Foundry Lawsuit

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From Locus:

Literary agency Foundry Literary + Media dissolved in September 2020, and some authors had trouble getting paid, with reports of checks bouncing as early as last No­vember The Authors Guild got involved, and some authors were subsequently paid by wire transfer, but others were not. The agency’s found­ers, Yfat Reiss Gendell and Peter McGuigan, split up to form their own separate agencies last year, YRG Partners and Ultra Literary.

Gendell initially blamed the problems with payments on the transition. The real cause of the situation remained unclear until January 18, 2021, when founder McGuigan filed suit against Gendell in New York Supreme Court, alleging breach of contract, fraud, and negligent misrepre­sentation. McGuigan says that Gendell criminally embezzled over $800,000 from Foundry accounts, made $45,000 in illegal charges to company credit cards, and even cut off McGuigan’s health insur­ance. McGuigan froze the company’s accounts when he began to suspect financial malfeasance, and says that’s the reason some client checks bounced. He also says he “dipped into his per­sonal bank accounts to pay some of the authors he represents, but several remain unpaid because of Reiss Gendell’s obstinance, and complete disregard for the authors that she represents.”

McGuigan seeks repayment, over a million dollars in punitive damages, and that “an injunc­tion or temporary receiver be placed over the operating and client funds account and that any and all money owed to any respective authors and clients of Foundry be immediately paid under the direction and oversight of the court or a temporary receiver.”

Link to the rest at Locus

PG notes that accusations and claims of wrongful behavior are being exchanged between the agency’s two principals.

PG suggests that one of the takeaways for traditionally-published authors is to always, always, always insist on split checks in your publishing agreements.

Split checks means that every royalty payment the publisher makes on an author’s books is divided between the author and the agent (typically 15% to the agent and 85% to the author) and the publisher sends the author’s check directly to her/him and the agent’s check directly to the agency.

That way, the agency never handles money that belongs to the author.

In PG’s experience and understandings from various conversations with traditionally-published authors and other sources, agencies provide a variety of reasons why it’s a better idea for the publisher to pay the author’s share of the money directly to the agency.

Without going into such reasons, PG will say that they are not good reasons. Agents may claim that it’s important that they receive the entire check so they can properly review the royalty statement from the publisher.

PG notes that, when there is a split checks agreement, the publishing agreements the agent procures provide that the author receives 85% of the royalties and the agent receives 15% of the royalties and that each royalty check is accompanied by a copy of the royalty statement. That way, the author and the agent receive copies of the royalty statement.

PG is reliably informed that all major publishers have at least one copy machine on their premises and, generally speaking, more than one of the publisher’s employees knows how to operate the copy machine. Hence, providing two copies of the royalty statement, one for the author and one for the agent, is not generally regarded as an onerous task even by the whiniest of publishers.

One additional point involves the typical relationship between an author and a particular agent in a literary agency. Despite all sorts of agency PR, an author is typically attracted to an agency by a particular agent who is working there. Jane Agent is the reason why the author is working with the agency, not whatever claims the agency makes about itself.

If the CEO of the agency is sexually harassing the interns or spending all day in conversations with various drug dealers and Jane Agent decides to move to a better work environment, Jane’s authors should be able to follow her to a new agency and instruct their publishers to designate the new agency as the agency of record for the author, thus transferring royalty reports, payments, etc., to the new agency.

Most traditionally-published authors rely on their agents to provide them with high-quality and unbiased business advice and counsel.

Just like attorneys and accountants and doctors can be fired and replaced at will, literary agents and agencies should also be subject to firing. The author should be free to stop paying the fired parties any money not be required to entrust the former agency with any money or be tied down by continuing contractual entanglements in the future.

9 thoughts on “Foundry Lawsuit”

  1. Thanks, PG, and while not asking for advice, I am curious about 3 of your statements (with my wording):

    a. Split checks;
    b. Transferring to new agency if agent goes; and,
    c. Firing an agent or agency.

    They are all great “protect thyself” clauses yet, if I recall correctly, most of them are set in the initial agreement you set with your agent, yes? The reason I raise it is that many clients sign early just to have an agent, with reduced leverage or negotiating power. While you can easily change (a) because that is a clause with the publisher, (b) and (c) are part of your agreement with the agency. Don’t most agency clauses say you are a client of the agency and thus represented by them, not the agent (plus many agents sign non-compete clauses to prevent them stealing clients)? Plus terminating an agreement with your agent only would terminate future negotiations. If you have already sold a book that gets them 15% in perpetuity, you can’t terminate those clauses just because they no longer serve you, can you?

    I guess, in short, I’m looking for more information / experiences about actually being able to fire an agent or transfer representation at will unless you make sure you can plan for all of those things in advance. I know many agency agmts include a “single check” outcome as part of their “terms of service”.

    I don’t disagree with all of the points, just wondering how easy it is to do in practice.


    • Paul, the answer to your questions is “it depends.”

      No, really, it depends on a lot of stuff in order to even formulate the question(s). Jurisdiction is the main issue (where is everyone, has that ever changed, is there any kind of succession involved like an agency being bought by another agency): That will determine how to properly ask each of the other questions, and when, and what else needs to be known. As Peter Lampack no doubt wishes he’d considered ahead of time… and if Ms Grimes had been, say, a California resident, it would have been even more fun…

      And anyone here, on a public board, who tries to answer those questions is probably engaging in the unauthorized practice of law and/or breaching your attorney-client privilege if they are authorized to practice law. Sorry, but getting started with malpractice is not… good… professional… behavior.

    • Paul – In very brief answers to your questions:

      1. Split checks – That’s something that is best dealt with prior to any publishing deal being offered. However, if an author receives a proposed publishing contract without a split checks provision, whether it’s the first book or a later book, the author can simply request that a split checks provision be added. A publisher of any size should have no problem implementing this and has almost certainly done so many times before. It’s not some bizarro, out-of-left-field concept.
      Out of courtesy, an author might request that the agent ask for split checks in the future on the author’s behalf. Otherwise, the author can make the request directly to the publisher. Authors don’t have to sit quietly with their arms folded like nice little first-graders. They should be business people and should act accordingly.
      Yes, it may be in the original agency agreement, but business agreements are amended every day in every commercial field of which I am aware. Typically, a reasonable request for an amendment that doesn’t cost anyone more money is easy to negotiate. Denying a reasonable request for a change in an agreement is something that each party should understand may blow up the relationship.

      2. Transferring to a new agency if the agent with whom you have an established business relationship is also a reasonable ask for an author. If the author signed with an agency because of the trust/compatibility she/he had with a particular individual in the first place, it should not be unreasonable to expect that the author will want to continue to work with the individual. If you had worked with a doctor or a lawyer or an accountant for a long time and you followed that individual when he/she moved on, no one would think anything of it. If an author stops submitting manuscripts to the first agency and starts submitting them to the new agency, is the initial agency in any position to complain?
      Under well-established rules of common law in most, if not all of the United States, an agent is working on behalf of a principal (the author in this case) and is obligated, among other things, to always act in the best interests of the principal. I’m not aware of any general rules of law that exempt literary agents from this fundamental obligation to the authors who are their principals.

      Firing an agent or agency. If an author stops sending manuscripts to Agent A and starts sending them to Agent B, is Agent A really in a position to tell the author she/he can’t do so. Again, as a general proposition, an agent is obligated to act in the best interests of the principal. The principal decides what his/her best interest are.
      Besides, a smart literary agent would not welcome having an author start explaining to others the problems/shortcomings the author experienced with the first agent and complaining that the first agent was trying to keep the author from moving to a different agency that the author thought would act more competently.

      I haven’t seen an agency/author agreement in which the author swears to keep silent if the author feels the agency has screwed up some of the author’s business affairs or hasn’t paid the author the money the author is owed. I have my doubts that it could be enforced, particularly if the author had a credible claim that the agent had failed to act properly or effectively.

      There’s a culture of learned helplessness that permeates the traditional author community. I won’t try to play amateur psychologist to explain it, but this is 2021, not 1921, people of all sorts are not afraid to complain if they’re being treated badly, women are supposed to be empowered, persons of color are supposed to be empowered, men have supposedly always been empowered. Squeaky wheels are lauded in many fields of endeavor.
      Traditional publishing is just another business, not a secret society or a cult that requires unquestioning obeisance on the part of its adherents. I would love to see a wronged author and several of that author’s friends set up a picket line with signs at the entrance of the offices of an agency that didn’t act in a reasonable and business-like manner.
      Custom t-shirts, signs and banners are cheap at Zazzle –

      • Thanks CE, and PG, and that is way more than I was expecting. I was really wondering how “common” it is. Split checks, as you say, seems easiest because that is a deal with the publisher. It might have a side deal with the agency, but more guideline than a core clause probably. It also seems “normal” with all of the stuff related to future business i.e., move to the new agency, follow them, stop sending to Agency 1, go with Agency 2, just like movie stars dropping their agency who fails to represent them. So on a go-forward basis, that all seems normal.

        Where I’m murky is more of a contractual situation. Author sells book through Agency 1 with Agent X. When the agreement says 15% will go to the Agent, does it go to the Agent in name or does it go to the Agency? Not sure I’m explaining myself right, but if Jane Agent works for Acme Agency, I thought the contracts with the publisher listed Acme, not Jane, as the official “agent”. Like Jane is an employee of Acme Agency, as opposed to Jane being the agent, and Acme being a co-office arrangement with other agents.

        Hence, if Jane leaves Acme to go work for Beckham Agency, would the 15% follow Jane or stay with Acme? I know it can likely go either way, depending on the contract, just wonder which is more common…

        I’m more of the view that I wouldn’t agree to perpetual agency anyway, so it is irrelevant after 3-5y or whatever the term would be, but the movement puzzles me since so many authors complain that the money still goes to the Agency long after the Agency stops representing them…i.e. they got their initial cut and royalties forever but aren’t submitting their MS anymore, etc. And they can’t just terminate the 15% because it is old business, not new.

        • Paul, the answer is still “it depends,” but for a different reason: There is no publishing industry. There is, instead, the bastard offspring of a three-century-long, umm, “open marital arrangement” among thirteen distinct publishing industries (twelve of them relevant here). For example, you’d get a different answer to “how prevalent are split payments?” in each of the twelve industries, ranging from “what’s a split payment?” to “what’s an agent? and why would that have anything to do with how authors divide payments among themselves?”

          Too, it also matters what jurisdiction the agency is in. For example, pre-Reunification, a German agent’s right to receive payment was purely personal, so there was never a question that if the agent went to a different entity the payments would follow the agent. (This was a context issue in support of fraud in more than one instance I’m aware of, involving both authorized and unauthorized German editions of American works.)

          Finally, you have to remember that a lot of “agencies” and “publishers” still haven’t figured out that the Bankruptcy Code and Copyright Act changed their necessary legal postures and practices. In 1978. For example, under the Copyright Act the default for any publishing contract with a freelance author is that the contract is a license, not a sale; and that has yuuuuuuuuuuuuuuge implications for everyone’s rights, both regardless of and particularly inside of bankruptcy. Just try to find major agency and publishing figures who even acknowledge that (example: attempts to limit the lookback period from royalty statements to one year…); I’ll wait, but I’m not holding my breath.

  2. Elliot, that varies by both publisher and agency. Megaagencies generally get such a report, regardless of the publisher, although it’s usually off-cycle (not at the same time as royalty reports). Some publishers will provide that on request; others require a formal agreement and a data-processing fee (or at least did in 2016, the last time period for which I saw documents).

    The only suggestions that I can make to Jessica are to talk to (1) the publisher and demand copies of the royalty statements back to inception for every book, together with a copy of every subsidiary rights agreement, and (2) a good CPA or tax attorney about how to handle uncollectable business debts on your 2020 return (and Real Soon because tax day is only a month away). And if you get anything from a United States Bankruptcy Court, run immediately to counsel. I have no real experience with Foundry Literary, but the stories going around and the flavor of that lawsuit fairly shriek of the possibility — can’t and won’t say probability — that McGuigan won a race to the courthouse, that the defense will be “no, he’s the real criminal,” and that the authors would get a better resolution in the court of Jerry Springer because at least they’d get a laugh out of it.

    Just keep in mind that it could be worse. It could be Harper Lee (and two of the three miscreants were attorneys with active NY licenses). Let’s just say I’ve seen much deeper inside that particular agency, on behalf of half-a-dozen or so authors and estates (back into the 1950s), than I’m comfortable with… and I could never sell the “story” to H’wood because even there (with the legendary shenanigans of H’wood “agents”) they wouldn’t believe it.

  3. Do publishers send an annual statement to either authors or agents? This would detail all the royalty amounts paid to the author or agent. Not just a total, but one line for every payment made.

  4. I’m one of those authors they owe money to. It’s not much, but it’s still my money, and I’m getting real tired of the lack of communication. My 1099 was sent to me (late) and I’ve yet to receive my last royalty check from them for 3Q2020. When I tried contacting them, I got no response from anyone; when I received the 1099 email, it was from a Gmail account, and it said to reply if there were any questions. I replied inquiring about my missing money, and radio silence. This is getting so ridiculous.

    • Jessica – I would second the suggestion of CE below to contact a tax accountant regarding your 2020 tax return. I don’t think this is something that Turbotax is designed to handle.

      After you speak with an accountant, he/she may recommend that you file for an automatic extension of time during which to file your taxes. If my memory is correct, the first request for extension is usually granted automatically absent some very unusual circumstances. That should get the deadline for your individual 2020 return extended until October 15. However, you definitely want to file the request for extension prior to April 15, the general deadline for personal returns under US tax law.

      If you use a corporation for your business, you can also request an extension of time to file a corporate return. The deadline for requests filed on behalf of a corporation is, I believe, March 15.

      I believe there may be a potential IRS penalty the agency is liable for because it sent you a 1099 late, as well.

      Please take notice that this isn’t legal or accounting advice because I am neither a tax attorney nor an accountant of any sort. I know something about extensions because I have a very competent accountant prepare the personal and business returns for Mrs. PG and myself every year and have done so for centuries.

      Everything I’ve mentioned relates to US tax laws. If you file your taxes in one or more other jurisdictions, don’t rely on my comments for even the most general ideas concerning what you should discuss with a competent tax person.

      I echo the advice in another comment to consider contacting your publisher directly to ask for copies of your royalty statements, both past and future, and any other information you can find. If you have a good relationship with an editor working for the publisher who helped you with your book, contacting that editor for information may also be helpful.

      It is not unusual for the authors represented by an agency that has self-destructed or a publisher that has done the same thing to create an informal group to share information and discuss ways they might work together. This can be helpful because it allows authors to share bits and pieces of information they discover with other authors, generally for the benefit of all. Realize, however, that just like anything else you find online, not everyone who comments in such a group is guaranteed to be an accurate or reliable source.

      Such a group can also facilitate joint action by authors to press publishers for information, relief, etc.

      Good luck in your quest to obtain what you are owed and with your future writing.

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