PlainSite :: Think Computer Corp v. Venchiarutti et al, California Northern District Court Case No. 5:11-cv-05496-HRL Document 44: Transcript

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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
Before The Honorable Howard R. Lloyd, Magistrate Judge
Think Computer Corporation,
Plaintiff,
vs.
Robert Venchiarutti, et al,
Defendant.
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No. CV11-05496 HRL
San Jose, California
Tuesday, April 17, 2012
TRANSCRIPT OF PROCEEDINGS OF THE OFFICIAL ELECTRONIC SOUND
RECORDING
APPEARANCES:
For Plaintiff:
BY:
Law Offices of Michael Brooks Carroll
300 Montgomery Street
Suite 650
San Francisco, CA 94104-4238
MICHAEL BROOKS CARROLL
ATTORNEY AT LAW
For Defendant:
BY:
Transcribed By:
Attorney General of California
1300 I Street, Suite 125
P.O. Box 944255
Sacramento, CA 94244-2550
RYAN MARCROFT
DEPUTY ATTORNEY GENERAL
PETER KELLER SOUTHWORTH
SUPERVISING ATTORNEY GENERAL
Stacy Wegner
Transcriber
smwtyping@yahoo.com
(859) 539-2802

Page 2 2
1
Tuesday, April 17, 2012
10:06 a.m.
2
3
THE COURT:
4
Venchiarutti.
5
lectern, please.
6
Okay.
Think Computer versus
Whoever is going to speak, come on up to the
MR. CARROLL:
Good morning, Your Honor.
Michael
7
Carroll on behalf of the Plaintiff, and the Plaintiff is here
8
with me in court today.
9
10
THE COURT:
Would you please stand?
Good morning.
MR. MARCROFT:
Good morning, Your Honor.
Ryan
11
Marcroft on behalf of the State Defendants, and I also have my
12
supervisor here Peter Southworth.
13
14
THE COURT:
Good afternoon.
Mr. Carroll, Mr. Marcroft.
15
MR. MARCROFT:
16
THE COURT:
17
18
I mean, good morning,
Good morning.
Okay.
First, let's see.
The Defendants
move to dismiss under FRCP 12(b)(1) and also 12(b)(6).
There are a number of Defendants who seek to be
19
dismissed from the case on the basis of rule -- Eleventh
20
Amendment immunity, and apparently the Plaintiff does not
21
dispute that?
22
MR. CARROLL:
23
THE COURT:
That's correct, Your Honor.
Okay.
So that will leave the only
24
Defendants left in the case -- I think they refer to you as
25
the State Defendants on the paper -- Mr. Robert Venchiarutti

Page 3 3
1
and the present Commissioner of the California Department of
2
Financial Institutions, one Teveia Barnes.
MR. MARCROFT:
3
And Your Honor, I was also informed
4
this morning there's a new acting secretary -- oh, but she's
5
been left out, so never mind.
6
THE COURT:
7
MR. MARCROFT:
8
THE COURT:
9
She's been let out, right?
Right.
So we only got Venchiarutti and Barnes
in the case of Defendants as I understand it.
Okay.
The Plaintiff brings three claims for relief
10
11
attacking the California Money Transmission Act, which was
12
effective January 1st, 2011, and which, among other things,
13
requires a license for those who engage in the business of
14
money transmission -- transmitting.
15
right.
I'm not sure I said that
16
And the three claims are as follows:
17
The first is a Fourteenth Amendment claim that
18
mention both due process and equal protective violations.
19
And both the second and third claims for relief
20
arise under an alleged violation of the Commerce Clause.
21
Plaintiff developed something called FaceCash
22
because the mobile placement system, alternative to the
23
plastic payment cards that is so ubiquitous nowadays.
24
25
Plaintiff, as I understand it, does not actually
loan money to people.
The participants in this enterprise

Page 4 4
1
give Plaintiff their money, and the Plaintiff holds on to it
2
so the consumer, person who gave the Plaintiff the money, uses
3
it to buy goods or services at some enterprise, which is
4
equipped to deal with this particular system.
All the consumer needs to do is to have a bar code
5
6
and -- and which would then produce a digital image of the
7
consumer's face and display that at the terminal at the point
8
of sale.
9
10
Is that, generally speaking, what the process is?
MR. CARROLL:
That's correct, Your Honor.
You will
11
hear me arguing today that a key part of this is that this
12
takes place via the internet through the digitized --
13
THE COURT:
14
MR. CARROLL:
15
THE COURT:
16
17
Oh, so it's --- power of the internet, in part.
The consumer doesn't actually have to be
someplace other than his or her own home?
MR. CARROLL:
Well, most of our sales are -- are
18
with the consumer standing in front of a merchant, most of our
19
transactions, but the transmitting of the money is done via
20
electronically through the internet.
21
THE COURT:
Okay.
The Plaintiff says that he's
22
willing to apply for a license, but he has got nothing but a
23
hostile runaround from Mr. Venchiarutti, and then eventually
24
others in the Department of Finance and institutions.
25
The Plaintiff says there's no clear guidelines on

Page 5 5
1
what's required in order to get a license, especially with
2
respect to minimum net worth.
It is fearful that if it applies for a license it's
3
4
going to be denied.
In fact, the Plaintiff alleges that he
5
was effectively told that by Mr. Venchiarutti.
And the denial of the license would, according to
6
7
the Plaintiff, reverberate unfavorably throughout the country,
8
so it hasn't applied, right?
MR. CARROLL:
9
10
Your Honor, our position is we started
the application process by --
11
THE COURT:
12
MR. CARROLL:
By having the meeting.
By going to have the mandatory
13
required interview before you submit the written application
14
meeting.
15
THE COURT:
16
MR. CARROLL:
17
18
19
Okay.
But you didn't go past that?
That's correct, Your Honor.
We read
the handwriting on the wall.
THE COURT:
Okay.
For the reasons I've just
articulated?
20
MR. CARROLL:
21
THE COURT:
Correct.
Attempting to summarize your position.
22
So the Plaintiff has apparently shut down operations entirely.
23
It also says there's lots of lawbreakers out there at this
24
very moment conducting money transactions -- transmission
25
business and doing so with impunity.

Page 6 6
Let's see.
1
The 12(b)(1) -- this is the Defendant's
2
motion.
The Defendant moves under 12(b)(1) claiming the court
3
lacks subject matter jurisdiction because the claims are "not
4
ripe" for review.
I've looked at these cases on ripeness, and they
5
6
seem to go both ways.
Of course, the Defendant argues you
7
haven't applied for a license and there -- so therefore it
8
isn't ripe until you apply for a license and then the license
9
is denied.
10
That's your position, right?
11
MR. MARCROFT:
12
Yes, Your Honor.
That's our
position.
THE COURT:
13
Some cases say you don't have to apply
14
for the license and it depends upon whether or not it's a
15
purely legal question, therefore, it would be right, or
16
whether further facts have to be developed and, therefore,
17
it's not right.
18
MR. MARCROFT:
19
THE COURT:
20
MR. MARCROFT:
Your Honor, if I --
All right.
You go.
If I may, I think if you look at the
21
-- those cases, you can generally group them in -- they're
22
better seen as a hardship cases, and you can generally group
23
them.
24
25
And I'll -- I'll give -- give Your Honor my examples.
The Freedom of Travel case and the Sammon case, the
Plaintiff cites to.
In both of those cases, you have a

Page 7 7
1
situation where the licensing standard -- it was the
2
inevitable the licensing standard was going to be applied a
3
certain way.
The Sammon case you had the --
4
THE COURT:
I know, the midwives and --
5
MR. MARCROFT:
6
THE COURT:
The mid --
-- and the law said you had to have 1800
7
hours of formal training.
8
working an apprenticeship would be the functional equivalent,
9
but the law clearly said that you have 1800 hours of formal
10
11
And these midwives claimed that the
training.
And court ruled that it would be futile, in effect,
12
to apply for the license because since they didn't have 1800
13
hours of training they weren't going to get the license.
14
MR. MARCROFT:
And the same is true in the Freedom
15
to Travel case where the court -- the Ninth Circuit -- in both
16
of those cases, Your Honor, the Court said the general rule is
17
you have to apply for the license, but in both of the cases
18
they found this narrow exception where because when a court
19
looked at what the licensing statute was and what the
20
Plaintiff was doing, and it said it's inevitable the outcome
21
of this licensing standard in that case --
22
THE COURT:
All right.
And your argument is it's
23
not inevitable what would happen here if the license
24
application were actually pursued to conclusion -- they might
25
get the license; they might not.
You can't really tell until

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1
you try.
2
MR. MARCROFT:
3
THE COURT:
4
MR. MARCROFT:
Absolutely.
That's your argument?
And the other block of cases, Your
5
Honor, and these are the nuclear power plant cases.
6
the landfill cases.
7
Valley and the California Nuclear Power Plant cases.
8
9
These are
Triple G. Landfills, Gary Peake, Skull
In each of those the -- the -- it was inevitable -I'm sorry, not inevitable, but it was -- no matter how the
10
licensing proceeding turned out, irrespective of the licensing
11
proceeding, the Plaintiff would still be banned with going
12
forward with its proposed activity.
13
So in Gary Peake there was a state licensure
14
requirement for landfills, and when a month after the
15
Plaintiff there applies for the license, the town enacts a
16
total ban on the landfills in the town.
17
how the licensing proceeding turned out because the Plaintiff
18
could never engage in that activity.
19
So it didn't matter
The same is true in California.
We have a
20
moratorium on nuclear power plants.
21
California certification process because at the end of the day
22
the moratorium was still in place, so it's in those cases --
23
that's the other block of cases the Plaintiff cites to, and we
24
don't have either of those.
25
No need to go through the
We have a situation where Plaintiff A, can't apply

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for a license, and B, if he's granted a license, can't engage
2
in his business activity.
THE COURT:
3
Well, for present purposes, I'm supposed
4
to take the allegations that the Plaintiff has plead is true,
5
or at least accept them for present purposes.
6
a rather colorful picture of Mr. Venchiarutti and his apparent
7
hostility towards this particular Plaintiff ever getting a
8
license.
MR. MARCROFT:
9
And they paint
And Your Honor, you know, the case
10
law doesn't support the perception of hostility standard.
11
case law sports an inevitability standard, and theirs is to
12
where --
13
THE COURT:
14
MR. MARCROFT:
He may have a change of heart?
Well, we don't know.
The decision
15
doesn't take place until there's an application.
16
doesn't take place until the agency has seen the paperwork
17
that the Plaintiff is going to put forward on this is the
18
business plan in -- in stone.
19
The
The decision
This -- there are different requirements for
20
bonding, for instance, depending on what type of business the
21
Plaintiff is going to do.
22
there's an examination process, and at the end of all of that
23
then we have a decision.
24
25
Until all of those steps occur --
And that's -- that's the scenario where the courts
have said you need to go through that process, get that final

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1
agency decision before all those unadjudicated questions are
2
ripe for review.
THE COURT:
3
Okay.
Mr. Carroll, I don't know if --
4
if I'm prepared to find that it would be absolutely futile, in
5
the sense of -- of the situation Sammon case for you to apply
6
for a license.
7
this matter isn't ripe?
MR. CARROLL:
8
9
So why shouldn't -- or why shouldn't I say
two dimensions here.
Your Honor, the -- the -- there are
The -- the first dimension is that my --
10
my client did engage in the process, and Mr. Venchiarutti made
11
clear through such comments as "Is this an academic exercise"
12
that the way in which he was going to exercise his rights in a
13
variability way of saying what the requirements were, that
14
this process would never result in a granting of a license to
15
this person.
That variability has already given us, respectfully,
16
17
Your Honor, standing.
18
through what we've been through.
19
controversy and a right being asserted that has been rightly
20
violated.
21
Our rights have already been violated
There is already a judicable
Now, as to Your Honor's question, I would
22
respectfully submit that -- and the -- and we think -- we
23
think the leading case is the Skull Valley Band case, the case
24
that we cited on page 9 of our brief and discussed it in the
25
footnotes.

Page 11 11
It's -- it's clear here that the bar has been set so
1
2
high that Think Computer and its version of this money
3
transmission device will never satisfy the state's
4
constitutionally, irrationally set requirements.
5
The state has set the bar financially so high that
6
only the large corporations, who after all lobby for and, in
7
fact, we believe wrote most of the act are going to be able to
8
qualify.
9
This small entity will not.
THE COURT:
Yeah, but -- that doesn't -- doesn't
10
that get into your equal protection kind of argument?
11
just talking about standing right now over ripeness.
12
MR. CARROLL:
13
THE COURT:
We're
It -- it -And -- and -- well, let -- let me ask
14
you this question.
15
and went out and -- it's going to cost you five grand, I know
16
-- but if went ahead and did -- went through the licensing
17
application process?
18
What would be the harm if you went ahead
MR. CARROLL:
The timing, Your Honor.
We've already
19
been put out of business.
20
business in this rapidly developing market, we're going to
21
have further substantial harm --
22
THE COURT:
23
MR. CARROLL:
24
THE COURT:
25
And if we don't get back into
Well --- from that process.
I understand, but would -- wouldn't you
have a better argument if you had applied and been rejected?

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1
2
3
4
5
MR. CARROLL:
Of course, we would have a better
argument, Your Honor, no doubt about that but we -THE COURT:
(Inaudible - - due to simultaneous
colloquy.)
MR. CARROLL:
We still have a constitutionally
6
judicable argument for doing those things, which we have done
7
and have run up right against the barrier that we say is
8
unconstitutionally set too high.
9
THE COURT:
Okay.
10
MR. MARCROFT:
11
THE COURT:
12
MR. MARCROFT:
Your Honor?
Yes.
If I may, the Plaintiff there has
13
articulated the two things.
14
question of really the hunch that they're finding is a
15
subjective perception that it would not be granted a license,
16
and we've talked about, you know.
17
I think we've addressed them, the
The courts -- even the courts in the land-use cases
18
that we've cited, the Ninth Circuit cases, in every instance
19
it's an objective standard where the Plaintiff has to at least
20
apply a single application before it can bring ripe claims.
21
And so turning to Skull Valley, as I mentioned to
22
the Court earlier, that's among those cases where what the --
23
what the Plaintiff was faced with was essentially a targeted
24
ban on putting a power plant on triable land in Utah.
25
And the -- in response to the federal licensure

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1
application, the state of Utah A, imposed a licensure
2
requirement that gave the Governor and the legislature
3
authority, B, it impose -- gave the counties authority to
4
prohibit that project altogether, and C, it basically gave the
5
Government the legislature control of all the in roads to that
6
site.
7
And there -- there was no -- there was -- so in that
8
very high instance, essentially there's no place to put that
9
project that the Plaintiffs were trying to pursue in there.
10
11
Again, that's not our case.
MR. CARROLL:
Your Honor, while we're on this
12
subject, there is an additional fact that developed after the
13
briefing, at least our part of the briefing was in.
14
15
16
17
18
And if I may -- I'm sure counsel has seen this
document if I give to Your Honor?
THE COURT:
Well, why don't you give (Inaudible - -
audio malfunction.)
MR. CARROLL:
Thank you.
Your Honor, this is the
19
notice from the state of California Government Claims Program
20
to my client advising him that its Government claim arising
21
out of these same factual circumstances has been denied.
22
23
24
25
And I would call the Court's attention to the
paragraph that begins, "Based on its review of the claim."
THE COURT:
All right.
Well, I -- I don't remember.
Had -- had the State taken a position that if you should

Page 14 14
1
pursue a remedy through this Claims Board?
MR. CARROLL:
2
I -- I think -- I think they did, Your
3
Honor.
And I am both submitting this and would, if there's
4
need to amend, make this a part of the complaint officially,
5
but I'm submitting it -- submitting it on two points.
One, on the point that there should be no need to
6
7
exhaust the governmental claims process, but secondly, this is
8
the State speaking right here as to, at least the Governmental
9
Claims Board position, that this matter is ripe for a court to
10
decide.
THE COURT:
11
12
Well, I don't know if I have to take
their view on it, do I?
13
MR. CARROLL:
No, Your Honor.
14
MR. MARCROFT:
15
MR. CARROLL:
Your -And all due -- in all due respect,
16
Your Honor, you would not have to take their review, but that
17
doesn't mean what's said here is not something that's material
18
position.
19
THE COURT:
20
MR. MARCROFT:
21
THE COURT:
22
MR. MARCROFT:
23
why this is being presented here.
24
25
Okay.
Yes?
Your Honor?
Go ahead.
If I may.
A, I'm not exactly sure
B, as a factual matter, it says on the letter it's
not going to be heard until April 19th, 2012, so it's still

Page 15 15
1
two days -- two or three days away.
2
days.
3
recommendation to the Board.
So it hasn't been rejected.
I'm losing track of my
This is a staff
And C, this is a process that every tort claim in
4
5
the state of California goes through.
6
this process in the state of California.
7
requires that every --
8
THE COURT:
9
MR. MARCROFT:
You have to go through
The Government Code
Well, are you saying he's too early?
I'm sorry.
Actually, I don't even
10
know why we're talking about this at this point, Your Honor,
11
but I'm pointing out at this point the Government Claims Act
12
hasn't even acted on that claim.
13
claim.
14
claim for money or damages.
15
process.
This was a damages in the State of California to bring
16
THE COURT:
17
MR. MARCROFT:
18
It's still considering the
You have to go through that state
Okay.
I don't know what bearing it has on
the issues that are presented here.
19
THE COURT:
Well, I wasn't -- I wasn't sure, but --
20
MR. MARCROFT:
No, Your Honor.
21
early.
22
the issues that are presented here.
25
I'm just -- I'm not even sure what bearing it has on
But as a factual matter, that hasn't been decided
23
24
I'm not saying it's
yet.
It won't be decided at least until April 19th.
THE COURT:
All right.
Do you have any objection if

Page 16 16
1
I read the letter?
2
MR. MARCROFT:
3
THE COURT:
Of course not.
Okay.
All right.
Let's -- are we
4
finished talking about ripeness?
5
have had an idea of what your respective positions are.
6
I, frankly, haven't made up my mind.
7
complicated stuff here.
8
MR. MARCROFT:
9
MR. CARROLL:
10
11
12
13
I don't -- I mean, I -- I
And
This is fairly
Yes, Your Honor.
I think Your Honor has grasped our
positions.
THE COURT:
Yeah.
All right.
Let's look at the
12(b)(6) claims.
As to claim one, which is the one alleging
14
Fourteenth Amendment due process and equal protection
15
violation, the State says that because there's no protective
16
property right alleged then -- then there can't be a due
17
process violation.
18
What do you say about that, Mr. Carroll?
19
MR. CARROLL:
I say about that, Your Honor,
20
respectfully, I think that's an Alice in Wonderland position.
21
To -- to suggest that a business activity, namely money
22
transmission, that has been around since probably the second
23
profession or business started on earth, now being done in an
24
internet fashion does not invoke cognizable property rights is
25
an Alice in Wonderland position.

Page 17 17
Obviously, the business -- the people that have been
1
2
involved in helping people transmit money through the
3
centuries have been engaged in the exercise of commerce.
4
THE COURT:
5
MR. CARROLL:
6
THE COURT:
7
Of course.
I'm not disputing it's engaging in
commerce.
MR. CARROLL:
8
9
I know, but is that property right?
It -- it is -- it is a property right,
Your Honor, in the sense that what money transmitters are
10
doing is providing for a fee a service that facilitates the
11
transmission through the internet of money that needs to be
12
transmitted as part of a transaction.
The providing of that service is clearly recognized
13
14
in a legion of cases as being -- providing services is a
15
property right.
16
that, and then the state comes in and says no, that's illegal
17
--
18
19
20
21
22
23
24
25
The right to provide services and to be doing
THE COURT:
Have you cited me cases that say
providing a service is a property right?
MR. CARROLL:
I don't think we have -- Your Honor,
that was so fundamental, I don't believe we have done that.
THE COURT:
Well, I guess I'll have to -- you'll
have to pardon me for being low and infundamental.
MR. CARROLL:
Well -- well -- well, Your Honor, I --
I will -- I will certainly be happy to provide Your Honor with

Page 18 18
1
the legion of cases that make it clear that providing a
2
service implicates a property right.
3
lawyers do.
I mean, that's what
Lawyers don't sell a witchet.
4
THE COURT:
Okay.
All right.
All right.
5
Mr. Marcroft, what do you say about that?
6
MR. MARCROFT:
Well, I mean, I think our position is
7
pretty clear that the -- the law creates rights.
The law here
8
requires that the Plaintiff get licensure to do his business
9
activity.
If the Plaintiff's position were accepted, no
10
11
business could ever be -- you know, couldn't impose regulatory
12
schemes on top of any business that preexisted the regulatory
13
scheme.
The law requires in California that in order to go
14
15
through this -- in order to provide this business activity,
16
you have to get a license.
17
license.
18
The Plaintiff hasn't got a
At -- at most, as we pointed out to the Court, the
19
Ninth Circuit has held that there could be a license property
20
interest in the license itself, but that's only when the
21
licensing agency, the Defendant here, does not have discretion
22
to deny the license and does not have discretion to put
23
conditions on the license, but we have both of those
24
circumstances here.
25
conditions on the license.
The Department has discretion to put

Page 19 19
THE COURT:
1
How about the argument that we -- we --
2
we were doing this business for ten years, and then you came
3
along and suddenly made it illegal to do it unless we had a
4
license?
MR. MARCROFT:
5
Well, again, I mean, Your Honor, we
6
do cite the case Spoklie versus Montana where the court there
7
talking about retroactive application of a statute, knows that
8
states can outlaw businesses that used to be lawful.
Beyond that, again, accepting the Plaintiff's
9
10
argument suggests that the state can never come in and then
11
regulate business that has been going on because that would
12
violate due process, and that -- or that would create a
13
property right.
And again, the Plaintiff hasn't cited any cases to
14
15
that effect.
We've cited cases in our brief that suggest
16
that's not the case.
17
business.
The state can outlaw previously active
And so without a property right, I think Your Honor
18
19
know that Plaintiff's due process claims succeed on the merits
20
at all.
21
THE COURT:
22
MR. MARCROFT:
23
different issue.
25
that.
Equal protection is a slightly
Equal protection is --
THE COURT:
24
How about equal protection?
Neither one of you spent much time on

Page 20 20
MR. MARCROFT:
1
Equal protection is that the
2
Plaintiff has conceded that it's a subject of rational basis
3
review.
4
a legislature identify a legitimate state interest.
5
In a rational basis review test, we're looking at can
And we've identified several of them.
The statute
6
identifies several of them, and the Plaintiff didn't contest
7
those in its papers --
8
9
An interest in ensuring that when these businesses
take shape in California and as they do their business
10
activity then -- I mean, the nature of this business is to
11
take the citizen's money and then make a promise that they're
12
going to transmit it to somewhere else, and -- and that --
13
that's -- I mean, that's a risky business.
14
trust the person who's doing that.
15
16
THE COURT:
Isn't that what law firms do?
That's
what I was told.
17
MR. MARCROFT:
18
THE COURT:
19
You've got to
Well --
I don't think law firms are -- are
applying for --
20
MR. MARCROFT:
21
THE COURT:
22
MR. MARCROFT:
Are money transmitters?
Have to apply for licenses, are there?
No, I don't think -- I don't think
23
law firms have been considered money transmitters, Your Honor,
24
but the Plaintiff's business has been considered a money
25
transmitting business.

Page 21 21
1
And when the legislature has acted, in this case it
2
has acted to say that we think that there's some minimum
3
requirement necessary to ensure that these businesses don't --
4
if -- A, that they start out above board and they have some
5
financial stability to them.
6
And B, if they go belly up that there's some pot of
7
money available to those people that it's now taken its money
8
from to possibly recoup that loss.
9
10
11
Those are perfectly rational reasons to require
minimum funding requirements in the statute.
THE COURT:
All right.
Is Mr. Venchiarutti
12
particularly hostile about this Plaintiff's interest in
13
getting -- getting a license?
14
15
16
MR. MARCROFT:
- not that I'm personally aware.
THE COURT:
17
argument, Mr. Carroll.
18
MR. CARROLL:
19
THE COURT:
20
21
Your Honor, I mean, not that -- not -
Tell me about your equal protection
Your Honor, the -- we -Under -- under your first claim for
(Inaudible - - audio malfunction.)
MR. CARROLL:
Okay.
We -- we certainly do not take
22
the position that the state doesn't have under any
23
circumstances the right to regulate.
24
Our position is that what this Money Transmission
25
Act is from its origination through the lobbying efforts of

Page 22 22
1
the big players is, in effect, an attempt to -- and -- and is
2
-- and is an attempt, and does in fact, restrict the small
3
players from getting involved.
4
And that the rationale that you have to have all of
5
these high barriers set in order to protect the consumers, we
6
submit, is a constitutionally impermissible rationale, to
7
which we are entitled to a trial to prove.
8
specifically alleged that.
9
We have
Again, Your Honor, while it's outside the record
10
because it happened after the filing, Your Honor probably is
11
aware of the fact that the largest money transmitter involved
12
in credit cards recently had someone hack into, I think, 150
13
million credit card accounts, so the consumers weren't
14
protected there, but yet the state of California's rationale
15
is "We should have these requirements set so high, and we
16
should vest in these bureaucrats the right to bury the
17
applicability of that so that we can protect the consumers."
18
In effect, whether it was intended to do or not,
19
what it's doing is denying our equal protection to be able to
20
submit, do business, and make money from something that we
21
think we can prove we're just as legitimate and just as
22
protective.
23
THE COURT:
Well, of course, the state will say
24
"We're just trying to protect consumers who give the money
25
transmitters the money and pray that they won't do something

Page 23 23
1
they shouldn't with it."
2
MR. MARCROFT:
3
MR. CARROLL:
4
THE COURT:
5
MR. MARCROFT:
6
MR. CARROLL:
Run off with it, Your Honor.
Well, Your Honor --
Run off with it.
Right.
-- what we're -- what we're -- what we
7
have specifically alleged in the complaint, and as to which I
8
respectfully submit we're entitled to a trial, is whether that
9
rationale does in fact exist or whether it's a
10
constitutionally irrational rationale, because I don't think
11
it follows that just because you're big and you have a net
12
worth of five million that you're not going to do things that
13
are going to injure the consumers.
14
THE COURT:
Well, on the other hand, a -- a -- a
15
reasonable legislator, if there are such things, might say
16
that having someone in this line of work needs to have a net
17
worth of -- or an equity in the neighborhood of say five
18
million dollars to give some measure of comfort to consumers
19
who deal with them.
20
unconstitutional.
That on its face it doesn't strike me as
21
MR. CARROLL:
22
THE COURT:
Well, there are a number of -(Inaudible - - due to simultaneous
23
colloquy.) but maybe as applied?
24
MR. CARROLL:
25
I don't know.
There -- there are a number of other
legislators in other states, Your Honor, that have not found

Page 24 24
1
that to be a basis for setting it so it high.
THE COURT:
2
3
don't like the rules.
4
unconstitutional.
I know, but that's -- you -- you just
I'm not sure that makes it
MR. CARROLL:
5
Well, we think that the state has to
6
prove that there's a constitutionally permissible, that is
7
constitutionally rational rationale.
8
rationale that somehow the big guys are going to do better for
9
the consumers is something that we can challenge.
10
We believe
that that's constitutionally impermissible.
THE COURT:
11
12
And we think their
Well, what if the big guy turns out to
be a crook, but -- but --
13
MR. CARROLL:
14
THE COURT:
And we --- as a whole, the bigger, more
15
financial resources is probably better for the consumer.
16
That's for the state can argue.
MR. CARROLL:
17
18
And -- and respectfully, Your Honor,
we believe we've -- we've teed up in your complaint --
19
THE COURT:
20
MR. CARROLL:
Bernie Madoff aside.
Right.
We've teed up in our complaint
21
the right to have a trial on that issue, if that's the state's
22
position.
THE COURT:
23
24
25
Anything more you want to say about
that?
MR. MARCROFT:
No, Your Honor.
I mean, the bottom

Page 25 25
1
line is that the legislature is identified as, you know,
2
important to the state that there is some minimum funding
3
requirement for -- for a host of reasons, and the Court is
4
aware of them.
5
that's all that's required.
6
The Court has pointed them out.
That --
And the Plaintiff's view is, as the Court has
7
mentioned, it disagrees on the legislature on how its chosen
8
to regulate, and that's -- that's just a -- that's a
9
disagreement about legislative judgment, and it's not -- it --
10
it doesn't find a place in -- in court reviewing whether or
11
not there's a rational basis for imposing a minimum funding
12
requirement on -- on these -- these businesses.
13
THE COURT:
Yeah.
I guess what -- what -- what I'm
14
getting from the Plaintiff is that the -- the Act sets the bar
15
so high that little guys can't get into the business, and that
16
would be -- is that -- is that equal protection argument?
17
MR. CARROLL:
I think so, Your Honor.
18
MR. MARCROFT:
Your Honor, one -- one thing I would
19
point out is the Plaintiff has pled that he met that statutory
20
requirement of the minimum $500,000 statutory requirement.
21
THE COURT:
The -- the Plaintiff what?
22
MR. MARCROFT:
The Plaintiff pled in -- in its
23
initial complaint that it satisfied that statutory
24
requirement.
25
THE COURT:
Yeah, I know, but it also tells that --

Page 26 26
1
that it's -- it's a shifting number.
2
MR. MARCROFT:
3
THE COURT:
Well --
And indeed, the -- something he gave me.
4
First, frequently asked questions or something indicated that
5
that isn't necessarily the number that gets you under the bar.
6
MR. CARROLL:
7
MR. MARCROFT:
8
MR. CARROLL:
9
THE COURT:
11
MR. CARROLL:
13
Your -- your -- your -There could be more -- more
requirements than that.
10
12
That's correct.
Or over the bar?
Over the bar (inaudible) requirements
you'd like, yes, Your Honor.
MR. MARCROFT:
As far as that issue goes, it's kind
14
of a confusing issue, it was to me at least.
15
has discretion to determine what the number is over the bar.
16
It's a discretionary standard on a ripeness ground until the
17
Plaintiff actually goes through the process of applying and
18
the discretionary standard is applied to the Plaintiff.
19
That -- that claim can't be ripe because that
20
21
discretion has never been exercised.
THE COURT:
Yeah.
The Department
Beyond that, when the --
So suppose -- suppose -- suppose
22
the -- the -- the person with discretion tells you "I ain't
23
never gonna approve you"?
24
MR. MARCROFT:
25
THE COURT:
Well, Your Honor --
Do I still -- do I still have to make

Page 27 27
1
2
3
4
5
6
the application?
MR. MARCROFT:
application.
I -- I think you need to make the
I don't --
THE COURT:
He probably said it in better language
than that I just did.
MR. MARCROFT:
Yeah, you do need to go through the
7
application process.
8
to our ripeness argument.
9
THE COURT:
I mean, we're getting back a little bit
I know.
10
simultaneous colloquy.)
11
MR. MARCROFT:
I know.
(Inaudible - - due to
But you do need to go through the
12
application process, in part because a statement of "I'm not
13
going to approve you" doesn't cut it under the statute.
14
What cuts it under the statute is a hearing and a
15
statement of reasons, and then there's something that may be
16
judicially reviewable at that point.
17
The statement that, "Hey, I'm not going to, you
18
know, cut you a license," even assuming that statement was
19
made, it doesn't -- the Plaintiff still has this process it
20
never even, you know, put its --
21
22
23
THE COURT:
Okay.
You're right.
We're back to
ripeness, and that was -- that was my detour.
MR. MARCROFT:
No.
No.
No.
I mean -- Your Honor,
24
I went there only -- only because Your Honor had mentioned the
25
varying requirement, and I think the varying -- it's not a

Page 28 28
1
varying requirement.
It's a discretionary standard, and it --
2
until it's applied -- it depends, I guess, is the answer.
So to say it's a varying requirement, well, I guess
3
4
that's one way to describe it, but what it is really is that
5
once you apply, you submit your materials to the Department,
6
the Department has to chance to determine whether -- you know,
7
what -- what is adequate based on what you're planning to do.
Are you going to run Western Union out of your
8
9
10
garage, or are you going to have just some, you know, small
business that does this, you know, once a month?
THE COURT:
11
12
Okay.
Yeah.
What happened to these 34
companies that you turned in?
13
MR. CARROLL:
14
THE COURT:
15
MR. CARROLL:
16
THE COURT:
17
MR. CARROLL:
What's happened to them, Your Honor?
What's happened to your Plaintiffs -I -- I think --- or whatever you call them?
My understanding -- that's -- that's
18
not necessarily something I'm representing my client on, but -
19
-
20
THE COURT:
21
MR. CARROLL:
Oh, okay.
Well, I --
-- my understanding is nothing has --
22
nothing has transpired.
23
determinations, been no complaints, to our knowledge.
24
25
THE COURT:
was just curious.
There have been no -- no
I consider that another detour, and I

Page 29 29
1
MR. CARROLL:
All right.
2
MR. MARCROFT:
Well, to answer Your Honor's
3
question, my client mentioned this morning they are looking
4
into those complaints.
So, you know, the fact that they haven't acted on
5
6
it, but they aren't certainly -- they don't ignore complaints
7
that come in from the public.
MR. CARROLL:
8
9
Your Honor, if I may just briefly pick
up on something that counsel said?
I think counsel, to his credit, candidly
10
11
acknowledged that the Department "has the discretion to
12
determine the amount over the bar."
13
say.
THE COURT:
14
15
That's what I heard him
Well, I think that's what the paper
said.
16
MR. CARROLL:
17
THE COURT:
18
MR. CARROLL:
Yeah.
Something I read said that, in effect.
I think that throws us right into
19
those cases that say if the bureaucrat has unbridled
20
discretion, that causes all kinds of constitutional problems,
21
and we would respectfully submit that that's where we are
22
here.
You -- you can't say we have to go through the -THE COURT:
23
Well -- well, I'm not sure if that's
24
true.
And the argument would be yes, okay, so the official
25
has some unbridled discretion, but until that discretion has

Page 30 30
1
been exercised, you're not -- you're not ripe yet.
MR. CARROLL:
2
Well, but -- but, Your Honor, you
3
shouldn't have to deal with the swifting sands.
4
you can't -- you can't say that the state has the authority
5
to, not only set a bar, but to tell you, "And by the way, we
6
can make this bar even higher in certain circumstances, and
7
we're not going to tell you."
8
impermissible.
THE COURT:
9
10
I have.
11
various claims.
Okay.
You -- you --
That is constitutionally
This is sort of a stray question
I'm not sure where it fits into the analysis of the
But if, as the Plaintiff claims, they're making a
12
13
facial challenge to the MTA, the Defendant says that's a
14
nonstarter because to facially challenge a legislative Act,
15
you must establish there are no set of circumstances under
16
which the Act would be valid.
And I raise that -- and I'm going to ask you to
17
18
comment, Mr. Carroll, because Defendants made that argument in
19
their reply, and you didn't have a chance to say anything
20
about it.
MR. CARROLL:
21
I don't believe, Your Honor, that the
22
standard for facial challenge requires that the Plaintiff
23
exhaust all possible circumstances.
I can segway back into what we were just talking
24
25
about.
Let's -- let's suppose that Mr. Venchiarutti were to

Page 31 31
1
say after the interview, "Not only are you going to have to
2
have $500,000 net worth, you're going to have to have a $1.5
3
million net worth"?
4
Are we going to have to anticipate when we plead
5
this complaint that that's what he's going to do and,
6
therefore, exhaust and show and demonstrate that all of these
7
possible circumstances -- what if Mr. Venchiarutti were to say
8
"I'm going to lower the bar for you down to 250,000"?
9
I don't believe that in order to plead -- and this
10
is where we are -- to plead the claim that we've pled that we
11
have to exhaust the possibility in the way in which counsel
12
has stated.
13
THE COURT:
Well, I think you -- you cited some
14
authority for that; did you not?
15
what it was.
16
MR. MARCROFT:
I don't remember exactly
Yes, Your Honor.
There's supreme
17
court case law saying that in order to bring a facial
18
challenge -- what a facial challenge really is, it's a
19
challenge that that statute can never be applied in a lawful
20
manner under any circumstances.
21
And there's -- there's a Ninth Circuit case we -- we
22
cite in there, which flips that around and says that if
23
there's even one set of circumstances in which it can be
24
lawfully applied, it is facially constitutional.
25
THE COURT:
Well, suppose that the decision maker

Page 32 32
1
has unbridled discretion which we've been talking about.
2
that -- how does that fit in there to that analysis?
I guess -- well, I mean, would say what -- it would
3
4
depend on how that discretion is exercised?
MR. MARCROFT:
5
6
Well, Your Honor, I guess it's a
little bit -THE COURT:
7
8
Does
Or am I confusing that with some other -
MR. MARCROFT:
9
It's a little bit of a difficult
10
question to answer, I think in part because what the
11
discretionary question gets to, it gets to ripeness.
12
it's not really -- the -- it's not -- I mean, the Plaintiff is
13
putting the cart before the horse here.
It's --
The -- we don't get to the point about asking about
14
15
discretion until discretion has been exercised, so I -- I
16
guess I'm not -- I'm not entirely clear on -- on Your Honor's
17
question.
18
THE COURT:
19
not have been a very good one.
20
MR. CARROLL:
Okay.
All right.
All right.
It may
And Your Honor, I -- there's --
21
there's another point to be made with respect to Your Honor's
22
question before -- will probably come up.
23
Our position also is that it is unconstitutional
24
facially for the state, indeed for any state, to be regulating
25
this part of the internet.

Page 33 33
THE COURT:
1
2
All right.
Oh, yeah.
I was going to get to that.
(Inaudible - - audio malfunction.)
Now, this is your second or third claim, commerce
3
4
course -- Commerce Clause claims.
The Plaintiff says the MTA
5
is constitutionally invalid because -- for two reasons.
One, it criminalizes the offer of money transmission
6
7
services in California by an entity with no presence in
8
California.
9
Okay.
Did I say that right?
And that would be a violation of the Commerce Clause
10
11
I think I said that right.
because?
MR. CARROLL:
12
Because it would impact upon the
13
commerce that is being done outside of the state of California
14
through the internet.
And the best analogy is, is that the internet is
15
16
like a highway or a railroad, and while a state may have the
17
right to say, "We're only going to let" -- the state may try
18
to say, "We're only going to let trains in our state have
19
three cars."
20
You can't do that because that's going to back up
21
all the cars that have to run through Illinois, and it is a
22
violation of the dormant powers of the commerce clause, which
23
makes that prohibited.
THE COURT:
24
25
Marcroft?
What do you say about that, Mr.

Page 34 34
MR. MARCROFT:
1
Well, Your Honor, our -- our Commerce
2
Clause argument is pretty straight forward.
3
authorizes states to act, exercising its commerce power, there
4
can't be the latent dormant commerce clause challenge to the
5
state's Act pursuant to that authorization.
THE COURT:
6
When Congress
You're going by 18 U.S. Code 1960 where
7
Congress authorized the states to license and regulate money
8
transmission business, or at least that's what you claim it
9
did?
10
MR. MARCROFT:
11
THE COURT:
12
MR. CARROLL:
That's right, Your Honor.
And what do you say about that?
Well, first of all, Your Honor, I want
13
to cite the Court to a case, which I'll talk about in detail.
14
It's not in the briefs.
15
versus Pataki, if I'm pronouncing it right.
16
THE COURT:
17
MR. CARROLL:
It's the American Library Association
That's the Governor of New York.
Correct, Your Honor.
969 F. Supp.
18
160, Southern District of New York.
19
deal with some of the issues about how the dormant Commerce
20
Clause powers do not allow the touching by the states of the
21
internet because -- because of the need to have a cohesive
22
internet.
23
The -- and that case will
But to answer your question directly, 18 U.S.C.
24
1960, which was in 1992, was essentially before the internet,
25
notwithstanding Vice President Gore, gained its effective

Page 35 35
1
marketing prominence.
It certainly, Your Honor, before the --
2
the use that is being put to here of the internet facilities
3
for the transmitting of money transmissions.
Our position is simple.
4
While Congress may have
5
given the states the power to deal with certain aspects of
6
money transmission in -- in order to prohibit things, which we
7
have now come to call acts of terrorism, it certainly did not
8
delegate to the states the right to regulate money
9
transmission conducted through the internet, which requires a
10
cohesive scheme -THE COURT:
11
No, I understand what you're saying, but
12
18 U.S. Code 1960, that's not -- that's not the Patriot Act.
13
That is something --
14
MR. CARROLL:
15
THE COURT:
16
MR. CARROLL:
17
THE COURT:
18
21
That was earlier.
Okay.
So --
That's -That one -- that one -- that wasn't
enacted in order to combat terrorism.
MR. CARROLL:
19
20
No, that's -- that's earlier.
Honor.
And that was before the internet, Your
1860 (sic) was before the internet.
THE COURT:
Well, are you -- are you saying that
22
technology, and specifically the rise of the internet, has
23
gone way past what 18 U.S. Code 1960 was intended to address?
24
MR. CARROLL:
25
THE COURT:
Exactly and -But it's still on the books, isn't it?

Page 36 36
MR. CARROLL:
1
And all of these cases that we can
2
cite to you about the deference that the courts say has to be
3
given to activities that affect and impact and involve the
4
internet that have come forth since then, make the clear case
5
that you can't say that this is where Congress intended to
6
allow the states to regulate the internet.
THE COURT:
7
8
about the internet when it enacted it.
MR. CARROLL:
9
10
THE COURT:
11
to it; would it not?
MR. CARROLL:
12
13
THE COURT:
15
MR. CARROLL:
17
Correct.
But by its terms, it would seem to apply
I -- I think -- I think, Your Honor,
you --
14
16
Well, because Congress wasn't thinking
Because it's pretty broad.
Well, but you have -- Your Honor's
duties -THE COURT:
If you want me to -- you want me to
18
assume or -- or to graft on an exception saying "Congress
19
authorizes the states to license and regulate money
20
transmission business, except that conducted by the internet"?
21
MR. CARROLL:
It cannot -- I want you to graft on to
22
it that it cannot do it in a manner that impacts upon the
23
ability to conduct nationwide internet-wide activities.
24
25
THE COURT:
Well, that's just a more florid way of -
- of saying what I just suggested.

Page 37 37
1
2
MR. CARROLL:
Correct.
And -- and I think Your
Honor has --
3
THE COURT:
4
MR. CARROLL:
Can I do that?
I -- I think you have to read -- I
5
think you have to attempt to read the statute in a way that
6
would make it constitutionally permissible.
7
Your Honor could --
8
9
THE COURT:
I don't think
Well, I -- I don't know if it's -- if --
if you're saying -- well, what -- what -- in fact, what you
10
seem to be saying is that this statute ought to be repealed,
11
or it ought to be amended along the lines we've just
12
suggested, but I don't know -- because you seem to be saying
13
because the internet has grown up since the statute was passed
14
-- it was constitutional when it was passed, but now that the
15
internet has gotten -- is -- has changed the way business is
16
conducted, it's no -- the statute now becomes
17
unconstitutional?
18
MR. CARROLL:
I -- I think -- I think, Your Honor,
19
you have to read that statute narrowly to say that Congress
20
did not intend to apply it to transmissions of this nature
21
through the internet of money.
22
THE COURT:
23
24
25
Well, they weren't even thinking about
the internet.
MR. CARROLL:
Well, then I don't think -- I don't
think you can say that Congress then, therefore, intended to

Page 38 38
1
allow the states to regulate money transmission via the
2
internet.
3
THE COURT:
And what do you say?
4
MR. MARCROFT:
Two quick points.
Your Honor, the
5
terms of the statute even say, "Money transmission includes
6
transferring funds on behalf of the public by any and all
7
means," and --
8
THE COURT:
That was my point.
9
MR. MARCROFT:
Yeah.
Right.
And any and all means,
10
as Your Honor has pointed out, would be the internet.
11
at least one court case --
12
THE COURT:
There's
But -- but he's saying that's stupid.
13
It doesn't make any sense.
14
internet, in terms of business transactions, if every state
15
can -- can pass its own law which governs?
16
MR. CARROLL:
17
MR. MARCROFT:
18
THE COURT:
19
MR. MARCROFT:
20
THE COURT:
21
MR. CARROLL:
22
MR. MARCROFT:
How can we have an effective
Precisely.
Two points.
It's crazy.
Two points.
That what Mr. Carroll is saying.
Precisely, Your Honor.
One, that -- one of the cases we cite
23
to the Court, a U.S. v Mazza-Alaluf, was an instance where the
24
court has looked to -- there was internet transactions there,
25
and the court didn't bring -- didn't say that the -- 1960

Page 39 39
1
didn't apply because the -- the medium had changed, which is
2
what we're talking about here.
3
letters now to the internet.
4
situation.
It's gone from, you know,
That doesn't change the
And the other thing, there's a line of superior
5
6
court case law that we've cited to that Congress certainly can
7
regulate commerce by giving states authority to regulate
8
commerce.
9
way by regulating commerce, there can't be this uniformity
10
concern because that's the way that Congress has chosen to
11
regulate.
12
And when it does so, when it chooses to act that
We cite the Ky. Whip & Collar.
THE COURT:
Yeah, but if Congress had thought about
13
it, I don't think they would be giving states license to
14
regulate money transmission enterprises, which are, not only
15
nationwide, but even -- even (inaudible) internationally.
16
MR. MARCROFT:
17
agree with your point.
18
Congress --
That's more than issue addressed to
19
THE COURT:
20
MR. MARCROFT:
21
THE COURT:
22
MR. MARCROFT:
23
MR. CARROLL:
24
Pataki case, if I may?
25
THE COURT:
And, Your Honor, I mean, I would
I know.
-- than -- than --
Than here.
-- than -- than to the Court.
And Your Honor, to follow up on this
Uh-huh.

Page 40 40
1
MR. CARROLL:
I'm reading from 969 F. Supp. at 180
2
through 182.
3
at issue in the cited cases" -- and the -- and the Court there
4
is referring to all of those railroad cases where the supreme
5
court struggled with how the -- the local jurisdictions could
6
not regulate what happened on the railroads in their state
7
because it necessarily impacted upon the in -- the outside of
8
the state conduct.
9
"The internet, like the rail and highway traffic
But it goes on to say, "The internet, like the rail
10
and highway traffic at issue in the cited cases, requires a
11
cohesive national scheme of regulation, so that users are
12
reasonably able to determine their obligations.
13
on a local level, by contrast, will leave users lost in a
14
welter of inconsistent laws imposed by different states with
15
different priorities."
Regulations
16
I would respectfully submit, Your Honor, that the
17
analysis that we're urging on the Court that we should have
18
the right to prove up in a trial that the Court should apply
19
is exactly what was applied in this Pataki case, which by the
20
bay, Your Honor, was cited -- that -- that was a case where
21
New York regulated the internet transfer of material that
22
could be argued to be of child -- of pedophilia.
23
And the National -- the American Library Association
24
challenged the impact of that upon what was happening, and the
25
Court goes ahead and does this analysis of what the impact is

Page 41 41
1
on the internet.
That case has been applied by Judge Patel in a case
2
3
in this district, which I should cite to the Court for a
4
different point, but she did, in effect, apply it and follow
5
it, I think, favorably in the case of -- I'll give Your Honor
6
the cite.
7
Target Corporation, 452 F. Supp. 2nd 946, and the stream cite
8
is 968, 964.
Judge Patel's case, Your Honor, is Blind versus
And that case -- the Pataki case was also cited, not
9
10
necessarily followed as much as Judge Patel did, by Judge
11
Fogel in Young v. Facebook, Inc., 790 F. Supp. 2nd 1110 at
12
1115.
13
Now, those -- those last two cases deal with
14
different issues.
15
someone who is using the internet, like Target or Facebook,
16
have to do to comply with the state requirements for ADA.
17
18
19
20
They deal with the question of what does
But I'm respectfully submitting that if Your Honor
were to look at the analysis in Pataki -THE COURT:
You like the analytical approach
(Inaudible - - due to simultaneous colloquy.)?
21
MR. CARROLL:
22
THE COURT:
That's correct, and I believe that -(Inaudible - - due to simultaneous
23
colloquy.) that the cases are on point -- and not that I have
24
to follow them.
25
MR. CARROLL:
That is correct.

Page 42 42
THE COURT:
1
2
Just that you'd like me to look at the
analysis?
MR. CARROLL:
3
Particularly the Pataki case, because
4
we think we specifically alleged this patchwork of the lack of
5
cohesive regulation and how California is going to further
6
distort that cohesiveness.
THE COURT:
7
Well, I think that the -- the situation
8
cries out for some more legislative solution.
9
it's meeting them.
MR. CARROLL:
10
I'm not sure
Well, if you read all these internet
11
cases, Your Honor, it respectfully mandates that the courts
12
have to with great deference avoid doing things and allowing
13
state action that impacts upon that cohesiveness that should
14
be there for the internet.
And the Pataki is clearly a case where that court
15
16
said, "Well, the state in New York has every right to not want
17
pedophilia within the state of New York."
18
basically regulating things that would cause impact upon the
19
internet and set up a different -- varying standards of a --
20
you know, a differential standard among international commerce
21
-- excuse me -- national commerce.
THE COURT:
22
23
24
25
Okay.
It can't do it by
Anything more from you, Mr.
Marcroft?
MR. MARCROFT:
I guess just to leave the Court with
-- we've put it in our brief -- the U.S. v Sacco case where

Page 43 43
1
the Court says that when Congress exercises its power under
2
the Commerce Clause, there's no requirement of national
3
uniformity, and that's what we have.
We have -- Congress has exercised its commerce
4
5
power.
It's authorized the state to license these businesses.
6
End of story.
7
THE COURT:
8
MR. MARCROFT:
9
THE COURT:
10
Even if it's not wise?
You're not -- you're not going to let me
drag you into comedy of that?
11
Okay.
12
MR. MARCROFT:
13
THE COURT:
14
MR. CARROLL:
15
THE COURT:
16
MR. CARROLL:
17
THE COURT:
18
19
20
I won't presume to -- presume to --
Is that the last word?
That's all I have.
Anything that -Nothing, Your Honor.
Okay.
The matter is submitted.
Yeah.
It will be some time before you hear
from me.
MR. CARROLL:
And thank you for the opportunity to
argue (inaudible).
21
MR. MARCROFT:
22
THE COURT:
Thank you, Your Honor.
And if I think of some additional
23
questions, and I'm not saying I will, I might send you an
24
interim order requiring further briefing.
25
a heads up.
I'm just giving you

Page 44 44
1
MR. MARCROFT:
2
THE COURT:
3
MR. CARROLL:
4
THE COURT:
5
(Proceedings adjourned at 10:57 a.m.)
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Thank you, Your Honor.
I'm not saying necessarily I'll do it.
Thank you, Your Honor.
Thank you.

Page 45 45
1
2
3
CERTIFICATE OF TRANSCRIBER
4
5
6
I certify that the foregoing is a true and correct
7
transcript, to the best of my ability, of the above pages of
8
the official electronic sound recording provided to me by the
9
U. S. District Court, Northern District of California, of the
10
proceedings taken on the date and time previously stated in
11
the above matter.
I further certify that I am neither counsel for,
12
13
related to, nor employed by any of the parties to the action
14
in which this hearing was taken; and, further, that I am not
15
financially nor otherwise interested in the outcome of the
16
action.
17
18
________________________
7/16/12
19
Signature of Transcriber
Date
20
21
22
23
24
25

PDF Page 1	PlainSite Cover Page

PDF Page 2	Pages 1 - 44 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA Before The Honorable Howard R. Lloyd, Magistrate Judge Think Computer Corporation, Plaintiff, vs. Robert Venchiarutti, et al, Defendant. ) ) ) ) ) ) ) ) ) ) ) ) No. CV11-05496 HRL San Jose, California Tuesday, April 17, 2012 TRANSCRIPT OF PROCEEDINGS OF THE OFFICIAL ELECTRONIC SOUND RECORDING APPEARANCES: For Plaintiff: BY: Law Offices of Michael Brooks Carroll 300 Montgomery Street Suite 650 San Francisco, CA 94104-4238 MICHAEL BROOKS CARROLL ATTORNEY AT LAW For Defendant: BY: Transcribed By: Attorney General of California 1300 I Street, Suite 125 P.O. Box 944255 Sacramento, CA 94244-2550 RYAN MARCROFT DEPUTY ATTORNEY GENERAL PETER KELLER SOUTHWORTH SUPERVISING ATTORNEY GENERAL Stacy Wegner Transcriber smwtyping@yahoo.com (859) 539-2802

PDF Page 3	2 1 Tuesday, April 17, 2012 10:06 a.m. 2 3 THE COURT: 4 Venchiarutti. 5 lectern, please. 6 Okay. Think Computer versus Whoever is going to speak, come on up to the MR. CARROLL: Good morning, Your Honor. Michael 7 Carroll on behalf of the Plaintiff, and the Plaintiff is here 8 with me in court today. 9 10 THE COURT: Would you please stand? Good morning. MR. MARCROFT: Good morning, Your Honor. Ryan 11 Marcroft on behalf of the State Defendants, and I also have my 12 supervisor here Peter Southworth. 13 14 THE COURT: Good afternoon. Mr. Carroll, Mr. Marcroft. 15 MR. MARCROFT: 16 THE COURT: 17 18 I mean, good morning, Good morning. Okay. First, let's see. The Defendants move to dismiss under FRCP 12(b)(1) and also 12(b)(6). There are a number of Defendants who seek to be 19 dismissed from the case on the basis of rule -- Eleventh 20 Amendment immunity, and apparently the Plaintiff does not 21 dispute that? 22 MR. CARROLL: 23 THE COURT: That's correct, Your Honor. Okay. So that will leave the only 24 Defendants left in the case -- I think they refer to you as 25 the State Defendants on the paper -- Mr. Robert Venchiarutti

PDF Page 4	3 1 and the present Commissioner of the California Department of 2 Financial Institutions, one Teveia Barnes. MR. MARCROFT: 3 And Your Honor, I was also informed 4 this morning there's a new acting secretary -- oh, but she's 5 been left out, so never mind. 6 THE COURT: 7 MR. MARCROFT: 8 THE COURT: 9 She's been let out, right? Right. So we only got Venchiarutti and Barnes in the case of Defendants as I understand it. Okay. The Plaintiff brings three claims for relief 10 11 attacking the California Money Transmission Act, which was 12 effective January 1st, 2011, and which, among other things, 13 requires a license for those who engage in the business of 14 money transmission -- transmitting. 15 right. I'm not sure I said that 16 And the three claims are as follows: 17 The first is a Fourteenth Amendment claim that 18 mention both due process and equal protective violations. 19 And both the second and third claims for relief 20 arise under an alleged violation of the Commerce Clause. 21 Plaintiff developed something called FaceCash 22 because the mobile placement system, alternative to the 23 plastic payment cards that is so ubiquitous nowadays. 24 25 Plaintiff, as I understand it, does not actually loan money to people. The participants in this enterprise

PDF Page 5	4 1 give Plaintiff their money, and the Plaintiff holds on to it 2 so the consumer, person who gave the Plaintiff the money, uses 3 it to buy goods or services at some enterprise, which is 4 equipped to deal with this particular system. All the consumer needs to do is to have a bar code 5 6 and -- and which would then produce a digital image of the 7 consumer's face and display that at the terminal at the point 8 of sale. 9 10 Is that, generally speaking, what the process is? MR. CARROLL: That's correct, Your Honor. You will 11 hear me arguing today that a key part of this is that this 12 takes place via the internet through the digitized -- 13 THE COURT: 14 MR. CARROLL: 15 THE COURT: 16 17 Oh, so it's --- power of the internet, in part. The consumer doesn't actually have to be someplace other than his or her own home? MR. CARROLL: Well, most of our sales are -- are 18 with the consumer standing in front of a merchant, most of our 19 transactions, but the transmitting of the money is done via 20 electronically through the internet. 21 THE COURT: Okay. The Plaintiff says that he's 22 willing to apply for a license, but he has got nothing but a 23 hostile runaround from Mr. Venchiarutti, and then eventually 24 others in the Department of Finance and institutions. 25 The Plaintiff says there's no clear guidelines on

PDF Page 6	5 1 what's required in order to get a license, especially with 2 respect to minimum net worth. It is fearful that if it applies for a license it's 3 4 going to be denied. In fact, the Plaintiff alleges that he 5 was effectively told that by Mr. Venchiarutti. And the denial of the license would, according to 6 7 the Plaintiff, reverberate unfavorably throughout the country, 8 so it hasn't applied, right? MR. CARROLL: 9 10 Your Honor, our position is we started the application process by -- 11 THE COURT: 12 MR. CARROLL: By having the meeting. By going to have the mandatory 13 required interview before you submit the written application 14 meeting. 15 THE COURT: 16 MR. CARROLL: 17 18 19 Okay. But you didn't go past that? That's correct, Your Honor. We read the handwriting on the wall. THE COURT: Okay. For the reasons I've just articulated? 20 MR. CARROLL: 21 THE COURT: Correct. Attempting to summarize your position. 22 So the Plaintiff has apparently shut down operations entirely. 23 It also says there's lots of lawbreakers out there at this 24 very moment conducting money transactions -- transmission 25 business and doing so with impunity.

PDF Page 7	6 Let's see. 1 The 12(b)(1) -- this is the Defendant's 2 motion. The Defendant moves under 12(b)(1) claiming the court 3 lacks subject matter jurisdiction because the claims are "not 4 ripe" for review. I've looked at these cases on ripeness, and they 5 6 seem to go both ways. Of course, the Defendant argues you 7 haven't applied for a license and there -- so therefore it 8 isn't ripe until you apply for a license and then the license 9 is denied. 10 That's your position, right? 11 MR. MARCROFT: 12 Yes, Your Honor. That's our position. THE COURT: 13 Some cases say you don't have to apply 14 for the license and it depends upon whether or not it's a 15 purely legal question, therefore, it would be right, or 16 whether further facts have to be developed and, therefore, 17 it's not right. 18 MR. MARCROFT: 19 THE COURT: 20 MR. MARCROFT: Your Honor, if I -- All right. You go. If I may, I think if you look at the 21 -- those cases, you can generally group them in -- they're 22 better seen as a hardship cases, and you can generally group 23 them. 24 25 And I'll -- I'll give -- give Your Honor my examples. The Freedom of Travel case and the Sammon case, the Plaintiff cites to. In both of those cases, you have a

PDF Page 8	7 1 situation where the licensing standard -- it was the 2 inevitable the licensing standard was going to be applied a 3 certain way. The Sammon case you had the -- 4 THE COURT: I know, the midwives and -- 5 MR. MARCROFT: 6 THE COURT: The mid -- -- and the law said you had to have 1800 7 hours of formal training. 8 working an apprenticeship would be the functional equivalent, 9 but the law clearly said that you have 1800 hours of formal 10 11 And these midwives claimed that the training. And court ruled that it would be futile, in effect, 12 to apply for the license because since they didn't have 1800 13 hours of training they weren't going to get the license. 14 MR. MARCROFT: And the same is true in the Freedom 15 to Travel case where the court -- the Ninth Circuit -- in both 16 of those cases, Your Honor, the Court said the general rule is 17 you have to apply for the license, but in both of the cases 18 they found this narrow exception where because when a court 19 looked at what the licensing statute was and what the 20 Plaintiff was doing, and it said it's inevitable the outcome 21 of this licensing standard in that case -- 22 THE COURT: All right. And your argument is it's 23 not inevitable what would happen here if the license 24 application were actually pursued to conclusion -- they might 25 get the license; they might not. You can't really tell until

PDF Page 9	8 1 you try. 2 MR. MARCROFT: 3 THE COURT: 4 MR. MARCROFT: Absolutely. That's your argument? And the other block of cases, Your 5 Honor, and these are the nuclear power plant cases. 6 the landfill cases. 7 Valley and the California Nuclear Power Plant cases. 8 9 These are Triple G. Landfills, Gary Peake, Skull In each of those the -- the -- it was inevitable -I'm sorry, not inevitable, but it was -- no matter how the 10 licensing proceeding turned out, irrespective of the licensing 11 proceeding, the Plaintiff would still be banned with going 12 forward with its proposed activity. 13 So in Gary Peake there was a state licensure 14 requirement for landfills, and when a month after the 15 Plaintiff there applies for the license, the town enacts a 16 total ban on the landfills in the town. 17 how the licensing proceeding turned out because the Plaintiff 18 could never engage in that activity. 19 So it didn't matter The same is true in California. We have a 20 moratorium on nuclear power plants. 21 California certification process because at the end of the day 22 the moratorium was still in place, so it's in those cases -- 23 that's the other block of cases the Plaintiff cites to, and we 24 don't have either of those. 25 No need to go through the We have a situation where Plaintiff A, can't apply

PDF Page 10	9 1 for a license, and B, if he's granted a license, can't engage 2 in his business activity. THE COURT: 3 Well, for present purposes, I'm supposed 4 to take the allegations that the Plaintiff has plead is true, 5 or at least accept them for present purposes. 6 a rather colorful picture of Mr. Venchiarutti and his apparent 7 hostility towards this particular Plaintiff ever getting a 8 license. MR. MARCROFT: 9 And they paint And Your Honor, you know, the case 10 law doesn't support the perception of hostility standard. 11 case law sports an inevitability standard, and theirs is to 12 where -- 13 THE COURT: 14 MR. MARCROFT: He may have a change of heart? Well, we don't know. The decision 15 doesn't take place until there's an application. 16 doesn't take place until the agency has seen the paperwork 17 that the Plaintiff is going to put forward on this is the 18 business plan in -- in stone. 19 The The decision This -- there are different requirements for 20 bonding, for instance, depending on what type of business the 21 Plaintiff is going to do. 22 there's an examination process, and at the end of all of that 23 then we have a decision. 24 25 Until all of those steps occur -- And that's -- that's the scenario where the courts have said you need to go through that process, get that final

PDF Page 11	10 1 agency decision before all those unadjudicated questions are 2 ripe for review. THE COURT: 3 Okay. Mr. Carroll, I don't know if -- 4 if I'm prepared to find that it would be absolutely futile, in 5 the sense of -- of the situation Sammon case for you to apply 6 for a license. 7 this matter isn't ripe? MR. CARROLL: 8 9 So why shouldn't -- or why shouldn't I say two dimensions here. Your Honor, the -- the -- there are The -- the first dimension is that my -- 10 my client did engage in the process, and Mr. Venchiarutti made 11 clear through such comments as "Is this an academic exercise" 12 that the way in which he was going to exercise his rights in a 13 variability way of saying what the requirements were, that 14 this process would never result in a granting of a license to 15 this person. That variability has already given us, respectfully, 16 17 Your Honor, standing. 18 through what we've been through. 19 controversy and a right being asserted that has been rightly 20 violated. 21 Our rights have already been violated There is already a judicable Now, as to Your Honor's question, I would 22 respectfully submit that -- and the -- and we think -- we 23 think the leading case is the Skull Valley Band case, the case 24 that we cited on page 9 of our brief and discussed it in the 25 footnotes.

PDF Page 12	11 It's -- it's clear here that the bar has been set so 1 2 high that Think Computer and its version of this money 3 transmission device will never satisfy the state's 4 constitutionally, irrationally set requirements. 5 The state has set the bar financially so high that 6 only the large corporations, who after all lobby for and, in 7 fact, we believe wrote most of the act are going to be able to 8 qualify. 9 This small entity will not. THE COURT: Yeah, but -- that doesn't -- doesn't 10 that get into your equal protection kind of argument? 11 just talking about standing right now over ripeness. 12 MR. CARROLL: 13 THE COURT: We're It -- it -And -- and -- well, let -- let me ask 14 you this question. 15 and went out and -- it's going to cost you five grand, I know 16 -- but if went ahead and did -- went through the licensing 17 application process? 18 What would be the harm if you went ahead MR. CARROLL: The timing, Your Honor. We've already 19 been put out of business. 20 business in this rapidly developing market, we're going to 21 have further substantial harm -- 22 THE COURT: 23 MR. CARROLL: 24 THE COURT: 25 And if we don't get back into Well --- from that process. I understand, but would -- wouldn't you have a better argument if you had applied and been rejected?

PDF Page 13	12 1 2 3 4 5 MR. CARROLL: Of course, we would have a better argument, Your Honor, no doubt about that but we -THE COURT: (Inaudible - - due to simultaneous colloquy.) MR. CARROLL: We still have a constitutionally 6 judicable argument for doing those things, which we have done 7 and have run up right against the barrier that we say is 8 unconstitutionally set too high. 9 THE COURT: Okay. 10 MR. MARCROFT: 11 THE COURT: 12 MR. MARCROFT: Your Honor? Yes. If I may, the Plaintiff there has 13 articulated the two things. 14 question of really the hunch that they're finding is a 15 subjective perception that it would not be granted a license, 16 and we've talked about, you know. 17 I think we've addressed them, the The courts -- even the courts in the land-use cases 18 that we've cited, the Ninth Circuit cases, in every instance 19 it's an objective standard where the Plaintiff has to at least 20 apply a single application before it can bring ripe claims. 21 And so turning to Skull Valley, as I mentioned to 22 the Court earlier, that's among those cases where what the -- 23 what the Plaintiff was faced with was essentially a targeted 24 ban on putting a power plant on triable land in Utah. 25 And the -- in response to the federal licensure

PDF Page 14	13 1 application, the state of Utah A, imposed a licensure 2 requirement that gave the Governor and the legislature 3 authority, B, it impose -- gave the counties authority to 4 prohibit that project altogether, and C, it basically gave the 5 Government the legislature control of all the in roads to that 6 site. 7 And there -- there was no -- there was -- so in that 8 very high instance, essentially there's no place to put that 9 project that the Plaintiffs were trying to pursue in there. 10 11 Again, that's not our case. MR. CARROLL: Your Honor, while we're on this 12 subject, there is an additional fact that developed after the 13 briefing, at least our part of the briefing was in. 14 15 16 17 18 And if I may -- I'm sure counsel has seen this document if I give to Your Honor? THE COURT: Well, why don't you give (Inaudible - - audio malfunction.) MR. CARROLL: Thank you. Your Honor, this is the 19 notice from the state of California Government Claims Program 20 to my client advising him that its Government claim arising 21 out of these same factual circumstances has been denied. 22 23 24 25 And I would call the Court's attention to the paragraph that begins, "Based on its review of the claim." THE COURT: All right. Well, I -- I don't remember. Had -- had the State taken a position that if you should

PDF Page 15	14 1 pursue a remedy through this Claims Board? MR. CARROLL: 2 I -- I think -- I think they did, Your 3 Honor. And I am both submitting this and would, if there's 4 need to amend, make this a part of the complaint officially, 5 but I'm submitting it -- submitting it on two points. One, on the point that there should be no need to 6 7 exhaust the governmental claims process, but secondly, this is 8 the State speaking right here as to, at least the Governmental 9 Claims Board position, that this matter is ripe for a court to 10 decide. THE COURT: 11 12 Well, I don't know if I have to take their view on it, do I? 13 MR. CARROLL: No, Your Honor. 14 MR. MARCROFT: 15 MR. CARROLL: Your -And all due -- in all due respect, 16 Your Honor, you would not have to take their review, but that 17 doesn't mean what's said here is not something that's material 18 position. 19 THE COURT: 20 MR. MARCROFT: 21 THE COURT: 22 MR. MARCROFT: 23 why this is being presented here. 24 25 Okay. Yes? Your Honor? Go ahead. If I may. A, I'm not exactly sure B, as a factual matter, it says on the letter it's not going to be heard until April 19th, 2012, so it's still

PDF Page 16	15 1 two days -- two or three days away. 2 days. 3 recommendation to the Board. So it hasn't been rejected. I'm losing track of my This is a staff And C, this is a process that every tort claim in 4 5 the state of California goes through. 6 this process in the state of California. 7 requires that every -- 8 THE COURT: 9 MR. MARCROFT: You have to go through The Government Code Well, are you saying he's too early? I'm sorry. Actually, I don't even 10 know why we're talking about this at this point, Your Honor, 11 but I'm pointing out at this point the Government Claims Act 12 hasn't even acted on that claim. 13 claim. 14 claim for money or damages. 15 process. This was a damages in the State of California to bring 16 THE COURT: 17 MR. MARCROFT: 18 It's still considering the You have to go through that state Okay. I don't know what bearing it has on the issues that are presented here. 19 THE COURT: Well, I wasn't -- I wasn't sure, but -- 20 MR. MARCROFT: No, Your Honor. 21 early. 22 the issues that are presented here. 25 I'm just -- I'm not even sure what bearing it has on But as a factual matter, that hasn't been decided 23 24 I'm not saying it's yet. It won't be decided at least until April 19th. THE COURT: All right. Do you have any objection if

PDF Page 17	16 1 I read the letter? 2 MR. MARCROFT: 3 THE COURT: Of course not. Okay. All right. Let's -- are we 4 finished talking about ripeness? 5 have had an idea of what your respective positions are. 6 I, frankly, haven't made up my mind. 7 complicated stuff here. 8 MR. MARCROFT: 9 MR. CARROLL: 10 11 12 13 I don't -- I mean, I -- I And This is fairly Yes, Your Honor. I think Your Honor has grasped our positions. THE COURT: Yeah. All right. Let's look at the 12(b)(6) claims. As to claim one, which is the one alleging 14 Fourteenth Amendment due process and equal protection 15 violation, the State says that because there's no protective 16 property right alleged then -- then there can't be a due 17 process violation. 18 What do you say about that, Mr. Carroll? 19 MR. CARROLL: I say about that, Your Honor, 20 respectfully, I think that's an Alice in Wonderland position. 21 To -- to suggest that a business activity, namely money 22 transmission, that has been around since probably the second 23 profession or business started on earth, now being done in an 24 internet fashion does not invoke cognizable property rights is 25 an Alice in Wonderland position.

PDF Page 18	17 Obviously, the business -- the people that have been 1 2 involved in helping people transmit money through the 3 centuries have been engaged in the exercise of commerce. 4 THE COURT: 5 MR. CARROLL: 6 THE COURT: 7 Of course. I'm not disputing it's engaging in commerce. MR. CARROLL: 8 9 I know, but is that property right? It -- it is -- it is a property right, Your Honor, in the sense that what money transmitters are 10 doing is providing for a fee a service that facilitates the 11 transmission through the internet of money that needs to be 12 transmitted as part of a transaction. The providing of that service is clearly recognized 13 14 in a legion of cases as being -- providing services is a 15 property right. 16 that, and then the state comes in and says no, that's illegal 17 -- 18 19 20 21 22 23 24 25 The right to provide services and to be doing THE COURT: Have you cited me cases that say providing a service is a property right? MR. CARROLL: I don't think we have -- Your Honor, that was so fundamental, I don't believe we have done that. THE COURT: Well, I guess I'll have to -- you'll have to pardon me for being low and infundamental. MR. CARROLL: Well -- well -- well, Your Honor, I -- I will -- I will certainly be happy to provide Your Honor with

PDF Page 19	18 1 the legion of cases that make it clear that providing a 2 service implicates a property right. 3 lawyers do. I mean, that's what Lawyers don't sell a witchet. 4 THE COURT: Okay. All right. All right. 5 Mr. Marcroft, what do you say about that? 6 MR. MARCROFT: Well, I mean, I think our position is 7 pretty clear that the -- the law creates rights. The law here 8 requires that the Plaintiff get licensure to do his business 9 activity. If the Plaintiff's position were accepted, no 10 11 business could ever be -- you know, couldn't impose regulatory 12 schemes on top of any business that preexisted the regulatory 13 scheme. The law requires in California that in order to go 14 15 through this -- in order to provide this business activity, 16 you have to get a license. 17 license. 18 The Plaintiff hasn't got a At -- at most, as we pointed out to the Court, the 19 Ninth Circuit has held that there could be a license property 20 interest in the license itself, but that's only when the 21 licensing agency, the Defendant here, does not have discretion 22 to deny the license and does not have discretion to put 23 conditions on the license, but we have both of those 24 circumstances here. 25 conditions on the license. The Department has discretion to put

PDF Page 20	19 THE COURT: 1 How about the argument that we -- we -- 2 we were doing this business for ten years, and then you came 3 along and suddenly made it illegal to do it unless we had a 4 license? MR. MARCROFT: 5 Well, again, I mean, Your Honor, we 6 do cite the case Spoklie versus Montana where the court there 7 talking about retroactive application of a statute, knows that 8 states can outlaw businesses that used to be lawful. Beyond that, again, accepting the Plaintiff's 9 10 argument suggests that the state can never come in and then 11 regulate business that has been going on because that would 12 violate due process, and that -- or that would create a 13 property right. And again, the Plaintiff hasn't cited any cases to 14 15 that effect. We've cited cases in our brief that suggest 16 that's not the case. 17 business. The state can outlaw previously active And so without a property right, I think Your Honor 18 19 know that Plaintiff's due process claims succeed on the merits 20 at all. 21 THE COURT: 22 MR. MARCROFT: 23 different issue. 25 that. Equal protection is a slightly Equal protection is -- THE COURT: 24 How about equal protection? Neither one of you spent much time on

PDF Page 21	20 MR. MARCROFT: 1 Equal protection is that the 2 Plaintiff has conceded that it's a subject of rational basis 3 review. 4 a legislature identify a legitimate state interest. 5 In a rational basis review test, we're looking at can And we've identified several of them. The statute 6 identifies several of them, and the Plaintiff didn't contest 7 those in its papers -- 8 9 An interest in ensuring that when these businesses take shape in California and as they do their business 10 activity then -- I mean, the nature of this business is to 11 take the citizen's money and then make a promise that they're 12 going to transmit it to somewhere else, and -- and that -- 13 that's -- I mean, that's a risky business. 14 trust the person who's doing that. 15 16 THE COURT: Isn't that what law firms do? That's what I was told. 17 MR. MARCROFT: 18 THE COURT: 19 You've got to Well -- I don't think law firms are -- are applying for -- 20 MR. MARCROFT: 21 THE COURT: 22 MR. MARCROFT: Are money transmitters? Have to apply for licenses, are there? No, I don't think -- I don't think 23 law firms have been considered money transmitters, Your Honor, 24 but the Plaintiff's business has been considered a money 25 transmitting business.

PDF Page 22	21 1 And when the legislature has acted, in this case it 2 has acted to say that we think that there's some minimum 3 requirement necessary to ensure that these businesses don't -- 4 if -- A, that they start out above board and they have some 5 financial stability to them. 6 And B, if they go belly up that there's some pot of 7 money available to those people that it's now taken its money 8 from to possibly recoup that loss. 9 10 11 Those are perfectly rational reasons to require minimum funding requirements in the statute. THE COURT: All right. Is Mr. Venchiarutti 12 particularly hostile about this Plaintiff's interest in 13 getting -- getting a license? 14 15 16 MR. MARCROFT: - not that I'm personally aware. THE COURT: 17 argument, Mr. Carroll. 18 MR. CARROLL: 19 THE COURT: 20 21 Your Honor, I mean, not that -- not - Tell me about your equal protection Your Honor, the -- we -Under -- under your first claim for (Inaudible - - audio malfunction.) MR. CARROLL: Okay. We -- we certainly do not take 22 the position that the state doesn't have under any 23 circumstances the right to regulate. 24 Our position is that what this Money Transmission 25 Act is from its origination through the lobbying efforts of

PDF Page 23	22 1 the big players is, in effect, an attempt to -- and -- and is 2 -- and is an attempt, and does in fact, restrict the small 3 players from getting involved. 4 And that the rationale that you have to have all of 5 these high barriers set in order to protect the consumers, we 6 submit, is a constitutionally impermissible rationale, to 7 which we are entitled to a trial to prove. 8 specifically alleged that. 9 We have Again, Your Honor, while it's outside the record 10 because it happened after the filing, Your Honor probably is 11 aware of the fact that the largest money transmitter involved 12 in credit cards recently had someone hack into, I think, 150 13 million credit card accounts, so the consumers weren't 14 protected there, but yet the state of California's rationale 15 is "We should have these requirements set so high, and we 16 should vest in these bureaucrats the right to bury the 17 applicability of that so that we can protect the consumers." 18 In effect, whether it was intended to do or not, 19 what it's doing is denying our equal protection to be able to 20 submit, do business, and make money from something that we 21 think we can prove we're just as legitimate and just as 22 protective. 23 THE COURT: Well, of course, the state will say 24 "We're just trying to protect consumers who give the money 25 transmitters the money and pray that they won't do something

PDF Page 24	23 1 they shouldn't with it." 2 MR. MARCROFT: 3 MR. CARROLL: 4 THE COURT: 5 MR. MARCROFT: 6 MR. CARROLL: Run off with it, Your Honor. Well, Your Honor -- Run off with it. Right. -- what we're -- what we're -- what we 7 have specifically alleged in the complaint, and as to which I 8 respectfully submit we're entitled to a trial, is whether that 9 rationale does in fact exist or whether it's a 10 constitutionally irrational rationale, because I don't think 11 it follows that just because you're big and you have a net 12 worth of five million that you're not going to do things that 13 are going to injure the consumers. 14 THE COURT: Well, on the other hand, a -- a -- a 15 reasonable legislator, if there are such things, might say 16 that having someone in this line of work needs to have a net 17 worth of -- or an equity in the neighborhood of say five 18 million dollars to give some measure of comfort to consumers 19 who deal with them. 20 unconstitutional. That on its face it doesn't strike me as 21 MR. CARROLL: 22 THE COURT: Well, there are a number of -(Inaudible - - due to simultaneous 23 colloquy.) but maybe as applied? 24 MR. CARROLL: 25 I don't know. There -- there are a number of other legislators in other states, Your Honor, that have not found

PDF Page 25	24 1 that to be a basis for setting it so it high. THE COURT: 2 3 don't like the rules. 4 unconstitutional. I know, but that's -- you -- you just I'm not sure that makes it MR. CARROLL: 5 Well, we think that the state has to 6 prove that there's a constitutionally permissible, that is 7 constitutionally rational rationale. 8 rationale that somehow the big guys are going to do better for 9 the consumers is something that we can challenge. 10 We believe that that's constitutionally impermissible. THE COURT: 11 12 And we think their Well, what if the big guy turns out to be a crook, but -- but -- 13 MR. CARROLL: 14 THE COURT: And we --- as a whole, the bigger, more 15 financial resources is probably better for the consumer. 16 That's for the state can argue. MR. CARROLL: 17 18 And -- and respectfully, Your Honor, we believe we've -- we've teed up in your complaint -- 19 THE COURT: 20 MR. CARROLL: Bernie Madoff aside. Right. We've teed up in our complaint 21 the right to have a trial on that issue, if that's the state's 22 position. THE COURT: 23 24 25 Anything more you want to say about that? MR. MARCROFT: No, Your Honor. I mean, the bottom

PDF Page 26	25 1 line is that the legislature is identified as, you know, 2 important to the state that there is some minimum funding 3 requirement for -- for a host of reasons, and the Court is 4 aware of them. 5 that's all that's required. 6 The Court has pointed them out. That -- And the Plaintiff's view is, as the Court has 7 mentioned, it disagrees on the legislature on how its chosen 8 to regulate, and that's -- that's just a -- that's a 9 disagreement about legislative judgment, and it's not -- it -- 10 it doesn't find a place in -- in court reviewing whether or 11 not there's a rational basis for imposing a minimum funding 12 requirement on -- on these -- these businesses. 13 THE COURT: Yeah. I guess what -- what -- what I'm 14 getting from the Plaintiff is that the -- the Act sets the bar 15 so high that little guys can't get into the business, and that 16 would be -- is that -- is that equal protection argument? 17 MR. CARROLL: I think so, Your Honor. 18 MR. MARCROFT: Your Honor, one -- one thing I would 19 point out is the Plaintiff has pled that he met that statutory 20 requirement of the minimum $500,000 statutory requirement. 21 THE COURT: The -- the Plaintiff what? 22 MR. MARCROFT: The Plaintiff pled in -- in its 23 initial complaint that it satisfied that statutory 24 requirement. 25 THE COURT: Yeah, I know, but it also tells that --

PDF Page 27	26 1 that it's -- it's a shifting number. 2 MR. MARCROFT: 3 THE COURT: Well -- And indeed, the -- something he gave me. 4 First, frequently asked questions or something indicated that 5 that isn't necessarily the number that gets you under the bar. 6 MR. CARROLL: 7 MR. MARCROFT: 8 MR. CARROLL: 9 THE COURT: 11 MR. CARROLL: 13 Your -- your -- your -There could be more -- more requirements than that. 10 12 That's correct. Or over the bar? Over the bar (inaudible) requirements you'd like, yes, Your Honor. MR. MARCROFT: As far as that issue goes, it's kind 14 of a confusing issue, it was to me at least. 15 has discretion to determine what the number is over the bar. 16 It's a discretionary standard on a ripeness ground until the 17 Plaintiff actually goes through the process of applying and 18 the discretionary standard is applied to the Plaintiff. 19 That -- that claim can't be ripe because that 20 21 discretion has never been exercised. THE COURT: Yeah. The Department Beyond that, when the -- So suppose -- suppose -- suppose 22 the -- the -- the person with discretion tells you "I ain't 23 never gonna approve you"? 24 MR. MARCROFT: 25 THE COURT: Well, Your Honor -- Do I still -- do I still have to make

PDF Page 28	27 1 2 3 4 5 6 the application? MR. MARCROFT: application. I -- I think you need to make the I don't -- THE COURT: He probably said it in better language than that I just did. MR. MARCROFT: Yeah, you do need to go through the 7 application process. 8 to our ripeness argument. 9 THE COURT: I mean, we're getting back a little bit I know. 10 simultaneous colloquy.) 11 MR. MARCROFT: I know. (Inaudible - - due to But you do need to go through the 12 application process, in part because a statement of "I'm not 13 going to approve you" doesn't cut it under the statute. 14 What cuts it under the statute is a hearing and a 15 statement of reasons, and then there's something that may be 16 judicially reviewable at that point. 17 The statement that, "Hey, I'm not going to, you 18 know, cut you a license," even assuming that statement was 19 made, it doesn't -- the Plaintiff still has this process it 20 never even, you know, put its -- 21 22 23 THE COURT: Okay. You're right. We're back to ripeness, and that was -- that was my detour. MR. MARCROFT: No. No. No. I mean -- Your Honor, 24 I went there only -- only because Your Honor had mentioned the 25 varying requirement, and I think the varying -- it's not a

PDF Page 29	28 1 varying requirement. It's a discretionary standard, and it -- 2 until it's applied -- it depends, I guess, is the answer. So to say it's a varying requirement, well, I guess 3 4 that's one way to describe it, but what it is really is that 5 once you apply, you submit your materials to the Department, 6 the Department has to chance to determine whether -- you know, 7 what -- what is adequate based on what you're planning to do. Are you going to run Western Union out of your 8 9 10 garage, or are you going to have just some, you know, small business that does this, you know, once a month? THE COURT: 11 12 Okay. Yeah. What happened to these 34 companies that you turned in? 13 MR. CARROLL: 14 THE COURT: 15 MR. CARROLL: 16 THE COURT: 17 MR. CARROLL: What's happened to them, Your Honor? What's happened to your Plaintiffs -I -- I think --- or whatever you call them? My understanding -- that's -- that's 18 not necessarily something I'm representing my client on, but - 19 - 20 THE COURT: 21 MR. CARROLL: Oh, okay. Well, I -- -- my understanding is nothing has -- 22 nothing has transpired. 23 determinations, been no complaints, to our knowledge. 24 25 THE COURT: was just curious. There have been no -- no I consider that another detour, and I

PDF Page 30	29 1 MR. CARROLL: All right. 2 MR. MARCROFT: Well, to answer Your Honor's 3 question, my client mentioned this morning they are looking 4 into those complaints. So, you know, the fact that they haven't acted on 5 6 it, but they aren't certainly -- they don't ignore complaints 7 that come in from the public. MR. CARROLL: 8 9 Your Honor, if I may just briefly pick up on something that counsel said? I think counsel, to his credit, candidly 10 11 acknowledged that the Department "has the discretion to 12 determine the amount over the bar." 13 say. THE COURT: 14 15 That's what I heard him Well, I think that's what the paper said. 16 MR. CARROLL: 17 THE COURT: 18 MR. CARROLL: Yeah. Something I read said that, in effect. I think that throws us right into 19 those cases that say if the bureaucrat has unbridled 20 discretion, that causes all kinds of constitutional problems, 21 and we would respectfully submit that that's where we are 22 here. You -- you can't say we have to go through the -THE COURT: 23 Well -- well, I'm not sure if that's 24 true. And the argument would be yes, okay, so the official 25 has some unbridled discretion, but until that discretion has

PDF Page 31	30 1 been exercised, you're not -- you're not ripe yet. MR. CARROLL: 2 Well, but -- but, Your Honor, you 3 shouldn't have to deal with the swifting sands. 4 you can't -- you can't say that the state has the authority 5 to, not only set a bar, but to tell you, "And by the way, we 6 can make this bar even higher in certain circumstances, and 7 we're not going to tell you." 8 impermissible. THE COURT: 9 10 I have. 11 various claims. Okay. You -- you -- That is constitutionally This is sort of a stray question I'm not sure where it fits into the analysis of the But if, as the Plaintiff claims, they're making a 12 13 facial challenge to the MTA, the Defendant says that's a 14 nonstarter because to facially challenge a legislative Act, 15 you must establish there are no set of circumstances under 16 which the Act would be valid. And I raise that -- and I'm going to ask you to 17 18 comment, Mr. Carroll, because Defendants made that argument in 19 their reply, and you didn't have a chance to say anything 20 about it. MR. CARROLL: 21 I don't believe, Your Honor, that the 22 standard for facial challenge requires that the Plaintiff 23 exhaust all possible circumstances. I can segway back into what we were just talking 24 25 about. Let's -- let's suppose that Mr. Venchiarutti were to

PDF Page 32	31 1 say after the interview, "Not only are you going to have to 2 have $500,000 net worth, you're going to have to have a $1.5 3 million net worth"? 4 Are we going to have to anticipate when we plead 5 this complaint that that's what he's going to do and, 6 therefore, exhaust and show and demonstrate that all of these 7 possible circumstances -- what if Mr. Venchiarutti were to say 8 "I'm going to lower the bar for you down to 250,000"? 9 I don't believe that in order to plead -- and this 10 is where we are -- to plead the claim that we've pled that we 11 have to exhaust the possibility in the way in which counsel 12 has stated. 13 THE COURT: Well, I think you -- you cited some 14 authority for that; did you not? 15 what it was. 16 MR. MARCROFT: I don't remember exactly Yes, Your Honor. There's supreme 17 court case law saying that in order to bring a facial 18 challenge -- what a facial challenge really is, it's a 19 challenge that that statute can never be applied in a lawful 20 manner under any circumstances. 21 And there's -- there's a Ninth Circuit case we -- we 22 cite in there, which flips that around and says that if 23 there's even one set of circumstances in which it can be 24 lawfully applied, it is facially constitutional. 25 THE COURT: Well, suppose that the decision maker

PDF Page 33	32 1 has unbridled discretion which we've been talking about. 2 that -- how does that fit in there to that analysis? I guess -- well, I mean, would say what -- it would 3 4 depend on how that discretion is exercised? MR. MARCROFT: 5 6 Well, Your Honor, I guess it's a little bit -THE COURT: 7 8 Does Or am I confusing that with some other - MR. MARCROFT: 9 It's a little bit of a difficult 10 question to answer, I think in part because what the 11 discretionary question gets to, it gets to ripeness. 12 it's not really -- the -- it's not -- I mean, the Plaintiff is 13 putting the cart before the horse here. It's -- The -- we don't get to the point about asking about 14 15 discretion until discretion has been exercised, so I -- I 16 guess I'm not -- I'm not entirely clear on -- on Your Honor's 17 question. 18 THE COURT: 19 not have been a very good one. 20 MR. CARROLL: Okay. All right. All right. It may And Your Honor, I -- there's -- 21 there's another point to be made with respect to Your Honor's 22 question before -- will probably come up. 23 Our position also is that it is unconstitutional 24 facially for the state, indeed for any state, to be regulating 25 this part of the internet.

PDF Page 34	33 THE COURT: 1 2 All right. Oh, yeah. I was going to get to that. (Inaudible - - audio malfunction.) Now, this is your second or third claim, commerce 3 4 course -- Commerce Clause claims. The Plaintiff says the MTA 5 is constitutionally invalid because -- for two reasons. One, it criminalizes the offer of money transmission 6 7 services in California by an entity with no presence in 8 California. 9 Okay. Did I say that right? And that would be a violation of the Commerce Clause 10 11 I think I said that right. because? MR. CARROLL: 12 Because it would impact upon the 13 commerce that is being done outside of the state of California 14 through the internet. And the best analogy is, is that the internet is 15 16 like a highway or a railroad, and while a state may have the 17 right to say, "We're only going to let" -- the state may try 18 to say, "We're only going to let trains in our state have 19 three cars." 20 You can't do that because that's going to back up 21 all the cars that have to run through Illinois, and it is a 22 violation of the dormant powers of the commerce clause, which 23 makes that prohibited. THE COURT: 24 25 Marcroft? What do you say about that, Mr.

PDF Page 35	34 MR. MARCROFT: 1 Well, Your Honor, our -- our Commerce 2 Clause argument is pretty straight forward. 3 authorizes states to act, exercising its commerce power, there 4 can't be the latent dormant commerce clause challenge to the 5 state's Act pursuant to that authorization. THE COURT: 6 When Congress You're going by 18 U.S. Code 1960 where 7 Congress authorized the states to license and regulate money 8 transmission business, or at least that's what you claim it 9 did? 10 MR. MARCROFT: 11 THE COURT: 12 MR. CARROLL: That's right, Your Honor. And what do you say about that? Well, first of all, Your Honor, I want 13 to cite the Court to a case, which I'll talk about in detail. 14 It's not in the briefs. 15 versus Pataki, if I'm pronouncing it right. 16 THE COURT: 17 MR. CARROLL: It's the American Library Association That's the Governor of New York. Correct, Your Honor. 969 F. Supp. 18 160, Southern District of New York. 19 deal with some of the issues about how the dormant Commerce 20 Clause powers do not allow the touching by the states of the 21 internet because -- because of the need to have a cohesive 22 internet. 23 The -- and that case will But to answer your question directly, 18 U.S.C. 24 1960, which was in 1992, was essentially before the internet, 25 notwithstanding Vice President Gore, gained its effective

PDF Page 36	35 1 marketing prominence. It certainly, Your Honor, before the -- 2 the use that is being put to here of the internet facilities 3 for the transmitting of money transmissions. Our position is simple. 4 While Congress may have 5 given the states the power to deal with certain aspects of 6 money transmission in -- in order to prohibit things, which we 7 have now come to call acts of terrorism, it certainly did not 8 delegate to the states the right to regulate money 9 transmission conducted through the internet, which requires a 10 cohesive scheme -THE COURT: 11 No, I understand what you're saying, but 12 18 U.S. Code 1960, that's not -- that's not the Patriot Act. 13 That is something -- 14 MR. CARROLL: 15 THE COURT: 16 MR. CARROLL: 17 THE COURT: 18 21 That was earlier. Okay. So -- That's -That one -- that one -- that wasn't enacted in order to combat terrorism. MR. CARROLL: 19 20 No, that's -- that's earlier. Honor. And that was before the internet, Your 1860 (sic) was before the internet. THE COURT: Well, are you -- are you saying that 22 technology, and specifically the rise of the internet, has 23 gone way past what 18 U.S. Code 1960 was intended to address? 24 MR. CARROLL: 25 THE COURT: Exactly and -But it's still on the books, isn't it?

PDF Page 37	36 MR. CARROLL: 1 And all of these cases that we can 2 cite to you about the deference that the courts say has to be 3 given to activities that affect and impact and involve the 4 internet that have come forth since then, make the clear case 5 that you can't say that this is where Congress intended to 6 allow the states to regulate the internet. THE COURT: 7 8 about the internet when it enacted it. MR. CARROLL: 9 10 THE COURT: 11 to it; would it not? MR. CARROLL: 12 13 THE COURT: 15 MR. CARROLL: 17 Correct. But by its terms, it would seem to apply I -- I think -- I think, Your Honor, you -- 14 16 Well, because Congress wasn't thinking Because it's pretty broad. Well, but you have -- Your Honor's duties -THE COURT: If you want me to -- you want me to 18 assume or -- or to graft on an exception saying "Congress 19 authorizes the states to license and regulate money 20 transmission business, except that conducted by the internet"? 21 MR. CARROLL: It cannot -- I want you to graft on to 22 it that it cannot do it in a manner that impacts upon the 23 ability to conduct nationwide internet-wide activities. 24 25 THE COURT: Well, that's just a more florid way of - - of saying what I just suggested.

PDF Page 38	37 1 2 MR. CARROLL: Correct. And -- and I think Your Honor has -- 3 THE COURT: 4 MR. CARROLL: Can I do that? I -- I think you have to read -- I 5 think you have to attempt to read the statute in a way that 6 would make it constitutionally permissible. 7 Your Honor could -- 8 9 THE COURT: I don't think Well, I -- I don't know if it's -- if -- if you're saying -- well, what -- what -- in fact, what you 10 seem to be saying is that this statute ought to be repealed, 11 or it ought to be amended along the lines we've just 12 suggested, but I don't know -- because you seem to be saying 13 because the internet has grown up since the statute was passed 14 -- it was constitutional when it was passed, but now that the 15 internet has gotten -- is -- has changed the way business is 16 conducted, it's no -- the statute now becomes 17 unconstitutional? 18 MR. CARROLL: I -- I think -- I think, Your Honor, 19 you have to read that statute narrowly to say that Congress 20 did not intend to apply it to transmissions of this nature 21 through the internet of money. 22 THE COURT: 23 24 25 Well, they weren't even thinking about the internet. MR. CARROLL: Well, then I don't think -- I don't think you can say that Congress then, therefore, intended to

PDF Page 39	38 1 allow the states to regulate money transmission via the 2 internet. 3 THE COURT: And what do you say? 4 MR. MARCROFT: Two quick points. Your Honor, the 5 terms of the statute even say, "Money transmission includes 6 transferring funds on behalf of the public by any and all 7 means," and -- 8 THE COURT: That was my point. 9 MR. MARCROFT: Yeah. Right. And any and all means, 10 as Your Honor has pointed out, would be the internet. 11 at least one court case -- 12 THE COURT: There's But -- but he's saying that's stupid. 13 It doesn't make any sense. 14 internet, in terms of business transactions, if every state 15 can -- can pass its own law which governs? 16 MR. CARROLL: 17 MR. MARCROFT: 18 THE COURT: 19 MR. MARCROFT: 20 THE COURT: 21 MR. CARROLL: 22 MR. MARCROFT: How can we have an effective Precisely. Two points. It's crazy. Two points. That what Mr. Carroll is saying. Precisely, Your Honor. One, that -- one of the cases we cite 23 to the Court, a U.S. v Mazza-Alaluf, was an instance where the 24 court has looked to -- there was internet transactions there, 25 and the court didn't bring -- didn't say that the -- 1960

PDF Page 40	39 1 didn't apply because the -- the medium had changed, which is 2 what we're talking about here. 3 letters now to the internet. 4 situation. It's gone from, you know, That doesn't change the And the other thing, there's a line of superior 5 6 court case law that we've cited to that Congress certainly can 7 regulate commerce by giving states authority to regulate 8 commerce. 9 way by regulating commerce, there can't be this uniformity 10 concern because that's the way that Congress has chosen to 11 regulate. 12 And when it does so, when it chooses to act that We cite the Ky. Whip & Collar. THE COURT: Yeah, but if Congress had thought about 13 it, I don't think they would be giving states license to 14 regulate money transmission enterprises, which are, not only 15 nationwide, but even -- even (inaudible) internationally. 16 MR. MARCROFT: 17 agree with your point. 18 Congress -- That's more than issue addressed to 19 THE COURT: 20 MR. MARCROFT: 21 THE COURT: 22 MR. MARCROFT: 23 MR. CARROLL: 24 Pataki case, if I may? 25 THE COURT: And, Your Honor, I mean, I would I know. -- than -- than -- Than here. -- than -- than to the Court. And Your Honor, to follow up on this Uh-huh.

PDF Page 41	40 1 MR. CARROLL: I'm reading from 969 F. Supp. at 180 2 through 182. 3 at issue in the cited cases" -- and the -- and the Court there 4 is referring to all of those railroad cases where the supreme 5 court struggled with how the -- the local jurisdictions could 6 not regulate what happened on the railroads in their state 7 because it necessarily impacted upon the in -- the outside of 8 the state conduct. 9 "The internet, like the rail and highway traffic But it goes on to say, "The internet, like the rail 10 and highway traffic at issue in the cited cases, requires a 11 cohesive national scheme of regulation, so that users are 12 reasonably able to determine their obligations. 13 on a local level, by contrast, will leave users lost in a 14 welter of inconsistent laws imposed by different states with 15 different priorities." Regulations 16 I would respectfully submit, Your Honor, that the 17 analysis that we're urging on the Court that we should have 18 the right to prove up in a trial that the Court should apply 19 is exactly what was applied in this Pataki case, which by the 20 bay, Your Honor, was cited -- that -- that was a case where 21 New York regulated the internet transfer of material that 22 could be argued to be of child -- of pedophilia. 23 And the National -- the American Library Association 24 challenged the impact of that upon what was happening, and the 25 Court goes ahead and does this analysis of what the impact is

PDF Page 42	41 1 on the internet. That case has been applied by Judge Patel in a case 2 3 in this district, which I should cite to the Court for a 4 different point, but she did, in effect, apply it and follow 5 it, I think, favorably in the case of -- I'll give Your Honor 6 the cite. 7 Target Corporation, 452 F. Supp. 2nd 946, and the stream cite 8 is 968, 964. Judge Patel's case, Your Honor, is Blind versus And that case -- the Pataki case was also cited, not 9 10 necessarily followed as much as Judge Patel did, by Judge 11 Fogel in Young v. Facebook, Inc., 790 F. Supp. 2nd 1110 at 12 1115. 13 Now, those -- those last two cases deal with 14 different issues. 15 someone who is using the internet, like Target or Facebook, 16 have to do to comply with the state requirements for ADA. 17 18 19 20 They deal with the question of what does But I'm respectfully submitting that if Your Honor were to look at the analysis in Pataki -THE COURT: You like the analytical approach (Inaudible - - due to simultaneous colloquy.)? 21 MR. CARROLL: 22 THE COURT: That's correct, and I believe that -(Inaudible - - due to simultaneous 23 colloquy.) that the cases are on point -- and not that I have 24 to follow them. 25 MR. CARROLL: That is correct.

PDF Page 43	42 THE COURT: 1 2 Just that you'd like me to look at the analysis? MR. CARROLL: 3 Particularly the Pataki case, because 4 we think we specifically alleged this patchwork of the lack of 5 cohesive regulation and how California is going to further 6 distort that cohesiveness. THE COURT: 7 Well, I think that the -- the situation 8 cries out for some more legislative solution. 9 it's meeting them. MR. CARROLL: 10 I'm not sure Well, if you read all these internet 11 cases, Your Honor, it respectfully mandates that the courts 12 have to with great deference avoid doing things and allowing 13 state action that impacts upon that cohesiveness that should 14 be there for the internet. And the Pataki is clearly a case where that court 15 16 said, "Well, the state in New York has every right to not want 17 pedophilia within the state of New York." 18 basically regulating things that would cause impact upon the 19 internet and set up a different -- varying standards of a -- 20 you know, a differential standard among international commerce 21 -- excuse me -- national commerce. THE COURT: 22 23 24 25 Okay. It can't do it by Anything more from you, Mr. Marcroft? MR. MARCROFT: I guess just to leave the Court with -- we've put it in our brief -- the U.S. v Sacco case where

PDF Page 44	43 1 the Court says that when Congress exercises its power under 2 the Commerce Clause, there's no requirement of national 3 uniformity, and that's what we have. We have -- Congress has exercised its commerce 4 5 power. It's authorized the state to license these businesses. 6 End of story. 7 THE COURT: 8 MR. MARCROFT: 9 THE COURT: 10 Even if it's not wise? You're not -- you're not going to let me drag you into comedy of that? 11 Okay. 12 MR. MARCROFT: 13 THE COURT: 14 MR. CARROLL: 15 THE COURT: 16 MR. CARROLL: 17 THE COURT: 18 19 20 I won't presume to -- presume to -- Is that the last word? That's all I have. Anything that -Nothing, Your Honor. Okay. The matter is submitted. Yeah. It will be some time before you hear from me. MR. CARROLL: And thank you for the opportunity to argue (inaudible). 21 MR. MARCROFT: 22 THE COURT: Thank you, Your Honor. And if I think of some additional 23 questions, and I'm not saying I will, I might send you an 24 interim order requiring further briefing. 25 a heads up. I'm just giving you

PDF Page 45	44 1 MR. MARCROFT: 2 THE COURT: 3 MR. CARROLL: 4 THE COURT: 5 (Proceedings adjourned at 10:57 a.m.) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Thank you, Your Honor. I'm not saying necessarily I'll do it. Thank you, Your Honor. Thank you.

PDF Page 46	45 1 2 3 CERTIFICATE OF TRANSCRIBER 4 5 6 I certify that the foregoing is a true and correct 7 transcript, to the best of my ability, of the above pages of 8 the official electronic sound recording provided to me by the 9 U. S. District Court, Northern District of California, of the 10 proceedings taken on the date and time previously stated in 11 the above matter. I further certify that I am neither counsel for, 12 13 related to, nor employed by any of the parties to the action 14 in which this hearing was taken; and, further, that I am not 15 financially nor otherwise interested in the outcome of the 16 action. 17 18 ________________________ 7/16/12 19 Signature of Transcriber Date 20 21 22 23 24 25

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AI-augmented search	None
AI-generated images	None
AI chat or Q&A interface	Linkable via MCP
Third party AI contribution in government documents	Possible

Think Computer Corp v. Venchiarutti et al Document 44: Transcript