Ann Jacobs (kinda sorta) sues Ellora’s Cave #notchilled

General disclaimer: I am writing this in my individual capacity, and not on behalf of any other party. Thank you!

People have been asking me if I am still covering the EC case. The answer is yes, except there has been nothing to cover except status reports, and I’m unmotivated to cover status reports.

That just changed. Today, an EC filing landed in my inbox. I looked at the title–Motion to Intervene–vaguely thought that this was going to be the motion to attach Jaid Black/Tina Engler as an indispensable party to the litigation, something that was mentioned earlier in the course of litigation (although that wouldn’t have been labeled a motion to intervene, so why I thought that I don’t know), figured it would take 15 minutes to go through, and went about my merry way.

I opened the file while I was making dinner and whoa baby. TL;DR: Ann Jacobs has asked to intervene in this case as a third party, claiming a nexus of fact with the underlying issues, on the grounds that EC has breached contracts with her, covering 40 books, in multiple ways.

Here is the motion to intervene. Here is the counterclaim.

A much longer explanation follows after the jump.

Brief Recap

Just to let you know where we are in this case, which is proceeding with the deliberate pace of US litigation: In late 2014, Ellora’s Cave sued Dear Author and Jane, its proprietor, claiming that Dear Author defamed EC by publishing a blog post stating that EC was not paying a set of its authors, editors, and cover artists in a timely fashion, and that there were additional indicia of financial difficulties, as evidenced by tax liens. Right now, that litigation is undergoing discovery. According to status reports, EC has completed its half of discovery. According to the scheduled filed many months ago, we should expect to see a summary judgment motion from DA pretty soon-ish.

What is a motion to intervene, and will it be allowed here?

So this leads us to this very important question: What does any of this have to do with Ann Jacobs?

So a brief digression about what a motion to intervene means.

Imagine that your neighbor is keeping an elephant in her backyard, and the elephant escapes and tramples houses throughout the neighborhood. Your friend across the street sues the neighbor for damages wrought by this elephantine spree. You can then intervene in that suit, as a separate party, also claiming damages done to your house by the elephant. This saves on court time. Instead of having to hear 5 separate cases, all of which start with, “She failed to control her elephant,” the court can hear arguments about elephant control once.

The standard for permissive intervention is laid out in F.R.C.P. Rule 24(b):

(1) In General. On timely motion, the court may permit anyone to intervene who … has a claim or defense that shares with the main action a common question of law or fact.

Under this standard, there are three things that govern whether Ann Jacobs will be allowed to intervene:

1. She must have a claim or defense that shares with the main action a common question of law or fact.

In this case, that’s pretty easy to prove: If Ellora’s Cave breached its contract with Ann Jacobs by failing to timely pay royalties, that is a question of fact that is common between this action and the DA v. EC dispute. So check that box. Done.

2. The intervention must be timely.

Yeah. That’s going to be a little more difficult to prove. This litigation is now closing in on the one year mark. Interrogatories have been served on the plaintiffs, and documents have been produced. Defendants have claimed that they are going to file a motion for summary judgment right about…now-ish in court terms. This is not what I would call a super-timely motion to intervene (understatement). It’s not at the point where I’d say it’s a slam-dunk send-it-home for not being timely, but it’s at the “pretty unlikely” stage.

3. The court has to permit the intervention.

The court is given a wide latitude in determining who it permits to intervene when that person is not intervening as a right. While Jacobs has a lot of interesting things to say, the truth is that there is really only single common nexus of fact here with the EC DA case: the question of late or missing payments in early 2014. Jacobs also raises multiple issues (regarding rights reversion and breach of contract aside from failure to send out royalty checks) that were not raised in Jane’s initial blogpost. Resolving those additional issues at this late juncture could substantially prejudice both parties and significantly delay the litigation.

If I were the court, I would get out my “fuck this shit” rubber stamp and deny the motion to intervene. (If I were a district judge I would totally have a “fuck this shit” rubber stamp. This, and many, many other reasons, explain why nobody has ever made me a district judge.)

But, as I also said, the court is given wide latitude in determining who it permits to intervene, and I’m not willing to guess how that discretion will be used here.

Of course, if the motion is denied, Jacobs can turn around and immediately file the same thing in court as a regular old lawsuit.

General Note on Personal Competence in this area of law: I looked up a bunch of stuff for the purpose of writing this blogpost, but this is an area of civil procedure that I haven’t had to think about since I was a 1L. My understanding of this area of law is not great. I managed to confuse myself while writing this post. I think I have unconfused myself appropriately. If you think I’m wrong, please tell me, because I could easily be wrong on this.

The substance of the counterclaim

This is interesting stuff. I’m not going to go into much of this because you’ve been reading it on the #notchilled hashtag for a while. Jacobs alleges missing/delayed royalty payments, and failure to contractually revert rights. Yadda yadda you have all seen similar claims before.

But the most interesting part is this claim (long, but necessary) (note that “Josephson” = “Jacobs” — I have used her author name rather than her legal name above for name recognition purposes):

Notwithstanding the language in the contracts, Ellora’s Cave has stated that it believes it is entitled to calculate and pay (and has in fact calculated and paid) royalties to Josephson—and, upon information and belief, other similarly situated authors—based not on cover price, but on the actual sales price of the works. For example:

a. One of the books published under a contract substantially identical to the Mutual Favor Publishing Agreement was In His Own Defense.

 

b. Under §10.1 of the applicable contract, the royalty owed to Josephson for each digital copy of In His Own Defense was 37.5% of the cover price.

 

c. The cover price of In His Own Defense was $5.95.

 

d. The periodic accountings provided by Ellora’s Cave to Josephson reflect that in March of 2012, Ellora’s Cave sold 257 digital copies of In His Own Defense for Amazon’s Kindle e-reader devices.

 

e. Multiplying the cover price ($5.95) times the contractual royalty rate (37.5%) times the number of Kindle books sold (257), Josephson was entitled to receive a total royalty of $573.43 for March 2012 Kindle sales of In His Own Defense.

 

f. However, Ellora’s Cave paid Josephson a royalty of only $77.49. The reason for the discrepancy is that in March 2012 Kindle copies of In His Own Defense were sold at a substantial discount from the cover price, and Ellora’s Cave improperly calculated the royalty based on the sale price rather than cover price.

21. After complaints about the improper royalty payments, Ellora’s Cave attempted to modify its publishing contracts with its authors, including Josephson, by unilaterally informing the authors that Ellora’s Cave would begin paying an increased royalty rate (45% or 40%) but pay the royalty rate based on the sales price, which was often substantially lower than the cover price. The net result was that even with a supposedly higher royalty rate, the royalty payments were below those provided for in the contracts.

22. Ellora’s Cave’s attempts to change the royalty payment structure by unilateral notice is not permitted under any of the Publishing Agreements, all of which contain provisions requiring any modifications to be made in a writing signed by both Josephson and Ellora’s Cave. The attempts at modification are, however, indicative of Ellora’s Cave’s knowledge that its prior royalty payments were not consistent with the Publishing Agreements.

Or, in short: Jacobs claims that Ellora’s Cave has been substantially underpaying authors for sales on at least Amazon, and potentially other third party vendors, for several years.

Some final notes on strategy

There are a handful of reasons why I suspect Jacobs’s attorney suggested filing this as a motion to intervene in the EC v. DA case. One reason: This is a particularly embarrassing motion for Ellora’s Cave both in terms of what message it sends to the court as well as the message it sends to onlookers.

But it’s also interesting to me that Jacobs’ counterclaim uses the words “…other similarly situated authors.”

Those words–“other similarly situated authors” sound like a shot across the bow.  The fact that there are other similarly situated authors is not relevant to Jacobs’ claim in and of itself. But those words are the language of class actions. If Jacobs’s allegations are true, and if many multiples of books by many authors are vulnerable to this claim, the potential liability here on the part of Ellora’s Cave is massive. Even if they’ve been paying on time and reporting sales accurately, they could owe their authors a substantial amount of back royalties. I don’t know how the math works out in the aggregate, but looking at Jacobs’ numbers, and extrapolating based on general percentages of sales at Amazon and third-party vendors, that amount could be a solid multiple of actual royalties paid. This allegation is potentially kill-the-company massive, even for a healthy company that is flush with cash.

Jacobs clearly invested in a good attorney. She’s probably spent a good amount of her own money on this. And while there are some potential defenses on EC’s part (the arbitration clause, for instance, although that does seem to allow litigation on injunctions, which is, I suspect why the claims are worded and ordered as they are), this is a suit that would be a BEAR to litigate on multiple levels, particularly as a class-action suit.

 

Filing this claim as a motion to intervene was probably not the way to maximize the chances of success. If I had to guess, and this is purely a guess, I would say that this is an exercise in saber rattling. This is the saber I hear being rattled: Revert my titles, now, or you’ll spend well into the six figure mark defending your existence.

Ah, I do so love the smell of scorching earth. (I am tired as I write this and probably should wait until the morning to hit publish, but…nah. Let’s do it.)

17 thoughts on “Ann Jacobs (kinda sorta) sues Ellora’s Cave #notchilled

  1. You wrote, “this is a suit that would be a BEAR to litigate on multiple levels, particularly as a class-action suit.” Is it the logistics of coordinating so many far flung authors that makes it so? Or perhaps the number of different contracts? Class action seems so appropriate for the EC authors that I’m very curious about it.

  2. I also would toss out the possibility that Ann Jacobs is saber-rattling in the, “Settle with me now or your books will be forced open and become part of the record,” department. Which, as you noted, would have been more helpful to DA had this happened earlier in the process.

    If the judge allows this, I am popping the largest tub of popcorn ever, diving in head first, and devouring it, because it’ll be one helluva three-ring circus. Because it wouldn’t shock me if a flood of other authors dive into the lawsuit as well. (Which is another reason I suspect the judge won’t allow it, because it’ll open the floodgates.)

  3. Can I also add that I never in my life thought I would ever see the words “Naked Bootleg” in a legal filing that didn’t involve charges of public nudity and moonshining? LOL

    Among other titles. LOL

  4. @Tymber Dalton:

    i was thinking as I read it, that this is a way to force the books open. Pay and risk many other suits or open your books and explain the delays. I didn’t expect a wild card after this may months.

  5. Diversity of citizenship means that the parties are from different states.

    In order to get into federal court, you either need (1) a federal cause of action (there isn’t one here; breach of contract is a state claim), or (2) “diversity of citizenship” + an amount in controversy over $75,000.

    The idea behind #2 is that state courts could sometimes favor litigants from their own states, so in situations where there is a great deal at risk, and where one party is in their home state and the other is not, federal courts allow litigants into federal court in order to provide a fair forum.

  6. @Mzcue:

    It’s not the author-coordination end of things. They would have to actually get a lawyer who was well-versed in the law of class actions, for one thing, and those don’t come cheap.

    The threat here is not of author coordination. In fact, the beauty of a class action is that author coordination is not necessary. The threat is that it involves all the EC authors who aren’t willing to actively rock the boat because the checks are still somewhat coming, maybe, even if they’re not that much, but who would be delighted to passively allow a class action suit to rock the boat on their behalf.

    This could be expensive as all fuck for them–like multiple six figures of expense. And they can’t lose. Not only would it be a devastating loss financially, not only could it mean that they lose control over a sizable amount of their backlist, but if they do lose, the attorney fee-shifting provision means that they’re holding both bags.

    This is potential litigation where their entire company could be on the line.

  7. Thank you for your interesting, educational, and highly amusing post! If you were teaching law, I would want to go back to school. :-)

  8. Hahaha… I totally want you and your rubber stamp on a judicial bench Somewhere!! :) thanks for the update

  9. Courtney, I’m actually not sure how much of their backlist EC still has. A number of the hugest moneymakers for them have purchased their rights back over the last year and a half — I hear Mari Carr and several others bought theirs back well before the crap hit the oscillating device. When they fired all the editors, even more people asked for their rights back. And it is my understanding that many of the rights of some of the older top sellers, like Lauren Dane, Jaci Burton, Lora Leigh and others, have also been reverted. Plus, every author with even the slimmest chance of getting rights reverted have been throwing buyback fees at EC so that they won’t get caught up in bankruptcy court when/if (my opinion, when) EC files for bankruptcy. So I have a feeling EC currently has a backlist that’s going to appeal to any NY publisher. The biggest names, except Laurann, seem to be out of there.

    Best-case scenario for the authors would be a competing publisher buying the rights and reverting them to the authors, which I believe Siren did after Triskelion filed for bankruptcy.

  10. Is it possible, if Ms Jacobs is allowed to intervene, for other authors to follow suit? Or would those motions to intervene be automatically too late (or whatever legal term/reason to reject them out of hand)?

    If Ms Jacobs’ motion to intervene is denied, and if she files a suit in her own name, are other authors in similar circumstances allowed to move to intervene, and if so, is there a time limit for them to file?

  11. @Tymber Dalton:

    I’m one of those similarly situated authors for which checks have been over 90 days and many more of my fellow EC authors are worse off. My royalties have dropped to maybe a quarter of what they used to be. We, too, would like our rights back. I’m calling a local multi-million dollar, money grubbing law firm in my area to see if they’d be interested in taking this on as a class action. Quite a few are in if the company decides to take up the banner. Do they pay damages in these sorts of suits? I’m hoping to be living in Ohio by October and merry-go-round fires up in earnest, I will be in the front row.

  12. @Courtney Milan:

    I never realized before that the switch from 37.5% cover to 40% sales was a really bad deal. I’ll need to look at my contracts, but I suspect this information impacts me too. Where is the line for the class-action lawsuit? 😉

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