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CHURCH OF SCIENTOLOGY v. ELI LILLY & CO.

March 18, 1994

Church of Scientology, International, Plaintiff,
v.
Eli Lilly & Co., Hill & Knowlton, Inc., et al., Defendants.



The opinion of the court was delivered by: STANLEY SPORKIN

 This matter comes before the Court on Defendants' motions for summary judgment.

 I. Background

 The plaintiff in this action is the Church of Scientology, Incorporated ("CSI"). CSI is the "mother church" of the Scientology religion. *fn1" This lawsuit stems from the termination of a contract between CSI and defendant and counterclaim plaintiff Hill & Knowlton, Inc. and its unit, Hill & Knowlton Public Affairs World Wide Company (together "H&K").

 H&K is a public relations firm. H&K is also a wholly-owned subsidiary of Defendant WPP Group, plc., a British public limited company ("WPP"). Defendant J. Walter Thompson Company, Incorporated ("JWT") is an advertising agency that is also a wholly-owned subsidiary of WPP. Thus, H&K and JWT are subsidiary corporations, 100 percent-owned by parent WPP. Defendant Martin S. Sorrell is a British citizen, occupying the positions of director and Group chief executive at WPP. Defendant Eli Lilly and Company ("Lilly") is an international pharmaceutical company and the maker of the antidepressant drug Prozac. Lilly has been a client of JWT for more than twenty-three years. From 1983 to 1990, Lilly was also a client of H&K in the United Kingdom. Beginning in 1987, H&K entered into a contract to provide CSI with public relations services.

 The instability of the CSI-H&K and JWT-Lilly alliances became apparent in late 1989 when CSI launched a highly effective nationwide media crusade against the drug Prozac and its manufacturer Lilly. Lilly learned of H&K's representation of CSI and over a period of time conveyed to JWT and WPP its intention to sever its ties to WPP. Fearing the loss of valued clients, WPP director Sorrell insisted that H&K terminate its representation of CSI. Notification of termination occurred only days after the publication of a TIME magazine cover story, highly critical of CSI. See Richard Behar, Scientology, The Thriving Cult of Greed and Power, TIME, May 6, 1991 at 32-39.

 CSI alleges that its contract for public relations services was unlawfully terminated by H&K due to tortious interference by Lilly, JWT, WPP, and Sorrell. CSI claims that as a result of this unlawful termination, it was deprived of valuable public relations services "at a time when it had just sustained a malicious and derogatory assault at the hands of TIME magazine and was in immediate need of the services of Hill & Knowlton whose expertise in Church matters had been purchased at great expense over the previous 2 and 1/2 years." Second Amended Complaint P 49 at 16.

 CSI has sued on a number of grounds requesting more than $ 4.7 million in compensatory damages and $ 10 million in punitive damages. Count One of the Second Amended Complaint alleges breach of contract against H&K. Count Two alleges breach of fiduciary duties against H&K. Count Three alleges inducement of breach of contract against WPP, JWT, Sorrell, and Lilly. Count Four alleges intentional interference with business relations against Defendants WPP, JWT, Sorrell, Lilly, and H&K. H&K has filed a counterclaim for public relations services rendered to CSI for which H&K has not received payment. H&K claims it is due $ 333,216.30. This Court has jurisdiction under 28 U.S.C. ยง 1332.

 II. Summary Judgment Standards

 All defendants have moved for summary judgment and counterclaim plaintiff H&K has moved for summary judgment on the counterclaim. Under Federal Rule of Civil Procedure 56, summary judgment shall be rendered if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. Proc. 56(c). Mere allegations or denials of the adverse party's pleading are not enough to prevent the issuance of summary judgment. The adverse party's opposition must be supported by affidavits or other competent evidence setting forth specific facts showing that there is a genuine issue for trial. Fed. R. Civ. Pro. 56(e).

 The governing standards for the issuance of summary judgment were set by the Supreme Court in Celotex Corp. v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). In Celotex, the Court explicitly recognized that a full-blown trial is a drain on resources to be avoided if and when the non-moving party's position cannot be substantiated through affidavit or other competent means

 
Rule 56 must be construed with due regard not only for the rights of persons asserting claims and defenses that are adequately based in fact to have those claims and defenses tried to a jury, but also for the rights of persons opposing such claims and defenses to demonstrate in the manner provided by the Rule, prior to trial, that the claims and defenses have no factual basis.

 Id. at 327. (citation omitted). This said, all reasonable inferences from the evidence are to be drawn in the non-moving party's favor and therefore, plaintiff's "version of any disputed issue of fact thus is presumed correct." Eastman Kodak Co v. Image Technical Services, Inc., U.S. , 119 L. Ed. 2d 265, 112 S. Ct. 2072, 2077 (1992).

 III. The Evidence:

 The following gives an overview of the thousands of pages of evidence submitted by the parties in the form of documents, affidavits, and depositions. This evidence must be viewed in the light most favorable to CSI.

 a. The Contracts

 In the fall of 1987, senior officials at CSI and the affiliated Religious Technology Center ("RTC") became concerned with how Scientology was perceived by the public and portrayed in the media. On the advice of counsel, CSI decided to investigate the possibility of retaining a public relations firm. A series of meetings took place in Washington D.C. between CSI officials and H&K and its worldwide chairman, Robert Gray. According to the declaration of David Miscavige, who is Chairman of the Board of Directors of the RTC and the most senior official of Scientology, Gray requested and the CSI provided extensive briefing and background materials to H&K to permit H&K to determine whether or not H&K could be of service to CSI. CSI Ex. 1. After a review of these documents, H&K agreed to represent CSI.

 
. Neutralize negative media coverage; seek a change in the direction of media coverage by building a new and positive public platform for the Church; and promote the many positive aspects of scientology (programs, individual success stories, societal benefits);
 
. Expand new membership and increase solidarity among existing membership.

 CSI Ex. 37 at 1. H&K agreed to work toward these goals by performing sophisticated public attitude research, conducting an inventory of CSI's internal resources, providing media training for all those who represent CSI in public, and doing a materials audit of the books, pamphlets, and press kit literature that CSI was providing to the media. H&K also agreed to establish a comprehensive communications program and "to be available as counsel on all communications matters related to the Church, whether the nature of concerns be routine or crisis." Id. at 1-3.

 H&K noted in the agreement that its policy was to assist controversial clients even though such representation would necessarily result in loss of business for H&K. As the letter of agreement stated:

 
Because it is the oldest and largest communications firm in the world, Hill and Knowlton is accustomed to being dealt the toughest of communications challenges. Often is the case that principled clients conducting honest operations toward laudable and legitimate ends come to us when they are much misunderstood and maligned in the marketplace. We believe these clients deserve the best, most reputable counsel and are willing to commit our reputations and credibility toward that effort. Nevertheless, in doing so we know we risk both the loss of clients and potential clients as we commit the full resources of our firm worldwide. The policy of this firm is to balance the impact of our association with the Church of Scientology, and to compensate the firm for business or professional loss which unfairly but predictably attends our relationship. We will undertake to represent the Church with the same terms applicable to other highly controversial clients.
 
An advance entry retainer in the amount of $ 50,000 will be required at the onset of our relationship. In addition, a monthly retainer of $ 5,000 will be required, to which will be added charges for staff services provided to the Church. These charges will be levied at standard hourly rates for participating officers and staff assistants as required to carry out programs and activities approved by you.

 CSI Ex. 37 at 4 (emphasis added). There is evidence that the $ 50,000 fee and $ 5,000 monthly retainer (payments against which no actual H&K services were performed) were non-refundable premiums paid by CSI because of its perceived controversial reputation. See CSI Ex. 7 at 78-79. There is also evidence that CSI, on the basis of oral statements made by H&K officials, understood these premiums were to be in consideration for H&K's guarantee that CSI would not be abandoned because of pressure by other H&K clients. See CSI Ex. 1 at 4.

 While CSI provides evidence via declarations and deposition testimony of its understanding as to H&K's "guarantee" of non-abandonment in the face of pressure from other H&K clients, Contract I on its face makes no explicit mention of any "guarantee". Instead, Contract I includes an integration clause as well as a provision covering the agreement's termination:

 
H&K's appointment under this arrangement is to extend from November 30, 1987 to February 15, 1987 [sic] at which point either party may cancel the agreement. If both parties agree to renew the agreement, it will continue indefinitely unless either party gives sixty (60) days' written notice of its desire to terminate or modify the agreement.

 CSI Ex. 37 at 5-6.

 Pursuant to Contract I, H&K conducted a study of CSI with the assistance of a public opinion research firm. H&K analyzed CSI documents provided to H&K by CSI. H&K staff members met with CSI officials on multiple occasions. The study period established under Contract I endured for nine months during which time CSI paid, in addition to hourly staff charges, a total of $ 90,000 pursuant to the "controversy premium" provision in Contract I. No H&K work was billed against the $ 90,000.

 H&K entered into a second agreement with CSI via a letter sent by Gray to Jentzsch on August 12, 1988 ("Contract II"). CSI Ex. 39. This second letter of agreement noted that having conducted a "thorough study" of CSI over nine months, H&K was prepared to move forward with the ideas and concepts H&K had developed to assist CSI. "As we begin this phase, there is a need to revise our current working relationship," wrote Gray. CSI Ex. 39 at 1.

 The new agreement was specifically intended to supersede Contract I: "The letter of agreement signed in December, 1987 covered activity through the delivery of our proposal on Tuesday. This letter of agreement will supersede that contract." Id. Under the new contract, H&K agreed to develop a number of specific projects as well as to provide CSI with ongoing services:

 
Ongoing Counsel -- Hill and Knowlton will continue to provide Church of Scientology with ongoing public relations and public affairs counsel for all those activities on which we now are working. In addition to the development and implementation of the specific projects outlined above, Hill and Knowlton staff will be available to provide Church of Scientology with regular and continuing communications counsel.

 CSI Ex. 39 at 2. Although there is no mention in Contract II of any "controversy premium" payments, the "Billings" section of Contract II makes clear that CSI was expected to expend a minimum of $ 25,000 monthly on H&K services:

 
Charges for the services of H&K will be made at standard hourly rates for participating officers and staff assistants as they are required to carry out the programs and activities approved. On a monthly basis, Church of Scientology will pay H&K a minimum of $ 25,000 in advance, for services rendered under this agreement. Staff time charges incurred in any month for the Church of Scientology account will be applied against this minimum, and any staff time charges incurred above the minimum will be billed at regular rates.

 Id. at 3.

 CSI provides evidence through depositions and declarations that the minimum monthly billing of $ 25,000 was intended to be the equivalent of the "controversy premium" payments found in Contract I. CSI Ex. 1 at 5. CSI argues that it had secured, through premium payments over the course of Contract I, and by agreeing to the $ 25,000 minimum monthly payments in Contract II, H&K's promise not to terminate the CSI relationship due to pressure from other clients.

 Contract II, like Contract I before it, makes no mention of any specific agreement by H&K not to terminate CSI due to pressure from other clients. Contract II does states that the Contract will continue indefinitely unless either party gives 60 days written notice of its desire to terminate the agreement:

 
Length of Contract -- Hill and Knowlton's appointment under this agreement will extend for one year from August 1, 1988 through July 31, 1989, at which point either party may cancel the agreement. If both parties agree to renew the agreement, it will continue indefinitely unless either party gives ...

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