Tuesday, April 20, 2004

Diebold legal memos reveal company strategy

By Ian Hoffman, Alameda Newspaper Group, April 20, 2004

Ian Hoffman, a reporter for the Alameda Newspaper Group, obtained a supply of internal legal memos from Jones Day, the law firm retained by Diebold Election Systems, Inc. to help the company with legal challenges in California.

There are two stories online:

Voting services firm facing legal hurdles

Diebold was aware of shortcomings early


In a series of internal memos, attorneys for Diebold Election Services Inc. depict California as a legal minefield where the electronic-voting giant faces a false-claims lawsuit, potential grand jury investigations, investigations by state and local elections authorities and lawsuits by counties.

Starting Wednesday, California elections regulators will debate punishing Diebold for fielding unapproved voting systems in violation of state law. They could ban the use of some or all Diebold equipment in California elections, even bar the nation's second largest voting-systems provider from doing business in the largest state.

By February, according to memos obtained by ANG Newspapers, attorneys at the Los Angeles office of corporate defense firm Jones Day estimated that defending Diebold on all quarters would cost $535,000 to $925,000 for two months.

At the time, Jones Day already was scoping potential defenses to a California False Claims Act suit against Diebold that is filed under seal and not publicly available. Lead counsel for Diebold's troubles in California has been assigned to Daniel D. McMillan, a specialist in the False Claims Act.

If the plaintiffs prove that Diebold knowingly made misrepresentations to local governments to win voting-systems contracts, such as its $12.7 million sale to Alameda County and its $31 million sale to San Diego County, Diebold could face punitive damages for up to three times the contracts' value.

Jones Day also had begun analyzing Diebold's risk of criminal prosecution, at a two-month cost of $25,000 to $40,000. The internal memos show the firm already has concluded that California Secretary of State Kevin Shelley has evidence that Diebold violated state election laws in at least Los Angeles, Lassen and Trinity counties.

State law requires Shelley to refer those violations to the local district attorneys or the state attorney general for prosecution, the internal memos show.

Jones Day's lawyers advised Diebold to retain a white-collar criminal defense specialist for "pre-grand jury investigative advice" at an additional $5,000 to $10,000 a month, with an eye to "persuading prosecuting authorities not to bring criminal charges."


Voting experts say the industry's factories and printing plants probably can handle the extra demand for replacement voting machines and paper ballots, given at least three months' notice. But Shelley's decision also could unleash a barrage of lawsuits that could mire orders of equipment and ballots in legal wrangling over who will pay for them.

At the center of those battles will be Jones Day. The firm's internal memoranda show its attorneys considered the idea of calling a new bit of uncertified voting software "experimental." State rules say local governments can use entire experimental voting systems without state approval.

The lawyers also presented California officials who were seeking documents from Diebold with sweeping confidentiality agreements designed to hide flaws in Diebold software as much as its intellectual property.

In drafts of a Feb. 13 letter to state regulators, Diebold's attorneys declared that Diebold makes no changes to electronic devices that the company and its predecessor have been programming for at least five years.

The drafts show they staked out a firm position that a critical piece of Diebold's voting system -- its voter-card encoders -- did not need national or state approval because they were commercial off-the-shelf products, never modified by Diebold.

But on the same day the letter was received, Diebold-hired techs were loading non-commercial Diebold software into voter-card encoders in a West Sacramento warehouse for shipment to Alameda and San Diego counties.

"They were still crunching and working on that software in the middle of February," said James Dunn, who worked as an assembly technician in Diebold's Sacramento warehouse.

More than 600 of the devices froze or displayed unfamiliar screens and error messages on the morning of Election Day, for failure rates of 24 percent in Alameda County and about 40 percent in San Diego County.

Diebold Elections executives were told in October by state officials to ensure every piece of its voting systems was fully tested and approved by national and state authorities.

But Diebold resisted, arguing that the encoders did not need testing and approval because they were a "peripheral" device on its voting systems and that the devices were common, commercial products.

That was true for the hardware. But not the software.

In fact, Diebold engineers were writing and rewriting the software at DESI headquarters in Texas and in Sacramento, supplying the latest versions two weeks before the encoders failed at high rates in the Super Tuesday presidential primary.

Diebold eventually sent a sample of the encoders to an outside laboratory, but it did not have time for more than cursory testing.

The encoders were the only way that poll workers were trained to create cards that let voters call up digital ballots on Diebold's touch-screen machines at more than 2,000 polling places in Alameda and San Diego counties. Dunn says he is not surprised.

As he and other techs raced to assemble the encoders out of tablet-PC screens, batteries and card-writing bases shipped to Sacramento from factories in Asia, Diebold officials kept supplying new versions of the software.

In addition, the hardware components often failed to mate well, resulting in frozen screens. And when the batteries lost power, the devices lost their internal clock and operating settings, often Diebold's software as well.

Dunn blames Diebold's rush to get the devices into the March 2 elections and the lack of standard quality controls in assembling and configuring them. No instructions, no checklists, no tracking system.

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