAN: Would you agree 16 or disagree with the Respondent that if the 17 quick ratio was utilized the amount of money 18 that potentially could be assessed as a civil 19 penalty would be less than $10,000? 20 

### MR. ELLIS: I'm sorry. I didn't 21 understand that, Your Honor. 22 JUDGE SULLIVAN: Would you agree

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1 or disagree with the assertion by the 2 Respondent that if, in fact, the quick ratio 3 was utilized that the penalty of $10,000 is 4 excessive? 5 MR. ELLIS: No, we don't agree. 6 JUDGE SULLIVAN: And why don't you 7 agree? 8 MR. ELLIS: Because the argument 9 that he is making is that if the company 10 closed its doors, that that ratio wouldn't be 11 instructive on regarding what they could pay. 12 But that's there's no evidence that the 13 company is about to close its doors. 14 JUDGE SULLIVAN: Would you agree 15 or disagree that the quick ratio would point 16 to a lesser penalty than the current ratio if 17 they are not used in combination? 18 MR. ELLIS: No, not with the 19 evidence that's before the Court. 20 JUDGE SULLIVAN: And why not? 21 MR. ELLIS: Because there's no 22 evidence that the company is about to close

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### 1 its doors

. That's what's required in order to 2 make an argument under the, using the quick 3 ratio argument that he submitted. 4 

### JUDGE SULLIVAN: And when you say 5 that it's required, can you point to me where 6 you say, where you can, what factual evidence 7 shows that it's required? 8 

### MR. ELLIS: Well I mean, I can 9 point to it in my reply, which I can't say it 10 any better than that. 11 Hold on a minute, Judge. 12 JUDGE SULLIVAN: I have your 13 reply, so I'm happy to hold. 14 

### MR. ELLIS: Yes. In fact, we have 15 

### five. It's probably the most concise way to 16 say it. 17 

### In there, I say, "The Respondent 18 apparently takes issue with Complainant's 19 analysis of its position by arguing that its 20 

### inventory is a liability not an asset. And 21 that's if the business ceases or sales 22 decline. Respondent has provided no evidence

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### 1 that its business is not ongoing, that it has 2 ceased or that it will cease if ordered to pay 3 a civil penalty, especially if it is paid in 4 installments as has been offered and which is 5 in the ALJ's power to order." 6 I really can't say it any -- 7 

### JUDGE SULLIVAN: Yes. And let me 8 ask you about that. So what you're saying is 9 that the quick ratio should only be utilized 10 if the business ceases or sales decline. 11 

### And the argument made by the 12 Respondent is that its sales has declined. 13 

### Do you disagree with that? With 14 the documentation that the Respondent points 15 to? 16 

### MR. ELLIS: I disagree with two 17 things. First, we think both ratios should be 18 

### used, not one or the other. Especially not 19 one that makes the argument better than the 20 

### other. Both ratios should be used. 21 JUDGE SULLIVAN: Okay. 22 MR. ELLIS: Second, the evidence

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### 17 1 has not been presented that if the business is 2 about the cease or will cease. 3 

### JUDGE SULLIVAN: Right. But I 4 

### wasn't asking you about that. 5 

### I was asking you about paragraph 5 6 

### which says that, on line 2, 

### that part of the 7 

### factual information that's important is 8 

### whether or not sales decline. And as I 9 understand the argument from the Respondent, 10 he's asserting that sales have declined. And 11 that he should be allowed to argue the quick 12 ratio in lieu of the current ratio. 13 And I'm just, I wanted to ask you 14 if you could respond to that. 15 MR. ELLIS: Yes. That's all 16 perspective. There's been no evidence of 17 that. 18 

### The evidence that was presented 19 was over, I think a two or three-year period. 20 The ratio is designed to deal with that. 21 JUDGE SULLIVAN: Okay. 22 MR. ELLIS: And the only evidence

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### 1 that would show that it couldn't pay is if 2 they could show that payment of this penalty 3 would cause sales to decline or put the 4 company out of business. 5 

### JUDGE SULLIVAN: Okay. 6 

### MR. ELLIS: And then let me add 7 one other thing. The other part of the brief, 8 of the motion, I should say, was that it was 9 Congress's intent that these penalties hurt or 10 at least to be severe, is the language that 11 Congress used, when establishing the law that 12 allows us to prosecute these cases, and it 13 allows for the civil penalty amounts that are, 14 that the law puts forward. 15 So there is a balance we have to 16 strike here. We're not trying to put anybody 17 out of business, but it is up to them to make 18 the argument and present the evidence that 19 payment of this penalty would close their 20 doors or cause them such severe business 21 damage that there should be a lower penalty 22 than the one we propose.
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1 

### On top of that, the initial 2 penalty that we proposed was approximately 3 

### $63,000. And we've already considered many 4 factors, which we probably shouldn't have 5 

### considered, but we did. And so that's really 6 

### neither here nor there now. 7 

### But the proposed amount, you know, 8 

### if there's any further reduction, we do 9 

### require the Respondent to prove that it 10 doesn't have the ability to pay. And the 11 

### evidence isn't there for that. 12 JUDGE SULLIVAN: 

### Yes. I 

### have the 13 Respondent's answer. And on page 4 of the 14 Respondent's answer, paragraph 10, the 15 Respondent asserts that its net profits have 16 declined over the years. 17 

### And that for the year 2009, 18 they've had a negative profit of 80,000 and 19 some odd dollars. For the year 2010, it had 20 a positive profit of $5334. And for the year 21 2011, a positive profit of $9281. 22 And under that scenario, if you

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### 1 agree that those figures are accurate, the 2 Respondent is arguing that a $10,000 penalty 3 is excessive. Are you saying 4 

### MR. ELLIS: Yes. We would 5 disagree with that because all a business 6 

### would have to do, and specifically the 7 Respondent's business, is to stop paying for 8 some of the other things it pays for, for 9 example, advertising. 10 JUDGE SULLIVAN: If the Respondent 11 fails to advertise its business, how can it 12 maintain open doors for sales? In your 13 opinion. 14 

### MR. ELLIS: I didn't say stop 15 

### advertising. We said reduce the amount it 16 pays for advertising. 17 

### JUDGE SULLIVAN: And how much, in 18 your opinion? 19 

### MR. ELLIS: If it's saying that 20 the $10,000 would put it out of business, of 21 course, they could reduce it by some amount. 22 But again, I'm making his argument

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1 

### for him. You know, and it's up to him to make 2 the argument. 3 

### JUDGE SULLIVAN: Well, I'm not 4 

### asking you to make the Respondent's argument 5 

### for him. You indicated that it's reasonable 6 

### for the Court to assume that the Respondent 7 

### could cut back on spending in some other place 8 

### of its business, in order to make a $10,000 9 

### payment. You've chosen advertising as a good 10 

### example. 11 

### Is there something about the cost 12 

### of the advertising that you think would be 13 

### able to accept a lesser amount and yet still 14 

### maintain a business that's profitable? 15 

### MR. ELLIS: As I recall I'm 16 

### sure Mr. Roberts will correct me if I'm wrong 17

-- 

### and I'm trying to find it specifically 18 

### but there is over $100,000 

### spent in 19 

### advertising. And certainly and I'm just 20 pointing to one thing out of many things that 21 

### a company has to pay for. But you know, 22 that's certainly one thing that could be used

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### 1 to counter the effects of the civil penalty. 2 Also

-- 3 

### JUDGE SULLIVAN: Well, and I'm 4 looking at 5 

### MR. ELLIS:

-- one of the things 6 we ask about in these cases, typically in 7 discovery, you know, is whether the Respondent 8 can borrow money. And the Respondent surely 9 

### could borrow money if it needed to. It 

### 10 wouldn't put it out of business. 11 An individual can put $10,000 on a 12 credit card. Even I could pay it if I had to. 13 

### JUDGE SULLIVAN: At which point, 14 the amount of money for the civil penalty 15 would necessarily go up, would it not, because 16 an individual would then need to pay for 17 interest on that payment? 18 

### MR. ELLIS: Nevertheless, I could 19 pay it. Any individual could, if they have a 20 line of credit. 21 So certainly, a business should be 22 able to.

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1 JUDGE SULLIVAN: And you've 2 established that this business has a line of 3 credit that could enable it to take, to pay by 4 a loan, or a credit card, or some other means 5 if it doesn't have cash on hand? 6 MR. ELLIS: It's the Respondent's 7 burden to show that it can't. 8 JUDGE SULLIVAN: Anything else 9 that you would like to say about your case-in10 chief before I turn to the Respondent? 11 MR. ELLIS: No, Your Honor. 12 JUDGE SULLIVAN: Okay. And I will 13 be giving you a right of final reply. Just to 14 let you know. Okay. 15 Mr. Roberts, let's turn to you. 16 MR. ROBERTS: All right. 17 JUDGE SULLIVAN: Why isn't the FAA 18 correct in saying that the current ratio and 19 quick ratio should be used together, that a 20 $10,000 fine is not excessive, and in fact, 21 has been quite generous to you? 22 ARGUMENT ON BEHALF OF RESPONDENT

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### 1 MR. ROBERTS: Well, let me start 2 by saying that I think by Mr. Ellis' it is 3 

### a generous offer. I'm not disputing how he 4 sees it. 5 

### However, the issue here is the 6 quick versus -- the first issue is the current 7 

### versus the quick ratio. You know, the 8 relevance of these ratios depends on the kind 9 

### of business. If the inventory that our 10 company had was the kind of inventory that 11 could be sold or resold, regardless of who 12 has, whose brand it is, like if it was steel 13 coils, or chemicals, or things like that, then 14 the inventory would truly be an asset, worth 15 

### what it's worth on the books. Give or take 16 something. 17 But this is a company that sells a 18 

### brand-name product. And if, in fact, the 19 company ceases to make sales then virtually 20 all of the inventory, all of the packaging 21 which constitutes

-- well, it's not on the 22 record so I won't go into what it constitutes

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### 1 of the inventory but it's a substantial 2 amount, as I think we all understand. And 3 even the bulk goods that go into the product, 4 they are not going to be saleable to a 5 competitor, for example, that they can use 6 because nobody uses the same formulations. 7 So most of the inventory valuation 8 

### would go to zero. And that's why the quick 9 ratio, which really discards the inventory, is 10 

### a much more relevant figure. If I was a 11 banker or you were a banker, that's what you 12 would be looking at, in terms of a loan. And 13 if you look at the quick ratio, it indicates 14 that the company is basically barely keeping 15 its head above water on a month-to-month 16 basis. 17 So that's the first point that I 18 would make in why the quick ratio is much more 19 relevant to the condition of this type of 20 company than the other ratio would be. 21 The second point I would make is

- 22

- and this is the only other point I would

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### 1 make

-- is that one of the key questions for 2 us has been a $10,000 penalty for a company 3 like ours is very large. 4 Perhaps I'm not a good researcher 5 

### or something. But I have not been able to 6 find cases in the administrative law record 7 where I can compare the size of penalties that 8 other companies, which have violated this law, 9 have had to pay. 10 But I must say that I think that 11 it's a particularly large penalty relative to 12 the financial condition of the company. 13 I am not a position to say whether 14 the company would survive or not with the 15 $10,000 penalty, whether it's assessed all at 16 once or assessed over time. And of course, it 17 depends on how much time it would be assessed 18 over. 19 I'm simply saying it seems quite 20 disproportionate under all the circumstances 21 here. 22 And that's really, Judge, all I

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1 

### would say here. 2 JUDGE SULLIVAN: Well, let me ask 3 

### you a couple of questions about that. You 4 indicate that the size of the company is key 5 

### in your opinion. And I didn't see anything in 6 

### the evidentiary materials that talked about 7 

### that. Do you want to point to me information 8 9 

### MR. ROBERTS: Yes. I think the 10 

### three financial statements are the key points 11 

### of information about that. It shows 12 

### JUDGE SULLIVAN: Show me. 13 

### MR. ROBERTS: All right. If you 14 

### look at the exhibits in the 15 

### JUDGE SULLIVAN: I have 16 

### MR. ROBERTS: Complainant's 17 

### motion for a decision-- 18 

### JUDGE SULLIVAN:

-- I have Exhibit 19 1, 

### page 3. 

### And under the paragraph saying, 20 

### "Response to Complainant's request for 21 

### production by question number," it has 22 paragraph number 5, "Respondent currently has

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-- I'm at a place 18 where we have, and written in hand, my 19 handwriting, Exhibit RFP 1. 20 JUDGE SULLIVAN: Okay. That's 21 Exhibit 1, page 5. 22 MR. ROBERTS: Okay.

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1 JUDGE SULLIVAN: So, and I'm right 2 on that page with you. So show, tell me what 3 this page says to you? 4 MR. ROBERTS: Okay. It says that 5 the, as of December 31, 2011, the assets of 6 the company were $202,000 in liabilities also. 7 And the total equity of the company was 8 $64,000, based on this accountant's 9 compilation. 10 JUDGE SULLIVAN: I'm sorry. I 11 find the total assets for 2001, $951. And I'm 12 sorry, where did you, where does your eye rest 13 for the next number, the total liabilities? 14 MR. ROBERTS: At the very bottom 15 of the page. 16 JUDGE SULLIVAN: Okay. Thank 17 you. 18 MR. ROBERTS: It says, 11Total 19 liabilities and equity. 11 20 JUDGE SULLIVAN: Yes. 21 MR. ROBERTS: And then the line 22 directly above that gives the total equity.

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1 

### JUDGE SULLIVAN: All right. Thank 2 

### you. Go ahead. 3 

### MR. ROBERTS: All right. So that 4 gives you an idea of the financial size of the 5 company. And in conjunction with the number 6 of employees, you have a pretty good idea of 7 how big this company is. 8 

### And in addition, if you turn the 9 page to the Profit and Loss Statement then you 10 can see what the total level of sales has 11 

### been. The sales in 2011 totaled $791,000. 12 And included in that is 85,000 of shipping 13 

### income. So it's actually less than that. 14 JUDGE SULLIVAN: Let me go to

-- 15 I'm on page 6 of Exhibit 1. And I'm looking 16 at the very bottom of the page where the line 17 says, "Sales and marketing.'' Is that where 18 you want me to go? 19 MR. ROBERTS : That's the page, 20 yes. Now, if you look at the very top

-- 21 JUDGE SULLIVAN: Okay. 22 

### MR. ROBERTS: of the page, you

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1 

### see, 11

### Ordinary income expense. 11 

### And under 2 that income it has several categories of 3 income. And then total income of 790,778 for 4 

### January/December '11. 5 

### JUDGE SULLIVAN: Okay. 6 

### MR. ROBERTS: Okay. 7 

### JUDGE SULLIVAN: So as I 8 

### understand the FAA's argument they're looking 9 

### at your total income and saying you have more 10 than enough money, either in cash, or 11 

### available in inventory, or potentially by 12 taking a short-term loan to pay this $10,000 13 

### proposed civil penalty. 14 

### MR. ROBERTS: It may well be. I 15 

### am not trying to deny that somewhere other can 16 be found $10,000 to pay, especially over time. 17 The point I was making is that 18 it's an extremely, given the size of the 19 company, a 

### $10,000 penalty is pretty 20 burdensome. 21 And I don't know how you are going 22

-- really all I'm looking for is that you,

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1 who are familiar with the nature of penalties, 2 the size of penalties, relative to the company 3 size

-- can assess whether this is within the 4 appropriate ballpark, of such a burdensome 5 penalty. 6 Don't forget, if some, if a 7 scientist, if a political scientist or an 8 economist were looking at a violation like 9 this, and say try to assess the seriousness of 10 it, they would say, ''Well, first of all, not 11 every violation of the hazardous material law 12 is of equal danger to the public. So how 13 much, how dangerous is this particular 14 violation?" Then secondly, they would say, 15 "How often does this happen?" And then 16 thirdly say, "What then is the likelihood of 17 it happening?" And those questions, the 18 answers to those questions would figure into 19 the overall calculation. 20 Now that's obviously 21 administratively impossible to do. So nobody 22 has made a law that would take that into

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### 1 account. And nobody's asking that it be 2 formally taking into account. 3 But I'm suggesting that, given the 4 discretion that is provided to the FAA under 5 the law and the other factors that the FAA is 6 asked to consider, that a kind of an equal 7 protection idea is embodied in this law. That 8 for equal violations, the burden should be 9 

### roughly equal. And I'm not talking about 10 mathematical precision here, but you know, 11 ballpark equality. 12 And on that scale, I'm suggesting 13 that for a company of this size, the $10,000 14 proposed penalty for this kind of violation, 15 is pretty substantial. 16 And that kind of leads me to the 17 point that sort of came up in the last 18 document that the petitioner filed. Which was 19 the argument about whether there was an 20 immediate corrective action taken or not. 21 And the corrective action that was 22 immediately taken was that because the company

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### 1 was shipping very very few of these hazardous 2 material items, the company looked at what it 3 had, found that this is the only thing that 4 could fall into the hazardous material 5 classification, and pulled it off the market. 6 

### And has not shipped it. And has ceased to 7 

### produce it. That was the first action. 8 

### Then when I met with Mr. Ellis in 9 Atlanta, then he suggested that the head of 10 the company take this course, we had a brief 11 polite discussion about whether that made any 12 sense, given that we were no longer shipping 13 this item, and then she took the course right 14 

### away. So that's 15 

### JUDGE SULLIVAN: When you say 16 "she'' you're talking about Rachelle Rego? 17 

### MR. ROBERTS: Yes. Rachel Rego. 18 

### JUDGE SULLIVAN: Yes, Rachel Rego. 19 

### And it appears to me from the 20 party's argument that it's undisputed that 21 she's the executive of the company. 22 MR. ROBERTS: Yes, she is.

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1 JUDGE SULLIVAN: 

### O!'-ay. Let me 2 turn you back to financial matters. You say, 3 potentially in your materials and in your oral 4 argument, that if the quick ratio, which you 5 believe to be more relevant, is utilized it 6 shows that the company barely keeping its head 7 above water. And in your written materials, 8 in the answer to the motion for a decision, 9 you request that the penalty be reduced to a 10 $1000 amount. 11 MR. ROBERTS: 

### Correct. 12 JUDGE SULLIVAN: 

### How do you get 13 from $10,000 to $1000 using the quick ratio 14 formula? 15 MR. ROBERTS : 

### I didn't use the 16 quick ratio formula to get there. The quick 17 ratio formula essentially pointed me in the 18 direction. 19 The only way I got there was to 20 say, that's much more in keeping with what 21 

### this company could pay. Paying a thousand 22 dollars would be unpleasant, but not deadly,

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1 for the company. It would not force it to 2 reduce advertising, which is a crucial cost of 3 selling that it has to undertake. 4 And by the way, as to Mr. Ellis' 5 many comments about how the penalty would not 6 drive the company out of business and that we 7 haven't produced any evidence that it would, 8 well of course, we're fervently hoping that 9 our current marketing efforts will increase 10 business, and increase sales, and make us rich 11 beyond our wildest dreams. So there's no way 12 to predict that. 13 But we have not been very 14 successful at that in the last few years. 15 JUDGE SULLIVAN: Well, let me 16 return to the question of the $1000 assertion 17 that you're making. You're telling me that 18 it's a more comfortable discomfort than a 19 $10,000 penalty. 20 MR. ROBERTS: That's a good way to 21 put it. 22 JUDGE SULLIVAN: I don't know how

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1 

### you get there. And I don't see anything in 2 your materials that would allow me to adopt 3 that position on your behalf. Can you explain 4 that to me a little more clearly? How do you 5 get from 10,000 to $1000 with facts that have 6 been submitted to me? 7 

### MR. ROBERTS : To tell you the 8 truth

-- 9 

### JUDGE SULLIVAN: Yes. Where do I 10 look at to say, "Oh, the Respondent is 11 

### absolutely correct. The $10,000 is not 12 substantiated using this amount of money and 13 

### this particular documentation. In fact, the 14 arrow points me strongly to a $1000 fine, or 15 a $5000 fine, or a $7500 fine." I mean, I 16 really don't know how you get from $10,000 to 17 $1000 even if you use the quick ratio formula. 18 

### MR. ROBERTS: Judge, there's no 19 particular criteria that I can point you to 20 for getting to a thousand dollars. 21 I see every month the expenses of 22 the company. And I see what it can handle and

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1 

### what would cause some difficulty. To tell you 2 the truth, it's like, I think I thought of 3 this more as a negotiation where Mr. 4 

### there's not a criteria I can give you, in all 5 

### fairness, I cannot say there's a specific 6 

### reason why $1000 is better than $1500, or 7 

### 2000, or 2500, or $3000. 8 

### But I would say that as you get 9 

### higher in those numbers, you make it more 10 difficult, one makes it more difficult for the 11 

### company to actually perform. 12 So that's all I can tell you about 13 it. 14 

### JUDGE SULLIVAN: Okay. Let me 15 ask you a different question. You had 16 indicated in your answer to motion for a 17 decision that you were abandoning the claim 18 that the penalty was arbitrary. 19 

### MR. ROBERTS: Yes. 20 JUDGE SULLIVAN: And I understand 21 what you're doing. It sounds like you read 22 through the FAA's materials and understood--

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-- that 2 they did take a formula approach in trying to 3 address various factors. So that it wasn't 4 just picking a number out of the hat. Is that 5 your understanding as well when you waived 6 your arbitrary assertion? 7 MR. ROBERTS: In effect, I'm 8 making what, here an equal protection 9 argument, but the due process argument that 10 they were just pulling a number out of the hat 11 is clearly wrong. 12 JUDGE SULLIVAN: Okay. 13 MR. ROBERTS: And I abandoned it 14 once I got the information. 15 JUDGE SULLIVAN: Okay. You had 16 indicated on page 2 of your motion for a 17 decision that you agreed to submit the matter 18 to the Court for decision based upon the 19 record before it. 20 I took that to mean and I want 21 you to tell me differently if I didn't 22 understand correctly

-- that even if you won
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1 

### on this motion you didn't need to go to 2 hearing. You just wanted to address the issue 3 on the written materials. 4 

### MR. ROBERTS: You're correct. 5 

### JUDGE SULLIVAN: Okay. In looking 6 

### at the quick ratio, you basically state, on 7 

### page 3 

### of your materials, that the quick ratio 8 

### excludes inventory. And you talked a little 9 

### bit about that in your oral argument as well. 10 

### So if we look at the financial 11 

### documents that are attached as part of FAA's 12 

### Exhibit Number 1, 

### and we don't take the 13 

### inventory into account as part of the total 14 

### overall assets, and you tell me -- I'm looking 15 

### at the same pages 5, 6, 

### and 7 

### of Exhibit 1, 16 

### which talk about the year 2011

-- 

### what the 17 

### company's assets are excluding inventory for 18 

### the year 2011. 19 

### MR. ROBERTS: Well, of the 20 $202,000 

### of assets, using round numbers here, 21 

### inventoryrepresents 177,000/178,000. 

### So what 22 you have as assets is $24,000 

### of assets. If

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### 1 you exclude the long-term liabilities from 2 

### your liabilities, you have $58,000 of 3 liabilities. 4 

### JUDGE SULLIVAN: And essentially, 5 what I want you to do then is now tell me how 6 much you have available to the company for 7 paying a proposed penalty, if we don't include 8 the inventory, and we take a look at the long9 term liability that you just talked about. 10 MR. ROBERTS: Let me do a quick 11 

### calculation. Of course, this is slightly 12 different now that we're at the end of 2012, 13 but this is what's before us. 14 Here we have 24,000 in assets, and 15 58,000 of liabilities. 16 

### So you don't have, on a standing 17 basis, the money to pay some of your creditors 18 as it stands right at the moment. 19 

### On an ongoing I don't think 20 I've given you any information about what the 21 ongoing month-to-month income is like. So I 22 

### can't really speak to that. I actually have

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1 it on my computer. It's in the office, but 2 it's not on the record. 3 JUDGE SULLIVAN: No. So you just 4 want to talk about what the Court has in front 5 of it. 6 MR. ROBERTS: Yes. 7 JUDGE SULLIVAN: As the parties 8 agreed couldbe considered for today's motion. 9 MR. ROBERTS: Right. So you've 10 got $24,000 worth of assets and, you know, 11 $2700 of cash. And $17,000 of accounts 12 receivable, with no allowance for bad debt. 13 And basically, deposits of $3600/$3700

.. Those 14 are your assets, $24,000 of assets. And now 15 you've got $37,000 of accounts payable. And 16 you've got 13,000 of accrued expenses. And a 17 tax payable of 8000. So you get to $58,000 of 18 liabilities there. That's what you've got at 19 the end of 2011. 20 JUDGE SULLIVAN: So according to

- 21 22 MR. ROBERTS: And I think that

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### 1 that dramatically changed. 2 I'm sorry? 3 

### JUDGE SULLIVAN:

-- according to 4 that the company is not making any profit at 5 all. 6 

### MR. ROBERTS: Well, that's pretty 7 

### much what what really happened to the 8 company -- to just speak plainly

-- is that in 9 2009, the company made a huge marketing effort 10 which fell flat on its face. Why it fell, I 11 

### don't know. It seemed a good idea at the 12 time. 13 

### JUDGE SULLIVAN: Well, I'm going 14 

### to I'm going to interrupt you, sir. Unless 15 you have this in front of me in writing that 16 has been submitted for argument, it's not 17 something I can consider. 18 

### MR. ROBERTS: No, you have it in 19 

### front of you in the Profit and Loss 20 Statements. 21 JUDGE SULLIVAN: Okay. Well

-- 22 MR. ROBERTS: Pretty clear on --
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1 JUDGE SULLIVAN:

-- point me to 2 this 2009 materials that tells me that. 3 MR. ROBERTS: Yes. If you turn 4 the pages to the I don't know what your 5 page number would be

-- but it says 6 JUDGE SULLIVAN: Well, it runs 7 from 1 through 12, in chronological order. 8 MR. ROBERTS: I think it would be 9 page 11 then. Page 11. You should see at the 10 top it says, "Profit and loss for 2010." 11 JUDGE SULLIVAN: That would be 12 page 9, of Exhibit 1. 13 MR. ROBERTS: Okay. 14 JUDGE SULLIVAN: Thank you. 15 MR. ROBERTS: Now if you look at 16 the central column which says, "January to 17 December '09," if you look down at the

-- I'm 18 just taking a moment to find where you'll find 19 this you have to turn the page, the next 20 page if you look at the next page 21 JUDGE SULLIVAN: Page 10, of 22 Exhibit 1.

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1 MR. ROBERTS: Right. Under, 2 "January to December '09," you'll see an 3 expenditure of 281, nearly $282,000 for print 4 advertising. 5 JUDGE SULLIVAN: I 6 MR. ROBERTS: And now, you can 7 compare that line with the 2010 line of 8 126,000. And if you go back a couple of 9 pages, you can see the print advertising line 10

-- I'm looking myself here for 2011

-- which 11 would be $122,000. 12 So that's the story. That number 13 is the story that I was trying to tell you. 14 JUDGE SULLIVAN: Okay. I'm taking 15 a look to see if I can find the $122,000 16 amount. And I see it on page 6 of Exhibit 1, 17 at the bottom of the page. 18 MR. ROBERTS: There you are. 19 JUDGE SULLIVAN: Okay. So given

- 20

- let me ask you this question again. And I 21 don't mean to beat a dead horse. But given 22 the fact that you're asserting that for this

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### 1 particularperiod of time, 2011 in particular, 2 you had $24,000 in assets and $58,000 in long3 term liabilities, how do you get to a $1000 4 figure instead of a $10,000 figure for a 5 proposed civil penalty? 6 

### MR. ROBERTS: Well, given that I 7 don't have even half the assets necessary to 8 cover the liabilities, but looking at the size 9 of the operation, and the fact that the 10 company is spending, you know, in the amount 11 of roughly $80,000 a month or something in 12 that neighborhood, I just figured that a 13 thousand dollars is an amount that could be 14 managed. That's the best I could do. 15 And I think $2000 could be managed 16 as well. But I prefer a thousand, of course, 17 being a bargainer. 18 JUDGE SULLIVAN: And just so that 19 I'm clear. In terms of your position with the 20 company, are you a shareholder or are you just 21 simply the lay representative? 22 (Telephonic interruption.)

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1 MR. ROBERTS: Is that you? 2 JUDGE SULLIVAN: No, it is 3 conferencing

-- 4 (Operator interrupting.) 5 JUDGE SULLIVAN: I'm sorry. 6 There's an operator notice that we may have to 7 disconnect. 8 And I'm going to ask Mr. Smith to 9 leave the hearing room, and go out, and extend 10 the time, just in case we need it. And he's 11 just left the hearing room now. So we'll take 12 care of that for everybody. And I apologize 13 folks that this is going over a few minutes 14 past the one hour mark. Okay. 15 So Mr. Roberts, tell me again, are 16 you a shareholder or are you simply the lay 17 representative? I know that Ms. Rachelle Rego 18 is the executive

-- 19 MR. ROBERTS: Right. 20 JUDGE SULLIVAN: but where do 21 you stand in the lineup? 22 MR. ROBERTS: I am not a

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### 1 shareholder of either Covermark Beauty, or 2 Covermark, or the parent company that owns a 3 hundred percent of the stock. I am the Chief 4 Executive Officer of the parent company. And 5 I'm also a lawyer. 6 

### JUDGE SULLIVAN: Okay. Thank you. 7 

### Is there anything else that you 8 would like to add to your argument today 9 before I turn back to Mr. Ellis? 10 

### MR. ROBERTS: No, Judge. I really 11 appreciate the care and thoroughness that you 12 have taken here. 13 

### JUDGE SULLIVAN: Thank you. 14 

### Mr. Ellis, let's turn back to you. 15 Based on the Respondent's arguments, do you 16 have any final reply? 17 REPLY ON BEHALF OF AGENCY 18 

### MR. ELLIS: The only thing that 19 comes to mind, Your Honor, as we're all making 20 analogies here, is if you were an every day 21 person who gets a speeding ticket, for example 22

-- I don't know how it is in D.C. these days,

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### 1 it's been a while since I lived there --but 2 in Georgia you can pay up to a thousand for a 3 speeding ticket. For you know, an every day 4 

### person who makes 25/$30,000 a year, they all 5 

### could make the same argument. That yes, it 6 

### would hurt, but no, it won't put them out of 7 

### business. And that's really what I'm hearing 8 

### here in this case. 9 

### And of course, that's what 10 everyone says in hazardous material cases is 11 that these penalties are large, and they would 12 really hurt me. And we don't doubt that they 13 would. 14 

### But I don't think any evidence 15 that has been presented today has been 16 compelling enough to reduce the penalty. 17 

### JUDGE SULLIVAN: Okay. Thank you. 18 I'll note that Mr. Smith returned 19 at approximately 2:35 in the afternoon in to 20 the hearing room. And he gave me a nod to say 21 that the conference has been extended for the 22 time that we need.

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### 1 Mr. Ellis, anything else that you 2 would like to say? 3 

### MR. ELLIS: No, Your Honor. Thank 4 you. 5 

### JUDGE SULLIVAN: Let me ask you 6 one thing more. There was a, it appears to be 7 a waiver of the in-person hearing by the 8 Respondent in the answer to motion for 9 decision. 10 

### If in fact this Court found that 11 there was a material issue of fact that did 12 not allow a grant of summary judgment motion, 13 but that the parties had waived the in-person 14 hearing and that the decision could be issued 15 with a different standard of review on the 16 written record, would you have any objection 17 to that? 18 

### MR. ELLIS: I understand what 19 you're saying, Your Honor. If the motion were 20 not granted, we would like an opportunity to 21 have a hearing of some kind. 22 JUDGE SULLIVAN: Essentially my

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### 1 concern, Mr. 

### Ellis, is since that all 2 inferences are made in a light most favorable 3 to the non-moving party in a motion of this 4 kind, those inferences disappear then if the 5 summary judgment motion is not granted. But 6 the case then is re-reviewed on the written 7 record. 8 So the way I look at a case when 9 it's before me on a summary judgment motion is 10 unique to the summary judgment process. 11 And it appears to me that there is 12 a genuine issue of dispute here, where if I 13 look at all of the material in a light most 14 favorable to the non-moving party, that being 15 

### the Respondent, I 

### cannot grant summary 16 judgment on the record as it stands. 17 

### That doesn't mean though that I 18 couldn't look at· the same material and come to 19 a different conclusion, potentially, if I 20 again looked at the material on a written 21 record review without hearing. 22 So I'm happy to go to a hearing

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### 1 with the parties, if that's necessary. I'm 

### 2 not sure that it is. 3 

### MR. ROBERTS: Your Honor, what is 4 the material issue in dispute? 5 JUDGE SULLIVAN: 

### The two of you 6 did agree completely on the submission of the 7 financial records. But you're looking at the 8 financial records very differently. 9 MR. ROBERTS: Yes. 10 JUDGE SULLIVAN: 

### And you're also 11 looking at whether or not the current ratio 12 and the quick ratio should be utilized in 13 combination, as recommendedby the FAA, versus 14 whether only the quick ratio should be 15 utilized, as recommended by the Respondent. 16 So those are issues of material fact. They're 17 genuine issues of material fact that are in 18 dispute. 19 

### And under a summary judgment 20 motion standard, I must look at all of those 21 factual matters in a light most favorable to 22 the non-moving party.

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1 

### MR. ELLIS: I'm not hearing-- I'm 2 kind of echoing Mr. Roberts

-- I'm not hearing 3 

### what facts are in dispute. I'm hearing that 4 there's a different interpretation of theories 5 

### and ratios to apply to those facts. But I'm 6 

### not hearing any facts in dispute. 7 

### JUDGE SULLIVAN: That's 8 

### MR. ROBERTS : I agree with Mr. 9 

### Ellis. 10 

### JUDGE SULLIVAN: that's what 11 

### I'm saying too. 12 

### So I have basically two parties 13 

### using the same facts and coming to very 14 

### different conclusions. 15 

### MR. ROBERTS : Yes. That's what 16 you have. 17 

### JUDGE SULLIVAN: That's what I 18 have. 19 And I have two parties telling me 20 that there are, there's a reasonable basis 21 

### upon which to come to these very different 22 conclusions using the same set of facts.

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### 1 deference. I don't give the non-moving party 2 a heightened standard of review when I simply 3 

### review a written record in lieu of a hearing. 4 

### So what I'm saying to you both is 5 

### under the heightened standard of review on 6 

### summary judgment, I must, I'm required by law 7 

### to give the non-moving party all deference. 8 

### And in giving the non-moving party all 9 

### deference, that means that I would be finding 10 

### that the non-moving party's argument, that the 11 

### quick ratio should be used alone, is 12 reasonable. 13 And if I look at the quick ratio 14 alone and look at the material, the financial 15 records as the Respondent has offered, then 16 there is a genuine dispute about whether 17 $10,000 

### is excessive or not. 18 Now, that may go away if, in fact, 19 I look at the exact same material again 20 without the heightened standard of review. 21 So what I'm saying to you, as best 22 I can, is under a summary judgment motion

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1 

### standard I am going to respectfully deny the 2 FAA's motion for summary judgment on this 3 matter. 4 

### I am certainly also willing to 5 

### accept the party's agreement to revisit and 6 

### review this evidence under the preponderance 7 

### of evidence standard on the written record 8 

### alone. 9 

### If the parties want, they can have 10 

### a hearing and provide additional testimony. 11 

### I'm not sure that's necessary. 12 

### MR. ROBERTS: Your Honor, given 13 

### what you're saying, maybe the most fruitful 14 

### and simple approach would be for Mr. Ellis and 15 

### me to have a discussion after we hang up, and 16 

### see whether we can settle the matter 17 

### ourselves. 18 JUDGE 

### SULLIVAN: Well, you're 19 welcome to do that. 20 

### But, and I'm happy to have a 21 

### hearing or not have a hearing. 22 But right now, under summary

NEAL R. GROSS
(202) 234-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com57 

### 1 judgment motion standard, giving all inference 2 and deference to the non-moving party, I 3 cannot find on behalf of the FAA. 4 

### MR. ELLIS: Then what I would 5 propose, Your Honor

-- because we can always 6 talk about settling the case depending on how 7 long it would take you to make your decision

- 8 - but if the summary judgment standard is not 9 met, we don't have a problem offering this 10 evidence, the same evidence, for you to submit 11 a decision based on the preponderance of 12 evidence standard. 13 

### JUDGE SULLIVAN: Okay. And that's 14 what I was hearing from the Respondent as 15 well. 16 

### And if that's true, then what I 17 can do is I can cancel the January hearing, 18 and I can even give the parties an hour of 19 time by teleconference to make any final 20 arguments they would like to make about this 21 material. If you would like me to do that. 22 I can do those kinds of things for

NEAL R. GROSS
(202) 234-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com58 

### 1 the parties to reduce the amount of expense 2 and time, if basically, you're going to rest 3 on this material, and this interpretation. 4 Do you want to talk privately with 5 each other before you both make a final 6 decision about that? Or do you want me -- are 7 you both feeling comfortable enough with where 8 you are at to agree to cancel the 1 ive hearing 9 and submit this on the written record? 10 

### MR. ELLIS: Speaking for the 11 Complainant, Your Honor, I don't think there's 12 going to be any need for additional argument 13 or evidence. 14 

### JUDGE SULLIVAN: Mr. Roberts, what 15 do you feel? 16 

### MR. ROBERTS: Well, I'm trying to 17 think what I could submit to you in addition 18 that would be helpful. 19 

### JUDGE SULLIVAN: I think the only 20 thing that's

-- well, I shouldn't say that. 21 That's not 22 MR. ELLIS: I would object to the

NEAL R. GROSS
(202) 234-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com59 

### 1 submission of more evidence because discovery 2 is over. 3 

### MR. ROBERTS: No, argumentation, 4 

### of course, not in evidence. 5 

### JUDGE SULLIVAN: Yes. It would 6 

### simply be an argument at this point taking

-- 7 

### both of you could essentially look at this 8 

### material and present additional arguments. 9 

### But you don't have to. 10 

### MR. ROBERTS: Yes. 11 

### JUDGE SULLIVAN: I mean, that's 12 

### what I'm saying is that if you both are 13 

### comfortable with the amount of evidence that's 14 

### before the Court right now, we can strike the 15 

### hearing that's scheduled in early January. 16 

### And I can utilize the same documentation as 17 

### evidence for a review under a hearing 18 

### standard. 19 

### If you both are not comfortable 20 

### with the level of evidence that's before the 21 

### Court right now and you think that you need to 22 present additional evidence, either in

NEAL R. GROSS
(202) 234-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com60
1 

### documentary form or in live testimonial form, 2 you can do that. 3 So it might be helpful for you to 4 

### let me know, and to think about it, and maybe 5 

### talk to each other, and then let me know. And 6 

### I can keep the live hearing available on my 7 

### calendar for, until I hear from you. And I 8 

### can give you a due date to let me know what 9 

### you want to do. 10 

### MR. ROBERTS: Judge, I think I'm 11 

### quite happy with what's been submitted. I 12 

### don't really see the likelihood of our wanting 13 

### to submit additional hearing evidence. I'm 14 happy to submit this to your decision at this 15 point. 16 

### JUDGE SULLIVAN: Mr. Ellis, what 17 

### is your my understanding that's your 18 position as well? 19 Did I lose you, Mr. Ellis? 20 

### MR. ELLIS: That is correct, Your 21 

### Honor, what you said is correct. 22 JUDGE SULLIVAN: Okay. Then let

NEAL R. GROSS
(202) 234-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com61

1 

### me bring up my calendar very quickly, which 2 means I have to enter at password which you 3 may hear me clicking. 4 

### And I'm going to we have a 5 hearing currently scheduled on Thursday, 6 

### January 17, 2013. And my calendar doesn't 7 show the venue but I believe the two of you 8 agreed to a venue. 9 Is that not right, Mr. Ellis? 10 MR. ROBERTS: In New York, yes. 11 

### MR. ELLIS: New York. 12 JUDGE SULLIVAN: Yes. So what I 13 will do is I will cancel the January 17, 2013 14 live hearing in New York. And I will take the 15 January 17 date, and what I'm going to ask the 16 two of you is to be available on that date for 17 a one hour telephone conference in the event 18 that the Court has any final questions to ask 19 either of you. 20 Mr. Ellis, do you have any time on 21 that date that you would prefer? 22 MR. ELLIS: About the same time as

NEAL R. GROSS
(202) 234-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com62 

### 1 today, Your Honor, would be good. 1:30 or 2 2:00- 3 

### JUDGE SULLIVAN: Okay. Mr. 4 Roberts, would 1:30 in the afternoon be good 5 for you? 6 

### MR. ROBERTS: Yes, that's fine. 7 

### JUDGE SULLIVAN: Okay. What I 8 will do is then I will convert the live 9 hearing to a one hour telephone conference for 10 oral argument only on the written submissions 11 that we have already, that the parties have 12 are ready filed. That being Exhibits 1, 2, 13 and 3 in the FAA's motion for a decision. 14 And I'll ask the parties to plan 15 to convene at that the time and answer any 16 further questions the Court might have. And 17 then a decision will issue shortly thereafter_ 18 

### With that, Mr. Ellis, as the 19 moving party, do you have anything you would 20 like to add or correct to the record at this 21 time? 22 MR. ELLIS: No, Your Honor_ I

NEAL R. GROSS (202) 234-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISlAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com63 1 assume you will issue an order regarding this 2 3 JUDGE SULLIVAN: I will. 4 MR. ELLIS: are you going to 5 add issue an additional order scheduling that? 6 Or should we just put it on our calendars? 7 JUDGE SULLIVAN: You should put it 8 on your calendars, and I will also add it to 9 the order that I'm issuing regarding the 10 motion today. So you have actual notice, as 11 of now, and then I will be giving you more 12 notice in writing probably later this week. 13 MR. ELLIS: Okay. And that was 14 1:30 on the 17th. 15 JUDGE SULLIVAN: That is correct. 16 MR. ELLIS: Thank you. 17 JUDGE SULLIVAN: You're welcome. 18 Mr. Roberts, anything you would 19 like to add or correct to the record today? 20 MR. ROBERTS: No, I don't think 21 so. No. 22 JUDGE SULLIVAN: Okay. Let me

NEAL R. GROSS
(202) 234-4433 COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W. WASHINGTON, D.C. 20005-3701 www.nealrgross.com64 

### 1 just double check and make sure I've covered

- 2 - okay. 3 Thank you both very much for your 4 presence here today. And for your patience in 5 

### going about 10 minutes over our allotted time. 6 It 

### appears our business is 7 

### complete. We can go off the record. 8 

### And I wish you a good day. 9 

### (Whereupon, the above-entitled 10 matter went off the record at 2:40p.m.) 11 12 13 

### 14 15 16 17 18 19 

### 20 21 22

NEAL R. GROSS
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C E R T I F I C A T E

This is to certify that the foregoing transcript

In the matter of: FAA v. Covermark

Before: US DOT

- Office of Hearings

Date: 12-11-12

Place: Teleconference

was duly recorded and accurately transcribed under my direction; further, that said transcript is a true and accurate record of the proceedings.

Court Reporter

(202)234-4433 NEAL R. GROSS COURTREPORTERSANDTRANSCRIBERS 1323 RHODEISLANDAVE

..N.W. WASHINGTON. D.C. 20005-3701 www.nealrgross.com