Jim, begging your pardon, and allowing for the fact that we only have a single source of information on the story so far, it does sound to me like Mr. Tervalon got screwed. He'd talked to the house about what he was going to write as his third book of the contract, and they'd approved. The contracted-for version of what he was going to write was pretty darn sketchy. He wasn't writing a series.
Have you had full documentation on the particulars every time you and your publishers have verbally agreed to a change in what "book n of most recent contract" was going to consist of? Was the resulting book turned in even slightly late? I expect you'd feel ill-treated if your publisher had then declared that the book you delivered didn't fulfill the terms of the contract, and demanded that you pay back the advance.
These changes happen all the time. Authors have a rough idea of what they're going to want to write, the description goes into the contract, and later on they find they've got a different book coming out of their keyboard. If it's just a matter of swapping one non-series work of fiction for another, comparable work, there's no reason for the publisher to balk.
I'm also more than a little startled by the house so aggressively dunning Mr. Tervalon for the advance. I'd have expected them to draw up an agreement whereby they'd get first proceeds, up to the amount of the original advance, from the resale of the book to another publisher.
It sounds to me like the editor who originally liked Mr. Tervalon's work left the house, and the publicist who was familiar with it left as well. And if the only way to get his first novel past the acquisitions committee was to get rid of the interracial romance, I have to assume that the house doesn't have a lot of inherent sympathy for his subject matter. Did they truly not send the first one out for reviews, and him an unknown writer? That's just not right. Neither is leaving him without an editor for a prolonged period.
I wish I knew how the first two books shipped and sold, and whether the contract called for joint or separate accounting on the three books. I also wish I knew whether Atria's the kind of place that judges its editors on their profitability without regard to other circumstances, and whether Atria's handing back any other books this season, and what the house's overall profitability looks like just now.
At the point that things went to hell for Mr. Tervalon, after he'd delivered his book, Atria had three choices. They could formally accept the manuscript as delivered, which under most publishing contracts would mean he'd be due an additional on-delivery payment for it. Second option, they could put off acceptance while requesting various editorial changes. He makes the changes, they accept the revised manuscript, he gets his on-delivery, the book goes into production. Very common. Third option, they could declare that the book was wholly unacceptable, and ask for the return of their advance. That third option is a thing one seldom sees done. Fiction writers don't commonly forget how to write fiction between one book and another.
Fact is, Atria signed a newbie writer to a three-book non-series contract. They paid him a very substantial advance, and put his first two books into print. You don't do that if the man can't write.
There doesn't appear to have been any editorial negotiation. He doesn't mention his replacement editor asking to see how the book's coming along while he's writing it. Her rejection of it comes as a surprise to him. She also makes no attempt to get him to fix whatever it is she doesn't like about it. And I hate to give this one away, but you know, authors quite often run a little late on their manuscripts. Unless there's some reason for a book to be non-negotiably date-dependent -- like, it's about Halley's Comet, and it has to appear before the comet does -- refusing to accept a manuscript on grounds of non-catastrophically late delivery is what you do when you want to reject it anyway and are looking for an excuse.
This is what agents are for. Mr. Tervalon doesn't seem to have one. This leads me to wonder an odd thing: is that $41,000 Atria wants back the advance on the third book, or the advance on all three books? Normally I'd assume it's the advance on the third book.You don't ask for the advance back on books you've already put into print. But if it's just the advance on the third book, then I have to assume that Atria signed an unagented newbie writer to a six-figure contract. If Tervalon can't write, what the hell were they doing? And if he can write, what the hell are they doing now?
Non-series three-book contracts aren't an arbitrary arrangement. When you offer one to an author, you're betting that this is going to be an ongoing relationship. You're also betting that you'd rather have his next couple of books contractually tied up, so that you don't suddenly find yourself bidding against your competitors at Charnel House or Banana Books. The author in turn is betting that you'll do a good job on his books.
It takes a while to build a new author. It's truly said that publishing is an industry that introduces hundreds of thousands of new products every year, as opposed to the handful introduced by car or soap manufacturers. To the public, every book is an unknown product. That's rough. It's a little less rough when you have a known author, or a known series, or at least a known set of genre expectations. Still, a new author takes some doing. You want them to stick around so you get the benefit of all the work it took to teach the sales force to remember their name. If all goes well, they'll want to stick around too.
There's risk on both sides. All the parties to the contract knew that when they signed. If Atria is now regretting having done so, they're hardly the first publisher to be in that position, and it doesn't make it right for them to retroactively reassign all the risk to Mr. Tervalon.
Let me repeat before I end this that I have the story from a single source, and that authors have a great talent for coming up with plausible explanations. Interpretations may change. Still, it does appear to me that Mr. Tervalon has taken some hard knocks from his publisher.