Verified Complaint
Armstrong 4[CT 3071]
| Andrew H. Wilson WILSON, RYAN & CAMPILONGO 235 Montgomery Street Suite 450 San Francisco, California 94104 (415) 391-3900 Laurie J. Bartilson BOWLES & MOXON 6255 Sunset Boulevard, Suite 2000 Hollywood, CA 90028 (213) 953-3360 Attorneys for Plaintiff CHURCH OF SCIENTOLOGY INTERNATIONAL |
[stamp] FILED JUL 23 1993 HOWARD HANSON MARIN COUNTY CLERK BY: C. HARDING DEPUTY [signed] C Harding |
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 VERIFIED COMPLAINT TO SET ASIDE FRAUDULENT TRANSFERS AND FOR DAMAGES; CONSPIRACY [C.C. §§ 3302, 3439. 07 (a) (1) , (3) DATE: TIME: DEPT: DISCOVERY CUT-OFF: None MOTION CUT-OFF: None TRIAL DATE: None |
Plaintiff, by its attorneys, Wilson, Ryan & Campilongo and Bowles & Moxon, for its Complaint, alleges:
NATURE OF THE ACTION
1. In December, 1986, plaintiff and defendant Gerald Armstrong ("Armstrong") entered into a settlement agreement ("the Agreement"). The Agreement provided for a mutual release and
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waiver of all claims arising out of a cross-complaint which defendant Armstrong had filed in the case of Church of Scientology of California v. Gerald Armstrong, Los Angeles Superior Court No. C 420153. Armstrong, a former Church member who sought, by both litigation and covert means, to disrupt the activities of his former faith, displayed through the years an intense and abiding hatred for the Church, and an eagerness to annoy and harass his former co-religionists by spreading enmity and hatred among members and former members. Plaintiff sought, with the Agreement, to end all of Armstrong's covert activities against it, along with the litigation itself. For that reason, the Agreement contained carefully negotiated and agreed-upon confidentiality provisions and provisions prohibiting Armstrong from fomenting litigation against plaintiff by third parties. These provisions were bargained for by plaintiff to put an end to the enmity and strife generated by Mr. Armstrong once and for all. The Agreement also provided, inter alia, for liquidated damages to be paid by Armstrong should he choose to breach these provisions.2. 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, as set forth below, fraudulently conveyed all of his property, including real property located in Marin County, cash, and personal property to defendants Michael Walton, the Gerald Armstrong Corporation, and Does 1-100, receiving no consideration in return. Thereafter, Armstrong deliberately set out to repeatedly breach the
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Agreement, incurring a debt which at present totals at least $1,800,000, and which he has and had no assets to use to satisfy the debt.3. Armstrong's breaches and resulting indebtedness are presently the subject of two actions pending in Los Angeles Superior Court, Church of Scientology International v. Armstrong, LASC No. BC 052395 ("the First Action"), demanding liquidated damages of $600,000.00 for breaches occurring between July, 1991 and May, 1992, and Church of Scientology International v. Armstrong, LASC No. BC 084642 ("the Second Action"), demanding liquidated damages of $1,200,000.00, for breaches occurring between August, 1991 and June, 1993.
THE PARTIES
4. Plaintiff Church of Scientology International is a non-profit religious corporation incorporated under the laws of the State of California, having its principal offices in Los Angeles, California. Plaintiff CSI is the Mother Church of the Scientology religion.
5. Defendant Gerald Armstrong is a resident of Marin County, California.
6. Defendant Michael Walton is a resident of Marin County, California.
7. Defendant Gerald Armstrong Corporation ("GAC") is a corporation incorporated under the laws of the State of California, having its principal offices in San Anselmo, California.
8. Plaintiff is ignorant of the names and capacities of the defendants identified as DOES 1 through 25, inclusive, and thus brings suit against those defendants by their true names
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upon the ascertainment of their true names and capacities, and their responsibility for the conduct alleged herein.DEFENDANT GAC IS THE ALTER EGO OF DEFENDANT ARMSTRONG
9. Defendant Armstrong is GAC's president and sole officer, its principal shareholder and sole employee, and has been since the incorporation of GAC in 1987. Further, defendant Armstrong has the sole and exclusive right to control the corporation's bank account and its disbursement of funds.
10. Defendant GAC is, and at all times since its incorporation was, the alter ego of defendant Armstrong. There exists, and at all times since GAC's incorporation has existed, a unity of interest and ownership between these two defendants such that any separateness between them has ceased to exist:
Defendant Armstrong caused his own personal assets to be transferred to GAC without adequate consideration in order to evade payment of his lawful obligations, and defendant Armstrong has completely controlled, dominated, managed and operated GAC since its incorporation for his own personal benefit.
11. Defendant GAC is, and at all times mentioned was, a mere shell, instrumentality and conduit through which defendant Armstrong carried on his activities in the corporate name exactly as he conducted them previous to GAC's incorporation. Armstrong exercised and exercises such complete control and dominance of such activities that any individuality or separateness of defendant GAC and defendant Armstrong does not, and at all relevant times did not, exist.
12. Adherence to the fiction of the separate existence of
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defendant GAC as an entity distinct from defendant Armstrong would permit an abuse of the corporate privilege and would sanction fraud, in that Armstrong transferred his material assets to GAC in 1988, at the time of his embarkation on the campaign of harassment described herein, and with the intention of preventing plaintiff from obtaining monetary relief from Armstrong pursuant to the liquidated damages clause. Hence, GAC exists solely so that Armstrong may be "judgment proof."THE CONTRACT
13. On or about December 6, 1986, CSI and Armstrong entered into a written confidential settlement Agreement, a true and correct copy of which is attached hereto as Exhibit [A], and incorporated by reference.
14. The Agreement was entered into by plaintiff and defendant Armstrong, with the participation of their respective counsel after full negotiation. Each provision of the Agreement was carefully framed by the parties and their counsel to accurately reflect the agreement of the parties.
15. Plaintiff specifically negotiated for and obtained from Armstrong the provisions in the Agreement delineated in paragraphs 7(D), 7(H), 7(G), 10 and paragraphs 12 through 18. Plaintiff took this step because it was well aware, through investigation, that Armstrong had undertaken a series of covert activities, apart from the litigation, which were intended by Armstrong to discredit Church leaders, spark government raids into the Churches, create phony "evidence" of wrongdoing against the Churches, and, ultimately, destroy the Churches and their leadership.
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16. Paragraph 7(D) of the Agreement provided, in substance, that Armstrong: (1) would not create or publish, or assist another in creating or publishing, any media publication or broadcast, concerning information about plaintiff, L. Ron Hubbard or any other persons or entities released by the Agreement; (2) would maintain "strict confidentiality and silence" with respect to his alleged experiences with plaintiff or any knowledge he might have concerning plaintiff, L. Ron Hubbard, or other Scientology-related entities and individuals; (3) would not disclose any documents which related to plaintiff or other identified entities and individuals; and (4) would pay to plaintiff $50,000 in liquidated damages for each disclosure or other breach of that paragraph.
17. Contemporaneously with the signing of the Agreement, Armstrong represented that he understood the Agreement's provisions and was acting of his own free will and not under duress.
18. The Agreement also provided that plaintiff CSI would pay to Armstrong's attorney, Michael Flynn, a lump sum amount intended to settle not just Armstrong's case, but the cases of other clients of Mr. Flynn as well, and that Mr. Flynn would pay to Armstrong a portion of that settlement amount. The exact amount of the portion to be paid to Armstrong by Mr. Flynn was maintained as confidential between Mr. Flynn and Armstrong.
19. CSI paid to Mr. Flynn the lump sum settlement amount.
20. Mr. Flynn paid to Armstrong his confidential portion of the lump sum settlement amount, which was at least $520,000, after expenses.
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21. The consideration paid to Armstrong was fair, reasonable and adequate. Plaintiff CSI has performed all of its obligations pursuant to the Agreement.
BREACHES OF THE AGREEMENT
22. Beginning in February, 1990, and continuing unabated until the present, Armstrong has breached the Agreement wilfully and repeatedly, including, inter alia, the provisions of Paragraph 7(D) of the Agreement which require Armstrong to pay plaintiff liquidated damages for each such breach.
23. In addition to the breaches of the Agreement which invoke the liquidated damages clause, Armstrong has committed additional violations of provisions of the Agreement which entitle plaintiff to compensatory damages according to proof.
24. Despite demand by plaintiff, Armstrong has refused to pay any damages, liquidated or compensatory, for the deliberate breaches of the Agreement described herein.
25. The breaches described herein are presently the subject of litigation in the First Action and the Second Action, and have not yet been reduced to judgment.
FIRST CAUSE OF ACTION
TO SET ASIDE FRAUDULENT TRANSFER OF REAL PROPERTY
(Against Defendants Gerald Armstrong and Michael Walton)
26. Plaintiff realleges paragraphs 1 - 25, inclusive, and incorporates them herein by reference.
27. On or about August 24, 1990, defendant Gerald Armstrong was an owner and in possession and control of that real property situated in Marin County known as 707 Fawn Drive, San Anselmo, California, and more particularly described as follows:
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PARCEL ONE
PARCEL TWO as shown upon that certain Parcel Map entitled, "Parcel Map Lands of California Land Title Portion Lands described in book 2887 of Official Records, at page 367, also being Portion of Lots 501 and 501-A unrecorded Map of Sleepy Hollow Acres, Vicinity of San Anselmo, Marin County, California, filed for record April 8, 1976 in Volume 12 of Parcel Maps, at page 43, Marin County Records.
EXCEPTING THEREFROM that portion deeded to Alain Pigois and Nina Pigois, husband and wife, as community property, by Deed recorded February 27, 1989, Serial No. 89 13373.
PARCEL TWO
AN EASEMENT for ingress, egress and public utility purposes described as follows:
BEGINNING at a point on the centerline of Fawn Drive, said point being the most southwesterly corner of Parcel 3, as shown upon that certain map entitled,"Parcel Map Lands of California Land Title Portion
Lands described in Book 2887 of Official Records, at page 367, also being a portion of Lots 501 and 501-A, unrecorded Map of Sleepy Hollow Acres, Vicinity of San Anselmo, Marin County, California", filed for record April 9, 1976 in Volume 12 of Parcel Maps, at page 43, Marin County Records, said point also being the intersection of the calls "South 26° 20' East 135 feet and North 63° 401 East 20 feet" as contained in Parcel 2 of the Deed executed by California Land Title Company, a corporation to Michael C. McGuckin, et ux, recorded March 26, 1976 in Book 3010 of Official Records, at page 190, Marin County Records; thence from said point of beginning and along the exterior boundary of said Parcel 3, North 63° 40' East 20 feet; thence North 75° 07' 20" East 164.00 feet; thence leaving said exterior boundary of Parcel 3, North 12° 411 East 85.00 feet; thence North 30° 45' West 126.00 feet, thence
North 13° 30' East 79.21 feet to the northwesterly boundary of Parcel 1, as shown upon that certain map referred to hereinabove; thence along the exterior boundary of said Parcel 1, South 84° 00' west 75.70
feet to the most Northerly corner of the parcel of land described in the Deed executed by Charles B. Roertson, et ux, to Paul Hopkins Talbot, Jr., et ux, recorded January 30, 1956 in book 1002 of official Records, at page 623, Marin County Records; thence 111.77 feet, thence leaving said exterior boundary of Parcel 1, South 18° 45' East 95.06 feet thence South 21° 48' West 70.66 feet; thence South 75° 07' 20" West 160.00 feet to the certline of Fawn Drive; thence along the
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exterior boundary of said Parcel 3, also being the centerline of "Fawn Drive, South 26° 20' East 34.46 feet to the point of beginning.
28. On or about August 24, 1990, defendants Gerald Armstrong and Michael Walton transferred by grant deed the above-described property to defendant Michael Walton. On August 27, 1990, the grant deed was recorded in Marin County Official Records as number 90 50497 in the Office of the County Recorder of Marin County, California.
29. Plaintiff is further informed and believes and thereon alleges that the transfer was made with an actual intent to hinder, delay or defraud plaintiff in the collection of its damages.
30. Further, plaintiff is informed, and believes, and thereon alleges that at the time Armstrong made the transfers, he intended in the future to engage in the conduct in breach of his Agreement with plaintiff, described above, knowing that he would thereby incur the damages described herein and for which he would have rendered himself judgment-proof.
31. Defendant Armstrong received no money or other consideration in exchange for the aforementioned transfer. Plaintiff is informed and believes and thereon alleges that at the time of the transfer of the real property defendant Armstrong's interest in the real property was not less than $397,500.00. Thus, defendant Armstrong did not receive reasonably equivalent value in exchange for his interest in the real property.
32. Plaintiff is informed and believes and thereon alleges that defendant Walton received the above-described real property
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with knowledge that defendant Armstrong intended to (1) hinder, delay or defraud the collection of plaintiff's aforementioned damages and (2) further breach his Agreement with plaintiff, thereby incurring substantial damages which it would be impossible for Armstrong to pay. Defendant Walton had previously advised Armstrong concerning the Agreement and was familiar with its terms and conditions; further, Armstrong had informed defendant Walton of his vendetta against plaintiff and all Churches of Scientology, and of his intentions to breach the Agreement. Moreover, Walton was well aware of the fraudulent nature of the transfer, for which he received no money or other consideration.
SECOND CAUSE OF ACTION
TO SET ASIDE FRAUDULENT TRANSFER OF ASSETS
(Against All Defendants)
33. Plaintiff realleges paragraphs 1-25, inclusive, and incorporates them herein by reference.
34. On or about August, 1990, defendant Gerald Armstrong was the owner and in possession and control of approximately $41,500 in cash, and shares of stock in The Gerald Armstrong Corporation which were valued by Armstrong at $1,000,000.
35. On or about August, 1990, Armstrong transferred the $41,500 in cash and the shares of stock in The Gerald Armstrong Corporation to defendants Walton and Does 1 - 100.
36. Plaintiff is further informed and believes and thereon alleges that the transfer was made with an actual intent to hinder, delay or defraud plaintiff in the collection of its damages.
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37. Further, plaintiff is informed, and believes and thereon alleges that at the time Armstrong made the transfers, he intended in the future to engage in the conduct in breach of his Agreement with plaintiff, described above, knowing that he would thereby incur the damages described herein, and for which he would have rendered himself and his corporation judgment-proof.
38. Defendant Armstrong received no money or other consideration in exchange for the aforementioned transfer. Plaintiff is informed and believes and thereon alleges that at the time of the transfer of the cash and stock, defendant Armstrong's interest in the cash and stock was not less than $1,041,500. Thus, defendant Armstrong did not receive reasonably equivalent value in exchange for his interest in the transferred assets.
39. Plaintiff is informed and believes and thereon alleges that defendants Walton and Does 1 -100 received the above-described real property with knowledge that defendant Armstrong intended to (1) hinder, delay or defraud the collection of plaintiff's aforementioned damages; and (2) further breach his Agreement with plaintiff, thereby incurring substantial damages which it would be impossible for Armstrong or his corporation to pay. Defendant Walton had previously advised Armstrong concerning the Agreement and was familiar with its terms and conditions; further, Armstrong had informed defendant Walton and Does 1-100 of his vendetta against plaintiff and all Churches of Scientology, and of his intentions to breach the Agreement. Moreover, Walton and Does 1-100 were well aware of the fraudulent nature of the transfer, for which they received no money or other
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consideration.THIRD CAUSE OF ACTION
CONSPIRACY
(Against All Defendants)
40. Plaintiff realleges paragraphs 1-32 and 34-39, inclusive, and incorporates them herein by reference.
41. As alleged above, in August, 1990, defendants Armstrong, Walton, and Does 1 - 100 agreed, and knowingly and willfully conspired between themselves to hinder, delay and defraud plaintiff in the collection of its damages, and to render Armstrong unable to pay any and all damages to plaintiff which Armstrong had incurred and intended to and did incur in violation of the Agreement.
42. Pursuant to this conspiracy, the above-named defendants agreed that Walton and Does 1 - 100 would take ownership and/or possession of all of defendant Armstrong's assets of any value, including the above-described real property, cash and stock and everything remaining from the proceeds of the settlement which Armstrong had accepted from plaintiff pursuant to the Agreement. Further, the defendants conspired and agreed to hide any and all future assets acquired by Armstrong in the sham corporation, The Gerald Armstrong Corporation, in order to protect Armstrong's assets from collection so long as he was breaching the Agreement, and plaintiff was attempting to collect damages for those breaches. Plaintiff is unaware of the present value of those assets which have been so hidden, but is informed and believes and thereon alleges that their value exceeds $1,800,000, the minimum value of plaintiff's claim.
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43. Defendants Armstrong, Walton, The Gerald Armstrong Corporation and Does 1 - 100 did the acts and things herein alleged pursuant to, and in furtherance of, the conspiracy and agreement alleged above.
44. As a proximate result of the wrongful acts herein alleged, plaintiff has been generally damaged in the sum of $1,800,000.
45. At all times mentioned herein, defendants Walton, Armstrong, The Gerald Armstrong Corporation and Does 1-100 knew of defendant Armstrong's actions and intended actions against plaintiff, knew of Armstrong's resultant obligation to plaintiff, and knew that plaintiff's claims could only be satisfied out of the property, sums and stock transferred by Armstrong. Notwithstanding this knowledge, defendants Walton, Armstrong, The Gerald Armstrong Corporation and Does 1-100 intentionally, willfully, fraudulently and maliciously did the things herein alleged to defraud and oppress plaintiff. Plaintiff is therefore entitled to exemplary or punitive damages in the sum of $3,000,000 against all defendants, individually and severally.
WHEREFORE, plaintiff prays for judgment as follows:
ON THE FIRST CAUSE OF ACTION
1. That the transfer of the real property from defendant Armstrong to defendant Walton be set aside and declared void as to the plaintiff herein to the extent necessary to satisfy plaintiff's claim in the sum of $1,800,000 plus interest thereon at the maximum rate permitted by law from 1990;
2. That defendant Walton be restrained from disposing of
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the property transferred;3. That a temporary restraining order be granted plaintiff enjoining and restraining defendant Walton, and his representatives, agents, and attorneys from selling, transferring, conveying, or otherwise disposing of any of the property transferred;
4. That the judgment herein be declared a lien on the property transferred;
5. That an order be made declaring that defendant Walton holds all of the real property described above in trust for plaintiff.
6. That defendant Walton be required to account to plaintiff for all profits and proceeds earned from or taken in exchange for the property described above.
ON THE SECOND CAUSE OF ACTION
1. That the transfer of assets from defendant Armstrong to defendants Walton and Does 1 - 100 be set aside and declared void as to the plaintiff herein to the extent necessary to satisfy plaintiff's claim in the sum of $1,800,000 plus interest thereon at the maximum rate permitted by law from 1990;
2. That defendants Walton, The Gerald Armstrong Corporation and Does 1 - 100 be restrained from disposing of the property transferred;
3. That a temporary restraining order be granted plaintiff enjoining and restraining defendants Walton, The Gerald Armstrong Corporation and Does 1 - 100, and their representatives, agents, and attorneys from selling, transferring, conveying, or otherwise disposing of any of the property transferred;
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4. That the judgment herein be declared a lien on the property transferred;
5. That an order be made declaring that defendants Walton, The Gerald Armstrong Corporation and Does 1-100 hold all of the assets described above in trust for plaintiff.
6. That defendants Walton and Does 1 - 100 be required to account to plaintiff for all profits and proceeds earned from or taken in exchange for the property described above;
ON THE THIRD CAUSE OF ACTION
1. For general damages in the amount of $1, 800,000;
2. For exemplary or punitive damages in the sum of $3,000,000;
ON ALL CAUSES OF ACTION AGAINST ALL DEFENDANTS
1. For attorneys fees and costs;
2. For such other and further relief as the court may deem proper.
| DATED: July 21, 1993 | WILSON, RYAN & CAMPILONGO By: [signed] Andrew Wilson |
VERIFICATION
I, ANDREW H. WILSON, declare as follows:
I am one of the attorneys for the Plaintiff Church of Scientology International in the above-entitled matter. I have read the foregoing Verified Complaint to Set Aside Fraudulent Transfers and for Damages; Conspiracy and know the contents thereof, which are true of my own knowledge except as to those matters which are stated on information and belief, and as to those matters, I believe it to be true.
I declare under the penalty of perjury pursuant to the lawsof the State of California that the foregoing is true and correct.
Executed on July 21, 1993 at San Francisco, California.
[signed]ANDREW H. WILSON
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Exhibit [A] Mutual Release and Settlement Agreement