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Toledano v. O'Connor

August 17, 2007

JAMES TOLEDANO, AS PERSONAL REPRESENTATIVE OF THE ESTATE OF RALPH DETOLEDANO, ET AL., PLAINTIFFS,
v.
JOHN D. O'CONNOR, ET AL., DEFENDANTS.



The opinion of the court was delivered by: John D. Bates United States District Judge

MEMORANDUM OPINION

In the July 2005 issue of Vanity Fair magazine, an article entitled "I'm the Guy They Called Deep Throat" revealed for the first time the identity of the individual popularly known as "Deep Throat" -- the confidential source who, in the 1970s, provided information to journalists Bob Woodward and Carl Bernstein of The Washington Post in connection with their investigation of the Watergate scandal. The Vanity Fair article explained that the celebrated informant was in fact Mark Felt, Sr., a career FBI agent who had long denied that he was Deep Throat. Felt Sr., along with his son Mark Felt, Jr. and John D. O'Connor, the author of the Vanity Fair article, are defendants in this action. They are being sued by the personal representatives of the estate of Ralph deToledano, the co-author (with Felt Sr.) of The FBI Pyramid from the Inside, a biography of Felt Sr. published in 1980. The merits of this suit concern the validity of a contract between deToledano and the Felts, entered into prior to the revelation of Deep Throat's identity, that called for deToledano to transfer his 50% interest in the copyright of FBI Pyramid to the Felts. The contract further provided that any disputes related to the subject matter of the agreement would be referred to arbitration.

Now pending before the Court is a joint motion filed by Felt Sr. and O'Connor to stay this action pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16 (2000), and to transfer this action to the Northern District of California, and a motion filed by plaintiffs to stay arbitration proceedings. For the reasons explained below, this Court concludes that Felt Jr. and Felt Sr. are entitled to a stay of this action under the FAA and that O'Connor is entitled to a discretionary stay. Accordingly, defendants' motion to stay this action is granted in part and denied in part, and plaintiffs' motion to stay arbitration is denied. The Court also denies defendants' motion to transfer venue. It is worth emphasizing that the only issue currently before the Court is whether this dispute must be arbitrated. Thus, the Court expresses no opinion on the underlying merits of plaintiffs' claims, which will be addressed by an arbitrator in the first instance.

BACKGROUND

In 1980, G.P. Putnam's Sons published The FBI Pyramid from the Inside, a biographical account (now out of print) of the long-time FBI career of defendant Mark Felt, Sr. ("Felt Sr."). See Compl. ¶ 8, Decl. of Theodore S. Allison ("Allison Decl.") Ex. D. Although the title page lists the sole author of the book as W. Mark Felt, in fact Ralph deToledano was Felt's co-author and, at least at the time of the book's publication, owner of a 50% undivided interest in the corresponding copyright. Compl. ¶ 8, Allison Decl. Ex. D.

In early 2003, defendant Mark Felt, Jr. ("Felt Jr.") contacted deToledano about FBI Pyramid in order to obtain deToledano's copyright interest in the book. Felt Jr. hoped to release a new book about his father that incorporated information from the previous biography. Compl. ¶ 14, Declaration of John D. O'Connor ("O'Connor Decl.") Ex. 1 (May 9, 2003, Letter and Revised Agreement) at 2; see also Felt Jr. Answer ¶ 14. Under Felt Jr.'s initial offer, as described in the complaint, Felt Jr. would have paid deToledano an amount equal to either 33% of the net royalties for the publication of a book that substantially used material from FBI Pyramid, or an amount equal to 10% of the net royalties for any publication about Felt Sr. that did not derive substantially from FBI Pyramid. Compl. ¶ 14.

The subsequent discourse between deToledano and defendants with respect to a transfer of the FBI Pyramid copyright took place primarily through an exchange of letters, the contents of which are not in dispute. The first of these letters was sent from O'Connor to deToledano on May 9, 2003. May 9, 2003, Letter and Revised Agreement at 1. Plaintiffs allege that O'Connor wrote the letter as a "literary agent for the Felt family" and "did not disclose that he was acting as a lawyer, nor that he had any personal or financial interest in authoring, promoting or licensing the story of Felt Sr." Compl. ¶ 15. In the letter, O'Connor responded to deToledano's apparent confusion over the proposed two-tiered royalty payment structure, stating that "if the parties disagreed as to whether the final version entitled you to 10% or 33%, either party would have the right to go to arbitration." May 9, 2003, Letter and Revised Agreement at 1. O'Connor enclosed with the letter a copy of "a revised version of the Agreement to Assign Copyright." Id. That version of the agreement contained a paragraph detailing the two-tiered royalty payment schedule, as well an arbitration provision calling for "a confidential arbitration before a single arbitrator before JAMS/ENDISPUTE" in San Francisco "[s]hould there arise any dispute under this Agreement, or in any way related to the subject matter of this Agreement." Id. at 3-4.

On May 27, 2003, deToledano responded with a letter to O'Connor in which he wrote that the "Agreement to Assign Copyright bears no resemblance to what I discussed with Mark Felt Jr." O'Connor Decl. Ex. 3 (May 27, 2003 Letter). Instead, deToledano wrote, he had "discussed a re-publication of [FBI Pyramid] with perhaps some added material to be supplied by Mark Sr., with a three-way split of the royalties and copyright," and, on that basis, he also had "offered to do any work on the new book that a publisher might require." Id. deToledano then observed that "[t]he agreement which you were to draw up, I believed, would incorporate the above. What you submitted leaves me out, except for a possible 10% of royalties." Id.

According to O'Connor, he and deToledano communicated once by telephone in the months after his receipt of deToledano's May 27, 2003, letter. O'Connor Decl. ¶ 8. During that conversation, O'Connor "mentioned that if there were disagreements about whether the 10% or 33% [royalty rate] was applicable, the arbitration clause would resolve any disputes." Id. O'Connor states that other than that telephone call, "there was no communication whatsoever orally regarding the arbitration clause, but in that conversation, [O'Connor] did point out the existence of the clause, and Mr. deToledano acknowledged that he knew there was an arbitration clause in the proposed Agreement." Id.

O'Connor then sent a letter to deToledano on September 2, 2003, writing that "Mark Jr. would still like to try to do a book" and suggesting that deToledano had misunderstood the last offer, "which was that you got 10% if we did not use any of the copywrighted [sic] materials, but gave you the 33% if Mark Jr. used them." O'Connor Decl. Ex. 4 (Sept. 2, 2003 Letter). The letter continued:

In any case, he suggests we do it even more simply. He would pay you $5,000 in cash for your share of the rights, plus $5,000 if he ever gets a book published. Please let us know what you think about that offer, which would make this whole thing much simpler.

Id. As a postscript, O'Connor wrote that Felt Jr. would "still like to consider [deToledano] as a ghostwriter for an additional negotiated fee." Id.

deToledano wrote back on September 7, 2003, thanking O'Connor for the letter of September 2. See O'Connor Decl. Ex. 5 (Sept. 7, 2003 Letter). The letter continued:

I accept Mark's proposal as outlined in your letter. As I understand it, he will pay me $5,000 in cash for my share of the rights in The FBI Pyramid, with an additional $5,000 if the revised edition is published. I presume that on receipt of my letter, you will draw up and send me a formal contract embodying his proposal.

Id. deToledano also offered his help with editing or incorporating material into the new book for an additional fee, noting that there would be "no problem arriving at an equitable arrangement." See id.

The next letter was sent from O'Connor to deToledano on October 27, 2003, and reads in relevant part:

Enclosed is an Agreement to Assign Copyright and Assignment of Copyright for your execution. Please execute the Agreement and the Assignment, keeping copies for yourself, and send a signed copy of each in the enclosed self-addressed stamped envelope. We will forward you a check for $5,000 upon your execution of this contract, and after you have received that amount, you can then send us back an executed copy of the Assignment.

O'Connor Decl. Ex. 6 (Oct. 27, 2003 Letter) at 1. Enclosed with the letter were a two-page Agreement to Assign Copyright and a one-page Assignment of Copyright. See id. at 2-4. The Agreement included the following arbitration clause:

Should there arise any dispute under this Agreement, or in any way related to the subject matter of this Agreement, the parties agree to a confidential arbitration before a single arbitrator before JAMS/ENDISPUTE, San Francisco, California, under its applicable rules for arbitration. The Arbitrator hereunder shall decide any questions of venue or location for hearing, deposition, or the taking of any evidence. All arbitration proceedings shall be kept strictly confidential.

Id. at 3 ¶ 7.

Both the Agreement and the Assignment were signed by deToledano on November 4, 2003. See O'Connor Decl. Ex. 7. In a declaration submitted to this Court, deToledano stated that he sent the signed Agreement and Assignment to O'Connor, and he "expected that any transfer of my copyright interest would be the subject of a formal contract, and [he] expected all of the parties to that contract to sign it." Decl. of Ralph deToledano ¶ 4.

Approximately one month after signing the Agreement and Assignment, deToledano wrote to O'Connor again. See O'Connor Decl. Ex. 8 (Dec. 6, 2003 Letter). His letter stated:

Release to Mark Felt Jr. of my 50 percent of the copyright of The FBI Pyramid was contingent on payment by you of $5,000, plus $5,000 on any use by Mark Felt Jr. of the text and material of said book.

Though weeks have passed, I have not received the check for $5,000, as specified by our agreement.

This is to inform you that, because of your failure to make payment to me as provided for in our agreement, I am canceling that release.

Id. When O'Connor wrote back on December 15, 2003, he "apologize[d] for [his] client, who thought he had some money coming in several weeks ago" and indicated that "we do expect to be able to pay you by the first of the year." O'Connor Decl. Ex. 9.

Over one year later, O'Connor wrote to deToledano again: "Enclosed is a check for $5,000 as payment for the rights to any and all copyright interest you have in The FBI Pyramid, previously transferred to our clients. Please excuse the delay." Decl. of Ralph deToledano Ex. A (Feb. 18, 2005 Letter & Check). The enclosed check was drawn from O'Connor's personal account. See id. In his declaration, deToledano claims that "[w]hen [h]e received a check from Mr. O'Connor, on his personal account . . . [he] did not know who was using the copyright assignment [he] had signed, or for what purpose, nor did [he] understand why Mr. O'Connor himself was paying [him]." deToledano Decl. ¶ 5. The check was negotiated by deToledano on March 2, 2005. Defs.' Ex. 12.

On or about May 31, 2005, deToledano and the general public learned for the first time that Felt Sr. was the individual known as "Deep Throat" -- the "confidential informer . . . who helped The Washington Post unravel the mysteries of the Watergate break-in and cover-up by Richard M. Nixon's White House." Compl. ¶¶ 10, 11. This revelation was contained in an article written by O'Connor for the July 2005 issue of Vanity Fair magazine. See deToledano Decl. Ex. B ("I'm the Guy They Called Deep Throat"). Plaintiffs allege that Felt Sr.'s identity as Deep Throat had been known to Felt Jr. and O'Connor for several years. Compl. ¶ 11. Plaintiffs also allege that O'Connor told the Wall Street Journal in mid-2005 that he ...


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