Gerry Armstrong--Reply Memo 06-10-1997

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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.

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CASE NO. 157680

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

Date: June 13, 1997
Time: 9:00
Place: Dept 1, Courtroom H

INTRODUCTION

Plaintiff Church of Scientology International ("Plaintiff') respectfully submits that the

opposition filed by Defendant Michael Walton ("Walton") provides no credible reason to deny the

application seeking 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 Walton.

II.

ATTACHMENT IS A PROPER REMEDY IN THIS
FRAUDULENT CONVEYANCE ACTION

Walton mistakenly claims that the remedy of attachment is unauthorized in this fraudulent

conveyance. His argument is based on his misinterpretation of the governing attachment law.

A. This Action Arises Out of A Contractual Obligation

Walton asserts that "[t]here is no contract in this action," a requirement of Code of Civil

Procedure Section ¹ 483.010. Opposition Memorandum ("Opp.") at 4:9-12. However, a money

judgment is "contractual" or "quasi-contractual" for collection purposes, whether rendered on a

tort or a contract claim. Ahart, Enforcing Judgments and Debts, §4:22 at p. 4-7 (1996). The

reasoning is that judgment debtors have an implied contractual obligation to pay judgments. Id.

In this case, on May 2, 1996, this court awarded Plaintiff a money judgment against the

debtor in the sum of $321,923, costs in the sum of $334,671 and a permanent injunction against

the debtor. See, Exhibit A to the Reply Declaration of Andrew H. Wilson (the "Reply Decl.").

Under these circumstances, the "contractual" requirement of the attachment law is met.

B. The Amount In Issue Is "Readily Ascertainable"

Walton also erroneously argues that Plaintiff has failed to meet the "readily ascertainable

amount" requirement of Section 483.010. The damages sought in this action are limited by the

amount of the underlying judgment. See, Exhibit A to Reply Decl. The proceeds paid under the

fire insurance policy are readily ascertainable by the terms of the policy. Walton doesn't dispute

that a fire destroyed the subject residence which Plaintiff claims was fraudulently conveyed to him

by the judgment debtor nor does he dispute the existence of fire insurance. Accordingly, the

"value" transferred is easily calculated and would consist of the amount the fire insurance

company pays out on the claim, limited by the amount necessary to satisfy the underlying

judgment.

__________________________

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

C. This Action Against Walton Arises Out of His Business or Profession

Walton asserts that this action does not allege a claim "which arises out of the conduct by

defendant of a trade, business, or profession." Opp. at 4:14-17 citing to Civil Code §481.010 (c).

Yet he admits in his declaration that judgment debtor's transfer of the residence was purportedly

in exchange for Walton's participation in "investigat[ing] the possibility of developing certain

creative and artistic ideas that Armstrong had already identified and any other creative or artistic

projects that may arise." Walton Declaration at ¶3. Walton would "handle the 'legal' aspects of

marketing the creative ideas and would contribute to idea development." Id. Walton also

allegedly agreed to continue to be Armstrong's "legal counsel" in an appeal. Id. at §4. Walton's

declaration is the evidence which supports a finding that the fraudulent conveyance claims against

Walton arise out of his "trade, business or profession" as a lawyer.

III

PLAINTIFF HAS ESTABLISHED BY CREDIBLE EVIDENCE, THAT IT
IS MORE LIKELY THAN NOT THAT IT WILL OBTAIN A JUDGMENT
AGAINST DEFENDANT

The opposition assertion that Plaintiff has not shown the probable validity of its claim

ignores the substantial evidence proffered by Plaintiff and the failure of Walton to refute that

evidence. Opp. at 5:8-7:1.

A. The Amount of the Judgment Is In Excess of Six Hundred Thousand Dollars,
An Amount Necessary to Satisfy the Claim

Without citation to any authority, Walton argues that because Plaintiff has failed to

establish the value of the residence at the time of the transfer, it has not met its burden of

demonstrating probable validity of its claim. Walton is wrong.

Civil Code Section 3439.08 provides that if the judgment creditor prevails in a fraudulent

conveyance action, the creditor may recover judgment for "the value of the asset transferred" or

"the amount necessary to satisfy the creditor's claim, whichever is less." Walton doesn't claim

that the value of the subject residence is less than the amount of the underlying judgment. In fact,

the only "evidence" he offers is in the form of his speculation that "it is certainly possible that

the value of the property transferred was zero." Opp. at 6:4-10.

The transfer was made in the Spring of 1990. Walton Decl. at ¶2. Walton has had

approximately seven years to establish some evidence to support his conjecture that the residence

value is zero. He has failed to do so. The underlying judgment rendered by this court is in

excess of Six Hundred Thousand Dollars, the amount necessary to satisfy judgment creditor's

claim. Moreover, there is no case cited by Walton which holds that in an attachment proceeding

the creditor must prove-up damages in order to prevail. Rather, Plaintiff has amply demonstrated

that it is more likely than not that it entitled to damages as a result of the fraudulent conveyance

from the judgment debtor to Walton.

B. No Evidence Is Proffered To Refute the Abundance of Evidence Demonstrating Actual
Intent

Walton maintains that his declaration demonstrates that there was no actual intent to defraud.

Opp. at 6:16-21. Civil Code Section 3439.04 provides in relevant part that a transfer is

fraudulent to the creditor if the debtor made the transfer with actual intent to hinder, delay or

defraud. Walton's declaration that "Armstrong never expressed any intent in divesting himself

of property in 1990 or any other time to keep money from any creditor," is meaningless in

contrast to the evidence proffered by Plaintiff in the form of deposition testimony by the transferee

and the transferor establishing the existence of a significant number of the badges of fraud.

Moreover, the mere fact that the transferor did not admit that the transfer was made with the

intent to defraud not only fails to refute the evidence to show otherwise but would be expected

under the circumstances.

The actual intent to defraud is supported by admissible evidence in the form of the actors'

testimony. No controverting evidence exists and accordingly Plaintiff has met its burden to show

that it is more likely than not that actual intent to defraud exists.

IV.

THIS ATTACHMENT PROCEEDING WAS NOT BROUGHT
FOR AN IMPROPER PURPOSE

It is irrelevant whether Plaintiff attempted to seek attachment prior to this time. However,

the benefit of an attachment of insurance proceeds in contrast to attachment of real property is

obvious. The amount of proceeds available in real property to a satisfy a judgment is subject to

any liens and encumbrances recorded against the property whereas the proceeds of an insurance

policy are in a set amount. Other than pure speculation on the part Walton, there is no valid

evidence that this procedure was brought for an improper purpose. Plaintiff respectfully submits

that Walton's opinion be disregarded.

THE JUDGMENT IS NOT SECURED BY THE RESIDENCE

There is no legal authority which supports Walton's conclusion that the underlying

judgment is secured by a piece of real property fraudulently transferred.

VI.

CONCLUSION

Based on the foregoing, Plaintiff 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: 6-10-97

WILSON CAMPILONGO LLP

By: [signed Linda Fong]

Linda M. Fong
Attorneys for Plaintiff
CHURCH OF SCIENTOLOGY INTERNATIONAL

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 June 11, 1997, I caused the attached copy of REPLY MEMORANDUM OF

POINTS AND AUTHORITIES IN SUPPORT OF APPLICATION FOR RIGHT TO

ATTACH ORDER AND FOR ISSUANCE OF WRIT OF ATTACHMENT AFTER

HEARING; and REPLY DECLARATION OF ANDREW H. WILSON IN SUPPORT OF

MOTION FOR RIGHT TO ATTACH ORDER AND 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
c/o George W. Abbot, Esq.
2245-B Meridian Boulevard
P.O. Box 98
Minden, Nevada 89423-0098

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 June 11, 1997.

[signed Kibibi Shaw]

Kibibi Shaw

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