§   What's New   ||  Search   ||  Legal Archive  ||  Wog Media  ||  Cult Media  ||  CoW ® ||  Writings  ||  Fun  ||  Disclaimer  ||  Contact  §

   

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 

ANDREW H. WILSON, ESQ., SBN 063209
LINDA M. FONG, ESQ., SBN 124232
WILSON CAMPILONGO LLP
115 Sansome Street, Suite 400
San Francisco, California 94104
(415) 391-3900
(415) 954-0938 (fax)

KENDRICK MOXON, ESQ., SBN 128240
MOXON & BARTILSON
6255 Sunset Boulevard, Suite 2000
Hollywood, CA 90028
(213) 953-3360
(213) 953-3351 (fax)

Attorneys for Plaintiff/Judgment Creditor

 

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF MARIN

 

CHURCH OF SCIENTOLOGY
INTERNATIONAL, a California not-for-profit
religious corporation,

Plaintiff,

vs.

GERALD ARMSTRONG; MICHAEL WALTON;
THE GERALD ARMSTRONG CORPORATION,
a California for-profit corporation; DOES 1 through
100, inclusive,

Defendants.


)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
CASE NO. 157680

MEMORANDUM OF POINTS
AND AUTHORITIES IN
SUPPORT OF APPLICATION
FOR RIGHT TO ATTACH AN
ORDER FOR ISSUANCE OF
WRIT OF ATTACHMENT
AFTER HEARING

Date: June 6, 1997
Time: 9:00
Place: Dept 1, Courtroom H

 

I.

INTRODUCTION

By this application, plaintiff Church of Scientology International ("CSI") seeks to attach

the proceeds payable under a homeowner's policy for a fire which burned down a residence,

originally owned by defendant Gerald Armstrong ("Armstrong"), and subsequently fraudulently

transferred to defendant Michael Walton ("Walton"). Under the Uniform Fraudulent Transfer

 

1

   

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 

Act, a creditor may obtain an attachment against the asset transferred or its proceeds.

II.

PROCEDURAL BACKGROUND

On or about December 6, 1986, CSI and Armstrong entered into a written confidential

Settlement Agreement (the "Agreement"). The Agreement settled outstanding litigation between

CSI and Armstrong according to certain terms and conditions. As part of the settlement,

Armstrong was paid $800,000.

In or about February, 1990, Armstrong began to take a series of actions which directly

violated provisions of the Agreement. Fearing that plaintiff would seek to collect the liquidated

damages owed by his breaches, Armstrong fraudulently conveyed all of his property, including

a residence commonly known as 707 Fawn Drive, San Anselmo, California (the "Residence") to

defendant Walton, receiving no consideration in return. On August 27, 1990, the grant deed to

the Residence was recorded in Marin County Official Records as number 90 50497 in the Office

of the County Recorder of Marin County, California.

Armstrong's breaches and resulting indebtedness arise in the context of a state court action

for breach of contract filed in February 1992, in the action entitled Church of Scientology

International v. Gerald Armstrong, Marin County Superior Court, Case No. 157 680 (the "State

Court Action").

The present action was filed on July 23, 1993, alleging the fraudulent transfers referenced

above.

On October 5, 1995, the Court granted plaintiff's motion for summary adjudication of the

13th, 16th, 17th and 19th causes of action asserted in the Second Amended Complaint and in

connection therewith entered an order of permanent injunction against Armstrong. On January

27, 1995, the Court granted plaintiff's motion for summary adjudication of the th and 6th causes

of action.

In April 1995, Armstrong filed a Chapter 7 petition in the U.S. Bankruptcy Court,

Northern District of California,thus automatically staying both actions. CSI then sought relief

from stay to proceed in the State Court Action. In May 1995, the Bankruptcy Court granted the

 

2

   

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 

request to pursue the State Court Action as to injunctive relief but denied relief from stay of the

fraudulent conveyance claims, which the court stated belonged to the bankruptcy estate. The

trustee decided not to pursue the claims asserted herein; CSI moved the Bankruptcy Court to

require the Trustee to abandon the claims to plaintiff. That motion was granted in February 1996.

In June 1996, the Bankruptcy Court granted CSI's application to require the trustee to abandon

the claims alleged in this action.

III.

FACTUAL BACKGROUND

In August 1990, Armstrong transferred all of his assets to third parties, including the

conveyance of the Residence to Walton, his longtime friend and attorney. Deposition of Michael

Walton (the "3/94 Walton Depo. ") at p. 78, attached as Exhibit A to the Declaration of Andrew

H. Wilson (the "Wilson Decl."); Deposition of Solina Walton (the "Solina Depo.") at p. 60,

attached as Exhibit B to the Wilson Decl.; Depositions of Gerald Armstrong (the "6/92 Armstrong

Depo.") at p.164, (the "7/92 Armstrong Depo.") at pp. 267 and 269, and (the "3/94 Armstrong

Depo.") at pp. 73 and 79, attached as Exhibit C to the Wilson Decl. In the past, Armstrong gave

Walton gifts and Armstrong attended the wedding when Walton married his fiancee, Solina.

Solina Depo. at pp. 13 and 50.

Armstrong received no consideration for this transfer of the Residence to Walton; it was

a gift based upon Armstrong's vision from God. 2/93 Walton Depo. at p. 39; Solina Depo. at

28.

After the transfer, Armstrong continued to live in the Residence from August 1990 through

August 1991. 3/94 Walton Depo. at pp. 42 and 79; Solina Depo. at pp. 19 and 23; 3/94

Armstrong Depo. at p. 95. In fact, when Armstrong moved out, he probably kept a key to the

house and didn't actually move out until January 1992. Solina Depo. at pp. 80 and 82.

Subsequently, Walton transferred the Residence to his wife, Solina to assist in a refinance

because Walton's credit was poor and she understood that she needed to roll over the profits from

the sale of her home into the Residence in order to defer capital gains taxes. Solina Depo. at p.

91; 3/94 Walton Depo. at pp. 48-49. On or about April 16, 1997, the Residence burned down.

 

3

   

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 

Wilson Decl. at ¶13.

IV.

A CREDITOR IN A FRAUDULENT TRANSFER ACTION MAY
OBTAIN A WRIT OF ATTACHMENT AGAINST THE ASSET
TRANSFERRED OR ITS PROCEEDS

A writ of attachment allows a plaintiff, in certain prescribed instances to obtain a pretrial

seizure of the property of a defendant-debtor. Whitehouse v. Six Corp. (1995) 40 Cal.App.4th

527, 533. A plaintiff who suspects that the defendant-debtor has fraudulently transferred assets

in order to become judgment proof may also enforce its claim against the transferred property by

way of a writ of attachment. Id. Civil Code § 3439.07(a)(2) provides that in an action for relief

against a fraudulent transfer, the creditor may obtain an attachment against the asset transferred

or its proceeds in accordance with the procedures described in the attachment statutes, Code of

Civil Procedure1 Sections 481.010, et seq.

Pursuant to the foregoing, CSI has a right to attach the fire insurance proceeds to the

Residence fraudulently transferred to Walton by debtor Armstrong.

V.

CSI IS ENTITLED TO A JUDGMENT OF FRAUDULENT
CONVEYANCE AGAINST TRANSFEREE MICHAEL WALTON

Section 484.030 requires that the application for right to attach order and writ of

attachment be supported by an affidavit showing that the plaintiff on the facts presented would be

entitled to a judgment on the claim upon which the attachment is based. Here there is ample

evidence that CSI is entitled to a judgment arising out of the fraudulent transfer of the Residence

from debtor defendant Gerald Armstrong to defendant Michael Walton.

Any transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether

the creditor's claim arose before or after the transfer was made or obligation was incurred, if the

"debtor made the transfer or incurred the obligation ...with actual intent to hinder, delay or

defraud any creditor of the debtor". Civil Code §3439.04. The creditor, in an action for relief

____________________

1 Unless otherwise stated, all section references are to the Code of Civil Procedure.

 

4

   

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 

against such a transfer or obligation, may obtain avoidance of the transfer or obligation to the

extent necessary to satisfy the creditor's claim. §3439.07(a)(1). Further, to the extent a transfer

is voidable under the foregoing statutory provisions, a creditor may recover judgment against the

transferee for the lesser of the value of the asset transferred or the amount necessary to satisfy the

creditor's claim. §3439.08(b).

In determining the existence or nonexistence of actual intent to hinder, delay or defraud

creditors, courts have given consideration to the various "badges of fraud" - whether the transfer

or obligation was to any insider; whether the debtor has retained possession or control of the

transferred property; whether the debtor has absconded; whether the debtor had removed or

concealed assets; whether the debtor was sued or threatened with suit before the transfer was

made or obligation was incurred; whether the transfer was of substantially all of the debtor's

assets; whether the debtor was insolvent or became insolvent shortly after the transfer was made

or obligation was incurred. Legislative Committee Comment-Assembly (1986 Addition) to Civil

Code §3439.04.

The fraudulent transfer statutes were designed for the protection of creditors and to protect

a debtor's estate from being depleted to the prejudice of the debtor's unsecured creditors. See,

Lewis v. Superior Court (1994) 30 Cal.App.4th 1850, 1873.

A. Armstrong Anticipated That He Would Be Sued by CSI.

By their own testimony, Armstrong and Walton have admitted that the transfer of the

Residence was for the purpose of hindering, defrauding and delaying the execution of the

judgment to be obtained in the underlying action.

Before Armstrong even signed the Agreement, he anticipated that he would breach it and

a lawsuit would ensue because he knew that it was impossible to honor it. 6/92 Armstrong Depo.

at pp. 83-87, 102-103, 123-124, 151 and 173-174, Walton and Armstrong discussed this very

issue for "an hour or two" before Armstrong signed the Agreement. 2/93 Walton Depo. at p. 27;

6/92 Armstrong Depo. at pp. 163-164. At the time he executed the Agreement, Armstrong

understood that in his legal counsel's opinion, the Agreement was unenforceable. Id.

///

 

5

   

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 

B. Walton Colluded with Armstrong In Fraudulently Transferring Armstrong's Assets.

Walton admits that, in the Summer of 1990, he knew that Armstrong intended to give

away "most of his worldly possessions." 3/94 Walton Depo. at p. 28. Indeed, Walton and the

other beneficiaries of Armstrong's "vision" met to discuss Armstrong's plan to give them all of

his assets. Michael Douglas Depo. at pp. 21-22.

C. Armstrong Transferred All or Substantially All of His Assets in August 1990 to
Insiders.

In August 1990, Armstrong transferred all of his assets to third parties, including the

conveyance of the Residence to Walton, his longtime friend and attorney. 3/94 Walton Depo. at

p. 78; Solina Depo. at p. 60; 6/92 Armstrong Depo. at p. 164; 7/92 Armstrong Depo. at pp. 267

and 269; and 3/94 Armstrong Depo. at pp. 73 and 79. In the past, Armstrong gave Walton gifts

and Armstrong attended the wedding when Walton married his fiancee, Solina. Solina Depo. at

pp. 13 and 50.

D. There Was No Valid Consideration Exchanged.

Armstrong received no consideration for this transfer of the Residence to Walton; it was

a gift based upon Armstrong's vision from God. 2/93 Walton Depo. at p. 39; Solina Depo. at

p. 28.

E. Armstrong Retained Possession and Control of the Residence After It was Transferred
to Walton.

After the transfer, Armstrong continued to live in the Residence from August 1990 through

at least August of 1991, (3/94 Walton Depo. at pp. 42 and 79; Solina Depo. at pp. 19 and 23;

3/94 Armstrong Depo. at p. 95), and probably continued to reside there until January 1992.

Solina Depo. at pp. 80 and 82.

Substantial evidence exists to demonstrate that CSI would be entitled to a judgment on its

claim for fraudulent transfer of the Residence. Accordingly CSI has a right to attach the proceeds

paid under the fire insurance policy on the Residence.

VI.

CSI'S CLAIM IS IN A READILY ASCERTAINABLE AMOUNT

Section 483.010 provides in relevant part that an attachment may issue only in an action

 

6

   

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 

on a claim where the total amount of the claim or claims is "a fixed or readily ascertainable

amount." In Brainard v. Rogers (1925) 74 Cal.App.247 the court allowed garnishment of the

proceeds of a fire insurance policy by creditors of the insured before the insured had executed and

delivered the formal proof of loss or the insurance company had made an adjustment or appraisal

of the loss. The court held that in the case of fire insurance proceeds, where liability already

exists and the policy furnished the required standard by which the amount of the liability can be

ascertained and fixed, then such liability is a debt owing to the insured within the meaning of the

attachment statutes. See, Brunskill v. Stutman (1960) 186 Cal.App.2d 97, 104-105 citing; see

also, Department of Water & Power v. Inyo Chem. Co. (1940) 16 Cal.2d 744, 750.

Here, CSI is entitled to attach the proceeds of the fire insurance policy on the Residence

regardless of whether the Waltons have filed a formal proof of loss.

VII.

CONCLUSION

Based on the foregoing, CSI respectfully submits that it is entitled to a right to attach order

and writ of attachment attaching the proceeds of the fire insurance policy on the Residence.

Dated: May 13 1997

WILSON CAMPILONGO LLP

BY: [signed Andrew H. Wilson]

Andrew H. Wilson
Attorneys for Plaintiff
CHURCH OF SCIENTOLOGY INTERNATIONAL

 

7

   

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 

ANDREW H. WILSON, ESQ., SBN 063209
LINDA M. FONG, ESQ., SBN 124232
WILSON CAMPILONGO LLP
115 Sansome Street, Suite 400
San Francisco, California 94104
(415) 391-3900
(415) 954-0938 (fax)

KENDRICK MOXON, ESQ., SBN 128240
MOXON & BARTILSON
6255 Sunset Boulevard, Suite 2000
Hollywood, CA 90028
(213) 953-3360
(213) 953-3351 (fax)

Attorneys for Plaintiff/Judgment Creditor

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF MARIN

CHURCH OF SCIENTOLOGY
INTERNATIONAL, a California not-for-profit
religious corporation;

Plaintiff,

vs.

GERALD ARMSTRONG, et al.,

Defendants.

 

 


)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No. 157 680

[CONSOLIDATED]

PROOF OF SERVICE

Date: June 6, 1997
Time: 9:00 a. m.
Place: Dept 1, Courtroom H

 
 

 

   

 1

 2

 3

 4

 5

 6

 7

 8

 9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

 

PROOF OF SERVICE

I declare that I am employed in the City and County of San Francisco, California.

I am over the age of eighteen years and not a party to the within entitled action. My

business address is 115 Sansome Street, Suite 400, San Francisco, California.

I am readily familiar with Wilson Campilongo LLP's practice for collection and processing

of correspondence by mailing with the United States Postal Service.

On May 13, 1997, I caused the attached copy of NOTICE OF APPLICATION AND

HEARING FOR RIGHT TO ATTACH ORDER; ORDER FOR ISSUANCE OF WRIT OF

ATTACHMENT; APPLICATION FOR RIGHT TO ATTACH ORDER; ORDER FOR

ISSUANCE OF WRIT OF ATTACHMENT AFTER HEARING; MEMORANDUM OF

POINTS AND AUTHORITIES IN SUPPORT OF APPLICATION FOR RIGHT TO

ATTACH AN ORDER FOR ISSUANCE OF WRIT OF ATTACHMENT AFTER HEARING;

and DECLARATION OF ANDREW H. WILSON IN SUPPORT OF MOTION FOR RIGHT

TO ATTACH AN ORDER FOR ISSUANCE OF WRIT OF ATTACHMENT AFTER

HEARING on the following in said cause, by placing for deposit with the United States Postal

Service on this day in the ordinary course of business, true copies thereof enclosed in sealed

envelopes. The envelopes were addressed as follows:

Gerald Armstrong
715 Sir Francis Drake Blvd.
San Anselmo, California 94960

Michael Walton
700 Larkspur Landing Circle, #120
Larkspur, CA 94939

I declare under the penalty of perjury under the laws of the State of California that the

foregoing is true and correct. Executed at San Francisco, California on May 13, 1997.

 

[signed Colleen Y. Palmer]

Colleen Y. Palmer

 

 

 

§   What's New   ||  Search   ||  Legal Archive  ||  Wog Media  ||  Cult Media  ||  CoW ® ||  Writings  ||  Fun  ||  Disclaimer  ||  Contact  §