Willis Carto archive

Including information about his associates

Liberty Lobby Bankrupcty — Hearing for the Appointment of Trustee (7/1/99)





Case No. 98-01046

Chapter 11

U.S. Bankruptcy Court
Washington, D.C.
July 1, 1999


Motion to Appoint Trustee
Motion for Survival of Freedom, Inc.
Motion to Appoint Chapter 11 Trustee



On behalf of the Debtor


On behalf of the Legion for the Survival of Freedom, Inc.

On behalf of Foundation for Economic Liberty

Proceedings Recorded by Electronic Sound Recording

7040 31st Street, N.W.
Washington, D.C. 20015-1402
(202) 362-6622

Recording Operator: Wayne Burwell


THE CLERK: The next matter is the matter of Liberty Lobby, Inc., Bankruptcy Case 98-1046. The matter before the Court is a motion to appoint a trustee by Creditor Legion for Survival of Freedom, Inc.

MR. STANTON: Good afternoon, Your Honor. Thomas Stanton. Joe Schuler is here.

We have been retained by Liberty Lobby to --

THE CLERK: Let the other counsel state their appearance, please.

MR. CLARK: Good morning, Your Honor. Darrell Clark for creditor Legion for Survival of Freedom, or LSF, Incorporated.

MR. PEARLSTEIN: Good morning, Your Honor. Paul Pearlstein representing the debtor.

MR. SCHULER: Good afternoon, Your Honor. Joseph Schuler, as Mr. Stanton was starting to say, with whom I've been retained as substitute counsel, subject to the Court’s approval.

THE CLERK: S-c-h-l-u --

MR. SCHULER: S-c-h-u-l-e-r.

THE CLERK: Thank you, Mr. Schuler. You may be seated.

MR. STANTON: Your Honor, Mr. Pearlstein filed a motion some time ago, and with notice to everyone, requiring that he be replaced and asking that new counsel be appointed and that the debtor has done that now, and we're asking for an extension.

Mr. Early in his motion was agreeable to an extension, but Mr. Clark has not been agreeable.

Your Honor, I don't think this case can be properly prepared without at least 45 days to analyze the issues. I think a lot of them are accounting issues. They are not issues of defalcation. They are issues of bad accounting, and I think that factually, the debtor is in a position to put on a substantial defense to this case, but we need more time.

I do think that all of this is history. It’s not anything that’s going on currently, and I think that in a perfect world, it might be nice to have 90 days, but we are asking for 45 and I think that is what Mr. Early was agreeable to. This basically is a case, I think, that should be settled by mediation, and as Your Honor had ordered and the order has been withdrawn, and I need to analyze whether that is still something that might be brought back to the Court.

My clients are very concerned that this case get resolved a solution rather than just an ongoing bleeding problem, Your Honor, that doesn't need to be that kind of case.

So we are asking for a continuance.

MR. CLARK: Good afternoon, Your Honor.

Your Honor is well familiar with the facts in this case and the history of the dispute between the parties, a dispute that has been going on for, I would say, roughly 15 years.

I have three witnesses here today, all of whom I have had to subpoena in order to get them to attend. One of the witnesses even changed his 4th of July travel plans to be available today at some cost to him.

Mr. Pearlstein is here. Mr. Pearlstein has represented the debtor throughout. Although he has asked the Court to withdraw, he is still counsel of record. No order has been signed. He has participated in, I would say, all of — but it has only been one — of the depositions that we have taken in preparation for this motion.

Additionally, Your Honor, and admittedly this is hearsay, I have reason to suspect that Liberty Lobby will be expecting a — or someone, some entity related to Liberty Lobby would be expecting a contribution. This is the July 5th issue of Liberty Lobby’s publication where a woman named Katherine Dall (phonetic) is proposing to give — to do quite a bit of fund-raising for a group called Friends of the Spotlight in Liberty Lobby, and my fear is, Your Honor — and you are welcome to take a look at it if you'd like — my fear is that the debtor will use this opportunity, this 45 days, this 90 days, any opportunity to flush funds out of the debtor, and I think that the testimony that I have here today is consistent with the debtor taking these actions over a period of years, of moving funds to other organizations in order to avoid its obligations, particularly its obligation to my client.

So I am particularly concerned that any continuance would give that debtor that much time, that opportunity.

MR. STANTON: Your Honor, regarding the funds, which I think is a serious issue, we would be willing to co-sign any checks during the 45 days so that no funds are going out that haven't been approved by counsel. That is not the issue here, Your Honor.

The issue is basically whether or not there really is a reason for a trustee, whether there has been violations of such a sort that the Court would find a trustee would be necessary.

We could certainly lock the money down. That’s not a problem, and I would proffer to the Court, we'd be very happy to do that. So there would not be any chance that the money could go out the back door.

I don't know anything about this at all, Your Honor, whether it has anything to do with this debtor. It certainly isn't the debtor’s money, I don't think, if someone is soliciting some money for some other source, but certainly as to funds of the debtor, we'll make sure that no money is going out of the debtor during this period of time.

THE COURT: All right.

MR. CLARK: I have no reason to doubt Mr. Stanton’s representation, just as I would have no reason to doubt Mr. Pearlstein’s stewardship of the debtor, but even as the debtor’s own disclosure statement indicates on page 14, while it’s been in bankruptcy, it’s made transfer by wire to attorneys out of State, attorneys who represent Mr. Carto (phonetic) who is not Liberty Lobby, attorneys who were doing some work presumably on some issues related to Mr. Carto’s house, and a loan was made by Liberty Lobby and an inter-company affiliate that was reported nowhere on the monthly statements that are provided to the Court.

So, while I understand Mr. Stanton’s representation, my fear is that he would never even know that this money existed. If all of these actions happened while Mr. Pearlstein is stewarding the debtor, without his knowledge, I just can't seem — I don't have any faith that it’s going to be any different under Mr. Stanton’s stewardship.

MR. STANTON: Your Honor, these funds had to come out of some account. I mean, it’s very easy just to put another signatory on the account. That’s an easy matter to solve.

I don't know whether these attorneys are being paid for this debtor or what these transactions were. That is part of what we need to find out, and the factual situation here is something that needs to be unscrambled and it is substantial. I think a brief delay with new counsel coming in is appropriate, and we will do whatever is necessary to seal the funds so that there is nothing more going on than normal day-to-day business during this 45 days.

THE COURT: The Court is going to deny the motion for a continuance. The movant is prepared to put on its case. This date has been available for some time, and Mr. Pearlstein is still attorney of record for the debtor. I do not think the matter should be continued simply because the debtor has decided it wants a change of counsel.

MR. STANTON: Your Honor, Mr. Pearlstein is the one that requested to be relieved of counsel. I don't --

THE COURT: However that may be, Mr. Pearlstein was well aware that the Court always retains the discretion to insist that matters go forward and that counsel not be allowed to withdraw until the matter is tried.

The motion is denied.

Mr. Clark, I will hear your opening statement.

MR. CLARK: Thank you, Your Honor.

(Brief pause in proceedings.)

MR. CLARK: These are my exhibits, Your Honor. I have originals marked for the witnesses.

MR. PEARLSTEIN: Your Honor, could I just make one preliminary statement?

THE COURT: Yes, Mr. Pearlstein.

MR. PEARLSTEIN: Thank you.

I think as was clear from the motion to withdraw, the dynamics in the cooperation with representatives of Liberty Lobby disintegrated remarkably over the last 2 months, and it’s for that reason that while I'm here physically present — and I think I'm a pretty good lawyer and can pick up and I have a pretty good idea of what is going to happen — what I haven't been able to do is see or be with Mr. Carto or to prepare him for any testimony or to learn anything about at least two of the witnesses that were subpoenaed other than — I'm sorry — other than a few minutes ago, and that was rather vague.

There is an accusation, I guess, made by Mr. Stanton that I have represented that I am prepared to go. I am here, and I will do the best I can, but I am hamstrung by the situation that exists and the lack of cooperation.

Now, maybe it’s like the orphan that shoots the folks and then complains he’s an orphan. They didn't come to me. They weren't in town until today, or Mr. Carto wasn't in town until today, or at least last night, and I hadn't heard from him until I saw him here at the court, but I think that while it may be dangerous for me to go forward, I think that there is something valid to the fact that they have not been prepared. Two of the three witnesses — I was at Mr. Hutzel’s (phonetic) deposition, and I have certainly prepared and talked with Mr. Hutzel. That has been done, but as far as the other two witnesses that were subpoenaed, Mr. Sweet and Mr. Blodgett, I have not — and I have learned very little about them except in the last few minutes.

So I just have to throw that out. I don't want any confusion that I am representing that I am prepared to go. I am here, and I understood the order. I understood that I was not relieved until such time as the Court granted that, and I have prepared as best as I could for today, but there have been problems.

MR. STANTON: Your Honor, could I be heard just a second? I don't want to raise this again, but I think it’s very important to my client. There are issues here that are basically accounting issues in which there needs to be an expert witness as to whether or not these are accruing accounting problems or whether they're actually a misuse of funds.

I think that what is essential is that we have an opportunity to prepare this kind of response. It is very important to my client. This is a long operating business, and it has a number of ways it has done business over the years that are the tradition of this business, and whether or not any of these transactions violate that, I think the facts are they will be found that they don't and that there are accounting problems in the difference between the translation between a cash-basis analysis that is done for the U.S. Trustee and the way the debtor keeps its books, to the extent that transactions that appear to be disbursements are actually receipts. There are a number of — and most of these issues are book-entry issues, and I think that you couldn't present this case without an expert. And there is no expert here and there is no expert to go forward.

I just don't think it would be fair to put this debtor into this meat grinder at this point without the chance to at least prepare a good defense.

Thank you.

THE COURT: I am going to let the case go forward. I think the moving party is prepared for the hearing, and it would be unjust to continue the matter.

MR. SCHULER: Your Honor, if I may. I hesitate to broach this one more time when Your Honor has now ruled twice on it, but, as an alternative and as a means to allow incoming counsel and the debtor to properly prepare, perhaps we could bifurcate with Mr. Clark’s witnesses here today and the inconvenience they have gone through — is allow him to put on his case, but then allow us a recess, a week or so, to respond.

THE COURT: Let me see where we get with Mr. Clark’s case.

Mr. Clark, go ahead.

MR. CLARK: If it please the Court. This is a motion for appointing Chapter 11 trustee pursuant to Section 1104. Section 1104 requires cause to appoint a Chapter 11 trustee, and although that is not defined specifically in the Code in Section 101, the language following the word cause in Section 1104 includes some examples of what could be cause to appoint a Chapter 11 trustee. They include fraud, dishonesty, incompetence, gross mismanagement of the affairs of the debtor by current management either before or after the commencement of the case.

As the opposition has noted, this is a company which has done business for a very long time, and I think it’s perhaps best to visualize where the Liberty Lobby building is on the street, in order to really understand what’s going on in this building.

Liberty Lobby is at the intersection of Independence and Third Street. Its address that’s listed on the petition is 300 Independence Avenue, Southeast.

The other address, because it’s on the corner, is 130 Third Street, Southeast, and the evidence will show that not only does Liberty Lobby operate out of this building, but at least four other entities also use this same location as their address: the Government Educational Foundation, let’s call them GEF; the Foundation to Defend the First Amendment, let’s call that FDFA; the Foundation for Economic Liberty, we'll call that FEL; and the Committee to Defend Liberty Lobby, or CDLL.

Much of this was admitted by the defendants — I'm sorry — the debtors in the disclosure statement at page 8. The debtors' disclosure statement, which is the last one filed with this Court in June, states: The debtor shares its business office at 300 Independence Avenue, Southeast, and some of its personnel with the following separate corporate entities. It lists GEF, FDFA, and FEL. I think the Court will find also that CDLL is using that address. These corporations are billed for rental of shared space and for personnel and supplies used on a monthly basis.

The evidence will show that FDFA and GEF are non-profit corporations used to solicit donations and then turn over those donations to Liberty Lobby which is not a 501(c)(3) corporation.

The evidence will further show that these not-for-profit corporations don't really conduct any business activity other than to solicit donations from Liberty Lobby subscribers in order to turn it over to Liberty Lobby in a means to avoid paying taxes.

You also see with these five corporations, Liberty Lobby, GEF, FDFA, FEL, and CDLL, common directors, common officers. You will hear the name of Willis Carto. The disclosure statement states that Mr. Carto is the CEO and treasurer of Liberty Lobby. I believe he is also the founder of Liberty Lobby.

You will see Mr. Carto — the evidence will show Mr. Carto involved in all five of these corporations; in fact, almost as the dictatorial head of each of these corporations, directing money back and forth among these corporations.

You will also hear the name of Blaine Hutzel, and you will hear Mr. Hutzel speak about his history at Liberty Lobby, his history as the controller of Liberty Lobby for 19 years. You will see that Mr. Hutzel serves as the chairman of GEF — or perhaps it’s FDFA. I have to look at my notes. — and that he is also signing documents, promissory notes, for FEL.

You will hear testimony about employees from Liberty Lobby doing work for these other corporations, but being paid by Liberty Lobby.

But most of all, you will hear about the management style or the mismanagement of Willis Carto. You will hear about Mr. Carto diverting funds intended for Liberty Lobby to these other entities. You will hear about post-petition receipts by Mr. Carto of cash, large amounts of cash, cash which we don't know was ever turned over to Liberty Lobby, but was intended for Liberty Lobby.

You will hear about the operations of Liberty Lobby which include publishing a weekly newspaper called the Spotlight. It’s a weekly tabloid-style newspaper.

You will also hear about other means about how Liberty Lobby makes money, such as by selling coins, by selling books, by selling certain tax-avoidance kits.

You will hear about cash being received from coins at various conventions, perhaps not being turned over to Liberty Lobby.

The Court will also hear about the Board of Policy. The Board of Policy is a group of Liberty Lobby supporters. They are their most ardent supporters, or the BOP.

THE COURT: Group of Policy or the --

MR. CLARK: Board of Policy.

THE COURT: Board of Policy. I beg your pardon. That’s why I couldn't figure out the BOP.

MR. CLARK: Mr. Hutzel will tell you that the Board of Policy pays $64 a year as a contribution to Liberty Lobby to be part of the Board of Policy. He will also tell you as he stated in his deposition that the subscription price for the Spotlight is $59. Yet, all of this $64 that they pay is included as a contribution and, therefore, not included in Liberty Lobby’s taxes.

The Court will hear about efforts by Mr. Carto to reduce the value of Liberty Lobby, stripping it of assets, about his obsession with the lawsuit with my client, and about his failure to consult the board of Liberty Lobby or any other board which he is the head with respect to any of the decisions.

My client, we'll call LSF, and you may hear witnesses also refer to it as IHR, which is the Institute for Historical Review, was once run by Mr. Carto, and you will hear about a woman named Jean Ferrell who is Thomas Edison’s great grandniece, and that she left in her will some money for my client, approximately in the teens of millions of dollars. And you will hear how Mr. Carto set up a corporation to put that money in there and keep it from my client and slowly, through a series of promissory notes and wire transfers, send this money to one of these six entities identified at the beginning, Liberty Lobby, GEF, FDFA, FEL, and CDLL.

Finally, post-petition, the Court will hear about a transfer made by wire to a Swiss criminal attorney who had written to Mr. Carto asking for 25,000 Swiss francs, which is approximately $7,500, before he would begin Mr. Carto’s case. We will see that letter, and then we will see Mr. Carto’s handwritten initials on the top of it, and then we will see the wire transfer form from Liberty Lobby going over to Switzerland. This is in August 1998.

We will see, and the disclosure statement admits, that CDLL made, as Mr. Hutzel termed in his deposition, a contribution to Liberty Lobby post-petition. There is no Court authority for the loan, for the contribution, and the money was then given back by Liberty Lobby post-petition, and it never appeared on the monthly operating reports, neither the in or the out of the money.

All of this evidence adds up to, Your Honor, suggest evidence of fraud, dishonesty, incompetence, gross mismanagement of the affairs of the debtor by current management and in particular Mr. Carto. These events happened both prior to and after the bankruptcy case, and we would ask that a Chapter 11 trustee be appointed specifically to replace Mr. Carto and with specific directions to investigate these funds and these intercorporate transfers.

Thank you.

MR. PEARLSTEIN: Your Honor, I am just going to make very brief remarks. I think the very first thing — and I probably should have done it before — is could I ask for a rule on witnesses. I would ask that all potential witnesses that have bene subpoenaed to please sit outside, other than the corporate representative. I would like Mr. Carto and Mr. Hutzel to be at the desk.

MR. CLARK: That is effectively the only two or three witnesses that I have subpoenaed.

THE COURT: You may designate one, Mr. Pearlstein.

MR. PEARLSTEIN: You subpoenaed Hutzel.

MR. CLARK: Hutzel, Blodgett, and Sweet.

MR. PEARLSTEIN: Well, that’s one of the three. All right.

Mr. Carto. Thank you.

THE COURT: All right. Does — just a second. Mr. Clark, do you want to designate somebody as your corporate representative?

MR. CLARK: Sure. I'll ask Mr. Sweet to stay.

THE COURT: All right. Other than Mr. Sweet and Mr. Carto, I will ask that anyone who is to be called as a witness, who has been subpoenaed to be called as a witness or knows that they are going to be called as a witness, to remain outside the courtroom until they are called to testify. There is a witness room across the hallway. You can stay in the little hallway there, down along here where the attorneys can find you when they come out to call you as a witness, and I will instruct you not to discuss your testimony with anyone until you have actually been called as a witness.

That may be subject to revision later on, and the attorneys can inform you of any revision the Court announces, but at this juncture, you are under that injunction not to discuss what is going on in the trial or what your testimony is to be in the trial until you are actually called as a witness.

(Brief pause in proceedings.)

MR. PEARLSTEIN: I am going to just make a very brief opening statement.

The burden is a very heavy burden to impose a trustee in this case. It is clear and convincing evidence. There is a presumption that the debtor should remain. I think we ought to start right there and recognize where the bar is set.

There is a question, a serious question, of whether the motion itself was filed in good faith. I have tried to lay all this out in my pleading, but the reason is why in Month 13 or Month 14 if this was such a serious matter, if this bleeding was going on with everything else that was going on under full knowledge of the Legion, why now are they stepping in.

And I indicate and suggest — I think the record will indicate that the reasons are because the Court observed the postponements in order to negotiate, to attempt to settle this case, and the attempts were made again and again and again, and whether it was with mediation — there was mediation in the personal bankruptcy out in California, but there was never mediation in this Court, despite the fact that the debtor always wanted the mediation and tried to obtain it.

But under the last settlement agreement or, quote, negotiation that came in, you heard testimony — not testimony — you heard commentary — I'm sorry — by Dennis Early of the U.S. Trustee’s Office who basically said, in opposition to Mr. Clark’s statement, there is only one creditor in this case. Whoa, there is not just one creditor. There are lots of other creditors. There are big substantial creditors, and what was wrong with the last negotiation, which failed, which brought us to this day and to this moment — what was wrong with it was that it gave a super priority or gave a lead to the Legion which would have wiped everybody out, something that I don't think I could have ever sold to the Court and suggested that to my client. It is something that I don't think that Mr. Early was willing to let go. It was an extreme situation.

It was shortly after that, that this motion was filed. Actually, it was filed the day before the Court hearing on the — I think it was the disclosure statement that was postponed, but in fact it had failed over the weekend, and then the motion was filed.

Now, I think you heard Mr. Stanton say whoever was counsel. I am counsel, and I take that responsibility, but I think you heard Mr. Stanton say, I think you saw me say it, and I said it as gingerly as possible in my pleading near the end that the accounting system is a mess. I mean, it’s a travesty.

Whether — I mean, I think I understand cash and I think I understand accrual, and I am not an expert in accounting whatsoever, but I am not so sure that anybody at Liberty Lobby gets that straight. I am not so sure that all of that information was correctly given to the CPA, the outside CPA who was providing the information, the financial reports on a monthly basis to the Court. The latest one came in with some more funny language at the end about how we just learned about this.

I don't think it was connivery. I don't think it was evil. I don't think it was intentional. I think it was just plain an old system that started out probably going from one pocket to the other, back in '56 when this whole idea of a populist movement was started by Mr. Carto, and suddenly money started coming in and then it started to come in big time. And these are substantial funds. We're talking 3- or $4 million a year that come in at least to Liberty Lobby that’s shown there.

The existence of the other corporations is problematic, but it need not be problematic at this point. These are separate entities as I understand it. There are relationships back and forth. I don't know that they are tawdry or pure or wonderful or correct, but the relationships are there, but they are not in this Court. This are not — the debtor in this case, Liberty Lobby, is.

Most of what has shown up on the records and what is shown up in the financial statement and which was disclosed — whenever we learned of anything, we disclosed it — much of what showed up was the fact that loans were being made, improper loans. I know that you have to get a Court order to make a loan to allow the debtor to make a loan after — post-petition. I recognize that. I did not know about it until I found out about it. The only way I could deal with it was, number one, disclose it and, number two, indicate that we would subordinate to everybody. We would have to subordinate the post-petition creditors, subordinate the pre-petition creditors. Maybe that’s just a little bit of mercurochrome on a big gash, but that’s the best that I could do with that, and that was fully agreed to by the clients.

Why they did this and how they did it, they are using accrual methods, they are using apportion methods. All of these organizations are operating as separate entities, but they are operating out of the same address, or almost the same address. There are two buildings, and one is next door to the other. And they are not part of this case, and I think that that distinction has to be made whether the accounting system could be vastly improved, and I have no doubt about it.

My sense in this case consistently — there is no agreement with my client, but my sense is that you needed somebody to come in there and straighten it out, whether it be a CPA audit or whether it be an examiner or something else. They do not agree to that. They don't want to do that, but that problem is acknowledged by Mr. Stanton. It’s acknowledged certainly by Mr. Clark, and I have acknowledged it. I think it is more bumbling than it is anything else, certainly not fraud or not worthy of a trustee.

The main reason is — I mean, there are specifics in terms of what happened with improper transfers, and there is no way to deny them. We can explain them, but we can't deny them. We have acknowledged them in Exhibit E, and we have acknowledged them in other areas of the disclosure statement.

The disclosure statements were prepared months before they were — weeks before — I'm sorry — they were filed in this Court. They weren't filed because Mr. Carto didn't come into my office until the day before the hearing to sign it, but he had seen it, and Mr. Clark had seen it and Mr. Early had seen it. The reason it was passed around that way, it was for comments that, hey, you're saying certain things. We have everything. I mean, I don't want to leave anything out that you think is a problem, and if you have a problem, I will go back to my client and I did.

There are things in there that had to be disclosed, and they were disclosed. Now, whether they are correct or confused by a cash method and accrual method, they are there.

Any creditor that wants to look at it to make an honorable — an honest decision, an intelligent decision as to whether the disclosure statement — pardon me — whether the plan described in the disclosure statement should be considered by them, they can do so. They can see the pimples and the warts and the bumps and all the bad things as well as the good. There is no attempt to hide it.

They are out there, and the $100,000 business with CDLL, we indicated it was a mistake, and when we found out about it, we cleaned it up. It shouldn't have happened. There’s no question in my mind. I'm not here to tell you that that’s just fine.

The Swiss attorney business, that happened fairly early in the case, but when it happened, the money was paid back.

There was a response to every one of these things. The only one that wasn't responded to was the Izen (phonetic) Associates. I still to this day — pardon me. The appellant grieved that Your Honor allowed a lift stay to proceed out in California. Apparently, this was a Joseph Izen who was called in to write that brief and a payment was made to him which I didn't know about, and since it has been indicated on the disclosure statement — I mean, Mr. Clark said, well, why don't you file an application. I haven't heard from him, and if we have to file an application to do so, fine. He is obviously representing not just Liberty Lobby. He is representing all of the potential defendants in the case.

The most difficult thing about the concept of the trustee is the nature of this animal. I mean, it is just — I could run a Fortune 500 company easier than I could run this organization.

There is not a lot of superstructure. There is the dynamics of a personality. Now, whether that personality, Mr. Willis A. Carto, is tainted or not, I suggest that that is not the problem. Mr. Clark takes a very different position on that, whether he is Mr. Evil. He is the heart, the philosophy, the contact person, the individual that can raise the bucks. He can make the phone calls. He can go and get people to put bequests into their wills and do estate planning. He is the man that had germinated the idea and has allowed this idea to continue and to flourish.

And it would seem to me — and what I say — is that at best, if you are going to even consider a trustee — and I'd rather just see an examiner just to clean up the books first or I'd rather see a good CPA. I mean, have them — hire one, do a certified audit. Whatever happens, it would seem that Mr. Carto is going to have to be on some type of a consulting basis. He is going to have to be working, and he is going to have to want to work for the organization or the organization is going to atrophy.

The evaluation of the corporation, if I recall, was 200-and-some-thousand dollars on a liquidation basis and about, I think, a million-eight. I'm not sure of that number, but it was over a million as a going concern.

Whether some more money should come in and more money should go out to reevaluate the corporation, that can be done. I doubt if the differential is — at best, doubled — at best, and at worst, probably 10 or 20 percent, if there are any of these peccadillos that are really valid, that really fall on the mark.

But you liquidate this thing, and I don't know what the major asset is. We thought that the major asset was the mailing list, until we offered the mailing list as a settlement. Nobody seemed to want the mailing list. I think our evaluator used a very high number — I'm sorry. He used a number that he thought was a fair number, but it was a fairly high number in terms of lots of things that have come down the pike with valuations for mailing list, including something that was in an op-ed piece just the other day, whether it should be a dollar or $2 a name or $5 a name. Basically, the politicians are dealing with donations, and basically, this group is dealing with donations.

We have also, after three attempts I think, a viable plan. Now, whether that number should be adjusted or not and whether the question of whether there should be only one secured creditor class — unsecured — I'm sorry — whether there may be two in this particular case hasn't been resolved. It’s before the Court, but I think basically the numbers are there to make it work, and I think something that is significant is that maybe we're just lucky or maybe everybody is stupid or maybe this is the way it is and they trust these people. The other creditors haven't made a peep, and they have seen all this stuff. There is also stuff all over the Internet. There is stuff in magazines, in newspapers. There is nothing private about this case, fortunately or unfortunately.

The creditors do call me and ask me what the heck is going on, and I try to tell them and I suggest just triangulate and confirm what I'm saying that they wander down here and take a look at the file or check it out at their own pace or something like that, but I think we do have a viable, confirmable plan, and theoretically — it is now not theoretically. It is not scheduled to be heard on July the 13th.

I think it can work. I think if there have to be adjustments to be made, if there have to be revaluations, that is for the confirmation hearing. That is fine, but I believe that the motion to provide a trustee is inappropriate and really not in the best interest of anybody, of any of the creditors, including the Legion and for that reason, I would ask that it be denied and listen to the evidence to see if we can prove that.

MR. CLARK: The first witness will be Todd Blodgett.



was called as a witness, and, having first been duly sworn by the Court Clerk, was examined and testified as follows:

THE CLERK: State your full name for the record, please.

THE WITNESS: Todd Alan Blodgett.



Q. Your address, Mr. Blodgett?

A. I live in Virginia, 8239 The Midway, Annandale, Virginia 22033.

Q. Where do you work?

A. I work at 3133 Connecticut Avenue, N.W., Suite 32, Washington, D.C.

Q. Have you ever testified in court before?

A. I was called for — I witnessed a fight last fall, but I didn't testify.

Q. Were you subpoenaed to appear here today?

A. Yes, I was.

Q. Have you had an opportunity to speak with a lawyer, your counsel, to review your testimony?

A. Yes.

Q. I'll ask you some questions about the history and background of Liberty Lobby. Did you work for Liberty Lobby?

A. Yes.

Q. How long did you work for Liberty Lobby?

A. In the capacity as a consultant and as the advertising agency, one of them, from January of '95 until September 25 of '98, but prior to that I worked as an employee for a consultant, back in the 1980’s and I was his employee and I was kind of like the liaison to Liberty Lobby.

Q. So you've been at Liberty Lobby for a number of years in the '80s and the '90s, just in different capacities?

A. Right.

Q. Did the time period in which you worked overlap the filing of Liberty Lobby’s bankruptcy?

A. Yes.

Q. Can you briefly describe what you did for Liberty Lobby?

A. Well, I sort of had three capacities. The first was to sell advertising and also line up trades for advertising, such as mailing lists for ad space.

Q. This was other companies looking to --

A. Well, trade with another publication or trade with someone who had a mailing list that wanted. The second capacity, I wrote a lot of direct marketing pieces and worked with people that were renting lists to help get subscribers for The Spotlight and in some cases the Barnes Review, but mainly The Spotlight.

In the third case, the final year I was there Mr. Carto had me serve as sort of like an unofficial liaison to different people, like two men in Ohio that had substantial amounts of money and some other — we were working on getting other major donors on board, that kind of thing, at the time of my --

Q. You would meet with wealthy people?

A. Yes.

Q. And work with them on doing what? Donating money?

A. Try to get them to give money, right.

Q. To whom?

A. Well, Liberty Lobby or to purchase advertising in The Spotlight, advocacy ads or to donate money to Liberty Lobby or the other entities or whatever.

Q. You mentioned that you did some advertising. Did you do that under your own name?

A. Well, the advertising aspect was under TAB Agency.

Q. TAB as in T-A-B Agency?

A. Yes.

Q. What does TAB stand for?

A. My initials.

Q. When you sold advertising, you also mentioned that you did some list work. What’s that?

A. Okay. I did two types of list work. The first was --

Q. What list are you talking about?

A. Let’s say somebody has a list of people that gave money to a candidate for the Senate and it was in a Western state where there’s lots of pro-gun people that would be sympathetic to Spotlight. We would try to get that list by maybe giving them advertising space for one of their products or if they just wanted the revenue from the space, we'd do that.

The second thing I did, I was the in-house manager of several different lists that were owned by Liberty Lobby and in that capacity, I would be a liaison to the outside managers and get people to spend money to rent the list.

Q. Liberty Lobby owns then certain mailing lists?

A. Well, like the subscribers and the Board of Policy, right.

Q. You also mentioned that you sold something for an organization called Barnes Review?

A. Well, I didn't — well, okay. TAB Agency sold — when I first started with advertising, we also sold ad space in the Barnes Review, but I did not sell any ad space in the Barnes Review for the final nine or ten months I was there.

Q. Is it B-a-r-n-e-s?

A. That’s right.

Q. What is the Barnes Review?

MR. PEARLSTEIN: Excuse me. I know this is inappropriate, but is that Mr. Sweet? Is he your corporate representative?


MR. CLARK: You said I have designate one.

MR. PEARLSTEIN: But he’s your witness, isn't he?

MR. CLARK: He’s my witness.

MR. PEARLSTEIN: Is he related to the Legion?

MR. CLARK: No, he has absolutely nothing to do with the Legion.

MR. PEARLSTEIN: He’s just a witness here, subpoenaed, and a former employee of --

THE COURT: Oh, I don't think he can be designated as the corporate representative in that event.

MR. CLARK: I'm sorry. Would you step out, Mr. Sweet? I'm sorry, Your Honor, I misunderstood.

THE COURT: You're under the same restrictions as the other witnesses. Thank you.


Q. We were talking about the Barnes Review. Is that some kind of a publication?

A. It’s a bimonthly history publication.

Q. I'm going to show you what we've marked as Exhibit 3, it’s the third exhibit in your stack.

MR. OSWALD: Your Honor, I'm sorry. I'm going to object to this.

THE COURT: Let me hear your name, please.

MR. OSWALD: My name is Scott Oswald, sir. I represent the Foundation for Economic Liberty and we filed a motion for a protective order in this case --

THE CLERK: Come forward, Mr. Oswald.

MR. OSWALD: — with Your Honor yesterday on this issue. I just want to raise it again with you. We're getting into an area, Your Honor, that we believe is inappropriate in this case. In particular, we're concerned about the fact that there may be some trade secrets issues here.

In addition, Your Honor, we're concerned about information about its specific business activities, which we contend are completely separate, going into the public record.

Your Honor, we have made a proffer to the Court in a motion for a protective order. Mr. Hutzel (phonetic), who is the chairman, has filed an affidavit with Your Honor in which he outlines why in this case there are trade secrets that are at issue.

THE COURT: I don't hear anything in this question that could possibly reveal a trade secret. You may raise an objection once we get to that juncture, but I haven't heard it yet.

MR. OSWALD: Fair enough, Your Honor. Thank you.


Q. Can you identify this exhibit, please?

A. (Reviewing document.) It looks like the statement of ownership, masthead, whatever you want to call it, of the Barnes Review, although it’s not currently accurate.

Q. This was — according to the exhibit, it says filed September 22, 1997.

A. Oh, I see. Okay. Yes.

Q. Where does the Barnes Review operate out of?

A. The Liberty Building.

Q. And the address used on this exhibit?

A. That would be correct.

Q. Can you read it, please?

A. 130 3rd Street, S.E.

Q. Who is listed as the publisher?

A. W.A. Carto.

Q. Do you recognize that name?

A. Yes.

Q. Who is that?

A. The gentleman here next to --

Q. What does W.A. Carto stand for?

A. That’s Willis Carto.

Q. It says the owner in Question 10, Page 1?

A. Right. I see where it says owner.

Q. Who is the owner?

A. Foundation for Economic Liberty.

Q. What’s their address?

A. 130 3rd Street, S.E.

Q. So you also did work for this Barnes Review?

A. I worked in the sense that I sold ads that were placed in the Barnes Review, that is so.

Q. Were you ever paid by the Barnes Review?

A. I was paid by Liberty Lobby.

Q. Talking some more about advertising in The Spotlight, can you just briefly describe to the Court what The Spotlight is?

A. The Spotlight is a weekly tabloid published since September of 1975 which targets as its subscribers and readers predominantly patriotic, health conscious Americans. It’s a tabloid that --

Q. Do you mean tabloid as tabloid style? You open it up, unlike a newspaper where it’s folded over?

A. Right. Well, it’s a tabloid, but it’s also folded as well, but you can read it on a subway a lot easier than say The New York Times.

Q. It has articles in it?

A. Mm-hmm.

Q. Pictures?

A. Yeah. Editorials, all that.

Q. Commentaries?

MR. PEARLSTEIN: I have to object to direct. I realize we want to get through the proffer, but I'd ask that you not use direct questions.

THE COURT: The objection is sustained.


Q. How often does The Spotlight come out?

A. Weekly.

Q. Can you briefly describe your duties as the in-house Liberty Lobby mailing — mailing list manager, is that what you said?

A. I was the guy that — let’s say for example — I was the liaison to three different outside managers, meaning that we had a mailing house called Affinity Marketing, another one called Response Unlimited and another called Liberty List, which would --

THE COURT: Let’s go through each of those one-by-one. You're going to lose me if you go as fast as you've been going. What’s the first one?


Q. I realize it’s very familiar to you, but why don't you go very slowly.

A. Okay. The first outside list manager we had was Affinity Marketing.

Q. A-f-f --

A. I-n-i-t-y. Affinity Marketing. The second one was Liberty Lists and the third was Response Unlimited and in my capacity as the in-house list manager, I was the liaison to all three of those at different times. In fact, there was some overlap. Essentially, what I did was I would try to get other people, other entities, political campaigns, publications, people that would use the Liberty Lobby names, I would try to get them to rent those names for a one time usage, or beyond that, and I would approve or disapprove the requests that came from those companies and their clients that wanted to use the list.

Q. Let’s say for example that Pat Buchanan wanted to rent the Liberty Lobby mailing list.

A. Right.

Q. Would he come to you?

A. He would either come directly to me or go to one of the other three outside list businesses, in which a copy of the letter he wanted to send would be faxed over to me, I would then either make a decision to approve it or disapprove it and if it was kind of a grey area, I will call Willis and whatever Willis said, we would do.

Q. We'll come back to this area in a second. What’s the address of the Liberty Lobby Building?

A. 300 Independence Avenue, S.E.

Q. Is there any other address?

A. Well, they've used the same one that you have here, 130 3rd Street, S.E.

Q. Can you describe this location on the street?

A. Sure. It’s a three-story white brick building.

Q. Is it in the middle of the street?

A. It’s at the corner of 3rd and Independence. Kind of on the corner.

Q. Is it one building?

A. It’s actually two buildings.

Q. Are they affixed?

A. They're connected by way of an outside — like a fire escape kind of thing.

Q. Could I go from one building to the other without going outside on the sidewalk?

A. Yes, if you went on the second or third floor balconies.

Q. Who is in charge of Liberty Lobby?

A. Mr. Carto.

MR. CLARK: I would ask the Court to take judicial recognition to Page 7 of the disclosure statement, which states that Mr. Carto is the treasurer and the CEO of Liberty Lobby.


Q. Did you ever witness Mr. Carto making management type decisions for Liberty Lobby?

A. Yes.

Q. Did you report to him in your capacity as list manager?

A. Yes.

Q. How often?

A. Well, all the work I did there I reported direct to Mr. Carto.

Q. How long have you known him?

A. I met Willis in September of 1986 when I began work with John Whitehead.

Q. Have you traveled together?

A. Yes.

Q. Do you know him socially?

A. Well, I mean, I got to know him through my work, but then — I mean, he’s been with my parents and I've been with his father and --

Q. He was more than just a boss to you?

MR. PEARLSTEIN: I would again object to leading questions. I'm sorry, he can describe the relationship.

THE COURT: Sustained.

MR. CLARK: I'll withdraw the question.


Q. When someone were to rent the mailing list, who would the check be made payable to?

A. Okay. Let’s say, to use your example, that the Buchanan campaign wanted to rent the Liberty Lobby — The Spotlight subscribers. The Buchanan campaign would make a check payable to one of the three outside managers, in this case Response Unlimited, which would then take out a management fee and then remit to TAB Agency the remainder. I would then take my check, TAB Agency, to Mr. Hutzel or to Mr. Carto and I would get a commission and I would make the check payable to Liberty Lobby.

Q. Someone would rent the mailing list and make a check payable to Response Unlimited?

A. Or to Affinity Marketing or to Liberty List, that’s right.

Q. And those checks would be sent --

A. Those checks, less the management fee, would then be sent to TAB Agency.

Q. What would TAB Agency do with the check?

A. I would so one of two things, depending on what Blaine said. I would either take my commission, which is 20 percent, off the top and give him the difference, the balance, or I would just give the whole thing to them and they would then give me a 20 percent commission.

Q. What’s the Government Educational Foundation?

A. That is the entity that, if I'm not mistaken, owns the Liberty Library Books and — it’s one of the entities at that address.

Q. Do you know what it does?

A. Well, it owns Liberty Library Books, it — well, it has an office — well, it has — it’s basically just one of the entities that they have over there.

Q. And it’s located in the Liberty Lobby Building?

A. Yes.

Q. Do you know if it’s a profit or non-profit organization?

A. I think it’s non-profit, but I don't know.

Q. To your knowledge, is Mr. Carto in any way related to GEF?

A. Yes.

Q. What is he?

A. I don't know the official capacity he occupies with it, but he essentially runs it.

Q. Let me hand you want is marked as Defendant’s — I'm sorry, Creditor’s Exhibit 1. Can you identify that, please?

A. (Reviewing document.) It’s a check drawn on the TAB Agency account, dated September 15, 1998, made payable to Government Education Foundation in the amount of $3,000.

Q. Whose signature is that at the bottom?

A. Mine.

Q. To whom is the check payable?

A. Government Education Foundation.

Q. That’s GEF?

A. Right.

Q. What’s written in the memo portion of the check?

A. Contribution.

Q. Where did TAB Agency — pardon me.

MR. CLARK: I will move for the admission of Exhibit 1 into evidence.

MR. PEARLSTEIN: Do you have the original?

THE COURT: The witness has it, Mr. Pearlstein, if you'd like to examine it.

MR. PEARLSTEIN: (Reviewing document.) No objection.

THE COURT: I'll receive Exhibit 1 into evidence.

(Creditor’s Exhibit No. 1, previously marked for identification, was received in evidence.)


Q. Where did TAB Agency get the money referenced in the check?

A. Well, directly from Response Unlimited.

Q. What was the money for?

A. Well, a direct mailer had used some The Spotlight subscribers for a prospecting campaign and they paid Response Unlimited, which in turn took out the management fee and gave me roughly — well, if you add 20 percent, it would be about $3,700.

THE COURT: Let me ask a couple of questions. TAB Agency, is that an entity or is it just a trade name you used for yourself?

THE WITNESS: Well, it’s a d/b/a, but it’s part of an incorporated entity that I have, incorporated out of Delaware.

THE COURT: That’s solely owned by you?


THE COURT: Affinity Marketing, Liberty Lists and Response Unlimited are unrelated third party entities?

THE WITNESS: They're unrelated to any of my business dealings, but I dealt with them on a regular basis because they would send checks over to me, that is, to TAB Agency.

THE COURT: But you don't have any ownership interest in them?


THE COURT: And as far as you know, Liberty Lobby doesn't?

THE WITNESS: Right. It doesn't.

THE COURT: It has no affiliation, other than they just do business with them?



Q. Could you tell me what the money was for that you received here?

A. In this case, the direct mailer had rented The Spotlight subscribers.

Q. The subscribers?

A. To The Spotlight. They made payable to Response Unlimited a check for those names. Response Unlimited, under the terms of its contract, took off a management fee, then remitted to me the balance. I then took off 20 percent as per my contract and the remainder was $3,000.

Q. Why is this check written to GEF?

A. Well, I was in a meeting with Willis on that day in his office and I had reminded him that TAB Agency was sitting on this money that belonged to Liberty Lobby and at that point he said to make the check out to — he said under the circumstances, we should make the check out to GEF, Government Education Foundation.

Q. Do you know why Mr. Carto directed you to make the check payable to GEF rather than to Liberty Lobby?

A. Well, it was done for — it was — they wanted to buy a computer for GEF and they wanted GEF to own the computer, so I made the check payable to GEF for the computer.

Q. The date of this check, was this after the bankruptcy filing?

A. Yes.

Q. Did Mr. Carto know about the bankruptcy when he gave you these instructions?

A. Yes.

Q. How do you know that?

A. Well, because the bankruptcy was May 15 and the check was made payable three months after that or four months after that.

Q. In your entire career at Liberty Lobby, had you ever rented a Liberty Lobby mailing list and issued a check with the proceeds to go to any other entity other than Liberty Lobby?

A. Only to The Spotlight.

Q. The Spotlight and Liberty Lobby are --

A. I always considered them to be the same.

Q. Why did you write contribution on the check?

A. It was done very hurriedly in Willis' office and he said now you can write contribution on the check and you could even perhaps take it off on your tax return, but I didn't do that.

Q. Did you know why he told you to do that?

A. I think — I don't know. I mean, I just was in his office and that’s what he said to do and that’s what I did.

Q. Do you know a man named Herbert Zeigler?

A. I did know Herbert Zeigler, he’s dead.

Q. Did he ever purchase advertising space from Liberty Lobby?

A. He purchased space in The Spotlight, yes.

Q. How many dollars worth of advertising did he purchase?

A. I don't know exactly. I don't have all my records because a bunch of them are still over there, but I think it was around $60,000.

Q. In what time period did he place this advertising?

A. I would say roughly somewhere between the early summer of 1997 and the late fall of 1997.

Q. Prior to the bankruptcy filing?

A. Oh, yes. Yes. The bankruptcy was in May and he died I think in January of '98.

Q. Did Mr. Zeigler in fact pay Liberty Lobby the $60,000?

A. Yes, on his personal account. It was from his — I mean, he wrote the checks out for the whole advertising amount.

Q. And those checks went to Liberty Lobby?

A. Some of them did, yes.

Q. Where did the others go?

A. He made one check — either one or two checks, and again, I don't have the records, but I know that at least one check and perhaps two were made payable to — it was either FEL or FDFA.

Q. Why did he pay FDFA or FEL and not Liberty Lobby?

A. Well, because he wanted to have tax deductibility for his advocacy ads and those were tax deductible.

Q. Where is Foundation to Defend the First Amendment located?

A. In the same building, at this address.

Q. To your knowledge, is it a 501(c)(3) corporation?

A. I'm quite sure that both FEL and FDFA are, yes. I'm not positive, though.

Q. Was Mr. Zeigler given a letter from FDFA acknowledging a contribution?

A. Yes.

Q. Did the letter acknowledge the amount that was paid to FDFA?

A. Acknowledged the — yes. It acknowledged that, yes.

Q. The entire amount paid to FDFA?

A. It acknowledged the entire amount that was paid to FDFA and then some.

Q. What do you mean?

A. Well, it was the whole — the total amount of his ad purchase was acknowledged in that letter.

THE COURT: But you said plus some.

THE WITNESS: Well, he asked me what the letter said and I wrote the letter and the letter acknowledged the total amount that he bought advertising with.

THE COURT: How much of that went to FDFA?

THE WITNESS: If I'm not mistaken, I think about $20,000 went to FDFA, maybe $30,000.

THE COURT: And how much did the letter acknowledge as having gone to FDFA?

THE WITNESS: The letter acknowledged the entire amount of the advertising space he bought in The Spotlight.

THE COURT: Which was?

THE WITNESS: It was approximately — I think it was $60,000. It might have been $50,000, but it was one of the two, right about that amount.


Q. Who directed you to write that letter?

A. Well, it was directed by Willis, only in response to the fact that Zeigler insisted on getting tax deductibility.

MR. PEARLSTEIN: Which letter is that? I'm sorry, I lost that.

THE WITNESS: I'm sorry. The letter acknowledging the contribution, the FDFA letter.

MR. PEARLSTEIN: That’s not marked or anything, is it?


Q. What’s the Board of Policy?

A. That is — you might call it super subscribers. They're people that are — they're like a notch above the regular subscribers. They pay extra money every year, they support Liberty, they get extra supplements with their Spotlight and that kind of thing.

Q. These are Liberty Lobby supporters?

A. Oh, yeah. The cream of the crop, so to speak.

Q. Is there a separate mailing list maintained by Liberty Lobby of Board of Policy members?

A. Well, it’s separate in the sense that it’s segregated and those names are never made available for rental, except on very rare occasions, but they get the same Spotlight that the rest of them do and then some.

Q. Are you a member of the Board of Policy?

A. That depends on how you define it. I was and I sent my renewal check in, in January of '98, but after I was dismissed in September, I didn't want to, you know, do that anymore and I received some letters, the form letters signed by different people there and I got a letter about a month ago saying that because they considered me important to them, that they're going to give me a subscription for one year to The Spotlight and continue my BOP membership.

Q. Do you remember how much it costs to joint the Board of Policy?

A. I always just gave them $100 a year, but I believe it was $64.

Q. Do Board of Policy members receive a subscription to The Spotlight?

A. Right.

Q. And that’s part of joining the Board of Policy?

A. Right.

Q. How much does a subscription to The Spotlight cost?

A. The standard rate when I was there was $59 a year, but it varied. There were some people that paid way more, some people that paid way less. It depended. It kind of varied.

Q. Have you heard of an organization called The Committee to Defend Liberty Lobby or CDLL?

A. Yes.

Q. What is it?

A. It’s an organization that — the purpose of which is pretty much what it says, a committee to defend Liberty Lobby and I think it precedes the bankruptcy, but I don't know. I know that that’s what it’s used for.

Q. Did it become active or more active following the bankruptcy case?

A. More active.

Q. Why doesn't Liberty Lobby simply raise the money itself?

A. Well, it does, but I think the objective was to make sure that money that got raised for the purpose of defending Liberty Lobby couldn't be attached by a hostile creditor.

Q. Who are the officers and directors of CDLL?

A. I think Chris Temple was or is, I at one time was asked to be and the only reason I didn't was because my father told me to find out if they had directors insurance and once it was ascertained they didn't, I didn't do it. But I signed all the things.

Q. Do you know what address they operate out of?

A. Yeah.

Q. Would you tell the Court, please?

A. This one here. Well, 300 Independence or 130 3rd, whatever you want to say.

Q. As a member of the Board of Policy, did you ever receive — I have it as the fifth in the exhibit stack, did you ever receive a solicitation — I apologize for the copy.

A. Yeah. I was on all the lists when I was there, so yes.

Q. What’s the address on the bottom left?

A. 300 Independence Avenue, Washington.

Q. Who is the gentleman who is sending this letter?

A. Vince Ryan.

Q. Who is Mr. Ryan?

A. The gentleman right back here in the back row — the next to the back row.

Q. Does Mr. Ryan have any connection with Liberty Lobby?

A. Yes.

MR. CLARK: I would ask the Court to take judicial recognition of the disclosure statement at Page 7, which indicates that Mr. Ryan is the chairman of Liberty Lobby.


Q. What does the first sentence in the letter read?

A. I'm sorry?

Q. What does the first sentence in the letter read?

A. Until further advised, please make all donations intended to further the populace cause directly to the Committee to Defend Liberty Lobby or simply to CDLL.

Q. To your knowledge, did CDLL also --

MR. CLARK: Your Honor, I'd ask that this letter be admitted into evidence.

MR. PEARLSTEIN: I object. It’s a part of a letter. I don't know if anybody has the original. I see a date only on the second page and have you ever seen this document previously?

THE WITNESS: Well, if I did --

MR. CLARK: I believe his testimony was that as a BOP member, he received this. It is addressed to all BOP members.

MR. PEARLSTEIN: Had you ever received it?

THE WITNESS: I'm quite sure I did.

MR. PEARLSTEIN: But you're not sure?

THE WITNESS: I'm not positive, but I know that the list went to BOP members and I was on that list.

MR. PEARLSTEIN: I would object to it as being a copy. I don't think it’s an authentic document and I think the testimony probably covers most of what’s contained in it.

THE COURT: Overruled. I'll receive it into evidence.

(Creditor’s Exhibit No. 5, previously marked for identification, was received in evidence.)


Q. To your knowledge, did CDLL ever raise money for CDLL by selling subscriptions to The Spotlight?

MR. PEARLSTEIN: I would object. Number one, it’s a dealing question, but number two, I don't know that there’s any foundation to establish the fact that he could have possibly known this.

THE COURT: Sustained. Lay a foundation.


Q. Do you have any knowledge of CDLL’s fund-raising efforts?

A. Yes.

Q. What are some of those?

A. Well, CDLL would often be mentioned in The Spotlight or a letter would be reproduced, such as one like this, on what they called a wrap-around to The Spotlight that went to readers and to BOP members, asking them to send money to CDLL for various things.

Q. What sorts of efforts did CDLL do to raise money?

A. I think — well, I know that there were efforts made to get subscribers to give their money — not give, but to send their money to the CDLL for The Spotlight and things and to make donations payable to CDLL.

Q. I'm going to hand you what I've marked as Exhibit 6. Can you identify this for me, please?

A. (Reviewing document.) It says it’s a special CDLL discount coupon for a subscription to The Spotlight and it has various amounts --

Q. Is this an example of one such effort?

A. I would say yes. Yeah.

Q. Do you know if CDLL ever paid Liberty Lobby for the subscription money that it received?

A. I don't know. I didn't — I wasn't in charge of that. I don't know.

Q. Did you ever hold a position at CDLL?

A. I was the — as I said earlier, I was asked to be — I believe I was asked to be the secretary or the treasurer of the thing and I declined, but I then was asked to be in an unofficial capacity in which I kept the checkbook in my safe in my office and I would — I was the guy that wrote out the checks.

Q. So you handled the check transactions for CDLL?

A. I wouldn't go that far. I would write out the amounts to be paid and I would write out the person or the entity to which the checks were paid.

Q. During what time period did you perform this task?

A. Roughly from I would say early June of '98 until the day I was dismissed in September.

Q. After the bankruptcy filing?

A. Yes.

Q. What were you required to do?

A. Well, I had the Crestar Bank statements come to my office on Connecticut Avenue, I would bring the statements over to — either to Ann Cronin (phonetic) or have them sent out in the pouch — well, in the — you know, have them sent out to California to Mr. Carto and I would also write out the amounts of the checks and write out the payee of the checks.

Q. Did you sign the checks?

A. No.

Q. Why not?

A. Well, I wasn't asked to, so I didn't.

Q. Were the checks signed before you filled them out?

A. Yes.

Q. Whose signature was on there?

A. George Kadar (phonetic).

Q. Who is he?

A. He’s this half-German guy from California.

Q. Help me out here, Mr. Blodgett. You had the checkbook for CDLL?

A. Yes.

Q. But the signatures were already filling in on the checks?

A. Yes.

MR. PEARLSTEIN: Same objection to the leading questions.

THE COURT: Overruled.


Q. Then you added the payee information?

A. Yes.

Q. Did you open the bank statements?

A. No.

Q. Who did you send them to?

A. I would either take them over and give them to Ann Cronin or to Willis or have them sent out to Willis.

Q. Ultimately, who received the bank statements?

A. Well, the last person to get them would be Willis and sometimes I guess he was the first, in effect.

Q. Do you know how much money was in the CDLL account?

A. I seem to recall at some point there was low six figures, at some point.

Q. How do you know that?

A. Well, there was at one time an open statement on Mr. Carto’s desk that I had not opened but I had brought over and I seem to remember seeing something around like $100,000 and some or something. I'm not — don't hold me to that. That’s just — I'm pretty sure about that, but I'm not positive.

Q. Do you remember the identity of anyone to whom you wrote checks on the CDLL account?

A. A couple, yeah.

Q. Can you give me some examples?

A. There was a check that I wrote out shortly before our falling out, probably around the first part of September, to Resistance Records.

Q. What’s Resistance Records?

A. It’s what you might call a white power music company that was then based in Detroit and — well, I take that back, based in California, prior to that Detroit, and the FEL had a 60 percent share interest in that.

Q. This is a corporation?

A. Yes.

Q. FEL held some shares in it?

A. Yes.

Q. Who else held shares in Resistance Records?

MR. PEARLSTEIN: I'd ask again for a foundation.

THE COURT: Sustained.

THE WITNESS: What does that mean?

THE COURT: If I sustain an objection, it means you don't answer the question, you wait until another question is asked to you.



Q. Do you know who owned Resistance Records?

A. Yes.

Q. Who?

A. Do you mean at the check was written?

Q. Yes.

A. The FEL owned 60 shares out of 100 shares. Jason Snow, who is a Canadian, owed 15 of the shares and I had purchased 25 of the shares.

Q. How much was the check that you wrote?

A. $26,000.

Q. Did Mr. Carto also own shares in Resistance Records?

A. No.

Q. I'll hand you what I've marked as Exhibit 9. It’s labeled Stock Conveyance Guaranty. Have you seen this document before?

A. (Reviewing document.) This says No. 7 to me.

Q. No. 7. Have you seen this document before, Mr. Blodgett?

A. I've seen a copy of it, yes.

Q. Whose signature is that at the bottom?

A. Willis Carto’s.

Q. Did Mr. Carto own any shares of Resistance Records?

A. Well — no.

Q. Why did he write this — do you know why he wrote this agreement?

A. Yes.

Q. Why is that?

A. Because this guy named Eric Fairburn (phonetic) was hired at Liberty Lobby and was there for a couple months and he was fired and as part of his severance, he — I would say, you know, demanded some shares. In any event, he got nine shares of resistance, which he later sold to me, and in order to get the shares, he had to get this conveyance certificate or whatever you want to call it.

Q. How did Mr. Carto get the shares represented in this guaranty?

A. I didn't say he — well, okay. When he says I own, I know what he means is he’s referring to FEL.

THE COURT: At the request of someone who counts, we're going to take a recess.

(A brief recess was taken.)

THE CLERK: Mr. Blodgett, the Court wants to remind you, you have been sworn and remain under oath.

THE WITNESS: Yes, sir.

THE CLERK: Does counsel want to address the Court on that matter?

MR. OSWALD: I would. Your Honor, my name is Scott Oswald and I represent Blaine Hutzel, who is a witness in this case. The Court Clerk has indicated that you have set this hearing for a continuance for the 12th. I have a three-day jury trial starting in Rockville at this point before Judge Rupp on that morning, beginning at 9:00 a.m.

Your Honor, in his personal capacity, Mr. Hutzel needs counsel. There are some issues that have arisen, both indirectly and through hearsay, which leads me to believe and I'll represent to the Court that he needs counsel and Your Honor, I have spent a tremendous amount of time with my client over the last two days to debrief him and to understand where there may be potential and indeed privileged areas that clearly need to be asserted on his behalf personally.

Therefore, Your Honor, I must object to the hearing scheduled on the 12th. I would ask the Court to either schedule a second hearing, if Mr. Clark wants to call my client for another day, I think that would be a possible solution, or moving it over.

At this point, Your Honor, given the amount of time that I have spent, I think it’s clear to the Court the amount of time I spent on this case on behalf of my client, it would be grossly unfair and unjust to him to require him to retain new counsel at this point in the process at tremendous expense to him personally already. So again, I must object and I ask the Court, in its discretion, to either allow the hearing to go forward not on the 12th or to provide that Mr. Hutzel will not be called on that morning when I cannot appear.

THE COURT: We'll go ahead and take further testimony and before we adjourn, we'll address how we schedule this in light of those comments.


Q. When we adjourned, Mr. Blodgett, you were talking about Resistance Records and the shareholders of Resistance Records. Let me hand you what’s been marked as Exhibit 8.

MR. CLARK: In the pile of papers, Your Honor, it’s the eighth one down, it’s titled Agreement at the top.


Q. Can you identify this for me, please?

A. That was an agreement between the Foundation for Economic Liberty and Jason Snow, to purchase Jason Snow’s — of his 100 shares he held at the time of the agreement, he sold 60 of them to the FEL.

MR. OSWALD: Your Honor, if I may, on behalf of FEL, who I am also represent, I'm just wondering if there’s a foundation for this at all, whether he’s ever seen this document, whether he’s competent to testify about its contents. I'd like to bring that to the Court’s attention and object on that basis.


Q. Have you seen this document before?

A. Yes.

Q. Is this document in your possession?

A. I copy is. I negotiated the deal.

THE COURT: The objection is overruled.

MR. CLARK: I'd ask that Exhibit 8 be admitted into evidence.

MR. OSWALD: I think it’s necessary to discuss what it is first, before admitting it.

MR. CLARK: I believe he said it was an agreement to purchase shares.

THE COURT: The objection is overruled. Exhibit 8 is received into evidence.

(Creditor’s Exhibit No. 8, previously marked for identification, was received in evidence.)


Q. Whose signature appears at the bottom?

A. Blaine Hutzel.

Q. Who is Mr. Hutzel?

A. He’s the bookkeeper for Liberty Lobby.

Q. What’s the address on the bottom?

A. 130 3rd Street, S.E.

Q. Is that the Liberty Lobby Building’s address?

A. Yes, sir.

Q. Are these the shares — do you have any knowledge if these shares that Mr. Carto was discussing in the stock conveyance guaranty are the shares that are discussed in this agreement?

A. You're talking about this?

Q. Exhibit 7. The shares referenced in Exhibit 7.

A. Yes.

Q. Do you or TAB Agency have any agreements with Liberty Lobby?

A. Yeah. I mean, I had deals with them, I made deals with Willis, I made deals with — all kinds of deals.

Q. I'm going to show you what’s been marked as Exhibit 2, it’s the second one down in the pile. Can you identify this for me, please?

A. (Reviewing document.) This is a deal that Willis and I put together for me, not TAB Agency, but me to purchase copies — not the originals, but copies of the lists.

Q. Is that Mr. Carto’s signature at the bottom?

A. Yeah.

Q. What stationery is this one?

A. Liberty Lobby.

Q. Mr. Carto, acting on behalf of Liberty Lobby?

A. Yes.

Q. This is a Liberty Lobby mailing list?

A. Well, among them, yes. Several of them, yes.

Q. How much were you to pay for the mailing list?

A. $85,000.

Q. What were the financial terms of the agreement?

A. Well, I could either — what it was, was I was going to buy a copy of the list and in fact did and basically, I could own a copy and I could then make money off this.

Q. At the time that Liberty Lobby filed bankruptcy, May 13, 1998, did you owe any money on this agreement?

A. Yes.

Q. How much did you owe?

A. $25,000.

Q. Did you pay the $25,000?

A. Yes.

Q. When did you pay the $25,000?

A. Like Memorial Day or the day after Memorial Day last year.

Q. How did you pay the $25,000?

A. To Mr. Carto.

Q. Did you pay by check?

A. No.

Q. How did you pay?

A. Cash.

Q. What were the denominations?

A. Hundred dollar bills.

Q. You gave him 250 $100 bills?

A. Mm-hmm.

THE COURT: And that was last summer, the day after Labor Day?

THE WITNESS: It was in Phoenix, Arizona, the day after Memorial Day. Or maybe it was Memorial Day. It was the Monday of Memorial Day.


Q. What year was that?

A. '98.

Q. It was after the filing of the bankruptcy petition?

A. Yes.

THE COURT: And it had to do with this October 28, 1996 letter?



Q. Who told you to pay in cash?

A. It was just agreed that that’s how I would pay. Willis and I had agreed I would pay the final $25,000 in cash.

Q. What did Mr. Carto do with the money?

A. I don't know.

Q. Where were you when you gave it to him?

A. In my hotel. We had a hotel room — I had a — there was a conference call to Jubilation put on by The Jubilee Newspaper and this transaction took place at the hotel in Costello, Arizona. I think it was John Gardner’s hotel or something like that.

Q. Does Mr. Carto carry a metal box with him?

A. Yes.

Q. Can you describe it?

A. It’s about 20 inches cubed — cubic. It’s probably 20 years old, I think he had it specially made one time, he told me, and it’s quite heavy and it locks.

Q. Have you been with him in Liberty Lobby with this box?

A. Yes.

Q. Have you seen him travel with it?

A. Yes.

Q. Do you know what he puts in the box?

A. I assume valuables, but I've never seen him open it or close it.

Q. Why would you assume it’s valuables?

A. Well, it’s a pretty heavy box to carry around just for — I mean, I don't know what’s in it, but it’s pretty heavy.

Q. When you were selling ads for The Spotlight, what was the subscription run?

A. When I started, it was about — okay, subscription run versus — do you mean subscription run or total press run? Subscriptions?

Q. Subscribers.

A. Subscribers, when I started it was about 115,000 and when I stopped it was about 60.

Q. Do you know how much money Liberty Lobby would receive from a weekly subscription run?

A. Yeah. It took in — if you count the BOP money, the pledges, the direct marketing, the subscribers, everything, because there are varying rates that get paid by different people, I would say probably $50,000 a week.

MR. PEARLSTEIN: I object. I don't like adverbs like probably and others. The last answer was an I assume. How does he know that? There’s no foundation and how did he make his calculation?

THE COURT: Sustained.


Q. Do you have personal knowledge of how much Liberty Lobby would receive from a weekly subscription run?

A. Yes.

Q. You've previously testified that the number of paid subscribers at the time you left was 60,000?

A. That’s correct.

Q. How much does each issue of The Spotlight cost?

A. On the news stand it varies, at times it’s 75 cents, at times it’s $1.25, at times it’s $1, 99 cents. But if you mark it down on the — if you divide the issues by 52 weeks in a year, we're talking a little under $1 an issue, so that means it’s $59 — I take that back, a little more than $1 an issue.

Q. While you were selling ads for The Spotlight, do you have personal knowledge of how much advertising money would be paid to The Spotlight?

A. Yes.

Q. How much was that?

A. I would say between --

MR. PEARLSTEIN: Objection. No time period was established.

THE COURT: Sustained.


Q. During the time following the filing of the bankruptcy, before you left Liberty Lobby in the fall of 1998, do you have any idea how much was paid on a weekly basis for advertising?

A. Yeah. We were — between what I was selling, my agency, and between what Jim Wilmington was selling, his agency, he’s an employee of Liberty Lobby, and between what we were going as far as ad trades, The Spotlight was easily doing $55,000, $60,000 worth of advertising every month, so if you divide that by four or by five, depending on how many Mondays are in the month, the newspaper is always dated on a Monday, then you can figure that out from there; $12,500, $15,000.

Q. Does Liberty Lobby do anything else to make money?

A. Yes.

Q. What do they do?

A. Sends out direct mail solicitations, sells memberships in the BOP. It has a guy that’s been affiliated with it for a long time, he’s like the tax guy, Courtney Smith, and some other people like him have tried to have like seminars around the country to sell ways to minimize your taxes. As we discussed earlier, it has mailing lists that generate income, it has ads that generate income.

Q. Do they sell books?

A. Liberty Library does, yes.

Q. What’s Liberty Library?

A. As I understand it, it’s a subsidiary of the GEF, the Government Education Foundation, and it has all these books on everything from how to cure cancer to, you know, the history of World War II, that kind of thing.

Q. To your knowledge, does Liberty Lobby gain any revenue from the sale of books?

A. Well, the money comes into Liberty Lobby, yes, but it nonetheless is a situation where it’s — when you say gain and revenue, I — do you mean does money come into Liberty Lobby because of those books?

Q. Yes.

A. Yes, it does.

Q. Who owns the books?

A. The Government Education Foundation.

Q. Does Liberty Lobby sell coins?

A. Yes.

Q. Silver coins? Can you describe that briefly?

A. That’s Liberty Mint, Liberty Trust. They sell — like there’s some medallions called Lucky Lindys, there are different medallions called — they have commemorative silver coins and they sell a lot of silver.

Q. Do you know who owns the coins?

A. I don't know. I think it’s whoever owns Liberty Trust or Liberty Mint.

MR. PEARLSTEIN: I object to I think. He said he didn't know.

THE COURT: Sustained.


Q. While employed at Liberty Lobby, did you have the opportunity to witness Mr. Carto’s management style?

A. Yes.

Q. Could you describe that, please?

A. I would say very tightly controlled and reluctant to delegate, but not unwilling to do so.

MR. PEARLSTEIN: Is there any foundation for that? I object without some kind of foundation or explanation.

THE COURT: Sustained.

MR. CLARK: I had asked him if he had an opportunity to witness Mr. Carto’s management style.

THE COURT: Lay a larger foundation, please. How is it that you had an opportunity to witness that management style?

THE WITNESS: You're directing the question to me, Your Honor?


THE WITNESS: Well, because I was — Willis always told me that whenever I wanted to, I could attend the weekly editorial meetings, which I often did. I was directly involved in selecting mailing lists for usage in direct marketing. I would often argue with him on — to his credit, he backed me up on a lot of it, as far as getting advertising in there that different people didn't want. I would sometimes win and sometimes lose. And I reported directly to him on all these things.


Q. Do you have any personal knowledge of whether he ever consulted a board member prior to making a decision?

A. The only — okay. Prior to making a decision? No, I don't.

Q. Did there come a time at Liberty Lobby when the price of The Spotlight rose abruptly?

A. Yes.

Q. When was that?

A. It was roughly in — I would say maybe January of '97.

Q. Was there a meeting that took place?

A. Yes.

Q. Who was at the meeting?

A. Me, Willis, Bill Wardino (phonetic), I'm pretty sure Bill Sweet, and later, Julie Foster and Andy Arnold were consulted.

MR. PEARLSTEIN: Object. Is there a date? I heard an area, but no date.

THE WITNESS: We could find it by just look at The Spotlight.


Q. Approximately when was the date of the meeting? Can you give me the month of the meeting?

A. The meeting was roughly in January of 1997.

Q. When was the price change to become effective?

A. Immediately. Well, okay, it was be announced immediately, but they had a grace period of say three months or something that they could lock in their old price, if they wanted to do it then.

Q. How did you feel about the price change?

A. I was very opposed to it.

Q. Were others at the meeting opposed to it?

A. Very single one.

Q. Every person at the meeting was opposed to it?

A. Yes.

Q. Was Mr. Carto opposed to it?

A. No.

Q. Do you know if Mr. Carto ever submitted this idea to the board?

A. Well, if he did, it was done over a weekend because this meeting took place after the Friday editorial meeting and by the time Monday came around, Willis was still in town that weekend and it was a done deal. I mean, it was understood because I had to tell advertisers and everything else that the price was going to go up. So if he consulted, it was over that weekend. I don't know.

Q. As the individual who sells advertising space, did Mr. Carto ever direct you not to sell certain ads?

A. Yes.

Q. Why was that?

A. He was generally opposed to religious ads of any kind going in. He was very leery about certain types of contraptions, one guy had some kind of a machine or something, he didn't want that in there. Then there were always the fights between the paid ads and what I call the freeloaded ads?

Q. Could you describe that, please?

A. All right. Well, let’s say for example the Barnes Review circulation is down or Liberty --

Q. The Barnes Review is the publication owned by FEL?

A. Right. Let’s say that they want to get more subscribers to the Barnes Review or let’s say that they've got a whole big inventory of books of Liberty Library that they want to clear off the shelves and they want to put an ad on the back page or an inside page or whatever and I say I want to sell that ad to a paid advertiser.

Well, it was a situation were there were paid advertising, just because it didn't pay the full rate card, would lose out to a free ad that the FEL would get or the Barnes Review would get or the Liberty Library would get and that led to more arguments about like book ads. A lot of book sellers would not take ads with me because they'd say well, you're selling the same book, except those guys get a free ad, so those are the types of arguments we had over ads.

Q. To your knowledge, was any cash paid to Liberty Lobby for the ads for books or for the Barnes Review?

A. Well, do you mean for books by other book sellers?

Q. No.

A. Liberty Library books?

Q. Yes.

A. No. I'm virtually certain that there was never any cash paid.

Q. Was Mr. Carto advised that this action would lose money for Liberty Lobby?

A. Yes, I told him.

Q. What was his position?

A. His position was that we've got books to sell and we've got magazine subscriptions to get in the case of the Barnes or whatever the reason was, there was always a justification for running these ads.

Q. When he said we, though, who was he talking about?

A. Well, I think he kind of refers to we as just the collective — the whole mix of people and entities and everything in there.

Q. Did he ever refuse to rent the mailing list?

A. Yes.

Q. Could you discuss that?

A. Well, in his defense, there were times when groups that were hostile to — not really hostile ideologically, but groups like for example Gun Owners of America wanted to take the whole list one time, which would have made a nice commission for me and I wanted to rent it, for obvious reasons and Willis said only if they give reciprocity and that meant that Gun Owners of America had to let us use their list and they said no, so Willis said then they can't have it.

Q. Were there other occasions in which Liberty Lobby could have received money for renting its mailing list?

A. Yeah. Yeah, lots of them.

Q. And what happened?

A. Well, he'd want to find out like who was behind a certain publication or who owns something or what the situation was and if I couldn't find out exactly what he wanted, he would simply say well, let’s not do it right now.

Q. Were these decisions based on ideology or business?

A. I would say exclusively — well, there again, ideological when it came to the groups he might be opposed to. I mean, if a competitor wanted to rent our names and they would not let us rent their names, then I think it’s logical to not let them have them.

But there were plenty of times when people would come and say well, we'd like to make a deal here and rent a list and if it was active subscribers, they would not get the names. However, he did say if it’s our expired subscriber, the worst enemy could have those and I did that.

Q. You mentioned that you also worked with wealthy people who wanted to donate money?

A. Yes.

Q. Could you briefly discuss that?

A. I went up one time and saw a fellow in New York who I think gave some money. There was a man that died, not Herb Zeigler, although he did, too, there was another fellow in Ohio named Fred something or other, I can't think of his last name now, but he died last December, I think it started with an A, but he had like $14 million or $15 million and I was working on him at the time of my dismissal.

He came down to D.C. and stayed at the University Club, I remember, and then he also had dinner with me and some other people from Liberty Lobby.

Q. Was he to give this money to Liberty Lobby?

A. I think he was going to give it to CDLL. I don't think it was Liberty Lobby, but we were definitely after him for some money.

Q. Why wouldn't he give the money to Liberty Lobby?

A. Well, this was post bankruptcy and when I talked with Mister — I can't think of his last name, his first name was Fred. When I talked with him, it was understood that it was going to be to some entity other than that. Plus he wanted a tax deduction.

Q. Whose idea was it to not give the money to Liberty Lobby?

MR. PEARLSTEIN: Objection. There’s no foundation for how he knew or when this conversation took place. Almost all of it is hearsay.

THE COURT: Sustained.


Q. Did you have a conversation with this wealthy patron, Fred?

A. Fred something, yes. I can look in my files and find out. They might know.

Q. Did he talk to you about giving money to Liberty Lobby?

A. Several times. We first met him at one of the Zeigler receptions in Canton, Ohio. That was in January, right after Zeigler died, but the reception was still scheduled. Willis and I and this gentleman all discovered we were in the same college fraternity and we had a good — we had lunch together.

After our lunch, the gentleman said he wanted to come out to D.C., which he did and we again met. He came again in June and he stayed at the University Club and I spent the evening shooting pool with him and talking to him and basically talking up Liberty Lobby.

Q. Did you discuss with him donating money to Liberty Lobby?

A. No.

Q. Did you discuss with him donating money to CDLL?

A. Yes.

Q. Did anyone direct you to discuss with him making a donation to CDLL?

A. Well, in talking with Willis, what Willis said was if the guy wants tax deductibility, you're going to have to do just what you do with Zeigler, which is do the other two things, FEL and FDFA. He then — I have a hard time differentiating between like the tax-exempt and the non-profit and all that, but I do remember that after talking to Willis, if money was going to come from this guy, Fred, it was either to go to CDLL, FDFA or FEL.

Q. Was the bankruptcy any motivation for giving the money to a non-Liberty Lobby --

MR. PEARLSTEIN: Object to a leading question.

THE COURT: Sustained.


Q. Was there any other motivation to give the money to CDLL, FDFA or FEL?

A. I never heard Willis say like diversion or that kind of thing, but in talking with him, it was just kind of understood that (a) if the guy wants a tax deduction, to have it go to these groups and (b) under the circumstances, obviously, if we're going to — fully consistent with what is in The Spotlight, as far as having subscribers pay to CDLL, it was understood that I was going to get money which would help Liberty Lobby, but it would go to one of those other three things.

Q. Do you know if that money was ultimately paid to Liberty Lobby?

A. It is my understanding that no money ever was received from the man because he died before — I was dismissed two months before he died and then after he — unless he left it to them after — you know, through someone else besides me, but I don't think there was anyone else over there that knew how to — that could get money from people like that, besides Willis himself.

Q. Do you know who my client is? The LSF or IHR?

A. Yes.

Q. Did the lawsuit between Mr. Carto and my client effect his management style?

A. Say that again.

Q. Did the lawsuit involving my client and Mr. Carto effect his management style at Liberty Lobby?

A. Yes, I think so.

Q. How so?

A. Well, Willis seemed to think that — and I'm not saying he’s right or wrong — that he had been dealt an injustice.

MR. PEARLSTEIN: I've got to object. This is a continuing line of hearsay. It’s all hearsay and he’s either got to be specific as to just when it took place or where the conversations were.


Q. Okay. Can you give me specificity?

A. Mr. Carto is right here.

THE COURT: Direct your comments to the Court, please.

THE WITNESS: Pardon me, Your Honor.

THE COURT: When did you notice this change in management style?

THE WITNESS: Well, for example, right after the judgment came down in November of 1996, that’s when he decided to raise the rates way up. That happened in January of '97. And there were other things as well that I advised him against, that he continued to do.


Q. Such as?

A. Well, he has a regular feature in The Spotlight called IHR Update and I have heard directly from people around the country that hey, they say we love The Spotlight, you talk about a lot of issues that are very relevant to the patriotic cause, but a lot of people didn't care about this IHR Update.

There were things that were plainly vindictive. Mike Piper, who is an excellent writer, was taken off a writing assignment to create some facsimile of a wanted poster with Greg Raven or Mark Weber as the person in the middle, like an old West thing, wanted dead or alive kind of thing. I'm not saying it said wanted deal or alive, but that kind of stuff, things that were just basically not conducive to running a profitable operation.

Q. Who are Greg Raven and Mark Weber?

A. They're your clients.

MR. CLARK: I would say for purposes of the record they're the representatives of my client.

THE WITNESS: I'm sorry.

THE COURT: Bankruptcy attorneys are very sensitive to whom they precisely represent.



Q. Based upon your tenure at Liberty Lobby in your capacity as marketing consultant and list manager, do you feel that an outsider could run Liberty Lobby?

A. Yes.

MR. PEARLSTEIN: Object to the opinion. He’s already answered it, but I object to the question regarding an opinion without a proper foundation.

THE COURT: Sustained.


Q. Is Mr. Carto often in the office?

A. When he’s in town, yes.

Q. How often is he in town?

A. It’s been my experience, after knowing Willis as long as I have, that he’s usually in town maybe — almost always at a two-week stretch and maybe once every four weeks.

Q. Who ran the paper while he was out of town?

A. Well, he pretty much did, but the day-to-day operations were various editors. They come and go over there.

THE COURT: All right, Mr. Clark --

MR. CLARK: That’s actually my last question for Mr. Blodgett. I would tender him to Mr. Pearlstein, if possible.

THE COURT: We're going to have to continue this matter. I don't think it’s useful to press forward tonight. You may step down. We'll go off the record to discuss scheduling.

(Off the record discussion.)

THE COURT: We'll continue this matter until August 3 and August 4, 1999 at 9:30 a.m.

MR. CLARK: Your Honor, I have three witnesses under subpoena. I assume that they would remain?

THE COURT: Yes. We can bring them back into the courtroom so that I can instruct them.

MR. PEARLSTEIN: Would it make sense to put the trustee’s motion on at the same time?

THE COURT: He is at the same time.

MR. PEARLSTEIN: Excuse me, Your Honor.

THE COURT: I assume that --

MR. PEARLSTEIN: But you said the 5th, didn't you?

THE COURT: I think he’s wrong.

MR. PEARLSTEIN: Pardon me.

THE COURT: The witnesses who have been subpoenaed remain under subpoena, to return on August 3, 1999 at 9:30 a.m. Mr. Clark can make arrangements with you if he knows that you're not going to be called right away, but otherwise, you should simply show up at 9:30 a.m. and you should be — I can't imagine that it’s going to spill over to the 4th for these two witnesses, is it?

MR. CLARK: No, unless --

THE COURT: All right. So be sure you're here on the 3rd of August. That goes for you as well, sir.

MR. CLARK: Your Honor, I realize that this is unusual, but is there — and I know that Courts [are] leery to put content-based restrictions on items in the press, but is there any sort of restriction we can place on The Spotlight from vilifying my witnesses to 60,000 subscribers in the four weeks prior to the hearing?

THE COURT: I think they would be cutting off their nose to spite their face, or however it goes, if they engage in conduct that you have argued is contrary to a trustee type of running of the business, a fiduciary type of running of the business.

If they want to engage in conduct which you think is detrimental to the debtor’s financial interests, which you've characterized as detrimental to the debtor’s financial interests, unprofitable, I don't think I can put any restraint on it. I think — Mr. Pearlstein?

MR. PEARLSTEIN: My only comment was apparently it’s a two-way street; apparently we are being attacked in various press and mailings by the Legion and it’s two naughty boys out in the playground.

THE COURT: I can't see how I can put a restriction on it, Mr. Clark. The Court will adjourn for the day. Thank you.

(Whereupon, the hearing was adjourned, to reconvene Tuesday, August 3, 1999 at 9:30 a.m.)