The ebook industry has undergone several transitions in the past few years, where authors have become increasingly victimized by e-pirates, vanity presses, and scams designed to keep writers from making money on their intellectual property. Earlier today, December 28, 2016, the industry hit a new low when longtime e-tailer All Romance E-Books (Are), LLC (with its non-romance genre partner Omni Lit) released a surprise notice to its authors and publishers. ARe’s CEO and owner, Lori James, announced that the retailer was closing its doors in three days’ time.
What makes this so terrible is not the fact that they’re closing. What makes this so terrible is how they’re doing it:
We will be unable to remit Q4 2016 commissions in full and are proposing a settlement of 10 cents on the dollar (USD) for payments received through 27 December 2016. We also request the following conditions:
1. That you consider this negotiated settlement to be “paid in full”.
2. That no further legal action be taken with regards to the above referenced commissions owed.
Let’s break this down. An online retailer is closing down and cannot remit the royalties owed to authors and publishers for the entire fourth quarter of 2016. In lieu of the agreed-upon percentage of 60% of the cover price for each book sold, ARe is proposing that they pay authors TEN CENTS on the dollar of those owed royalties–for books that have already been sold and the money already collected and presumably deposited in the bank account of ARe.
. . . .
The big publishing houses will almost certainly get their money. But the small presses and self-published authors are facing a terrible decision. Do writers allow ARe to steal their royalties? Do they submit for convenience’s sake because the owners of ARe aren’t planning to pay those royalties as they are contractually and legally required to do? Or, are writers willing to stand up to this theft and pursue legal recourse, knowing full well they won’t even see that ten cents on the dollar after all is said and done?
Because let’s be for real here. It’s not like ARe’s owners aren’t paying authors because they don’t have the money for the sales. They do have it. They banked all that cash and are now trying to keep it. And by hanging the threat of filing for bankruptcy out there, the company is attempting to threaten authors into agreeing legally to let them retain that money without future legal responsibility.
And here’s the million dollar question – what did ARe and its owners actually do with all the money they collected from fourth quarter sales? They haven’t paid the authors, obviously. So where is it?
And what about the authors who prepaid for advertising in 2017? What happened to their money? Just last week, ARe sent out notices soliciting ads for 2017. As you can see from their website, advertising cost anywhere from $50 to $2000 per month.
. . . .
There is an underlying lack of legal protections for authors, their intellectual property, and their income in this country. Publishers, false agents, and retailers continue to run these long-term scams, sucking the unwary into their webs and milking them for every dime. But what makes this case stand out is the egregious bullying tone of its owner’s statement to the authors she stole from, and the utter lack of concern James and ARe display for anyone outside of their own personal interests. And sure, most of the authors whose money just vanished into the ether surrounding those multi-million dollar properties in a Big Bear Lake vacation community may be out ten bucks at most.
But that’s not the point.The point is that a retailer announced today that it was stealing the money it’s received for three months’ worth of book sales and has no intention of fulfilling its fiduciary responsibility to the authors whose intellectual property they sold. A retailer has basically committed fraud and has no evident fear of being challenged or behind held responsible legally, either on a criminal or civil level. And unfortunately, that’s probably true. They’ll get away with it, and Lori James will continue to spend part of her time at Big Bear Lake, where she will enjoy the benefits of running a company who blatantly stole from the authors whose books she sold.
Link to the rest at BlogCritics and thanks to Matthew for the tip.
PG believes this whole matter is likely to end up in bankruptcy court where they deal with this sort of situation all the time.
PG hasn’t appeared in bankruptcy court in many years and hasn’t kept up on bankruptcy law, but, generally speaking, bankruptcy judges are experienced in sorting out the kinds of problems mentioned in the OP.
Failing businesses almost always stiff or try to stiff most or all of their creditors. If the owners have diverted significant sums of money from the businesses for their personal use, bankruptcy courts can claw back money and/or assets purchased with that money for distribution to creditors.
To the best of PG’s dated bankruptcy knowledge, booksellers, distributors or publishers would not owe any special fiduciary duty to authors for royalty payments and authors would not receive priority for payments over other unsecured creditors.
The difference between secured and unsecured creditors is important in a bankruptcy. If a bankrupt entity had borrowed money to purchase real estate, the lender (a bank, for example) would have almost certainly required that the borrower grant it a security interest (mortgage) in the real estate. In a bankruptcy, with permission of the court, the bank would be entitled to foreclose on the real estate for repayment of its mortgage loan. If such a foreclosure failed to generate enough cash to pay off the loan, the bank would likely be an unsecured creditor with respect to the remaining balance of the loan, just like other unsecured creditors.
If a failing business attempts to pay one creditor or group of creditors to the detriment of others similarly situated, a bankruptcy judge can require the favored creditors to refund part or all of the money they have received. In the case of a failing publisher, if the publisher attempts to pay some authors 100% of royalties due and other authors 10% of royalties due, the authors who have received 100% can be made to repay most or all of the money they’ve received into the bankruptcy court.
In the case of ARe, if a bankruptcy proceeding is commenced, authors are unlikely to be the only unsecured creditors who are not paid. If a group of authors are paid 10% of royalties due and other unsecured creditors are paid nothing, those other unsecured creditors may ask the bankruptcy court to require the 10% authors to repay some or all of the money they’ve received. Creditor priority can raise complex issues and PG is just skimming over the top of this topic.
Usually the owners of a failing business will file a bankruptcy petition for the business. If a business is, in fact, unable to pay its creditors, the creditors may petition the bankruptcy court to place the business into bankruptcy and bring its assets under court supervision. An involuntary bankruptcy proceeding is sometimes used if creditors suspect the owners of the business have improperly siphoned money or assets out of the business.
These are general bankruptcy principles and PG is neither current on bankruptcy law or privy to any inside information regarding ARe’s collapse.
Given the way authors often support one another, PG wouldn’t be surprised if a group of authors have not already banded together to consult with competent bankruptcy counsel about ways to protect their rights and maximize their return from their books which ARe has sold or licensed. Generally speaking, unless things have changed since the last time PG walked out of bankruptcy court, counsel can often represent a group of creditors who are similarly situated in a bankruptcy proceeding.
If he has not already made himself clear, PG is not currently able to represent anyone in a bankruptcy proceeding. He likes to help mistreated authors and regrets not being able to do so in this instance.