Gerry Armstrong--Trial Transcript in Armstrong VII 04-09-2004

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IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA

IN AND FOR THE COUNTY OF MARIN

---OOO---

HON. LYNN DURYEE, JUDGE

DEPARTMENT NO. 7

CHURCH OF SCIENTOLOGY INTERNATIONAL

PLAINTIFF

VS.

GERALD ARMSTRONG, ET AL

DEFENDANTS

)

) NO. CV021632

)

REPORTER'S TRANSCRIPT OF PROCEEDINGS

FRIDAY, APRIL 9, 2004

REPORTED BY: DEBORAH S. BARTUNEK, CSR 4822

A-P-P-E-A-R-A-N-C-E-S

FOR THE PLAINTIFFS:

ANDREW WILSON, ESQ.

FOR THE DEFENDANT:

FORD GREENE, ESQ.

711 SIR FRANCIS DRAKE BLVD.

SAN ANSELMO, CA 94960

---OOO---

FRIDAY, APRIL 9, 2004 AM SESSION

---OOO---

P-R-O-C-E-E-D-I-N-G-S

THE COURT: CHURCH OF SCIENTOLOGY

INTERNATIONAL VERSUS GERALD ARMSTRONG.

MR. WILSON: ANDREW WILSON FOR THE CHURCH OF

SCIENTOLOGY.

CASE IS READY.

MR. GREENE: GOOD MORNING, YOUR HONOR.

FORD GREENE APPEARING ON BEHALF OF AND WITH

GERALD ARMSTRONG.

THE COURT: GOOD MORNING.

ARE YOU READY FOR TRIAL?

MR. GREENE: WE'RE READY TO PROCEED.

THE COURT: OKAY.

SO THERE WERE SOME IN LIMINE MOTIONS THAT

WERE DELIVERED TO ME. I'LL TAKE A LOOK AT THEM, THEN

I'LL RULE ON THEM IN A MOMENT.

IS THERE ANYTHING ELSE THAT EITHER SIDE

WANTS FROM ME?

MR. GREENE: YES, YOUR HONOR. THERE'S ALSO A

MATTER OF TWO OUTSTANDING CIVIL BENCH WARRANTS FOR MR.

ARMSTRONG AND WE NEED TO ADDRESS THOSE. THOSE ARE NOT

IN THE CASE WITH A FILE NUMBER THAT'S BEFORE THIS COURT.

IT'S THE PREVIOUS CASE THAT'S REFERRED TO. AND WE'RE

CONCERNED THAT AT ANY POINT MR. ARMSTRONG COULD BE TAKEN

INTO CUSTODY. AND SO WE'D LIKE TO ADDRESS THAT BEFORE

YOU, IF WE CAN.

THE COURT: ALL RIGHT.

MR. WILSON: YOUR HONOR, WE WOULD LIKE TO

ADDRESS THAT, AS WELL. THE BENCH WARRANTS, AS YOU MAY

KNOW --

THE COURT: I DON'T KNOW.

MR. WILSON: -- ONLY LAST A YEAR IN THIS

COURT. I FOUND THAT OUT A COUPLE DAYS AGO WHEN I WAS

TRYING TO FIND OUT WHETHER THE BENCH WARRANTS WERE IN

FACT OUTSTANDING. SO THEY'RE NOT OUTSTANDING.

THE COURT: WHO ISSUED THE BENCH WARRANTS?

MR. WILSON: BENCH WARRANTS WERE ISSUED BY

JUDGES THOMAS AND SMITH.

THE COURT: OKAY. WHICH SMITH?

MR. WILSON: VERN.

THE COURT: OKAY.

MR. WILSON: THEY WERE ISSUED AS A RESULT OF

JUDGES THOMAS AND SMITH FINDING MR. ARMSTRONG IN

CONTEMPT. JUDGE THOMAS FOUND MR. ARMSTRONG IN CONTEMPT

TWICE AND HE IMPOSED SENTENCE WHICH I BELIEVE TOTALLED

APPROXIMATELY 40 DAYS. I COULD BE WRONG. I CAN TELL

YOU EXACTLY WHAT THEY WERE.

JUDGE SMITH, ON THE LAST CONTEMPT, WHICH

HAPPENS TO BE -- WHICH HAPPENS TO ARISE OUT OF THE 131

BREACHES THAT WE'RE SEEKING TO RECOVER ON HERE, IN WHICH

JUDGE SMITH -- THOSE WERE IN FACT BREACHES AND

VIOLATIONS OF THE INJUNCTION -- HELD MR. ARMSTRONG IN

CONTEMPT FOR THOSE VIOLATIONS, BUT HELD OFF ON IMPOSING

SENTENCE, BECAUSE MR. ARMSTRONG HAD FLED THE

JURISDICTION. AND THE ORDER THAT HE ISSUED SAID THAT HE

WOULD IMPOSE SENTENCE ON THOSE CONTEMPTS WHEN MR.

ARMSTRONG WAS BROUGHT BACK TO COURT.

NOW WE THINK MR. ARMSTRONG, BEING HERE,

SHOULD ALLOW HIM TO PRESENT WHATEVER CASE HE'S GOING TO

PRESENT, BUT HE SHOULD NOT BE ALLOWED TO LEAVE THE

JURISDICTION UNTIL HE HAS SERVED THE TIME THAT HE HAS

BEEN SENTENCED TO AND UNTIL HE HAS BEEN SENTENCED FOR

THE THIRD CONTEMPT THAT JUDGE SMITH WITHHELD SENTENCING

ON.

THE COURT: SO WHEN WERE THESE ORDERS ISSUED?

MR. WILSON: THE ORDERS WERE ISSUED IN -- I

ACTUALLY HAVE THE FIRST AND SECOND ORDERS OF CONTEMPT.

THE FIRST ONE WAS ISSUED ON JULY 5TH OF 1997, AND THE

SECOND ONE WAS FEBRUARY 20 OF 1998. THE THIRD ONE WAS,

I BELIEVE, JULY 12 OR 13TH OF 2001. THIRD ONE IS ONE

THAT WAS ISSUED BY JUDGE SMITH.

THE COURT: OKAY. SO IF THE BENCH WARRANTS

WERE ONLY VALID FOR A YEAR, DO WE HAVE A PROBLEM?

MR. WILSON: WELL, WE HAVE A PROBLEM. THE

PROBLEM IS THAT WE DON'T BELIEVE THAT MR. ARMSTRONG

SHOULD BE ALLOWED -- WE BELIEVE HE SHOULD BE ALLOWED TO

PRESENT HIS CASE. I DON'T WANT HIM TAKEN TO JAIL SO HE

CAN'T PRESENT HIS CASE, BUT HE NEEDS TO SERVE THE TIME

THAT HE WAS SENTENCED TO. AND HE SHOULD BE SENTENCED

FOR THE THIRD CONTEMPT.

THE COURT: SO HE'S NOT BEEN SENTENCED ON THE

THIRD?

MR. WILSON: HE'S NOT BEEN SENTENCED ON THE

THIRD CONTEMPT.

THE COURT: ALL RIGHT.

MR. WILSON: NOW, HOWEVER THE COURT WISHES TO

ACHIEVE THAT RESULT IS FINE WITH US.

THE COURT: WELL, SO WHAT OCCURS TO ME IS TO

STAY THE WARRANTS, TO SET THEM FOR A HEARING AT THE END

OF THIS CASE.

MR. GREENE: THAT WOULD BE GREAT.

THE COURT: SO THERE'S NOT A CONCERN ABOUT HIS

BEING TAKEN INTO CUSTODY, BUT WE HAVE A HEARING DATE ON

THE VALIDITY OF THEM AND THE SENTENCING ON THE THIRD

CONTEMPT.

MR. WILSON: THAT'S FINE. I DON'T BELIEVE

THERE'S AN ISSUE ABOUT VALIDITY, BUT HE --

THE COURT: OR WHATEVER ISSUES.

MR. WILSON: WHATEVER HE WANTS TO RAISE.

WHAT ASSURANCE DO WE HAVE THAT ONCE THE

CASE -- WE FINISH THE CASE, WHICH WE THINK ISN'T GOING

TO TAKE VERY LONG, BUT WE COULD BE WRONG, THAT HE

DOESN'T JUST LEAVE LIKE HE DID LAST TIME?

MR. GREENE: FIRST, WE OBJECT TO THESE

CHARACTERIZATIONS OF HOW MR. ARMSTRONG FLED THE

JURISDICTION AND HOW HE LEFT LAST TIME.

I HAVE SPOKEN WITH MR. ARMSTRONG. I HAVE

KNOWN HIM FOR 13 YEARS. HE HAS GIVEN ME HIS WORD THAT

HE WILL FACE WHATEVER MUSIC IT IS THAT HE HAS TO FACE,

SERVE WHATEVER TIME OR PENALTY, IF THAT'S THE CASE, HE

WILL DO THAT. AND I FEEL SUFFICIENTLY CONFIDENT IN MR.

ARMSTRONG'S WORD TO ME TO BE ABLE TO GIVE MY WORD TO THE

COURT THAT HE'S NOT GOING TO GO ANYWHERE AT THE

CONCLUSION OF THIS CASE, OR BEFORE ANY HEARING ON THE

WARRANTS THAT THE COURT SETS.

THE COURT: OKAY. HAVE A SEAT EVERYONE.

I THINK I'LL THINK ABOUT THAT.

HOW MANY WITNESSES DO WE HAVE FOR PLAINTIFF?

MR. WILSON: WE DON'T BELIEVE WE'LL NEED ANY

WITNESSES UNLESS WE HAVE TO AUTHENTICATE THE POSTINGS

THAT ARE EVIDENCE OF THE 131 BREACHES.

THE COURT: OKAY. SO YOU HAVE SOME DOCUMENTS?

MR. WILSON: WE HAVE EXHIBITS TO PROFFER AND

OUR TRIAL BRIEF DEALS WITH THE EVIDENTIARY ISSUES.

I THINK THAT THE COURT CAN TAKE JUDICIAL

NOTICE AND SHOULD TAKE JUDICIAL NOTICE OF ALL OF THE

PLEADINGS IN THE PRIOR CASE. I THINK THAT'S EXHIBITS 1

THROUGH 12 OR 13. THE BALANCE OF THE EXHIBITS ARE THE

131 POSTINGS. THE COURT SHOULD ADMIT THOSE ON TWO

GROUNDS. NUMBER ONE --

THE COURT: I'LL GET INTO THAT IN A MOMENT.

SO I'M JUST TRYING TO PICTURE HOW MUCH TIME

IS GOING TO BE INVOLVED IN THIS.

MR. WILSON: PROBABLY DEPENDS ON THE MOTION IN

LIMINE.

THE COURT: OKAY.

MR. WILSON: AND IF I MAY SAY ONE THING, WE DID

RECEIVE FROM MR. GREENE, AT 4:45 YESTERDAY, OPPOSITION

TO THE MOTION IN LIMINE. AND WE HAVE A REPLY, WHICH

I'VE GIVEN MR. GREENE, AND I WOULD LIKE TO GIVE TO THE

COURT.

THE COURT: ALL RIGHT.

HOW MANY WITNESSES FOR THE DEFENSE?

MR. GREENE: ONE, MAYBE TWO.

THE COURT: OKAY. THERE WAS -- MR. ARMSTRONG

DID REQUEST A JURY TRIAL, HOWEVER DID NOT FOLLOW THROUGH

ON THE PROCEDURES FOR SECURING A JURY TRIAL. THERE WAS

NO ADDITIONAL FEE WAIVERS.

SO MY THOUGHT IS TO PROCEED AS A COURT

TRIAL.

MR. GREENE: THAT'S AGREEABLE, YOUR HONOR.

THE COURT: ALL RIGHT. SO I'LL TAKE A LOOK AT

THE PAPERS AND THEN WE'LL PROCEED. IF YOU WOULD SHOW

MR. GREENE THE DOCUMENTS THAT YOU INTEND TO MARK THEN HE

CAN LOOK AT THOSE BEFORE WE HAVE THEM MARKED. AND IF

YOU HAVE ANY DOCUMENTS THAT YOU INTEND TO PRODUCE

PERHAPS YOU CAN SHOW COUNSEL THOSE.

MR. GREENE: LET ME ADD ONE THING, YOUR HONOR.

WHAT I WOULD LIKE TO DO, IF IT WOULD BE ALL

RIGHT WITH THE COURT -- MR. ARMSTRONG HIRED ME

YESTERDAY. IF WE COULD PROCEED WITH THE PLAINTIFF'S

CASE TODAY, GIVE US THE WEEKEND TO LINE OUR DUCKS UP TO

BE READY MONDAY THAT WOULD --

THE COURT: THAT'S YOUR REQUEST.

ALL RIGHT. THANKS.

(WHEREUPON, A RECESS WAS TAKEN AT 9:20 AM)

THE COURT: ALL RIGHT. PLAINTIFF'S IN LIMINE

MOTION SEEKS TO PRECLUDE DEFENDANT FROM INTRODUCING ANY

EVIDENCES -- ANY EVIDENCE OF THE DEFENSES RAISED IN THIS

ACTION ON THE GROUNDS OF COLLATERAL ESTOPPEL, RES

JUDICATA, THAT ALL OF THESE DEFENSES WERE RAISED IN THE

EARLIER ACTION THAT JUDGE THOMAS DECIDED IN 1995.

AND DEFENDANT CLAIMS THAT BECAUSE OF THE

CONSTITUTIONAL ISSUES INVOLVED, FIRST AMENDMENT AND

RELIGIOUS FREEDOM, THAT WE SHOULD BE ABLE TO HAVE A FULL

REHEARING ON ALL OF THESE ISSUES.

SO I'LL HEAR ARGUMENT ON IT.

I GUESS MY QUESTION FOR THE DEFENSE IS HOW

MR. ARMSTRONG'S ACCEPTANCE OF THE $800,000 IN THE

SETTLEMENT OF HIS CLAIMS AND THE CONTRACT ISSUES THAT

EXIST -- IN OTHER WORDS, THIS IS NOT JUST A CASE ABOUT

FREE SPEECH. IN SOME WAYS HE SIGNED ON FOR THIS WHEN HE

ACCEPTED THE SETTLEMENT WITH THE CHURCH.

SO I'LL HEAR FROM YOU, MR. WILSON, THEN I'LL

HEAR YOUR OPPOSITION.

MR. WILSON: THANK YOU, YOUR HONOR.

AS YOUR HONOR KNOWS, IT'S NOT A CASE ABOUT

PURE FREE SPEECH. AS JUDGE THOMAS FOUND, AND I THINK IN

ONE OF THE SUMMARY JUDGMENT ORDERS HE SPECIFICALLY MADE

A FINDING, THAT FREE SPEECH CAN BE CONTRACTED AWAY. MR.

ARMSTRONG CONTRACTED AWAY HIS RIGHT TO SPEAK ABOUT THE

CHURCH. THAT'S WHAT JUDGE THOMAS RULED IN GRANTING

SUMMARY JUDGMENT.

SO THAT DEFENSE, FOR SURE, WAS LITIGATED IN

THE PRIOR ACTION. THE ONLY DEFENSE THAT WASN'T

LITIGATED IN THE PRIOR ACTION WAS THE NEW DEFENSE OF

FREEDOM FROM SLAVERY.

AS WE POINT OUT IN OUR PAPERS, THAT EVEN

ASSUMING IT COULD BE A DEFENSE, EVEN GIVING THEM THAT,

IT COULD HAVE BEEN RAISED IN THE PRIOR ACTION. THAT'S

WHAT THE CASES SAY, THAT ANY ISSUE THAT WAS EITHER

DECIDED OR NECESSARILY DECIDED OR COULD HAVE BEEN

RAISED, IS PRECLUDED.

NOW, ALL OF THE AFFIRMATIVE DEFENSES WERE

NECESSARILY DECIDED AGAINST MR. ARMSTRONG BY VIRTUE OF

THE GRANT OF SUMMARY JUDGMENT WHICH BECAME THE FINAL

JUDGMENT FROM WHICH MR. ARMSTRONG APPEALED AND HIS

APPEAL WAS DISMISSED.

THE COURT: YOUR POSITION IN THIS CASE IS THE

EXACT SAME, THERE'S NOTHING NEW ABOUT THIS CASE?

MR. WILSON: THERE IS NOTHING NEW. IT'S THE

SAME CONTRACT. IN FACT THE 131 BREACHES THAT WE'RE

TRYING TO RECOVER FOR --

THE COURT: HAVE ALREADY BEEN DECIDED?

MR. WILSON: THAT'S RIGHT. THEY'VE ALREADY

BEEN DECIDED TO BE VIOLATIONS. I WANT TO GET A LITTLE

BIT TECHNICAL SO I DON'T GET ACCUSED OF GLOSSING

SOMETHING OVER. THE INJUNCTION PARROTED THE LANGUAGE OF

THE CONTRACT.

THE COURT: SO THE SETTLEMENT AGREEMENT

CONTAINED THE RIGHT FOR THE CHURCH TO OBTAIN INJUNCTIVE

RELIEF?

MR. WILSON: YES, IT DID. AND THE SETTLEMENT

AGREEMENT, THE LANGUAGE OF THE SETTLEMENT AGREEMENT,

WHICH PROHIBITED MR. ARMSTRONG FROM MAKING THE

STATEMENTS THAT HE MADE, WAS TRACKED IN THE INJUNCTION.

JUDGE SMITH FOUND THAT THOSE WERE VIOLATIONS OF THE

INJUNCTION AND HENCE THE AGREEMENT.

THERE'S NOTHING FURTHER TO BE LITIGATED.

THE COURT: WAS THE ISSUE OF THE

CONSTITUTIONALITY OF THE INJUNCTIVE RELIEF REGARDING

SPEECH LITIGATED?

MR. WILSON: YES, IT WAS. THE SUMMARY JUDGMENT

ORDER -- IF I MAY?

THE COURT: I HAVE IT.

MR. WILSON: I THINK IT'S EITHER SEVEN OR

EIGHT.

THE COURT: IT'S EIGHT. WELL, SEVEN IS THE

ORDER ON THE PERMANENT INJUNCTION AND EIGHT IS THE

JUDGMENT WHICH WAS BASED ON SUMMARY JUDGMENT.

MR. WILSON: AND ALL OF THOSE CONSTITUTIONAL

ISSUES WERE ISSUED. AND I BELIEVE THAT IN THE --

THERE'S ANOTHER ONE THAT I'D LIKE TO DIRECT YOUR

ATTENTION TO, SIX. IF YOU LOOK AT EXHIBIT 6, WHICH

IS --

THE COURT: THE ORDER ON SUMMARY JUDGMENT.

MR. WILSON: RIGHT.

IF YOU LOOK AT PAGE TWO THROUGH THREE AND

FOUR, YOU SEE THAT JUDGE THOMAS DISCUSSES IN DETAIL THE

VALIDITY OF THE DAMAGES PROVISION. HE DISCUSSES MR.

ARMSTRONG'S DURESS ARGUMENTS. HE DISCUSSES HIS FRAUD

ARGUMENTS. AND THEN HE DISCUSSES, ON PAGE FOUR, THE

FIRST AMENDMENT ARGUMENT SAYING FIRST AMENDMENT RIGHTS

MAY BE WAIVED BY CONTRACT, WHICH WAS WHAT WAS ARGUED.

THE ONLY THING THAT WAS NOT ARGUED, THAT

APPARENTLY MR. ARMSTRONG IS ARGUING TODAY, IS THE

FREEDOM FROM SLAVERY ARGUMENT.

EVEN IF HE HAD NOT RAISED ANY OF THOSE

ISSUES -- I MEAN LET'S JUST SAY HE HADN'T RAISED THE

FIRST AMENDMENT, HADN'T RAISED FRAUD, HADN'T RAISED

DURESS IN ARGUING AGAINST SUMMARY JUDGMENT, HE RAISED

THEM IN HIS ANSWER AND NECESSARILY THEY WERE DECIDED

AGAINST HIM WHEN THE JUDGMENT WAS FINAL.

THE COURT: OKAY.

MR. WILSON: IF I MAY SAY ONE MORE WORD ABOUT

THE CASES MR. GREENE RELIES ON.

THE COURT: YES.

MR. WILSON: THE MYERS VERSUS GREENFIELD

(PHONETIC) CASE, WAS A CASE IN WHICH -- IT WAS A

COLLECTION CASE IN WHICH THERE WERE TWO JUDGMENTS IN LOS

ANGELES COUNTY, THEN A THIRD JUDGMENT WAS PROCURED IN

SAN FRANCISCO WHICH WAS INCONSISTENT WITH THE FIRST TWO

JUDGMENTS. AND ON THAT BASIS THE COURT HELD THAT RES

JUDICATA SLASH COLLATERAL ESTOPPEL DID NOT APPLY,

APPARENTLY ON THE BASIS OF UNFAIRNESS OR IMPOSSIBILITY.

HAS NO APPLICATION HERE.

THE OTHER TWO CASES ARE EVEN LESS

APPLICABLE. THE FIRST ONE, WHICH WAS THE STATE OF

CALIFORNIA -- CITY OF SACRAMENTO VERSUS STATE OF

CALIFORNIA CASE, DEALS WITH THE SO-CALLED PUBLIC

INTEREST EXEMPTION. IN THAT CASE THERE WAS AN ISSUE

REGARDING TAXATION AND REIMBURSEMENT DECIDED AGAINST THE

STATE OF CALIFORNIA. AND THEN ON A SUBSEQUENT CASE THE

ISSUE WAS WHETHER THAT PRECLUDED ALL OF THE CITIZENS

FROM THE STATE OF CALIFORNIA AND THE MUNICIPALITIES FROM

LITIGATING THE ISSUE OVER. THE COURT SAID, NO, IT

DIDN'T BECAUSE IT'S A PUBLIC INTEREST. JUST BECAUSE THE

STATE IS PRECLUDED DOESN'T MEAN THE CITIZENS ARE

PRECLUDED. THE COURT ALSO SAID THAT THE INDIVIDUAL

CLAIMS THAT WERE LITIGATED ARE PRECLUDED.

SO IF YOU APPLY THAT CASE TO THIS SITUATION

WHAT YOU WOULD SAY IS, WELL, MR. ARMSTRONG'S INDIVIDUAL

CLAIMS WERE LITIGATED. THAT CASE REALLY WAS AN ISSUE OF

PRIVITY, WHETHER THE STATE WAS IN PRIVITY WITH THE

CITIZENS SO THE DOCTRINE COULD APPLY.

THE KOPP CASE, WHICH IS THE THIRD CASE THAT

THEY CITE, IF YOU READ IT IT'S PRETTY CLEAR THAT WHAT

THE COURT IS CONCERNED WITH IS THAT A FEDERAL COURT

DECIDED AN ISSUE OF STATE LAW THAT HAD TO DO WITH FAIR

POLITICAL PRACTICES. THE COURT HAD A LONG DISCUSSION

ABOUT HOW THE FEDERAL COURTS -- IN MANY STATES YOU CAN

CERTIFY ISSUES TO THEM, BUT WE DON'T HAVE IT HERE IN

CALIFORNIA.

AND IT'S PRETTY CLEAR THAT THE REASON WHY

THAT CASE HELD THAT COLLATERAL ESTOPPEL DIDN'T APPLY WAS

BECAUSE THE COURT WANTED THE CALIFORNIA COURTS RATHER

THAN THE FEDERAL COURT TO DECIDE THAT ISSUE.

SO NONE OF THESE THREE CASES HAS ANYTHING TO

DO WITH THIS CASE.

THE COURT: SO HERE'S MY QUESTION. THE

CONTRACT BETWEEN THE PARTIES WAS BASED ON CONSIDERATION

OF THE CHURCH PAYING $800,000 TO MR. ARMSTRONG. SO NOW

WE HAVE SUBSEQUENT ACTIONS WHERE MR. ARMSTRONG CONTINUES

TO HAVE MONETARY LIQUIDATED DAMAGES IMPOSED AGAINST HIM

FOR HIS VIOLATION OF THE SETTLEMENT AGREEMENT.

MR. WILSON: RIGHT.

THE COURT: OKAY. SO WHAT HAPPENS WHEN WE

REACH THE POINT THAT HE HAS AN OBLIGATION TO PAY THE

CHURCH MORE THAN WHAT HE RECEIVED? WHAT ABOUT THAT?

HOW DOES THAT AFFECT THE RIGHTS BETWEEN THE PARTIES?

MR. WILSON: DOESN'T AFFECT IT AT ALL.

THE COURT: BECAUSE?

MR. WILSON: BECAUSE THE LIQUIDATED DAMAGES --

HE BARGAINED FOR -- HE BARGAINED FOR THE LIQUIDATED

PROVISION THAT PROVIDED FOR $50,000 FOR EACH BREACH.

THAT WAS IN THE NATURE OF INCENTIVE FOR HIM NOT TO

BREACH.

THE COURT: SO YOUR POSITION IS ONCE HE MADE

THAT DEAL HE FOREVER GAVE UP HIS RIGHTS TO SPEECH

AGAINST THE CHURCH?

MR. WILSON: HE DID. HE TOOK $800,000 FOR IT.

I MEAN, OTHERWISE IT WOULD BE, OKAY, WELL, I TOOK

$800,000 SO I GUESS, YOU KNOW, I SHOULDN'T -- WHAT,

THAT'S 40 BREACHES, SO AFTER 40 BREACHES I CAN'T BE

PUNISHED? THERE'S NO LAW, I MEAN THERE'S NOTHING THAT

WOULD SUPPORT THAT.

THE COURT: OKAY. ANYTHING ELSE?

MR. WILSON: NO.

THE COURT: ALL RIGHT.

MR. GREENE.

MR. GREENE: OKAY.

FIRST, YOUR HONOR, IT'S ABSOLUTELY TRUE THAT

THERE WAS LITIGATION THROUGH SUMMARY JUDGMENT.

OBVIOUSLY THE NUMBER OF PROBLEMS THAT WE HAVE, AND WHAT

OUR POSITION IS, IS THAT WITH RESPECT TO SUMMARY

JUDGMENT THAT THERE WASN'T AN ACTUAL LITIGATION OF THE

ISSUE BECAUSE JUDGE THOMAS WOULDN'T REALLY LOOK AT THE

ISSUES.

FOR EXAMPLE, THE ITT VERSUS DOOLEY CASE,

WHICH IS THE CASE THAT SAYS YOU CAN CONTRACT AWAY YOUR

FIRST AMENDMENT RIGHTS, SAYS THAT IN ORDER TO DO SO

THERE HAS TO BE SOMETHING AKIN TO A CONSTITUTIONAL

WAIVER. THAT THE CONTRACTING AWAY HAS GOT TO BE

KNOWING, IT'S GOT TO BE VOLUNTARY, IT'S GOT TO BE

INTENTIONAL.

ALTHOUGH WE RAISED IT, HE REFUSED TO ADDRESS

THAT AND MADE A LEGAL NOT A FACTUAL DETERMINATION WITH

RESPECT TO THAT ISSUE.

THE COURT: DOESN'T THE SETTLEMENT AGREEMENT

SAY THERE WAS A KNOWING, VOLUNTARY ENTERING INTO THE

SETTLEMENT AGREEMENT?

MR. GREENE: THE SETTLEMENT AGREEMENT SAYS

THAT. AND THAT BRINGS US QUICKLY TO WHAT JUDGE THOMAS

DID, WHICH WAS TO LOOK AT THE FOUR CORNERS OF THE

AGREEMENT AND SAY, THAT'S IT, THIS IS ENOUGH, I'M NOT

GOING TO HEAR ANY EVIDENCE ABOUT WHAT THE CIRCUMSTANCES

WERE. I'M NOT GOING TO HEAR ANY EVIDENCE ABOUT WHAT THE

INTENTION OF THE PARTIES WERE. I DON'T NEED TO GO ANY

FURTHER THAN THAT.

THAT'S WHERE OUR POSITION BEFORE YOU IS.

MR. ARMSTRONG NEVER HAD AN OPPORTUNITY TO HAVE HIS DAY

IN COURT. HE NEVER HAD AN OPPORTUNITY TO LITIGATE WHAT

THE AGREEMENT REALLY MEANT.

NOW, IN ORDER FOR MR. ARMSTRONG TO BE ABLE

TO DO THAT THE AGREEMENT ITSELF HAS GOT TO CONTAIN SOME

SORT OF INTRINSIC AMBIGUITY. IF YOU DON'T HAVE AN

INTRINSIC AMBIGUITY IN THE AGREEMENT, YOU DON'T GET TO

GO OUTSIDE THE AGREEMENT. YOU -- YOU DON'T GET TO RELY

ON EXTRINSIC EVIDENCE AS A MEANS OF MAKING A DECISION OF

WHAT THE INTENTION OF THE PARTIES WERE.

AND IN THIS PARTICULAR AGREEMENT, FOR

EXAMPLE IN PARAGRAPH 7(I), WHAT WE TRIED -- WHAT I TRIED

TO DO, BECAUSE I REPRESENTED MR. ARMSTRONG THEN, WAS TO

SAY THAT THE AGREEMENT -- THE THEORY OF OUR DEFENSE WAS

THAT THE AGREEMENT WAS MUTUAL. BOTH SIDES HAD TO SHUT

UP ABOUT EACH OTHER. AND THAT SCIENTOLOGY STARTED TO

DISPARAGE MR. ARMSTRONG IN THE PRESS, IN OTHER COURT

CASES AND OTHER CONTEXTS, AND THAT HE RESPONDED TO THAT,

AND THAT, IN THE PROVISIONS AND THE UNDERSTANDING OF THE

PARTIES, WAS THAT IT WAS GOING -- THAT THE AGREEMENT WAS

MUTUAL AND GAG ORDERS IN AFFECT WERE MUTUAL. ONCE

SCIENTOLOGY STARTED TO DISPARAGE ARMSTRONG PUBLICALLY,

AT THAT POINT THEY COULDN'T ENFORCE THAT PROVISION

AGAINST HIM WHEN HE STARTED TO RESPOND. WE NEVER GOT TO

GO THERE BECAUSE JUDGE THOMAS REFUSED TO GO BEYOND THE

FOUR CORNERS OF THE DOCUMENT.

AND SO IT'S OUR POSITION NOW, IN FRONT OF

YOU, WITH RESPECT TO THE STRICTURES OF RES JUDICATA AND

COLLATERAL ESTOPPEL, THAT MR. ARMSTRONG NEVER GOT AN

ACTUAL OPPORTUNITY TO LITIGATE HIS DEFENSE BECAUSE JUDGE

THOMAS, BY MAKING A LEGAL NOT FACTUAL DECISION, MADE THE

DECISION YOU DON'T GET TO GO THERE.

THE COURT: SO THE DEFENSE WOULD BE WHAT,

THEN, I GOT TO SAY THOSE THINGS BECAUSE THEY SAID THINGS

ABOUT ME?

MR. GREENE: CORRECT. THE DEFENSE WOULD BE

THAT, WITH RESPECT TO THE GAG PROVISIONS, THAT AS SOON

AS SCIENTOLOGY STARTED TO PUBLICALLY DISPARAGE MR.

ARMSTRONG AS A CRIMINAL, PUBLICALLY DISPARAGE MR.

ARMSTRONG AS AN AGENT PROVOCATEUR, DISTRIBUTE VIDEOTAPES

THEY CLAIM SHOWED MR. ARMSTRONG'S INTENT TO TRY TO

ESTABLISH SOME SORT OF A -- GENERATE A COUP WITHIN

SCIENTOLOGY TO TAKE IT OVER, AND OTHER THINGS THAT WE

THINK ARE RIDICULOUS, BUT NONETHELESS DISPARAGING, AT

THAT POINT HE WAS NOT REQUIRED TO PROSTITUTE HIMSELF IN

FRONT OF SCIENTOLOGY AND SAY YOU CAN RUN ROUGHSHOD OVER

MY REPUTATION AND PERSON AND SAY ANYTHING THAT YOU WANT

ABOUT ME. AND HE DID NOT BARGAIN FOR THAT POSITION. HE

WOULD NEVER BARGAIN FOR THAT POSITION.

THE COURT: OKAY. BUT THIS DEFENSE WAS RAISED

IN THE PRIOR CASE BETWEEN THE PARTIES, BUT BECAUSE OF

JUDGE THOMAS'S GRANT OF SUMMARY JUDGMENT IT WASN'T --

THERE WAS NO HEARING ON IT.

MR. GREENE: THAT'S RIGHT. THAT'S RIGHT.

AND HIS GRANT OF SUMMARY JUDGMENT WAS A

LEGAL DECISION, NOT FACTUAL DECISION. AND SINCE IT WAS

NOT A FACTUAL DECISION THEN IT DOES NOT FALL WITHIN THE

STRICTURES OF RES JUDICATA AND COLLATERAL ESTOPPEL.

THE COURT: SO WHAT'S YOUR AUTHORITY FOR THE

POSITION THAT IF THE CHURCH BEGAN TO DISPARAGE MR.

ARMSTRONG HE WAS FREE TO DISREGARD HIS OBLIGATION UNDER

THE CONTRACT?

MR. GREENE: I CERTAINLY HAVE IT. IF YOU CAN

GIVE ME A COUPLE OF MINUTES. I WASN'T QUITE --

THE COURT: ALL RIGHT.

MR. GREENE: DO YOU WANT ME TO DO THAT NOW?

THE COURT: BUT I'M INTERESTED IN KNOWING WHAT

THAT IS. WHAT'S YOUR RESPONSE TO THE QUESTION THAT I

ASKED MR. WILSON ABOUT THE $800,000 AND WHETHER OR NOT,

WHEN MR. ARMSTRONG'S PENALTIES HAVE REACHED WHAT HE

RECEIVED, DOES THAT AFFECT HIS OBLIGATIONS UNDER THE

CONTRACT THAT HE HAS WITH THE CHURCH?

MR. GREENE: TO BE CANDID WITH YOU I HAVEN'T

THOUGHT ABOUT IT. I MEAN, I COULD GIVE YOU MY QUICK AND

OBVIOUS RESPONSE WHICH WOULD BE END OF OBLIGATION, BUT

IT REALLY WOULDN'T BE SINCERE BECAUSE I REALLY HAVEN'T

THOUGHT IT --

THE COURT: I NOTICE IT WASN'T RAISED, BUT

IT'S SOMETHING THAT OCCURRED TO ME. IT'S DANGEROUS WHEN

JUDGES START THINKING OF ISSUES THEMSELVES.

MR. GREENE: WE'RE GLAD TO HAVE A THINKING

JUDGE.

THE COURT: ALL RIGHT.

ANYTHING ELSE YOU WANTED TO SAY?

MR. GREENE: YES, YOUR HONOR.

I WOULD JUST ADD THAT GIVEN THE NATURE OF

WHAT'S TRANSPIRING, GIVEN THE NATURE OF WHAT MR.

ARMSTRONG'S COMMENTS AND ALLEGED BREACHES HAVE BEEN AND

ARE, AND THE PLACE THAT KIND OF DISCUSSION HAS IN THE

MARKETPLACE OF IDEAS AND THE ANALYSIS OF DIFFERENT --

THE PLACE OF DIFFERENT ORGANIZATIONS IN OUR DEMOCRACY,

THAT THAT DOES HAVE A PUBLIC INTEREST COMPONENT AND HAS

A STRONG COMPONENT AND THAT BASED ON THAT ALSO PROVIDES

THE REASON FOR THERE TO BE A FULL AND FAIR AIRING OF THE

ISSUES WHICH HAS NOT EVER TAKEN PLACE.

FINALLY, AND MAYBE THIS WOULD RESPOND A

LITTLE BIT TO YOUR QUESTION ABOUT WHAT HAPPENS WHEN HE

ACCUMULATES ENOUGH LIQUIDATED DAMAGES HITS TO EQUAL THE

CONSIDERATION THAT HE GOT, IF THAT -- IF THERE WAS NO

WASHOUT THE INJUSTICE TO ARMSTRONG WOULD BE FOREVER.

SCIENTOLOGY COULD SAY WHATEVER THEY WANT ABOUT HIM. HE

WOULD BE EFFECTIVELY GAGGED AND TIED. AND IF HE REFUSED

TO BE GAGGED AND TIED, AND IF HE MADE THE CHOICES TO

SPEAK OUT AND TELL THE TRUTH AS HE KNEW IT, THE RANGE OF

PUNISHMENT FOR DOING THAT WOULD BE LIMITLESS. THAT'S

JUST SIMPLY UNFAIR AND UNJUST.

AND BASED ON THE INJUSTICE EXCEPTION TO THE

RULE OF RES JUDICATA WE WOULD SUBMIT THAT THIS

PROCEEDING IS WORTHY OF A FULL HEARING.

MR. WILSON: MAY I?

THE COURT: I MEAN, I GUESS MY CONCERN IS ALL

OF THOSE THINGS THAT YOU SAY ABOUT FREE EXCHANGE OF

IDEAS AND FIRST AMENDMENT ARE MORE TRUE THAN WHEN

THERE'S AN ACCEPTANCE OF MONEY AND THE AGREEMENT TO NOT

DO THAT. IN SOME WAYS MR. ARMSTRONG'S MAIN PROBLEM IS

SIGNING THE SETTLEMENT AGREEMENT. AND HE -- THAT WAS

HIS DEAL.

SO WHY SHOULD THE COURT IGNORE THE CONTRACT

THAT HE SIGNED ON FOR?

MR. GREENE: WELL, THE DEAL, ALSO, YOUR HONOR,

WAS NOT -- IT WAS -- IT WAS A STRANGE DEAL.

THE WAY THE DEAL WORKED WAS THAT MICHAEL

FLYNN, WHO IS MR. ARMSTRONG'S FORMER LAWYER, HAD A

STABLE OF CLIENTS THAT WERE SUING SCIENTOLOGY.

SCIENTOLOGY GAVE A LUMP SUM OF MONEY TO FLYNN TO GET RID

OF ALL OF THE CASES. SHORTLY AFTER, A JURY IN LOS

ANGELES FOUND, AFTER A 90-DAY TRIAL, AWARDED $30 MILLION

TO LAUREN WOLLERSHEIM. SCIENTOLOGY HAD A BIG INTEREST

IN GETTING RID OF ALL THE CASES AGAINST THEM. FLYNN GOT

THIS LUMP SUM OF MONEY. ARMSTRONG WAS ONE OF --

PROBABLY THE LEAD CLIENT IN FLYNN'S STABLE, SO THERE WAS

ANOTHER AGREEMENT THAT PAST BETWEEN ARMSTRONG AND FLYNN

AND ALL OF THE REST OF FLYNN'S CLIENTS. THERE IS

NOTHING IN THAT AGREEMENT ABOUT CONSIDERATION FOR

KEEPING YOUR MOUTH SHUT.

AND WHAT -- FOR ARMSTRONG, WHAT MADE THAT

PALATABLE, ASIDE FROM ANY ISSUES OF DURESS THAT HE WAS

UNDER, WAS THAT IT WAS GOING TO BE MUTUAL. THAT THERE

WAS MUTUAL SILENCE, MUTUAL LEAVING ONE ANOTHER ALONE.

AND HE ABIDED BY THAT UNTIL SCIENTOLOGY STARTED TO

ATTACK HIM PUBLICALLY, THEN HE RESPONDED.

SO THAT'S WHAT MAKES THE DIFFERENCE.

IF HE GOT $800,000 TO KEEP HIS MOUTH SHUT,

AND SCIENTOLOGY KEPT THEIR MOUTH SHUT ABOUT HIM, THEN

YOUR QUESTION, IN MY MIND, WOULD HAVE GREATER VALIDITY.

BUT THE CORE ISSUE IS THIS ISSUE OF WHAT WAS THE

POSITION OF THE PARTIES. I MEAN ARMSTRONG, AT THE TIME

THAT HE ENTERED THIS AGREEMENT, HAD ALREADY BEEN SUED BY

SCIENTOLOGY, GONE THROUGH A 30-DAY COURT TRIAL BEFORE

PAUL G. BRECKENRIDGE, IN LOS ANGELES, WHERE SCIENTOLOGY

TRIED TO SHUT ARMSTRONG UP THERE AND BRECKENRIDGE

SPECIFICALLY FOUND, IN HIS MEMORANDUM OF INTENDED

DECISION, THAT ARMSTRONG AND OR HIS LAWYER COULD SAY

ANYTHING THAT THEY WANTED TO ABOUT SCIENTOLOGY. THAT

THERE WASN'T ANY SORT OF A GAG ORDER.

AND SO WHEN HE HAD FOUGHT THAT HARD AND THAT

LONG TO BE ABLE TO SPEAK, IT JUST SIMPLY STRAINS

CREDULITY THAT HE WOULD SAY, SURE, I'LL ENTER AN

AGREEMENT WHERE YOU CAN SAY WHATEVER YOU WANT ABOUT ME,

AND I CAN'T -- I CAN'T SAY ANYTHING BACK.

SO THAT'S -- THE CONTEXT OF WHAT THE

AGREEMENT WAS IS IMPORTANT. IF THE INTERPRETATION OF

THE INTENT OF THE PARTIES IS LIMITED STRICTLY TO THE

FOUR CORNERS OF THE DOCUMENT, THEN, YES, THERE'S NOT

MUCH I CAN SAY TO YOUR QUESTION.

THE COURT: YES, MR. WILSON.

MR. WILSON: BRIEFLY.

WHAT THIS ALL AMOUNTS TO IS THAT MR. GREENE

SAYS JUDGE THOMAS WAS WRONG. I MEAN THAT'S BASICALLY

WHAT HE'S SAYING. THIS IS NOT AN APPEAL.

THE COURT: WELL, HE'S ALSO SAYING A SUMMARY

JUDGMENT IS NOT A HEARING ON MERITS.

MR. WILSON: IT IS ON MERITS. A SUMMARY

JUDGMENT IS A HEARING ON THE MERITS AND JUDGE THOMAS

MADE A FINDING WITH RESPECT TO THIS CONFIDENTIALITY

ISSUE, THIS MUTUALITY ISSUE. IN EXHIBIT 6 THE COURT

FINDS THAT THE PORTIONS OF THE AGREEMENT CITED BY THE

DEFENDANT DO NOT ESTABLISH A FACTUAL CONFIDENTIALITY

REQUIREMENT. PARAGRAPH SEVEN PROHIBITS PARTIES FROM

DISCLOSING INFORMATION IN LITIGATION BETWEEN THE

PARTIES. THEN HE GOES ON ABOUT PARAGRAPH 18(D), ONLY

PROHIBITS DISCLOSURE OF THE TERMS OF THE SETTLEMENT.

DEFENDANT HAS NOT SHOWN THAT PLAINTIFF DID

EITHER OF THOSE THINGS.

IF MR. GREENE'S ARGUMENT IS TRUE, WHAT THAT

MEANS IS THAT A SUMMARY JUDGMENT COULD NEVER HAVE

PRECLUSIVE AFFECT. THAT'S WHAT HE'S SAYING. WHERE IS

THE LAW? WHERE IS THE LAW THAT SAYS THAT? THERE IS NO

LAW THAT SAYS THAT. AND IT WOULDN'T MAKE SENSE BECAUSE

LET'S LOOK AT IT THIS WAY, LET'S SAY I SUE SOMEBODY AND

I WIN ON SUMMARY JUDGMENT. AND IT'S KIND OF LIKE HERE,

I HAVE A CONTRACT. I SUE ON THAT CONTRACT. I WIN ON

SUMMARY JUDGMENT. I SUE ON THE CONTRACT AGAIN. AND I

SAY NOW IT'S RES JUDICATA AND I HAVE ANOTHER JUDGE AND

ARGUMENT.

WELL, IT'S NOT RES JUDICATA BECAUSE YOU GOT

A SUMMARY JUDGMENT, YOU DIDN'T HAVE A TRIAL, SO NOW I

GET A TRIAL. THAT'S TOTALLY BACKWARDS. TO TRY TO RELY

ON RES JUDICATA AS A RESULT OF SUMMARY JUDGMENT MEANS,

IN MR. GREENE'S WORLD, THAT YOU GET A TRIAL IN THE

SECOND TRIAL WHERE YOU DIDN'T GET ONE IN THE FIRST

TRIAL.

I MEAN, NOT ONLY IS THERE NO LAW, IT DOESN'T

MAKE ANY SENSE. AND IMAGINE THE RESULTS OF THAT. JUST

IMAGINE WHAT THAT WOULD MEAN IF YOU CARRIED IT FORWARD.

YOU DON'T HAVE PRECLUSIVE AFFECT ON SUMMARY JUDGMENT.

THERE -- THE CASES ON RES JUDICATA DON'T SAY THAT A

TRIAL ON THE MERITS MEANS EVIDENCE. THAT A DECISION --

DOESN'T SAY TRIAL ON MERITS. IT SAYS DECISION ON

MERITS. THIS DECISION WAS ON THE MERITS OF THAT ISSUE.

AND TO PUT A FURTHER POINT ON IT, THE

AGREEMENT ITSELF SAYS THAT IT'S AN INTEGRATED AGREEMENT.

THE AGREEMENT SAYS THAT ARMSTRONG CAN'T SAY ANYTHING

ABOUT THE CHURCH AND IT DOESN'T SAY THAT THE CHURCH

CAN'T SAY ANYTHING ABOUT ARMSTRONG. AND THIS NOTION

THAT SOMEHOW THIS LEAVES THE CHURCH FREE TO DEFAME MR.

ARMSTRONG IS NOT TRUE BECAUSE THE AGREEMENT DOESN'T SAY

THAT MR. ARMSTRONG WAIVES HIS RIGHT TO SUE THE CHURCH

FOR DEFAMATION. IF THAT'S WHAT HE THINKS HAPPENED,

THAT'S HIS REMEDY.

THE CHURCH ISN'T FREE TO SAY WHATEVER IT

WANTS ABOUT MR. ARMSTRONG. IT'S ONLY FREE TO SAY WHAT

IT WANTS TO SAY CONSTRAINED BY THE LAW. THE CHURCH IS

CONSTRAINED BY THE LAW NOT TO DEFAME MR. ARMSTRONG. MR.

ARMSTRONG SAYS I CAN MAKE A CONTRACT BUT I'M NOT

CONSTRAINED BY THE LAW. I CAN MAKE A CONTRACT, BREACH

IT ZILLIONS OF TIMES, TELL YOU I'M BREACHING IT ZILLIONS

OF TIMES, THUMB MY NOSE AT THE COURT, AND IT'S OKAY

BECAUSE THERE'S SOME WEIGHTY PUBLIC INTEREST HERE. JUST

NOT TRUE.

THIS IS A CONTRACT ACTION. HE MADE HIS

BARGAIN. IT WAS -- IT WAS A FREE, VOLUNTARY BARGAIN.

THAT'S BEEN FOUND BY JUDGE THOMAS. THIS IS NOT AN

APPEAL. THIS IS A SECOND CASE.

THE COURT: SUBMITTED?

MR. WILSON: SUBMITTED.

MR. GREENE: ALMOST.

THE COURT: YES.

MR. GREENE: ONE MORE COMMENT.

THE COURT: YES.

MR. GREENE: I NEGLECTED TO SAY THAT AN

IMPORTANT -- VERY IMPORTANT PART OF THIS IS THAT WHAT WE

HAVE IS SCIENTOLOGY ATTEMPTING TO EMPLOY A COMPLETELY

ONE-SIDED CONTRACT TO BE ABLE TO POUND ON ARMSTRONG IN

COURT IN THE FURTHERANCE OF THEIR FAIR GAME POLICY THAT

SAYS THAT ENEMIES OF SCIENTOLOGY CAN BE SUED, LIED TO,

TRICKED, OR OTHERWISE DESTROYED BY SCIENTOLOGY WITHOUT

ANY ADVERSE CONSEQUENCES.

OUR POSITION IS THAT THE IMPRIMATUR OF THE

COURT ON CONDUCT LIKE THAT HAS THE EFFECT OF VIOLATING

THE FIRST AMENDMENT CLAUSE THAT PROHIBITS THE

ESTABLISHMENT OF A RELIGION, THAT PROHIBITS A CONJOINED

OF RELIGIOUS DOCTRINE AND PRACTICES WITH THE POWER OF

THE COURT.

IT'S DRESSED UP AS A CONTRACT ACTION, BUT

WHEN YOU LOOK AT WHAT IS GOING ON, WHEN YOU LOOK AT 131

INTERNET POSTINGS AND YOU LOOK AT A $50,000 PENALTY FOR

EACH OF THOSE, IT'S NOT ABOUT BREACH OF CONTRACT, IT'S

ABOUT MAKING SURE THAT MR. ARMSTRONG IS QUIET AND

DOESN'T SAY ANYTHING CRITICAL ABOUT SCIENTOLOGY. FORTY

BREACHES WOULD BE WELL IN EXCESS OF $800,000.

THE COURT: ALL RIGHT. THE MOTION WILL STAND

SUBMITTED.

LET'S -- DO YOU WISH TO GIVE AN OPENING

STATEMENT?

MR. WILSON: I DON'T MEAN -- WELL, I CAN GIVE A

SHORT ONE.

WHEN MIGHT WE HAVE A RULING ON THAT? I MEAN

IT'S SORT --

THE COURT: WHEN I MAKE UP MY MIND. I DON'T

KNOW.

MR. WILSON: OKAY.

THE COURT: BUT MY --
MR. WILSON: GO AHEAD.

THE COURT: -- THOUGHT IS WE'LL PROCEED IN

TRIAL. AND IF THE MOTION IS DENIED YOU'LL BE ALLOWED A

REBUTTAL CASE.

MR. WILSON: OKAY. I WOULD REQUEST THAT IF THE

MOTION IS DENIED THAT I'D LIKE TO KNOW WHO MR. GREENE'S

WITNESSES ARE BECAUSE AS YOU KNOW THERE WAS NO ISSUE

CONFERENCE STATEMENT FILED. WE HAVE NO IDEA WHAT --

WHAT THEIR CASE IS. AND WE MIGHT WANT SOME TIME TO

PREPARE FOR IT, I DON'T KNOW.

THE COURT: WELL, ALL RIGHT.

WHO ARE YOUR WITNESSES?

MR. GREENE: RIGHT NOW MY ONLY WITNESS IS MR.

ARMSTRONG. I MIGHT ALSO HAVE HIS FORMER COUNSEL,

MICHAEL FLYNN.

THE COURT: ALL RIGHT.

MR. WILSON: IF HE WANTS TO BRING MICHAEL

FLYNN, I REALLY THINK I NEED A CHANCE TO DEPOSE HIM.

FIRST I'VE EVER HEARD OF THAT. AND ANYWAY, I WILL

BRIEFLY MAKE AN OPENING STATEMENT.

THE COURT: ALL RIGHT.

MR. WILSON: I THINK I PROBABLY SAID EVERYTHING

THAT I NEEDED TO SAY IN THE OPENING STATEMENT.

THIS CASE STARTED IN 1986 WHEN MR. ARMSTRONG

SIGNED THE AGREEMENT. AGREEMENT WAS ENTERED INTO

VOLUNTARILY, FREELY. SAYS IT WAS ENTERED INTO

VOLUNTARILY, FREELY. MR. ARMSTRONG TOOK $800,000 AND

WHEN IT WAS SPENT HE STARTED BREACHING THE AGREEMENT

CLAIMING THAT, AS MR. GREENE SAID, HE HAD A RIGHT TO DO

IT. CLAIMING THAT THE AGREEMENT WAS MUTUAL. CLAIMING

THAT THERE WAS DURESS. CLAIMING THAT THERE WAS FRAUD.

CLAIMING THAT THERE WAS FREEDOM OF RELIGION, CLAIMING

ALL THESE DEFENSES. ALL OF THESE DEFENSES WERE

LITIGATED, DECIDED AGAINST MR. ARMSTRONG. 131 BREACHES,

WE'RE TRYING TO RECOVER FOR TODAY, WERE FOUND TO BE

BREACHES OF THE AGREEMENT, BY JUDGE THOMAS, WHO ALSO

FOUND THAT THE DEFENSES WERE INVALID.

THE ANSWER THAT MR. ARMSTRONG FILED IN THIS

CASE ADMITS THE 131 BREACHES. I HAVEN'T HEARD ANYTHING

TODAY, YESTERDAY, THE DAY BEFORE, OR BEFORE THAT, TO

INDICATE THAT THESE BREACHES DID NOT OCCUR.

THE COURT: WHAT RELIEF DOES THE CHURCH SEEK

IN THIS ACTION THAT IT DID NOT OBTAIN FROM JUDGE THOMAS?

MR. WILSON: THE ONLY RELIEF THAT WE SEEK IS

DAMAGES FOR THESE BREACHES THAT WE DID NOT RECEIVE FROM

JUDGE THOMAS. THAT'S THE RELIEF.

THE COURT: ALL RIGHT. WHY WAS THAT NOT

REQUESTED BEFORE?

MR. WILSON: I BELIEVE THAT THE REASON THAT IT

WASN'T WAS BECAUSE WHEN THE BREACHES OCCURRED THE CASE

HAD BEEN -- WAS OVER.

THE COURT: SO THESE WERE SUBSEQUENT TO HIS --

MR. WILSON: I BELIEVE THEY WERE POST-JUDGMENT

BREACHES.

THE COURT: OKAY.

MR. WILSON: I'M VIRTUALLY CERTAIN THAT THEY

WERE.

IN ANY EVENT, IT WOULD HAVE REQUIRED

AMENDING THE COMPLAINT AND EITHER -- OR AMENDING THE

COMPLAINT AND FILING A NEW ACTION. I SUPPOSE THE CHURCH

HAD SOME HOPE THAT MR. ARMSTRONG WOULD STOP.

I CAN TELL YOU THAT IF MR. ARMSTRONG TODAY

WOULD LIKE TO PAY THE MONEY BACK WE'LL RESCIND THE

AGREEMENT. I MEAN THIS IS NOT ABOUT THE CHURCH OF

SCIENTOLOGY TRYING TO BE PUNITIVE. THIS IS ABOUT THE

CHURCH OF SCIENTOLOGY TRYING NOT TO BE A VICTIM.

YOUR HONOR, THERE'S SOMEBODY IN THE AUDIENCE

WHO THINKS IT'S FUNNY TO LAUGH AT SOMETHING THAT I SAY

AND --

THE COURT: I'LL MAKE SURE OUR BAILIFF IS ON

THAT.

MR. WILSON: I DON'T KNOW WHAT THAT'S ABOUT,

BUT I WOULD ASK THAT RESPECT BE GIVEN TO EVERYONE. I

WOULDN'T WANT ANYONE TO LAUGH AT WHAT MR. GREENE DOES

AND I DON'T --

THE COURT: I DO ASK EVERYONE HERE BE

RESPECTFUL AND MAINTAIN DIGNITY OF THE COURTROOM.

THANK YOU.

MR. WILSON: THIS IS ABOUT THE CHURCH OF

SCIENTOLOGY NOT BEING MR. ARMSTRONG'S VICTIM. THIS IS

ABOUT AN INSTITUTION.

THE COURT: SO HERE'S MY QUESTION THAT I JUST

WANT TO BE CLEAR ON BECAUSE WE ARE TALKING ABOUT QUITE A

FEW FACTS. WE'RE TALKING ABOUT 131 BREACHES BEING THE

SAME THAT WERE ALREADY -- WHEN WE TALK ABOUT THEM BEING

THE SAME, WHAT DOES THAT MEAN? I WANT TO MAKE SURE THAT

IF THERE'S A COLLATERAL ESTOPPEL AFFECT, RES JUDICATA

AFFECT, THAT IT'S BOTH SIDES.

OKAY.

MR. WILSON: IT MEANS THAT THE POSTINGS, 131

POSTINGS --

THE COURT: HAVE BEEN ADMITTED BY MR.

ARMSTRONG?

MR. WILSON: RIGHT. WERE THE SAME POSTINGS

THAT MR. ARMSTRONG WAS FOUND TO BE IN CONTEMPT OF COURT

FOR VIOLATING THE INJUNCTION FOR.

THAT'S WHAT IT MEANS.

THE COURT: OKAY. CONTEMPT, THAT WAS BY WHOM,

WAS THAT JUDGE SMITH THEN?

MR. WILSON: THAT WAS JUDGE SMITH.

THE COURT: SO YOU'RE SAYING 131 POSTINGS,

THERE WAS ALREADY THIS HEARING -- THIS IS YET A

DIFFERENT PROCEEDING?

MR. WILSON: THE 131 WERE THE SUBJECT OF AN EX

PARTE APPLICATION.

THE COURT: OKAY. SO TODAY FORMS THE BASIS OF

THE CONTEMPT PROCEEDING, THAT'S THE ONE THAT THERE HAS

NOT BEEN A SENTENCE ON?

MR. WILSON: THAT'S THE ONE THAT HAS NOT BEEN

SENTENCED ON.

THE COURT: ALL RIGHT. SO YOU'RE SAYING THERE

HAS BEEN A JUDICIAL DETERMINATION THAT THESE 131

POSTINGS VIOLATED THE SETTLEMENT AGREEMENT BETWEEN THE

PARTIES. AND WHAT'S SOUGHT IN THIS ACTION ARE JUST THE

MONETARY DAMAGES THAT WOULD ACCOMPANY THAT UNDER THE

LIQUIDATED DAMAGES PROVISION OF THE CONTRACT.

MR. WILSON: RIGHT.

THE COURT: OKAY.

MR. WILSON: RIGHT. THAT'S CORRECT.

THE COURT: AND WHAT IS THE CASE NUMBER FOR

THE JUDGE SMITH CASE THAT THE CONTEMPT FINDING WAS MADE?

MR. WILSON: 15229, I THINK. 15229. I'M SORRY,

THREE TWO'S. 152229.

THE COURT: OKAY. ALL RIGHT.

SO THAT WAS EX PARTE?

MR. WILSON: AND MR. ARMSTRONG FILED

OPPOSITION. MR. ARMSTRONG'S OPPOSITION TO THAT IS

EXHIBIT --

THE COURT: I'M GOING TO HAVE THE FILE BROUGHT

DOWN.

MR. WILSON: -- EXHIBIT 10. IT'S OUR EXHIBIT

10 IN YOUR BOOK. THAT'S MR. ARMSTRONG'S OPPOSITION.

SO IF YOU TAKE A LOOK AT THAT OPPOSITION,

AGAIN MR. ARMSTRONG MAKES THE ARGUMENTS HE MADE BEFORE

JUDGE THOMAS. SO YOU HAVE BASICALLY TWO JUDGES HAVE

DECIDED THIS CASE THE SAME WAY AGAINST MR. ARMSTRONG.

AND ONE OF THOSE WAS ON THE VERY BREACHES THAT WE'RE

TALKING ABOUT HERE.

THE COURT: ALL RIGHT. AND WAS THERE -- WAS

THERE A -- THERE WAS A HEARING ON THAT?

MR. WILSON: THERE WAS A HEARING.

THE COURT: THAT WAS JUNE 17TH 2001?

MR. WILSON: RIGHT.

THE COURT: ALL RIGHT. THAT WAS ONE THAT MR.

ARMSTRONG DIDN'T APPEAR FOR?

MR. WILSON: HE DID NOT APPEAR.

THE COURT: OKAY. I UNDERSTAND.

MR. WILSON: I CAN'T REMEMBER WHETHER HE DID OR

NOT. I THINK HE DID APPEAR. I THINK HE APPEARED ON THE

PHONE.

THE COURT: I'M LOOKING AT THE ORDER OF

CONTEMPT, YOUR EXHIBIT 11. IT SAYS ARMSTRONG MADE NO

APPEARANCE.

MR. GREENE: HE DID NOT APPEAR BY PHONE.

THE COURT: HE FILED OPPOSITION AND SWORN

DECLARATION.

MR. WILSON: OKAY. HE DID FILE LENGTHY

OPPOSITION. THAT'S CORRECT.

THE COURT: OKAY.

MR. WILSON: SO OUR POSITION IS --

THE COURT: YOU'RE ASKING FOR MONETARY DAMAGES

FOR 131 POSTINGS AND YOU'RE ALSO SAYING THAT IF MR.

ARMSTRONG WANTS TO GIVE THE CHURCH THE MONEY BACK THE

CHURCH WILL RESCIND THE AGREEMENT?

MR. WILSON: THAT'S RIGHT.

THE COURT: ALL RIGHT.

MR. WILSON: WE MADE THAT OFFER TO MR.

ARMSTRONG BEFORE.

I WOULD ALSO LIKE TO POINT OUT, JUST SO THE

COURT KNOWS, THAT WHEN I SAID THAT MR. ARMSTRONG WAS

FREE TO ENFORCE HIS RIGHTS NOT TO BE DEFAMED, HE

ACTUALLY DID AT ONE POINT FILE A CASE IN NEVADA ALLEGING

DEFAMATION AND THAT CASE WAS DECIDED AGAINST HIM, AS

WELL.

SO AT THIS POINT I THINK THE COURT IS AWARE,

WELL AWARE OF ENOUGH OF THE BACKGROUND, THE FACTS OF THE

CASE, I CAN MOVE TO INTRODUCE THE EVIDENCE --

THE COURT: WELL, LET'S HEAR OPENING STATEMENT

FROM MR. GREENE.

MR. WILSON: -- UNLESS MR. GREENE WANTS TO

MAKE AN OPENING STATEMENT.

THE COURT: ALL RIGHT.

MR. GREENE.

MR. GREENE: WELL, LET ME GET SOME

CLARIFICATION FROM YOU FIRST, YOUR HONOR.

MY OPENING STATEMENT, IN LARGE PART, DEPENDS

ON WHETHER OR NOT WE'RE ALLOWED TO ASSERT ANY DEFENSE,

AND/OR WHETHER WE'RE GOING TO BE PRECLUDED OR

COLLATERALLY ESTOPPED FROM DOING SO.

SO I'M NOT QUITE SURE HOW --

THE COURT: IT'S POSSIBLE THAT BOTH OF THOSE

COULD BE TRUE. IT'S POSSIBLE THAT YOU'RE ALLOWED TO PUT

ON EVIDENCE, BUT THERE IS RES JUDICATA AFFECT TO THE

EVIDENCE BASED ON THE PREVIOUS COURT RULINGS.

MR. GREENE: ALL RIGHT. WELL, I'M JUST GOING

TO --

THE COURT: I MEAN, WHAT, WE HAVE AN IN LIMINE

MOTION THAT SEEKS TO PREVENT YOU FROM INTRODUCING

EVIDENCE ON THE GROUNDS THAT IT'S ALREADY BEEN RULED ON.

ONE POSSIBILITY IS THAT WE GO FORWARD, THAT I HEAR YOUR

EVIDENCE, BUT THAT DOES NOT MEAN THAT THE COURT WOULD

NOT FIND THAT THIS MATTER HAS BEEN ADJUDICATED ALREADY.

MR. GREENE: I UNDERSTAND. ALL RIGHT.

GERALD ARMSTRONG WAS A HIGHLY DEDICATED

SCIENTOLOGIST. THERE WAS A TIME WHEN, IN LOS ANGELES,

OR IN SOUTHERN CALIFORNIA, THERE WAS A MASSIVE SHREDDING

OPERATION BECAUSE SCIENTOLOGY FEARED AN FBI RAID.

GERALD ARMSTRONG WAS ONE OF THE PEOPLE WHO PARTICIPATED

IN THE GATHERING UP OF ALL DOCUMENTS THAT SHOWED ANY

CONTROL EXERTED OVER SCIENTOLOGY BY ITS FOUNDER L. RON

HUBBARD.

IN THE PROCESS OF DOING THAT MR. ARMSTRONG

CAME ACROSS A NUMBER OF BOXES THAT CONTAINED PAPERS

HAVING TO DO WITH MR. HUBBARD'S HISTORY, HIS PAST

ACCOMPLISHMENTS, HIS PAST EDUCATION, HIS SERVICE IN THE

MILITARY. AND ARMSTRONG, BEING A DEDICATED

SCIENTOLOGIST, AND REVERING MR. HUBBARD AS A LEADER OF

SCIENTOLOGY, SAW THAT THESE BOXES HAD TREMENDOUS -- OF

DOCUMENTS HAD TREMENDOUS VALUE AND THAT THE CONTENTS OF

THE BOXES DID NOT RELATE IN ANY DIRECT WAY TO CONTROL

EXERTED BY HUBBARD OVER SCIENTOLOGY.

MR. WILSON: EXCUSE ME, YOUR HONOR.

MR. GREENE: WOULDN'T BE PROPER FOR THOSE

THINGS TO BE SHREDDED.

MR. WILSON: I'M GOING TO OBJECT TO THIS ON THE

BASIS THAT THE AGREEMENT SAYS THE PARTIES HERETO AGREE

THAT IN THE EVENT OF ANY FUTURE LITIGATION BETWEEN

PLAINTIFF AND ANY OF THE ORGANIZATIONS, INDIVIDUALS, OR

ENTITIES LISTED IN PARAGRAPH ONE, THAT ANY PAST ACTION

OR ACTIVITY EITHER ALLEGED IN THIS LAWSUIT OR ACTIVITY

SIMILAR IN FACT TO THE EVIDENCE THAT WAS DEVELOPED

DURING THE COURSE OF THIS LAWSUIT WILL NOT BE USED BY

EITHER PARTY AGAINST THE OTHER IN ANY FUTURE LITIGATION.

IN OTHER WORDS, THE SLATE IS WIPED CLEAN

CONCERNING PAST ACTIONS BY ANY PARTY.

THE COURT: WELL, I'M GOING TO ALLOW HIM TO

MAKE AN OPENING STATEMENT.

MR. GREENE: THANK YOU, YOUR HONOR.

SO MR. ARMSTRONG RECOGNIZED THE HISTORICAL

VALUE OF MR. HUBBARD'S PAPERS, PETITIONED MR. HUBBARD

FOR PERMISSION NOT TO SHRED THEM BUT INSTEAD TO SAVE

THEM AND ARCHIVE THEM. THAT PERMISSION WAS GRANTED.

MR. ARMSTRONG THEN BECAME THE PERSONAL

ARCHIVIST FOR L. RON HUBBARD, STARTED TO ARCHIVE WHAT

ULTIMATELY TURNED OUT TO BE APPROXIMATELY 120 BOXES FULL

OF DOCUMENTS WHICH ADDRESSED HUBBARD'S PAST HISTORY,

ACCOMPLISHMENTS, EDUCATION.

IN THE PROCESS OF INDEXING THESE DOCUMENTS

MR. ARMSTRONG CAME TO SEE THAT THE REPRESENTATIONS THAT

SCIENTOLOGY MADE TO THE PUBLIC AT LARGE ABOUT THE

HISTORY, ACCOMPLISHMENTS, AND PAST OF MR. HUBBARD,

WEREN'T TRUE. THAT MR. HUBBARD WAS PRESENTED IN A

MANNER THAT WAS HIGHLY GRANDIOSE, AND THAT THE

HISTORICAL DOCUMENTS DID NOT SUPPORT OR CONFIRM.

MR. ARMSTRONG THEN RAISED THE ISSUE WITHIN

THE SCIENTOLOGY HIERARCHY THAT GIVEN THE FACT THAT HOW

SCIENTOLOGY HELD MR. HUBBARD OUT WAS NOT TRUE, IT WAS

PUTTING BOTH MR. HUBBARD AND SCIENTOLOGY AT RISK FOR

SOME INVESTIGATIVE REPORTER TO START TO DIG AROUND AND

COME TO THE CONCLUSION AND PUBLISH THE RUMORS THAT

SCIENTOLOGY WAS A FRAUD, THAT HUBBARD WAS A FRAUD.

MR. ARMSTRONG ARDENTLY LOBBIED FOR ACCURACY

IN PRESENTATION. THE WAY THAT MR. ARMSTRONG'S EFFORTS

WERE RESPONDED TO WERE HEAVY-HANDED. THERE'S SOMETHING

SCIENTOLOGY CALLED SECURITY CHECKING, WHICH IS A FORM OF

INTERROGATION TO SEE WHETHER OR NOT SOMEONE HARBORS

INTENT THAT'S EVIL OR CONTRARY TO WHAT THE GOALS OF

SCIENTOLOGY ARE.

WHEN ARMSTRONG FOUND OUT THAT HE WAS SLATED

FOR SECURITY CHECKING AS A RESPONSE TO HIS EFFORT TO

HAVE SCIENTOLOGY BE HONEST ABOUT WHO MR. HUBBARD WAS, HE

KNEW THAT HE WAS IN TROUBLE.

IN THE PROCESS OF GOING THROUGH AND

REVIEWING THE DOCUMENTS THAT HE HAD DONE FOR AN

EXTENSIVE PERIOD OF TIME, AND COMPARING THAT REVIEW WITH

THE REPRESENTATIONS THAT SCIENTOLOGY MADE ABOUT HUBBARD,

JERRY ARMSTRONG, IN EFFECT, DEPROGRAMMED HIMSELF FROM

THE INFLUENCE OF SCIENTOLOGY AND FROM ITS IDEOLOGY THAT

HE FOR YEARS AND YEARS HAD BEEN INDOCTRINATED WITH.

STARTED TO BE MORE FREETHINKING.

SO WHAT HE DID WAS TO SEE THAT HE WAS IN

TROUBLE. AND HE MADE THE DECISION THAT IF HE STAYED

WITHIN SCIENTOLOGY HARM WAS GOING TO COME TO HIM. AND

HE KNEW, BECAUSE OF INTIMATE FAMILIARITY WITH

SCIENTOLOGY'S FAIR GAME POLICY, THAT IF HE LEFT

SCIENTOLOGY HE WAS GOING TO BECOME FAIR GAME. THAT AT

THAT POINT THE MASSIVE INSTITUTIONAL CLOUT OF

SCIENTOLOGY WAS GOING TO BE BROUGHT TO BEAR PERSONALLY

ON HIM IN ORDER TO DESTROY HIM LEGALLY, OR BY ANY OTHER

MEANS, BECAUSE IN SCIENTOLOGY THERE IS A STRICT

DICHOTOMY BETWEEN THOSE WHO ARE SCIENTOLOGISTS AND THOSE

WHO ARE IN THE OUTSIDE WORLD, WHERE THOSE WHO ARE THE

OUTSIDE WORLD REALLY ARE INFERIOR PEOPLE, ESPECIALLY

THOSE IN THE OUTSIDE WORLD WHO TAKE ACTION THAT'S

CONTRARY TO THE GOALS OF SCIENTOLOGY AND CONTRARY TO

WHAT SCIENTOLOGY WANTS TO HAVE HAPPEN. AT THAT POINT

SUCH A PERSON CAN BE DECLARED FAIR GAME OR RATHER BE

DECLARED SUPPRESSIVE THEN BECOME SUBJECT TO THE FAIR

GAME POLICY.

ARMSTRONG KNEW THAT IF HE LEFT THAT HE WAS

GOING TO BE DECLARED A SUPPRESSIVE PERSON AND THE FAIR

GAME POLICY WAS GOING TO COME DOWN ON HIS HEAD.

AT THE TIME ARMSTRONG WAS ALSO WORKING WITH

A BIOGRAPHER, NAMED MARK GARRISON, WRITING A BIOGRAPHY

OF HUBBARD. AND SO WHEN ARMSTRONG LEFT HE KNEW THAT HE

HAD TO PROTECT HIMSELF. AND THE WAY, ULTIMATELY, HE

PROTECTED HIMSELF WAS BY GETTING A COPY OF A LOT OF THE

HISTORICAL DOCUMENTS FROM GARRISON WHICH THEN ARMSTRONG

GAVE TO HIS ATTORNEY MICHAEL FLYNN.

AT THAT POINT SCIENTOLOGY GOT WIND OF IT AND

SUED ARMSTRONG, SUED ARMSTRONG FOR BREACH OF FIDUCIARY

DUTY, SUED ARMSTRONG FOR CONVERSION OF DOCUMENTS.

THAT'S THE CASE THAT WAS TRIED BEFORE JUDGE

BRECKENRIDGE. THAT CASE TOOK ABOUT 30 DAYS. AND THE

RESULT WAS AN EXTENSIVE JUDICIAL OPINION THAT FOUND

ARMSTRONG'S TESTIMONY AND THE TESTIMONY OF HIS WITNESSES

TO BE HIGHLY CREDIBLE AND CONSISTENT, FOUND THAT

SCIENTOLOGY, BEFORE BRECKENRIDGE, WAS AS IT HAD BEEN

BEFORE A JUDGE IN FRANCE WHO HAD CHARACTERIZED THEM

AS -- AS ABUSING THE CONFIDENCES OF PARISHIONERS, OF

POSSESSING, THROUGH THIS, WHERE I DESCRIBED EARLIER,

THIS PROCESS OF SECURITY CHECKING, TO VARIANT SOMETHING

CALLED AUDITING WHICH IS THE USE OF A CRUDE LIE

DETECTOR, AN ELECTRO-PSYCHOMETER THAT SCIENTOLOGY CALLED

AN E-METER. SO THE PERSON WHO IS BEING AUDITED HOLDS ON

TO TWO ELECTRODES AND THE AUDITOR ASKS A SERIES OF

QUESTIONS THAT ARE WRITTEN OUT AND THEN RECORDS ALL OF

THE PERSON'S RESPONSES. AND INCREASINGLY THE AUDITING

PROCESS PENETRATES THE MOST INTIMATE DETAILS OF AN

INDIVIDUAL'S PSYCHOLOGY. SO EVERYTHING THAT YOU'VE EVER

DONE, OR THAT YOU FEEL THE SLIGHTEST BIT GUILTY ABOUT,

OR SLIGHTEST BIT ASHAMED ABOUT, IS STORED IN WHAT ARE

CALL PRE-CLEAR FOLDERS.

SO BRECKENRIDGE TALKED ABOUT HOW, BEFORE

HIM, THE EVIDENCE WHICH HAD BEEN PRESENTED BY ARMSTRONG

AND HIS WITNESSES, PUT ALL OF THEM AT RISK BECAUSE THEY

KNEW THAT ALL OF THESE MOST INTIMATE DISCLOSURES OF ALL

THE DIRT IN THEIR LIFE, BASICALLY, COULD BE USED AND

WOULD BE USED AGAINST THEM. HE FOUND THAT -- THAT

HUBBARD WAS A PATHOLOGICAL LIAR, CLEARLY SCHIZOPHRENIC,

WHILE POSSESSING TREMENDOUS CHARISMA, AND PROBABLY SOME

GENIUS, THAT THERE WAS ALSO A SIDE THAT WAS VERY DARK,

THAT WAS VERY CONTROLLING, AND THAT THE SCIENTOLOGY

INSTITUTION REFLECTED THAT. AND THAT THE CONTROLLING,

DOMINATING NATURE OF SCIENTOLOGY WAS EXPRESSED THROUGH

FAIR GAME.

AND BRECKENRIDGE, IN SOME OF THE MOST

EXPLICIT LANGUAGE THAT I EVER READ FROM A JUDGE,

CONDEMNED FAIR GAME AND CONDEMNED SCIENTOLOGY FOR USING

IT. FOUND IN FAVOR OF ARMSTRONG.

THE COURT: THIS IS WHEN?

MR. GREENE: THIS WAS IN JULY OF 1984. JUNE

1984.

NOW, WHEN ARMSTRONG RESPONDED TO

SCIENTOLOGY'S ACTION AGAINST HIM, HE FILED A

CROSS-COMPLAINT BECAUSE -- I MEAN, INCLUDED IN

BRECKENRIDGE'S OPINION WAS A LOT OF MATERIAL ABOUT HOW

SCIENTOLOGY'S PRIVATE INVESTIGATORS HAD TRIED TO RUN

ARMSTRONG DOWN IN A CAR, THAT THERE WAS A LOT OF CLEARLY

CRIMINAL ACTIVITY THAT WAS DIRECTED AT ARMSTRONG AS PART

OF THE FAIR GAME POLICY. THAT FAIR GAME POLICY WASN'T

JUST A BUNCH OF NASTY WORDS THAT WERE WRITTEN DOWN.

THESE WORDS WERE TAKEN VERY, VERY SERIOUSLY, PUT INTO

ACTION.

SO BECAUSE OF ALL OF THIS ARMSTRONG HAD A

CROSS-COMPLAINT FOR FRAUD AND INTENTIONAL INFLICTION OF

EMOTIONAL DISTRESS WHICH WAS SEVERED. IT WAS NOT TRIED

AT THE SAME TIME THAT SCIENTOLOGY'S CASE AGAINST

ARMSTRONG WAS TRIED BEFORE BRECKENRIDGE, IT WAS WAITING

IN THE WINGS AND PENDING.

NOW IT'S WITH RESPECT TO THAT CASE,

ARMSTRONG'S CROSS-COMPLAINT AGAINST SCIENTOLOGY, THAT'S

WHAT GOT SETTLED. THAT'S WHAT THE $800,000 WAS FOR.

$800,000 WAS NOT FOR ARMSTRONG TO BE -- TO BE GAGGED AND

PUT IN SOME -- SOME SORT OF CONSTITUTIONAL PILLORY. IT

WAS TO GET RID OF THAT CROSS-COMPLAINT.

AT THE TIME OF THE SETTLEMENT, WHICH WAS

DECEMBER OF 1986, THERE WERE, I THINK, IN THE L.A. AREA,

IT WAS SOMETHING BETWEEN EIGHT AND TWELVE PARTIES THAT

FLYNN REPRESENTED THAT WERE PART OF THIS GLOBAL

SETTLEMENT AGREEMENT. THERE WERE ALSO OTHER SETTLEMENT

AGREEMENTS OF FLYNN CLIENTS AGAINST SCIENTOLOGY IN

VARIOUS PARTS OF THE COUNTRY. ONE IN BOSTON, THE GARETY

ONES; AND IN FLORIDA, WHICH WERE THE MCLEAN ONES,

INCLUDING DAVID CAZARES, FORMER MAYOR OF CLEARWATER,

ALSO PENDING CLAIMS AGAINST SCIENTOLOGY BECAUSE THE FAIR

GAME POLICY.

ALL OF THOSE WERE SETTLED. ALL OF THOSE HAD

GAG AGREEMENTS. THOSE SETTLEMENTS TOOK PLACE ALL IN

1986. AND IT WAS IN JULY OF 1986, THAT, AS I ADVERTED

TO EARLIER, A L.A. COUNTY JURY AWARDED LAUREN

WOLLERSHEIM $5 MILLION IN COMPENSATORY DAMAGES AND $25

MILLION IN PUNITIVE DAMAGES. NOW THAT AWARD,

SUBSEQUENTLY ON APPEAL, WAS SLASHED DRASTICALLY TO TWO

AND A HALF MILLION, BUT AT THE TIME IT STOOD.

AND WITH A JURY IN L.A., MIDDLE OF THE

SUMMER OF 1986, STINGING SCIENTOLOGY THAT HARD, THEY HAD

A LOT OF EXPOSURE. THEY HAD A LOT OF REASON TO PUT

THESE CASES TO BED AND TO SHUT PEOPLE UP BECAUSE REALLY

WHAT THE PERNICIOUSNESS WAS OF THE GAG AGREEMENTS WAS

THAT IT COMPLETELY ERADICATED PEOPLE WHO HAD BEEN --

THERE WERE EX-SCIENTOLOGISTS THEN, WHO HAD BEEN MEMBERS

OF SCIENTOLOGY FOR A LONG TIME, THEY WERE HIGHLY PLACED

AND KNEW HOW THE ORGANIZATION OPERATED ON A FIRST-HAND

BASIS. SO AS A STABLE OF WITNESSES THEY WERE ABSOLUTELY

DEADLY.

NOW FLYNN WAS -- DID NOT REPRESENT ALL OF

THESE PEOPLE AND HAD NOT BECOME UNDER THE AIM OF THE

FAIR GAME POLICY HIMSELF. I MEAN, IF YOU LITIGATE

AGAINST SCIENTOLOGY, CONTEMPT MOTIONS, STATE BAR

COMPLAINTS, LAWSUITS, THAT'S ALL HEAT IN THE KITCHEN.

WITH FLYNN IT WAS EVEN MORE. I MEAN I WON'T GO INTO ALL

OF THAT, BUT THERE'S A POINT WHERE THERE WAS WATER IN

THE GAS TANK OF HIS AIRPLANE, HIS WIFE LEFT HIM, AND HE

WANTED OUT. AND HE MADE IT CLEAR THAT HE WAS GOING TO

GET OUT AND THAT IF EVERYBODY DIDN'T GO ALONG HE WASN'T

GOING TO BE THERE. MIKE FLYNN WAS A CHAMPION OF ALL OF

THESE PEOPLE.

SO THERE WAS A LOT OF REASON FOR SCIENTOLOGY

TO SETTLE AND FAIR GAME PROVIDED A BIG LEVER TO ASSIST

IN THE ACCOMPLISHMENT OF SUCH SETTLEMENT. AND ARMSTRONG

WAS RIGHT IN THE MIDDLE OF IT. SO I THINK IT'S DECEMBER

6, OR 11TH, 1986, IS THE SETTLEMENT DATE. AND ARMSTRONG

SIGNED, THERE'S A VIDEOTAPE, PROBABLY COME TO IT, I'LL

SHOW THE VIDEOTAPE. ARMSTRONG ABIDED BY THE AGREEMENT.

NOW THE -- BUT TO MAKE IT CLEAR, AGAIN THE

$800,000, SCIENTOLOGY DIDN'T KNOW WHAT THAT AMOUNT WAS,

THEY DIDN'T PAY 800 GRAND TO JERRY ARMSTRONG, THEY PAID

SOME UNTOLD MILLIONS TO FLYNN. IT WAS HIS JOB TO PUT

ALL HIS CLIENTS TO BED AND TO GET THEM TO AGREE.

SO THE ACTUAL SETTLEMENT WAS A LITTLE BIT

DIFFERENT IN THAT REGARD.

JUST TO GO BACK FOR A SECOND TO THE

BRECKENRIDGE LITIGATION. THERE WAS SOME TAPES IN THE

LITIGATION THAT NOW HAVE BECOME SUBJECT OF SOME OF THE

LEADING PRECEDENTS INVOLVING THE CRIME FRAUD EXCEPTION

TO THE ATTORNEY-CLIENT PRIVILEGE. UNITED STATES VERSUS

ZOLLER.

THE COURT: I FEEL THAT WE'RE GETTING --

MR. GREENE: TOO FAR AFIELD?

THE COURT: -- PRETTY FAR OFF TOPIC FOR WHAT

WE'RE HERE FOR TODAY.

MR. GREENE: LET ME GO TO THE FACT THAT IN THE

DISCUSSIONS WITH RESPECT TO THE LIQUIDATED DAMAGES

PROVISION THERE WAS NO TALK, THERE WAS NO BARGAIN, THERE

WAS NO DISCUSSION. IT WAS PRESENTED TO ARMSTRONG AND

THAT WAS THAT, THAT WAS IT.

THE COURT: DIDN'T HE HAVE TO SIGN IT?
MR. GREENE: NO, HE DIDN'T HAVE TO SIGN IT

EXCEPT THAT IF HE DIDN'T SIGN IT, IT WAS GOING TO

PRECLUDE EVERYBODY ELSE WHO WAS CLAMORING TO SIGN AND TO

BE RELEASED. AND THERE WAS PRESSURE FROM HIS LAWYER

BECAUSE IF HE DIDN'T SIGN IT HIS LAWYER WAS GOING TO

LEAVE. AND THERE WAS THE THREAT OF FAIR GAME.

SO NO, HE DIDN'T HAVE TO SIGN IT, BUT THERE

WAS -- HIS SIGNING WAS NOT FREE OF COERCION. AND ALSO

HIS SIGNING CERTAINLY DID NOT INCLUDE ANY KIND OF ADVICE

THAT, MR. ARMSTRONG, AFTER YOU SIGN THIS AGREEMENT WE'RE

GOING TO START MAKING PUBLIC REPRESENTATIONS ABOUT HOW

YOU'RE A CRIMINAL, AND HOW YOU'RE AN AGENT PROVOCATEUR,

AND OVERALL BAD GUY. AND YOU KNOW WHAT, BECAUSE YOU

SIGNED THIS AGREEMENT YOU HAVE TO KEEP YOUR MOUTH SHUT.

THE COURT: ALL RIGHT. I GOT THAT. YOU TOLD

ME ABOUT THAT.

MR. GREENE: ALL RIGHT. NOW, AT THE TIME THAT

MR. ARMSTRONG DID SIGN THAT, I MEAN HE'S NOT STUPID, AND

HE SAW THAT THERE -- THAT THE AGREEMENT APPEARED TO BE

ONE-SIDED. AND HE ASKED MR. FLYNN, "WHAT'S THE STORY

WITH THIS?" MR. FLYNN, "YOU CAN'T CONTRACT AWAY YOUR

FIRST AMENDMENT RIGHTS. IT'S NOT WORTH THE PAPER IT'S

WRITTEN ON."

SO ARMSTRONG -- THE AGREEMENT IS SIGNED,

LITIGATION PUT TO BED, ARMSTRONG GOES ON WITH HIS LIFE.

THEN THE REPRESENTATIONS START COMING TO HIM ABOUT WHAT

SCIENTOLOGY IS SAYING TO THE L.A. TIMES, WHAT

SCIENTOLOGY IS SAYING IN LITIGATION IN ENGLAND TRYING TO

SUPPRESS THE PUBLICATION OF A BOOK CRITICAL OF

SCIENTOLOGY, WHAT -- THERE'S A MOVIE OR A VIDEO

DISTRIBUTED THAT WAS EDITED THAT WAS SUPPOSED TO SUPPORT

THE CLAIM THAT ARMSTRONG WANTED TO TAKE OVER SCIENTOLOGY

AND WAS TRYING TO FORM A COMPANY WITHIN.

AT THAT POINT, AT FIRST HE'S QUIET THEN THEY

KEEP GOING. HE STARTS TO RESPOND. THEN THERE'S -- THEN

HE GETS SERVED WITH A SUBPOENA IN LITIGATION INVOLVING

BENT CORYDON WHO WROTE A BOOK CALLED L. RON HUBBARD,

MESSIAH OR MADMAN? AND IT WAS, WITH RESPECT TO THAT,

ARMSTRONG IS SERVED WITH A SUBPOENA.

THEN HE GETS SOME PHONE CALLS FROM LAWRENCE

HELLER, WHO WAS ONE OF THE PEOPLE PRESENT AT THE ACTUAL

SIGNING OF OUR AGREEMENT HERE. AND HELLER TELLS

ARMSTRONG THAT IF HE IN ANY WAY RESPONDS TO THE

SUBPOENA -- BECAUSE YOU'LL SEE IN THE AGREEMENT PART OF

HIS OBLIGATION WAS TO AVOID SERVICE OF PROCESS. THE

SPIRIT OF THE AGREEMENT REALLY REVEALED THROUGH SOME OF

THE TERMINOLOGY, THROUGH THE ONE-SIDEDNESS ON ONE HAND,

AND SOME OF THE ACTUAL LANGUAGE --

THE COURT: LET ME ASK YOU THIS QUESTION, HAVE

YOU SEEN JUDGE SMITH'S ORDER OF CONTEMPT FROM JULY 13 OF

2001?

MR. GREENE: NO.

THE COURT: OKAY. SO WHAT STRIKES ME, IN

LISTENING TO YOUR OPENING STATEMENT, IS A LOT OF THE

EVIDENCE THAT YOU'RE DESCRIBING IS NOT -- DOES NOT

REALLY RELATE TO THIS ACTION, BUT COULD BE -- IT MIGHT

BE EVIDENCE IN CONNECTION WITH JUDGE SMITH'S ORDER,

BECAUSE I'M JUST LOOKING AT JUDGE SMITH'S ORDER OF

CONTEMPT WHERE HE FINDS THAT -- HE SAYS: IT IS HEREBY

ADJUDGED, ORDERED, DECREED THAT DEFENDANT GERALD

ARMSTRONG IS GUILTY OF CONTEMPT OF COURT FOR HIS

INTENTIONAL AND WILLFUL FAILURES TO OBEY THE ORDERS

DESCRIBED ABOVE. THE ORDER IS VALID AND ENFORCEABLE.

ARMSTRONG HAD NOTICE AND KNOWLEDGE OF THE ORDER. HAD

THE ABILITY TO COMPLY WITH THE ORDER AND REPEATEDLY AND

ADMITTEDLY WILLFULLY DISOBEYED THE ORDER. THE COURT

NOTES THAT THERE ARE TWO OUTSTANDING BENCH WARRANTS

WHICH RESULTED FROM TWO PREVIOUS CONTEMPT CONVICTIONS

WHICH ALSO AROSE OUT OF ARMSTRONG'S VIOLATION OF THE

ORDER. THE COURT WILL NOT IMPOSE THE SPECIFIC

PUNISHMENT AT THIS TIME. HOWEVER, THIS COURT RETAINS

JURISDICTION AND AT SUCH TIME AS ARMSTRONG IS

APPREHENDED HE IS TO BE BROUGHT BEFORE THIS COURT FOR

CONSIDERATION OF ADDITIONAL SANCTIONS FOR THE AFORESAID

ACTS OF CONTEMPT AFTER HEARING FROM BOTH SIDES.

SO I'M THINKING WHAT MAY MAKE SENSE, FROM A

LITIGATION ECONOMY STANDPOINT, I SEE THAT JUDGE SUTRO

HAS RECUSED HIMSELF FROM THE 152229 CASE AND I NOW HAVE

THAT IN THIS DEPARTMENT. AND I'M THINKING THAT WHAT

MAKES SENSE IS TO CONSOLIDATE THESE TWO MATTERS AND HAVE

THE CONTEMPT -- FURTHER HEARING ON CONTEMPT CITATION

HEARD AT THE SAME TIME AS THE TRIAL ON THIS MATTER.

MR. GREENE: WE WOULD HAVE NO OBJECTION TO

THAT.

MR. WILSON: NEITHER WOULD WE.

THE COURT: ALL RIGHT. SO WHY DON'T YOU TAKE

A LOOK AT THIS. I'LL GIVE YOU A MOMENT TO TAKE A LOOK

AT THIS ORDER. LET'S TAKE A TEN-MINUTE RECESS AND THEN

WE'LL RESUME.

ALL RIGHT. THE REST OF THE FILE IS NOW IN

COURT. SO IF ANYBODY WANTS TO LOOK AT IT IT'S HERE.

(WHEREUPON, A RECESS WAS TAKEN.)

THE BAILIFF: REMAIN SEATED. COME TO ORDER.

COURT IS NOW IN SESSION.

THE COURT: YOUR CLIENT IS WHERE?

MR. GREENE: I THINK HE JUST WENT OUT IN THE

HALLWAY.

THE COURT: WELL, I WOULD LIKE TO HAVE HIM

HERE BECAUSE I'M GOING TO --

MR. GREENE: LET ME GET HIM.

THE COURT: ALL RIGHT.

SO ONE OF THE ISSUES BEFORE US IS THIS ONE

ABOUT THE OUTSTANDING WARRANTS.

SO MR. ARMSTRONG IS PRESENT IN COURT TODAY.

SO I'M GOING TO TAKE HIS PRESENCE AS AN APPEARANCE ON

THE WARRANTS.

MR. GREENE: YES, WE'D LIKE THAT.

THE COURT: ALL RIGHT. I AM GOING TO ORDER

HIS PERSONAL PRESENCE DURING THE TRIAL OF THIS MATTER

WHICH MEANS YOU ARE NOT -- YOU MUST COME TO COURT EVERY

DAY THAT WE ARE IN SESSION. TO NOT COME TO COURT WOULD

BE A VIOLATION OF THE -- OF MY ORDER FOR WHICH

ADDITIONAL BENCH WARRANTS COULD ISSUE. OKAY. ALSO

BECAUSE I AM TREATING THIS NOW AS A HEARING ON THE

SENTENCING THAT JUDGE SMITH SET.

ALL RIGHT?

MR. GREENE: YES.

THE COURT: OKAY.

SO LET'S SEE, YOU WERE DOING YOUR OPENING,

AND MAYBE WE CAN FINISH THAT.

MR. GREENE: I CAN.

MR. WILSON: MAY I -- I'M A LITTLE BIT

CONFUSED. THE SENTENCING -- SO THIS IS THE SAME

PROCEEDING?

THE COURT: I THINK IT MAKES SENSE RATHER THAN

HAVING TWO HEARINGS ON THE SENTENCING THAT WAS SET BY

JUDGE SMITH.

MR. WILSON: I THINK IT MAKES SOME SENSE. I'M

CONCERNED BECAUSE ALL OF THESE THINGS WERE ALREADY

BROUGHT UP FOUR, FIVE TIMES BEFORE.

THE COURT: WHICH DOES NOT, AS I MENTIONED,

DOES NOT -- WE STILL HAVE THE ISSUE OF RES JUDICATA.

MR. WILSON: RIGHT.

THE COURT: BUT THE ISSUE ON CONTEMPT --

MR. WILSON: I UNDERSTAND.

THE COURT: -- COULD BE SLIGHTLY DIFFERENT.

IN OTHER WORDS --

MR. WILSON: I UNDERSTAND.

THAT'S WHY I URGE THE COURT TO RULE ON THE

MOTION IN LIMINE AS SOON AS POSSIBLE.

THE COURT: I UNDERSTAND.

MR. WILSON: I'M SURE YOU KNOW THAT ALREADY.

THE COURT: I DO KNOW THAT, BUT IT NEVER HURTS

TO BE REMINDED.

ALL RIGHT. MR. GREENE.

MR. GREENE: THANK YOU.

THE COURT: SO OBVIOUSLY THERE HAS BEEN A LOT

OF LITIGATION RELATING TO THE PARTIES IN THIS ACTION,

NOT ALL OF IT IS NECESSARILY RELEVANT.

MR. GREENE: CORRECT. I DON'T INTEND TO --

THE COURT: THANKS.

MR. GREENE: -- BRANCH OUT ANY MORE THAN I

HAVE.

SO WHEN -- AFTER MR. ARMSTRONG HAD TELEPHONE

CONVERSATIONS WITH MR. HELLER, WHERE HELLER TOLD

ARMSTRONG THAT IF ARMSTRONG RESPONDED TO THE SUBPOENA

HELLER WOULD CONSIDER IT TO BE A VIOLATION OF THE

AGREEMENT, HELLER BROUGHT A MOTION FOR PROTECTIVE ORDER.

THE ONLY REASON I'M BRINGING THAT UP IS

BECAUSE IN THE MOTION FOR PROTECTIVE ORDER, AND IN

HELLER'S SUPPORTING DECLARATION, HELLER, ONE OF THE

LAWYERS THAT WAS INVOLVED IN CRAFTING THE AGREEMENT,

HELLER MAKES THE REPRESENTATION THAT THE AGREEMENT WAS

NOT A ONE-WAY PROPOSITION AGAINST ARMSTRONG. THAT THERE

WAS SOME BILATERAL AFFECT WITH RESPECT TO BOTH SIDES

STAYING QUIET AND, IN HIS WORDS, KEEPING PEACE.

THAT, IF THE COURT GETS BEYOND THE FOUR

CORNERS OF THE DOCUMENT, RAISES AN IMPORTANT ISSUE OF

FACT. ONE OF THE -- DURING THE BREAK, WHEN I WAS

READING THE CONTEMPT ORDER, WHAT CAME PRIMARILY TO MIND

IS THE ISSUE OF WHETHER OR NOT, WHEN CONFRONTED WITH

BEING ATTACKED OR DISPARAGED BY SCIENTOLOGY, MR.

ARMSTRONG IS CAPABLE OF KEEPING HIS MOUTH SHUT. I DON'T

THINK THAT HE IS. I DON'T THINK ANY HUMAN BEING COULD

BE.

IT'S SOMETHING LIKE SOMEONE WHO HAS BEEN A

RAPE VICTIM, AND BEING TOLD YOU CUT A DEAL WITH YOUR

RAPIST AND YOU HAVE TO KEEP YOUR MOUTH SHUT ABOUT IT.

THERE IS SOME THINGS I THINK THAT GO TO THE

GUTS OF BEING HUMAN. THERE ARE SOME THINGS THAT IN THE

GUTS OF BEING A HUMAN HAVE TO DO WITH TELLING THE TRUTH,

HAVE TO DO WITH BEING A GOOD PERSON, HAVE TO DO WITH

HELPING PEOPLE WHO HAVE BEEN HURT IN A WAY THAT -- WITH

RESPECT TO WHICH ONE HAS INTIMATE FIRST-HAND KNOWLEDGE.

AND WITH RESPECT TO THAT, I DON'T KNOW IF IT'S HUMANLY

POSSIBLE TO SUPPRESS JUSTICE IN ONESELF, TO SUPPRESS

LOVE OF PEOPLE IN ONESELF, TO SUPPRESS LOVE OF THE TRUTH

IN ONESELF AND TO SIMPLY SAY I NO LONGER AM WILLING OR

CAN DO THE RIGHT THING.

I DON'T KNOW, IN GENERAL, FOR AN HONEST

PERSON, WHETHER THAT'S POSSIBLE. FOR MR. ARMSTRONG, I

DON'T THINK THAT IT IS. IT'S LIKE THERE'S DECADES OF

HIS LIFE AND THOSE DECADES ARE SUPPOSED TO DISAPPEAR.

THOSE DECADES THAT HAD EVERYTHING TO DO WITH HIS

IDEALISM, HAD EVERYTHING TO DO WITH, AS A YOUNG MAN,

DEVELOPING HIS SENSE OF RIGHT AND WRONG, ARE SUPPOSED TO

BE CUT OUT AND DISCARDED. MAYBE HE COULD DO THAT IF HE

DIDN'T GET HAMMERED AND LIED ABOUT. BUT WHEN HE DID, I

DON'T THINK THERE'S ANY WAY THAT HE COULD KEEP HIS MOUTH

SHUT.

SO WHAT'S GOING ON, IN MY VIEW, HERE, IT'S

NOT CONTRACT. IT'S ONE MAN WHO'S HAD THE COURAGE TO

STAND UP AGAINST A HORRIBLY PERNICIOUS ORGANIZATION AND

TELL THE TRUTH IRRESPECTIVE OF THE CONSEQUENCES. IN ONE

PERSON'S EYES HE MAY BE A HERO, ANOTHER PERSON'S EYES A

SCOFFLAW AND A BAD GUY.

SO I DON'T THINK I NEED TO SAY ANY MORE.

THE COURT: THANK YOU. ALL RIGHT.

MR. WILSON: YOUR HONOR, AT THIS TIME WE MOVE

FOR JUDGMENT. MR. GREENE HAS NOT SAID ONE THING THAT

AMOUNTS TO A DEFENSE IN THIS CASE.

FIRST OF ALL, THERE HAS BEEN NO OFFER OF ANY

PROOF THAT THE BREACHES DIDN'T OCCUR. SO WE CAN GET

BEYOND THAT. THEY OCCURRED.

THE ONLY THING WE'VE HEARD, ESSENTIALLY, IS

THAT MR. ARMSTRONG WAS HOODWINKED BY HIS PRIOR COUNSEL,

OR PRESSURED BY HIS PRIOR COUNSEL.

NOW, LET'S JUST ASSUME THAT WASN'T ALREADY

LITIGATED A ZILLION TIMES. I'M EXAGGERATING, THERE WAS

ONLY THREE. LET'S ASSUME IT WASN'T LITIGATED THREE

TIMES. IT'S NOT A DEFENSE. THERE IS NO DEFENSE TO A

CONTRACT THAT SAYS IF YOUR LAWYER MISADVISES YOU, YOU

DON'T HAVE TO PERFORM. SUE YOUR LAWYER. AS WE KNOW

PEOPLE ARE NOT EXACTLY RETICENT TO DO THAT. IF THAT WAS

THE PROBLEM, HE COULD SUE HIS LAWYER.

THE ONLY OTHER STUFF WE'VE HEARD IS WHAT

HAPPENED BEFORE 1986. NOW, I WON'T CONCEDE THAT IT'S

RELEVANT FOR THE CONTEMPT, BUT LET'S JUST ASSUME THAT IT

IS AND THAT'S WHY WE'RE GOING TO TALK ABOUT IT. IT'S

SURE NOT RELEVANT FOR THE DEFENSE OF THIS ACTION. THAT

IN FACT SHOWS WHY THE CONTRACT SHOULD BE ENFORCED. WE

HAD BITTER LITIGATION. THERE WAS A REASON FOR THE

CHURCH TO SETTLE. NO ONE DENIES THAT. THERE WAS A

REASON FOR MR. ARMSTRONG TO SETTLE. NO ONE DENIES THAT.

TO TRY TO ENGRAFT WHAT MR. GREENE'S DEFENSE

IS, IS THAT HE SAYS, WELL, REALLY THIS CONTRACT DIDN'T

SAY WHAT IT SAID, IT REALLY SAID SOMETHING ELSE, IT

REALLY SAID THAT THE CHURCH SHOULDN'T SAY ANYTHING ABOUT

MR. ARMSTRONG.

WELL, OF COURSE IT DIDN'T SAY THAT. AND

WHAT IT DID SAY WAS THAT IT WAS AN INTEGRATED AGREEMENT.

SO THAT IS NOT A DEFENSE. TO SAY THAT AN INTEGRATED

AGREEMENT SAYS SOMETHING THAT IT DIDN'T SAY, IS NOT A

DEFENSE. AND THERE'S -- THERE'S NO ARGUMENT, NO

EVIDENCE, THAT IT WAS AMBIGUOUS. THERE'S NOTHING IN

THIS AGREEMENT THAT EVEN COULD BE CONSTRUED OR STRETCHED

TO SAY THAT THE CHURCH HAD TO REMAIN SILENT. AND THAT'S

REALLY ALL THAT MR. GREENE HAS SAID.

AND I THINK THE MOST TELLING THING THAT MR.

GREENE SAID WAS AT THE END OF HIS STATEMENT WHERE HE

SAID, "THIS IS NOT ABOUT CONTRACT." WELL, EXCUSE ME, IT

IS. THERE'S A COMPLAINT. IT SAYS YOU BREACHED THIS

AGREEMENT. HE ADMITS HE BREACHED THE AGREEMENT. IT'S

NOT A DEFENSE TO COME IN AND SAY IT'S NOT A CONTRACT.

SO EVEN IF THERE WAS NO PRECLUSIVE AFFECT OF

RES JUDICATA OR COLLATERAL ESTOPPEL, MR. GREENE HAS NOT

TOLD YOU ANY FACT, NOT ONE, THAT WOULD BE A DEFENSE TO

THIS AGREEMENT. AND THEN OF COURSE I'M NOT GOING TO

REITERATE THE ARGUMENTS THAT WE MADE IN OUR MOTION IN

LIMINE, BUT I WOULD JUST MENTION THEM THAT IN FACT EVERY

SINGLE ARGUMENT THAT MR. GREENE HAS MADE, HAS INTIMATED,

HAS SUGGESTED, WAS MADE BEFORE. AND TWO JUDGES OF THIS

COURT RULED AGAINST HIM.

AND WHAT WE'RE GOING TO HAVE IS THIS

UNFOCUSED -- IF OUR MOTION ISN'T GRANTED, IF THE MOTION

IN LIMINE ISN'T GRANTED, JUDGMENT ISN'T ENTERED -- IS AN

UNFOCUSED CIRCUS OF IRRELEVANCY, UPON IRRELEVANCY, UPON

IRRELEVANCY.

FOR EXAMPLE, MR. GREENE SAYS WE HAVE THIS

FAIR GAME POLICY. WELL, THAT POLICY WAS CANCELLED IN

1968, '69. I'M NOT SAYING THAT SO THAT YOU'LL BELIEVE

ME THAT IT WAS. I'M JUST SAYING THAT THAT'S WHAT WE'RE

GOING TO BE PROVING.

SO WE'RE GOING TO TAKE WHAT IS A VERY SIMPLE

CASE AND TURN IT INTO BARNHAM AND BAILEY.

THE COURT: HOW MUCH HAS THE CHURCH RECOVERED

IN LIQUIDATED DAMAGES ON THE AMOUNT OF THE SETTLEMENT?

MR. WILSON: ZERO.

THE COURT: HAS GOTTEN A JUDGMENT?

MR. WILSON: WE GOT A JUDGMENT WHICH MR.

ARMSTRONG DISCHARGED IN BANKRUPTCY.

THE COURT: THAT WAS FOR HOW MUCH?

MR. WILSON: 300,000.

THE COURT: OKAY.

ANYTHING ELSE?

MR. WILSON: NO.

WELL, ACTUALLY I ALSO -- WE ALSO HAVE A

MOTION TO EXCLUDE ALL EVIDENCE WHICH IS SIMILAR TO A

MOTION FOR DIRECTED VERDICT WHICH WE WOULD MAKE AT THIS

TIME. IF I CAN HAND IT TO THE COURT AND HAND IT TO MR.

GREENE.

IT'S SIMILAR TO THE MOTION IN LIMINE, IT'S

PRETTY MUCH THE SAME ISSUE. BUT I DID WANT TO --

THE COURT: $300,000 IN THE JUDGE THOMAS

ACTION?

MR. WILSON: YES.

THE COURT: OKAY.

MR. WILSON: THAT WAS THE SUMMARY JUDGMENT,

YOUR HONOR.

THE COURT: OKAY.

SUBMITTED?

MR. WILSON: YES.

THE COURT: YES?

MR. GREENE: IN RESPONSE.

PARAGRAPH 7(I).

THE COURT: OF THE SETTLEMENT AGREEMENT?

MR. GREENE: YES.

HAS LANGUAGE IN IT TALKING ABOUT HOW THE

PURPOSE OF THE AGREEMENT IS THAT THE SLATE NOW, BETWEEN

ARMSTRONG AND SCIENTOLOGY, IS TO BE WIPED CLEAN.

THE COURT: RIGHT.

MR. GREENE: THAT WAS NEVER LITIGATED. THAT'S

LANGUAGE OF MUTUALITY. THAT'S, I SUBMIT, SUFFICIENTLY

AMBIGUOUS TO ALLOW FOR RESORT TO EXTRINSIC EVIDENCE IN

ORDER TO MAKE A DETERMINATION OF WHAT THE INTENT OF THE

PARTIES WAS.

OUR -- AS I STATED, I'M NOT GOING TO

REITERATE WHAT I STATED. OUR POSITION SIMPLY IS THAT IT

WORKED BOTH WAYS. AND THAT AT THE POINT THAT

SCIENTOLOGY STARTED TO TALK ABOUT DISPARAGE ARMSTRONG,

THEY COULD NO LONGER ENFORCE THE SAME THING AGAINST HIM.

THE COURT: SO IN OTHER WORDS --

MR. WILSON: MAY I RESPOND?

THE COURT: IN A MINUTE.

IN OTHER WORDS, THERE IS NO DISPUTE BUT THAT

THE 131 VIOLATIONS OCCURRED, BUT THERE IS A DISPUTE AS

TO WHETHER THEY WERE JUSTIFIED?

MR. GREENE: THAT'S A FAIR WAY TO PUT IT.

THE COURT: ALL RIGHT.

MR. GREENE: TO CHARACTERIZE IT IN MY OWN

LANGUAGE, THERE IS NO DISPUTE ABOUT MR. ARMSTRONG HAVING

ENGAGED IN THAT CONDUCT. HOW THAT CONDUCT IS TO BE

INTERPRETED IS WHAT'S AT ISSUE.

WE ARE NOT ADMITTING THAT THAT CONDUCT

VIOLATED ANYTHING.

THE COURT: I UNDERSTAND.

ARE YOU DONE?

MR. GREENE: YES.

THE COURT: YES.

MR. WILSON: THE PARAGRAPH THAT MR. GREENE

POINTED YOU TO, PARAGRAPH 7(I), SPECIFICALLY SAYS THAT

THE PARTIES AGREE, IN THE EVENT OF ANY FUTURE

LITIGATION, THEY WON'T RAISE ANYTHING THAT'S HAPPENED

BEFORE. THEN THE LAST SENTENCE SAYS, IN OTHER WORDS,

THIS SLATE IS WIPED CLEAN. IT'S VERY CLEAR THAT

PARAGRAPH APPLIES TO LITIGATION. AND IN FACT THIS IS

ANOTHER ISSUE THAT JUDGE THOMAS SPECIFICALLY RULED ON IN

WHICH HE SAID, I THINK I READ IT TO YOU EARLIER, THAT

PARAGRAPH 7(I) APPLIES IN LITIGATION. AND THERE HAS

BEEN NO SUGGESTION THAT IN LITIGATION THE CHURCH HAS

DONE ANYTHING THAT'S IN VIOLATION OF PARAGRAPH 7(I),

ALTHOUGH I THINK YOU JUST SAW MR. GREENE VIOLATE IT

TODAY.

THE COURT: SUBMITTED?

MR. WILSON: SUBMITTED.

MR. GREENE: PARAGRAPH 4 AND PARAGRAPH 17(D)

AND (E) ALSO GO TO AMBIGUITY.

THE COURT: PARAGRAPH 4?

MR. GREENE: FIRST SENTENCE.

THE COURT: TALKING ABOUT MUTUALITY?

MR. GREENE: YES.

THE COURT: AND 17?

MR. GREENE: AND 17(D) AND (E) WHICH IS ON PAGE

15.

THE COURT: THAT THERE ARE MUTUAL OBLIGATIONS

THAT EACH OF THE PARTIES ARE UNDERTAKING.

MR. GREENE: YES. AND THAT THEY WILL FOREBEAR

AND REFRAIN FROM DOING ANY ACT OR EXERCISING ANY RIGHT

INCONSISTENT WITH THE AGREEMENT.

THE COURT: ALL RIGHT. ALL RIGHT.

I'M GOING TO TAKE THIS MOTION UNDER

SUBMISSION. I'M GOING TO TAKE A CLOSER LOOK AT SOME OF

THE DOCUMENTS.

SO DON'T GO ANYWHERE. I'M JUST GOING TO GO

TO MY CHAMBERS AND READ SOME OF THESE MATERIALS CLOSER.

MR. WILSON: THANK YOU.

(WHEREUPON, A RECESS WAS TAKEN.)

11:33 AM

THE COURT: ALL RIGHT.

BACK ON THE RECORD IN CHURCH OF SCIENTOLOGY

VERSUS ARMSTRONG.

THIS IS WHAT MY INTENTION IS, THEN I'LL HEAR

FROM COUNSEL AFTER I LET YOU KNOW WHAT MY THINKING IS.

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 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.

SO WHERE DOES THAT LEAVE US?

HERE IS MY THOUGHT.

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 WAS CONFERRED TO HIM. HE'S PREVIOUSLY BEEN

SANCTIONED IN THE SUM OF $300,000.

SO MY THOUGHT IS TO ENTER JUDGMENT FOR THE

PLAINTIFF, ON THE ADMITTED VIOLATIONS, OF $500,000. AND

IN MY VIEW THE BENCH WARRANTS THAT HAVE BEEN PREVIOUSLY

ISSUED ON THE CONTEMPT CITATION, WHICH CALL FOR, LOOKS

LIKE, AROUND 30 DAYS IN JAIL, I WOULD DISCHARGE THE JAIL

AND THE CONTEMPT CITATION, THE CONTEMPT PUNISHMENT, WITH

THE ENTRY OF THE JUDGMENT OF $500,000.

I DON'T KNOW THAT THERE IS ANYTHING LEFT TO

TRY, BUT BY GRANTING A DIRECTED VERDICT ON THE DEFENSES

DOESN'T NECESSARILY MEAN THAT PLAINTIFF GETS A JUDGMENT,

BUT IT SEEMS THAT THERE HAS BEEN AN ADMISSION OF THE

VIOLATIONS. SO I DON'T KNOW THAT THERE IS ANYTHING TO

TRY. SO I'LL HEAR FROM COUNSEL NOW.

MR. WILSON: WELL, I AGREE WITH EVERYTHING BUT

THE LAST PART.

THE COURT: WHICH WAS THE JAIL?

MR. WILSON: WHICH WAS -- NO. WHICH WAS, I

GUESS, THE LAST TWO PARTS.

FIRST OF ALL, I THINK THAT WE'RE ENTITLED TO

A JUDGMENT OF 50,000 FOR EACH OF THE BREACHES. IF WE'RE

ENTITLED TO A JUDGMENT FOR 50 FOR ONE OF THEM, WE'RE

ENTITLED TO A JUDGMENT OF 50,000 FOR EACH OF THEM.

EVEN IF -- I DON'T THINK THERE'S ANY

AUTHORITY TO NOT DO THAT.

THE COURT: WELL, LIQUIDATED DAMAGES HAVE TO

BE REASONABLE. I THINK IT'S UNREASONABLE TO GO BEYOND

THE AMOUNT THAT WAS PAID TO MR. ARMSTRONG.

MR. WILSON: IF THAT'S YOUR DECISION, I WOULD

ASK THAT YOU RECOGNIZE THAT THE FIRST 300,000 WAS

DISCHARGED IN BANKRUPTCY.

THE COURT: HE'S ENTITLED TO DECLARE

BANKRUPTCY.

MR. WILSON: I UNDERSTAND THAT, BUT WHAT YOU'RE

SAYING IS THAT THEN HE CAN GO DECLARE BANKRUPTCY AGAIN,

GET OUT FROM THE 500. I THINK AT LEAST IT SHOULD BE

$800,000 ON THEORY THAT HE DISCHARGED THE FIRST 300.

THE COURT: ALL RIGHT.

MR. WILSON: NOW LET ME TALK ABOUT THE

CONTEMPT. THIS WASN'T A CONTEMPT OF THE CHURCH.

THE COURT: COURT ORDER.

MR. WILSON: THAT'S RIGHT. IT WAS A CONTEMPT

OF THE COURT, NOT ONCE, NOT TWICE, THREE TIMES. THREE

TIMES. AND WHAT'S HIS EXCUSE? WHAT WAS MR. ARMSTRONG'S

EXCUSE FOR THAT? HIS EXCUSE WAS THAT THE CHURCH AND

JUDGE THOMAS WERE IN CONSPIRACY.

THE COURT: WELL, I THINK HIS EXCUSE WAS MORE

THAN THAT.

MR. WILSON: WELL, THAT WAS ONE OF THE REASONS.

I MEAN, THE IDEA THAT MR. ARMSTRONG CAN --

ALTHOUGH YOU'VE RULED FOR US, I UNDERSTAND THAT, I

APPRECIATE IT. WHAT YOU'VE BASICALLY DONE IS SAY, OKAY,

GO AHEAD, LEAVE, YOU'LL NEVER HAVE TO PAY THE CHURCH ANY

MONEY. YOU'LL NEVER HAVE TO SERVE ANY TIME FOR HAVING

DELIBERATELY VIOLATED THREE -- VIOLATED THE COURT ORDER

THREE TIMES.

HE NEEDS TO BE PUNISHED FOR THAT OR ELSE

WHAT YOU'RE SAYING IS THAT ANYBODY CAN DO IT.

THE COURT: SOME PEOPLE MIGHT CONSIDER A

$800,000 JUDGMENT AGAINST THEM TO BE PUNISHMENT.

MR. WILSON: MR. ARMSTRONG DOESN'T. HE TOLD

YOU HE DOESN'T. HE TOLD YOU HE'S GOING TO KEEP DOING

IT.

THE COURT: OKAY.

MR. WILSON: AND THE ONLY WAY -- THE ONLY WAY

THAT THE CHURCH CAN GET ANY SATISFACTION, OR HAS ANY

CHANCE OF HAVING MR. ARMSTRONG STOP THIS IS FOR THE

COURT TO TELL HIM WE'RE SERIOUS. WE ORDERED YOU TO

STOP, WE MEANT IT. STOP. GO TO JAIL. DO NOT PASS GO.

DO NOT COLLECT $200. HE NEEDS TO BE PUT IN JAIL NOT

BECAUSE HE SPOKE OUT, BECAUSE HE THUMBED HIS NOSE AT THE

COURT.

THE COURT: OKAY.

MR. WILSON: THANK YOU.

THE COURT: MR. GREENE.

MR. GREENE: IF I CAN JUST HAVE A MOMENT.

YOUR HONOR, FIRST WE -- GIVEN YOUR

REASONING, AND WITH RESPECT TO HAVING, IN EFFECT, NO

DEFENSE, WOULD AGREE WITH WHAT YOUR INTENDED SOLUTION

IS.

I WOULD, IN RESPONSE TO MR. WILSON'S

COMMENTS, SAY THAT BY THE FACT OF MR. ARMSTRONG'S

APPEARANCE HERE SHOWS THAT HE'S NOT THUMBING HIS NOSE AT

ANYBODY. HE'S HERE BECAUSE HE RECOGNIZES THE

SERIOUSNESS OF THE PROCEEDING. HE CAME FROM CANADA TO

MARIN COUNTY KNOWING THAT THERE WERE THE PRIOR CONTEMPT

CITATIONS. HE'S NOT A SCOFFLAW, OR SOME SORT OF BAD

GUY. HE IS A MAN OF PRINCIPLE. AND GIVEN THE FACT THAT

YOU, IN ADDITION TO THE OTHER COURTS, HAVE INTERPRETED

THE AGREEMENT AS -- TO BE AS ONE-SIDED AS IT IS, WE HAVE

NO OBJECTION TO YOUR PROPOSED RESOLUTION.

MR. WILSON: MAY I ASK A QUESTION?

IF I FELT -- LET ME PROCEED BY STATEMENT.

IF I FELT THAT MR. ARMSTRONG WOULD GO FORTH

AND VIOLATE THE INJUNCTION NO MORE, OR IF I FELT THERE

WAS SOMETHING -- LET PUT IT THIS WAY. IF MR. ARMSTRONG

LIVED IN MARIN COUNTY AND YOU SAID TO HIM, OKAY, I'M

GIVING YOU A FREE PASS, I WOULDN'T BE AS EXERCISED AS I

AM BECAUSE I FEEL THAT IF YOU DID THAT, AND HE DID IT

AGAIN, I WOULD BE IN HERE AND HOPEFULLY YOU WOULD SAY,

OKAY, I SEE WHAT YOU MEAN, IT DIDN'T WORK. BUT HE'S

GOING TO GO BACK TO CANADA. HAVEN'T HEARD AN APOLOGIZE,

HAVEN'T HEARD I SHOULDN'T HAVE DONE IT, HAVEN'T HEARD I

WON'T DO IT ANY MORE.

THE COURT: BUT YOU TOLD ME THAT THE CHURCH

WAS WILLING TO DISCHARGE THE --

MR. WILSON: WE WOULD RESCIND THE AGREEMENT.

THE COURT: RESCIND THE AGREEMENT IF HE GAVE

YOU THE MONEY BACK. THE COURTS ARE NOT RESPONSIBLE FOR

COLLECTION. ALL WE CAN DO IS ISSUE ORDERS. BUT GIVEN

THE CHURCH'S POSITION I THINK RETURNING TO THE CHURCH

THE BENEFITS THAT WERE CONFERRED TO MR. ARMSTRONG

REACHES THE SAME RESULT.

MR. WILSON: WELL, IT WOULD IF HE PAID IT.

THE COURT: RIGHT.

MR. WILSON: RESCINDING THE AGREEMENT DOESN'T

MEAN YOU GET A JUDGMENT AND IT DOESN'T GET PAID.

RESCINDING THE AGREEMENT MEANS YOU PAY THE MONEY BACK.

THAT'S NOT WHAT YOU HAVE DONE. I MEAN I -- LOOK, I

UNDERSTAND WHERE YOU'RE TRYING TO GO. I RESPECT IT. I

UNDERSTAND THE REASONING.

THE COURT: YOU JUST DON'T THINK IT'S GOING TO

DO ANY GOOD.

MR. WILSON: IT'S NOT GOING TO DO ANY GOOD.

YOU KNOW, IF HE'S GOING TO PAY THE MONEY BACK, FINE,

WE'LL TAKE THE MONEY, HE CAN DO WHATEVER HE WANTS.

THE COURT: IT'S A COMPLICATED ARRANGEMENT THE

PARTIES FIND THEMSELVES INTO. THEY HAVE A LONG HISTORY.

THERE'S ONLY SO MUCH THE COURTS CAN DO.

SO I UNDERSTAND THAT THE PLAINTIFF WOULD

LIKE TO HAVE HIM JAILED AS A RESULT, BUT --

MR. WILSON: YOUR HONOR, IT'S NOT --

THE COURT: YOU WANT -- WHAT YOU WANT --

MR. WILSON: JUST ABIDE BY THE AGREEMENT.

EITHER ABIDE BY IT, OR GIVE US THE MONEY BACK. THAT'S

WHAT WE WANT. WE DON'T WANT TO PUT THE GUY IN JAIL.

AND IF HE SAID -- HE HASN'T EVEN SAID HE'D STOP. WHAT

HAPPENS WHEN HE DOES IT AGAIN?

THE COURT: I'M SURE WE'LL FIND OUT.

MR. WILSON: WELL, IT WOULD BE NICE TO SEE IF

WE COULD -- TO DO SOMETHING. AND I THINK IF HE SERVES

SOME TIME IN JAIL AT LEAST HE'LL KNOW YOU'RE SERIOUS, AT

LEAST HE'LL KNOW THAT'S WHAT'S GOING TO HAPPEN. BUT

RIGHT KNOW HE'S GOING TO WALK OUT OF HERE THINKING, HEY,

I GOT A PASS.

THE COURT: OKAY. SUBMITTED?

MR. GREENE: ALMOST.

I'D JUST LIKE TO ADD, IN TERMS OF THE

COURT'S DISCUSSION OF KIND OF THE QUID PRO QUO.

SCIENTOLOGY STILL RETAINS THE SUBSTANTIAL BENEFIT OF

ARMSTRONG'S CROSS-COMPLAINT NEVER HAVING GONE TO TRIAL.

NEVER THERE BEING ANY JUDGMENT. NEVER THERE BEING THE

TYPE OF PUBLICITY THAT THAT WOULD GENERATE.

THAT'S A SUBSTANTIAL BENEFIT.

THE COURT: ALL RIGHT.

JUDGMENT IS ENTERED IN FAVOR OF THE

PLAINTIFF AND AGAINST THE DEFENDANT IN THE SUM OF

$500,000. AND THE TIME THAT WAS ORDERED ON THE CONTEMPT

CITATIONS IS DEEMED SERVED.

MR. GREENE: THANK YOU, YOUR HONOR.

THE COURT: THANK YOU.

MR. WILSON: AND YOU DIDN'T SAY IT, BUT I

ASSUME NO SENTENCE ON THE THIRD CONTEMPT.

THE COURT: THE SENTENCE THAT --

MR. WILSON: THAT WAS NEVER SENTENCED.

THE COURT: IT WAS -- I THOUGHT IT WAS --

FURTHER SENTENCE WAS --

MR. WILSON: WAS WITHHELD.

THE COURT: LET ME JUST MAKE SURE.

THERE IS A -- SO THE COURT DID NOT IMPOSE

ANY SENTENCE ON THIS?

MR. WILSON: RIGHT. SO IF I CAN TAKE A THIRD

BITE AT THE APPLE. SENTENCE HIM ON THAT ONE. SOMETHING.

THE COURT: ALL RIGHT.

SO ON THE ORDER OF CONTEMPT ISSUED JULY

13TH, 2001, THE COURT SENTENCES YOU TO FIVE DAYS IN JAIL

AND A FINE OF $1,000. THE FINE IS -- THE FINE IS

CONCURRENT WITH THE JUDGMENT THAT'S BEEN RENDERED IN

THIS ACTION AND THE JAIL TIME IS DEEMED SERVED BY YOUR

APPEARANCE IN COURT HERE TODAY.

MR. GREENE: THANK YOU, YOUR HONOR.

THE COURT: THANK YOU.

MR. WILSON: THANKS FOR YOUR TIME, YOUR HONOR.

THE COURT: THANK YOU VERY MUCH.

(WHEREUPON, THE PROCEEDINGS WERE CONCLUDED.)

STATE OF CALIFORNIA

COUNTY OF MARIN

)

) SS.

)

I, DEBORAH S. BARTUNEK, DO HEREBY CERTIFY THAT I AM

AN OFFICIAL COURT REPORTER OF THE SUPERIOR COURT OF THE

STATE OF CALIFORNIA, IN AND FOR THE COUNTY OF MARIN, AND

THAT AS SUCH I REPORTED THE PROCEEDINGS HAD IN THE

ABOVE-ENTITLED CASE, AT THE TIME AND PLACE SET FORTH

HEREIN;

THAT MY STENOTYPE NOTES WERE THEREAFTER TRANSCRIBED

INTO TYPEWRITING UNDER MY DIRECTION;

THAT THE FOREGOING PAGES, NUMBERED 3 THROUGH 63,

INCLUSIVE, CONSTITUTE A FULL, TRUE AND CORRECT

TRANSCRIPTION OF SAID NOTES.

DATED: SAN RAFAEL, CALIFORNIA, THIS 21ST DAY OF

APRIL, 2004.

_________________________________

CSR 4822, DEBORAH S. BARTUNEK

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