Defendant's Opposition To Motion For Summary Adjudication On The Thirteenth, Sixteenth, Seventeenth And Nineteenth Causes Of Action

Armstrong 4

[CT 8243]

Law Offices
711 Sir Francis Drake Boulevard
San Anselmo, California 94960
(415) 258-0360
FORD GREENE, Bar #107601
Attorney for Defendant

SEP 18 1995
by J. Steele, Deputy



CHURCH OF SCIENTOLOGY INTERNATIONAL, a California not-for-profit religious corporation,
GERALD ARMSTRONG; MICHAEL WALTON; THE GERALD ARMSTRONG CORPORATION, a California for-profit corporation; DOES 1 through 100, inclusive,

No. 157 680


Date: September 29, 1995
Time: 9:00 a.m.
Dept: One (1)
Trial Date: None Set

[CT 8244]


With respect to Armstrong's opposition to the thirteenth, sixteenth, seventeenth and nineteenth causes of action, Armstrong specifically adopts and incorporates all facts and legal arguments set forth in his opposition to Scientology's motion for summary adjudication of the twentieth cause of action.


Prior to the execution of the settlement agreement in later 1986, Gerald Armstrong had been the subject of the unrelenting application of Scientology's fair game policy. (Sep.St. Defendant's Evidence ¶ 141) Armstrong had not subjected Scientology to fair game and did not have any such policy. (Sep.St. Defendant's Evidence ¶ 142) Scientology contracted with Armstrong's former counsel, Michael Flynn, to not represent or defend him in the event that Scientology continued to attack Armstrong. (Sep.St. ¶ 143) The liquidated damages provision applied to over seventeen years of Armstrong's life concerning which it was not possible for him to be silent. (Sep.St.¶ 44) Although Scientology induced Armstrong to enter the agreement by promising to cease its fair game activities, it had no intention of so doing. In fact, its true intention was to publish its own false accounts of Armstrong's history. (Sep.St. ¶ 145) Immediately after the "settlement," Scientology provided its account of Armstrong's history, and documents regarding that account, to the Los Angeles Times and to the London Sunday Times. (Sep.St.¶ 46)

By virtue of paragraph 4-B of the settlement agreement Scientology was going to appeal Judge Breckenridge's decision against it unopposed by Armstrong, which it did. Thus, through the acts of Scientology and its lawyers at the time of the settlement, Armstrong's entire history which was contained in the trial court record, became a public record in the court of appeal. (Sep.St. Defendant's Evidence ¶ 47) Since Scientology maintained its appeal of judge Breckenridge's decision, and concomitantly subjected Armstrong to further fair game actions, it fomented controversy and the potential for further litigation. (Sep.St. ¶ 148)

Scientology was not damaged in any way monetarily by any statement made by Armstrong prior to the settlement. (Sep.St. ¶ 49) There is no relationship between the actual damages suffered by Scientology and the $50,000 liquidated damages provision. (Sep.St. ¶ 150) In its first


[CT 8245]

amended complaint, Scientology sought $950,000 for a single letter written by Armstrong on December 22, 1992 pursuant to the liquidated damages provision. (Sep.St. ¶ 75) In Scientology's instant motion it claims that Armstrong spoke multiple times with anti- Scientology lawyer Graham E. Berry, met with a cadre of other anti-Scientology witnesses, and discussed his experiences in Scientology. Armstrong also provided two declarations to Mr. Berry. For this alleged misconduct Scientology claims $50,000 in liquidated damages. (Sep.St. ¶ 76)

All of the money that Scientology has spent on litigation concerning Armstrong has been to further its fair game goals in violation of Armstrong's basic human and civil rights, not on repairing the "damage" that Armstrong has "done." (Sep.St. ¶ 51)

Before he signed the settlement, Armstrong saw the liquidated damages provision as wrong and his attorney agreed. (Sep.St. ¶ 52-53) Armstrong's former attorney, Michael Flynn, cannot testify on Armstrong's behalf because he fears Scientology's retaliation. (Sep.St. ¶ 54) Nancy Rhodes, another one of Flynn's clients who participated in the " universal settlement," signed a settlement agreement for which she was paid $7,500. Her agreement includes a $50,000 liquidated damages provision. (Sep.St. ¶ 55-56) Flynn also told Ms. Rhodes that the agreement was not enforceable. (Sep.St. ¶ 57-60)

Michael Douglas, another one of Flynn's clients who participated in the " universal settlement," signed a settlement agreement for which he was paid $7,500. His agreement includes a $50,000 liquidated damages provision. (Sep.St. ¶ 63-64)

In an agreement among Flynn and the multiple clients he represented in the "universal settlement" no mention is made of any relationship between the money each was to receive and the rights that each person was giving up, or how much damage each person could cause by speaking out about Scientology. (Sep.St. ¶ 65)

At the time of settlement, Armstrong's bargaining power was not at all equal to Scientology. (Sep.St. ¶ 67) Without ever seeing the agreement, Armstrong was flown from Boston to Los Angeles where he was positioned as a deal breaker with respect to a multitude of other persons, also represented by Flynn, that were part of the settlement. In addition, if Armstrong did not sign, fair game would continue against him and the other settlement participants. (Sep.St. ¶ 68) At the time of


[CT 8246]

settlement, Armstrong's net worth was zero while Scientology's worth was $500 million. (Sep.St. ¶ 69) Before Armstrong arrived in Los Angeles, Mr. Flynn had signed an agreement with Scientology promising not to represent Armstrong in the future which for practical purposes caused Armstrong not to be represented. (Sep.St. ¶ 70) Scientology had millions of dollars and a formidable litigation machine in place and operating which had compromised Armstrong's own attorney. (Sep.St. ¶ 71) When Armstrong objected to the liquidated damages provision, Mr. Flynn told him that it was not worth the paper it's printed on. (Sep.St. ¶ 72-73) If Flynn had told Armstrong that the liquidated damages provision was valid and enforceable, Armstrong would not have signed the agreement. (Sep.St. ¶ 74)



A. The Analysis Is Controlled By Civil Code Section 1671 (d) Because Armstrong At All Relevant Times Was a Consumer Of Scientology

Civil Code section 1671 prescribes two alternative standards for determining the validity of a liquidated damages provision. Under subdivision (b), the provision "is 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." ( Hitz v. First Interstate Bank (September 14, 1995) 1995 Cal.App. LEXIS 890, 19) Under subdivisions (d), the provision "is void except that the parties to such a contract may agree therein upon an amount which shall be presumed to be the amount of damage sustained by a breach thereof, when, from the nature of the case, it would be impracticable or extremely difficult to fix the actual damage." (Id. at 21) Subdivision (d), rather than (b), controls to consumer contracts. (Ibid.)

It is without question that Armstrong was a consumer of Scientology's technology from 1971 through 1981 and that the original Armstrong litigation arose in the context of this relationship.

Thus, subdivision (d) controls.

For liquidated damages to be valid under subdivision (d) of Civil Code section 1671, it must have been "impracticable or extremely difficult to fix the actual damage." (Civ. Code § 1671, subd. (d).) Further, the amount of liquidated damages " must represent the result of a reasonable endeavor by the parties to estimate a fair average compensation for any loss that may be sustained. (Garrett v. Coast &Southern Fed.


[CT 8247]

Sav. & Loan Assn., supra, 9 Cal.3d at p. 739.) Absent; either of these elements, a liquidated damages provision is void, although breaching parties remain liable for the actual damages resulting from the breach. (Beasley v. Wells Fargo Bank, supra, 235 Cal.App.3d at p. 1390.)

(Id. at 27-28)

Since Scientology has failed to come forward with any evidence of having engaged in a reasonable endeavor to estimate compensation for any breach, the liquidated damages provisions are void.

B. Pursuant To Civil Code Section 1671 (b) The Liquidated Damages Provisions Are Not Enforceable

Subdivision (b) of the 1977 amendments to the statute was " designed to favor enforcement of liquidated damage clauses by shifting the burden of proof to parties who wish to invalidate liquidation provisions." (H.S. Perlin Company, Inc. v. Morse Signal Devices (1989) 209 Cal.App.3d 1289, 1298) The factors to be considered when analyzing the validity of liquidated damages under subdivision (b) are set forth in the Comment to the statute. Thus, 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 ... All the circumstances existing at the time of the making of the contract are considered, including the relationship that the damages provided in the contract bear to the range of harm that reasonably could be anticipated at the time of the making of the contract. Other relevant considerations in the determination of whether the amount of liquidated damages is so high or so low as to be unreasonable include, but are not limited to, such matters as the relative bargaining power of the parties, whether the parties were represented by lawyers at the time the contract was made, the anticipation of the parties that the proof of actual damages would be costly or inconvenient, the difficulty of proving causation and foreseeability, and whether the liquidated damages provision is included in a form contract."

(Civil Code 1671 at Law Revision Commission Comment, 1977 Amendment).) Given the fact that Judge Breckenridge found Armstrong to be " credible, [and] extremely persuasive" the only way that one can view the harm that would flow from Armstrong telling the world about his experiences in Scientology would be in conjunction with Scientology's promise to cease its fair game actions against Armstrong and others. The rationale for this would be that if Scientology had changed by no longer promulgating and practicing the fair game doctrine, it would


[CT 8248]

be unfair and harmful to it for its criminal past 1, to constantly resurface and undermine its efforts in the present to rehabilitate itself and act properly. Otherwise, how could Scientology be damaged by Armstrong telling the truth about its abuses and those of its founder?

The relationship of the parties at the time the agreement was entered into was disparate. Scientology had practiced fair game on Armstrong and his attorney, Michael Flynn, for years. Armstrong did not have any fair game policy of his own that he used to attack Scientology. His approach to Scientology was then, as it is now, dedication to the truth and faith in God. The amount of the damages per utterance are extremely high, $50, 000. Such would support an inference that the parties were not in any equality of bargaining power.

Although Armstrong was putatively represented by Michael Flynn at the time he entered into the agreement, Flynn had already made a deal with Scientology promising never to represent Armstrong in the future. In addition, Flynn had Armstrong come out to Los Angeles from Boston for the purpose of executing the agreement even though no copy of the agreement was first provided to Armstrong. After Armstrong had been presented with a copy of the agreement and balked, particularly with respect to the liquidated damages provisions, he was positioned as a deal breaker with respect to the 15 people who were involved in the same universal settlement transaction. Indeed, Flynn was settling his own claims against Scientology as part of the universal settlement. Thus, Armstrong was not represented by an attorney with undivided loyalty.


Civil Code section 1670.5 provides in part

(a) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may limit the application of any unconscionable clause as to avoid any unconscionable result.

The doctrine of unconscionability applies to all provisions of all contracts. ( H.S. Perlin, supra,


1 In this regard, the Court is not only referred to Judge Breckenridge's decision, but also to the case where a number of high-ranking Scientology officials pleaded guilty to burglarizing federal government offices and obstruction of justice, United States v. Heldt (1982) 668 F.2d 1238), and the case wherein it was held that certain Scientology attorney-client communications fell within the scope of intended illegality in relation to the crime-fraud exception to the attorney client privilege. (U.S. v. Zolin (9th Cir. 1990) 905 F.2d 1344 , 1345.)


[CT 8249]

209 Cal.App.3d at p. 1300.) It has both a procedural and substantive element.

The procedural element focuses on two factors: "oppression" and " surprise." [Citations.] "Oppression arises from an inequality of bargaining power which results in no real negotiation and "an absence of meaningful choice." [Citations.] ... no precise definition of substantive unconscionability can be proffered. Cases have talked in terms of "overly harsh" or "one-sided" results. [Citations.] One commentator has
pointed out, however, that "... unconscionability turns not only on a 'one- sided' result, but also on an absence of 'justification' for it [citation] . . . The most detailed and specific commentaries observe that a contract is largely an allocation of risks between the parties, and therefore that a contractual term is substantively suspect if it reallocates the risks of their bargain in an objectively unreasonable or unexpected
manner. [Citations.] But not all unreasonable risk allocations are unconscionable; rather, enforceability of the clause is tied to the procedural aspects of unconscionability [citation] such that the greater the ... inequality of bargaining power, the less unreasonable the risk allocation which will be tolerated.

(Id. at 1301) 2

In the instant case, there is serious unconscionability in the procedural sense given the inequality of bargaining power between Scientology and Armstrong, as discussed above and set forth in greater detail; in Armstrong's separate statement. What is most obvious is the substantive unconscionability. It is clear that as Scientology seeks to have it enforced the agreement is one-sided: Scientology can slander Armstrong and he must remain mute or get hit with a $50,000 liquidated damage assessment: What is the possibly justification for such a one- sided agreement? If you listen to Scientology, it is because Armstrong is a liar and fomenter of anti-Scientology litigation. But if what Scientology says is true, you must throw out the decision of Judge Breckenridge which has been affirmed on appeal in a published decision. That makes no sense. It makes no sense to accept the characterization of an organization that has a long recorded history of abuse of individuals and the legal system and to disregard a well-respected superior court judge. The only way that the liquidated damage provision makes sense is if Scientology had in fact foresworn its policy and practice of fair game. If that, in fact, was true, then Scientology could be


2 The first court to have reviewed the settlement agreement said, "So my belief is Judge Breckenridge, being a very careful judge... if ,he had been presented with that whole agreement and if he had been asked to order its performance, he would have dug his feet in because that is one ... I'll say one of the most ambiguous, one-sided agreements that I have ever read. And I would have not ordered the enforcement of hardly any of the terms if I had been asked to, even on the threat that okay, the case is not settled. [¶] I know we like to settle cases. But we don't like to settle cases and, in effect, prostrate the court system into making an order which is not fair or in the public interest." (Sep.St. ¶ 100)


[CT 8274]

hurt by the constant resurgence of its dirty past. Assuming without conceding the truth of the forgoing proposition, Scientology never gave up fair game because it proceeded to slander Armstrong almost as soon as the ink had dried on the paper in an effort to dead agent him through black propaganda. This being the case, there is no objective harm that the liquidated damage provisions could cure because what Armstrong had to say was the truth. The only way that the truth could be harmful to Scientology was if Scientology was trying to suppress the truth while continuing to engage in illegality and misconduct which then brings one back to the argument that the agreement is void because it violates public policy.

In sum, whichever way one analyses the liquidated damage provisions, one can only conclude that one way or the other said provisions are unconscionable and should not be enforced.


Based on the foregoing, Defendant Gerald Armstrong respectfully requests that the motion for summary adjudication should be denied.

DATED: September 18, 1995



Ford Greene

Attorney for Defendant


[CT 8251]


I am employed in the County of Marin, State of California. I am over the age of eighteen years and am not a party to the above entitled action. My business address is 711 Sir Francis Drake Boulevard, San Anselmo, California. I served the following documents:


on the following person(s) on the date set forth below, by placing a true copy thereof enclosed in a sealed envelope with postage thereon fully prepaid to be placed in the United States Mail at San Anselmo, California:

Andrew Wilson, Esquire

235 Montgomery Street, Suite 450
San Francisco, California 94104

Bowles & Moxon
6255 Sunset Boulevard
Suite 2000
Los Angeles, California 90028

[X] (Personal Service)

I caused such envelope to be delivered by hand to the offices of the

[X] (By Mail)

I caused such envelope with postage thereon fully prepaid to be placed
in the United States Mail at San Anselmo, California.

[X] (State)

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

DATED: September 18, 1995

Ford Greene