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IN THE SUPERIOR COURT OF APPEAL OF THE STATE OF CALIFORNIA

IN AND FOR THE COUNTY OF MARIN

BEFORE THE HONORABLE GARY W. THOMAS

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CHURCH OF SCIENTOLOGY INTERNATIONAL, PLAINTIFF, VS. GERALD ARMSTRONG, ET AL., DEFENDANTS

) ) ) ) ) ) )

NO. 157680

REPORTER'S TRANSCRIPT OF THE PROCEEDINGS

FRIDAY, DECEMBER 1, 1995

APPEARANCES:

FOR THE PLAINTIFF:	ANDREW H. WILSON WILSON, RYAN & CAMPILONGO 115 SANSOME STREET FOURTH FLOOR SAN FRANCISCO, CA 94104 LAURIE J. BARTILSON MOXON & BARTILSON 6255 SUNSET BOULEVARD SUITE 2000 HOLLYWOOD, CA 90028
FOR THE DEFENDANTS:	FORD GREENE 711 SIR FRANCIS DRAKE BOULEVARD SAN ANSELMO, CA 94960
REPORTED BY: ELAINE PASSARIS, C.S.R. CERTIFICATE NO. 2948

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FRIDAY, DECEMBER 1, 1995

MORNING SESSION

P R O C E E D I N G S

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THE COURT: WE HAVE THE CHURCH OF SCIENTOLOGY VERSUS ARMSTRONG.

MR. GREENE: GOOD MORNING, YOUR HONOR.

MR. WILSON: GOOD MORNING. ANDREW WILSON AND LAURIE BARTILSON.

MR. GREENE: FORD GREENE ON BEHALF OF DEFENDANT GERALD ARMSTRONG.

THE COURT: I DID RECEIVE, MR. GREENE, YOUR LETTER. I GUESS YOU SENT A COPY TO THE OTHER SIDE --

MR. GREENE: YES, SIR.

THE COURT: -- SAYING SOMETHING IN ESSENCE THAT YOUR CLIENT THOUGHT I MIGHT BE PREJUDICED AGAINST HIM BECAUSE HE'S A RELIGIOUS PERSON.

MR. GREENE: YES, SIR.

THE COURT: WELL, NOTHING COULD BE FURTHER FROM THE TRUTH.

MR. GREENE: THANK YOU.

THE COURT: NOW, OH, YES. WHO ASKED FOR THE HEARING?

MS. BARTILSON: WELL, I ASKED FOR A HEARING ON OUR MOTION FOR SUMMARY ADJUDICATION OF THE DECLARATORY RELIEF ACTION. I DON'T KNOW IF MR. GREENE ASKED FOR A HEARING AS WELL.

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MR. GREENE: NO, I DID NOT FORMALLY REQUEST ANY HEARING. THERE ARE A COUPLE OF MATTERS, IF THE COURT WOULD INDULGE ME, I'D LIKE TO RAISE. IF NOT, I CAN DO IT THROUGH A MOTION FOR CLARIFICATION AND THAT WOULD BE WITH RESPECT TO THE SCOPE OF THE COURT'S INJUNCTION.

THE COURT: WELL, YOU GO AHEAD.

MS. BARTILSON: ALL RIGHT. THE MOTION THAT WE BROUGHT, YOUR HONOR, WAS INTENDED, AND I THINK THAT IT'S PROBABLY VERY CLEAR TO YOUR HONOR, TO BASICALLY CLOSE OUT THE CASE AS MUCH AS WE POSSIBLY CAN AT THIS STAGE WHILE MR. ARMSTRONG IS IN BANRUPTCY. THAT'S WHY WE ASKED FOR SUMMARY ADJUDICATION OF THE LAST REMAINING COUNT IN MR. ARMSTRONG'S LAST REMAINING CROSS-COMPLAINT, BUT WE ALSO ASK FOR DISMISSAL OF CERTAIN BREACH OF CONTRACT CLAIMS THAT WE HAD BROUGHT FINAL JUDGMENT TO BE ENTERED ON OUR CLIENT'S BEHALF AND A DETERMINATION IF WE WERE THE PREVAILING PARTY.

WHAT'S HAPPENED, IF YOUR TENTATIVE ORDER GOES THROUGH, IS THAT ALL OF THE THINGS TO CLOSE OUT THE CASE WILL OCCUR EXCEPT WE WILL STILL HAVE THIS DECLARATORY RELIEF ACTION PENDING BEFORE THE COURT.

SO PARTLY I'M ASKING FOR A LITTLE BIT OF CLARIFICATION ON THAT, BUT ALSO I WOULD LIKE TO ADDRESS THE MERITS OF THE SUMMARY ADJUDICATION MOTION, BECAUSE I BELIEVE THAT SUMMARY ADJUDICATION AT THIS TIME IS WARRANTED, AND I'D LIKE VERY MUCH TO REQUEST THAT YOUR HONOR TAKE ANOTHER LOOK AT THAT PARTICULAR POINT.

THE MOTION IS DENIED IN YOUR TENTATIVE, BECAUSE --

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THE COURT: I'M NOW LOOKING -- AND THIS IS JUST SOME OF THE FILES IN THIS CASE (INDICATING). GO AHEAD.

MS. BARTILSON: I KNOW, YOUR HONOR. I KNOW.

THE RATIONALE BEHIND THE RULING IS THAT THERE ARE TWO PARAGRAPHS THAT MR. ARMSTRONG SEEKS DECLARATORY RELIEF IN THE AGREEMENT, WHICH YOUR HONOR SAYS YOU HAVEN'T ALREADY DECIDED BY DECIDING THE MAIN CASE. BUT BOTH OF THOSE PARAGRAPHS, IF YOULOOK AT THEM, I BELIEVE ARE STATEMENTS OF GENERAL PURPOSE AND POLICY. THEY'RE NOT PARTICULAR STATEMENTS REQUIRING ACTION. ONE OF THEM AMOUNTS TO A STATEMENT THAT MATTERS THAT HAVE ALREADY BEEN LITIGATED, THAT WERE BEING LITIGATED AT THE TIME OF THE SETTLEMENT, WILL NOT BE RELITIGATED IN THE FUTURE.

I THINK THAT'S A PROVISION THAT'S --

THE COURT: I THINK ON THE RECONSIDERATION, BASICALLY NEW OR DIFFERENT FACTS, CIRCUMSTANCES, CHANGES OF THE LAW, NOT TO COME IN AND RAISE THE SAME ARGUMENTS.

MS. BARTILSON: YOUR HONOR, I'M NOT ADDRESSING MR. GREENE'S RECONSIDERATION MOTION. I'M ADDRESSING THE OTHER MOTION THAT'S BEFORE YOU TODAY -- OKAY -- BECAUSE THIS IS MY INITIAL MOTION, MY ONLY MOTION FOR SUMMARY ADJUDICATION OF MR. ARMSTRONG'S DECLARATORY RELIEF ACTION.

IT'S THE SECOND ONE ON THE LIST.

THE COURT: GO AHEAD.

MS. BARTILSON: OKAY. BASICALLY YOUR TENTATIVE SAYS THAT THERE ARE TWO PARAGRAPHS IN THE AGREEMENT THAT YOU HAVEN'T ALREADY RULED ON, WHETHER OR NOT THEY VIOLATE PUBLIC POLICY, AND THAT'S THE REASON MR. ARMSTRONG'S

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CROSS-COMPLAINT MUST STAY ALIVE. I BELIEVE THAT YOUR HONOR HAS ALREADY RULED ON THOSE, BECAUSE THEY ARE STATEMENTS OF POLICY RATHER THAN PARTICULAR CLAIMS THAT ARE SUBSUMED WITHIN THE RULINGS YOUR HONOR HAS ALREADY ISSUED ON OTHER SUMMARY ADJUDICATION MOTIONS.

ONE OF THE PARAGRAPHS IS A STATEMENT THAT MATTERS THAT WERE LITIGATED UP AND TO THE TIME OF THE SETTLEMENT WON'T BE RELITIGATED IN FUTURE ACTIONS. I THINK THAT'S A PARAGRAPH THAT ISN'T CONTRARY TO PUBLIC POLICY AND IS INDEED IN JUST ABOUT EVERY SETTLEMENT AGREEMENT. PEOPLE ARE DECIDING TO END LITIGATION AND END THEIR DISAGREEMENTS ON THAT.

THE SECOND PARAGRAPH IS BASICALLY AN EXPRESSION OF THE COVENANT, WHICH IS NOW IMPLIED BY STATUTE OF GOOD FAITH AND FAIR DEALING IN EVERY CONTRACT, THAT THE PARTIES WON'T DO THINGS THAT ARE CONTRARY TO THE AGREEMENT AFTER THE AGREEMENT HAS BEEN SIGNED. THEY WON'T AFFIRMATIVELY TAKE ACTIONS IN VIOLATION OF THE AGREEMENT.

BOTH OF THOSE PARAGRAPHS MR. ARMSTRONG WANTS TO HAVE DECLARATORY -- DECLARE AGAINST PUBLIC POLICY. THAT'S THE ESSENCE OF THIS DECLARATORY RELIEF ACTION.

THE COURT: 7(I) AND -- 7(I) AND 18(E).

MS. BARTILSON: THAT'S CORRECT, AND I BELIEVE IF YOU TAKE ANOTHER LOOK AT THOSE, YOU'LL SEE THAT THEY'RE REALLY, IN ADDITION TO WHETHER OR NOT THEY'RE SUBSUMED UNDER YOUR EARLIER RULINGS ENFORCING THE AGREEMENT, ENFORCING SPECIFIC PROVISIONS OF THE AGREEMENT, THERE'S NO PARTICULAR CONTROVERSY BETWEEN THESE PARTIES AS TO THOSE PARTICULAR

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PARAGRAPHS. MR. ARMSTRONG'S NEVER BEEN SUED ON THEM. NO ONE'S TRIED TO ENFORCE THEM AGAINST HIM.

IF THERE'S NO CONTROVERSY, HE'S NOT ENTITLED TO A DECLARATION THAT THEY'RE IN VIOLATION OF PUBLIC POLICY, AND I HAVE A COUPLE OF CASES THAT I'D LIKE TO CITE TO YOU ON THAT. THE FIRST ONE IS CALLED --

THE COURT: JUST A MOMENT. HAVE THEY BEEN PREVIOUSLY CITED?

MS. BARTILSON: NO, THEY HAVE NOT.

THE COURT: WELL, THEN IT'S ANOTHER MATTER.

MS. BARTILSON: OKAY. THEN I WON'T GIVE THEM TO YOU. BUT I DO THINK IT'S REALLY IMPORTANT TO LOOK AT THESE PARAGRAPHS, BECAUSE IF YOU DON'T, YOUR HONOR, WE'RE LEFT IN THE POSTURE WHERE THE FRAUDULENT CONVEYANCE ACTION HAS BEEN SEVERED, THAT'S YOUR ORDER, FOR A LATER DETERMINATION AFTER THE BANKRUPTCY'S COMPLETED OR BY THE BANRUPTCY TRUSTEE AS THE BANRUPTCY TRUSTEE DETERMINES.

THE PLAINTIFF'S REMAINING CLAIMS AGAINST MR. ARMSTRONG ARE DISMISSED. PLAINTIFF IS DECLARED THE PREVAILING PARTY. PLAINTIFF IS AWARDED ATTORNEY'S FEES AND COSTS AND THE FINAL JUDGMENT IS ENTERED.

HOWEVER, WE STILL HAVE A CROSS-COMPLAINT ALIVE SEEKING DECLARATORY RELIEF ON BEHALF OF MR. ARMSTRONG THAT THESE TWO PROVISIONS OF THE AGREEMENT, NEITHER OF WHICH HAVE BEEN IN CONTROVERSY BETWEEN THE PARTIES BEFORE, ARE IN VIOLATION OF PUBLIC POLICY.

THAT'S THE EFFECT OF YOUR TENTATIVE RULING, YOUR HONOR, AND THAT'S WHY I WANTED A CHANCE TO BRING TO IT YOUR

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ATTENTION TODAY AND ASK FOR YOU TO TAKE ANOTHER LOOK IF YOU COULD.

THE COURT: AND WHAT DO YOU SAY?

MR. GREENE: WITH RESPECT TO YOUR TENTATIVE, YOUR HONOR, WHAT IT IS BASED ON IS THAT PLAINTIFF HAS NOT MET THEIR BURDEN, WHICH IN FACT IS TRUE. IN ORDER FOR PLAINTIFF TO OBTAIN SUMMARY JUDGMENT, THEY'VE GOT TO MAKE AN ADEQUATE SHOWING. THEY'VE NOT MADE AN ADEQUATE SHOWING.

7(I) IS NOT AS COUNSEL RELATES. 7(I) HAS TO DO WITH WHETHER OR NOT MATERIAL THAT SCIENTOLOGY AND ARMSTRONG BOTH OBTAINED UP TO THE POINT OF THE DECEMBER 6, '86, SETTLEMENT COULD BE USED IN ENSUING LITIGATION BY EITHER PARTY, BY EITHER PARTY, AND THIS LITIGATION HAS BEEN SATURATED WITH THAT KIND OF MATERIAL.

BUT THAT DOESN'T -- THAT GETS REALLY MORE INTO SUBSTANTIVE CONCERNS WHERE WHAT THE COURT'S TENTATIVE WAS YOU DIDN'T CARRY YOUR BURDEN, AND I UNDERSTAND THAT WHAT SCIENTOLOGY SEEKS TO DO IS TO BE ABLE TO DISPOSE OF THE LITIGATION, BUT THEY -- BECAUSE THEY HAVE PREVAILED ON OTHER CAUSES OF ACTION AND ON THEIR COMPLAINT, DOESN'T MEAN THAT EVERYTHING IS GONE PARTICULARLY WITH RESPECT TO MATTERS THAT THEY HAVE NOT ADEQUATELY ADDRESSED IN A MOTION FOR SUMMARY ADJUDICATION.

SO YOUR TENTATIVE RULING IS CORRECT. THEY DIDN'T CARRY THEIR BURDEN, AND ARMSTRONG'S CROSS-COMPLAINT STAYS ALIVE.

THE COURT: WELL, REGARDING 7(I) AND 18(E), THESE HAVE BEEN, YOU KNOW, ADDRESSED, AND THE PLAINTIFF

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HASN'T MET ITS BURDEN AND SO HAS NOT SHOWN THAT IT IS ENTITLED TO A JUDGMENT ON ARMSTRONG'S FIRST CAUSE OF ACTION.

NOW, WITH REGARD TO THE REQUEST FOR SEVERANCE, DISMISSAL OF THE UNADJUDICATED BREACH OF CONTRACT CLAIMS AND DETERMINATION THAT THE PLAINTIFF IS THE PREVAILING PARTY ENTITLED TO ATTORNEY'S FEES AND COSTS AND TO ENTER THEIR JUDGMENT, I THINK THAT'S A GOOD REQUEST. EVEN ASSUMING THAT ARMSTRONG IS SUCCESSFUL IN PURSUING HIS CLAIMS REGARDING 7(I) AND 18(E), THE PLAINTIFF WOULD CLEARLY BE THE PREVAILING PARTY ON ITS COMPLAINT.

SO THERE'S NO REASON TO CHANGE MY TENTATIVE RULING WITH REGARD TO THAT. SO THANK YOU.

MR. GREENE: YOUR HONOR --

MS. BARTILSON: THANK YOU, YOUR HONOR.

MR. GREENE: -- IF I MAY FOR A MOMENT, SINCE WE'RE ALL HERE, THERE ARE FOUR POINTS OF CLARIFICATION WITH RESPECT TO YOUR PERMANENT INJUNCTION THAT I WOULD LIKE TO ASK YOU ABOUT. I CAN DO IT EITHER NOW OR I CAN DO IT THROUGH A MOTION FOR CLARIFICATION. WHATEVER THE COURT'S PLEASURE IS.

THE COURT: WELL, I THINK YOU SHOULD COMMUNICATE WITH THE PLAINTIFF AS TO WHAT YOUR DIFFICULTY IS AND SEE IF YOU CAN AGREE UPON A PROPER WORDING OR MODIFICATION OR NOT, OR FILE THE MOTION AND I'LL DECIDE IT ONE WAY OR ANOTHER.

MR. GREENE: ALL RIGHT.

THE COURT: THAT WAY BOTH SIDES WILL GET A HEARING.

MS. BARTILSON: YOUR HONOR, COULD WE SET A STATUS

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CONFERENCE IN THAT CASE SINCE WE STILL HAVE ONE CAUSE OF ACTION?

THE COURT: OH, YES.

MS. BARTILSON: PERHAPS A TRIAL DATE.

THE COURT: YES, I THINK A NICE STATUS CONFERENCE WOULD BE GOOD, AND WE'LL KEEP TRACK OF THIS SO WE DON'T LOSE -- I THINK MARCH THE 11TH, 1996, WILL BE A GOOD TIME AT 9:00 A.M. SO WAIT A MOMENT. YOU'LL GET THAT ORDER REGARDING THE STATUS CONFERENCE, AND YOU HAVE TO PREPARE THE ORDER WITH REGARD TO THE MOTION HEARD TODAY.

MS. BARTILSON: I WILL, YOUR HONOR.

JUST ONE MORE HOUSEKEEPING MATTER. MR. GREENE FILED SOME MORE PAPERS UNDER SEAL. WE ASK THAT THEY BE STRICKEN AT THIS TIME. HE FILED THEM IN CONJUNCTION WITH THIS MOTION FOR RECONSIDERATION. I DID ASK FOR IT IN THE MOVING PAPERS, AND THEY WERE THE SAME THINGS THAT WERE FILED BEFORE.

THE COURT: YOU MEAN THAT THEY BE RETURNED?

MS. BARTILSON: YES, RETURNED.

MR. GREENE: YOUR HONOR, WITH RESPECT TO THAT, WE WOULD OBJECT. MR. ARMSTRONG IS GOING TO APPEAL YOUR INJUNCTION OR A PART OF THE RECORD. WE SOUGHT TO ADDRESS SCIENTOLOGY'S HYPERSENSITIVITY TO THEM BY FILING THEM UNDER SEAL AND THEY SHOULD REMAIN -- THEY SHOULD REMAIN FOR THE COURT OF APPEAL TO ADDRESS.

THE COURT: THEY SHOULD REMAIN UNDER SEAL AND NOT TO BE OPENED EXCEPT UNDER COURT ORDER.

THANK YOU.

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MR. WILSON: THANK YOU, YOUR HONOR.

MS. BARTILSON: THANK YOU, YOUR HONOR.

(WHEREUPON, PROCEEDINGS WERE CONCLUDED)

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