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Software for Moving, Inc. v. La Rosa Del Monte Express

December 7, 2007


The opinion of the court was delivered by: Judge Joan B. Gottschall

Magistrate Judge Jeffrey Cole


Defendants La Rosa Del Monte Express, Inc. ("La Rosa New York") and La Rosa Del Monte Express (Chicago) LLC ("La Rosa Chicago," and collectively "La Rosa"), have filed an omnibus motion with this court to dismiss plaintiff Software for Moving, Inc.'s ("SFM") first amended complaint or, in the alternative, to transfer the action to the Southern District of New York. The motion further opposes SFM's motion to stay arbitration and opposes SFM's motion to strike the declaration of John T. A. Rosenthal. The motion also includes La Rosa's cross-motion to stay this action and/or to compel arbitration. For the reasons set forth below, La Rosa's motion to dismiss is denied, SFM's motion to stay arbitration is granted, and La Rosa's cross-motion to stay this action and/or to compel arbitration is denied. SFM's motion to strike the declaration of John T. A. Rosenthal is denied as moot. Finally, La Rosa's motion to transfer the action to the Southern District of New York is granted.


At the heart of this case is an alleged written contract between SFM and La Rosa that is either authentic or fraudulent. SFM is a software company that, as its name implies, develops and licenses software for moving companies. SFM's predecessor was a company called Safeguard Computer Services, Inc. ("Safeguard"). La Rosa is a moving company, incorporated in New York, operating at 11 locations within the United States and internationally. La Rosa Chicago is a subsidiary or sister corporation established in Chicago by La Rosa.

In 1999, La Rosa entered into a contract with Safeguard for the licensing of a WindowsTM-based program, Moving Manager for Windows ("the 1999 Agreement"). Prior to 1999, La Rosa allegedly also licensed a DOS-based version of Moving Manager from Safeguard. In December 2004, La Rosa and SFM allegedly entered into an agreement by which La Rosa would license a new, Web-based version of Moving Manager from SFM, incorporating several modifications suited to La Rosa's needs. According to SFM, although it spent 20 months developing the Web-based software for La Rosa, no written agreement memorializing the contract was ever presented to, or signed by, SFM, with the exceptions described below. SFM alleges that, based solely on an oral agreement, the contract price for developing the Web-based program was $295,000, payable upon completion of the working program.

La Rosa allegedly went "live" with the Web-based program in August 2006, at which time it requested that SFM sign a 9/11 agreement*fn1 as well as a chart listing La Rosa's maintenance fee payment obligations over the ensuing seven years. In 2006, La Rosa requested modification of the Web-based program; again, this was allegedly based on an oral agreement that La Rosa would pay SFM an additional $60,000 if the modifications were acceptable.

La Rosa hotly disputes SFM's contention that there was no written agreement between the two parties for the Web-based program. La Rosa alleges that there was indeed a written development and license agreement between SFM and La Rosa (the "2005 Agreement") for the Web-based program that was signed by SFM's president, Shlomo Kogos ("Kogos") on March 3, 2005. SFM has dismissed the agreement as a fraud and Kogos' alleged signature on the document as a forgery.

According to SFM, La Rosa stopped paying the maintenance fees required under the 1999 Agreement in August, 2006. When La Rosa ignored SFM's demands that it continue to pay the maintenance fees, SFM filed suit in this court, alleging that La Rosa had infringed SFM's copyright by continuing to use the software covered by the 1999 Agreement and seeking damages under 17 U.S.C. §§ 504 and 505 (count I). SFM also claims that La Rosa breached the 1999 Agreement by failing to pay the licensing fees specified in the 1999 Agreement (count II). SFM further alleges that La Rosa breached the oral contract it made with SFM concerning the Web-based program when it failed to pay $52,500 of the agreed-upon price of $295,000 for the development and licensing of the Web-based program and by failing to pay the maintenance fees according to the schedule signed in 2006 (count III). Finally, SFM claims that La Rosa also breached the subsequent oral contract by failing to pay $60,000 for the modifications to the program allegedly requested by La Rosa.


A. La Rosa's Motion to Dismiss for Lack of Subject Matter Jurisdiction

La Rosa has moved to dismiss SFM's complaint under Federal Rule of Civil Procedure 12(b)(1), claiming that this court lacks subject matter jurisdiction to hear the case. FED R. CIV. P. 12(b)(1). When deciding a motion to dismiss under Rule 12(b)(1), the court construes the complaint liberally and is not bound to accept as true allegations of jurisdiction where a party properly raises factual questions of subject matter jurisdiction. Bab Systems, Inc. v. Pilatus Inv. Group, Inc., No. 05 C 3038, 2005 WL 2850119, at *2 (N.D. Ill. October 27, 2005). Furthermore, the court may look beyond the jurisdictional allegations to examine any evidence submitted to determine if subject matter jurisdiction in fact exists. Id.

Specifically, La Rosa claims that it was Safeguard, not SFM, which registered the copyright of the software that was the subject of the 1999 Agreement. Kogos, the president of both Safeguard and SFM, has alleged that SFM is the successor in interest to Safeguard, and that Safeguard's ownership of the allegedly infringed copyright was transferred to SFM. Decl. of Shlomo Kogos ¶ 8. La Rosa claims that Safeguard did not properly assign its copyright to SFM, because SFM allegedly cannot produce a writing memorializing the transfer of the copyright from Safeguard to SFM as required by 17 U.S.C. § 204(a). Therefore, contends La Rosa, since SFM cannot, absent a written transfer agreement, properly allege ownership of the copyright, it must necessarily lack standing to bring a case of copyright infringement. Finally, according to La Rosa, since SFM cannot meet its burden of demonstrating that it has standing in this case, its complaint should be dismissed for lack of subject matter jurisdiction under Rule 12(b)(1). Althin CD Medical, Inc. v. West Suburban Kidney Center, 874 F. Supp. 837, 843 (N.D. Ill. 1994).

La Rosa invokes § 204(a) in claiming that since SFM has not produced (and presumably cannot produce) a copy of a written instrument of conveyance, or note or memorandum of the transfer, of the copyright from Safeguard to SFM, then SFM cannot be recognized as owner of the copyright with standing to bring suit. Section 204(a) of the Copyright Act states that: "A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent." 17 U.S.C § 204(a). The "operation of law" clause of § 204(a) has generally been limited to well-defined circumstances, including transfers of ownership pursuant to proceedings in bankruptcy and mortgage foreclosures; transfer of ownership rights from employee to employer in a "for hire" situation; or by transfer of assets from a dissolving corporation to its shareholders pursuant to the laws of the state of incorporation. Brooks v. Bates, 781 F. Supp. 202, 205-06 (S.D.N.Y. 1991). None of these limited circumstances by which copyright ownership may be transferred via operation of law is applicable to the instant case.

Nevertheless, La Rosa's motion to dismiss based on the above argument is fatally flawed. The Seventh Circuit has held explicitly that alleged third-party infringers, like La Rosa, may not invoke § 204(a) to avoid suit for copyright infringement. Billy-Bob Teeth, Inc. v. Novelty, Inc., 329 F.3d 586, 592-93 (7th Cir. 2003). According to the court, ยง 204 is in the nature of the Statute of Frauds and is specifically designed to resolve disputes between copyright owners and transferees. Billy-Bob Teeth, 329 F.3dat 592. Where there is no dispute between the copyright owner and the transferee over the status of the copyright, "it would be unusual and unwarranted to allow a third party infringer to invoke ...

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