Crystal Cathedral Ministries

Case 2:12-bk-15665-RK
Doc 1386 Filed 11/26/12 Entered 11/26/12 14:25:58 Main Document Page 1 of 55
Desc
1 2 3 4 5 6 7 8 9 10 11 In re: 12 CRYSTAL CATHEDRAL MINISTRIES, 13 14 15 16 17 18 19 20 21

The above-captioned bankruptcy case came for hearing on November 16, 2012 Debtor. MEMORANDUM DECISION ON MOTION OF PLAN AGENT AND REORGANIZED DEBTOR FOR JUDGMENT ON PARTIAL FINDINGS RE: OBJECTIONS TO CLAIMS OF DR. ROBERT H. SCHULLER, ROBERT HAROLD, INC., ARVELLA SCHULLER, TIMOTHY MILNER, AND CAROL S. MILNER UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA LOS ANGELES DIVISION Case No. 2:12-bk-15665-RK Chapter 11
CLERK U.S. BANKRUPTCY COURT Central District of California BY gae DEPUTY CLERK
FILED & ENTERED NOV 26 2012
22 before the undersigned United States Bankruptcy Judge on the motion of Karen S. 23 Naylor, Plan Agent, and Crystal Cathedral Ministries, Reorganized Debtor, for judgment 24 on partial findings pursuant to Rule 52(c) of the Federal Rules of Civil Procedure (Civil 25 Rules or Fed. R. Civ. P.) as incorporated by reference in Rules 7052 and 9014 of 26 Federal Rules of Bankruptcy Procedure with respect to the contested matters of the 27 objections of Plan Agent and Reorganized Debtor to the claims of Claimants Dr. Robert 28 H. Schuller, Arvella Schuller, Robert Harold, Inc., Timothy Milner and Carol S. Milner
Case 2:12-bk-15665-RK
Desc
1 (Claimants). Todd C. Ringstad and Nanette D. Sanders, of the law firm of Ringstad & 2 Sanders LLP, appeared for Plan Agent. Marc J. Winthrop, of the law firm of Winthrop 3 Couchot Professional Corporation, appeared for Reorganized Debtor. Arnold P. Lutzker, 4 of the law firm of Lutzker and Lutzker, also appeared for Reorganized Debtor. Carl L. 5 Grumer and Matthew S. Urbach, of the law firm of Manatt, Phelps & Phillips, LLP, 6 appeared for Claimants. 7
The objections to the claims are contested matters within the meaning of Rule
8 9014 of the Federal Rules of Bankruptcy Procedure, and the proceedings are before the 9 court (or bench) and not a jury. Fed. R. Bankr. P. 3007 and 9014; In re Southern 10 California Plastics, Inc., 165 F.3d 1243, 1248 (9 th Cir. 1999). The court set a trial of these 11 contested matters for November 1, 2, 7, 8, 9, 14, 15, 16, 29 and 30, 2012, and thus far, 12 the court has conducted trial proceedings on November 1, 2, 7, 8, 14, 15 and 16, 2012. 13
In the trial of these contested matters, Claimants presented their case-in-chief on
14 November 2, 7, 8, 14 and 15, 2012, and rested after presentation of their case-in-chief on 15 November 15, 2012. In their case-in-chief, Claimants called a number of witnesses and 16 offered numerous exhibits into evidence, which were received subject to the courts 17 evidentiary rulings on objections of Plan Agent and Reorganized Debtor. After Claimants 18 rested, on November 16, 2012, Plan Agent and Reorganized Debtor made their joint 19 motion under Civil Rule 52(c) for judgment on partial findings as to all claims. At the 20 hearing on the motion on November 16, 2012, the court heard extensive argument by the 21 parties. 22
Under Civil Rule 52(c), in a nonjury court (or bench) trial, a party may move for
23 judgment as a matter of law where an issue has been fully heard and a claim or defense 24 cannot be maintained without a favorable finding on that issue. Fed. R. Civ. P. 52(c); 25 Ritchie v. United States, 451 F.3d 1019, 1022-1023 (9th Cir. 2006). In ruling on a motion 26 pursuant to Fed. R. Civ. P. 52(c), the trial court may weigh the evidence, resolve any 27 conflicts in it, and decide for itself where the preponderance lies. International Union of 28 Operating Engineers, Local Union 103 v. Indiana Construction Corporation, 13 F.3d 253, 2
Case 2:12-bk-15665-RK
Desc
1 257 (7th Cir. 1994). In providing for a motion to enter judgment on partial findings, Civil 2 Rule 52(c) expressly authorizes the trial court to resolve disputed factual issues and to 3 make factual findings in accordance with its own view of the evidence. Ritchie v. United 4 States, 451 F.3d at 1023. 5
After considering the arguments of the parties, the evidence received at the trial of
6 these contested matters and the other papers and pleadings relating to these contested 7 matters, the court hereby issues this memorandum decision setting forth its findings of 8 fact and conclusions of law on the motion for judgment on partial findings, and grants the 9 motion. 10
The court does not discuss the history and background of Debtor and Claimants in
11 detail because the parties are familiar with these facts. The memorandum decision 12 contains some redundancies in the legal analysis because although these contested 13 matters were jointly tried, the court discusses the objections by claimant so that the 14 parties need not refer to the discussion of the claims of other claimants to understand the 15 courts rulings as to a particular claimant. 16 I. CLAIMS OF DR. ROBERT H. SCHULLER AND ROBERT HAROLD, INC. 17 18 19
A. Claim No. 244-1 of Dr. Robert H. Schuller: $55,226.27 for Housing allowance and breach of contract Claimant Dr. Robert H. Schuller (Dr. Schuller) filed a proof of claim, Claim No.
20 244-1, on February 28, 2011, asserting a claim in the amount of $55,226.27 +. This 21 claim was submitted on a one-page proof of claim, stating that the amount of the claim as 22 of the case filing date was $55,226.27 +, or that amount, plus an unknown amount, and 23 that the basis for the claim was Housing allowance and breach of contract. The proof of 24 claim made no allegations of fact to state a factual basis of the claim. 25
The court initially finds that Claimant Dr. Schuller was an insider of the debtor
26 within the meaning of 11 U.S.C. 101(31)(B)(i), (iii) and (vi) because he was a director 27 and person in charge of Debtor as the chairman of the board of directors of Debtor, the 28 senior pastor of the Debtor, and the founding pastor of Debtor, and because as the 3
Case 2:12-bk-15665-RK
Desc
1 spouse of Arvella Schuller, he was a relative of a director of Debtor at the times relevant 2 to this contested matter of the objection to this claim. Trial Transcript, November 7, 2012, 3 at 87:7-25 (Testimony of Dr. Robert H. Schuller); Trial Transcript, November 7, 2012, at 4 5:22-6:13, 7:11-18 (Testimony of Arvella Schuller); Trial Declaration of Robert H. Schuller 5 at 11:11-12; Transition Agreement, Exhibit P38; Joint Pretrial Order (R.H. Schuller and 6 Robert Harold, Inc.), I.B.8. 7
A claim for prepetition services of an insider of the debtor may not exceed the
8 reasonable value of such services under 11 U.S.C. 502(b)(4), and an insiders dealing 9 with a bankrupt corporation must be subject to rigorous scrutiny. Pepper v. Litton, 308 10 U.S. 295, 306 (1939); see also, 2 Resnick and Sommer, Collier on Bankruptcy, 101.31 11 at 101-140 (16th ed. 2012) (An insider generally is an entity whose close relationship 12 with the debtor subject any transaction made between the debtor and such entity to 13 heavy scrutiny.). Although the court finds that Claimant Dr. Schuller was an insider of 14 the debtor, Plan Agent and Reorganized Debtor concede the allowance of a claim of R.H. 15 Schuller for prepetition services in the form of a housing allowance in the amount of 16 $55.226.27. Accordingly, this claim should be allowed as a general unsecured claim in 17 the amount of $55,226.27 and will be allowed as part of Claim No. 332-1 pursuant to 11 18 U.S.C. 502(b)(7). Payment of this amount as Claim No. 244-1 and Claim No. 332-1 19 would result in duplicate payment and can be allowed only once. 20
The claim for breach of contract based on the so-called Transition Agreement for
21 prepetition services rendered by Claimant Dr. Schuller in Claim No. 244-1 is disallowed, 22 except to the extent that it is allowed pursuant to Claim No. 332-1. 23
B. Claim No. 245-1 of Robert Harold, Inc., and Dr. Robert H. Schuller for an
24 Unknown amount of claim for Copyright infringement 25

Claimants Robert Harold, Inc. (RHI), and Dr. Robert H. Schuller (Dr. Schuller)
26 filed a proof of claim, Claim No. 245-1, on February 28, 2011, asserting a claim in an 27 unknown amount based on copyright infringement. This claim was submitted on a one28 page proof of claim, stating that the amount of the claim as of the case filing date was 4
Case 2:12-bk-15665-RK
Desc
1 $ Unknown subject to accounting and that the basis for the claim was Copyright 2 Infringement. The proof of claim made no allegations of fact to state a factual basis of 3 the claim. 4
Rule 3001(f) of the Federal Rules of Bankruptcy Procedure provides that [a] proof
5 of claim executed and filed in accordance with these rules shall constitute prima facie 6 evidence of the validity and amount of the claim. Fed. R. Bankr. P. 3001(f). Rule 7 3001(c) of the Federal Rules of Bankruptcy Procedure provides that [w]hen a 8 claim . . . is based on a writing, the original or duplicate shall be filed with the proof of 9 claim. Fed. R. Bankr. P. 3001(c). Pursuant to 11 U.S.C. 502, the court must 10 determine the allowance or disallowance of a claim after an objection is made. 11 Specifically, 11 U.S.C. 502(a) and (b) provide in relevant part: (a) A claim or interest, 12 proof of which is filed under section 501 of this title, is deemed allowed unless a party in 13 interest . . . objects. (b) . . . if such objection to a claim is made, the court, after notice 14 and a hearing, shall determine the amount of such claim in lawful currency of the United 15 States as of the date of the filing of the petition. . . . 11 U.S.C. 502(a) and (b). 16
Although Fed. R. Bankr. P. 3001(f) provides that [a] proof of claim executed and
17 filed in accordance with these rules shall constitute prima facie evidence of the validity 18 and amount of the claim, this presumption of the validity of a claim does not arise if the 19 proof of claim itself does not set forth the necessary facts to establish the claim. Wright 20 v. Holm (In re Holm), 931 F.2d 620, 623 (9th Cir. 1991). In Holm, the United States Court 21 of Appeals for the Ninth Circuit stated the parties respective burdens of proof as follows: 22 23 24 25 26 27 28
Inasmuch Rule 3001(f) and section 502(a) provide that a claim or interest as to which proof is filed is deemed allowed, the burden of initially going forward with the evidence as to the validity and amount of the claim is that of the objector to the claim. In short, the allegations of the proof of claim are taken as true. If those allegations set forth all the necessary facts to establish the claim and are not self-contradictory, they prima facie establish the claim. Should objection be taken, the objector is
Case 2:12-bk-15665-RK
Desc
1 2 3 4
then called upon to produce evidence and show facts tending to defeat the claim by probative force equal to the allegations of the proofs of claim themselves. claimant. But the ultimate burden of persuasion is always on the
5 In re Holm, 931 F.2d at 623. 6

The Bankruptcy Appellate Panel of the Ninth Circuit stated the applicable burdens
7 of proof as follows: 8 9 10 11 12 13 14 15 16 17 18 19
The burden of proof for claims brought in the bankruptcy court under 11 U.S.C. 502(a) rests on different parties at different times. Initially, the claimant must allege facts sufficient to support the claim. If the averments in his filed claim meet this standard of sufficiency, it is prima facie valid. In other words, a claim that alleges facts sufficient to support a legal liability to the claimant satisfies the claimants initial obligation to go forward. The burden of going forward then shifts to the objector to produce evidence sufficient to negate the prima facie validity of the filed claim. . . . If the objector produces sufficient evidence to negate one or more of the sworn facts in the proof of claim, the burden reverts to the claimant to prove the validity of the claim by a preponderance of the evidence. The burden of persuasion is always on the claimant.
20 Ashford v. Consolidated Pioneer Mortgage (In re Consolidated Pioneer Mortgage), 178 21 B.R. 222, 226 (9 th Cir. BAP 1995), citing inter alia, In re Allegheny International, Inc., 954 22 F.2d 167, 173-174 (3rd Cir. 1992) and In re Holm, 931 F.2d at 623. 23
The court finds that Claim No. 245-1 is not entitled to a presumption of correctness
24 as to the validity and amount of the claim under Rule 3001(f) of the Federal Rules of 25 Bankruptcy Procedure because no amount of the claim is stated in the proof of claim and 26 the proof of claim fails to allege facts sufficient to support any legal liability of Debtor to 27 the claim. Accordingly, the court concludes that Claimants RHI and Dr. Schuller have the 28 burden to prove the validity of the claim by a preponderance of the evidence. 6
Case 2:12-bk-15665-RK
Desc
Moreover, as discussed previously, the court finds that Dr. Schuller was an insider
2 of the Debtor pursuant to 11 U.S.C. 101(31). The court also finds that Claimant RHI 3 was an insider of the debtor within the meaning of 11 U.S.C. 101(31) because it is a 4 corporation wholly owned and controlled by insiders of Debtor, Dr. Schuller, a director 5 and person in charge of Debtor as the chairman of the board of directors of Debtor, the 6 senior pastor of the debtor, and the founding pastor of Debtor, and A. Schuller, another 7 director of Debtor, at the times relevant to this contested matter of the objection to this 8 claim. Trial Transcript, November 7, 2012, at 87:23 88:2 (Testimony of Dr. Robert H. 9 Schuller); Trial Declaration of Robert H. Schuller at 5:24-25, 11:11-12; Transition 10 Agreement, Exhibit P38; Joint Pretrial Order (Dr. Robert H. Schuller and Robert Harold, 11 Inc.), I.B.8; Joint Pretrial Order (Arvella Schuller), I.B.8 and I.B.9; see also, 2 12 Resnick and Sommer, Collier on Bankruptcy, 101.31 at 101-142 (16th ed. 2012) 13 (Because the definition of an insider is nonexclusive, courts have worked to refine the 14 category of nonstatutory insiders. The category includes those individuals or entities 15 whose relationship with the debtor is so close that their conduct should be subject to 16 closer scrutiny than those dealing with the debtor at arms length.). An insiders dealing 17 with a bankrupt corporation must be subject to rigorous scrutiny. Pepper v. Litton, 308 18 U.S. 295, 306 (1939); see also, 2 Resnick and Sommer, Collier on Bankruptcy, 101.31 19 at 101-140 (An insider generally is an entity whose close relationship with the debtor 20 subject any transaction made between the debtor and such entity to heavy scrutiny.). 21
As discussed herein, Claimants RHI and Dr. Schuller have failed to meet their
22 burden of proving the validity and amount of his claim by a preponderance of the 23 evidence. In re Southern California Plastics, Inc., 165 F.3d 1243, 1248 (9th Cir. 1999). 24
Although not alleged in the proof of claim itself, Claim No. 245-1, Claimants RHI
25 and Dr. Schuller in their opposition to the objection of Plan Agent and Reorganized 26 Debtor to this claim contended that Debtor made uses of Creditors intellectual property 27 beyond the scope of any license, including, for example, offering it over the Internet. In 28 the opposition to the objection, Claimants Dr. Schuller and RHI cited the declaration of 7
Case 2:12-bk-15665-RK
Desc
1 Dr. Schuller filed on or about October 18, 2011 for details of the claim. In Claimant Dr. 2 Schullers declaration filed on October 18, 2011, he stated: . . . I have granted to the 3 Ministry a royalty free license to make certain uses of my intellectual property. However, 4 the Ministry has made uses of my books and other writings of mine for which I or my 5 corporation, Robert Harold, Inc., holds the copyright, that are outside the scope of that 6 license. For example, some of my intellectual property has been made available by the 7 Ministry for free over the Internet. In addition, portions of my works have been 8 incorporated and used by the Ministry in other works, without my approval or consent. 9 Such uses constitute infringement of my copyrights and those of Robert Harold, Inc. I do 10 not know the extent of those uses without an accurate accounting from the Ministry, so I 11 am unable to calculate my damages at this time. Through my daughter and my attorney, 12 I have asked the Ministry for that information, but I have not yet received it. Claimants 13 assert that [t]he total amount of Creditors claim is unknown at this time, subject to an 14 accounting and other information from the Debtor. 15
Regarding the federal statutory scheme in the Copyright Act for protection of
16 copyrights, the United States Supreme Court has stated: 17 18 19 20 21 22 23 24 25 26 27 28 8

The Constitution grants Congress the power [t]o promote the Progress of Science and useful Arts, by secured for limited Times to Authors . . . the exclusive Right to . . . their . . . Writings. Art. I, 8, cl. 8. Exercising this power, Congress has crafted a comprehensive statutory scheme governing the existence and scope of [c]opyright protection for original works of authorship fixed in any tangible medium of expression. 17 U.S.C. 102(a). This scheme gives copyright owners the exclusive rights (with specified statutory exceptions) to distribute, reproduce, or publicly perform their works. 106. Anyone who violates any of the exclusive rights of the copyright owner as provided in the Act is an infringer of the copyright. 501(a). When such infringement occurs, a
Case 2:12-bk-15665-RK
Desc
1 2
copyright owner is entitled, subject to the requirements of section 411, to institute an action for copyright infringement. 501(b).
3 Reed Elsevier, Inc. v. Muchnick, 130 S. Ct. 1237, 1241 (2010) (emphasis omitted). 4 5 6 7 8 9 10 11 12 13 14 15 16 17
With respect to copyright ownership, the Supreme Court has stated: The Copyright Act of 1976 provides that copyright ownership vests initially in the author or authors of the work. 17 U.S.C. 201(A). As a general rule, the author is the party who actually creates the work, that is, the person who translates an idea into a fixed, tangible expression entitled to copyright protection. 102. The Act carves out an important
exception, however, for works made for hire. If the work is for hire, the employer or other person for whom the work was prepared is considered the author and owns the copyright, unless there is a written agreement to the contrary. 201(b). Classifying a work as made for hire determines not only the initial ownership of its copyright, but also the copyrights duration, 302(c), and the owners renewal rights, 304(a), termination rights, 203(a), and right to import certain goods bearing the copyright, 601(b)(1).
18 Community for Creative Non-Violence v. Reid, 490 U.S. 730, 737 (1989), citing, 1 M. 19 Nimmer & D. Nimmer, Nimmer on Copyright, 503[A] at 5-10 (1988); see also, S.O.S., 20 Inc. v. Payday, Inc., 886 F.2d 1081, 1085 and n. 4 (9th Cir. 1989). As further explained by 21 the United States Court of Appeals for the Ninth Circuit, Copyright protection subsists 22 from the moment the work is fixed in any tangible medium of expression. 17 U.S.C. 23 102(a). S.O.S., Inc. v. Payday, Inc., 886 F.2d at 1085. Registration is not a 24 prerequisite to a valid copyright, although it is a prerequisite to suit. 17 U.S.C. 408(a), 25 411. Id. at 1085 and n. 4; see also, Reed Elsevier, Inc. v. Muchnick, 130 S. Ct. at 26 1241 (Section 411(a) provides, inter alia and with certain exceptions, that no civil action 27 for infringement of the copyright in any United States work shall be instituted until 28 9
Case 2:12-bk-15665-RK
Desc
1 preregistration or registration of the copyright claim has been made in accordance with 2 this title.). 3
To prevail on their claim of copyright infringement, Claimants must prove:
4 (1) ownership of the allegedly infringed material; and (2) the alleged infringer engaged in 5 copying, of the allegedly infringed material, or in other words, violated at least one 6 exclusive right granted to a copyright holder under 17 U.S.C. 106. S.O.S., Inc. v. 7 Payday, Inc., 886 F.2d at 1085 and n. 3; A&M Records, Inc. v. Napster, Inc., 239 F.3d 8 1004, 1014 (9th Cir. 2001). The word copying is shorthand for the infringing of any of 9 the copyright owners five exclusive rights, described at 17 U.S.C. 106, which includes 10 the right to distribute copies of the copyrighted work. S.O.S., Inc. v. Payday, Inc., 886 11 F.2d at 1085 n. 3. 12
Based on the contentions made by Claimants RHI and Dr. Schuller in opposition to
13 the objection of the Plan Agent and Reorganized Debtor to this claim, the court construes 14 Claim No. 245-1 filed by these claimants to assert that Debtor allegedly infringed on the 15 copyrights of Dr. Schuller by distributing his copyrighted works outside of the scope of a 16 license that he granted to Debtor and otherwise without his approval or consent in 17 violation of his exclusive right to distribute his works under 17 U.S.C. 106. To prevail 18 on this claim, Claimants must prove: (1) ownership of copyright in the allegedly infringed 19 materials; and (2) copying of protectable expression by the alleged infringer beyond the 20 scope of the license. S.O.S., Inc. v. Payday, Inc., 886 F.2d at 1085 and n. 3. 21
The court finds that although Claimant Dr. Schuller has shown by a
22 preponderance of the evidence that he authored numerous books for which he registered 23 copyrights for such bookswhich is not disputed by Plan Agent and Reorganized 24 Debtorhe has not established by a preponderance of the evidence that the Debtor 25 infringed on his copyrights or violated the terms of the broad license he gave Debtor for 26 use of his works. Claimant Dr. Schuller failed to identify, let alone show, the specific acts 27 of infringement of his copyrights by Debtor, such as unauthorized sales by Debtor of his 28 copyrighted works. See Trial Declaration of Dr. Robert H. Schuller at 2:17-21. This 10
Case 2:12-bk-15665-RK
Desc
1 finding is supported by Dr. Schuller himself in his trial testimony. Indeed, Dr. Schuller 2 admitted in his trial testimony: (1) that Debtor did not ever make use of his intellectual 3 property in a way that violated any permission that he had given to Debtor; (2) that 4 Debtor never infringed upon use of his intellectual property; (3) that all uses of his 5 intellectual property by Debtor were with his consent; and (4) that he could not recall any 6 instance, to his knowledge, that Debtor violated any restriction that he placed on use of 7 his intellectual property. Trial Transcript, November 7, 2012, at 109:16-25, 114:20 8 115:1 (Testimony of Dr. Robert H. Schuller). 9
To the extent that Debtor used Claimant Dr. Schullers copyrighted materials, the
10 preponderance of the evidence demonstrates that Debtor used such materials under an 11 express license granted by him. Specifically, Dr. Schuller granted Debtor a broad license 12 to use his copyrighted works for the benefit of Debtor for non-profit purposes. Dr. 13 Schuller testified that Debtor could use his materials without problems, as long as they 14 did not sell that information to competitors and without any expectation of royalties or 15 compensation for the use of his materials, and that there were no restrictions from him to 16 use his materials for the purpose of raising funds for the ministry (i.e., the Debtor). Trial 17 Transcript, November 7, 2012, at 98:16 100:18, 133:15 135:15, 140:21-23 18 (Testimony of Dr. Robert H. Schuller). Thus, Claimant Dr. Schuller has not proven by a 19 preponderance of the evidence that debtor used his copyright works in violation of the 20 license as shown by his trial testimony that Debtor did not ever make use of his 21 intellectual property in a way that violated any permission that he had given to Debtor and 22 that he could not recall any instance that Debtor violated any such restriction. Trial 23 Transcript, November 7, 2012, at 109:16-25, 114:20 115:1, 152:4-24 (Testimony of Dr. 24 Robert H. Schuller). Despite Claimant Dr. Schullers post hoc testimony in his redirect 25 testimony at trial that his advance approval was required for use of his copyrighted 26 materials, the court finds that based on Claimants testimony on cross-examination and in 27 actual practice, such advance approval was not required as a condition of the broad 28 license that claimant granted to Debtor to use his copyrighted works. Trial Transcript, 11
Case 2:12-bk-15665-RK
Desc
1 November 7, 2012, at 142:12 143:3, 144:23 146:20 (Testimony of Dr. Robert H. 2 Schuller). 3
Additionally, Claimant Dr. Schuller has not established an amount of damages for
4 any alleged infringement of his copyrights by a preponderance of the evidence. Under 5 the Copyright Act, 17 U.S.C., a plaintiff may recover actual damages as a result of the 6 alleged infringement, and may recover profits attributable to the infringement. 17 U.S.C. 7 504(a). The language of the statute indicates that a causal relationship must exist 8 between the infringement and the monetary remedy sought by plaintiff. Polar Bear 9 Productions, Inc. v. Timex Corp., 384 F.3d 700, 708 (9th Cir. 2004). Under [17 U.S.C.] 10 504(b), actual damages must be suffered as a result of the infringement, and 11 recoverable profits must be attributable to the infringement. Id. The plaintiff must 12 establish this causal connection, and . . . this requirement is akin to tort principles of 13 causation and damages. Id. Claimant Dr. Schuller offered little, if any, evidence in his 14 case-in-chief of his damages or the profits allegedly attributable to any infringement by 15 Debtor. This situation is probably best explained by Dr. Schullers trial testimony that 16 Debtor never infringed upon use of his intellectual property. Trial Transcript, November 17 7, 2012, at 109:16-25, 114:20 115:1, 152:4-24 (Testimony of Dr. Robert H. Schuller). 18 Accordingly, Claimant Dr. Schuller failed to meet his burden of proving by a 19 preponderance of the evidence the amount of actual damages and the amount of 20 recoverable profits under the Copyright Act and the Bankruptcy Code and Rules, and his 21 copyright infringement claim should be disallowed for failure of proof on this ground. 22 17 U.S.C. 504(b); 11 U.S.C. 502(a); Fed. R. Bankr. P. 3001; Polar Bear Productions, 23 Inc. v. Timex Corp., 384 F.3d at 708; In re Holm, 931 F.2d at 623. 24
In addition, with respect to the Hour of Power intellectual property, Claimant Dr.
25 Schuller has not satisfied the precondition of registering his copyrights with the United 26 States Copyright Office in order to maintain a civil action for infringement, which applies 27 to the filing of a proof of claim in a bankruptcy case. 17 U.S.C. 411(a); In re Idearc, 28 Inc., 2011 WL 203859 (Bankr. N.D. Tex. 2011); see also, Cosmetic Ideas, Inc. v. 12
Case 2:12-bk-15665-RK
Desc
1 IAC/Interactivecorp., 606 F.3d 612, 614-615 (9th Cir. 2010).1 Indeed, the filing of a proof 2 of claim in a bankruptcy case is tantamount to filing a civil complaint. Nortex Trading 3 Corporation v. Newfield, 311 F.2d 163, 164 (2nd Cir. 1962); In re Simmons, 765 F.2d 547 4 (5th Cir. 1985); Matter of Continental Airlines, 928 F.2d 127, 129 (5th Cir. 1991); see also, 5 In re Idearc, Inc., 2011 WL 203859 at *1, 11. There is no evidence showing that 6 Claimant Dr. Schuller registered copyrights in his name for the Hour of Power or that he 7 ever attempted to file an application with the Copyright Office to register a copyright 8 related to the Hour of Power. Accordingly, Claimant Dr. Schuller may not assert a claim 9 for copyright infringement for lack of federal copyright registration in his name for the 10 Hour of Power. Moreover, Claimant Dr. Schuller is not entitled to any statutory damages 11 under the Copyright Act for infringement of any Hour of Power copyrights due to his 12 failure to register any copyrights for such works. 13
Also, with respect to the Hour of Power intellectual property, to the extent that
14 Claimant Dr. Schuller claims any rights to such property, he has not proven by a 15 preponderance that he is the owner of the copyrights to such property. First, as Dr. 16 Schuller admitted in his trial testimony, he does not own the rights to the Hour of Power. 17 and that Debtor owned the rights. Trial Transcript, November 7, 2012, at 109:7-15 18 (Testimony of Dr. Robert H. Schuller). Second, the preponderance of the evidence 19 otherwise shows that the Hour of Power intellectual property was works for hire; that is, to 20 the extent that Claimant Dr. Schuller created such property, he created such property 21 during the scope of his employment with Debtor. Community for Creative Non-Violence 22 v. Reid, 490 U.S. at 742 n. 8. Copyright ownership vests initially in the author of the 23 24 25 26 27 28 13
1
In this regard, the court does not agree with the Claimants arguments in their supplemental briefing filed on November 15, 2012 that Idearc is distinguishable and unhelpful. Claimants Brief re Copyright Registration Requirement, filed on November 15, 2012. In Idearc, the court granted the alleged copyright infringers motion for summary judgment as to claims for infringement of works not registered with the Copyright Office. In this regard, it should be noted that summary judgment was granted despite the filing of a proof of claim by the copyright infringement plaintiff in the Idearc bankruptcy case. 2011 WL 203859 at *1, 11.
Case 2:12-bk-15665-RK
Desc
1 work. 17 U.S.C. 201(a). However, if a work is for hire, the employer or other person 2 for whom the work was prepared is considered the author and owns the copyright. 17 3 U.S.C. 201(b). Section 101 of the Copyright Act provides two circumstances in which a 4 work is for hire: (1) when the work is prepared by an employee within the scope of his 5 employment; or (2) when the work was specially ordered or commissioned for use as a 6 contribution to a collective work. 17 U.S.C. 101. 7
To determine whether a copyrighted work is a work for hire under the Copyright
8 Act, the court must first determine, using general principles of agency law, whether the 9 work was prepared by an employee or an independent contractor. Community for 10 Creative Non-Violence v. Reid, 490 U.S. at 750-751. If the court finds that the work was 11 prepared by an employee, the court must then determine that the work was made during 12 the scope of the employees employment. Id.; see also, 17 U.S.C. 101. 13
To determine employee status for purposes of the Copyright Act, the Supreme
14 Court explained that courts must consider the hiring partys right to control the manner 15 and means by which the product is accomplished. Community for Creative Non16 Violence v. Reid, 490 U.S. at 751. The Supreme Court then enumerated the following 17 non-exhaustive factors to determine the hiring partys right to control: (1) the skill 18 required; (2) the source of the instrumentalities and tools; (3) the location of the work; 19 (4) the duration of the relationship between the parties; (5) whether the hiring party has 20 the right to assign additional projects to the hired party; (6) the extent of the hired partys 21 discretion over when and how long to work; (7) whether the hiring party is in business; 22 (8) the provision of employee benefits; (9) and the tax treatment of the hired party. Id. 23
Based on these factors enumerated by the Supreme Court in Reid, the court finds
24 that Dr. Schuller was an employee of the Debtor. Although Dr. Schuller has substantial 25 skill in writing and delivering messages (i.e., sermons) in harmony with the purpose of the 26 Debtor, the source of his instrumentalities and tools were all provided by Debtor, and 27 the location of the work at Debtors premises. Dr. Schuller delivered all of his messages 28 from the pulpit at Debtors premises, including the Crystal Cathedral from 1980 to 2011. 14
Case 2:12-bk-15665-RK
Desc
1 Trial Transcript, November 7, 2012, at 14:16-16:18 (Testimony of Arvella Schuller); Trial 2 Declaration of Charles Todd at 3:23-4:1, 4:12-4:14. All filming and recording of the Hour 3 of Power television program featuring Dr. Schullers messages occurred on Debtors 4 premises, and all means of production of the Hour of Power program were provided by 5 Debtor who paid for the production staff and performers on the program. 2 Trial 6 Transcript, November 7, 2012, at 101:10-12 (Testimony of Dr. Robert H. Schuller); Trial 7 Declaration of Dr. Robert H. Schuller at 5:22-28, 7:11-13; Trial Declaration of Charles 8 Todd at 3:23 4:1. Debtor provided Dr. Schuller with an office on its premises at the 9 Crystal Cathedral campus and with support staff paid by Debtor. Trial Transcript, 10 November 7, 2012, at 94:6-18 (Testimony of Dr. Robert H. Schuller); Trial Exhibit P38. 11 Although Claimants have tried to minimize Dr. Schullers work efforts on Debtors 12 premises by suggesting that he wrote many of his messages at home and not on 13 Debtors premises, Dr. Schuller himself said in his trial testimony that he typically wrote 14 his messages (or sermons) at the beach condominium at Laguna Beach, California, 15 which he and his wife donated to Debtor and thus became Debtors premises. Trial 16 Transcript, November 7, 2012, at 101:25 106:4 (Testimony of Dr. Robert H. Schuller); 17 see also, Trial Declaration of Charles Todd at 4:18-21. Thus, Dr. Schuller as senior 18 pastor of Debtor wrote and delivered his messages (i.e., sermons) on Debtors premises 19 either on the Crystal Cathedral campus or at the beach condo. Trial Transcript, 20 November 7, 2012 at 94:6-18; 101:25 - 106:4 (Testimony of Dr. Robert H. Schuller). 21
The duration of the relationship between the parties, Dr. Schuller and Debtor, is
22 long. Dr. Schuller was the senior pastor of Debtor since it was incorporated in 1970 to 23 2006 when he stepped down as senior pastor. Trial Transcript, November 7, 2012, at 24 101:25 106:4 (Testimony of Dr. Robert H. Schuller). After 2006, the relationship 25 26 27 28 15
2
During its years on the air after the Crystal Cathedral was built in 1980, Debtors Hour of Power program was filmed and recorded 52 weeks a year at the Crystal Cathedral (except for a program filed and recorded in the Holy Land, which may have occurred once or twice).
Case 2:12-bk-15665-RK
Desc
1 between the parties continued as reflected in the Transition Agreement which designated 2 Dr. Schuller as founding pastor and recognized his continuation as chairman of Debtors 3 board of directors. Trial Exhibit P38; Trial Declaration of Dr. Robert H. Schuller at 9:7-11. 4 Dr. Schuller was involved with the Debtor and its predecessor for over 50 years. Trial 5 Declaration of Dr. Robert H. Schuller at 1:3-28, 5:24-25. Dr. Schuller testified that the 6 Hour of Power began in 1972, and from its inception, Dr. Schuller acted as the executive 7 creator and director of the content of the television program, and regularly delivered the 8 messages (or sermons), as senior pastor until 2006. Trial Declaration of Dr. Robert H. 9 Schuller at 7:11-18, 8:2-3. Trial Transcript, November 7, 2012, at 101:5-9 (Testimony of 10 Dr. Robert H. Schuller). At least since Debtor was incorporated in 1970, Dr. Schuller did 11 not work for anyone else. Trial Transcript, November 7, 2012, at 116:9-13 (Testimony of 12 Dr. Robert H. Schuller). This demonstrates a long-lasting relationship between Dr. 13 Schuller and Debtor. 14
Additionally, the court finds that the Debtor had substantial oversight over Dr.
15 Schuller, in that it was able to assign additional projects to him, and had broad discretion 16 over when and how long Dr. Schuller worked. Dr. Schuller testified that he was expected 17 to deliver a message on each weekly episode of the Hour of Power. Trial Transcript, 18 November 7, 2012, at 120:19-121:21 (Testimony of Dr. Robert H. Schuller); Trial 19 Transcript, November 7, 2012, at 14:16-15:24 (Testimony of Arvella Schuller);. This 20 indicates that the Debtor had discretion over when and how long Dr. Schuller was to work 21 because he was expected to deliver a message on a weekly basis. Debtor, not Dr. 22 Schuller, employed and paid all other employees who participated in the Hour of Power, 23 that is, Debtor paid all expenses relating to the Hour of Power program, including for 24 salaries for production and other staff, musicians, guest speakers, supplies, travel, and 25 music. Trial Transcript, November 2, 2012, at 76:23 - 77:18 (Testimony of Arvella 26 Schuller). Furthermore, Dr. Schuller had many other responsibilities to Debtor 27 independent from the Hour of Power program, including acting as the leader of the 28 church and its congregation, fundraising for the ministries and raising endowment funds 16
Case 2:12-bk-15665-RK
Desc
1 for the maintenance of the church campus. Trial Transcript, Nov. 7, 2012 at 89:7-90:6 2 (Testimony of Dr. Robert H. Schuller); Trial Declaration of Dr. Robert H. Schuller at 6:53 13, 11:11-18. 4
The court finds that the Debtor was in business. Specifically, as reflected in its
5 articles of incorporation, Debtor was in the business of televising a regular Christian 6 religious service for viewing by the general public in order to promulgate the teachings of 7 Jesus Christ. Articles of Incorporation, Robert H. Schuller Tele Vangelism Association, 8 Incorporated (later renamed Crystal Cathedral Ministries), Trial Exhibit P56. The Articles 9 indicate that the Debtor, and not the Schullers, had the authority to control and produce 10 the Hour of Power. Id. Indeed, all of Dr. Schullers work in connection with the Hour of 11 Power was subject to the oversight and approval of Debtors Board of Directors. Trial 12 Transcript, November 7, 2012, at 121:3-21, 126-10 128:23 (Testimony of Dr. Robert H. 13 Schuller); Trial Exhibits P38 and P56. 14
The method of Dr. Schullers compensation by Debtor indicates an employment
15 relationship as well. During the time Dr. Schuller was senior pastor of Crystal Cathedral 16 from at least 1970, when Debtor was incorporated, until 2006, he received a salary and 17 housing allowance as compensation for his services to the entire ministryincluding the 18 Hour of Power. Trial Transcript, November 7, 2012, at 107:15-108:10, 144:23 145:10 19 (Testimony of Dr. Robert H. Schuller). Debtor provided Dr. Schuller with employment 20 benefits, such as a housing allowance and payment of health insurance premiums. 21 Trial Transcript, November 7, 2012, at 107:15-108:10, 144:23 145:10 (Testimony of Dr. 22 Robert H. Schuller). Trial Transcript, November 2, 2012, at 78:914 (Testimony of 23 Arvella Schuller). Debtor issued to Dr. Schuller IRS W-2 Forms, Wage and Tax 24 Statements, which an employer gives to an employee and which indicates an 25 employment relationship rather than an independent contractor relationship since 26 employers issue Forms W-2 to employees rather Forms 1099-MISC, Miscellaneous 27 Income Statements, for independent contractors. See, e.g., Trial Exhibits C366-373, 28 375-376, 379-380, 395-401. 17
Case 2:12-bk-15665-RK
Desc
Accordingly, based on the factors enunciated in Reid, the court finds that Dr.
2 Schuller was an employee of Debtor. The court also finds that Dr. Schuller worked on 3 the Hour of Power as part of the regular scope of his employment, and thus, his works 4 created on the Hour of Power are works for hire which are owned by the employer, 5 Debtor. 6 7 8 9
Accordingly, this claim is disallowed in its entirety. C. Claim No. 246-1 of Robert Harold, Inc., in the amount of $223,078.09 for Contractual payments due Claimant Robert Harold, Inc. (RHI) filed a proof of claim, Claim No. 246-1, on
10 February 28, 2011, asserting a claim in the amount of $223,078.09. This claim was 11 submitted on a three-page proof of claim: the first page of the proof of claim stated that 12 the amount of the claim as of the case filing date was $223.078.09 and that the basis for 13 the claim was Contractual payments due and the second and third pages of the proof of 14 claim were an unsigned copy of a letter entitled Designation as Founding Pastor of 15 Crystal Cathedral Ministries (CCM) and Transition Agreement (Transition Agreement) 16 dated December __, 2005 (date left blank in the copy). The proof of claim made no 17 allegations of fact to state a factual basis of the claim. This proof of claim supersedes the 18 scheduled debt on Schedule F to the bankruptcy petition filed on December 1, 2010 for 19 RHI by Debtor for Trade/Services in the amount of $178,462.32. 11 U.S.C. 501(a) 20 and 1111(a). 21
The claim is disallowed because RHI was not a contractual party to the so-called
22 Transition Agreement upon which the claim is based. The claim relates to prepetition 23 services rendered by Dr. Schuller before the petition date. Trial Transcript, November 7, 24 2012, at 131-18 132:12 (Testimony of Dr. Robert H. Schuller); Trial Declaration of 25 Robert H. Schuller at 10:25 11:10. 26
Because Plan Agent and Reorganized Debtor stated at trial that they have no
27 objection to this claim if Dr. Robert H. Schuller amends his prepetition claim for contract 28 rejection damages, this claim should be allowed as a general unsecured claim in the 18
Case 2:12-bk-15665-RK
Desc
1 amount of $223,078.09 and will be allowed as part of Claim No. 332-1 pursuant to 11 2 U.S.C. 502(b)(7). Payment of this amount as Claim No. 246-1 and Claim No. 332-1 3 would result in duplicate payment and can be allowed only once. The claim for breach of 4 contract based on the so-called Transition Agreement for prepetition services rendered 5 by Claimant Dr. Schuller in Claim No. 246-1 is disallowed, except to the extent that it is 6 allowed pursuant to Claim No. 332-1. 7 8 9
D. Claim No. 332-1 of Dr. Robert H. Schuller and Robert Harold, Inc. in the amount of $5,059,909.00 for Rejection of executory contract Claimants Dr. Robert H. Schuller (Dr. Schuller) and Robert Harold, Inc. (RHI),
10 filed a proof of claim, Claim No. 332-1, on November 23, 2011, asserting a claim in the 11 amount of $5,059,909.00 based on rejection of an executory contract. This claim was 12 submitted on a seven-page proof of claim: the first page of the proof of claim was an 13 unsigned copy of the proof of claim, which stated that the amount of the claim as of the 14 case filing date was $5,059,909.00 and that the basis for the claim was Rejection of 15 executory contract (See Attached), the second page of the proof of claim was a signed 16 copy of the proof of claim, the third page was an attachment computing amounts of 17 housing allowance, insurance and RHI License Fees for 15 years in the amounts of 18 $1,784,998, $300,987 and $2,973,924 respectively, the fourth and fifth pages were a 19 copy of a letter entitled Designation as Founding Pastor of Crystal Cathedral Ministries 20 (CCM) and Transition Agreement (Transition Agreement) dated December 28, 2005, 21 and the sixth and seventh pages were the proof of service of the proof of claim. The 22 proof of claim made no allegations of fact to state a factual basis of the claim. 23
Claim No. 332-1 is a claim arising from the rejection of an executory contract
24 which is determined, and allowed or disallowed the same as if such claim had arisen 25 before the date of the filing of the [bankruptcy] petition. 11 U.S.C. 365(g)(1) and 26 502(g)(1); see also, 3 March, Ahart and Shapiro, California Practice Guide: Bankruptcy, 27 16:997 at 16-56 (2011) (Where an executory contact or unexpired lease was not 28 assumed before the rejection, the breach is treated as if it occurred immediately before 19
Case 2:12-bk-15665-RK
Desc
1 filing of the bankruptcy petition. As a result, any claim for damages resulting from the 2 breach will be treated as an unsecured prepetition claim (rather than a claim entitled to 3 administrative priority).) (emphasis in original). 4
5 as to the validity and amount of the claim under Rule 3001(f) of the Federal Rules of 6 Bankruptcy Procedure because the proof of claim fails to allege facts sufficient to support 7 any legal liability of Debtor to the claim, including the basis for computation of the amount 8 of the claim. Accordingly, the court concludes that Claimants Dr. Schuller and RHI have 9 the burden to prove the validity of the claim by a preponderance of the evidence. 10
Moreover, as discussed previously, the court finds that both Dr. Schuller and RHI
11 are insiders of the Debtor pursuant to 11 U.S.C. 101(31). An insiders dealing with a 12 bankrupt corporation must be subject to rigorous scrutiny. Pepper v. Litton, 308 U.S. 13 295, 306 (1939); see also, 2 Resnick and Sommer, Collier on Bankruptcy, 101.31 at 14 101-140 (An insider generally is an entity whose close relationship with the debtor 15 subject any transaction made between the debtor and such entity to heavy scrutiny.). 16
Plan Agent and Reorganized Debtor contend that the Transition Agreement is an
17 employment contract between the Debtor and Dr. Schuller, and thus, Claim No. 332-1 18 may not exceed the statutory cap set in Section 502(b)(7) of the Bankruptcy Code, 11 19 U.S.C., for damages under a terminated employment contract. 20
Section 502(b)(7) expressly limits an employees damage claim under a
21 terminated employment contract to: (1) one year of future compensation, plus (2) any 22 unpaid compensation owing under the contract as of the petition date on a non23 acceleration basis. 11 U.S.C. 502(b)(7); In re Condor Systems, Inc., 296 B.R. 5, 12 24 (9th Cir. BAP 2003). The term compensation includes wages, salary, commission or 25 severance. Id. Section 502(b)(7) was enacted to limit the claims of key executives 26 employees, who for one reason or another, were able to exact long-term contracts calling 27 for substantial remuneration, Matter of Gee & Missler Services, Inc., 62 B.R. 841, 844 28 (Bankr. E.D. Mich. 1986), or employees who had been able to exact favorable terms of 20
Case 2:12-bk-15665-RK
Desc
1 tenure and salaries while the business prospered. Folsom v. Prospect Hill Resources, 2 Inc. (In re Prospect Hill Resources, Inc.), 837 F.2d 453, 455 (11th Cir. 1988). The statute 3 attempts to strike a fair balance between claimant-creditors who have secured long-term 4 contracts, resulting in large unsecured claims, and the claims of numerous other 5 unsecured creditors seeking pro rata payment from the all-too-often meager assets left 6 for unsecured creditor distribution. In re Wilson Foods Corp., 182 B.R. 278, 281 (Bankr. 7 D. Kan. 1995). 8
The Bankruptcy Appellate Panel of the Ninth Circuit in In re Irvine-Pacific
9 Commercial Insurance Brokers, Inc., explained that section 502(b)(7) has two 10 requirements: First, the claim must be that of an employee. Second, the claim must be 11 for damages resulting from the termination of an employment contract. Neither of these 12 terms are defined in the statute or the legislative history of 502(b)(7). 228 B.R. 245, 13 247 (9 th Cir. BAP 1998). Accordingly, the Bankruptcy Appellate Panel applied the canon 14 of statutory interpretation that the words of the statute should be given their ordinary, 15 contemporary, common meaning. Id., citing, Perrin v. United States, 444 U.S. 37, 42 16 (1979) and St. Angelo v. Victoria Farms, Inc., 38 F.3d 1525, 1534 (9th Cir. 1994). The 17 common meaning for the term employee is a person who works for another in return for 18 financial or other compensation. In re Irvine-Pacific Commercial Insurance Brokers, 19 Inc., 228 B.R. at, 247, citing, Websters II New Riverside University Dictionary, at 429 20 (1988). The term employment contract is defined as an agreement or contract 21 between employer and employee in which the terms and conditions of ones employment 22 are provided. In re Irvine-Pacific Commercial Insurance Brokers, Inc., 228 B.R. at, 23 247, citing, Blacks Law Dictionary, at 472 (5th ed. 1972). 24
Claimants argue that Section 502(b)(7) does not apply to the Transition
25 Agreement between Dr. Schuller and Debtor on grounds that it is not an employment 26 agreement. Claimants Amended Trial Brief, filed on October 23, 2012, at 10-11. 27 Claimants do not argue so much that Dr. Schuller was not an employee as they 28 acknowledge that Dr. Schuller was already working for the Debtor. Id. at 10. In any 21
Case 2:12-bk-15665-RK
Desc
1 event, as discussed above, the court finds that the preponderance of the evidence at trial 2 shows that Dr. Schuller was an employee of Debtor rather than an independent 3 contractor based on the factors enumerated by the Supreme Court in Community for 4 Creative Non-Violence v. Reid, 490 U.S. at 751. 5
As to whether or not the Transition Agreement was an employment agreement,
6 Claimants argue: 7 8 9 10 11 12 13 14 15 16 17 18
Here, the Transition Agreement did not create the employment relationship. If anything, it trimmed down an existing relationship. The contract was with a man close to 80, and called for payments for the life of the last to decease of Dr. Schuller and his wife. It therefore contemplated payments possibly extending after Dr. Schullers death, and therefore his inability to perform any services. It is more akin to a retirement agreement (with a licensing component), with benefits fully vested on execution. As such, it is not an employment agreement. And importantly, it provides for a substantial portion of the payments to go to a corporation, which certainly cannot be an employee. Those payments are for the right to use the intellectual property held by RHI, which is clearly not an employment relationship.
19 Claimants Amended Trial Brief, filed on October 23, 2012, at 11. 20

Nevertheless, the preponderance of the evidence shows that the Transition
21 Agreement was an employment contract between Dr. Schuller and Debtor. The 22 Transition Agreement meets the definition of the term employment contract defined in 23 Blacks Law Dictionary and adopted by the Bankruptcy Appellate Panel in Irvine-Pacific, 24 228 B.R. at 247, that is, an agreement or contract between employer and employee in 25 which the terms and conditions of ones employment are provided. Id. The Transition 26 Agreement was an agreement or contract between Debtor, Dr. Schullers employer, and 27 Dr. Schuller, Debtors employee, to provide for terms and conditions of Dr. Schullers 28 employment once he stepped down as senior pastor of Debtor in favor of his son, Dr. 22
Case 2:12-bk-15665-RK
Desc
1 Robert A. Schuller. Trial Exhibit P38. The terms and conditions of Dr. Schullers 2 continued employment with Debtor included: (1) the designation of Dr. Schuller as 3 Founding Pastor as his new primary title; (2) continued services of Dr. Schuller as 4 chairman of Debtors board of directors; (3) continued services of Dr. Schuller and Arvella 5 Schuller on Debtors board of directors and the executive committee of the board; 6 (4) continued services of Dr. Schuller as a fundraiser for Debtor; (5) services of Dr. 7 Schuller, the founder of Debtor, as a roving Ambassador for the Hour of Power; 8 (6) continued underwriting by Debtor of staff and travel for Dr. and Arvella Schuller at the 9 current level of financial, logistics and staff support; (7) continued provision by Debtor to 10 Dr. Schuller of use of the current 12 th floor office suite, so long as he desires; 11 (8) continued provision by Debtor of compensation, health insurance, staff, including 12 travel staff, at current levels of support so long as Dr. Robert H. Schuller or Mrs. Robert 13 H. Schuller shall live; (9) royalty free use by Debtor, the Hour of Power Ministry and the 14 Crystal Cathedral Church of the material authored by or featuring Dr. Schuller as per 15 current practice; and (10) provision by Debtor to Dr. Schuller of a discretionary fund in the 16 amount of $300,000 per year to spend on mission and ministry initiatives as he shall 17 determine. Trial Exhibit P38. These terms and conditions of the Transition Agreement 18 spell out the employment relationship between Dr Schuller and Debtor once he stepped 19 down from the post of senior pastor and transitioned into a new post called Founding 20 Pastor, which specified the nature of his services as an employee and the employment 21 compensation and benefits as well as staff and other support, including furnishing an 22 office. 23
Contrary to Claimants arguments, the Transition Agreement was an employment
24 agreement and not a retirement agreement because Dr. Schuller was not retiring and the 25 agreement contemplated that he was continuing to render services to Debtor with 26 appropriate compensation, benefits, staff support and office. Trial Exhibit P 38; Trial 27 Transcript, November 7, 2012, at 86:16-95:11; Trial Transcript, November 2, 2012, at 28 44:13-45:24 (Testimony of Arvella Schuller); Trial Transcript, November 7, 2012, at 7:1923
Case 2:12-bk-15665-RK
Desc
1 11:4 (Testimony of Arvella Schuller). Moreover, it was not strictly a licensing agreement 2 because the Transition Agreement was mainly concerned with retaining Dr. Schullers 3 services as an employee. Id. The licensing component, as it were, merely confirmed 4 that Debtor was able to use Dr. Schullers materials as before without the obligation to 5 pay royalties as long as the use benefitted Debtors ministry. Trial Transcript, November 6 7, 2012, at 95:14-101:18 (Testimony of Dr. Robert H. Schuller). 7
The court disagrees with, and rejects, Claimants argument that the payments
8 under the Transition Agreement were for the right to use the intellectual property held by 9 RHI because such interpretation is not supported by the express language of the 10 agreement. First, RHI is not mentioned at all in the agreement. Second, RHI is not a 11 party to the agreement. Third, the agreement confirms continued royalty free use of Dr. 12 Schullers intellectual property by Debtor rather than stating that Debtor is paying for the 13 use of such property held by an entity not even mentioned in the agreement. Trial 14 Transcript, November 7, 2012, at 95:14-101:18 (Testimony of Dr. Robert H. Schuller)(for 15 example, Dr. Schuller testified at trial that under the Transition Agreement, no payment 16 was required to RHI for use of his materials). Thus, the court further concludes that RHI 17 cannot maintain a claim for contract rejection damages under the so-called Transition 18 Agreement because it was not a party to the Transition Agreement. 19
The court concludes that because the Transition Agreement was an employment
20 contract between Debtor and Dr. Schuller, the claim for its rejection is subject to the 21 statutory cap based on 11 U.S.C. 502(b)(7), limiting any recovery by Dr. Schuller from 22 Debtors rejection of the Transition Agreement to one years compensation, plus the 23 amounts owing without acceleration. 11 U.S.C. 502(b)(7). Based on the figures 24 provided by Dr. Schuller in the proof of claim, the court allows the claim as a general 25 unsecured claim in the amount of $615,624.68, representing the total of one year of 26 housing allowance in the amount of $118,992.92, one year of insurance (i.e., health 27 insurance premiums) in the amount of $20,065.80, and one year of compensation for 28 services (alleged to be RHI License Fees) in the amount of $198,261.60, plus the 24
Case 2:12-bk-15665-RK
Desc
1 amounts owing under such agreement of $55,226.27 for the unpaid housing allowance 2 referenced in Claim No. 244-1 and $223,078.09 for the compensation for services of Dr. 3 Schuller referenced in Claim No. 246-1. 11 U.S.C. 502(b)(7). 4 5 6 7
E. Claim No. 338-1 of Dr. Robert H. Schuller and Robert Harold, Inc. in an Unknown amount for a Request for Payment of Administrative Expense, based on copyright infringement Claimants Dr. Robert H. Schuller and Robert Harold, Inc., in Claim No. 338-1, filed
8 on November 23, 2011, assert a request for payment of administrative expenses based 9 on copyright infringement, alleging that Debtor made uses of Creditors intellectual 10 property beyond the scope of any license, including, for example, offering it over the 11 Internet. In Claim No. 338-1, Claimants Dr. Schuller and RHI cited the declaration of Dr. 12 Schuller filed on or about October 18, 2011 for details of the claim. In Claimant Dr. 13 Schullers declaration filed on October 18, 2011, he stated: . . . I have granted to the 14 Ministry a royalty free license to make certain uses of my intellectual property. However, 15 the Ministry has made uses of my books and other writings of mine for which I or my 16 corporation, Robert Harold, Inc., holds the copyright, that are outside the scope of that 17 license. For example, some of my intellectual property has been made available by the 18 Ministry for free over the Internet. In addition, portions of my works have been 19 incorporated and used by the Ministry in other works, without my approval or consent. 20 Such uses constitute infringement of my copyrights and those of Robert Harold, Inc. I do 21 not know the extent of those uses without an accurate accounting from the Ministry, so I 22 am unable to calculate my damages at this time. Through my daughter and my attorney, 23 I have asked the Ministry for that information, but I have not yet received it. Claimants 24 assert that [t]he total amount of Creditors claim is unknown at this time, subject to an 25 accounting and other information from the Debtor. 26 27 28 25
This claim is disallowed for the reasons stated for Claim No. 245-1.
Case 2:12-bk-15665-RK
Desc
1 2 3 4
F. Claim Evidenced By Docket No. 819 of Dr. Robert H. Schuller and Robert Harold, Inc., for an Unknown amount for a Request for Payment of Administrative Expense, based on copyright infringement This claim is a duplicate of Claim No. 338-1, both filed on November 23, 2011, and
5 is disallowed for the reasons stated for Claims Nos. 245-1 and 338-1. 6 II. CLAIMS OF ARVELLA SCHULLER 7
A. Claim No. 242-1 of Arvella Schuller for an Unknown amount of claim for
8 Copyright infringement 9
Claimant Arvella Schuller (A. Schuller) filed a proof of claim, Claim No. 242-1, on
10 February 28, 2011, asserting a claim in an unknown amount based on copyright 11 infringement. This claim was submitted on a one-page proof of claim, stating that the 12 amount of the claim as of the case filing date was $ Unknown subject to accounting 13 and that the basis for the claim was Copyright Infringement. The proof of claim made 14 no allegations of fact to state a factual basis of the claim. 15
Rule 3001(f) of the Federal Rules of Bankruptcy Procedure provides that [a] proof
16 of claim executed and filed in accordance with these rules shall constitute prima facie 17 evidence of the validity and amount of the claim. Fed. R. Bankr. P. 3001(f). Rule 18 3001(c) of the Federal Rules of Bankruptcy Procedure provides that [w]hen a 19 claim . . . is based on a writing, the original or duplicate shall be filed with the proof of 20 claim. Fed. R. Bankr. P. 3001(c). Pursuant to 11 U.S.C. 502, the court must 21 determine the allowance or disallowance of a claim after an objection is made. 22 Specifically, 11 U.S.C. 502(a) and (b) provide in relevant part: (a) A claim or interest, 23 proof of which is filed under section 501 of this title, is deemed allowed unless a party in 24 interest . . . objects. (b) . . . if such objection to a claim is made, the court, after notice 25 and a hearing, shall determine the amount of such claim in lawful currency of the United 26 States as of the date of the filing of the petition. . . . 11 U.S.C. 502(a) and (b). 27
Although Fed. R. Bankr. P. 3001(f) provides that [a] proof of claim executed and
28 filed in accordance with these rules shall constitute prima facie evidence of the validity 26
Case 2:12-bk-15665-RK
Desc
1 and amount of the claim, this presumption of the validity of a claim does not arise if the 2 proof of claim itself does not set forth the necessary facts to establish the claim. Wright 3 v. Holm (In re Holm), 931 F.2d 620, 623 (9th Cir. 1991). In Holm, the United States Court 4 of Appeals for the Ninth Circuit stated the parties respective burdens of proof as follows: 5 6 7 8 9 10 11 12 13 14 15
Inasmuch Rule 3001(f) and section 502(a) provide that a claim or interest as to which proof is filed is deemed allowed, the burden of initially going forward with the evidence as to the validity and amount of the claim is that of the objector to the claim. In short, the allegations of the proof of claim are taken as true. If those allegations set forth all the
necessary facts to establish the claim and are not self-contradictory, they prima facie establish the claim. Should objection be taken, the objector is then called upon to produce evidence and show facts tending to defeat the claim by probative force equal to the allegations of the proofs of claim themselves. claimant. But the ultimate burden of persuasion is always on the
16 In re Holm, 931 F.2d at 623. 17

The Bankruptcy Appellate Panel of the Ninth Circuit stated the applicable burdens
18 of proof as follows: 19 20 21 22 23 24 25 26 27 28
The burden of proof for claims brought in the bankruptcy court under 11 U.S.C. 502(a) rests on different parties at different times. Initially, the claimant must allege facts sufficient to support the claim. If the averments in his filed claim meet this standard of sufficiency, it is prima facie valid. In other words, a claim that alleges facts sufficient to support a legal liability to the claimant satisfies the claimants initial obligation to go forward. The burden of going forward then shifts to the objector to produce evidence sufficient to negate the prima facie validity of the filed claim. . . . If the objector produces sufficient evidence to negate one or more of the sworn facts in the proof of claim, the burden reverts to
27
Case 2:12-bk-15665-RK
Desc
1 2
the claimant to prove the validity of the claim by a preponderance of the evidence. The burden of persuasion is always on the claimant.
3 Ashford v. Consolidated Pioneer Mortgage (In re Consolidated Pioneer Mortgage), 178 4 B.R. 222, 226 (9 th Cir. BAP 1995), citing inter alia, In re Allegheny International, Inc., 954 5 F.2d 167, 173-174 (3rd Cir. 1992) and In re Holm, 931 F.2d at 623. 6
7 as to the validity and amount of the claim under Rule 3001(f) of the Federal Rules of 8 Bankruptcy Procedure because no amount of the claim is stated in the proof of claim and 9 the proof of claim fails to allege facts sufficient to support any legal liability of Debtor to 10 the claim. Accordingly, the court concludes that Claimant A. Schuller has the burden to 11 prove the validity of the claim by a preponderance of the evidence. 12
Moreover, the court finds that Claimant A Schuller was an insider of the debtor
13 within the meaning of 11 U.S.C. 101(31)(B)(i) and (vi) because she was a director of 14 Debtor, and as the spouse of Dr. Robert H. Schuller, she was a relative of a director and 15 person in charge of Debtor as the chairman of the board of directors of Debtor, the senior 16 pastor of Debtor, and the founding pastor of Debtor, at the times relevant to this 17 contested matter of the objection to this claim. Trial Transcript, November 2, 2012, at 18 76:10-22 (Testimony of Arvella Schuller); Trial Transcript, November 7, 2012, at 5:2219 6:13, 7:11-18 (Testimony of Arvella Schuller); Trial Transcript, November 7, 2012, at 20 87:7-25 (Testimony of Dr. Robert H. Schuller); Trial Declaration of Robert H. Schuller at 21 11:11-12; Transition Agreement, Exhibit P38; Joint Pretrial Order (R.H. Schuller and 22 Robert Harold, Inc.), I.B.8; Joint Pretrial Order (Arvella Schuller.), I.B.8 and I.B.9. An 23 insiders dealing with a bankrupt corporation must be subject to rigorous scrutiny. 24 Pepper v. Litton, 308 U.S. 295, 306 (1939); see also, 2 Resnick and Sommer, Collier on 25 Bankruptcy, 101.31 at 101-140 (An insider generally is an entity whose close 26 relationship with the debtor subject any transaction made between the debtor and such 27 entity to heavy scrutiny.). 28 28
Case 2:12-bk-15665-RK
Desc
As discussed herein, Claimant A. Schuller have failed to meet her burden of
2 proving the validity and amount of his claim by a preponderance of the evidence. In re 3 Southern California Plastics, Inc., 165 F.3d 1243, 1248 (9th Cir. 1999). 4
Although not alleged in the proof of claim itself, Claim No. 242-1, Claimant A.
5 Schuller in her opposition to the objection of Plan Agent and Reorganized Debtor to this 6 claim contended that: As with Dr. Schuller, [Claimant A. Schuller] granted her permission 7 to the Debtor to make certain uses of the intellectual property (most notably, on the 8 weekly broadcasts of the Hour of Power television programs), but that permission had 9 its limits. The Debtor has gone beyond the scope of that permission by making 10 unapproved uses of the intellectual property, i.e., use on the Internet. In the opposition to 11 the objection, Claimant cited her declaration filed on or about October 18, 2011. In 12 Claimant A. Schullers declaration filed on October 18, 2011, she stated: . . . I have 13 granted to the Debtor a license to use my intellectual property in the normal weekly 14 broadcasts of the Hour of Power. However, the Debtor has made use of my intellectual 15 property beyond the scope of that license, for which I have not given my permission or 16 consent. For example, the Debtor has made the Hour of Power television programs 17 available on the Internet, both as streaming video and for sale on DVD. Those programs 18 incorporate a large amount of my copyrighted intellectual property. I have never 19 authorized the use of my intellectual property on the Internet, and such use constitutes 20 infringement of my copyrights. . . . Without an accurate accounting from the Debtor of its 21 infringing use of my copyrights, I do not know the extent of those unauthorized uses of 22 my intellectual property, so I am unable to calculate my damages at this time. Through 23 my daughter and my attorney, I have asked the Ministry for that information, but I have 24 not yet received it. 25
Regarding the federal statutory scheme in the Copyright Act for protection of
26 copyrights, the United States Supreme Court has stated: 27 28

The Constitution grants Congress the power [t]o promote the Progress of Science and useful Arts, by secured for limited Times to
29
Case 2:12-bk-15665-RK
Desc
1 2 3 4 5 6 7 8 9 10 11
Authors . . . the exclusive Right to . . . their . . . Writings. Art. I, 8, cl. 8. Exercising this power, Congress has crafted a comprehensive statutory scheme governing the existence and scope of [c]opyright protection for original works of authorship fixed in any tangible medium of expression. 17 U.S.C. 102(a). This scheme gives copyright owners the exclusive rights (with specified statutory exceptions) to distribute, reproduce, or publicly perform their works. 106. Anyone who violates any of the exclusive rights of the copyright owner as provided in the Act is an infringer of the copyright. 501(a). When such infringement occurs, a copyright owner is entitled, subject to the requirements of section 411, to institute an action for copyright infringement. 501(b).
12 Reed Elsevier, Inc. v. Muchnick, 130 S. Ct. 1237, 1241 (2010) (emphasis omitted). 13 14 15 16 17 18 19 20 21 22 23 24 25 26
With respect to copyright ownership, the Supreme Court has stated: The Copyright Act of 1976 provides that copyright ownership vests initially in the author or authors of the work. 17 U.S.C. 201(A). As a general rule, the author is the party who actually creates the work, that is, the person who translates an idea into a fixed, tangible expression entitled to copyright protection. 102. The Act carves out an important
exception, however, for works made for hire. If the work is for hire, the employer or other person for whom the work was prepared is considered the author and owns the copyright, unless there is a written agreement to the contrary. 201(b). Classifying a work as made for hire determines not only the initial ownership of its copyright, but also the copyrights duration, 302(c), and the owners renewal rights, 304(a), termination rights, 203(a), and right to import certain goods bearing the copyright, 601(b)(1).
27 Community for Creative Non-Violence v. Reid, 490 U.S. 730, 737 (1989), citing, 1 M. 28 Nimmer & D. Nimmer, Nimmer on Copyright, 503[A] at 5-10 (1988); see also, S.O.S., 30
Case 2:12-bk-15665-RK
Desc
1 Inc. v. Payday, Inc., 886 F.2d 1081, 1085 and n. 4 (9th Cir. 1989). As further explained by 2 the United States Court of Appeals for the Ninth Circuit, Copyright protection subsists 3 from the moment the work is fixed in any tangible medium of expression. 17 U.S.C. 4 102(a). S.O.S., Inc. v. Payday, Inc., 886 F.2d at 1085. Registration is not a 5 prerequisite to a valid copyright, although it is a prerequisite to suit. 17 U.S.C. 408(a), 6 411. Id. at 1085 and n. 4; see also, Reed Elsevier, Inc. v. Muchnick, 130 S. Ct. at 7 1241 (Section 411(a) provides, inter alia and with certain exceptions, that no civil action 8 for infringement of the copyright in any United States work shall be instituted until 9 preregistration or registration of the copyright claim has been made in accordance with 10 this title.). 11
To prevail on her claim of copyright infringement, Claimant A. Schuller must prove:
12 (1) ownership of the allegedly infringed material; and (2) the alleged infringer engaged in 13 copying, of the allegedly infringed material, or in other words, violated at least one 14 exclusive right granted to a copyright holder under 17 U.S.C. 106. S.O.S., Inc. v. 15 Payday, Inc., 886 F.2d at 1085 and n. 3; A&M Records, Inc. v. Napster, Inc., 239 F.3d 16 1004, 1014 (9th Cir. 2001). The word copying is shorthand for the infringing of any of 17 the copyright owners five exclusive rights, described at 17 U.S.C. 106, which includes 18 the right to distribute copies of the copyrighted work. S.O.S., Inc. v. Payday, Inc., 886 19 F.2d at 1085 n. 3. 20
Based on the contentions made by Claimant A. Schuller in opposition to the
21 objection of the Plan Agent and Reorganized Debtor to this claim, the court construes 22 Claim No. 242-1 filed by these claimant to assert that Debtor allegedly infringed on her 23 Hour of Power copyrights by distributing those works outside of the scope of a license 24 that she granted to Debtor and otherwise without her approval or consent in violation of 25 her exclusive right to distribute her works under 17 U.S.C. 106. To prevail on this 26 claim, Claimant A. Schuller must prove: (1) ownership of copyright in the allegedly 27 infringed materials; and (2) copying of protectable expression by the alleged infringer 28 beyond the scope of the license. S.O.S., Inc. v. Payday, Inc., 886 F.2d at 1085 and n. 3. 31
Case 2:12-bk-15665-RK
Desc
With respect to the Hour of Power intellectual property, Claimant A. Schuller has
2 not proven by a preponderance that she is the owner of the copyrights to such property 3 because the preponderance of the evidence shows that the property was works for hire; 4 that is, to the extent that Claimant A. Schuller created such property, she created such 5 property during the scope of her employment with Debtor. See Community for Creative 6 Non-Violence v. Reid, 490 U.S. 730, 743 n. 8 (1989). 7
Copyright ownership vests initially in the author of the work. 17 U.S.C. 201(a).
8 However, if a work is for hire, the employer or other person for whom the work was 9 prepared is considered the author and owns the copyright. 17 U.S.C. 201(b). Section 10 101 of the Copyright Act provides two circumstances in which a work is for hire: 11 (1) when the work is prepared by an employee within the scope of her employment; or 12 (2) when the work was specially ordered or commissioned for use as a contribution to a 13 collective work. 17 U.S.C. 101. 14
To determine whether a copyrighted work is a work for hire under the Copyright
15 Act, the court must first determine, using general principles of agency law, whether the 16 work was prepared by an employee or an independent contractor. Community for 17 Creative Non-Violence v. Reid, 490 U.S. at 750-751. If the court finds that the work was 18 prepared by an employee, the court must then determine that the work was made during 19 the scope of the employees employment. Id.; see also, 17 U.S.C. 101. 20
To determine employee status for purposes of the Copyright Act, the Supreme
21 Court explained that courts must consider the hiring partys right to control the manner 22 and means by which the product is accomplished. Community for Creative Non23 Violence v. Reid, 490 U.S. at 751. The Supreme Court then enumerated the following 24 non-exhaustive factors to determine the hiring partys right to control: (1) the skill 25 required; (2) the source of the instrumentalities and tools; (3) the location of the work; 26 (4) the duration of the relationship between the parties; (5) whether the hiring party has 27 the right to assign additional projects to the hired party; (6) the extent of the hired partys 28 32
Case 2:12-bk-15665-RK
Desc
1 discretion over when and how long to work; (7) whether the hiring party is in business; 2 (8) the provision of employee benefits; (9) and the tax treatment of the hired party. Id. 3
Based on these factors enumerated by the Supreme Court in Reid, the court finds
4 that Claimant A. Schuller was an employee of Debtor. Since the beginning of the Hour of 5 Power television program in 1970, A. Schuller was employed as the executive producer. 6 Trial Declaration of Arvella Schuller at 2. Although A. Schuller had substantial skill in 7 acting as executive producer of the Hour of Power and maintaining the communication of 8 a consistent message of the Debtor, the source of her instrumentalities and tools were 9 all provided by Debtor, and all work performed occurred on the premises of the Debtor. 10 Trial Transcript, November 2, 2012 at 71:12 72:11 (Testimony of Arvella Schuller); Trial 11 Declaration of Charles Todd at 3:23 4:1. Debtor provided A. Schuller with an office at 12 the Crystal Cathedral campus as well. Trial Transcript, November 2, 2012, at 79:2-16 13 (Testimony of Arvella Schuller). All filming and recording of the Hour of Power television 14 program featuring Dr. Schullers messages occurred on Debtors premises, the program 15 was filmed and recorded at the Crystal Cathedral from 1980 to 2007 when Claimant A. 16 Schuller stepped down as executive producer, and the means of production of the Hour 17 of Power program were provided by Debtor who paid for the production staff, including 18 her assistants, and performers on the program. 3 Trial Transcript, November 7, 2012, at 19 101:10-12 (Testimony of Dr. Robert H. Schuller); Trial Declaration of Dr. Robert H. 20 Schuller at 5:22-28, 7:11-13; Trial Transcript, November 2, 2012, at 73:19-21, 79:17-8021 13 (Testimony of Arvella Schuller). 22
The duration of the relationship between the parties, Claimant A. Schuller and
23 Debtor, was long. Claimant A. Schuller acted as producer of Debtors television program, 24 the Hour of Power, for 35 years. Trial Declaration of Arvella Schuller at 2; Trial 25 26 27 28 33
3
During its years on the air after the Crystal Cathedral was built in 1980, Debtors Hour of Power program was filmed and recorded 52 weeks a year at the Crystal Cathedral (except for a program filed and recorded in the Holy Land, which may have occurred once or twice.
Case 2:12-bk-15665-RK
Desc
1 Transcript, November 2, 2012 at 70:11 71:11 (Testimony of Arvella Schuller). This 2 demonstrates an ongoing and long-lasting relationship between A. Schuller and Debtor. 3
The court also finds that the Debtor exercised substantial oversight over A.
4 Schullers, in that the Debtor was able to assign additional projects to her, and had broad 5 discretion over when and how long A. Schuller worked. The Hour of Power was 6 scheduled on a weekly basis, and the work required of A. Schuller was set by the 7 television production and distribution schedules. Trial Transcript, November 2, 2012, at 8 66:23-74:16 (Testimony of Arvella Schuller). Additionally, Debtor, not A. Schuller, 9 employed and paid all other employees who produced the Hour of Power television 10 program, that is, Debtor paid all expenses relating to the Hour of Power program, 11 including for salaries for production and other staff, musicians, guest speakers, supplies, 12 travel, and music. Trial Transcript, November 2, 2012, at 72:12 74:19, 73:19-21, 75:913 12, 76:23 77:18, 79:17-80-13 (Testimony of Arvella Schuller); Trial Declaration of 14 Charles Todd at 3:23 4:1. 15
Claimant A. Schuller received compensation from the Debtor for her services as
16 executive producer of the Hour of Power, including $50,000.00 per year as reflected in 17 Debtors financial statements, and numerous employee benefits paid by Debtor, including 18 health insurance and cancer insurance. Trial Transcript, November 2, 2012, at 137:919 138:10 (Testimony of Arvella Schuller); Trial Transcript, November 7, 2012, at 18:1220 29:10, 46:4-47:11 (Testimony of Arvella Schuller) (referring to Trial Exhibits P-188 21 P191, Audited Financial Statements for Debtor, 1986-1989). 22
The court finds that the Debtor was in business. Specifically, as reflected in its
23 articles of incorporation, Debtor was in the business of televising a regular Christian 24 religious service for viewing by the general public in order to promulgate the teachings of 25 Jesus Christ. Articles of Incorporation, Robert H. Schuller Tele Vangelism Association, 26 Incorporated (later renamed Crystal Cathedral Ministries), Trial Exhibit P56. The Articles 27 indicate that the Debtor, and not the Schullers, had the authority to control and produce 28 the Hour of Power. Id. Indeed, all of Claimant A. Schullers work in connection with the 34
Case 2:12-bk-15665-RK
Desc
1 Hour of Power was subject to the oversight and approval of Debtors Board of Directors. 2 Trial Transcript, November 7, 2012, at 121:3-21, 126-10 128:23 (Testimony of Dr. 3 Robert H. Schuller); Trial Transcript, November 7, 2012, at 18:12-29:10, 46:4-47:11 4 (Testimony of Arvella Schuller)(referring to Trial Exhibits P-188 P191, Audited Financial 5 Statements for Debtor, 1986-1989; Trial Exhibits P38 and P56. 6
Accordingly, based on the factors enunciated in Reid, the court finds that A.
7 Schuller was an employee of Debtor. The court also finds that A. Schuller worked on the 8 Hour of Power as part of the regular scope of her employment. Indeed, as the producer, 9 it was necessarily part of her duties to create a script, meet with musicians, plan the 10 music, etc. See Trial Transcript, November 2, 2012 (Testimony of Arvella Schuller) at 11 66:23-70:13. 12
Claimants heavily rely upon the testimony of Charles Todd, who was Debtors
13 former general counsel (1984-1995) in support of their claim that Dr. Schuller and Arvella 14 Schuller owned the intellectual property rights to the Hour of Power television programs 15 because there was some agreement between them and Debtor that it would register the 16 copyrights to the Hour of Power, but that Dr. Schuller and Arvella Schuller would own the 17 copyrights, in order to avoid bad publicity if the Schullers claimed open ownership of the 18 copyrights. Trial Declaration of Charles Todd at 2:23-9:7; Trial Transcript, November 7, 19 2012, at 73:1574:24 (Testimony of Charles Todd), (referring to Trial Exhibit P688, 20 Copyright Registration, indicating that the copyright was for work for hire). The 21 preponderance of the evidence refutes this argument. First, Dr. Schuller admitted in his 22 trial testimony that he does not own the right to the Hour of Power and that Debtor owns 23 the rights. Trial Transcript, November 7, 2012, at 109:7-15 (Testimony of Dr. Robert H. 24 Schuller). Second, there is no written evidence of this alleged agreement that Mrs. 25 Schuller would own the copyright to the Hour of Power, and none was produced at trial, 26 and Mrs. Schullers testimony was that she was not even involved in the decision to 27 register the copyright in the name of Debtor rather her and her husband. Trial Transcript, 28 November 7, 2012, at 73:2074:1 (Testimony of Charles Todd); Trial Transcript, 35
Case 2:12-bk-15665-RK
Desc
1 November 2, 2012, at 128:9-129:21 (Testimony of Arvella Schuller). Third, while Mr. 2 Todd was general counsel, in 1991, under his supervision, Debtor started to file copyright 3 registration forms with the United States Copyright Office for each Hour of Power episode 4 in its name, listing it as the author and the program as work for hire, some of the forms 5 were prepared by Debtors staff, including Dr. Schullers assistant and Mr. Todds 6 secretary. Trial Declaration of Charles Todd at 7:6-16; Trial Transcript, November 7, 7 2012, at 99:9110:12 (Testimony of Charles Todd), (referring to Trial Exhibit P688, 8 Copyright Registration Forms filed by Debtor with United States Copyright Office, 9 indicating that the copyrights were for work made for hire). Fourth, the evidence 10 presented at trial discussed herein shows that the Hour of Power programs were 11 correctly designated as work made for hire and thus, the copyrights belong to Debtor as 12 the employer of Dr. Schuller and Mrs. Schuller. Fifth, copyright registration as to the 13 Hour of Power in the names of Dr. Schuller and Mrs. Schuller would have been 14 inconsistent with Debtors tax exempt status as a charitable, religious organization under 15 Section 501(c)(3) of the Internal Revenue Code, 26 U.S.C., which generally prohibits 16 inurement of revenue of a charitable organization for private individuals. Trial Transcript, 17 November 7, 2012, at 116:6119:12, 122:7-24 (Testimony of Charles Todd), (referring to 18 Trial Exhibit P194, Letter of Dr. Robert H. Schuller to Honorable J.J. Pickle, Chairman, 19 Subcommittee on Oversight, Committee on Ways and Means, U.S. House of 20 Representatives, dated October 1, 1987). Dr. Schuller in this letter to Chairman Pickle 21 wrote to address the House committees then investigation of television ministries: In an 22 effort to ensure the highest level of integrity, my wife, son and I receive no royalties or 23 any other extra compensation of any nature from any of our books, tapes or other 24 materials which are distributed by or through the ministries. Id. 25
For these reasons, the court finds that Claimant A. Schuller has not established by
26 a preponderance of the evidence that she owns any copyrights to the Hour of Power 27 intellectual property, and therefore, her copyright infringement claim must be disallowed. 28 36
Case 2:12-bk-15665-RK
Desc
Alternatively, assuming arguendo that Claimant A. Schuller had any copyright
2 ownership interest in the Hour of Power intellectual property, she has failed to establish 3 by a preponderance of the evidence that the Debtor infringed on those rights. Claimant 4 A. Schuller has not identify, let alone shown with any evidence, that the specific acts that 5 Debtor infringed upon or misused her alleged intellectual property rights to the Hour of 6 Power. 7
Claimant A. Schuller has not established an amount of damages for any alleged
8 infringement of his copyrights by a preponderance of the evidence. Under the Copyright 9 Act, 17 U.S.C., a plaintiff may recover actual damages as a result of the alleged 10 infringement, and may recover profits attributable to the infringement. 17 U.S.C. 11 504(a). The language of the statute indicates that a causal relationship must exist 12 between the infringement and the monetary remedy sought by plaintiff. Polar Bear 13 Productions, Inc. v. Timex Corp., 384 F.3d 700, 708 (9th Cir. 2004). Under [17 U.S.C.] 14 504(b), actual damages must be suffered as a result of the infringement, and 15 recoverable profits must be attributable to the infringement. Id. The plaintiff must 16 establish this causal connection, and . . . this requirement is akin to tort principles of 17 causation and damages. Id. Claimant A. Schuller offered little, if any, evidence in her 18 case-in-chief of his damages or the profits allegedly attributable to any infringement by 19 Debtor. Accordingly, Claimant A. Schuller failed to meet her burden of proving by a 20 preponderance of the evidence the amount of actual damages and the amount of 21 recoverable profits under the Copyright Act and the Bankruptcy Code and Rules, and her 22 copyright infringement claim should be disallowed for failure of proof on this ground. 23 17 U.S.C. 504(b); 11 U.S.C. 502(a); Fed. R. Bankr. P. 3001; Polar Bear Productions, 24 Inc. v. Timex Corp., 384 F.3d at 708; In re Holm, 931 F.2d at 623. 25
In addition, Claimant A. Schuller has not satisfied the precondition of registering
26 her copyrights with the United States Copyright Office in order to maintain a civil action 27 for infringement, which applies to the filing of a proof of claim in a bankruptcy case. 17 28 U.S.C. 411(a); In re Idearc, Inc., 2011 WL 203859 (Bankr. N.D. Tex. 2011); see also, 37
Case 2:12-bk-15665-RK
Desc
1 Cosmetic Ideas, Inc. v. IAC/Interactivecorp., 606 F.3d 612, 614-615 (9th Cir. 2010). The 2 filing of a proof of claim in a bankruptcy case is tantamount to filing a civil complaint. 3 Nortex Trading Corporation v. Newfield, 311 F.2d 163, 164 (2nd Cir. 1962); In re 4 Simmons, 765 F.2d 547 (5 th Cir. 1985); Matter of Continental Airlines, 928 F.2d 127, 129 5 (5th Cir. 1991); see also, In re Idearc, Inc., 2011 WL 203859 at *1, 11. There is no 6 evidence showing that Claimant A. Schuller registered copyrights in her name for the 7 Hour of Power or that she ever attempted to file an application with the Copyright Office 8 to register a copyright related to the Hour of Power. Trial Transcript, November 7, 2012, 9 at 63:3-12 (Testimony of Arvella Schuller). Accordingly, Claimant A. Schuller may not 10 assert a claim for copyright infringement for lack of federal copyright registration in her 11 name for the Hour of Power. Moreover, Claimant A. Schuller is not entitled to any 12 statutory damages under the Copyright Act for infringement of any Hour of Power 13 copyrights due to her failure to register any copyrights for such works. 14 15
For these reasons, this claim is disallowed in its entirety. B. Claim No. 334-1 of Arvella Schuller for an Unknown amount for Request
16 for Payment of Administrative Expense, based on copyright infringement 17

Claimant A. Schuller (A. Schuller) filed a request for payment of administrative
18 expenses, Claim No. 334-1, on November 23, 2011, based on copyright infringement, 19 alleging that Debtor made uses of Creditors intellectual property beyond the scope of 20 any license, including, for example, offering it over the Internet. In Claim No. 334-1, 21 Claimant A. Schuller cited her declaration filed on or about October 18, 2011 for details of 22 the claim. In Claimant A. Schullers declaration filed on October 18, 2011, she stated: 23 . . . I have granted to the Debtor a license to use my intellectual property in the normal 24 weekly broadcasts of the Hour of Power. However, the Debtor has made use of my 25 intellectual property beyond the scope of that license, for which I have not given my 26 permission or consent. For example, the Debtor has made the Hour of Power television 27 programs available on the Internet, both as streaming video and for sale on DVD. Those 28 programs incorporate a large amount of my copyrighted intellectual property. I have 38
Case 2:12-bk-15665-RK
Desc
1 never authorized the use of my intellectual property on the Internet, and such use 2 constitutes infringement of my copyrights. . . . Without an accurate accounting from the 3 Debtor of its infringing use of my copyrights, I do not know the extent of those 4 unauthorized uses of my intellectual property, so I am unable to calculate my damages at 5 this time. Through my daughter and my attorney, I have asked the Ministry for that 6 information, but I have not yet received it. Claimant asserts in the proof of claim that 7 [t]he total amount of Creditors claim is unknown at this time, subject to an accounting 8 and other information from the Debtor. 9
Based on the reasons set forth for Claim No. 242-1, this claim is disallowed in its
10 entirety. 11
C. Claim No. 335-1 of Arvella Schuller for an Unknown amount for Request
12 for Payment of Administrative Expense, based on copyright infringement 13

This claim is a duplicate of Claim No. 334-1, both filed on November 23, 2011, and
14 is disallowed for the reasons stated for Claims Nos. 242-1 and 334-1. 15
D. Claim of Arvella Schuller Evidenced by Docket No. 816 for an Unknown
16 amount for Request for Payment of Administrative Expense, based on copyright 17 infringement 18
This claim is a duplicate of Claims Nos. 334-1 and 335-1, all three claims filed on
19 November 23, 2011, and is disallowed for the reasons stated for Claims Nos. 242-1, 33420 1 and 335-1. 21 III. CLAIMS OF TIMOTHY MILNER 22
A. Claim No. 241-1 of Timothy Milner in the amount of $98,313.00 for
23 Consulting agreement damages 24

Claimant Timothy Milner (T. Milner) filed a proof of claim, Claim No. 241-1, on
25 February 28, 2011, asserting a claim in the amount of $98,313.00. This claim was 26 submitted on a two-page proof of claim: the first page of the proof of claim stated that the 27 amount of the claim as of the case filing date was $98.313.00 and that the basis for the 28 claim was Consulting Agreement and the second page of the proof of claim was a copy 39
Case 2:12-bk-15665-RK
Desc
1 of an Independent Contractor Agreement, dated January 11, 2006. The proof of claim 2 made no allegations of fact to state a factual basis of the claim. 3
4 as to the validity and amount of the claim under Rule 3001(f) of the Federal Rules of 5 Bankruptcy Procedure because no amount of the claim is stated in the proof of claim and 6 the proof of claim fails to allege facts sufficient to support any legal liability of Debtor to 7 the claim. Accordingly, the court concludes that Claimant T. Milner has the burden to 8 prove the validity of the claim by a preponderance of the evidence. 9
The court further finds that Claimant T. Milner was an insider of the debtor within
10 the meaning of 11 U.S.C. 101(31)(B)(vi) because he was a relative of directors of 11 Debtor as the son-in-law of Dr. Robert H. Schuller, who was the chairman of the board of 12 directors of Debtor, and of Arvella Schuller, also a director of Debtor, at the times relevant 13 to this contested matter of the objection to this claim. Trial Testimony and Trial 14 Declarations of T. Milner and R.H. Schuller; Joint Pretrial Order (T. Milner), I.B.7 15 I.B.11. It is undisputed that Claimant T. Milner was and is married to Carol Milner, 16 daughter of Dr. Schuller and A. Schuller. Id. Due to his status as the son-in-law of Dr. 17 Schuller and A. Schuller, Claimant T. Milner was an insider at the time the agreement for 18 his services was made, and when the alleged services on which his claim is based were 19 rendered. Id. 20
Debtor on its Schedule F to the bankruptcy petition listed an unsecured nonpriority
21 claim owed to T. Milner for his services in the amount of $57,000.00, which the Plan 22 Agent does not dispute. Subsequently, Claimant T. Milner filed Claim No. 241-1, which 23 asserts a claim of $98.313.00 for consulting agreement damages based on a so-called 24 Independent Contractor Agreement (Exhibit C552) dated January 2006, which provided 25 for compensation of $10,000.00 per month for the services of T. Milner as the personal 26 assistant of R.H. Schuller, his father-in-law, who was chairman of the board at the time of 27 the agreement. 28 40
Case 2:12-bk-15665-RK
Desc
A claim for prepetition services of an insider of the debtor may not exceed the
2 reasonable value of such services under 11 U.S.C. 502(b)(4), and an insiders dealing 3 with a bankrupt corporation must be subject to rigorous scrutiny. Pepper v. Litton, 308 4 U.S. 295, 306 (1939); see also, 2 Resnick and Sommer, Collier on Bankruptcy, 101.31 5 at 101-140 (16th ed. 2012) (An insider generally is an entity whose close relationship 6 with the debtor subject any transaction made between the debtor and such entity to 7 heavy scrutiny.). Since Claimant T. Milner was an insider of the debtor, the court must 8 subject his claim for services to rigorous scrutiny and find that his claim does not exceed 9 the reasonable value of his services under 11 U.S.C. 507(b)(4). Based on the evidence 10 presented at trial in Claimants case-in-chief, the court cannot find that the reasonable 11 value of the services of Claimant T. Milner exceeds the scheduled amount of $57,000.00. 12 The preponderance of the evidence does not show the reasonable value of T. Milners 13 services exceeds $57,000.00. The evidence relating to the claim, including the trial 14 testimony and declaration of T. Milner, does not show or explain with any specificity what 15 services T. Milner rendered to the debtor or how the amount of $98,313.00 was 16 computed. Claimant T. Milner provided no invoices itemizing the list of services rendered 17 which independent contractors customarily submit for payment. T. Milner also testified 18 that he was in the office typically 5 days a week from 9:00 a.m to 5:00 p.m. Trial 19 Transcript, November 2, 2012, at 9:24-25 10:1-3 (Testimony of Timothy Milner). This, 20 however, was not corroborated by contemporaneously recorded time records. Moreover, 21 Claimant T. Milner was not able to explain what he did for the debtor with any specificity 22 other than that he assisted his father-in-law in dispatching limousines, supervised four 23 other employees in his father-in-laws department, the office of the founding pastor, and 24 supervised the budget of this small department. Trial Transcript, November 2, 2012, at 25 10-11, 39 (Testimony of Timothy Milner). Given the secretarial and administrative nature 26 of T. Milners duties, his services do not justify his compensation rate of $10,000.00 per 27 month as reasonable under Section 502(b)(7). Furthermore, although T. Milner may 28 have been at work on a full-time basis, his mere presence does not substantiate that his 41
Case 2:12-bk-15665-RK
Desc
1 services should be valued at his compensation rate of $120,000.00 per year. In addition, 2 the emails provided by T. Milner fail to substantiate any measurable value to Debtor. In 3 particular, as an example of his work, Claimant T. Milner, submitted a printout of an email 4 (Trial Exhibit C640) that he received which shows that Carol Milner was listed as an 5 additional recipient and which also shows that he then forwarded the same email to her. 6 Trial Declaration of Timothy Milner at 3:12-15. If this example is the best evidence of the 7 reasonableness of Claimant T. Milners compensation, that is, forwarding an email to 8 someone who already received the email, the compensation of $10,000.00 per month, or 9 $120,000.00 per year, is not reasonable for purposes of Section 502(b)(7). The court 10 cannot find based on this evidentiary record that the reasonable value of these services 11 exceeded $57,000.00 as scheduled by Debtor and now not opposed by Plan Agent and 12 Reorganized Debtor in this amount (though arguably, the court could find that a lesser 13 amount was reasonable). Claimant T. Milner has not established by a preponderance of 14 the evidence that the reasonable value of his services was $98,313.00 or any other 15 amount in excess of $57,000.00 as required by 11 U.S.C. 507(b)(4). 16
Accordingly, this claim is only allowed as a general unsecured claim in the amount
17 of $57,000.00 as scheduled by the Debtor in its bankruptcy schedules. 18

B. Claim No. 333-1 of Timothy Milner in the amount of $10,000 for Rejection
19 of executory contract damages 20

Claimant Timothy Milner (T. Milner) filed a request for payment of administrative
21 expenses, Claim No. 333-1, on November 23, 2011, asserting a claim in the amount of 22 $10,000.00. This claim was submitted on a five-page proof of claim: the first page of the 23 proof of claim stated that the amount of the claim as of the case filing date was 24 $10,000.00 and that the basis for the claim was Rejection of executory contract (June 25 2011), the second page was a signed duplicate copy of the request for payment of 26 administrative expenses, the third page was a one-page copy of an Independent 27 Contractor Agreement, dated January 11, 2006, and the fourth and fifth pages were the 28 42
Case 2:12-bk-15665-RK
Desc
1 proof of service of the document. The proof of claim made no allegations of fact to state 2 a factual basis of the claim. 3
Claim No. 333-1 is a claim arising from the rejection of an executory contract
4 which is determined, and allowed or disallowed the same as if such claim had arisen 5 before the date of the filing of the [bankruptcy] petition. 11 U.S.C. 365(g)(1) and 6 502(g)(1); see also, 3 March, Ahart and Shapiro, California Practice Guide: Bankruptcy, 7 16:997 at 16-56 (2011) (Where an executory contact or unexpired lease was not 8 assumed before the rejection, the breach is treated as if it occurred immediately before 9 filing of the bankruptcy petition. As a result, any claim for damages resulting from the 10 breach will be treated as an unsecured prepetition claim (rather than a claim entitled to 11 administrative priority).). 12
At trial, Plan Agent and Reorganized Debtor stated that they no longer dispute
13 such claim, apparently withdrawing their objection to this claim. As such, this claim is 14 allowed as a general unsecured claim in the amount of $10,000.00. 15
C. Claim No. 339-1 of Timothy Milner in the amount of $70,000 of post-
16 petition services rendered, Request for Administrative Expense for breach of 17 contract 18
Claimant Timothy Milner (T. Milner) filed a request for payment of administrative
19 expenses, Claim No. 333-1, on November 23, 2011, based on breach of contract, 20 alleging that Creditor rendered services to the Debtor post-petition, pursuant to a pre21 petition oral contract, which continued after the filing of the petitio[n]. Creditor has not 22 been paid for such services. Creditors services included assisting Dr. Robert H. Schuller 23 in his fundraising activities, supervising Dr. Schullers five person statff, travelling with Dr. 24 Schuller, and arranging Dr. Schullers speaking engagements. In addition, during that 25 time Creditor served as Executive Director of the Robert H. Schuller Library at the Crystal 26 Cathedral, including consulting regarding the preservation of Hour of Power footage in 27 danger of deterioration. In Claim No. 333-1, Claimant T. Milner stated: The debt was 28 43
Case 2:12-bk-15665-RK
Desc
1 incurred from October 18, 2010 to May 26, 2011 and, The total amount of Creditors 2 claim is $70,000. Creditors contractual compensation was $10,000 per month. 3
The burden of proving an administrative expense claim is on the claimant. In re
4 BCE West, L.P., 319 F.3d 1166, 1172 (9th Cir. 2003). Section 503(b)(1)(A) of the 5 Bankruptcy Code, 11 U.S.C., provides in relevant part that there shall be allowed, 6 administrative expenses . . . including the actual, necessary costs and expenses of 7 preserving the estate . . . . The terms actual and necessary are to be construed 8 narrowly and must be the actual and necessary costs of preserving the estate for the 9 benefit of its creditors. 319 F.3d at 1172. In order to limit abuses of the administrative10 expense priority, claimants seeking payment of an administrative expense claim must 11 show that the debt: (1) arose from a transaction with the debtor-in-possession and 12 (2) directly and substantially benefitted the estate. Id. The reason for these strict 13 requirements is to protect the limited assets of the estate for the benefit of unsecured 14 creditors interests and is particularly important in a Chapter 11 case where a partial 15 liquidation in necessary to facilitate reorganization. In re Dant & Russell, Inc., 853 F.2d 16 700, 706 (9th Cir. 1988). [T]he principal test of substantial contribution is the extent of 17 benefit to the estate. In re Cellular 101, Inc., 377 F.3d 1092, 1096 (9th Cir. 2004) 18 (citation omitted). Services which substantially contribute to a case are those which 19 foster and enhance, rather than retard or interrupt the progress o[f] reorganization. Id. at 20 1096-1097 (citation omitted). A creditors contribution must be tangible, not merely 21 incidental. Id. at 1098. Since Claimant T. Milner was an insider of the debtor, the court 22 must also subject his administrative expense claim for services to rigorous scrutiny. 23 Pepper v. Litton, 308 U.S. 295, 306 (1939); see also, 2 Resnick and Sommer, Collier on 24 Bankruptcy, 101.31 at 101-140 (16th ed. 2012) (An insider generally is an entity 25 whose close relationship with the debtor subject any transaction made between the 26 debtor and such entity to heavy scrutiny.). 27
Based on the evidence presented at trial in Claimants case-in-chief, the court
28 finds that Claimant T. Milner has not shown by a preponderance of the evidence that his 44
Case 2:12-bk-15665-RK
Desc
1 services to the debtor-in-possession after the bankruptcy case was filed were actual, 2 necessary costs and expenses of preserving the bankruptcy estate, that is, that his 3 services directly and substantially benefitted the estate. The evidence relating to the 4 claim, including the trial testimony and declaration of T. Milner, does not show or explain 5 with any specificity what services T. Milner rendered to the debtor-in-possession. 6 Claimant T. Milner testified that he was in the office typically 5 days a week from 9:00 7 a.m to 5:00 p.m. Trial Transcript, November 2, 2012, at 9:24-25 10:1-3 (Testimony of 8 Timothy Milner). However, T. Milner was not able to explain what he did for the debtor 9 with any specificity other than that he assisted his father-in-law in dispatching limousines, 10 supervised four other employees in his father-in-laws department, the office of the 11 founding pastor, and supervised the budget of this small department. Trial Transcript, 12 November 2, 2012 at 10:10-11:11, 38:22-41:17 (Testimony of Timothy Milner). Given the 13 secretarial and administrative nature of T. Milners duties, his services were merely 14 incidental and did not confer a benefit to the estate at a rate of $10,000.00 per month. 15 Although T. Milner may have been at work on a full-time basis, his presence does not 16 substantiate that he was actually benefitting the estate. Claimant T. Milner also 17 referenced his work as the executive director of the Robert H. Schuller Library at the 18 Crystal Cathedral, but as he testified at trial, this work ended when the bankruptcy case 19 was filed due to lack of funds. Trial Declaration of Timothy Milner at 3:23-4:7; Trial 20 Transcript, November 2, 2012, at 41:18-43:16 (Testimony of Timothy Milner).Claimant T. 21 Milner also referenced his work as the organizer of national conferences, the Ministry of 22 Ministers, but as he testified at trial, this work ended before the bankruptcy case was 23 filed. Trial Declaration of Timothy Milner at 3:7-10. Trial Transcript, November 2, 2012, 24 at 37:24-38:21 (Testimony of Timothy Milner). 25
Also, the emails provided by T. Milner fail to substantiate any measurable benefit
26 to the estate. In particular, as an example of his work, Claimant T. Milner, submitted a 27 printout of an email (Trial Exhibit C640) that he received which shows that Carol Milner 28 was listed as an additional recipient and which also shows that he then forwarded the 45
Case 2:12-bk-15665-RK
Desc
1 same email to her. Trial Declaration of Timothy Milner at 3:12-15. If this example is the 2 best evidence of the reasonableness of Claimant T. Milners compensation, that is, 3 forwarding an email to someone who already received the email, the compensation of 4 $10,000.00 per month, or $120,000.00 per year, is not reasonable for purposes of 5 Section 503(b). 6
Claimant T. Milner also cited his unsuccessful efforts after the bankruptcy case
7 was filed to solicit a large donation from the Garvey probate estate, which apparently 8 consisted of an attempt to induce a estate trustee to deviate from the express terms of a 9 trust limiting contributions and restricting invasion of the trust corpus to transfer the entire 10 trust corpus to Debtor, and when he failed to obtain the trustees consent, caused Debtor 11 to seek court approval of such a transfer. Trial Declaration of Timothy Milner at 2:9-27; 12 Trial Transcript, November 2, 2012, at 25:23-30:8 (Testimony of Timothy Milner). 13 Claimant T. Milner decided to make this effort on his own and incur expense to the 14 bankruptcy estate without advance approval of Debtors management, which does not 15 appear to be an expense to the estate that resulted in any actual benefit to the estate. Id. 16 Moreover, Claimant T. Milner testified that he began to fundraise for Debtor after the 17 bankruptcy case was filed, but did not actually raise any funds. Trial Transcript, 18 November 2, 2012, at 15:6-13 (Testimony of Timothy Milner). Accordingly, the court is 19 not persuaded that such postpetition services of Claimant actually benefitted the 20 bankruptcy estate and should be compensated. 21
The court cannot find based on this evidentiary record that Claimant T. Milners
22 postpetition services directly and substantially benefitted the bankruptcy estate. Thus, 23 the court finds that Claimant T. Milner has not established by a preponderance of the 24 evidence that the value of his services directly and substantially benefitted the bankruptcy 25 estate to warrant payment of compensation as an administrative expense of the estate. 26
Claimant T. Milner contends that his administrative expense claim should be
27 allowed because management of the debtor-in-possession kept him on as a consultant 28 for the debtor. Local Bankruptcy Rule 2014-1(a)(1) provides: No compensation or other 46
Case 2:12-bk-15665-RK
Desc
1 remuneration may be paid from the assets of the estate to a debtors owners, partners, 2 officers, directors, shareholders, or relatives of insiders . . . unless the debtor serves a 3 Notice of Setting/Increasing Insider Compensation in accordance with procedures 4 adopted by the United States Trustee pursuant to this rule. The evidence indicates that 5 no Notice of Setting/Increasing Insider Compensation was filed for the purpose of paying 6 Claimant T. Milner for his services, even though he was aware of such requirement. Trial 7 Transcript, November 2, 2012, at 45:9-47:16 (Testimony of Timothy Milner). Claimant T. 8 Milner knew or should have known that as an insider, he needed to file this request so 9 that the court could evaluate whether or not his services were actual and necessary 10 expenses to preserve the bankruptcy estate, but he did not. His failure to have such a 11 notice filed with the court is another reason to disallow his administrative expense claim. 12 13 14 15 16 17 18 19
For these reasons, this claim is disallowed in its entirety. D. Claim No. 340-1 of Timothy Milner for an Unknown amount for Request for Administrative Expense for copyright infringement Claimant T. Milner has withdrawn this claim filed on November 23, 2011. E. Claim of Timothy Milner Evidenced by Docket No. 820 in the amount of $70,000 of post-petition services rendered, Request for Administrative Expense for breach of contract This claim is a duplicate of Claim No. 339-1, both filed on November 23, 2011, and
20 is disallowed for the reasons stated for Claim No. 339-1. 21 IV. CLAIMS OF CAROL S. MILNER 22
A. Claim No. 243-1 of Carol S. Milner in the amount of $10,615.00 for
23 copyright infringement 24 25
Claimant Carol S. Milner has withdrawn this claim filed on February 28, 2011. B. Claim No. 243-2 of Carol S. Milner in the amount of $10,615.00 for
26 Housing allowance 27
Claimant Carol S. Milner (C. Milner) filed a proof of claim, Claim No. 243-2, on
28 March 2, 2011, asserting a claim in the amount of $10,615.00 +. This claim was 47
Case 2:12-bk-15665-RK
Desc
1 submitted on a one-page proof of claim, stating that the amount of the claim as of the 2 case filing date was $10,615.00 +, or that amount, plus an unknown amount, and that 3 the basis for the claim was Housing Allowance and Copyright Infringement. The proof 4 of claim made no allegations of fact to state a factual basis of the claim. Claimant C. 5 Milner has withdrawn the portion of the claim based on Copyright Infringement. 6
The court initially finds that Claimant C. Milner was an insider of the debtor within
7 the meaning of 11 U.S.C. 101(31)(B)(vi) because she was a relative of directors of 8 Debtor as the daughter of Dr. Robert H. Schuller, who was the chairman of the board of 9 directors of Debtor, and of Arvella Schuller, also a director of Debtor, at the times relevant 10 to this contested matter of the objection to this claim. Trial Transcript and Trial 11 Declarations of C. Milner and R.H. Schuller; Joint Pretrial Order (C. Milner). I.B.8 12 I.B.11. A claim for prepetition services of an insider of the debtor may not exceed the 13 reasonable value of such services under 11 U.S.C. 502(b)(4), and an insiders dealing 14 with a bankrupt corporation must be subject to rigorous scrutiny. Pepper v. Litton, 308 15 U.S. 295, 306 (1939) ; see also, 2 Resnick and Sommer, Collier on Bankruptcy, 101.31 16 at 101-140 (16th ed. 2012) (An insider generally is an entity whose close relationship 17 with the debtor subject any transaction made between the debtor and such entity to 18 heavy scrutiny.). 19
Although the court finds that Claimant C. Milner was an insider of the debtor, Plan
20 Agent and Reorganized Debtor concede the allowance of a prepetition claim of C. Milner 21 for prepetition services in the form of a housing allowance in the amount of $10,615.00. 22 Plan Agent and Reorganized Debtor do not dispute this claim in this amount. 23 Accordingly, this claim is allowed as a general unsecured claim in the amount of 24 10,615.00. 25 26 27 28 48
C. Claim No. 336-1 of Carol Milner for an Unknown amount for Request for Administrative Expense for copyright infringement Claimant Carol Milner has withdrawn this claim filed on November 23, 2011.
Case 2:12-bk-15665-RK
Desc
D. Claim No. 337-1 of Carol Milner in the amount of $83,608.92 of post-
2 petition services rendered, for breach of contract 3

Claimant Carol Milner (C. Milner) filed a request for payment of administrative
4 expenses, Claim No. 337-1, on November 23, 2011, based on breach of contract, 5 alleging that Creditor rendered services to the Debtor post-petition, pursuant to a pre6 petition oral employment contract, which continued after the filing of the petition as 7 Director of Brand Development and Intellectual Property. Creditor has not been paid for 8 such services. Creditors services included directing the integration of the various 9 intellectual property of Dr. Robert H. Schuller in his fundraising activities, supervising Dr. 10 Schullers five person staff with the Debtors non-profit business development uses. 11 Creditor helped supervise the Debtors use of that intellectual property for its fundraising 12 activities. In Claim No. 337-1, Claimant C. Milner stated: The debt was incurred from 13 October 18, 2010 to May 26, 2011 and The total amount of Creditors claim is 14 $83,608.92. Creditors agreed rate of pay was $4,615.39 every two weeks, plus medical 15 insurance of $1724.35 per month. 16
The burden of proving an administrative expense claim is on the claimant. In re
17 BCE West, L.P., 319 F.3d 1166, 1172 (9th Cir. 2003). Section 503(b)(1)(A) of the 18 Bankruptcy Code, 11 U.S.C., provides in relevant part that there shall be allowed, 19 administrative expenses . . . including the actual, necessary costs and expenses of 20 preserving the estate . . . . The terms actual and necessary are to be construed 21 narrowly and must be the actual and necessary costs of preserving the estate for the 22 benefit of its creditors. 319 F.3d at 1172. In order to limit abuses of the administrative23 expense priority, claimants seeking payment of an administrative expense claim must 24 show that the debt: (1) arose from a transaction with the debtor-in-possession and 25 (2) directly and substantially benefitted the estate. Id. The reason for these strict 26 requirements is to protect the limited assets of the estate for the benefit of unsecured 27 creditors interests and is particularly important in a Chapter 11 case where a partial 28 liquidation in necessary to facilitate reorganization. N.R.R. Co. v. Dant & Russell, Inc. 49
Case 2:12-bk-15665-RK
Desc
1 (In re Dant & Russell, Inc.), 853 F.2d 700, 706 (9th Cir. 1988). [T]he principal test of 2 substantial contribution is the extent of benefit to the estate. In re Cellular 101, Inc., 3 377 F.3d 1092, 1096 (9th Cir. 2004) (citation omitted). Services which substantially 4 contribute to a case are those which foster and enhance, rather than retard or interrupt 5 the progress o[f] reorganization. Id. at 1096-1097 (citation omitted). A creditors 6 contribution must be tangible, not merely incidental. Id. at 1098. Due to her status as 7 R.H. Schullers daughter, Claimant C. Milner was an insider at the time the agreement for 8 her services was made, and when the alleged services on which her claim is based were 9 rendered. Since Claimant C. Milner was an insider of the debtor, the court must also 10 subject her administrative expense claim for services to rigorous scrutiny. Pepper v. 11 Litton, 308 U.S. 295, 306 (1939); see also, 2 Resnick and Sommer, Collier on 12 Bankruptcy, 101.31 at 101-140 (16th ed. 2012) (An insider generally is an entity 13 whose close relationship with the debtor subject any transaction made between the 14 debtor and such entity to heavy scrutiny.). 15
Based on the evidence presented at trial in Claimants case-in-chief, the court
16 finds that Claimant C. Milner has not shown by a preponderance of the evidence that her 17 services to the debtor-in-possession after the bankruptcy case was filed were actual, 18 necessary costs and expenses of preserving the bankruptcy estate, that is, that her 19 services directly and substantially benefitted the estate. Claimant C. Milner was not able 20 to explain what she did for Debtor helped it in any way, because her services were more 21 focused on assisting her parents, Dr. Schuller and A. Schuller, in protecting their 22 intellectual property rights as to Debtor, which really indicates an adverse relationship to 23 the estate that should not be compensated by the estate. Trial Declaration of Carol 24 Milner at 3:22-6:3. Before she worked for Debtor in 2010, she assisted her parents on 25 intellectual property issues as they related to Debtor. Trial Transcript, November 7, 2012, 26 at 67:4-69:15 (Testimony of Carol Milner). When Claimant C. Milner was hired by 27 Debtor in 2010, her immediate supervisor was her father, Dr. Schuller, and she did not 28 report to anybody at the Debtor on a regular basis in 2010 and 2011. Trial Transcript, 50
Case 2:12-bk-15665-RK
Desc
1 November 7, 2012, at 75:12-24, 77:22-25 (Testimony of Carol Milner). Claimant C. 2 Milner stated in her trial declaration when the debtor received requests to use her fathers 3 materials, Debtor forwarded these requests to C. Milner, as representative for Dr. 4 Schuller, and she submitted a lengthy list of exhibits demonstrating these requests and 5 her involvement. Trial Declaration of Carol Milner, at 4:21-25. Moreover, when Debtor 6 allegedly used Dr. Schullers materials without his permission, Claimant C. Milner 7 contacted the debtor and called to their attention the necessity for an agreement for 8 them to use Dr. Schullers material, and she also provided few exhibits of printed emails 9 demonstrating her involvement and interest in this matter. Id. at 4:9-20. It is clear from 10 this evidentiary record that Claimant C. Milners services were mainly geared towards 11 protecting her parents financial interests as it related to their claimed intellectual property 12 and was not directed at protecting the interests of Debtor. Because any benefit Debtor 13 may have received from C. Milners protection of her parents claimed intellectual 14 property would have been of incidental value to Debtor, Claimant C. Milner has not 15 established by a preponderance of the evidence that the value of her services directly 16 and substantially benefitted the bankruptcy estate. Claimant C. Milners services were 17 not necessary to benefit Debtor and the bankruptcy estate because as Dr. Schuller 18 testified at trial, Debtor could use his materials without problems, as long as they did not 19 sell that information to competitors and without any expectation of royalties or 20 compensation for the use of his materials, and that there were no restrictions from him to 21 use his materials for the purpose of raising funds for the ministry (i.e., Debtor). Trial 22 Transcript, November 7, 2012, at 98:16 100:18, 133:15 135:15, 140:21-23 23 (Testimony of Dr. Robert H. Schuller). There is no showing on this record that Debtor 24 was using Dr. Schullers works for any purpose other than raising funds for the ministry, 25 or its charitable purpose, so there does not seem to be any purpose for Claimant C. 26 Milner to be providing services to Debtor in this regard. 27
Claimant C. Milner contends that her administrative expense claim should be
28 allowed because management of the debtor-in-possession kept her on as director of 51
Case 2:12-bk-15665-RK
Desc
1 brand management for the debtor. Local Bankruptcy Rule 2014-1(a)(1) provides: No 2 compensation or other remuneration may be paid from the assets of the estate to a 3 debtors owners, partners, officers, directors, shareholders, or relatives of 4 insiders . . . unless the debtor serves a Notice of Setting/Increasing Insider 5 Compensation in accordance with procedures adopted by the United States Trustee 6 pursuant to this rule. The evidence indicates that no Notice of Setting/Increasing Insider 7 Compensation was filed for the purpose of paying Claimant C. Milner for her services, 8 even though she was aware of such requirement. Trial Transcript, November 2, 2012, at 9 45:9-47:16 (Testimony of Timothy Milner). Claimant C. Milner knew or should have 10 known that as an insider, she needed to file this request so that the court could evaluate 11 whether or not her services were actual and necessary expenses to preserve the 12 bankruptcy estate, but she did not. Her failure to have such a notice filed with the court is 13 another reason to disallow her administrative expense claim. 14 15 16 17 18 19 20
For these reasons, this claim is disallowed in its entirety. E. Claim No. 342-1 of Carol Milner for an Unknown amount for Request for Administrative Expense for copyright infringement Claimant Carol Milner has withdrawn this claim filed on November 30, 2011. F. Claim of Carol Milner Evidenced by Docket No. 817: Unknown amount for Request for Administrative Expense for copyright infringement This claim is a duplicate of Claim No. 342-1, both filed on November 23, 2011, and
21 is withdrawn. 22
G. Claim of Carol Milner Evidenced by Docket No. 818: $83,608.92 for post-
23 petition services for breach of contract 24

25 is disallowed for the reasons stated for Claim No. 337-1. 26 /// 27 28 52
Case 2:12-bk-15665-RK
Desc
H. Claim of Carol Milner Evidenced by Docket No. 827: Unknown amount for
2 Request for Administrative Expense for copyright infringement 3

4 is withdrawn. 5 V. POST-MOTION PROCEEDINGS 6

For the foregoing reasons, the court grants the motion of Plan Agent and
7 Reorganized Debtor for a judgment on partial findings in these contested matters, and 8 the court further orders Plan Agent and Reorganized Debtor to lodge and serve proposed 9 orders consistent with this memorandum decision by November 28, 2012. The court 10 further orders that a further hearing be set for November 30, 2012 at 3:00 p.m. before the 11 undersigned United States Bankruptcy Judge in Courtroom 1675, Roybal Federal 12 Building, 255 East Temple Street, Los Angeles, California, to address any objections that 13 Claimants may have to the form of the proposed orders submitted by Plan Agent and 14 Reorganized Debtor pursuant to this memorandum decision. Because the courts 15 disposition of the motion for judgment on partial findings resolves all of the contested 16 matters being tried to the court, the court vacates the remaining trial dates on November 17 29 and 30, 2012. 18 19 20 21 22 23 24 25 26 27 28 53
DATED: November 26, 2012 United States Bankruptcy Judge
IT IS SO ORDERED. ###
Case 2:12-bk-15665-RK
Desc
NOTICE OF ENTERED ORDER AND SERVICE LIST

Notice is given by the court that a judgment or order entitled (specify) MEMORANDUM DECISION ON MOTION OF PLAN AGENT AND REORGANIZED DEBTOR FOR JUDGMENT ON PARTIAL FINDINGS RE: OBJECTIONS TO CLAIMS OF ROBERT H. SCHULLER, ROBERT HAROLD, INC., ARVELLA SCHULLER, TIMOTHY MILNER, AND CAROL MILNER was entered on the date indicated as Entered on the first page of this judgment or order and will be served in the manner indicated below: I. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF) Pursuant to controlling General Order(s) and Local Bankruptcy Rule(s), the foregoing document was served on the following person(s) by the court via NEF and hyperlink to the judgment or order. As of November 26, 2012, the following person(s) are currently on the Electronic Mail Notice List for this bankruptcy case or adversary proceeding to receive NEF transmission at the email address(es) indicated below: Franklin C Adams franklin.adams@bbklaw.com, arthur.johnston@bbklaw.com;lisa.spencer@bbklaw.com;bknotices@bbklaw.com Allison R Axenrod allison@claimsrecoveryllc.com James C Bastian jbastian@shbllp.com Jeffrey W Broker jbroker@brokerlaw.biz Frank Cadigan frank.cadigan@usdoj.gov Mark R Campbell mcampbell@markcampbelllaw.com Patricia A Cirucci patricia.cirucci@sce.com Jeff Cohen JC@SouthpawAsset.com Chukwudum N Emenike chuckeme@yahoo.com Don Fisher dfisher@ptwww.com Bernard R Given bgiven@loeb.com, mortiz@loeb.com Marshall F Goldberg mgoldberg@glassgoldberg.com Carl Grumer cgrumer@manatt.com Kavita Gupta kgupta@winthropcouchot.com, pj@winthropcouchot.com;chipp@winthropcouchot.com Rika Kido rkido@shbllp.com Edward S Kim ekim@hemar-rousso.com Steven B Lever sblever@leverlaw.com, assistant@leverlaw.com Craig A Loren aloren@debtacquisitiongroup.com, bschwab@debtacquisitiongroup.com;jsarachek@debtacquisitiongroup.com Alvin Mar alvin.mar@usdoj.gov Lawrence C Meyerson lcmlaw@earthlink.net Christopher Minier becky@ringstadlaw.com Michael S Mitchell mike@demarcomitchell.com John D Monte johnmontelaw@gmail.com Karen S. Naylor knaylor@burd-naylor.com Brian R Nelson becky@ringstadlaw.com, brian@ringstadlaw.com Vahak Papasian vahak@vaplaw.com, test@ecf.inforuptcy.com;vahak@ecf.inforuptcy.com Sue Y Park sparkcallahan@gmail.com Thomas J Polis tom@polis-law.com Richard J Reynolds rreynolds@trlawyers.com, lrodriguez@trlawyers.com James S Riley tgarza@sierrafunds.com Todd C. Ringstad becky@ringstadlaw.com Christopher O Rivas crivas@reedsmith.com Nanette D Sanders becky@ringstadlaw.com Ramesh Singh claims@recoverycorp.com Edward J Tredinnick etredinnick@greeneradovsky.com United States Trustee (SA) ustpregion16.sa.ecf@usdoj.gov Michael A Wallin mwallin@sheppardmullin.com Andrew F Whatnall awhatnall@daca4.com
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central Distric t of California January 2009
F 9021.1
Case 2:12-bk-15665-RK
Desc
Marc J Winthrop mwinthrop@winthropcouchot.com, pj@winthropcouchot.com;vcorbin@winthropcouchot.com Arnold H Wuhrman Wuhrman@serenitylls.com Pamela Jan Zylstra zylstralaw@gmail.com
II. SERVED BY THE COURT VIA U.S. MAIL: A copy of this notice and a true copy of this judgment or order was sent by U.S. Mail, first class, postage prepaid, to the following person(s) and/or entity(ies) at the address(es) indicated below: Christopher R Barclay LeCG LLC 600 Anton Blvd Ste 1350 Costa Mesa, CA 92626 Beth Funk-On Assignment Inc PO Box 1192 Frisco, TX 75034 George S Burns Law Office of George S Burns 4100 Macarthur Blvd Ste 305 Newport Beach, CA 92660 Elaine Cathell 20909 Olympic Pl Apt 310 Arlington, WA 98223 Charlotte Dunn 5400 E The Toledo #300 Long Beach, CA 90803 Fair Harbor Capital, LLC Ansonia Finance Station PO Box 237037 New York, NY 10023 William R Fleming Post Office Box 91 Orcas, WA 98280 Irvine, CA 92614 Robert G Hewitt 27 Lefferts St Saratoga Springs, NY 128662626 Thomas Robert Link Law Office of Thomas Robert Link 4804 Laurel Canyon Blvd #524 Valley Village, CA 91607 Liquidity Solutions, Inc. One University Plaza Suite 312 Hackensack, NJ 07601 David E Phillippe 16711 Chalon Rd K 1101 Victorville, CA 92395 Pioneer Funding Group, LLC Greeley Square Station PO Box 20188 39 W. 31st Street New York, NY 10001
TR Capital Management, LLC 336 Atlantic Avenue, Suite 302 East Rockaway, NY 11518 Tannor Partners Credit Fund II, LP 200 Business Park Drive, Suite 200 Armonk, NY 10504 Mark A. Thomas Mark A. Thomas Ministries, Inc. , Christina Wilcox 2480 Fairview Way Costa Mesa, CA 92626 Arnold H. Wuhrman Serenity Legal Services 41680 Ivy Street Suite D Murrieta, CA 92562
Goe & Forsythe, LLP 18101 Von Karman Ave Ste 510 Irvine, CA 92612
G Emmett Raitt The Raitt Law FIrm 4199 Campus Dr Ste 550 Irvine, CA 92612-4694 Ringstad & Sanders LLP 2030 Main Street, Suite 1200
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central Distric t of California January 2009
F 9021.1

Crystal Cathedral Ministries

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Crystal Cathedral Ministries

Uploaded by

Copyright:

Available Formats

Case 2:12-bk-15665-RK

1 2 3 4 5 6 7 8 9 10 11 In re: 12 CRYSTAL CATHEDRAL MINISTRIES, 13 14 15 16 17 18 19 20 21

FILED & ENTERED NOV 26 2012

24 Unknown amount of claim for Copyright infringement 25

5 In re Holm, 931 F.2d at 623. 6

16 copyrights, the United States Supreme Court has stated: 17 18 19 20 21 22 23 24 25 26 27 28 8

19 Claimants Amended Trial Brief, filed on October 23, 2012, at 11. 20

16 In re Holm, 931 F.2d at 623. 17

As discussed herein, Claimant A. Schuller have failed to meet her burden of

26 copyrights, the United States Supreme Court has stated: 27 28

Alternatively, assuming arguendo that Claimant A. Schuller had any copyright

16 for Payment of Administrative Expense, based on copyright infringement 17

12 for Payment of Administrative Expense, based on copyright infringement 13

23 Consulting agreement damages 24

17 of $57,000.00 as scheduled by the Debtor in its bankruptcy schedules. 18

19 of executory contract damages 20

D. Claim No. 337-1 of Carol Milner in the amount of $83,608.92 of post-

2 petition services rendered, for breach of contract 3

28 allowed because management of the debtor-in-possession kept her on as director of 51

23 petition services for breach of contract 24

2 Request for Administrative Expense for copyright infringement 3

4 is withdrawn. 5 V. POST-MOTION PROCEEDINGS 6

NOTICE OF ENTERED ORDER AND SERVICE LIST

You might also like