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Medallion Press Files for Chapter 7 Bankruptcy

30 October 2018

From Publishers Weekly:

Medallion Press filed for Chapter 7 bankruptcy October 18, in the U.S. Bankruptcy Court of Northern District of Illinois. In its filing, the publisher listed assets of $100,001 to $500,000 and liabilities in the same range. It cited between 200 to 999 creditors.

Under a Chapter 7 filing, a trustee will liquidate a company’s assets in order to earn as much money as it can to pay creditors.

. . . .

Medallion was founded in 2003 by Helen Rosburg, a published romance author and great-granddaughter of Wrigley Co. founder William Wrigley. The house initially focused on publishing mass market paperbacks in the categories of general fiction, romance, fantasy, paranormal, science fiction, mystery and thrillers.

After growing steadily from its launch to 2010, Medallion formed with Medallion Media Group and put an eye towards entering the movie and music business.

. . . .

Since word of the bankruptcy started to spread, agents have been working to retrieve the publishing rights of their authors from the company.

Link to the rest at Publishers Weekly

Several lifetimes ago, as a volunteer lawyer working with Legal Aid (an organization that provides legal assistance to poor people in the US), PG filed a lot of Chapter 7 bankruptcy petitions. That said, he has not remained current on bankruptcy law and does not provide any legal advice for those involved in bankruptcy proceedings. He especially doesn’t provide legal advice via blog posts on TPV.

For business organizations, a typical bankruptcy will be filed under Chapter 7 (the business can’t pay its debts and its assets will be liquidated and the proceeds divided among its creditors) or Chapter 11 (if the bankruptcy court will hold the creditors at bay, the business can reorganize itself, stretch out some payments, get out of some contracts and once again become a viable business entity).

The OP says Medallion has filed for a Chapter 7 bankruptcy. If the legal process is carried through to conclusion, Medallion will cease to exist after a period of time during which its assets are sold and, under the supervision of a court-appointed bankruptcy trustee, the proceeds divided among its creditors according to priorities set in the bankruptcy laws. Any current or future lawsuits against the company get rolled into the bankruptcy process along with the claims of all creditors, including authors who haven’t been paid their royalties.

The OP says literary agents have been working to retrieve the publishing rights of their authors from Medallion. Unless the agents have retained competent bankruptcy counsel, that isn’t going to happen. Medallion no longer controls the publishing rights. Upon the filing of the Chapter 7 petition, which has already occurred, the bankruptcy court controls the publishing rights and all other assets owned by Medallion. Whoever may answer the phone at Medallion can’t do anything with publishing rights, regardless of how persuasive a literary agent may be.

PG is not aware of any special provisions of the bankruptcy laws that place authors in a privileged position in a Chapter 7 bankruptcy of a publisher (although he would be very happy to learn such provisions exist).

Absent such provisions, the publishing agreements between Medallion and its authors are assets that the bankruptcy trustee will try to sell for the best price possible to whoever will pay that price. Any claims for unpaid royalties owed to authors will likely be rolled into the pile of unpaid debts of Medallion and cash resulting from sales of assets will be divided among the printer, the utility companies, UPS, the bookstores that have returned Medallion books for a refund and not been paid, etc., etc., etc., and the authors.

Absent unusually valuable assets, PG suspects the authors will receive a small fraction of their unpaid royalties.

But what about the publishing rights the agents are apparently attempting to retrieve?

In a variety of different business contracts, somewhere back in the boilerplate provisions, there is a bankruptcy clause that is worded something like the following:

In the event that either Party files for protection under bankruptcy laws, makes an assignment for the benefit of creditors, appoints or suffers appointment of a receiver or trustee over its property, files a petition under any bankruptcy or insolvency act or has any such petition filed against it which is not discharged within sixty (60) days of the filing thereof, then the other Party may terminate this Agreement effective immediately upon written notice to such Party.

Unfortunately, upon the filing of a bankruptcy petition, this contract provision becomes unenforceable.

The bankruptcy court determines what happens under the contracts that are held by the individual or company filing for relief under US bankruptcy law. As stated above, generally speaking, under Chapter 7, the bankruptcy trustee tries to sell the assets owned by the person or company filing for bankruptcy relief to whoever offers to pay the highest price.

As an uninvolved observer (and not as an attorney), PG expects the publishing contracts between Medallion and its authors will be sold to an individual or company and (voilà!) – all the Medallion authors will have a new publisher!

The new publisher might be Random House or it might be Kevin the Krusher, New Jersey junkyard magnate, who buys the publishing contracts as a gift for his spoiled son, Digby, who has always wanted to be a member of the literary set.

If the Medallion publishing agreements include the most unfortunate, but quite common provision by which the author granted Medallion the right to publish his/her books for the full term of the copyright the author owns for the book (typically, the rest of the author’s life plus 70 years in the US), each of the Medallion authors can look forward to receiving royalty statements (or not) from Digby every once in awhile accompanied by royalty checks (or not).

After Digby retires, Digby, Jr., may become the publisher followed by Digby III (or not).

Or, if the circle of life applies to publishing contracts, perhaps Digby will burn through all his father’s money and file a petition for relief under Chapter 7 of the Bankruptcy Code.

Legal Stuff, PG's Thoughts (such as they are)

22 Comments to “Medallion Press Files for Chapter 7 Bankruptcy”

  1. Wait…

    Somebody started a mass market paperpack publishing house in 2003?
    And they thought it was a good idea?
    Talk about being late to the party! They showed up just in time for the decline phase.

    I’m surprised they lasted this long.

    • Richard Hershberger

      That jumped out at me, too. In fairness, it probably wasn’t obvious at that time where the future of mass market commercial fiction lay.

      Also, a company with assets of half a million tops was trying to get into the movie business? Excuse me while I point and laugh.

      • No, the ebook future wasn’t at all obvious.

        But the present was and consolidation of low volume publishers was ongoing. So was the increasing importance of backlist and the increased visibility of used books. The big catfight over Amazon’s used book business was three years past at that point.

        Diving into the low end at that point was…bold. 🙂

  2. Thank you as always, PG, for the excellent analysis. That bankruptcy clause is always something I wondered about.

    • You’re welcome, T.S.

      • Unfortunately, upon the filing of a bankruptcy petition, this contract provision becomes unenforceable.

        IIRC various bankruptcy courts have held that such clauses are not just unenforceable but void as a matter of law. Alas, I no longer have access to Westlaw, so I cannot check.

  3. Although… There is some leeway in bankruptcy committees.

    I’m not a lawyer at all and this is not legal advice, but I was the chairman of a Chapter 11 bankruptcy committee as a private individual (a very unusual situation). Normally the committee is made up of the chief creditors, who are typically landlords and other large debtors, but in this case the dead company had just bought my company and still owed us money on the transaction, more money than it owed its landlords, etc.

    This was an… educational experience. It took years to work through, as part of (one of) the dot-com bubble(s).

    (While I received no particular benefit, we did end up $800K in the black, setting a record in Illinois. Alas, we couldn’t put the management in jail, where they belonged.)

    You have some discretion about what to do with the assets in some areas. For example, employees had submitted expense accounts which had not yet been paid. I argued that they should be paid from the assets, even though that was not required — wasn’t their fault their management had killed the firm — and we convinced the rest of the committee of chief creditors to be merciful in that way.

    I wouldn’t be completely surprised if the bankruptcy committee had some leeway about what to do about that contract clause letting the authors retrieve their rights.

    Anyone know of such a case?

    • Karen, Sounds like you were the chair of the creditors’ committee.

      IIRC the Code directs the bankruptcy court to seek an equitable distribution of the debtor’s assets. What is equitable? The best answer is anything the creditors’ committee agree to. I never saw a judge overturn any decision of a creditors’ committee, and I have seen some egregiously unequal distributions.

      You worked an 11, so the debtor came out the other side. Did the debtor succeed or later fold?

      • It started as an 11 but had stopped being a running firm by then. When we finished, with an $800K SURPLUS, there was no one to receive it

        The committee was prepared to disperse it among a set of uncontroversial charities, but the judge effectively seized it and picked a charity of his own.

        The only reason there was a surplus was because of the lawsuits related to the various interlocking dot-com bubble implosions. Some of those lawsuits generated awards, and some of those awards ended up in our assets. (It was a colorful time…)

        We did have fun in the committee, with the lawyers, since some of the behavior of former management was so completely egregious. Some of them decided to grab the “oh, we’ll stay on for a year and help you shut down the firm” option (having killed it in the first place). Since I and one of my committee colleagues were 1/6 of the original firm (just acquired) and could easily have run it ourselves, it was infuriating to see the judge do the typical “oh, you in the committee are just creditors, you need their help to shut it down smoothly” and let these gonifs steal another year’s salary at inflated costs.

        When you acquire a company, you get to do due diligence. When you are acquired… not so much. We discovered, for example, that our original representations (such as write-offs for debt we knew could not be collected) were modified by the acquiring firm and stated as perfectly good credit assets on their own books. We knew where to look for every instance of this sort of thing.

        Classic Illinois crooks.

        Our sane lawyers had to keep talking us down from trying to initiate an unprovable criminal action, but it made for some lively committee discussions. We were the last company they planned to acquire, and it became perfectly clear that they never intended to pay us the remainder of the price, which was based on stock in a firm that was sinking.

        • They bought us, went public, and collapsed, all in a period of a couple of months. They needed us to complete their regional reach (IT consultancy) to go public. The resulting stock was locked from us for the few months it took to become worthless. (They had a controlling say in whether or not we could get the stock while there was still a falling market to sell it into, and they refused, even though there was no benefit to them in refusing. With sneers.) And then went on to milk the bankruptcy judge for a year of no-show work shutting down the firm (doesn’t take much to shut down a consulting firm).

          None of this was an innocent mistake. We were lucky the deal was partly in cash, because that’s all we ever got from it. Kind of like being raped, and then they steal your money, too, and laugh at you.

          • Might one assume those same folks moved on to elective office in Chicago? Sounds like they’d be a perfect fit there.

        • What a story, Karen. I’m glad you at least got some cash.

          A former client of mine who got into a complicated and extended contract dispute commented that it would have been much cheaper for him to go to law school.

          • The only time I ever took someone to court was for my father’s estate.

            He had married a 2nd wife a year older than my brother, who then sequestered him with her kids from his first kids while he declined into Alzheimers. (Despite superficially amicable relationships all around). He died in mysterious & suspicious circumstances, under the wheels of a Boston transit train while she made herself conspicuous conducting a (I’m not kidding) search of her apartment with witnesses to give herself an alibi.

            While I could not interest anyone in a criminal investigation, a little research showed a pattern of repeated visits to his lawyer while alive to progressively alter his will, from 50/50 between the two families to 100/0, with a minor bequest to the “0” side.

            I knew perfectly well that contesting this was going to be pointless, but I simply could not walk away, esp. since my brother had predeceased my father by one week, with his own debt-driven suicide. It became a matter of honor.

            I went thru a limited sort of trial, enough to eat up the minor bequest, knowing it was useless, but I could not let her actions go completely without consequence. With the immediately following stock market crash, I can only hope she felt the pinch.

            Still rankles — not the estate, but the crime.

        • Karen, Sounds like you had an 11 that rolled into a 7; known in the bizz as a Chapter 18.

          I know of one case that paid out 100¢ on the dollar and had money left over to pay the owners. I do not recall the name of the company, but I recall the circumstances.

          In the 1980s, there was a computer firm in New Mexico that developed a way to write 720kb on a 360kb microfloppy. Microsoft expressed an interest in licensing the software. Firm was delighted. Microsoft said they had to see the code before they made the deal. Firm said, ‘Sure’ and handed over a printout. Straightaway Microsoft used the code without a license; that is, they stole it. Firm squawked. Microsoft ignored them. Firm filed suit in New Mexico state court and once the suit was joined filed for bankruptcy protection citing the lawsuit as their sole asset. Sua sponte the bankruptcy court removed the suit from the state court to the bankruptcy court. Microsoft lost, big time. All creditors got paid in full with interest, and there was still money left over to make the owners millionaires.

          The details of this case were printed once in the Bankruptcy Court Reporter. In the next issue, the case was withdrawn. You can’t find it online. Only the old heads know about this case.

          And that, kiddies, is how you rewrite history and erase precedent.

          So when somebody says good things about Bill Gates for his charitable foundation, you tell ’em I know he’s a thief.

  4. We had a similar situation some years back with the Triskelion bankruptcy. I had been paid zero advance, and the month my Gothic romance Touch Me in the Dark was to be published, the company folded. While I doubt any royalties were lost (by me), it was infuriating to have my rights to my book claimed by the court as an asset, when I had been paid nothing.

    The authors banded together, to no avail. The bankruptcy trustee scheduled a sale of assets, despite our pointing out that the cost of the auction would probably exceed any revenue. Short version: a kindly digital publisher, embarrassed by the black eye this situation was giving the whole industry, bought the rights for $1,500 to the entire catalog and, on their website, reverted the rights to the authors.

    I later self-published the book. I hope it’s okay to mention that, in honor of Halloween, Touch Me in the Dark is free on Smashwords.com till Nov. 5.

  5. As a boy growing up in Phoenix in the early 80s, I used to drive past the Wrigley mansion every Sunday on my way to church. It was always this sprawling, mysterious mansion on a high hill in the distance. In my young imagination it was always a sort of magical, Willy Wonka-ish place. That’s my (tenuous at best) connection to Medallion Press.

  6. Just another reason to go/stay indie. If Jeff manages somehow to bankrupt Amazon, rights to our books are still ours. (Not that I see Jeff doing it – but it will take one heck of a person to replace him …)

  7. I knew Digby seemed a little shady

  8. You might be interested in this – it’s UK law and talking about life sciences, but it does hit the high (?) points of what happens to your IP when someone goes into administration/liquidation: https://www.lifesciencelaw.co.uk/2018/09/what-happens-if-a-contracting-party-to-an-ip-licence-goes-into-an-insolvency-process-both-from-a-pra.html

    • That was an interesting discussion, Tiffany.

      I enjoy seeing the ways in which American laws often reflect their British origins and sometimes diverge from them.

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