Class Action Lawsuit Against Author Solutions Inc.: Update

Posted by Victoria Strauss for Writer Beware

As I'm sure most readers of this blog know, self-publishing services provider Author Solutions Inc., along with its parent, Penguin Group, is currently the subject of a class action lawsuit, filed in May 2013 by the law firm Giskan Solotaroff Anderson & Stewart LLP.

Allegations include breach of contract, unjust enrichment, and violation of state statutes in California, New York, and Colorado.

In June 2013, ASI and Penguin filed for dismissal, labeling authors' complaints "a series of gripes" that would be better served by filing individual suits, and urging the court to toss all but the breach of contract claims against ASI, and to remove Penguin from the lawsuit entirely.

Legal maneuvering over the dismissal filings ensued over the following months (plaintiffs' Second Amended Complaint can be seen here), even as discovery proceeded on the contract claims.

Now Judge Denise Cote (the same Judge Cote who is in charge of the Apple ebook antitrust actions) has handed down a ruling that's good news for Penguin, but mostly a defeat for ASI. (The full ruling can be seen here.)

All claims against Penguin are dismissed.

Penguin is dismissed as a defendant in this action. The activities at issue here were undertaken by Author Solutions, a subsidiary of Penguin. Plaintiffs concede that they are not attempting to pierce the corporate veil in order to hold Penguin liable for Author Solutions’ actions. Accordingly, under basic corporate law principles, Penguin cannot be held liable for the alleged misconduct of Author Solutions.

ASI's motion to dismiss plaintiffs' unjust enrichment claims is granted in part and denied in part:

Plaintiffs allege two distinct forms of unjust enrichment by defendants. First, defendants unjustly profited by failing to pay royalties at the rate set forth in the contractual arrangement. Second, in failing to provide services that members of the class purchased without entering into a contract, defendants were unjustly enriched in the amount of the revenue received for those services.

Plaintiffs’ unjust enrichment claim as to unpaid royalties is dismissed. The royalty rate is governed by written contracts, which plaintiffs seek to enforce in their breach-of-contract claim. Accordingly, these royalties cannot be recovered under an unjust enrichment theory.

Plaintiffs’ unjust enrichment claim as to the non-contractual publishing services, however, is adequately pled. Unlike the claim regarding unpaid royalties, plaintiffs allege that there was no written contract setting forth the nature of the services for which they are seeking damages in their unjust enrichment claim.

ASI's motions to dismiss plaintiffs' claims of violation of various state statutes against deceptive acts and practices are denied. (Interestingly, in her discussion of ASI's alleged violation of New York General Business Law, Judge Cote cites New York State's 1999 lawsuit against fraudulent editing service Edit Ink.)

The surviving claims will now proceed to discovery, and the parties have submitted a proposed pre-trial schedule.

#sfwapro