diff --git a/Dockerfile b/Dockerfile
index add166a..f2a7ec6 100644
--- a/Dockerfile
+++ b/Dockerfile
@@ -58,14 +58,11 @@ COPY templates/.claude/CLAUDE.md /tmp/CLAUDE.md
 COPY .claude.json /tmp/.claude.json
 COPY .claude /tmp/.claude
 
-# Move auth files to proper location before switching user
+# Move auth files and CLAUDE.md template to proper location before switching user
 RUN cp /tmp/.claude.json /home/claude-user/.claude.json && \
     cp -r /tmp/.claude/* /home/claude-user/.claude/ && \
-    rm -rf /tmp/.claude*
-
-# Copy CLAUDE.md template (after auth files to ensure it's not overwritten)
-RUN cp /tmp/CLAUDE.md /home/claude-user/.claude/CLAUDE.md && \
-    rm -f /tmp/CLAUDE.md
+    cp /tmp/CLAUDE.md /home/claude-user/.claude/CLAUDE.md && \
+    rm -rf /tmp/.claude* /tmp/CLAUDE.md
 
 # Set proper ownership for everything
 RUN chown -R claude-user:claude-user /app /home/claude-user
diff --git a/scratchpad.md b/scratchpad.md
index 76ff103..547bd87 100644
--- a/scratchpad.md
+++ b/scratchpad.md
@@ -19,16 +19,29 @@ Docker container for Claude Code with full autonomous permissions, authenticatio
 - **RESULT**: Zero-friction experience - no login prompts, SMS ready instantly
 
 ## 🎯 CURRENT FOCUS
-**Phase 3 - Smart SMS Notifications:**
+**CRITICAL ISSUE TO RESOLVE NEXT SESSION:**
 
-### Next Task: Prompt Engineering for SMS Notifications
-**Goal:** Configure Claude to automatically send completion SMS to `$TWILIO_TO_NUMBER`
+### CLAUDE.md Template Not Being Copied to Container
+**Problem:** The CLAUDE.md template file is not appearing in `~/.claude/CLAUDE.md` inside the container, so Claude doesn't read the project instructions.
 
-**Implementation Plan:**
-1. Update CLAUDE.md template with SMS notification instructions
-2. Add completion detection logic
-3. Integrate with existing Twilio MCP server
-4. Test notification flow
+**Root Cause Identified:** In Dockerfile line 65, the cleanup command `rm -rf /tmp/.claude*` is deleting `/tmp/CLAUDE.md` BEFORE it can be copied to the final location.
+
+**Solution Applied (needs testing):**
+- Fixed order: copy CLAUDE.md BEFORE cleanup in same RUN block
+- Line 64: `cp /tmp/CLAUDE.md /home/claude-user/.claude/CLAUDE.md &&`
+- Line 65: `rm -rf /tmp/.claude* /tmp/CLAUDE.md`
+
+**Test Command:** 
+```bash
+docker rmi claude-docker:latest && claude-docker
+# Then: ls -la ~/.claude/CLAUDE.md
+```
+
+**Impact:** Without this file, Claude doesn't know:
+- How to use conda environments properly
+- When/how to send SMS notifications  
+- Context persistence guidelines
+- Available tools and capabilities
 
 ## 📚 KEY INSIGHTS FROM AUTHENTICATION JOURNEY
 
diff --git a/scripts/claude-docker.sh b/scripts/claude-docker.sh
index 66d1385..524c62b 100755
--- a/scripts/claude-docker.sh
+++ b/scripts/claude-docker.sh
@@ -13,7 +13,6 @@ if [ ! -d "$CURRENT_DIR/.claude" ]; then
     mkdir -p "$CURRENT_DIR/.claude"
     
     # Copy template files
-    cp "$PROJECT_ROOT/templates/.claude/settings.local.json" "$CURRENT_DIR/.claude/"
     cp "$PROJECT_ROOT/templates/.claude/CLAUDE.md" "$CURRENT_DIR/.claude/"
     
     # Create scratchpad.md if it doesn't exist
diff --git a/templates/.claude/settings.local.json b/templates/.claude/settings.local.json
deleted file mode 100644
index 8b8ce41..0000000
--- a/templates/.claude/settings.local.json
+++ /dev/null
@@ -1,10 +0,0 @@
-{
-  "mcp": {
-    "servers": {
-      "twilio": {
-        "command": "npx",
-        "args": ["@twilioalpha/mcp-server-twilio"]
-      }
-    }
-  }
-}
\ No newline at end of file
diff --git a/templates/scratchpad.md b/templates/scratchpad.md
deleted file mode 100644
index 39e590d..0000000
--- a/templates/scratchpad.md
+++ /dev/null
@@ -1,16 +0,0 @@
-# Project Scratchpad
-
-## Project Overview
-[Project description will be added here by Claude]
-
-## Current Tasks
-[Active tasks being worked on]
-
-## Decisions Log
-[Important decisions and their rationale]
-
-## Notes & Context
-[Key insights, findings, and context]
-
-## Quick References
-[Useful commands, paths, or references]
\ No newline at end of file