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James v. Penguin Group (USA) Inc.

United States District Court, S.D. New York

April 11, 2014

KELVIN JAMES, MARY SIMMONS, and JODI FOSTER, on behalf of themselves and others similarly situated, Plaintiffs,
v.
PENGUIN GROUP (USA) INC. and AUTHOR SOLUTIONS, Defendants.

Oren Giskan, O. Iliana Konidaris, and Raymond Audain, Giskan Solotaroff Anderson & Stewart LLP, New York, New York, for the Plaintiffs.

Jonathan M. Herman, Christopher G. Karagheuzoff, and Jonathan Montcalm, Dorsey & Whitney LLP, New York, New York, for the Defendants.

OPINION AND ORDER

DENISE COTE, District Judge.

Kelvin James ("James"), Mary Simmons ("Simmons"), and Jodi Foster ("Foster") bring this putative class action on behalf of all others similarly situated ("Class") against Penguin Group (USA) Inc. ("Penguin"), and Author Solutions, a Penguin company ("Author Solutions"), alleging breach of contract, unjust enrichment, and violations of three state statutes: Cal. Bus. & Prof. Code §§ 17200, 17500, N.Y. Gen. Bus. L. § 349, and Colo. Rev. Stat. § 6-1-105(1)(u). Defendants have moved to dismiss Penguin as a defendant and, with respect to Author Solutions, all but the contract claims. For the following reasons, all claims against Penguin are dismissed. The motion to dismiss the unjust enrichment and statutory claims against Author Solutions is largely denied.

BACKGROUND

The following facts are taken from the plaintiffs' Second Amended Complaint, which is the operative complaint in this case ("SAC"). Author Solutions provides publishing and marketing services to individuals who wish to self-publish their books. Since it launched in 2007, it has worked with 170, 000 authors to publish over 200, 000 book titles.

The named plaintiffs purchased publishing and marketing services from Author Solutions. They allege, on behalf of themselves and the Class, that Author Solutions engages in fraudulent business activities. Author Solutions does not provide the services it promises to provide, and then pressures authors into purchasing "more, equally bogus" editing, marketing, and publishing services. Author Solutions refuses to fix errors in manuscripts, implants new errors, and delays publication until authors purchase more services. Furthermore, Author Solutions does not pay authors their earned royalties or provide accurate sales statements.

The plaintiffs allege that at least 50 authors have publicized their complaints about Author Solutions on social media, blogs, and the Internet generally. Additionally, approximately 100 authors have contacted plaintiffs' counsel complaining of the practices identified above.

The three named plaintiffs experienced very similar treatment by Author Solutions. James is a resident of New York. In April 2009, James purchased a "Select" package for $1, 000 from Author Solutions for publication of his first book. The book was ultimately published with errors that were not in James's final manuscript. James nevertheless decided to publish a second book with Author Solutions. He was reassured by an employee of Author Solutions that its services had improved and that he would not encounter the same setbacks that he had experienced in publishing his first book.

In August 2010, James purchased a "Premier" package for his second book. The Premier package includes a service called Editorial Evaluation, which is marketed by Author Solutions as a "diagnostic tool" to assist authors in improving their manuscripts. The Editorial Evaluation also determines whether the author will receive an "Editor's Choice" designation.

When James submitted his manuscript for an Editorial Evaluation, he received the following boilerplate response:

Your manuscript has many of the basic elements required in today's publishing marketplace, but it is the opinion of the Editorial Board that the Editor's Choice designation cannot be awarded without additional revision.

The Editorial Evaluation recommended that James purchase proofreading and editorial services.

After James failed to purchase the recommended services for revising his manuscript, he began to suffer delays in the publication process. When the book was eventually published, it included multiple errors that were not in the manuscript he submitted to the publisher.

The second named plaintiff, Simmons, is a resident of Colorado. In May 2011, Simmons purchased a "Bookstore Premier Pro" package from Author Solutions for $1, 079.50. This package included an Editorial Evaluation. When Simmons submitted her manuscript for an Editorial Evaluation, she received the following response:

Your manuscript has many of the basic elements required in today's publishing marketplace, but it is the opinion of the Editorial Board that the Editor's Choice designation cannot be awarded without additional revision. Editor's Choice is still a possibility if the editorial services recommended in the Editorial Rx Referral in your Editorial Evaluation are completed satisfactorily.
Unlike James, Simmons purchased services recommended in the Editorial Evaluation. In May 2012, she purchased a Developmental Edit for $4, 659.78. In October 2012, she purchased a Proofreading Package for $1, 049. In December 2012, Simmons purchased a Marketing Package for $13, 600. She alleges that all products fell short of their promised level of services.

The third named plaintiff, Foster, is a resident of California. In May 2010, Foster purchased a "Bookstore Premier Pro" package for $1, 499 from Author Solutions. In August 2010, Foster submitted her manuscript for Editorial Evaluation. Foster received the following response:

Your manuscript has many of the basic elements required in today's publishing marketplace, but it is the opinion of the Editorial Board that the Editor's Choice designation cannot be awarded without additional revision. Editor's Choice is still a possibility if the editorial services recommended in the Editorial Rx Referral in your Editorial Evaluation are completed satisfactorily.
The Editorial Evaluation encouraged Foster to purchase a Developmental Edit, making various representations regarding the quality of services that the Developmental Edit would provide and stating that purchase of the Developmental Edit was required to be considered for Editor's Choice. Foster then received a form email from Kathi Wittkamper, stating that her book had been flagged as a possible Editor's Choice title. In this email and in conversations, Wittkamper made representations regarding the quality of services that the Developmental Edit would provide. In March 2011, relying on these representations, Foster purchased the Developmental Edit for $4, 196.25.

The Developmental Edit was completed in April 2011. In May 2011, Foster was notified that her book had received the Editor's Choice designation. Her published book, however, contained several publisher errors.

In June 2011, Foster was informed that she had received the "Rising Star" designation. Author Solutions informed Foster, however, that if she did not purchase a set of recommended marketing services, her designation would be removed. Foster purchased a Marketing Package for $3, 999. At some later time, however, this amount was refunded.

Each of the three named plaintiffs alleges that the Editorial Evaluation that he or she received contained false statements. Each asserts that no editorial board had actually reviewed the manuscript or made an assessment that revisions to the manuscripts were necessary. In addition, each named plaintiff asserts that Author Solutions failed to pay all of the royalties that were due and failed to provide an accurate statement of sales.

As the experiences of these three authors illustrate, the SAC alleges that Author Solutions is structured to push authors to purchase additional products. When authors first contact Author Solutions, a sales representative makes false statements about the royalty rate to encourage individuals to purchase publication packages. If an author purchases a package from Author Solutions, he is then assigned a "Check-In Coordinator" or "Product Services Associate." These associates, however, are instructed not to correct errors in manuscripts. While authors are given an opportunity to correct 50 errors at no cost, the errors remain uncorrected and new errors created by the publisher appear. When authors call to complain, they experience difficulty reaching their Check-In Coordinator or Product Services Associate; when they finally do reach a representative, they are told the errors can be corrected only for a fee. Meanwhile, the authors experience delays in the publication of their manuscripts, and are unable to reach their editors. The authors, however, receive many calls from sales representatives, who have revenue targets of $5, 000 per author.

The underpayment of royalties is a regular practice at Author Solutions. By contract, authors are to receive 50% of their sales receipts as royalties. Authors receive contradictory sales statements or are told that they have made no sales. Correcting these figures is a time-consuming process. In short, Author Solutions knows that it is not paying its authors the promised royalties, either because it lacks a proper accounting system or because it willfully fails to honor its contracts.

The SAC includes other allegations that Author Solutions is engaging in deceit. For example, Author Solutions has created social media personas to entice authors to use its services. It has developed websites that resemble independent advice sites on self-publishing (e.g., chooseyourpublisher.com) to direct readers to itself. Additionally, it maintains "imprints" - essentially sub-brands - that offer identical services, creating the impression that authors have more self-publishing options than is actually the case.

In or about July 2012, Penguin acquired Author Solutions, publicly stating a desire for the latter's "skills in customer acquisition and data analytics." In July 2013, the president of Penguin International based in Delhi became the CEO of Author Solutions.

On April 24, 2013, the plaintiffs filed a complaint naming Penguin and Author Solutions as defendants. In response to a motion to dismiss, on July 19 plaintiffs filed an amended complaint. Defendants again moved to dismiss. In an Order of September 5, ...


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