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TORAH SOFT LTD. v. DROSNIN

September 16, 2002

TORAH SOFT LTD., PLAINTIFF
V.
MICHAEL DROSNIN, DEFENDANT.



The opinion of the court was delivered by: Francis, United States Magistrate Judge

MEMORANDUM OPINION AND ORDER

The defendant in this action, Michael Drosnin, is the author of the bestselling book The Bible Code, in which he purports to have discovered prophesies of future events embedded within the text of the Hebrew Bible. The plaintiff, Torah Soft Ltd. ("Torah Soft"), is a corporate entity whose principal shareholder and sole officer, Dr. Yochanon Spielberg, created computer software that Mr. Drosnin used in connection with the creation of his book. The plaintiff contends that Mr. Drosnin breached agreements to provide publicity for Torah Soft and to give the plaintiff the opportunity to market its software with the book. Mr. Drosnin has filed counterclaims against Torah Soft and third-party claims against Dr. Spielberg asserting that they committed breach of contract by offering for sale to the public the software that had been modified for his exclusive use. Mr. Drosnin further alleges that Torah Soft and Dr. Spielberg engaged in unfair competition by falsely representing that he had used Torah Soft's computer program to write his book.

The parties consented to proceed before me for all purposes pursuant to 28 U.S.C. § 636(c). Mr. Drosnin has now moved under Rule 56 of the Federal Rules of Civil Procedure for summary judgment dismissing the complaint. Torah Soft and Dr. Spielberg have cross-moved for summary judgment on the counterclaims and third-party claims and have also moved for sanctions pursuant to 28 U.S.C. § 1927 on the ground that Mr. Drosnin's counsel acted in bad faith by failing to withdraw three of the counterclaims and third-party claims until confronted with Torah Soft's summary judgment motion.

For the reasons that follow, Mr. Drosnin's summary judgment motion is granted in part and denied in part, and Torah Soft's motions for summary judgment and for sanctions are denied.

Background

According to Bible code theory, the Hebrew Bible contains predictions of the future encrypted in its text. The first step in breaking the code is to identify letters, each equidistant from the next (equidistant letter skips or "ELS's"), that form a word or phrase. For example, in The Bible Code, Mr. Drosnin contends that the name "Yitzhak Rabin" appears once in the Bible, with each letter separated by 4,772 others. The relevant ELS is therefore 4,722. Next, the text of the Bible is rearranged into columns of letters, each the length of the chosen ELS. In the example, columns of letters 4,772 units high form a matrix. That matrix can then be examined to determine whether any recognizable phrase crosses the word at issue, implying a prophesy. In this instance, the name "Yitzhak Rabin" is intersected by the words "assassin will assassinate," a "prediction" that proved accurate.

According to Dr. Spielberg, he first developed a computer program for conducting Bible code searches (the "Software") in 1988. (Declaration of Yochanan Spielberg dated March 25, 2002 ("Spielberg 3/25/02 Decl."), ¶ 4). On August 17, 1992, he was contacted by Mr. Drosnin who had purchased a copy of the Software and was interested in using it in connection with a book he intended to write about the Bible code. (Spielberg 3/25/02 Decl., ¶¶ 8-10). In order for the Software to be most useful to Mr. Drosnin, certain modifications were required, and Dr. Spielberg alleges that he agreed to perform the necessary programming services in return for compensation at the rate of $20 per hour and the promise of publicity in connection with the book. (Spielberg 3/25/02 Decl., ¶¶ 10, 12, 14). Dr. Spielberg contends that $20 per hour was far below the market value for his services and that he agreed to it only because of the accompanying promise of publicity. (Spielberg 3/25/02 Decl., ¶¶ 14, 15, 51). On the same day that this conversation took place, Mr. Drosnin sent Dr. Spielberg a facsimile outlining the requested modifications to the Software and stating, "I think that the work I'm doing will eventually lead to a lot of publicity for your company, and I'll appreciate any assistance you can give me." (Affirmation of Howard I. Rhine dated March 26, 2002 ("Rhine 3/26/02 Aff."), Exh. 1).

Dr. Spielberg claims that in September 1992 he spoke with Dr. Drosnin about the nature of the publicity that Torah Soft would receive. When he asked whether Torah Soft would be mentioned by name in the book, Mr. Drosnin replied that it would. (Spielberg 3/25/02 Decl., ¶ 17). Dr. Spielberg also asked if the book would include Torah Soft's fax number and e-mail address, and Mr. Drosnin answered, "Yes." (Spielberg 3/25/02 Decl., ¶ 18). According to Dr. Spielberg, on at least fifteen occasions when Mr. Drosnin requested additional programming services, he reiterated that Torah Soft would receive substantial publicity and "make a lot of sales" as a result of publication of the book. (Spielberg 3/25/02 Decl., ¶ 20).

Similarly, in March 1995, Mr. Drosnin requested modifications to the Software that required the use of a utility program known as a "debugger." When Dr. Spielberg told him that the debugger would cost a few hundred dollars, Mr. Drosnin purportedly said, "You're going to make a lot of software sales when my book comes out, so I do not want to pay 100% of the cost of the debugger. Let's split it." Dr. Spielberg then purchased the debugger on that basis. (Spielberg 3/25/02 Decl., ¶¶ 29, 30, 31).

According to Dr. Spielberg, Mr. Drosnin not only promised him publicity, but also raised the possibility of marketing the Software together with the book. In September 1994, Mr. Drosnin suggested several possibilities: a disk with the Software could be included with each copy of the book, the book and the Software could be marketed simultaneously by the same publisher, or marketing could be coordinated between the book's publishers and a software distributer. In addition, if the Software were not sold jointly with the book, an advertising insert could be included in the book. (Spielberg 3/25/02 Decl. ¶¶ 59, 60). In December 1995, Mr. Drosnin promised Dr. Spielberg that if he were to market any software with the book, it would be Torah Soft's product. (Spielberg 3/25/02 Decl., ¶¶ 63, 64, 65).

The Bible Code was ultimately published in 1997. It included no reference to Torah Soft or Dr. Spielberg, but credited Dr. Eliyahu Rips, an Israeli mathematician, with "discovery" of the Bible code. (Affidavit of William H. Crosby, Jr. dated March 25, 2002 ("Crosby 3/25/02 Aff."), Exh. F, at 13-14). No software was marketed with the book.

In addition to contesting many of the plaintiff's allegations, Mr. Drosnin asserts that when he engaged Dr. Spielberg to modify the Software, they agreed that the enhanced version would be for Mr. Drosnin's exclusive use and would not be sold or distributed to others. (Affidavit of Michael Drosnin dated March 22, 2002 ("Drosnin 3/22/02 Aff."), ¶ 4). According to Mr. Drosnin, Dr. Spielberg acknowledged this agreement by including in the opening screen of the Software the legend: "For use of Michael Drosnin Only!" (Drosnin 3/22/02 Aff., ¶ 4). However, subsequent to publication of The Bible Code, Dr. Spielberg sold copies of the modified Software to the public.

In connection with those sales, Torah Soft placed an advertisement on its website in 1998 that included the catchphrase: "Now use the same program that Michael Drosnin used to write The Bible Code." (Drosnin 3/22/02 Aff., ¶ 5). Mr. Drosnin contends, however, that he relied on Dr. Rips' computer program to write the book and only used Torah Soft's Software to do preliminary research and to print out the matricies that were used in the book to illustrate the Bible code "finds." (Drosnin 3/22/02 Aff., ¶ 5).

Torah Soft first filed a complaint against Mr. Drosnin and his publisher, Simon and Schuster, Inc., in 1998 in New York State Supreme Court. (Affidavit of William H. Crosby, Jr. dated Jan. 31, 2002 ("Crosby 1/31/02 Aff."), attached to Notice of Motion, Exh. A). The claims against Simon and Schuster were dismissed by stipulation (Crosby 1/31/02 Aff., Exh. B), and Torah Soft subsequently filed its First Amended Complaint. (Crosby 1/31/02 Aff., Exh. C). That pleading alleged four claims against Mr. Drosnin: breach of contract, breach of fiduciary duty, quantum meruit, and unjust enrichment. (Crosby 1/31/02 Aff., Exh. C).

In the meantime, Mr. Drosnin had filed an answer with crossclaims against Torah Soft and parallel third-party claims against Dr. Spielberg. The First Counterclaim*fn1 charges that Torah Soft breached an agreement with Mr. Drosnin to maintain the modified Software for his exclusive use by marketing that Software to the public. (Affirmation of Howard I. Rhine dated Jan. 31, 2002 ("Rhine 1/31/02 Aff."), attached to Notice of Motion for Summary Judgement, Exh. 1 ("Answer"), ¶¶ 83-100). The Second and Third Counterclaims allege false advertising and deceptive trade practices, respectively, in violation of New York General Business Law, on the ground that Dr. Spielberg sold the Software with the false representation that it had been used by Mr. Drosnin to write The Bible Code. (Answer, ¶¶ 101-106). The Fourth Counterclaim asserts that by using Mr. Drosnin's name to market the Software without his permission, Dr. Spielberg and Torah Soft violated New York Civil Rights Law § 51. (Answer, ¶¶ 107-110). Finally, the Fifth Counterclaim raises a common law claim of unfair competition, again based on the representation that the Software was used to write the book. (Answer ¶¶ 111-114).

Mr. Drosnin then moved to dismiss the First Amended Complaint. In a decision dated June 17, 1999, the Honorable Ira Gammerman first found that the dispute is governed by Israeli law insofar as it is a claim for breach of a contract for personal services. (Crosby 1/31/02 Aff., Exh. E at 4-6). Justice Gammerman rejected the argument that the entire Complaint should be dismissed for failure to join Dr. Spielberg as a necessary party. (Crosby 1/31/02 Aff., Exh. E at 6-10). He then went on to dismiss the breach of fiduciary duty claim, finding that Dr. Spielberg had failed to properly allege a partnership between himself and Mr. Drosnin that would give rise to such a duty. (Crosby 1/31/02 Aff., Exh. E at 11-13). Finally, Justice Gammerman denied the motion to dismiss the quantum meruit and unjust enrichment claims, in part because Mr. Drosnin, the moving party, failed to provide any affidavit setting fourth the relevant Israeli law. (Crosby 1/31/02 Aff., Exh., E at 14-16). Justice Gammerman's decision was affirmed by the Appellate Division, First Department on January 25, 2000. Torah Soft Ltd. v. Drosnin, 268 A.D.2d 367, 702 N.Y.S.2d 272 (1st Dep't 2000).

Thereafter, Mr. Drosnin removed the case to this Court pursuant to 28 U.s.c. § 1441, on the ground that the plaintiff's claim was essentially one for copyright infringement over which the federal court would have exclusive jurisdiction.*fn2 After the completion of discovery, the parties filed the instant motions.

The defendant argues that Torah Soft's breach of contract claims with respect to the provision of publicity are deficient under Israeli law in three respects. First, the general promise to provide publicity for Torah Soft was too vague and indefinite to be enforceable. Second, any promise was made in the context of precontractual negotiations or social discourse, and was not binding. And, third, there was no evidence of the parties' resolve to be bound by such a promise. Similarly, Mr. Drosnin argues that there was no binding contract that obligated him to market Torah Soft's Software with The Bible Code. Again, he contends that the alleged agreement was too indefinite to be enforced and that the parties did not display a resolve to be bound. He also maintains that any agreement was voided because it was based on a condition precedent — that some software be sold with the book — which did not occur. Finally, the defendant argues that the claims of unjust enrichment and quantum meruit must be dismissed because the only enforceable contract that existed — that which required him to pay Dr. Spielberg $20 per hour for modifying the Software — was fully performed.

Dr. Spielberg and Torah Soft cross-moved for summary judgment on each of the counterclaims and third-party claims. They contend that the First Counterclaim, for breach of contract, is preempted by United States copyright law. Dr. Spielberg and Torah Soft argue that the defendant's common law unfair competition claim should be dismissed because of the failure to allege bad faith and a likelihood of confusion to consumers. They also moved for judgment on the defendants' Second, Third, and Fourth Counterclaims, but Mr. Drosnin withdrew them.

Finally, Dr. Spielberg and Torah Soft have moved for sanctions pursuant to 28 U.S.C. § 1927 on the ground that the defendant's failure to withdraw the three moribund counterclaims at some earlier date constituted bad faith and was designed to multiply the proceedings. I will address each motion in turn.

Discussion

A. Standard for Summary Judgment

Pursuant to Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Andy Warhol Foundation for the Visual Arts, Inc. v. Federal Insurance Co., 189 F.3d 208, 214 (2d Cir. 1999). The moving party bears the initial burden of demonstrating "the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the moving party meets that burden, the opposing party must come forward with specific evidence demonstrating the existence of a genuine dispute of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).

In assessing the record to determine whether there is a genuine issue of material fact, the court must resolve all ambiguities and draw all factual inferences in favor of the nonrnoving party. Id. at 255; Vann v. City of New York, 72 F.3d 1040, 1048-49 (2d Cir. 1995) Nonetheless, the "litigant opposing summary judgment may not rest upon mere conclusory allegations or denials, but must bring forward some affirmative indication that his version of relevant events is not fanciful." Podell v. Citicorp Diners Club, Inc., 112 F.3d 98, 101 (2d Cir. 1997) (internal quotations omitted); see also Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (a nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts"); Goenega v. March of Dimes Birth Defects Foundation, 51 F.3d 14, 18 (2d Cir. 1995) (nonmovant "may not rely simply on conclusory statements or on contentions that the affidavits supporting the motion are not credible") Rule 56 requires that when a summary judgment motion is made and supported, the non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.Pro. 56(e). In sum, if the court determines that "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no `genuine issue for trial.'" Matsushita, 475 U.S. at 587 (citing First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 289 (1968)).

B. Defendant's Summary Judcunent Motion

1. Contract Claim - Publicity

a. Governing Law

Justice Gammerman previously determined that the contractual arrangements between Mr. Drosnin and Torah Soft concerning the services provided by Dr. Spielberg are governed by Israeli law. There is no occasion to revisit that decision. The law of the case doctrine generally applies to decisions made by a state court prior to removal to federal district court. See Rekhi v. Wildwood Industries, Inc., 61 F.3d 1313, 1317-18 (7th Cir. 1995); Bogosian v. Board of Education of Community School District 200, 73 F. Supp.2d 949, 954 (N.D.Ill. 1999); 18 Moore's Federal Practice § 134.22[3][c][i] (3d ed. 1999) ("When an action is removed from a state court to a federal court, the law of the case doctrine applies to the decisions entered by the state court prior to removal."). Pursuant to that doctrine, a court may review a matter previously decided in any of three circumstances: (1) where there has been an intervening change of controlling law, (2) where new evidence has become available, or (3) where there is a need to correct a clear error or prevent manifest injustice. See United States v. Minicone, 26 F.3d 297, 300 (2d Cir. 1994). No such factor is present in this action. In addition, in a removed case a federal court may reconsider a determination based on state procedural law if its application in the federal forum would be anomalous. See Soda v. Oldsmobile Division of General Motors Corp., No. CIV-88-1155E, 1990 WL 130524, at *2 (W.D.N.Y. Aug. 30, 1990) Aqain, that is not the case here. Accordingly, this issue will be determined pursuant to Israeli law.

Each party has submitted expert affidavits with respect to the Israeli law of contracts. The respective experts are both highly qualified . . . The defendant's expert, Joel Singer, received his law degree from Tel Aviv University Law School and served as Legal Advisor to the Israeli Ministry of Foreign Affairs. He is currently a partner at Sidley Austin Brown & Wood LLP. (Affidavit of Joel Singer dated Jan. 30, 2002 ("Singer Aff."), ¶ 2). The plaintiff's expert, Opher Levenberg, received his Bachelor of Law degree from the Hebrew University of Jerusalem and is a partner in the firm of Haim Samet, Steinmetz, Hang & Co. in Tel Aviv. (Declaration of Opher Levenberg dated March 24, 2002 ("Levenberg Aff."), ¶¶ 1, 3).

These experts are in substantial agreement with respect to the broad contours of Israeli contract law. In general, oral contracts are fully enforceable. Contracts (General Part) Law, 5733-1973, § 23.*fn3 As a threshold matter, the parties must intend to enter into a bindinq legal relationship, as opposed to a mere societal agreement like a promise to come to dinner. (Singer Aff., ¶¶ 2, 4).*fn4

Without an intention to create a contract, there is neither room nor reason to deal with the provisions of the contracts laws, because this phenomenon is not a contract and the [Israeli] Contracts Law does not apply to it. Accordingly, the intention to create legal-contractual relations is, in my view, a preliminary requirement to entry into the contracts domain. The [Israeli] Contracts Law, which opens with the word "contract," through the requirement for an intention to create legal relations, serves as a filter that separates between contractual and non-contractual phenomena. With regard to an agreement that is not characterized by an intention to create legal-contractual relationships, one should not proceed along the course created by the legislating authority by asking whether a "contract" was formed through an offer and acceptance, as required by Article 1 of the Contracts Law. A societal agreement is not a contract to which the contracts laws are applicable, because it does not include an intention to create legal relationships.

Gabriela Shalev, Contracts Laws 84 (Jerusalem, 2d ed. 1995). Furthermore, even in the context of a commercial relationship, statements may not be legally binding if the parties' words or conduct indicate that they did not intend a formal contract.

Even when the parties are interested in a legal relationship, they may assign a different strength to their statements. Thus, for instance, mere boasting by the seller praising his merchandise does not express any commitment by the seller regarding the quality of the product; such statements do not, by themselves, constitute an intention to create a legal ...

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