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Case No. A 107100

COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT, DIVISION FOUR

CHURCH OF SCIENTOLOGY INTERNATIONAL, A California
nonprofit religious corporation,

Plaintiff and Petitioner,

vs.

GERALD ARMSTRONG, and
individual; and DOES 1 THROUGH 50,
inclusive.

Defendants and Respondents.

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Appeal Case No. A107100

[Consolidated with Case No. A107095]


ON APPEAL AFTER JUDGMENT ENTERED BY THE HONORABLE
LYNN DURYEE, MARIN COUNTY SUPERIOR COURT


APPELLANT'S OPENING BRIEF


 

ANDREW H. WILSON (SBN 63209)
WILSON CAMPILONGO LLP
475 Gate Five Road, Suite 212
Sausalito, CA 94965-1475
Telephone: (415) 289-7100
Facsimile: (415) 289-7110

Attorney for Plaintiff and Petitioner
CHURCH OF SCIENTOLOGY
INTERNATIONAL

 

 

TABLE OF CONTENTS

 
PAGE
INTRODUCTION
1
STATEMENT OF THE CASE
1
A. Prior Proceedings
1
B. Proceedings Below
6
ARGUMENT
9
I. The Proper Standard Of Review Is De Novo
9
II. The Court Erred As A Matter Of Law By Declining To Apply The
Liquidated Damage Clause of the Contract According To Its Express Terms
10

A. Collateral Estoppel Precluded Re-Adjudication Of The Liquidated
Damage Clause's Reasonableness

11

B. The Trial Court Applied The Wrong Legal Standard

13

C. The Trial Court Erred By Limiting Liquidated Damages Because
Armstrong Purportedly Was "Punished Enough"

16
CONCLUSION
18

i

 

TABLE OF AUTHORITIES

 
PAGE

Cases

Barbara v. Sokol, 101 Cal. App. 3rd 725 (1980)
15
Better Foods Markets v. American District Telegraph Co., 40 Cal. 2nd 179
(1953)
15
Brinton v. Bankers Pension Services, 76 Cal. App. 4th 550 (1999)
12
Grinham v. Fielder, 99 Cal. App. 4th 1049 (2002)
12
H. S. Perlin Co. v. Morse Signal Devices, 209 Cal. App. 3rd 1289 (1989)
17, 18
Harbor Island Holdings v. Kim, 107 Cal. App. 4th 790 (2003)
16
Hong v. Somerset, 161 Cal. App. 3d 111 (1984)
15, 16
Kelly v. McDonald, 98 Cal.App. 121, 125 (1929)
17
Lomeli v. Department of Corrections, 108 Cal. App. 4th 788 (2003),
9
Lucido v. Superior Court, 51 Cal. 3rd 335, (1990)
12
McCarthy v. Tally, 46 Cal. 2d 577 (1956)
17
Mycogen Corp. v. Monsanto Co., 28 Cal. 4th 888 (2002)
12
O'Connor v. Televideo System, Inc., 218 Cal. App. 3rd 709 (1990)
14
People v. Ault, 2004 Cal. LEXIS 7574 at *22-23 & n. 8 (Cal. Sup. Ct.,
August 16, 2004
10
People v. Barragan, 32 Cal. 4th 236 (2004)
12
People v. Neely, 70 Cal. App. 4th 767 (1999)
13
Rodriguez v. Solis, 1 Cal. App. 4th 495 (1991)
9

ii

 

United Savings & Loan Ass'n of California v. Reeder Development Corp.,
57 Cal. App. 3rd 282 (1976)
15,16
Weber, Lipshire & Co. v. Christian, 52 Cal. App. 4th 645 (1977) 14
Federal Cases  
Chodos v. West Publishing Co., 292 F.3d 992 (2002) 17
Statutes  
Civil Code Section 1671 11, 14, 16, 18

iii

 

INTRODUCTION

This appeal addresses fundamental errors of law in a judgment of the

Marin County Superior Court that declines to enforce a contractual

liquidated damage provision already adjudicated to be reasonable and

enforceable in a prior action between these same parties. The trial court

misapplied statutory and case law governing this provision and sua sponte

rewrote the underlying contract to immunize the defendant from any future

liability for breaching a contract he admits having breached well over 200

times, has been adjudicated to have breached 137 times, and which he vows

to continue to breach indefinitely in the future.1

STATEMENT OF THE CASE

A. Prior Proceedings 2

The essential facts in this case are not, and were never, in dispute. In

1986, defendant Gerald Armstrong ("Armstrong") and plaintiff Church of

Scientology International ("CSI") entered into a settlement agreement ("the


1This appeal is related to, and has been consolidated with, Church of
Scientology v. Superior Court, Case No. A107095. That matter arises from
the trial court's sua sponte vacation and discharge of two sentences for
criminal contempt previously imposed by the Honorable Gary Thomas,
Superior Court Judge, against the defendant for breaching this contract after
having been permanently enjoined from doing so.

2Citations to "Exs, Tab____ " herein refer to the Exhibits in support of
Petition For A Writ of Certiorari or, In The Alternative, A Writ of Mandate, filed
in Case No. A107095.

1

   
   

 

Agreement"), Exs Tab 1, pursuant to which Armstrong received $800,000,

dismissed certain legal claims, and agreed, inter alia, to strict

confidentiality, to forego public mention of Scientology and its leadership,

and to avoid voluntarily assisting or participating in litigation against

Scientology churches. Id., at ¶7D, pg. no. 6-7. The Agreement provided for

liquidated damages for each breach of the contract committed by

Armstrong. Id. at pg. no. 8.

Subsequently, and repeatedly over a period of many years,

Armstrong openly breached the Agreement. In February 1992, CSI sued

Armstrong for breaching a settlement agreement on multiple occasions.

Exs., Tab 2, Complaint. CSI alleged, inter alia, that Armstrong breached

various provisions of the Agreement, including paragraph 7(D), which

states in pertinent part:

[Armstrong] agrees never to create or publish,
or attempt to publish, and/or assist another to
create for publication by means of magazine,
article, book or other similar form, and writing
or broadcast or to assist another to create, write,
film, or video tape or audio tape any show,
program or movie, or to grant interviews or
discuss with others, concerning their
experiences with the Church of Scientology, or
concerning their personal or indirectly acquired
knowledge or information concerning the
Church of Scientology, L. Ron Hubbard or any
of the organizations, individuals and entities
listed in Paragraph 1 above. [Armstrong] further
agrees that he will maintain strict confidentiality


2

 

and silence with respect to his experiences with
the Church of Scientology and any knowledge
or information he many have concerning the
Church of Scientology, L. Ron Hubbard, or any
of the organizations, individuals or entities
listed in Paragraph 1 above .... [Armstrong]
agrees that if the terms of this paragraph are
breached by him, that CSI and the other
Releases would be entitled to liquidated
damages in the amount of $50,000 for each of
such breach.

Exs., Tab 2, pg. no. 6-8, (emphasis supplied).

CSI sought liquidated damages for each of Armstrong's breaches,

pursuant to the terms of paragraph 7(D), and injunctive relief to preclude

Armstrong from committing additional breaches. Armstrong cross-

complained, challenging the validity of the Agreement on a number of

grounds, including specifically that the liquidated damages provision of

paragraph 7(D) was unreasonable and unenforceable. Exs., Tab 3, ¶31, [pg.

no. 43.]

On October 17, 1995, the Superior Court, the Honorable Gary

Thomas, presiding, granted CSI's motion for summary judgment against

Armstrong, upheld the validity of the Agreement, and awarded CSI

$300,000 in liquidated damages ($50,000 for each of six specified

breaches). Judge Thomas' order specifically considered and rejected

Armstrong's challenge to the liquidated damages provision of the

Agreement:

3

INVALIDITY OF LIQUIDATED DAMAGES PROVISION:
Defendant's evidence regarding his attorneys' failure to
represent his interest (see Fact 43 and 58) is hearsay and/or
not based on personal knowledge. The opinion of defendant's
attorney as to the validity of the provision (see, e.g., Facts 52-
54, 57-60) is irrelevant and hearsay. The fact that two other
clients signed a settlement agreement containing the same
liquidated damages amounts (see Facts 55-56 and 63-64) does
not raise an inference that the provision was unreasonable.
Defendant's evidence is insufficient to raise a reasonable
inference of unequal bargaining power (no personal
knowledge shown that plaintiff, as opposed to Flynn, position
defendant as a "deal breaker"); Flynn's statements hearsay; no
personal knowledge shown of plaintiff's wealth; wealth alone
does not raise inference of unequal bargaining power since no
showing defendant desperate for money and had to accept on
plaintiff's terms). Defendant's evidence does not raise an
inference that plaintiff's calculation is "unfathomable"
(Fourteenth Cause of Action seeks $50,000 for each of 18
letters; Nineteenth Cause of Action is based only on
declarations, not on other contacts between defendant and
attorney/other clients). Defendant fails to establish how he
knows plaintiff had not been injured by his statements at the
time of settlement.

Exs., Tab 4, [pg. 82, ln. 19 - pg. 83, ln. 13.]

Judge Thomas also permanently enjoined Armstrong from "doing

directly or indirectly any of the following":

4. Facilitating in any manner the
creation, publication, broadcast, writing,
filming, audio recording, video recording,
electronic recording or reproduction of any kind
of any book, article, film, television program,
radio program, treatment, declaration,
screenplay or other literary, artistic or
documentary work of any kind which discusses,
refers to or mentions Scientology, the Church
and/or any of the Beneficiaries (which includes
plaintiff herein, CSI);

4

 

5. Discussing with anyone, not a
member of Armstrong's immediate family or
his attorney, Scientology, the Church and/or
any of the Beneficiaries (including CSI)."

Exs., Tab 5, pg. 92.

On May 2, 1996, a final judgment of $300,000 in liquidated

damages and an order of permanent injunction were entered against

Armstrong. Exs., Tab 6. Armstrong was unswayed. Indeed, he was so

brazen in violating the obligations he undertook in exchange for $800,000

and the obligations against further breaches imposed by the permanent

injunction issued by Judge Thomas that he even appeared in public and on

television and radio to attack Scientology and its leadership, announcing

that he was violating the court order by doing so.

As a result, Armstrong was twice convicted of criminal contempt in

proceedings before Judge Thomas for violating the permanent injunction.

Exs., Tabs 8 and 10. To avoid the jail sentences imposed for his contempt

convictions, Armstrong fled to Canada, from where he committed the

breaches that spawned the instant action, Exs., Tab 15, Answer of

Gerry Armstrong, ¶15, [pg. no. 224, ln. 8-10], and publicly defamed Judge

Thomas by alleging that he had either been bribed or extorted by CSI. To

avoid paying the damages imposed against him by Judge Thomas,

Armstrong filed for bankruptcy, after either spending or "giving away"

the $800,000 he received in the settlement. Id. [pg. no. 222, ln. 26-27.]

5

 

Armstrong's appeal from Judge Thomas' order and judgment was

dismissed by this Court on December 23, 1997, on the basis of the fugitive

disentitlement doctrine. Exs., Tab. 8

B. Proceedings Below.

Neither the Agreement nor Judge Thomas' order and judgment

dissuaded Armstrong from his contumacious breaches, and his flight to

Canada afforded him the opportunity to avoid jail and continue his

simultaneous contractual breaches and violations of the permanent

injunction. On April 2, 2002, CSI filed this action for breach of contract

against Armstrong, seeking recovery under the liquidated damages

provision of the Agreement for 201 additional breaches of the Agreement.

Exs., Tab 14. In his answer, Armstrong admitted all 201 breaches saying

that he did so "at the will of God." Id. [pg. no. 223 at ln. 6-7.] Armstrong

further stated that he would continue to breach the Agreement because, in

his view, the permanent injunction was "illegal, unconstitutional, greatly

stupid, impossible to perform, anti-public policy, anti-American, anti-

religion, diabolical, insane and clearly unenforceable," and because, by

issuing the injunction, Judge Thomas "abetted ...illegal blackmail." Id. [pg.

no. 223, ln. 24 - pg. 224, ln. 5.]

This action was set for trial on April 9, 2004 by the Honorable Lynn

Duryee. On that day, the trial court first heard argument on, and took

under submission, CSI's motion in limine to preclude Armstrong from

6

 

relitigating the validity and enforceability of the Agreement. The court

then invited opening statements from counsel. Exs., Tab 16, Reporter's

Transcript of Proceedings, April 9, 2004, pg. 25, Exs. pg. no. 320

(hereinafter ("RT__"). In the midst of Armstrong's counsel's opening

statement, Judge Duryee interjected that she would consolidate the

damages trial in this action with Armstrong's sentencing for his third

contempt conviction arising from his defiance of Judge Thomas'

permanent injunction. RT 44, p. 339.

At the conclusion of opening statements, CSI moved for judgment

on Armstrong's 131 breaches of contract that CSI sought to pursue on the

grounds that: (1) Armstrong admitted the breaches; (2) the enforceability

of the provisions of the Agreement previously had been litigated to

judgment; and (3) nothing alleged in Armstrong's counsel's opening

statements amounted to a defense. RT 49, p. 344. After a brief recess, the

trial court announced its conclusion that Armstrong's affirmative defenses

this breach of contract action were both precluded by res judicata and, in

any event, were without merit:

The court agrees with the motion for directed
verdict on the defenses. That is that none of the
circumstances that were described in the
opening statement by Mr. Greene amount to a
defense in this case. And it appears that there is
no quarrel but that these 131 acts did occur.
And it's quite clear from Exhibit Number 1, that
the settlement agreement did provide for
liquidated damages for violating the terms of

7

 

the settlement agreement. And it also is quite
clear from the court's judicial notice that this
matter has been thoroughly litigated and that a
trial is not required for a final resolution of the
matter.

So I do believe that these defenses have been
previously litigated, previously ruled upon, and
in addition the court has listened to the opening
statements of the defense. And even if those
things were proven to be true, there is no
ambiguity in the settlement agreement. And
defendant, in accepting that money, did
undertake to abide by the terms and conditions
of the settlement agreement. And that particular
provision was not bilateral, it was unilateral. So
that even if the Church said horrible things
about Mr. Armstrong, he is not justified to
violate the terms of the settlement agreement,
but would have other remedies under the law.

RT 56 [pg. no. 359.]

As to damages, however, the trial court ruled that CSI was only

entitled to recover damages in the same amount that Armstrong had

received as consideration eighteen years earlier, when the contract was

executed. Id. Since Armstrong previously had been assessed damages of

$300,000 by Judge Thomas — which he never paid, having declared

bankruptcy — the trial court limited the liquidated damages to $500,000,

which it characterized not as compensation, but as "punishment."

Mr. Armstrong received a benefit under the
settlement agreement of $800,000. And I think
it would be unconscionable to punish him
beyond what the benefit was that conferred to
him. He's previously been sanctioned in the
sum of $300,000.

8

 

So my thought is to enter judgment for the
plaintiff, on the admitted violations, of
$500,000.

RT 56-57 [pg. no. 350-351].

On May 20, 2004, the Court entered judgment in favor of CSI in the

amount of $500,000. The trial court also ordered that the time Armstrong

would have, but never, served on all three contempt convictions would be

deemed served. RT 62, p. 356.

This appeal followed.

   
   

 

ARGUMENT

I. The Proper Standard Of Review Is De Novo

CSI challenges the trial court's order and judgment for having

disregarded clear, long-standing principles of claim and issue preclusion

and for having misapplied the statutory and common law principles of law

governing the reasonableness and enforceability of the Agreement's

liquidated damages provision. Because there is no dispute as to any

material fact pertinent to those issues, the standard of review of the trial

court's actions with respect to the questions of law presented is de novo.

Questions of law are independently reviewed by Courts of Appeal.

Lomeli v. Department of Corrections, 108 Cal. App. 4th 788, 794 (2003),

quoting Rodriguez v. Solis, 1 Cal. App. 4th 495, 502 (1991). Even to the

extremely limited extent, if any, that this appeal might present a mixed

question of fact and law, the correct standard of review remains de novo or

9

 

independent review, because that is the appropriate standard for mixed

questions when the issues, as here, are "predominantly legal." People v.

Ault, 2004 Cal. LEXIS 7574 at *22-23 & n. 8 (Cal. Sup. Ct., August 16,

2004).

II. The Court Erred As A Matter Of Law By Declining To Apply
The Liquidated Damage Clause of the Contract According To
Its Express Terms

Paragraph 7(D), the liquidated damage provision of the Agreement,

specifically provides for $50,000 per breach. Judge Thomas' order and

judgment in the earlier breach of contract action between CSI and

Armstrong addressed, considered, and determined the issue of the

reasonableness and enforceability of paragraph 7(D) and found it both

reasonable and enforceable.

The trial court in the instant action refused to apply the liquidated

damage provision to its full extent on the ground that it is now unreasonable

to do so, because Armstrong would be liable in an amount greater than he

was paid eighteen years ago when the Agreement was executed. In so

doing, the trial court committed fundamental legal error in several respects:

(1) Armstrong was collaterally estopped to challenge

the liquidated damage clause's reasonableness and

enforceability, especially after the trial court rejected the

defenses by which Armstrong sought to raise such

precluded issues.

10

 

(2) Armstrong offered no evidence to shift the burden to

CSI to justify the liquidated damages provision, as

required by Civil Code Section 1671 and the cases

construing it.

 

(3) The trial court erred in confusing cumulative

judgments exceeding $800,000 with punishment

because, as a matter of law, liquidated damages are not

and cannot be punishment. The trial court also had no

authority to limit CSI's recovery under the liquidated

damages provision by characterizing it as

"unconscionable." A reasonable, enforceable liquidated

damages provision is, by definition, not unconscionable.

 

A. Collateral Estoppel Precluded Re-Adjudication Of The
Liquidated Damage Clause's Reasonableness

In 1995, in the judgment in the first breach of contract action, Judge

Thomas stated the following:

As to all causes of action (4th, 6th & 11th),
Defendant fails to raise a triable issue as to
whether the liquidated damages provision is
invalid... The law now presumes that liquidated
damages provisions are valid unless the party
seeking to invalidate the provision establishes
that the provision was unreasonable under the
circumstances existing at the time the contract
was made. Defendant's evidence is not
sufficient to raise a triable issue in that regard...
He clearly knew of the provision yet chose to
sign it. He has not shown that he had unequal
bargaining power or that he made any efforts to
bargain or negotiation with respect to the

11

 

provision... Finally, Defendant points to the
fact that other settlement agreements [between
others and CSI] contain $10,000 liquidated
damages provision. This alone is not sufficient
to raise a triable issue in that defendant has not
shown that circumstances did not change
between 12/86 and 4/87 and that those settling
parties stand in the same or similar position to
defendant (i.e., that they were as high up in the
organization and could cause as much damage
by speaking out against plaintiff or that they
have/had access to as much information as
defendant.)

Exs., Tab 4, pg. no. 82-83. The detailed analysis of the issue in Judge

Thomas' judgment, and that judgment's findings and conclusions,

precluded relitigation of the enforceability or reasonableness of the

liquidated damages provision by Judge Duryee.

"Collateral estoppel, or issue preclusion, precludes relitigation of

issues argued and decided in prior proceedings."' Mycogen Corp. v.

Monsanto Co., 28 Cal. 4th 888, 896 (2002), quoting Lucido v. Superior

Court, 51 Cal. 3rd 335, 341 (1990). For the doctrine to preclude a second,

subsequent adjudication, the proponent of the doctrine must establish that:

(1) the present issue is identical to one litigated in a prior proceeding; (2)

the prior proceeding resulted in final judgment on the merits; and (3) the

party against whom the doctrine is being asserted was a party or in privity

to a party to the prior proceeding. People v. Barragan, 32 Cal. 4th 236,

252-53 (2004); Grinham v. Fielder, 99 Cal. App. 4th 1049, 1054 (2002);

Brinton v. Bankers Pension Services, 76 Cal. App. 4th 550, 556 (1999).

12

 

There is no question that the elements of collateral estoppel are

satisfied here. In the prior litigation before Judge Thomas, Armstrong had

every opportunity to litigate the issue, and the result was a final judgment in

favor of CSI, in which the Court found that the Agreement was valid and its

terms, including the paragraph 7(D), were enforceable.

Thus, the trial court below was entirely correct in dismissing

Armstrong's effort to relitigate his prior defenses to CSI's breach of

contract claim. However, after the court dismissed these defenses, the issue

of the liquidated damages provision's viability should have disappeared from

the landscape of the underlying litigation, leaving only the findings of

Judge Thomas's final judgment to be enforced. Instead, in an erroneous

misapplication of the doctrine of collateral estoppel, and after having

dismissed Armstrong's ill-conceived attempt at relitigation, the trial court

declined to enforce the provision according to its express terms and

effectively erased the very finding that it should have enforced. See People

v. Neely, 70 Cal. App. 4th 767, 782 (1999) ("A defense founded upon the

conclusiveness of a former adjudication ...is waived if not raised either by

the pleadings or the evidence").

B. The Trial Court Applied The Wrong Legal Standard

The trial court's disregard of the conclusive effect of Judge Thomas'

findings was not its only error of law. The trial court sua sponte determined

that it would be unreasonable to apply the $50,000 per breach provision of

13

 

the Agreement to Armstrong's self-admitted 131 breaches because the

contractually mandated result would require Armstrong to pay far more in

damages than he received as consideration when he undertook his

contractual obligations in 1986. RT 56-57. Even assuming that it is

relevant whether Armstrong caused more harm than benefit he received —

which, of course, it is not — the trial court's ruling is antithetical to well-

entrenched,

unambiguous statutory and case law.3

Section 1671 of the California Civil Code creates a presumption that

a liquidated damages provision such as paragraph 7(D) of the Agreement is

valid, and requires the party who seeks to invalidate it to show that "the

provision was unreasonable under the circumstances existing at the time the

contract was made." Civil Code § 1671 (emphasis added). Section 1671

has been routinely enforced by the courts for decades. See, e.g., Weber,

Lipshire & Co. v. Christian, 52 Cal. App. 4th 645, 654-55 (1977);

O'Connor v. Televideo System, Inc., 218 Cal. App. 3rd 709, 718 (1990).

Armstrong failed altogether to produce any of the evidence required

for him to overcome the Section 1671 presumption and shift the burden of


3 The trial court initiated the concept that CSI's judgment must be limited to
$800,000. Even the fervent imaginations of Armstrong and his counsel did not
conjure up such an inappropriate argument. The issue was never briefed, and the
trial court gave itself no opportunity to reflect upon the wisdom of its idea. In
retrospect, the trial court was quite correct when it said, of its own proposal, "It's
dangerous when judges start thinking of issues themselves." Id at 19.

14

 

proof to CSI. Armstrong failed to bring forth any evidence "that the

amount stated in the contract was not determined, or that it was neither

impracticable nor extremely difficult to determine actual damages, [or that

the] parties did not really agree upon the amount set forth as liquidated

damages through any mutual endeavor." Barbara v. Sokol, 101 Cal. App.

3rd 725, 733 (1980).

In 1986, when the Agreement was signed, Armstrong had not

breached it hundreds of times, and had not threatened to do so. No one

could have anticipated that he would do so, except perhaps Armstrong

himself. The trial court's conclusion that Armstrong's subsequent,

deliberate, contemptuous, serial breaches somehow retroactively renders

the liquidated damages provision unreasonable has the ironic and disastrous

effect of rewarding Armstrong for his monomaniacal defiance by

immunizing him from any future civil liability.

Moreover, the reasonableness of a liquidated damages provision is

determined as of the date of the execution of the contract, not at the time of

the breach, and certainly not at the time of a subsequent judgment finding

breach. Hong v. Somerset, 161 Cal. App. 3d 111 (1984); United Savings &

Loan Ass'n of California v. Reeder Development Corp., 57 Cal. App. 3rd

282, 299 (1976), quoting in part Better Foods Markets v. American District

Telegraph Co., 40 Cal. 2nd 179, 185 (1953).

15

   
   

 

The validity of the liquidated damages
provision depends upon its reasonableness at
the time the contract was made and not as it
appears in retrospect. Accordingly, the
amount of damages actually suffered has no
bearing on the validity of the liquidated
damages provision.

Hong v. Somerset, 161 Ca1.App.3d at 115 (emphasis supplied), citing

California Law Revision Comm'n Comment to Civil Code Section 1671,

subd. (b); United Savings & Loan Ass'n of California v. Reeder

Development Corp., 57 Cal. App. 3rd at 299 ("[I]t is immaterial whether or

not there is impracticality or difficulty in fixing damages after there has

been a breach of the contract.").

Thus, the trial court's revision of the Agreement to assess the quantum of

damages is also error as a matter of law.

C. The Trial Court Erred By Limiting Liquidated Damages
Because Armstrong Purportedly Was "Punished Enough"

The trial court also departed from the parties' liquidated damages

provision by concluding — without a legal or even a factual basis — that

Armstrong would be "punished enough" by a damages award of $500,000.

RT 57. That, too, was erroneous as a matter of law, and reflects a

misunderstanding of the nature of liquidated damages.

Liquidated damages are a means of compensation for injury, not

punishment for wrongdoing. See, e.g., Harbor Island Holdings v. Kim, 107

Cal. App. 4th 790, 796 (2003), (a liquidated damages provision represents

16

 

the "result of a reasonable endeavor by the parties to estimate a fair average

compensation for any loss that may be sustained") (emphasis supplied);

Chodos v. West Publishing Co., 292 F.3d 992, 1002 (2002), (California law

defines liquidated damages as "an amount of compensation to be paid in the

event of a breach of contract, the sum of which is fixed and certain by

agreement ....") (emphasis supplied), quoting Kelly v. McDonald, 98

Cal.App. 121, 125 (1929), overruled in part on other grounds, McCarthy v.

Tally, 46 Cal. 2d 577 (1956).

CSI is entitled to its contractually created, reasonable and

enforceable, liquidated damages for each and every breach Armstrong

committed pursuant to an Agreement already adjudicated to have been

reasonable and enforceable at the time of its creation. Punishment is

another question, to be determined in the context of a criminal proceeding

or punitive damages, where applicable, but it is neither an element of,

nor relevant to, the issue of enforcing a valid liquidated damages provision.

Similarly, the trial court's conclusion that it would be

"unconscionable" for CSI to recover cumulative damages an amount in

excess of what it paid Armstrong under the terms of the contract is without

legal support or merit. A liquidated damages provision that has already

been adjudicated as reasonable and enforceable cannot become

unconscionable just because one party to the contract decides to commit

several hundred willful breaches. As this Court held in H. S. Perlin Co. v.

17

 

Morse Signal Devices, 209 Cal. App. 3rd 1289, 1301-02 (1989), "the

reasonableness standard set forth in section 1671 . . .provides for more

judicial scrutiny than is allowed under the unconscionability standards."

Thus, where a contract "meets the requirements imposed by section 1671,"

the defendant "cannot make any claim the contract is nonetheless

unconscionable." Id. Moreover, there is not a single shred of authority for

the proposition that the consideration received under a contract is the upper

limit for a liquidated damages provision, under an "unconscionabilty"

analysis.

CONCLUSION

There is no legal justification for ignoring the doctrine of collateral

estoppel to disregard a reasonable and enforceable liquidate damages

provision or artificially capping CSI's damages to convert a judgment in

CSI's favor into a license for Armstrong to breach the Agreement at will

and with impunity.

Even assuming the trial court had legal authority to limit CSI's

recovery, which it distinctly did not, the judgment gives Armstrong a

windfall to which he certainly is not entitled — the use of $800,000 for 18

years without interest while committing over 200 breaches and practical

immunity for any further breaches because his breaches have already met

the arbitrary, court-imposed maximum in damages. In effect, the trial court

has rewarded Armstrong because he has breached the contract so many

18

 

times and promises to do it again. Reversal for all for the foregoing reasons

is compelled by this record, along with the imposition of damages

according to the parties' Agreement.

Dated: August 23, 2004

WILSON CAMPILONGO LLP
By: [signed]
Andrew H. Wilson
475 Gate Five Rd., Ste. 212
Sausalito, CA 94965
Tel: (415) 289-7100

Attorney for Petitioner

 

CERTIFICATE OF LENGTH

Pursuant to Rule 14, subdivision (c)(1) of the California Rules of

Court, appellant certifies that the number of words in the body of this brief

is approximately 4,163 according to the word processor program used for

this brief.

  [signed]
Andrew H. Wilson

 

19

 

 

PROOF OF SERVICE

        I, the undersigned, declare:

        I am employed in the County of Marin, State of California. I am over the
age of 18 and not a party to the within action; my business address is 475 Gate 5
Road, Suite 212, Sausalito, California 94965.

        On August 23, 2004, I served the foregoing document(s) described as
follows:

APPELLANT'S OPENING BRIEF and
APPELLANT'S APPENDIX, VOL. I & II

on the interested parties in this action by placing true copies thereof enclosed in
sealed envelopes addressed as stated on the attached service list, as follows:

XX BY MAIL:

Clerk of the Superior Court
Mann County Superior Court
3501 Civic Center Drive
San Rafael, CA 94913
(Hon. Lynn Duryee)

XX BY FEDERAL EXPRESS OR OVERNIGHT COURIER:

Gerald Armstrong
#1-45950 Alexander Avenue
Chilliwack, B.C. V2P 1L5
Canada

XX BY HAND DELIVERY:

California Supreme Court (5 copies)
350 McAllister Street
San Francisco, CA 94102

        Executed on August 23, 2004, at Sausalito, California

XX (State) I declare under penalty of perjury under the laws of the State of
California that the above is true and correct.

___ (Federal) I declare that I am employed in the office of a member of the bar
of this Court at whose direction the service was made.

Angela Parker
(Type or Print Name)
[signed]Angela Parker
(Signature)
   

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