PublishAmerica, LLLP (Publish America) v. Lightning Source Inc. (LSI)

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HapiSofi

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Is it possible that PA thought they were sneakily getting LSI to handle returns on PA-manufactured copies without paying them to do so?
 

BenPanced

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It also depends upon when that contract was signed. After all, PA didn't start printing until after they initiated returns among their books. I'm betting that it was signed before PA actually got into printing their authors' books. If so, then LSI is probably blameless for accepting PA printed books along with those that LSI had printed.


When you mess with lightning, you risk becoming a crispy critter.
The copy of the contract I've seen has an effective date of 6/1/05. Didn't PA begin printing their own around 2007 or 2008?
 

circlexranch

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Instead of attacking the mountain of work I should be doing (including my own legal pleadings), I read the claim and counterclaim again.

The only exposure I see for LSI is if they accepted return of books that were physically printed by PA and they then charged PA for the wholesale price and handling during the return process.

If I were LSI, the questions would be:

1. The contract went into effect before you started plugged in your own printer,

2. Therefore, how in the flying flip is LSI supposed to tell the difference between the flurry of returns they were getting that they printed and the few that PA printed. Did the PA printed ones have magic fairy dust on them that caused them to glow?

3. Did PA inform LSI that they were also doing in-house printing and that each shipment of returns had to be checked for in-house printed books? Did PA mark in-house books in any way (other than shoddy quality) to differentiate them from LSI editions?

4. What other publishers do this in-house printing? Is this a case of first impression for LSI?

I see LSI as only culpable for grinding a few (dozen? hundred?) in-house books and charging PA for them. An honest mistake, but still a mistake.

If PA did not attempt to mitigate their own damages by at least informing LSI that this could happen, then LSI's exposure should be limited to its own errors. However, since those errors have been pulped, there needs to be a reasonable settlement and solution.

Depending on the wholesale price that PA was 'paid' by LSI, plus $2.00 per copy, how many books could we realistically be talking about?

Let's say between 2007 (when PA started printing) and 2009 when this situation blew up, it was 1000 books. That is, 1000 PA printed books were returned and LSI mistakenly pulped and charged PA for them.

1. $3.00 print charge per book
2. $2.00 shipping charge per book
3. $5.00 wholesale charge per book (I'm guessing - no clue)

That comes to $10.00 per copy or about $10000 that LSI could realistically have over-charged PA. Okay, they screwed up . . . it happens . . . especially if PA didn't inform them of the parallel printing operation.

Now, how much does PA owe LSI????? That number is being kept under wraps for the moment, the counterclaim is mum as to the amount.

Now, PA wants about $850,000. Yeah right. That number is pure 'shock and awe' hoping that LSI will cower and offer some settlement offer. That is similar to what we've seen PA do before when trying to strong arm complainers into silence.

When I sued my opponent for ZERO dollars in 2006 (I just wanted them to leave us alone), they counter-sued us for about $2.5 million, again, hoping to huff and puff and blow our house down. It didn't work - it rarely does against a sophisticated litigant and LSI is certainly a sophisticated litigant . . .

LSI did make some errors in that it apparently charged PA for the clean and properly printed bound copies that it produced and shipped to PA after it had pulped the PA-printed books mixed in with other returns.

However, as for printing new copies for the 'YES-deliver' option, I do not see any liability for LSI. That was a business decision. It was apparently cheaper and more efficient to pulp the returns en masse after check-in (I assume scanning the barcode) and push 'print' than it was to sort and re-pack them (especially if PA returned books were mixed in with returns from other publishers).

LSI promised to deliver books, not necessarily the original books, and they did. Where is the fraud?

::polishes up crystal ball::

I foresee a 12(b)(6) motion from LSI to dismiss all the fraud claims for failure to state a claim for which relief can be granted.

Not all will be dismissed, there is one legit contract question, that of the fate of the PA printed books that were returned.

Therefore, I foresee a summary judgment motion by LSI on any remaining questions.

I do not see a trial. I guaran-freaking-tee that PA owes LSI more than LSI owes PA.

I do not see an award of legal fees. Contract cases rarely win fees.

These motions could give the PA-watchers of the world some interesting info on what PA's through-put really is, so it should be fun.

PA will continue to milk the situation and not pay its writers for as long as possible. They must really be in a cash-flow bind.

::puts cover back on crystal ball::

Be interesting to see if any of my psychic predictions come true.
 

circlexranch

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This bit of irony is from the bio of PA's primary attorney, Raymond Leathers:

"Mr. Leathers practiced in the State Attorney General's office as an Assistant Attorney General from 1983 to 1987, and as Deputy Attorney General of the Civil Rights and Claims Division from 1988 through 1990."

He should be investigating PA, not representing them . . .
 

circlexranch

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On the flip side, LSI's parent company Ingram, brought out one of its retainers in George Cate III who has represented Ingrams before:

----------------------------
[George Cate III] representation of Ingram Industries Inc. and its subsidiaries in a variety of commercial and business disputes, including, among others, Schwartz Brothers Inc. v. Ingram Entertainment Inc. (United States District Court for District of Maryland), Ingram Book Group Inc. v. Systems Technology, Inc. (United States District Court for Middle District of Tennessee), and Southwest Acquisitions Group, Inc. v. Capital Z Management, LLC, et al. (Middle District of Tennessee)
----------------------------

Ouchie! PA has likely kicked over the wrong ant hill this time . . . . I love it!
 

M.R.J. Le Blanc

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This is what happens when a shark tries to tangle with something bigger and smarter than itself.

And before someone says sharks have no predators, killer whales are on the record of having both killed and eaten great whites :D
 

kaitie

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Okay, so I've got another question. It was just mentioned that the books ordered directly from PA weren't returnable and had less of a discount than the ones through Ingrams, hence a bookstore would be buying them from Ingrams because it's cheaper for them and they can return them. Did I get that right?

I'm wondering how many books PA has actually printed and sold to bookstores in general. That would (in theory) be information they'd have available, right? It also strikes me as odd considering how many problems they've had with their printer and the fact that it seems like they've just been spending time saying it needed repairs or what not and even authors couldn't get copies of books they were printing. I guess I just can't see how they could possibly have printed that many books and sold them to stores. Also, I swear someone just said that books printed through PA were non-returnable. If that's the case, why would this even be an issue? The bookstore shouldn't be returning the PA printed books at all, right?

So essentially, is PA arguing that LSI cheated them for the returns on their non-returnable books? This is just more and more ridiculous. My initial thought on seeing this was basically that they were getting hit by tons of returns and assumed that, rather than being legit, they must have been cheated, and I still sorta feel like this is the argument.

Also, my first thought on seeing the $850k amount was "oh, so that's how much they're in the red." :tongue Probably not the case, but it's what occurred to me lol. So do we want to start taking bets on whether or not PA starts actually charging authors for royalties on returned books when they lose this suit?
 

tlblack

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My first thought when I read that there were many returned books was that the FREE copies, (having been sent to places like Borders, Barnes & Noble, WalMart, etc.), were the books being returned. If PA was still outsourcing some books and printing others, there may very well have been FREE books returned because they were never accepted in the first place by these companies who didn't order them. But since I know nothing about how all of that works, this is JM2C.
 
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DreamWeaver

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I like the way you think.

If bookstores were returning "donated" PA books because they thought they were delivered by accident, and then PA got charged for the returns, that would just be poetic justice.

Though rather confusing for LSI, who would have more coming back than went out.

Unfortunately, I don't really believe this is what happened, since I doubt PA really shipped all those free books out. But maybe they did. Stranger things have happened. Haven't they?
 
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HapiSofi

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Nicely dissected, Circlexranch.

Question: let's say PA didn't formally notify LSI that they were printing some of their own books, and didn't cut a deal with LSI to handle returns on them. What responsibility would LSI have for PA-printed copies that (a.) were delivered to them without notice, and (b.) were casually indistinguishable from copies LSI printed? Would those fall under the same laws as unsolicited merchandise that arrives in the mail?
 

ChristineR

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I figured it out...

It's one of those things that's so ridiculously simple that you'll hit your forehead and say "Duh!"

Returns and printing are done at different facilities.

Bookstore returns are processed at the facility closed to the store. PA printing was done at the facility with a POD printer and closest to Maryland.

In order for LSI to return the same physical book to Maryland, they'd have to sort the books, pack them up, ship them to the other facility, unpack them, sort them again, pack them with the latest shipment of books destined to be sold directly to the authors, and ship them again.

Since LSI charges .90 cents for the cover and 1.3 cents per page, we can assume that their costs for a 200 page book are significantly less than $3.50 (probably about half that, or $1.75), which compares favorably with the labor of sorting, packing, unpacking, re-sorting, re-packing, and reshipping.
 

circlexranch

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Hapi - as I said, I think LSI could potentially be liable for only what it charged PA for books that is mistakenly received, pulped, reprinted, and shipped to PA.

Yes, Christine, that came to me as I was writing my two cents worth. I don't know exactly how returns work and how sophisticated the system is.

But, for the smaller locals that a writer might have begged placement in, I can see the owner/manager telling the clerk to send back all books over a certain date or to get rid of every freaking POD/vanity/PA book in the place.

All the books go in a box back to LSI and unbeknownst to clerk there are some PA-printed books mixed in. Not to mention the freebies sent out by PA and the few 'reverse shoplifted' copies, etc.

Unfortunately, we don't get to see the discovery documents unless one side or the other uses them as exhibits to a pleading.

PA has another 10 days or so to file its answer to the counterclaim, that should be interesting because they will have to either confirm or deny being in arrears to LSI.
 

kaitie

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Please forgive me, I don't speak legal. What's "in arrears" mean?
 

allenparker

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Hapi - as I said, I think LSI could potentially be liable for only what it charged PA for books that is mistakenly received, pulped, reprinted, and shipped to PA.

I read the "cost of the book" phrase, too, but I think this is lawyer talk for, "in addition to the fee you already paid to have the book printed."

So, what really happens is that Pa or a book store orders the book. LS ships the book, bills the store. They send PA a bill for the book. Thus, there is a fee for the book.

Then when the book is returned, PA is charged a 2 dollar fee plus shipping, which is in addition to the fee they paid to have the book printed and shipped.

I believe the real question rises from the fact that PA is now experiencing real returns. When they selected books for a return policy earlier, there might not have been any, or very little. I know with my books, neither had returns that my royalties were adjusted for. With so many books out there and a return policy in place on the computer, books came flying in, I imagine.

Think of it this way. A person calls PA and orders twenty books at 40% discount. That makes a $20 book cost $12. They keep the book for a month and nothing sells. They go to the Ingram's page and the book is returnable, with a 10% restocking fee. With the 5% discount, the return amount is $20 -5%-10%, or $16. The store made $4 times twenty books, or $80. This without selling a single copy.

If this is indeed what happened, I can see why PA wanted to remedy this situation. They should have marked the better discount books in a fashion to let LS know what not to accept.

This is my opinion. I could be wrong.
 

ChristineR

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It took me a while to see what Alan was getting at. It may or may not be fraud, and it may or may not work, but in theory, it's a great way to rip off PA. (Note: No one do anything illegal, please.)

A PA victim orders his books at 30% or 40% off. He then returns them to a bookstore which didn't order them in the first place. The bookstore sees that the books are listed in Ingrams as returnable, hence they accept them. I don't know how common this is, but several of my local bookstores will do this for you--take back books they didn't sell for store credit.

The victim now gets a store credit equal to 100% of the cover price of the book. The store, though, only gets a 5% discount (more or less), but they return it anyhow, minus some sort of fee. The store would end up with 85%-90% of the cover price, but they're out one commercially printed book--but they bought that at a normal 40%-60% discount, so essentially they just gave the customer a 15% off coupon. No biggie, stores do that all the time.

LSI/Ingrams credits the bookstore 95% (minus a fee, I think), adds their $2 fee, and sends the bill to PA. LSI's total share is that two dollars, assuming they didn't print the books. Not really worth committing fraud for.

The only person who really gets a windfall here is the PA author, who is able to buy more or less unlimited copies of her book at a discount better than what PA offered the bookstore. Normally authors are prohibited from reselling their discounted or free copies, but PA encourages it to keep up the myth that authors can sell their own books. Effectively, the PA author can now buy commercial books from his bookstore at 30-40% off!

Nifty, no? And if one or more authors were doing in bulk, trying to get back at PA for ruining their books...well, PA might decide to sue somebody...anybody...to get back.
 

circlexranch

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The only person who really gets a windfall here is the PA author, . . .

Except that the author also paid $3.99 per copy for shipping.

To me, the $64K question is just how cotton-picking many PA printed books did LSI pulp?

It cannot be that many, certainly not $850K worth. That number is significant and hopefully we'll see some docs that shed some light on it.
 

DreamWeaver

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Alas, Alan, that is indeed wrong. Bookstores don't make money off returns.
Thank you, Uncle Jim. And since the PA discount on a returnable book is much more likely to be 5% than 40%, the bookstore doesn't even make money if they actually sell the d*mn book. The overhead costs eat up that 90 cents or so.

While I'm at it, if you're wondering why many bookstores have started insisting on receipts and a time limit on returns, it's because some customers started ordering cheap books off the internet and then returning them for store credit*. Then they'd use the credit to buy other books and return them for credit and do the buy/return thing again until they had the receipts so confusing that some clerk would finally mess up and give them a cash refund.

It only takes a few unscrupulous people to screw up a good deal (liberal returns policy) for everyone. So, I doubt most major book retailers would accept a large customer return of PA books without receipts.


--------------------------
* At the height of this activity, they were showing up with paper grocery bags full of books.
 
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kaitie

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It took me a while to see what Alan was getting at. It may or may not be fraud, and it may or may not work, but in theory, it's a great way to rip off PA. (Note: No one do anything illegal, please.)

A PA victim orders his books at 30% or 40% off. He then returns them to a bookstore which didn't order them in the first place. The bookstore sees that the books are listed in Ingrams as returnable, hence they accept them. I don't know how common this is, but several of my local bookstores will do this for you--take back books they didn't sell for store credit.

The victim now gets a store credit equal to 100% of the cover price of the book. The store, though, only gets a 5% discount (more or less), but they return it anyhow, minus some sort of fee. The store would end up with 85%-90% of the cover price, but they're out one commercially printed book--but they bought that at a normal 40%-60% discount, so essentially they just gave the customer a 15% off coupon. No biggie, stores do that all the time.

LSI/Ingrams credits the bookstore 95% (minus a fee, I think), adds their $2 fee, and sends the bill to PA. LSI's total share is that two dollars, assuming they didn't print the books. Not really worth committing fraud for.

The only person who really gets a windfall here is the PA author, who is able to buy more or less unlimited copies of her book at a discount better than what PA offered the bookstore. Normally authors are prohibited from reselling their discounted or free copies, but PA encourages it to keep up the myth that authors can sell their own books. Effectively, the PA author can now buy commercial books from his bookstore at 30-40% off!

Nifty, no? And if one or more authors were doing in bulk, trying to get back at PA for ruining their books...well, PA might decide to sue somebody...anybody...to get back.

Not really. Even if it worked, it's still essentially cheating on the author's part to do something like this. PA does enough screwing over of people as it is. I really don't think we need to resort to using their tactics.