Caroline
clerk #2
From: Gerry Armstrong <[email protected]>
Newsgroups: alt.religion.scientology
Subject: MCCS meeting transcript
Message-ID: <[email protected]>
X-Newsreader: Forte Agent 1.93/32.576 English (American)
MIME-Version: 1.0
Content-Type: text/plain; charset=ISO-8859-1
Content-Transfer-Encoding: 8bit
Lines: 624
Date: Mon, 12 Mar 2007 01:13:02 GMT
NNTP-Posting-Host: 64.59.144.74
X-Complaints-To: [email protected]
X-Trace: pd7urf2no 1173661982 64.59.144.74 (Sun, 11 Mar 2007 19:13:02 MDT)
NNTP-Posting-Date: Sun, 11 Mar 2007 19:13:02 MDT
Organization: Shaw Residential Internet
Xref: g2news1.google.com alt.religion.scientology:304454
I have received an MCCS meeting tape transcript recently and a query
as to whether it is the partial tape transcript referred to in the
reported U.S. Supreme Court case U.S. v. Zolin, 491 U.S. 554 (1989).
Gerry Armstrong--US v. Zolin 06-21-1989
In seeking possession of the MCCS tapes, which had been held by the
Clerk of the Los Angeles Superior Court following the 1984 trial in
the Scientology v. Armstrong case, the IRS had submitted a partial
transcript to the U.S. District Court to demonstrate a crime-fraud
exception to the attorney-client privilege. The MCCS meeting that was
recorded involved of course a number of attorneys for Hubbard and
Scientology, as well as Sea Org and GO staff members working on MCCS.
Scientology founder L. Ron Hubbard ordered MCCS, and current cult head
David Miscavige operated the mission.
I have never seen what transcript the IRS used, and I did not give the
IRS any transcript at any time. I wrote the note that precedes the
transcript in 1982 and my ex-wife Jocelyn transcribed the tape. If the
IRS used it, the Service did not get it from me, and I do not recall
to whom I may have given it besides my attorneys, but I obviously gave
it to someone because it has now come back to me.
Because of the ongoing investigation of Scientology cult fraud, I am
posting this now, and I am grateful to whoever sent it to me. If
anyone knows if this is the partial transcript that was central to the
U.S. v. Zolin cases I would like know. The published opinions and a
number of other documents relating to MCCS are webbed on my site at:
Gerry Armstrong--Other Scientology Litigation
The U.S. Supreme Court stated in its ruling:
My note:
Transcript of tape recording made 29 September 1980 at a meeting of
Scientology legal personnel, MCCS Mission personnel and attorney's of
Scn, LRH and Gold or New Era Pictures the film crew co.).
When I have been able to identify the speaker I have noted his or her
initials beside the statement. When I have not been able to identify
the speaker there are no initials.
The following people attended the meeting:
CP: Charles Parselle, then DGL WW.
AW: Alan Wertheimer, attorney for LRH who worked closely with Laurel
Sullivan and the MCCS mission, attempting to have LRH retain control
without liability or responsibility.
LS: Laurel Sullivan, LRH Personnel PR, and I/C of the Legal mission,
MCCS, which was attempting to shield LRH.
LB: Lisa Britowich, Laurel's junior on MCCS. Now kicked out,off
staff. Was in the GO at the time.
JM:James Murphy, LRH's tax attorney. He worked in the same firm as
Alan Wertheimer, - Rosenfeld, Meyer & Sussman in Beverly Hills. I
believe Rosenfeld, Meyer & Sussman have been dropped by the
organization. Wertheimer I know for sure has been dropped, Murphy I'm
not sure of.
DS: Dick Sullivan, Laurel's husband,and junior on the MCCS mission.
MC: Melanie Cook, attorney at Rosenfeld, Meyer & Sussman, who did a
lot of work on trademarks, etc.
Ron Fujikawa, worked on the film deals. Part of MCCS's actions was to
work out the legal arrangements for LRH to get paid for the films, and
I believe retain copyrights for them, plus work out distribution lines
with Pubs DK, and other related matters. Fujikawa is an attorney in
Century City.
I was given this tape by Barbara DeCelle, secretary on the MCCS
mission, in late 1981. Barbara had transcribed the various tapes and
gave me the cassettes for my use.
Some of the statements, particularly regarding RRF, eg. see p. 8 and
9, are very interesting.
GA
The transcript:
I have gathered a fair amount of information on this and I have been
quoted by people who actually do documentary work of $22,750.00 for a
script for a half hour educational film.
It's low.
The numbers are low.
In part because documentaries and educational films are methods for
writers, directors and other talent to break into the business and
therefore (inaudible). So, I guess one of the problems then is that
anything you pick that is even reasonably on the high side is subject
to challenge because they will definitely be able to go and find other
people to work for < inaudible >.
CP: Right. So it could be as low as three.
It could be as low as three. There are other services that are
involved here in addition just to writing the script.
AW: And L. Ron Hubbard is not an unknown quantity. He's not somebody
trying to break into the business.
Admittedly.
CP: That's right.
Just the economics of making a half hour or an hour of educational
film is such that they can't afford to pay someone a great deal of
money. Certainly not the amounts that were originally contemplated or
have actually been paid in this particular arrangement.
CP: Right. That's right. Thereof one has to look at the fact that he
trained an entire crew for the Church. All those people are now
available to continue film-making for the Church if the Church wishes.
Plus the scores. All on their account. As far as we were concerned, he
trained them up. They are Church employees, they're Scientologists and
they are probably going to go on making films for Church purposes. But
even so, if we look in - I mean, I just did my little calculation and
it came out to just 1/2 a million. That's 33 times 15,000 and if you
add on bits for film scores and bits for the work for training and
something for the fact that he's not a newcomer trying to break into
the field as far as we are concerned.
LS: He also is the only person in the world who could ever write these
... the way they were written.
-1-
LB: Yeah.
LS: There's that.
CP: That's right. It's the score. I mean, it would have been really
impossible for CSC (Church of Scientology of California) to have gone
to another author for those films because they are entirely technical
films. He's the only chap who could have done it. But...
LB: He's also I think a ... there's more significance on the fact that
he was the author and what would the Catholic Church pay the Pope, for
instance to do that; or if Jesus Christ was alive today, what would
they pay for a lecture? You know.
LS: We're talking about a non-unknown quantity ... in the field.
LB: Yeah. There's a significance that's attached that makes his words
extremely valuable - priceless - to the Church that is different than
you are talking about you are just going to pay somebody to direct an
educational film. Well, you're going to pay Professor Joe Schmoe in a
University to be the lecturer for that film or if you are going to
hire, you know, a <inaudible> person to do it. There's going to be a
difference...
AW: You have two problems and you raise an interesting point in what
Jesus Christ would charge or what he would get paid. But ah, the two
things that are going on is that LRH does not want to be accountable
for all of the acts of the Church of Scientology since some of those
could be slightly out of bounds and he doesn't want to be in a
position where he is held accountable, on one hand. On the other hand,
the Church is attempting to maintain a certain tax exempt status and
they are worried that the status of the Church can be characterized as
nothing other than an alter ego for L. Ron Hubbard whereby certain
profit-making things are done in the name of the Church. So, with
those two things going on, what we're trying to do is have some sort
of structure whereby as much of those two things will continue as long
as possible. And I am not trying to say that what he has done is not
worth 2.1 million dollars <inaudible>... but you are talking about a
jury of 12 people who may have to decide whether L. Ron Hubbard is
sufficiently interwoven in the affairs of the Church to be held
accountable for some astrocity that should happen in the future.
LB: I understand. I just want to make sure that in a deal -if we're
going to have to deal with LRH - that it's due; I think Charles
<inaudible> are attaching a significance to
-2-
that. Well as long as we are going to attach a significance to his
contribution to the film-making, it should be, you know, <inaudible>.
male - Well, at some point you draw the line, I don't know if it's
worth 5 million dollars and I don't know if it's...
LS: Well, lets just look at his idea of it. His idea was that he
didn't want it... (someone entered the room)... The other point was
that LRH did not want any significance put on any services that he
provided the Church unless it was absolutely necessary... and this was
his instruction. He didn't want to be paid for anything other than the
goods that he actually delivered. Now, over the last few months, Mary
Sue has changed that because we have to justify the 2.1. She has said
we will count that now as an advice from a different period of time
and now we look at it again and that's why we are now considering
assigning significances to his abilities to edit film, shoot film,
create sets, music, etc. So, we don't want to go overboard on
assigning significances to service. We just want regular assets which
is the purpose for even assigning values to the services is only to
<inaudible>.
CP: Well, I think we can look at it from this point of view. As far as
the Church is concerned, if we paid him 2.1 million for making these
films for which ordinary industry standard is very, very, very much
less, we face an inurement problem. Therefore, if the Church's
attorneys had been involved with this transaction, we would have
advised the Church not to pay that kind of money because it would be
dangerous to our exempt status. However, if you would like to say that
he will do the work for nothing, obviously, the Church is - I,
representing the Church's attorney viewpoint, would say, "Terrific,
you're going to do it for nothing; that's fine." But of course, one
also has considerations as <inaudible> Scientologist which says it's
not right that he should make 33 films and occupy a good portion of
time doing that for no recompense whatsoever. I just want to - so as
far as I'm concerned, it can be as low as it can be from the Church
viewpoint but there is a point beyond which it cannot go and that is
the point at which it becomes unjustifiable in terms of industry
standards. Not taking the lowest possible figure, but taking the
highest reasonable figure. So, I put it back to you now as Ron's
attorney.
AW: If we're talking about a low figure, depending on how low it were,
I might say, the risks don't justify the benefits in this particular
instance because I know that he doesn't want to be named in lawsuits
and he does not want his finances looked into and where the line is,
just as with drawing any of these financial lines, I don't know.
Perhaps, as we're thinking about 2 million it could be an advance
against number
-3-
6; partly it could be compensation for services; partly it could be an
advance against a future share of the profits.
CP: Right. In terms of risk to him arising out of this particular
transaction, it's hard to see how there could be any risk. It's not
like, for example, the Purification Rundown where people might sue for
claiming injury.
AW: The real risk is the fact that the man has been paid a lot of
money which is greater than it should be...
CP: Right. But that's no risk to him.
AW: And fortunately for you... I think it is because the inurement has
two sides to it. If the Church is his alter ego, then he will be held
accountable for the acts of the Church, as well as the Church losing
its tax exempt status which is of no significance to him as L. Ron
Hubbard.
CP: I can't myself see it... I can see that the Church would lose its
tax exempt status if inurement is found but at the moment I can't see
how that would create a liability for him.
AW: Well, the whole piercing of the corporate veil in <inaudible>
cases is what we're talking about here. You know, where a person sets
up a corporation to run a business and the business has liabilities
and the person just says, "Well, it was my corporation; wasn't me. So,
go sue the corporation if you like, but it has no assets." And
<inaudible> it says if it is unjust to treat liabilities to the
corporation in the matter where the individual gets <inaudible>.
CP: Yes, but that I can - I can see that but I don't think that a
finding that part of the net earnings inured to his benefit in itself
pierces the corporate veil. Unless it could be showing that
corporation was indeed a sham for his benefit which would actually be
inconceivable in terms of the amounts of money involved. His take of
compensation...
AW: I'm not sure what the courts require. If I were on a jury and
somebody got paid 2 million dollars where $250,000, $300,000 or
$500,000 was the appropriate amount, the difference would be large
enough to me as an individual to think that perhaps something shady
was going on.
CP: So, in essence, what you're saying is that if the Church loses its
exempt status on the basis of inurement to him, there could also be a
finding that the whole corporation was in fact a sham for his benefit.
Which indeed, the IRS, are alleging in the current case and therefore
other litigants could pursue him directly bypassing the Church.
-4-
AW: A lot of this also is cumulative because there are other things
going on: The fact that he writes books which the Church publishes and
sells and pays for advertising and so forth and there's probably some
very meaty stuff there I would think. Jewelry. He has a lot of money
coming in because of what the Church does. And perhaps that amount of
money that's coming to him is not significant compared to the Church's
total, but it is in and of itself, significant.
CP: It's a lot of money. It certainly is percentage-wise very small.
But, do I take it that you do say that - is that your real worry, the
piercing of the corporate veil so that other litigants could pursue
him directly?
AW: I think that is the concern, yeah.
The reason we are structuring it this way is to keep the green box and
the red boxes as far away from each other as possible. We're trying to
at least confuse people who are trying to figure out exactly what it
is we're <inaudible>.
CP: Now I fully understand that. I'm just trying to see what we're -
if we say, don't give him anything at all for making the films. Other
way around. Sorry. If we say the inurement problem is a very real
problem. Any connection between him and the Church or substantial
connection between him and the Church is a real problem to him rather
than to the Church.
AW: I was dealing from his point of view.
CP: Yeah. 'Cause I tended to view it from the Church's point of view
and the Church is always fixated on the problem of inurement. From his
point of view I have always thought that there is no problem because,
provided he accounts for sums received, which of course he always
does, he would merely pay his tax and then...
AW: He is not always taxable. He receives <inaudible>
He gets a $35,000 annual consultant fee.
AW: $35,000 is not enough as far as I was concerned to get into
whether or not that's a fair amount and I just suggested that he
forget it. He gets - people work for him. People who are paid by the
Church render their exclusive services to him directly. That's
something that's always bothered me. Standing Order #1 is an area I've
had dealings in which hasn't been followed for ten years; yet there is
advertisement... There's a lot of things going on that really tie him
into the Church. If you get back to Jesus Christ delivering a lecture
to Christians, probably he would do that without being paid, I
guess,... not being Christian.
-5-
CP: I think on the whole, he did give lectures free and furthermore
fed people for nothing while they were there.
AW: My feeling is that if LRH knew up front that he wasn't going to
get paid for doing the films, he would have done them anyway.
female- Yes.
JM: If I may interject something here, the reason, I think, that
inurement is a problem on both sides of any congression is that an
actual finding of inurement which would jeopardize the Church's tax
exempt status presupposes a control relationship in addition to a
transfer of personal or extraordinary personal financial gain. And
that control relationship is a control relationship that we have been
primarily concerned with because that could be basis for suits by
private litigants whose main complaint against the Church from going
through the Church and looking at our client or any other organization
which was receiving money via the Church and has arguably some control
relationship with the Church. So that when Allen is referring to
inurement, we really - our concern is primarily this control
relationship aspect rather than the direct financial gain. And getting
back to what you indicated before, yes, if it were just a matter of
pure dollars and if you never had to look beyond those dollars, then
we would not be concerned. In fact, we would be quite happy that our
client received 2 million dollars. Allen, is that consistent with
...?
AW: The trade mark area which is next on our agenda has very little
to do with money and everything to do with control.
CP: Right. But it would be true to say then, that your concern about
control essentially is that 3rd party litigants will pursue him for
damages which will cost literally - which will be intolerable for him
in terms of his personal life. That's really the concern.
AW: I think so. I think the people have shown a predisposition to
suing him personally and perhaps this is part of their experience of
getting out of the Church. He seems to be the person, in addition to
the Church, who seems to be an important party.
CP: Oh, yeah, that's true and it is the fashion to sue him as well.
AW: Well, he's not without assets. He's well off and I would assume
would have the money to satisfy a few of these judgments if they
were successful and he certainly would have
-6-
to pay to defend them.
CP: True. That's absolutely right. You did say that he has not always
accounted for sums actually received. That is entirely at variance
with my understanding from Marty Greenburg that he has always
accounted for sums received. I realize that the Church has rendered
certain services to him in the form of personnel.
AW: That's the kind of thing that I was talking about.
CP: You're not talking about actual cash transfers.
AW: I don't know anything about that.
CP: Oh, you don't know about that. Well, as far as I know, he has
always been, through his accountants, entirely scrupulous about
accounting for every cent actually received. Benefits is another
matter entirely.
When we're talking about accounting, we are talking about accounting
from the financial standpoint; for example, tax authorities, as
opposed to accounting to the Church for the goods and services
rendered which would justify cash transfers. That's two separate kinds
of accounting. Are we talking about the same kind of accounting?
CP: Well, the kind of accounting I am talking about is accounting for
the IRS for his income expressed in terms of money.
Allen, when you are talking about accountability, are you referring
to exactly the same thing
AW: Indirectly I am.
CP: Yes.
Those are the only people who are going to raise the
question.
AW: The people I'm worried about are the IRS.
That's what all of this accounts for L. Ron Hubbard's <inaudible>.
CP: Good and that's great.
JM: This structurally a little more allows it. Because there was a
concern to interpose or to put a barrier between direct economic
relationships, between a tax exempt organization and LRH and we're
not for him continuing the economic
-7-
relationship. Some of us would get <inaudible>.
CP: Right.
JM: And that is not generated so much from this office as concern on
the part of the people representing the Church. And a direct economic
relationship, if it can be avoided, should be avoided.
CP: Right. Well I think the Church is always..
AW: And the control at the same time which is how the F & P thing
arose and here we have created - taken the people who in the English
terms really do control the Church, we have taken them out of the
Church and we've given the church its own Board of Directors who are
now supposed to control the Church after consulting with a separate,
separately incorporated body of people who in turn can look to LRH for
advice when they are unable to solve whatever problems they are being
asked to solve <inaudible>. We are trying to remove the man as much as
possible from allegations or <inaudible> control.
CP: Right. That's a very helpful exercise. And also I may say this,
that it is very very helpful for LRH to have his own attorneys, i.e.
yourselves, because for many years we have been missing this essential
service and we have done this exercise of trying to think of the way
it would be on the one side and trying to think of the way it would be
on the other side and it really doesn't work very well to do that. It
doesn't work to represent both parties at the same time. Especially if
you also happen to be a Scientologist and involved in that particular
way as well. So, I'm with relief representing the Church interest and
I certainly invite you to represent Ron's interest as much as you can.
I say that RRF, which is as far as I am concerned part of the Church,
made a mistake when it paid over that 2.1 million. RRF had nothing...
We could say that RRF and CSC are part of the same Church, even though
they are corporately different. I mean if anything was a sham
corporation, it's RRF.
AW: As I understand it, RRF receives monies that would otherwise be
due the California Church for services rendered by the California
Church to people outside of the country who decide to pay the Church
from outside the country.
CP: That's right.
AW: So that's basically right?
CP: That's right. Foreign - non-US Scientologists who wish to pay for
Flag services pay RRF and then go to Flag and take the services. RRF
was originally supposed to hold the money
-8-
until the service was rendered and then pay it to CSC. But in fact, it
has not really done that and so CSC has rendered much service to many
foreign Scientologists and RRF has got the money. Fortunately for us,
RRF wasn't incorporated until 1973 and we are now litigating 1972. So,
I haven't really tried to sort this one out but it obviously is the
classic case (loud laugh) of inurement, if not fraud.
(Several laughs.)
LS: Well, put.
It's all privileged.
DS: The tape recorder is going here, Charles.
CP: However, as you can see, our financial direction is really
weighted to this solution and it is an ongoing battle which I will
eventually win because I am the one who has to litigate the case next
year and we obviously have to handle RRF. The way we will probably
handle it is by simply saying it is part of the same Church, in fact.
Now that, of course, goes directly contrary to what you're doing which
is to split LRH off from the Church and to talk about the corporate
integrity of the different Churches. Unfortunately, the Churches do
not have any corporate integrity. And our efforts to give them
corporate integrity have not hitherto been successful. Now when you
talk around a table like this and there is no Internal Revenue agent
present, (whispered: I hope so), bugged or otherwise, one can work out
solutions. But when you are a few weeks away from a trial and
everything you say is going to be rammed down your throat, then you
have to start looking at what actually happened. And it's very
difficult to assign significances to things other than what was
actually being done at the time. We are trying to say for example that
Flag in 1970 is a part of California Church which is probably true but
there is no documentation to say that and the truth of the matter is
that Marty Greenburg, the accountant, decided to include Flag's
accounts in California accounts some years later for convenience. So
the decision, what is - the IRS can say and are in fact alleging that
Flag in those years, 1970 to 1972, was an unincorporated association
to which CSC's income inured on a grand scale. We cannot point to a
document which says, "Actually Flag was part of CSC during the years
of question" because it doesn't exist because no one really thought of
it. So, we have to have a different theory of the case which is going
to account for all facts and omitted facts which do exist.
Is this the why of efforts to create corporate integrity in 1980?
-9-
CP: Well, I think it certainly affects F & P. Possibly Laurel told you
I have thoughts about F & P. But I think perhaps shouldn't anticipate
ourselves.
What should we do with the 2.1 million dollars? Do you want LRH to
give that back? We'll declare it all a mistake and we'll negotiate it
fresh, or what? What would you like to do on that? What's your
thought?
CP: My thought is that the Church is very willing to pay LRH for all
the work which he did in creating those movies and ought to pay
generously but not excessively having in mind accepted industry
standards. Generously because he was the only person who could have
done it. Generously because he did everything. And generously because
he trained the Church crew from start to finish. And generously
because his name on the credits will ensure an audience and without
his name on the credits, one could be fairly confident that there
would be no Church audience. I think all those facts should be taken
into account in the reaching of a fair price.
Who will own the copyrights <inaudible>? Who will control the
dissemination of the films, how they are used, whether they are used
properly, or how long they will be used? Is that something that the
author can retain? <Inaudible.>
CP: Well___
And can control their uses for Churches, Missions, non-Scientology
organizations, such as WISE. Who knows who is going to use those
films?
LS: <Inaudible> will use the films; WISE will use the films; SMI may
use the films (only 3 of them). Why can't PDK own the copyrights?
CP: Well, who in fact owns the copyright? Normally, as far as I
understand it, the employer owns the copyright. But,
AW: Financier. Usually the financier - he who pays usually owns.
CP: That's right.
AW: Not always.
CP: Not always. In this case, we have a relationship between Ron and
the Church which is not entirely that of film director to film set. It
is also Founder of the Church and for the last 30 years, Ron has
always steadfastly insisted upon owning and retaining the copyrights
to any of his own work product. And I think we could say that in these
circumstances it is
-10-
completely understood without even the necessity of saying it. That
where Ron produces something of this nature, he owns the copyright. I
would have thought that was well defensible.
MC: Is the underlying work already published? What the film is made
from, is that already published in <inaudible> covering the script?
Script?
MC: It's just a script, it's not a book or anything...
CP: No, it's just a script.
-11-
© Gerry Armstrong
Scientology v. Armstrong: Legal archive
Newsgroups: alt.religion.scientology
Subject: MCCS meeting transcript
Message-ID: <[email protected]>
X-Newsreader: Forte Agent 1.93/32.576 English (American)
MIME-Version: 1.0
Content-Type: text/plain; charset=ISO-8859-1
Content-Transfer-Encoding: 8bit
Lines: 624
Date: Mon, 12 Mar 2007 01:13:02 GMT
NNTP-Posting-Host: 64.59.144.74
X-Complaints-To: [email protected]
X-Trace: pd7urf2no 1173661982 64.59.144.74 (Sun, 11 Mar 2007 19:13:02 MDT)
NNTP-Posting-Date: Sun, 11 Mar 2007 19:13:02 MDT
Organization: Shaw Residential Internet
Xref: g2news1.google.com alt.religion.scientology:304454
I have received an MCCS meeting tape transcript recently and a query
as to whether it is the partial tape transcript referred to in the
reported U.S. Supreme Court case U.S. v. Zolin, 491 U.S. 554 (1989).
Gerry Armstrong--US v. Zolin 06-21-1989
In seeking possession of the MCCS tapes, which had been held by the
Clerk of the Los Angeles Superior Court following the 1984 trial in
the Scientology v. Armstrong case, the IRS had submitted a partial
transcript to the U.S. District Court to demonstrate a crime-fraud
exception to the attorney-client privilege. The MCCS meeting that was
recorded involved of course a number of attorneys for Hubbard and
Scientology, as well as Sea Org and GO staff members working on MCCS.
Scientology founder L. Ron Hubbard ordered MCCS, and current cult head
David Miscavige operated the mission.
I have never seen what transcript the IRS used, and I did not give the
IRS any transcript at any time. I wrote the note that precedes the
transcript in 1982 and my ex-wife Jocelyn transcribed the tape. If the
IRS used it, the Service did not get it from me, and I do not recall
to whom I may have given it besides my attorneys, but I obviously gave
it to someone because it has now come back to me.
Because of the ongoing investigation of Scientology cult fraud, I am
posting this now, and I am grateful to whoever sent it to me. If
anyone knows if this is the partial transcript that was central to the
U.S. v. Zolin cases I would like know. The published opinions and a
number of other documents relating to MCCS are webbed on my site at:
Gerry Armstrong--Other Scientology Litigation
The U.S. Supreme Court stated in its ruling:
Gerry Armstrong--US v. Zolin 06-21-1989
My note:
Transcript of tape recording made 29 September 1980 at a meeting of
Scientology legal personnel, MCCS Mission personnel and attorney's of
Scn, LRH and Gold or New Era Pictures the film crew co.).
When I have been able to identify the speaker I have noted his or her
initials beside the statement. When I have not been able to identify
the speaker there are no initials.
The following people attended the meeting:
CP: Charles Parselle, then DGL WW.
AW: Alan Wertheimer, attorney for LRH who worked closely with Laurel
Sullivan and the MCCS mission, attempting to have LRH retain control
without liability or responsibility.
LS: Laurel Sullivan, LRH Personnel PR, and I/C of the Legal mission,
MCCS, which was attempting to shield LRH.
LB: Lisa Britowich, Laurel's junior on MCCS. Now kicked out,off
staff. Was in the GO at the time.
JM:James Murphy, LRH's tax attorney. He worked in the same firm as
Alan Wertheimer, - Rosenfeld, Meyer & Sussman in Beverly Hills. I
believe Rosenfeld, Meyer & Sussman have been dropped by the
organization. Wertheimer I know for sure has been dropped, Murphy I'm
not sure of.
DS: Dick Sullivan, Laurel's husband,and junior on the MCCS mission.
MC: Melanie Cook, attorney at Rosenfeld, Meyer & Sussman, who did a
lot of work on trademarks, etc.
Ron Fujikawa, worked on the film deals. Part of MCCS's actions was to
work out the legal arrangements for LRH to get paid for the films, and
I believe retain copyrights for them, plus work out distribution lines
with Pubs DK, and other related matters. Fujikawa is an attorney in
Century City.
I was given this tape by Barbara DeCelle, secretary on the MCCS
mission, in late 1981. Barbara had transcribed the various tapes and
gave me the cassettes for my use.
Some of the statements, particularly regarding RRF, eg. see p. 8 and
9, are very interesting.
GA
The transcript:
I have gathered a fair amount of information on this and I have been
quoted by people who actually do documentary work of $22,750.00 for a
script for a half hour educational film.
It's low.
The numbers are low.
In part because documentaries and educational films are methods for
writers, directors and other talent to break into the business and
therefore (inaudible). So, I guess one of the problems then is that
anything you pick that is even reasonably on the high side is subject
to challenge because they will definitely be able to go and find other
people to work for < inaudible >.
CP: Right. So it could be as low as three.
It could be as low as three. There are other services that are
involved here in addition just to writing the script.
AW: And L. Ron Hubbard is not an unknown quantity. He's not somebody
trying to break into the business.
Admittedly.
CP: That's right.
Just the economics of making a half hour or an hour of educational
film is such that they can't afford to pay someone a great deal of
money. Certainly not the amounts that were originally contemplated or
have actually been paid in this particular arrangement.
CP: Right. That's right. Thereof one has to look at the fact that he
trained an entire crew for the Church. All those people are now
available to continue film-making for the Church if the Church wishes.
Plus the scores. All on their account. As far as we were concerned, he
trained them up. They are Church employees, they're Scientologists and
they are probably going to go on making films for Church purposes. But
even so, if we look in - I mean, I just did my little calculation and
it came out to just 1/2 a million. That's 33 times 15,000 and if you
add on bits for film scores and bits for the work for training and
something for the fact that he's not a newcomer trying to break into
the field as far as we are concerned.
LS: He also is the only person in the world who could ever write these
... the way they were written.
-1-
LB: Yeah.
LS: There's that.
CP: That's right. It's the score. I mean, it would have been really
impossible for CSC (Church of Scientology of California) to have gone
to another author for those films because they are entirely technical
films. He's the only chap who could have done it. But...
LB: He's also I think a ... there's more significance on the fact that
he was the author and what would the Catholic Church pay the Pope, for
instance to do that; or if Jesus Christ was alive today, what would
they pay for a lecture? You know.
LS: We're talking about a non-unknown quantity ... in the field.
LB: Yeah. There's a significance that's attached that makes his words
extremely valuable - priceless - to the Church that is different than
you are talking about you are just going to pay somebody to direct an
educational film. Well, you're going to pay Professor Joe Schmoe in a
University to be the lecturer for that film or if you are going to
hire, you know, a <inaudible> person to do it. There's going to be a
difference...
AW: You have two problems and you raise an interesting point in what
Jesus Christ would charge or what he would get paid. But ah, the two
things that are going on is that LRH does not want to be accountable
for all of the acts of the Church of Scientology since some of those
could be slightly out of bounds and he doesn't want to be in a
position where he is held accountable, on one hand. On the other hand,
the Church is attempting to maintain a certain tax exempt status and
they are worried that the status of the Church can be characterized as
nothing other than an alter ego for L. Ron Hubbard whereby certain
profit-making things are done in the name of the Church. So, with
those two things going on, what we're trying to do is have some sort
of structure whereby as much of those two things will continue as long
as possible. And I am not trying to say that what he has done is not
worth 2.1 million dollars <inaudible>... but you are talking about a
jury of 12 people who may have to decide whether L. Ron Hubbard is
sufficiently interwoven in the affairs of the Church to be held
accountable for some astrocity that should happen in the future.
LB: I understand. I just want to make sure that in a deal -if we're
going to have to deal with LRH - that it's due; I think Charles
<inaudible> are attaching a significance to
-2-
that. Well as long as we are going to attach a significance to his
contribution to the film-making, it should be, you know, <inaudible>.
male - Well, at some point you draw the line, I don't know if it's
worth 5 million dollars and I don't know if it's...
LS: Well, lets just look at his idea of it. His idea was that he
didn't want it... (someone entered the room)... The other point was
that LRH did not want any significance put on any services that he
provided the Church unless it was absolutely necessary... and this was
his instruction. He didn't want to be paid for anything other than the
goods that he actually delivered. Now, over the last few months, Mary
Sue has changed that because we have to justify the 2.1. She has said
we will count that now as an advice from a different period of time
and now we look at it again and that's why we are now considering
assigning significances to his abilities to edit film, shoot film,
create sets, music, etc. So, we don't want to go overboard on
assigning significances to service. We just want regular assets which
is the purpose for even assigning values to the services is only to
<inaudible>.
CP: Well, I think we can look at it from this point of view. As far as
the Church is concerned, if we paid him 2.1 million for making these
films for which ordinary industry standard is very, very, very much
less, we face an inurement problem. Therefore, if the Church's
attorneys had been involved with this transaction, we would have
advised the Church not to pay that kind of money because it would be
dangerous to our exempt status. However, if you would like to say that
he will do the work for nothing, obviously, the Church is - I,
representing the Church's attorney viewpoint, would say, "Terrific,
you're going to do it for nothing; that's fine." But of course, one
also has considerations as <inaudible> Scientologist which says it's
not right that he should make 33 films and occupy a good portion of
time doing that for no recompense whatsoever. I just want to - so as
far as I'm concerned, it can be as low as it can be from the Church
viewpoint but there is a point beyond which it cannot go and that is
the point at which it becomes unjustifiable in terms of industry
standards. Not taking the lowest possible figure, but taking the
highest reasonable figure. So, I put it back to you now as Ron's
attorney.
AW: If we're talking about a low figure, depending on how low it were,
I might say, the risks don't justify the benefits in this particular
instance because I know that he doesn't want to be named in lawsuits
and he does not want his finances looked into and where the line is,
just as with drawing any of these financial lines, I don't know.
Perhaps, as we're thinking about 2 million it could be an advance
against number
-3-
6; partly it could be compensation for services; partly it could be an
advance against a future share of the profits.
CP: Right. In terms of risk to him arising out of this particular
transaction, it's hard to see how there could be any risk. It's not
like, for example, the Purification Rundown where people might sue for
claiming injury.
AW: The real risk is the fact that the man has been paid a lot of
money which is greater than it should be...
CP: Right. But that's no risk to him.
AW: And fortunately for you... I think it is because the inurement has
two sides to it. If the Church is his alter ego, then he will be held
accountable for the acts of the Church, as well as the Church losing
its tax exempt status which is of no significance to him as L. Ron
Hubbard.
CP: I can't myself see it... I can see that the Church would lose its
tax exempt status if inurement is found but at the moment I can't see
how that would create a liability for him.
AW: Well, the whole piercing of the corporate veil in <inaudible>
cases is what we're talking about here. You know, where a person sets
up a corporation to run a business and the business has liabilities
and the person just says, "Well, it was my corporation; wasn't me. So,
go sue the corporation if you like, but it has no assets." And
<inaudible> it says if it is unjust to treat liabilities to the
corporation in the matter where the individual gets <inaudible>.
CP: Yes, but that I can - I can see that but I don't think that a
finding that part of the net earnings inured to his benefit in itself
pierces the corporate veil. Unless it could be showing that
corporation was indeed a sham for his benefit which would actually be
inconceivable in terms of the amounts of money involved. His take of
compensation...
AW: I'm not sure what the courts require. If I were on a jury and
somebody got paid 2 million dollars where $250,000, $300,000 or
$500,000 was the appropriate amount, the difference would be large
enough to me as an individual to think that perhaps something shady
was going on.
CP: So, in essence, what you're saying is that if the Church loses its
exempt status on the basis of inurement to him, there could also be a
finding that the whole corporation was in fact a sham for his benefit.
Which indeed, the IRS, are alleging in the current case and therefore
other litigants could pursue him directly bypassing the Church.
-4-
AW: A lot of this also is cumulative because there are other things
going on: The fact that he writes books which the Church publishes and
sells and pays for advertising and so forth and there's probably some
very meaty stuff there I would think. Jewelry. He has a lot of money
coming in because of what the Church does. And perhaps that amount of
money that's coming to him is not significant compared to the Church's
total, but it is in and of itself, significant.
CP: It's a lot of money. It certainly is percentage-wise very small.
But, do I take it that you do say that - is that your real worry, the
piercing of the corporate veil so that other litigants could pursue
him directly?
AW: I think that is the concern, yeah.
The reason we are structuring it this way is to keep the green box and
the red boxes as far away from each other as possible. We're trying to
at least confuse people who are trying to figure out exactly what it
is we're <inaudible>.
CP: Now I fully understand that. I'm just trying to see what we're -
if we say, don't give him anything at all for making the films. Other
way around. Sorry. If we say the inurement problem is a very real
problem. Any connection between him and the Church or substantial
connection between him and the Church is a real problem to him rather
than to the Church.
AW: I was dealing from his point of view.
CP: Yeah. 'Cause I tended to view it from the Church's point of view
and the Church is always fixated on the problem of inurement. From his
point of view I have always thought that there is no problem because,
provided he accounts for sums received, which of course he always
does, he would merely pay his tax and then...
AW: He is not always taxable. He receives <inaudible>
He gets a $35,000 annual consultant fee.
AW: $35,000 is not enough as far as I was concerned to get into
whether or not that's a fair amount and I just suggested that he
forget it. He gets - people work for him. People who are paid by the
Church render their exclusive services to him directly. That's
something that's always bothered me. Standing Order #1 is an area I've
had dealings in which hasn't been followed for ten years; yet there is
advertisement... There's a lot of things going on that really tie him
into the Church. If you get back to Jesus Christ delivering a lecture
to Christians, probably he would do that without being paid, I
guess,... not being Christian.
-5-
CP: I think on the whole, he did give lectures free and furthermore
fed people for nothing while they were there.
AW: My feeling is that if LRH knew up front that he wasn't going to
get paid for doing the films, he would have done them anyway.
female- Yes.
JM: If I may interject something here, the reason, I think, that
inurement is a problem on both sides of any congression is that an
actual finding of inurement which would jeopardize the Church's tax
exempt status presupposes a control relationship in addition to a
transfer of personal or extraordinary personal financial gain. And
that control relationship is a control relationship that we have been
primarily concerned with because that could be basis for suits by
private litigants whose main complaint against the Church from going
through the Church and looking at our client or any other organization
which was receiving money via the Church and has arguably some control
relationship with the Church. So that when Allen is referring to
inurement, we really - our concern is primarily this control
relationship aspect rather than the direct financial gain. And getting
back to what you indicated before, yes, if it were just a matter of
pure dollars and if you never had to look beyond those dollars, then
we would not be concerned. In fact, we would be quite happy that our
client received 2 million dollars. Allen, is that consistent with
...?
AW: The trade mark area which is next on our agenda has very little
to do with money and everything to do with control.
CP: Right. But it would be true to say then, that your concern about
control essentially is that 3rd party litigants will pursue him for
damages which will cost literally - which will be intolerable for him
in terms of his personal life. That's really the concern.
AW: I think so. I think the people have shown a predisposition to
suing him personally and perhaps this is part of their experience of
getting out of the Church. He seems to be the person, in addition to
the Church, who seems to be an important party.
CP: Oh, yeah, that's true and it is the fashion to sue him as well.
AW: Well, he's not without assets. He's well off and I would assume
would have the money to satisfy a few of these judgments if they
were successful and he certainly would have
-6-
to pay to defend them.
CP: True. That's absolutely right. You did say that he has not always
accounted for sums actually received. That is entirely at variance
with my understanding from Marty Greenburg that he has always
accounted for sums received. I realize that the Church has rendered
certain services to him in the form of personnel.
AW: That's the kind of thing that I was talking about.
CP: You're not talking about actual cash transfers.
AW: I don't know anything about that.
CP: Oh, you don't know about that. Well, as far as I know, he has
always been, through his accountants, entirely scrupulous about
accounting for every cent actually received. Benefits is another
matter entirely.
When we're talking about accounting, we are talking about accounting
from the financial standpoint; for example, tax authorities, as
opposed to accounting to the Church for the goods and services
rendered which would justify cash transfers. That's two separate kinds
of accounting. Are we talking about the same kind of accounting?
CP: Well, the kind of accounting I am talking about is accounting for
the IRS for his income expressed in terms of money.
Allen, when you are talking about accountability, are you referring
to exactly the same thing
AW: Indirectly I am.
CP: Yes.
Those are the only people who are going to raise the
question.
AW: The people I'm worried about are the IRS.
That's what all of this accounts for L. Ron Hubbard's <inaudible>.
CP: Good and that's great.
JM: This structurally a little more allows it. Because there was a
concern to interpose or to put a barrier between direct economic
relationships, between a tax exempt organization and LRH and we're
not for him continuing the economic
-7-
relationship. Some of us would get <inaudible>.
CP: Right.
JM: And that is not generated so much from this office as concern on
the part of the people representing the Church. And a direct economic
relationship, if it can be avoided, should be avoided.
CP: Right. Well I think the Church is always..
AW: And the control at the same time which is how the F & P thing
arose and here we have created - taken the people who in the English
terms really do control the Church, we have taken them out of the
Church and we've given the church its own Board of Directors who are
now supposed to control the Church after consulting with a separate,
separately incorporated body of people who in turn can look to LRH for
advice when they are unable to solve whatever problems they are being
asked to solve <inaudible>. We are trying to remove the man as much as
possible from allegations or <inaudible> control.
CP: Right. That's a very helpful exercise. And also I may say this,
that it is very very helpful for LRH to have his own attorneys, i.e.
yourselves, because for many years we have been missing this essential
service and we have done this exercise of trying to think of the way
it would be on the one side and trying to think of the way it would be
on the other side and it really doesn't work very well to do that. It
doesn't work to represent both parties at the same time. Especially if
you also happen to be a Scientologist and involved in that particular
way as well. So, I'm with relief representing the Church interest and
I certainly invite you to represent Ron's interest as much as you can.
I say that RRF, which is as far as I am concerned part of the Church,
made a mistake when it paid over that 2.1 million. RRF had nothing...
We could say that RRF and CSC are part of the same Church, even though
they are corporately different. I mean if anything was a sham
corporation, it's RRF.
AW: As I understand it, RRF receives monies that would otherwise be
due the California Church for services rendered by the California
Church to people outside of the country who decide to pay the Church
from outside the country.
CP: That's right.
AW: So that's basically right?
CP: That's right. Foreign - non-US Scientologists who wish to pay for
Flag services pay RRF and then go to Flag and take the services. RRF
was originally supposed to hold the money
-8-
until the service was rendered and then pay it to CSC. But in fact, it
has not really done that and so CSC has rendered much service to many
foreign Scientologists and RRF has got the money. Fortunately for us,
RRF wasn't incorporated until 1973 and we are now litigating 1972. So,
I haven't really tried to sort this one out but it obviously is the
classic case (loud laugh) of inurement, if not fraud.
(Several laughs.)
LS: Well, put.
It's all privileged.
DS: The tape recorder is going here, Charles.
CP: However, as you can see, our financial direction is really
weighted to this solution and it is an ongoing battle which I will
eventually win because I am the one who has to litigate the case next
year and we obviously have to handle RRF. The way we will probably
handle it is by simply saying it is part of the same Church, in fact.
Now that, of course, goes directly contrary to what you're doing which
is to split LRH off from the Church and to talk about the corporate
integrity of the different Churches. Unfortunately, the Churches do
not have any corporate integrity. And our efforts to give them
corporate integrity have not hitherto been successful. Now when you
talk around a table like this and there is no Internal Revenue agent
present, (whispered: I hope so), bugged or otherwise, one can work out
solutions. But when you are a few weeks away from a trial and
everything you say is going to be rammed down your throat, then you
have to start looking at what actually happened. And it's very
difficult to assign significances to things other than what was
actually being done at the time. We are trying to say for example that
Flag in 1970 is a part of California Church which is probably true but
there is no documentation to say that and the truth of the matter is
that Marty Greenburg, the accountant, decided to include Flag's
accounts in California accounts some years later for convenience. So
the decision, what is - the IRS can say and are in fact alleging that
Flag in those years, 1970 to 1972, was an unincorporated association
to which CSC's income inured on a grand scale. We cannot point to a
document which says, "Actually Flag was part of CSC during the years
of question" because it doesn't exist because no one really thought of
it. So, we have to have a different theory of the case which is going
to account for all facts and omitted facts which do exist.
Is this the why of efforts to create corporate integrity in 1980?
-9-
CP: Well, I think it certainly affects F & P. Possibly Laurel told you
I have thoughts about F & P. But I think perhaps shouldn't anticipate
ourselves.
What should we do with the 2.1 million dollars? Do you want LRH to
give that back? We'll declare it all a mistake and we'll negotiate it
fresh, or what? What would you like to do on that? What's your
thought?
CP: My thought is that the Church is very willing to pay LRH for all
the work which he did in creating those movies and ought to pay
generously but not excessively having in mind accepted industry
standards. Generously because he was the only person who could have
done it. Generously because he did everything. And generously because
he trained the Church crew from start to finish. And generously
because his name on the credits will ensure an audience and without
his name on the credits, one could be fairly confident that there
would be no Church audience. I think all those facts should be taken
into account in the reaching of a fair price.
Who will own the copyrights <inaudible>? Who will control the
dissemination of the films, how they are used, whether they are used
properly, or how long they will be used? Is that something that the
author can retain? <Inaudible.>
CP: Well___
And can control their uses for Churches, Missions, non-Scientology
organizations, such as WISE. Who knows who is going to use those
films?
LS: <Inaudible> will use the films; WISE will use the films; SMI may
use the films (only 3 of them). Why can't PDK own the copyrights?
CP: Well, who in fact owns the copyright? Normally, as far as I
understand it, the employer owns the copyright. But,
AW: Financier. Usually the financier - he who pays usually owns.
CP: That's right.
AW: Not always.
CP: Not always. In this case, we have a relationship between Ron and
the Church which is not entirely that of film director to film set. It
is also Founder of the Church and for the last 30 years, Ron has
always steadfastly insisted upon owning and retaining the copyrights
to any of his own work product. And I think we could say that in these
circumstances it is
-10-
completely understood without even the necessity of saying it. That
where Ron produces something of this nature, he owns the copyright. I
would have thought that was well defensible.
MC: Is the underlying work already published? What the film is made
from, is that already published in <inaudible> covering the script?
Script?
MC: It's just a script, it's not a book or anything...
CP: No, it's just a script.
-11-
© Gerry Armstrong
Scientology v. Armstrong: Legal archive