HomeMy WebLinkAboutMotion Preclude Testimony of Garth Ashpaugh1
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125110.0002/8328623.2
TRACFONE’S MOTION TO PRECLUDE TESTIMONY - 1
LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
BEFORE THE HEARING EXAMINER OF THE CITY OF RENTON
RE: TracFone Wireless, Inc. Administrative Appeal
TRACFONE’S MOTION TO PRECLUDE TESTIMONY FROM WITNESS GARTH ASHPAUGH ORAL ARGUMENT REQUESTED
I. RELIEF REQUESTED
Appellant TracFone Wireless, Inc., (“TracFone”) asks that the Hearing Examiner enter
an order precluding the Respondent City of Renton (“City”) from calling Garth Ashpaugh to
testify as an expert witness in this proceeding. The City has identified Mr. Ashpaugh, a CPA,
as an expert witness who according to the City’s description in its Final Witness List will offer
opinion regarding (1) TracFone’s business model; and (2) offer opinions that TracFone is a
telephone business and that the exemption from paying the utility tax in state law (RCW
35A.82.060) does not apply to TracFone. TracFone seeks to exclude Mr. Ashpaugh’s
testimony for the following reasons:
• Mr. Ashpaugh’s opinion on whether the exemption for wholesale sales contained in the
state utility tax statute, RCWA 35A.83.060, is an inadmissible legal opinion. It will be
up to the Hearing Examiner to decide whether the statute’s wholesale sales exemption
applies to all or any part of TracFone’s business
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125110.0002/8328623.2
TRACFONE’S MOTION TO PRECLUDE TESTIMONY - 2
LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
• Mr. Ashpaugh is not an expert on Washington state tax law; and
• Mr. Ashpaugh’s opinions are not part of the record of the City’s assessment decision
in this case because he was not retained until long after TracFone commenced this
appeal and so the City did not rely on any opinions or expertise of Mr. Ashpaugh in
issuing the assessment to TracFone.
II. STATEMENT OF FACTS
A. TracFone’s Business Activities.
TracFone is a non-facilities-based seller of prepaid wireless airtime. TracFone
purchases wireless airtime from facilities-based carriers such as Verizon, T-Mobile, Sprint,
and AT&T and resells the airtime on a prepaid basis at both retail (to end-users) and at
wholesale (to businesses such as Walmart, Fred Meyer and Target who purchase prepaid
wireless airtime from TracFone for the purpose of reselling it at retail to end users).
Declaration of Chesley Dillon, paras 2-5. TracFone does not have any physical stores.
TracFone’s retail sales of prepaid wireless airtime are made via the internet and/or by calling
a toll free (1-800) telephone number. Id., paras 6-7.
TracFone does not own, operate, or manage any telecommunications facilities in
Renton or anywhere else. Id., para 12.
B. The TRS Audit of TracFone.
In June 2013, Tax Recovery Services, LLC (“TRS”), a contingent fee auditing
company owned by Michael and Tamara Crisp, approached the City about performing a
utility tax audit on TracFone under a contingent fee audit contract that TRS had entered into
with the City in 2011. Ex. 5 to Michael Crisp’s deposition, copy provided as Ex. 5 to the
Declaration of S. Edwards. In February 2014, Renton sent TracFone a letter informing
TracFone that the City had authorized TRS to conduct a telephone utility tax audit of
TracFone. Edwards Decl., Ex. 8.
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125110.0002/8328623.2
TRACFONE’S MOTION TO PRECLUDE TESTIMONY - 3
LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
TRS requested and received information from TracFone regarding TracFone’s retail
sales of prepaid wireless airtime to purchasers in specified zip codes. C. Dillon Decl., para.
13. TRS also requested data distinguishing the percentage of airtime used for intrastate,
interstate and international calling, and for internet access (data), which data TracFone
provided on a national basis. Dillon Decl., para. 14. Finally, TRS requested the percentage
of total company-wide sales that were made at retail. Again, TracFone provided the
requested data. C. Dillon Decl., para. 15.
By August 10, 2017, TRS had completed the audit and provided the City with its
proposed assessment. TRS asked the City to hold off issuing the completed, citing among
other reasons, TRS continued to recommend that the City delay issuing the assessment, later
changing its explanation to awaiting the result of litigation that TracFone was a party to in
Springfield, Missouri. Edwards Decl., Ex. 18, 32. The Springfield case was completed in
2018. As TRS reported to the City the Court held “that indirect sales (TracFone calling cards
sold by Walmart and other stores) would not be taxable.” Edwards Decl., Ex. 33. TRS issued
the assessment in a letter dated February 14, 2019. Edwards Decl, Ex. 40. Following
TracFone’s request to correct the assessment, the City made its final determination that the
assessment was correct on October 17, 2019, requiring TracFone the pay the assessment on
November 6, 2019 before appealing the assessment to the Hearing Examiner. Edwards
Decl., Ex. 116. On November 6, 2019, TracFone paid the assessment of $336,442.69 and
filed this appeal. Dillon Decl., para. 22.
In its final witness designation, the City listed Mr. Garth Ashpaugh as an expert
witness. The designation stated:
Mr. Ashpaugh is expected to testify regarding the prepaid wireless business
model, his expert opinion that TracFone is engaging in a telephone business in
the City of Renton based on the applicable provisions of the Renton Municipal
Code and Washington state law, and that the exemptions in the authorizing state
statute do not apply to TracFone.
Exhibit 1 to the Degginger Decl.
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125110.0002/8328623.2
TRACFONE’S MOTION TO PRECLUDE TESTIMONY - 4
LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
Mr. Ashpaugh is a CPA and a partner in a consulting firm based in Florida that performs
audits for local and regional governments primarily regarding cable franchises. Ashpaugh
Deposition excerpts attached to the Degginger Decl., at 5-6 1. Mr. Ashpaugh spends 80 percent
of his time providing forensic work including litigation support. Ashpaugh Deposition, at 13,
ll. 10-11. It is undisputed that Ashpaugh had no involvement in the preparation of either the
audit or assessment of TracFone. He was retained by the City at or shortly after he was
disclosed as an expert witness in this appeal in September 2020. Ashpaugh deposition, at 632,
ll. 3-8. He has not performed any audits of TracFone in Washington nor has he performed any
work in in the State of Washington that involved reviewing the state utility tax statutes or the
Renton utility tax ordinance. Id., at 62, ll. 8-17, 63, ll. 23-25. Prior to his engagement by the
City in October 2020, he never had spoken to anyone from the City. Id. Nate Malone, the
City’s tax manager who was involved in managing the City’s contract with TRS on the
TracFone audit, also testified in his deposition that the only outside expertise that the City
relied upon were the representatives of TRS, Michael and Tamara Crisp. Ashpaugh never
spoke to the Crisps before the audit was completed and the assessment had been issued and
paid. His only conversation with Tamara Crisp was to assist her in preparing for her deposition.
Id.. at 76, ll. 8-20. Ashpaugh does not consider himself an expert on state or local taxation in
Washington. Id. at 46, ll. 13-16. He has not written any articles or publications on the prepaid
wireless industry, Washington utility tax or any Washington laws governing the wireless
industry. Id. at 52. He has never provided any testimony about Tracfone’s business model,
nor has he ever spoken to anyone from TracFone. Id. at 62, ll. 8-17. Nevertheless, he has been
asked to provide his opinions on whether TracFone is a telephone business under Washington
law, and, based upon his reading of the Washington utility tax statutes and the Renton
Municipal Code, whether TracFone is obligated to pay the utility tax. Id. at 82, ll. 5-12.
1 Subsequent references to Mr. Ashpaugh’s deposition transcript will be “Ashpaugh Dep.at __”
2 His claims that his expertise in the prepaid wireless industry comes from two audits of another company in
Lincoln, Nebraska. Id. at 80, ll. 6-14.
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125110.0002/8328623.2
TRACFONE’S MOTION TO PRECLUDE TESTIMONY - 5
LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
III. EVIDENCE RELIED UPON
1. Declaration of Chesley Dillion;
2. Declaration of Grant Degginger and exhibits attached thereto;
3. Excerpts from the Depositions of Garth Ashpaugh, Nate Malone and Tamara Crisp
attached to the Declaration of Grant Degginger; and
4. Respondent’s Final Witness List dated December 21, 2020.
IV. ARGUMENT
A. Mr. Ashpaugh’s Opinions Regarding Whether TracFone’s Gross Receipts are
Subject to the Washingotn Utility Tax or Excluded by an Applicable Exemption is a
Question of Law and Must Be Excluded.
In addition to asking Mr. Ashpaugh to backfill the record with information that he may
or may not know regarding TracFone’s business model, the City also is improperly attempting
to have him provide a legal opinion regarding whether TracFone’s wholesale sales of wireless
airtime to retailers such as WalMart or Target are exempt under the state utility tax statute RCE
35A.82.060. There are no such opinions in the audit record. In addition the considerable
weight of authority in Washington is that experts are not permitted to provide legal opinions.
1. Mr. Ashpaugh is not qualified as an expert on Washington utility tax law. An expert
witness may provide opinion testimony if : (1) the testimony is based upon sufficient facts or
data; (2) the testimony is the product of reliable principles and methods; and (3) the expert has
reliably applied the principles and methods to the facts of the case. Fed. R. Evid. 702;
Sundance, Inc. v. DeMonte Fabricating Ltd., 550 F.3d 1356, 1360 (Fed.Cir. 2008). In his
deposition, Mr. Ashpaugh candidly admitted that he is not a lawyer, has never been admitted
to provide expert testimony in a Washington court, has not performed work in Washington that
involved the state or local utility tax on a wireless carrier, and that he does not consider himself
to be an expert on Washington utility tax. Ashpaugh deposition at 41, ll. 9-10; 42, ll. 6-14, 43;
46, ll. 13-16.
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125110.0002/8328623.2
TRACFONE’S MOTION TO PRECLUDE TESTIMONY - 6
LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
2. Mr. Ashpaugh’s opinions regarding whether any of TracFone’s gross receipts are
subject to RCW 35A.82.060’s exemption for wholesale sales is inadmissible testimony about
a legal conclusion. In this appeal, the Hearing Examiner will be required to determine whether
RCW 35A.82.060’s provision excluding from the tax “sales for resale” applies to TracFone’s
wholesale sales to retailers such as WalMart. The statute provides in part:
(1) Any code city which imposes a license fee or tax upon the business activity of
engaging in the telephone business which is measured by gross receipts or gross income
many impose the fee or tax, if it is subject to the fee or tax: PROVIDED, That the city
shall not impose the fee or tax on that portion of network telephone service which
represents charges to another telecommunications company, as defined in RCW
80.04.010, for connecting fees, switching charges, or carrier access charges relating to
intrastate toll telephone services, or for access to, charges for, interstate services or
charges for mobile telecommunications service that is purchased for the purpose of
resale, or charges for mobile telecommunications services provided to customers
whose place of primary use is not within the city.
(Emphasis added).
An expert is not permitted to testify about legal conclusions because the law is the
providence of the court. Crow Tribe of Indians v. Racicot, 87 F.3d 1039, 1045 (9th Cir. 1996;
quoted in Microsoft Corp. v. Motorola, Inc., 2013 WL 4008822 (W.D.WA 2013). The judge’s
expert knowledge of the law makes any such testimony at best cumulative and at worst
prejudicial. Nieves-Villanueva v. Toto-Rivera, 133 F.3d, 92,99 (1st Cir 1997). Id.
Interpretation of the statute clearly is the responsibility of the hearing examiner in this case.
Furthermore, Mr. Ashpaugh has no prior involvement in interpreting the statute or in the
history of its preparation and adoption.
3. Mr. Ashpaugh’s opinion on whether the statute’s exclusion applies to TracFone’s
business will not be “helpful.” It is anticipated that the City will contend that Mr. Ashpaugh’s
work as a CPA in and around the telecommunications industry will assist the hearing examiner
in understanding the terms used in the statute, including whether TracFone falls within the
definition of a “telephone business” defined in RCW 82.16.010. Ashpaugh deposition at 66,
ll. 5-12. Appellants respectfully disagree. This is not an overly complex and technical issue.
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125110.0002/8328623.2
TRACFONE’S MOTION TO PRECLUDE TESTIMONY - 7
LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
There is no jury in this proceeding. The fact that neither TRS nor the City tax staff required
assistance of a telecommunications expert in the undertaking the audit and issuing the
assessment is powerful evidence that the City in fact deemed such expertise unnecessary.
In Sung v. Mission Valley Renewable Energy, LLC, 2012 WL 1298285 (ED WA 2012),
the court granted a motion to exclude the testimony of a law professor in a case alleging
multiple violations of the Securities Act of Washington. Like Mr. Ashpaugh in this case, the
professor in in the Sung case was going to provide testimony amounting to legal conclusions
including conclusions regarding the application of the statute. In ordering the exclusion of the
professor’s testimony, the court found that the subject matter was not particularly complex, the
expert’s proffered testimony would involve legal analysis on an ultimate issue to be determined
by the court, the testimony would not be admissible or helpful. Id., at 2-3.
B. Mr. Ashpaugh’s Testimony Must be Excluded Because It Is Not Part of the Record
This is supposed to be an appeal of the record of City’s audit and its assessment of
TracFone. The audit took over four years to complete. The City had ample time to acquire
information regarding TracFone’s “business model” and to analyze whether TracFone’s
business is falls within or is exempt from application of the state utility tax statute and the
City’s utility tax ordinance. The City did not rely on any opinions of Mr. Ashpaugh prior to
sending out the assessment in February 2019. Instead the City relied upon TRS’ analysis of
TracFone’s business and the applicable statutes. The City and TRS specifically rejected a
request by TracFone to meet and discuss their business and whether the utility tax applied. The
sum total of TRS’ research about TracFone’s business model as one call to an unidentified
employee of a Pierce County WalMart store for which it has no records of the conversation,
and some internet research for which there are no written records in its file. Edwards Decl.,
Deposition of Michael Crisp at 123-24. It is inappropriate to attempt to supplement the records
after the fact to seek testimony and expert opinions about TracFone’s business model and
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125110.0002/8328623.2
TRACFONE’S MOTION TO PRECLUDE TESTIMONY - 8
LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
whether its utility tax applies to all or any part of TracFone’s business in the course of this
appeal.
IV. CONCLUSION
The City’s effort to backfill the record with testimony that might retroactively support
its decision to impose and collect this large assessment is inappropriate. Mr. Ashpaugh’s
proffered testimony of legal conclusions regarding the meaning of statutes and their application
in to this case falls outside the boundaries of appropriate expert testimony. The hearing
examiner should grant TracFone’s motion to exclude Mr. Ashpaugh as a witness in this appeal.
DATED: January 29, 2021.
LANE POWELL PC
By Scott M. Edwards, WSBA No. 26455 edwardss@lanepowell.com Grant S. Degginger, WSBA No. 15261 deggingerg@lanepowell.com Attorneys for TracFone Wireless, Inc.
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125110.0002/8328623.2
TRACFONE’S MOTION TO PRECLUDE TESTIMONY - 9
LANE POWELL PC
1420 FIFTH AVENUE, SUITE 4200
P.O. BOX 91302
SEATTLE, WA 98111-9402
206.223.7000 FAX: 206.223.7107
CERTIFICATE OF SERVICE
I hereby certify under penalty of perjury of the laws of the State of Washington and the
United States that, on the date listed below, I caused to be served a copy of the attached
document to the following persons via electronic mail:
Kari L. Sand Ogden Murphy Wallace P.L.L.C. 901 Fifth Avenue, Suite 3500 Seattle, WA 98164 ksand@omwlaw.com Cynthia Moya Renton City Clerk 1055 So. Grady Way Renton, WA 98057 cmoya@rentonwa.gov olbrechtslaw@gmail.com
Executed on the 29th day of January, 2021, at Seattle, Washington.
s/ Norma Tsuboi Norma Tsuboi, Legal Assistant