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UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
BEFORE THE HONORABLE ARTHUR S. WEISSBRODT, JUDGE
In Re: ) Case No. 98-51326-ASW
) Chapter 13
)
HOWARD KEITH HENSON, )
) TRIAL
) Volume V
Debtor. ) Pages 726 to 841
)
)
) Thursday, October 3, 2002
) San Jose, California
Appearances:
For the Debtor: Law Offices of Stanley A. Zlotoff
By: Stanley A. Zlotoff, Attorney at Law
300 South First Street, Suite 215
San Jose, California 95113
For Creditor Religious Moxon & Kobrin
Technology Center: By: Helena K. Kobrin, Attorney at Law
3055 Wilshire Boulevard, Suite 900
Los Angeles, California 90010
McPharlin, Sprinkles & Thomas
By: Elaine M. Seid, Attorney at Law
10 Almaden Boulevard, Suite 1460
San Jose, California 95113
Paul, Hastings, Janofsky & Walker LLP
By: Samuel D. Rosen, Attorney at Law
75 East 55th Street
New York, New York 10022-4597
For Witness Lucas
(via telephone): Howard Hibbard, Attorney at Law
Electronic Court United States Bankruptcy Court
Recorder: Clerk of the Court
LaKeska Blue and Liz Armendariz
280 South First Street, Room 3035
San Jose, California 95113
(408) 535-5003
Certified Electronic Palmer Reporting Services
Transcriber: P. O. Box 30727
Stockton, California 95213-0727
Proceedings recorded by digital recording;
transcript produced by federally-approved transcription
service. I N D E X
Closing Argument on behalf of the Creditor: page 748
Closing Argument on behalf of the Debtor: page 779
Closing Argument in Rebuttal on behalf
of the Creditor: page 811
Witnesses:
Direct Cross Redirect Recross
Mary Lou Mata
(no examination)
Exhibits: Received in Evidence
Creditor's Exhibits 294 and 295: page 742
728
1 Thursday, October 3, 2002 10:08 o'clock a.m.
2 P R O C E E D I N G S
3 THE CLERK: Please rise. This is the United States
4 Bankruptcy Court for the Northern District of California. Court
5 is now in session.
6 THE COURT: Please be seated.
7 This is the case of Keith Henson.
8 May I have appearances of counsel, please?
9 MR. ZLOTOFF: Stan Zlotoff for debtor.
10 MR. ROSEN: Good morning, Your Honor. Samuel D.
11 Rosen, Paul, Hastings, Janofsky and Walker, for RTC.
12 MS. KOBRIN: Helena Kobrin, Moxon and Kobrin, for
13 Religious Technology Center.
14 MS. SEID: Elaine Seid of McPharlin, Sprinkles and
15 Thomas, also appearing on behalf of Religious Technology Center.
16 THE COURT: Good morning everybody.
17 Mr. Hibbard, may I have your appearance, please?
18 MR. HIBBARD: Yes, Your Honor. Thank you very much.
19 Howard Hibbard specially appearing for Ms. Lucas.
20 THE COURT: Okay. I can't hear him, Tanya, very well.
21 MR. HIBBARD: Howard Hibbard, specially - specially
22 appearing for Ms. Lucas.
23 THE COURT: Thank you.
24 Mr. Hibbard, are you on a regular phone?
25 MR. HIBBARD: No, I'm on a cell phone with everybody.
729
1 THE COURT: That's not good, Mr. Hibbard. Do you have
2 an office phone?
3 MR. HIBBARD: Yes, sir.
4 THE COURT: Could you please let us call you back on
5 the number?
6 MR. HIBBARD: Sure. It - it's 510-786-1781. I'll
7 take it off the transfer.
8 THE COURT: We didn't hear you.
9 MR. HIBBARD: 510- -
10 THE COURT: Say it again.
11 MR. HIBBARD: 510-786-1781. And I can't get off until
12 you transfer.
13 THE COURT: 786-1781?
14 MR. HIBBARD: Yes, Your Honor.
15 THE COURT: Okay. Go back on.
16 State your appearance again, please?
17 MR. HIBBARD: Thank you, Your Honor. It's Howard
18 Hibbard especially appearing for Ms. Lucas.
19 THE COURT: Okay. Thank you.
20 I was advised that when I was not on the bench that
21 there was some conduct in the courtroom. And I want to find out
22 what had occurred. My staff had reported to me certain conduct.
23 (Comments off the record.)
24 THE COURT: Tanya, would you please swear in Ms. Mata?
25 THE CLERK: At the podium?
730
1 THE COURT: It doesn't matter. She can then take the
2 witness stand.
3 THE CLERK: Please raise your right hand.
4 MARY LOU MATA, WITNESS, SWORN
5 THE WITNESS: Yes, I do.
6 THE CLERK: Could you state your full name for the
7 record?
8 THE WITNESS: My name is Mary Lou Mata.
9 THE CLERK: Okay. Spell your last name.
10 THE WITNESS: Mata, with an M, as in Mary -a, as in
11 Apple -t, as in Tom, one -a, as in apple.
12 THE CLERK: Okay.
13 THE COURT: Yes. Ms. Mata, would you take the witness
14 stand, please?
15 THE WITNESS: Okay.
16 MR. ROSEN: Your Honor, may I be advised of what the
17 nature of this proceeding is?
18 THE COURT: You'll know in about two seconds, Mr.
19 Rosen.
20 MR. ROSEN: Does this involve me?
21 THE COURT: Yes, sir.
22 MR. ROSEN: Well, I think I would like to - before you
23 elicit anything, I would like to have notice and an opportunity
24 to have my own counsel. If - if the - if this is an inquiry
25 into something that I allegedly did, which it sounds to me like
731
1 Your Honor just said, I think I'm entitled notice and
2 opportunity to have counsel.
3 THE COURT: The only thing I want to do before
4 memories fade is to have her tell me, on the record, what she
5 remembers happens - happened.
6 MR. ROSEN: Well, Your Honor, you say before memories
7 fade. That's true in every case. It's not a justification for
8 denying me my basic right to have notice and opportunity to
9 prepare and be heard on any allegation of misconduct against an
10 attorney, particularly since Your Honor has accused me of
11 misconduct in the past including in writing.
12 And I believe memories fading is not - with all due
13 respect, Your Honor, and I know you don't like that term, but
14 I'll say it anyway - the - for proposition that memories fade
15 could be argued to be - for that basis a justification for
16 always denying counsel, or the - when notice -
17 THE COURT: I don't know - I don't know whether
18 misconduct occurred, -
19 MR. ROSEN: Well, if - if the inquiry is for the
20 purpose -
21 THE COURT: - Mr. Rosen.
22 MR. ROSEN: You obviously know what this witness is
23 going to say, because she works for you and you spoke to her.
24 And if the purpose is to inquire into whether I engaged in any
25 misconduct, you don't know if it occurred, but you are making an
732
1 inquiry to determine if it did. And that affects me. I'm
2 entitled notice and opportunity to have my own counsel here and
3 to examine this witness.
4 If you - if Your Honor wants to prefer charges against
5 me I can't stop you from doing that. You've - you've made
6 allegations against me before, Your Honor. You know you have,
7 in writing. So if you want to the elicit something, I can tell
8 you know I am not in a position to represent myself and
9 cross-examine this witness.
10 THE COURT: Okay. We'll recess for about three
11 minutes, maybe five.
12 THE CLERK: Please rise.
13 (Recess taken from 10:13 a.m. to 10:15 a.m. before which
14 the witness was temporarily excused from the stand.)
15 THE COURT: Please be seated.
16 That's fine, Mr. Rosen. We'll conduct the hearing at
17 a later time.
18 MR. ROSEN: Thank you.
19 THE COURT: Mr. Hibbard?
20 MR. HIBBARD: Yes, Your Honor.
21 THE COURT: It's my understanding that some conduct
22 occurred during a break. And I intend to ask some questions
23 about it. And so that's why I got you on the phone. Since
24 we're not going to do it now, you're welcome to leave the phone
25 if you like.
733
1 MR. HIBBARD: Thank you very much, Your Honor.
2 THE COURT: Thank you.
3 (Mr. Hibbard, appearing telephonically, was excused from
4 the trial at 10:16 a.m.)
5 THE COURT: Okay. Turning to the remainder of the
6 evidentiary portion of our trial, Mr. Zlotoff, where are we on
7 your side?
8 MR. ZLOTOFF: Your Honor, I believe that I'm done.
9 THE COURT: And so we have no additional parts of
10 transcripts to deal with? There's not - there's nothing else to
11 deal with? You're ready to rest?
12 MR. ZLOTOFF: That's right, Your Honor.
13 THE COURT: Okay. And now do you rest on all - on
14 everything, Mr. Rosen?
15 MR. ROSEN: No, Your Honor.
16 THE COURT: Okay.
17 MR. ROSEN: We have - you have not yet admitted
18 Exhibits 291 and 293, which are, as Your Honor will recall, are
19 - were admitted for purposes of impeachment. What I believe is
20 the deposition excerpts which were read. And the offer was, as
21 to each of the exhibits, only the portions that were read aloud.
22 They're being offered for impeachment of Ms. Lucas. I don't
23 think I've got them correct, Your Honor, but I think one is
24 excerpts - 291 I believe is excerpts of a deposition. And I
25 believe 293 is a declaration - or it might be reversed - it's
734
1 reversed until -
2 THE CLERK: Right. Excerpts of the 2004.
3 MR. ROSEN: Yes.
4 THE CLERK: 293 -
5 MR. ROSEN: I'm sorry, I keep saying deposition, 2004
6 exam. Someday I'm going to learn this, Your Honor. 2004
7 examination. And that's 2- - 293. And the declaration of Ms.
8 Lucas is 291. And I've made the offer as I've indicated. You
9 hadn't ruled on it.
10 MR. ZLOTOFF: Your Honor, our position last time and
11 it is now is that the entirety of what is proffered in as
12 evidenced under the heading of the exhibit number for the 2004s
13 should come in for reasons of Rule 32, for completeness.
14 THE COURT: Yeah. 32(a)(4) states, "If only part of a
15 deposition is offered in evidenced by a party an adverse party
16 may require the offeror to introduce any other part of which
17 ought in fairness to be considered with the part introduced.
18 And any party may introduce any other parts."
19 Do you wish to respond, both of you?
20 MR. ROSEN: Is - that's the only - I'll respond in a
21 moment, Your Honor. May I be informed, is this the only
22 provision of the Rules that counsel is relying on, number one?
23 And,
24 Number two, is he making his offer, which he didn't
25 make before today, but he's making now - is he making - is he
735
1 making it for the - offering the remainder of the documents for
2 the truth or for some other purpose?
3 MR. ZLOTOFF: Yes, for the truth, Your Honor.
4 MR. ROSEN: Okay. I'll respond, Your Honor.
5 32(a) sets forth, - and this is the overarching
6 limitation of Rule 32 - "The rules for admission of a deposition
7 as far as admissible under the Rules of Evidence." 32 only
8 deals with a deposition. There is no provision, and 32 does not
9 apply to a declaration. So we can forget 291 right off the bat.
10 That's the first thing.
11 All of Rule 32 is subject to the Rules of Evidence.
12 We then turn to page - to paragraph (a)(3). "The deposition of
13 a witness may be used by any party for any purpose if the Court
14 finds A, B, C, D, E, unavailability."
15 Subpart (4): "If only a part of a deposition is
16 offered..." Subpart (4), Your Honor, is read in the context of
17 the deposition may be offered, because under Subpart (3) the
18 witness is unavailable.
19 To read it otherwise you would say that under (3) you
20 can't offer the deposition at all in the absence of availability
21 - or showing of unavailability. But then under (4), you can
22 offer any part of any deposition you want. So (4) is read in
23 conjunction with (3).
24 And a deposition that is being offered in (4) refers
25 to and necessarily includes a deposition testimony which is
736
1 admissible under (3) because of unavailability.
2 Now we confirm that by going to the overriding or
3 paramount law here and as the Federal Rules of Evidence.
4 Federal Rule of Evidence -
5 THE COURT: Let's stop a minute, because I missed a
6 step in this logic. Ms. Lucas is available, so -
7 MR. ROSEN: Right.
8 THE COURT: So -
9 MR. ROSEN: And you can't offer it unless she's
10 unavailable.
11 THE COURT: I understand. But you've offered portions
12 of the deposition -
13 MR. ROSEN: For impeachment, -
14 THE COURT: - or the 2004.
15 MR. ROSEN: - Your Honor, not for the truth.
16 THE COURT: I understand.
17 MR. ROSEN: For the truth. I didn't offer it under
18 (3) as unavailable, because (3) - Subpart -
19 THE COURT: I understand. So you haven't offered it -
20 MR. ROSEN: Well, wait a minute - wait a minute, Your
21 Honor -
22 THE COURT: - under any part of (2).
23 MR. ROSEN: Excuse me, Your Honor. A deposition, any
24 part of a deposition offered under (3) is for the truth. I'm
25 not offering - I never offered the deposition testimony of Ms.
737
1 Lucas for truth. It's offered for impeachment. For impeachment
2 purposes 32 doesn't even apply, okay, except for possibly the -
3 the fairness designations, if there were designations, of which
4 there were none. Okay?
5 Now we go to the overarching and paramount limitation.
6 And that's the Federal Rules of Evidence on hearsay. And we
7 begin with 803. 803: "The following are not excluded by the
8 hearsay rule even though the declarant is available as a
9 witness."
10 There is nothing in 803 which allows for prior
11 testimony or a prior sworn statement either under - in the form
12 of a declaration, or a deposition, or a 2004 examination.
13 However, if we turn the page to 804, we find that
14 under 804, 804(b)(1) allows for the offer of prior testimony.
15 Now since these are hearsay rules, Your Honor, these apply to
16 the situation in which testimony is being offered for the truth.
17 You never get to a hearsay inquiry if testimony is being offered
18 for reasons of the truth, like impeachment. Okay?
19 So former testimony which would include both -
20 arguably, I'm not sure, but arguably 2004 as well as the
21 declaration - is admissible under (b)- - (b)(1) provided that
22 the requirements of (a) are met.
23 (a) requires unavailability. You cannot offer for the
24 truth prior testimony of a witness who is not unavailable. Let
25 the record reflect, not only was the witness here yesterday on
738
1 the stand, Ms. Lucas is sitting in the courtroom.
2 So 804, you never get past you never get past (a).
3 You cannot get past paragraph (a). And 804 is the operative
4 provision of the Federal Rules to the admission of prior
5 testimony when offered for the truth. Neither 803 nor 804 apply
6 when prior testimony is offered solely to impeach.
7 And the issue is very important because the portions
8 of the documents I offered yesterday for impeachment, for
9 example, Ms. Lucas' testimony that in 1998 she didn't know how
10 much her husband made the year is not offered for the truth that
11 she didn't know. It's irrelevant whether she knew or didn't
12 know.
13 It's offered for impeachment because on this witness
14 stand she swore that she did know. And that's the only reason.
15 And that's a critical distinction between impeachment and
16 offering testimony for the truth of the matter asserted.
17 So there is no conceivable way that Mr. Zlotoff can
18 argue that any part of the exhibit - certainly not even the
19 declaration which isn't even covered by Rule 32, but not - but
20 the 2004 may be offered into evidence for truth.
21 I would - I would close by making one final
22 observation. Rule 32, Subsection (4) presumes that the
23 deposition testimony being offered is being offered for truth.
24 If it's not being offered for truth Rule 32 has no
25 application to it, just as Rule 803 and 804 would not. The
739
1 counterdesignations, if you will, or fairness designations that
2 are provided by 32(a)(4) are when the testimony is offered - a
3 deposition is offered for truth. No deposition has been offered
4 for truth with respect to Ms. Lucas, only been offered for
5 impeachment.
6 And - and my last comment is this: Apart from the
7 Rules - and I - and I don't mean to be technical, but the Rules
8 of Evidence are binding on the Court. Here is the vice.
9 Anything that is in that declaration or - or 2004 exam that
10 counsel wanted to elicit from Ms. Lucas could have tried to
11 elicit from her on the witness stand. You can't let the witness
12 walk off the witness stand and then say, 'Here, I offer her
13 prior testimony.' And you can't cross-examine now because it's
14 a document.
15 Those are all my objections, Your Honor.
16 MR. ZLOTOFF: Well, Your Honor, the - the part of -
17 and actually I'm referring to Exhibit 292, which I believe is
18 the 2004 exam, February 17th. Do I have it marked right?
19 THE COURT: Yes.
20 MR. ZLOTOFF: All right. The part I want to be a part
21 of the exhibit is on page 277 of that when she refers to -
22 THE COURT: What line, Mr. Zlotoff?
23 MR. ZLOTOFF: It's lines 9 to 12, which in fact she
24 did testify to yesterday. That was one of the last questions
25 asked of her. So she did - she was on the stand. She did
740
1 testify to it. And so to have Mr. Rosen include in the Court
2 record a lot of the same testimony without -
3 THE COURT: You mean skipping that sentence?
4 MR. ZLOTOFF: Skipping that sentence, which was part
5 of the context, when she was on the stand, is patently unfair.
6 THE COURT: Do you agree that 9 through 11, or 9
7 through 12 come in?
8 MR. ROSEN: Did I read those in?
9 THE COURT: I don't remember, Mr. Rosen. But I -
10 MR. ROSEN: If I did not read them -
11 THE COURT: - assume not for this purpose.
12 MR. ROSEN: - if I did not read them in, they don't
13 come in. And I'll go a step further. No matter who offers
14 them, me or Mr. Zlotoff, they never ever come in for the truth
15 under 804, never.
16 THE COURT: They were used - they were used for
17 impeachment purposes. So if they came in essentially they would
18 come in to provide context for the impeachment, or to counter
19 the impeachment.
20 MR. ZLOTOFF: Right. That's right.
21 THE COURT: Yeah. I'll take them, 9 through 12, just
22 for fairness in terms of the impeachment but not for the truth.
23 MR. ROSEN: Uder 32 - the Rule 32 fairness, Your
24 Honor? Is that the ruling?
25 THE COURT: The ruling is as I said it.
741
1 So 290, that - 293, we have 293 and 291, Tanya?
2 THE CLERK: Yes.
3 THE COURT: Both of those come in with the additional
4 lines that I've noted.
5 Okay, gentlemen, it's 10:30. And we decided that we'd
6 let Mr. Rosen start, then Mr. Zlotoff, then back to Rosen, then
7 back to Zlotoff on the closing argument. Is there anything we
8 need to do? Do you - do you rest, Mr. Zlotoff?
9 MR. ZLOTOFF: Yes, Your Honor.
10 THE COURT: Have you rested?
11 MR. ROSEN: No. I have two additional documents to
12 hand to the Court, which I've already given to Mr. Zlotoff this
13 morning. I'm not sure they need to be marked as exhibits, but
14 I'll leave that up to Your Honor's judgment.
15 The first document, which I've marked as Exhibit 294,
16 are objections - RTC's objections to the confirmation of the
17 latest amended plan. These were filed in the Clerk's Office
18 this morning. I have a clerk stamp on them. And they were
19 given to Mr. Zlotoff this morning, as well. They are part of
20 the Court record.
21 If Your Honor wants them marked as exhibits, I've done
22 it as a matter of convenience. If Your Honor doesn't want it, I
23 will be referring to them in my closing argument.
24 THE COURT: Well, I'd certainly like a copy. Whether
25 or not they're to become exhibit are not, that's -
742
1 MR. ROSEN: Okay. Well, - well, that's -
2 THE COURT: - it's a pleading.
3 MR. ROSEN: Well, if that's the case I'll want one, so
4 - because I do have been exhibit sticker on - and that's 294.
5 THE COURT:
6 MR. BONNEY: you -
7 MR. ROSEN: And 295, Your Honor, in the similar vein
8 is the amended notice of claim filed by the creditor this
9 morning -
10 THE COURT: You need to be at the microphone.
11 MR. ROSEN: - is the amended notice of claim filed by
12 the creditor this morning. And a copy was served upon Mr.
13 Zlotoff this morning.
14 THE COURT: It's - you're talking about an amended
15 proof of claim or a notice?
16 MR. ROSEN: Amended proof of claim. My bankruptcy
17 co-counsel has corrected my terminology. And too I marked as
18 Exhibit 295.
19 THE COURT: Any opposition?
20 MR. ZLOTOFF: No, Your Honor.
21 THE COURT: 294 and 295 are admitted.
22 (Creditor's Exhibits 294 and 295 received in evidence.)
23 THE COURT: Do you rest?
24 MR. ROSEN: Yes, sir.
25 THE COURT: Okay. Anything further, gentlemen?
743
1 We have nothing further evidentiary. Are we ready for
2 our oral argument?
3 MR. ROSEN: No. I would like a recess. I think this
4 is particularly - the timing of this is particularly difficult.
5 I have prepared an oral argument to make as an advocate. And on
6 the morning I am offering it - I'm prepared to stand up and
7 argue it.
8 The proceedings that occurred earlier were set forth
9 on this record. That - the attack upon counsel in the middle of
10 the case as he's about to make his very important closing
11 argument, I think the timing of this is particularly not
12 propitious. And not propitious indeed in the sense that - in
13 the further sense that, as I understand it, from what I've heard
14 around the hallway this alleged incident reported by Ms. Lucas
15 to your Court staff occurred in the afternoon during the
16 luncheon break, or something soon after that.
17 If Your Honor had a concern you could have brought it
18 to my attention at that point at least. To come out on the
19 morning that I am to make a closing argument and have two
20 marshals sitting here in this proceeding I think is a little bit
21 inappropriate.
22 And is - and whether it's designed or not, it has the
23 affect of - if I may say - making it very uncomfortable for
24 counsel.
25 So I would like to take a brief recess for a few
744
1 minutes and - with the intention - and I'll tell Your Honor,
2 quite frankly, with the intention of taking a walk and see if
3 Judge - Judge Whyte can see us now.
4 And I truly regret that - if Your Honor had said this
5 yesterday, we could have said yesterday, 'Okay, Judge, you think
6 I did something wrong,' you know -
7 THE COURT: I didn't say I thought you did something
8 wrong. I said I wanted to find out what the basis was.
9 MR. ROSEN: If you wanted to find out yesterday, and
10 you would have said this yesterday, and you would have sworn
11 your court employee yesterday, we would have had the same
12 discussion.
13 I would have said, 'Judge, I'm entitled to notice and
14 counsel.' Presumably you would have agreed yesterday as you
15 would - as you did this morning. And I would have had then the
16 evening to cleanse my mind of that, to concentrate on my closing
17 argument so that I can make an effective argument on behalf of
18 my client. Instead, for whatever reasons, Your Honor waited
19 until this morning. And I'm now making an argument in the
20 presence of two marshals.
21 So I'd like a recess for a while to consider our
22 position as to whether or not this proceeding should go forward
23 before Your Honor. And I will ask Mr. Zlotoff to accompany us.
24 We're going to see Judge Whyte.
25 THE COURT: Mr. Rosen, you've left before I said
745
1 anything.
2 MR. ROSEN: I'm sorry, Your Honor. You nodded your
3 head.
4 THE COURT: No, -
5 MR. ROSEN: I thought that meant -
6 THE COURT: - I didn't.
7 MR. ROSEN: Huh. I saw you nodding your head.
8 THE COURT: What's your position?
9 MR. ZLOTOFF: My position is that, if I leave now, I'm
10 going to go to Judge Grube's court where I have a 10:30 hearing,
11 where I told Millie that I was not going to be able to attend.
12 And I told the other counsel to put forth my position.
13 MR. ROSEN: What? I'm sorry.
14 MR. ZLOTOFF: Go ahead.
15 But -
16 MR. ROSEN: I thought you are done.
17 MR. ZLOTOFF: But I think it's inappropriate. I - you
18 know, Mr. - Mr. Rosen is I think being as bombastic as - as he -
19 as he normally is, and I don't take it for anything more than
20 just - than just that.
21 MR. ROSEN: Your Honor, coun- - what counsel
22 suggested, he would go to Judge Grube's court, I don't think is
23 appropriate, because I would ask counsel to accompany us. I
24 don't believe in making an ex-parte application.
25 And the application I would make to Judge Whyte would
746
1 require - I think - I'm not sure it would require, but I would
2 prefer that opposing counsel be with me at the time.
3 I might ask one other thing just before we go to Judge
4 Whyte -
5 THE COURT: Wait a second.
6 MR. ROSEN: Are the marshals going to -
7 THE COURT: Wait a second. Wait a second. How long
8 do you need in Judge Grube's court?
9 MR. ZLOTOFF: I don't even know the size of the
10 calendar. And I have not placed myself there. So -
11 THE COURT: What kind of calendar is it?
12 MR. ZLOTOFF: Just a status conference.
13 THE COURT: In a - in an adversary?
14 MR. ZLOTOFF: