Tuesday, January 06, 2009

Victoria Strauss -- Light Sword Publishing Petitions for Bankruptcy

Last July, I blogged about the judgment obtained by one of Light Sword Publishing's authors against Light Sword Publishing and its two principals, Linda Daly and Bonny Kirby. Among other things, the author alleged breach of contract, fraud in the inducement, and intentional infliction of emotional distress. A default judgment in the amount of $15,342.64 was entered against Bonny Kirby, and a default judgment in the amount of $16,558.63 was entered against Linda Daly and Light Sword Publishing.

The author reports that to date, neither judgment has been paid.

Now Writer Beware has learned that on December 15, 2008, Linda Daly and Light Sword Publishing filed Chapter 7 bankruptcy petitions with the US Bankruptcy Court in the Eastern District of Michigan. Chapter 7 is "[t]he chapter of the Bankruptcy Code providing for 'liquidation,' (i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.)" (Definition taken from the US Courts website.) The first meeting of creditors is January 22, 2009.

A bankruptcy petition has not been filed for Daly's other publishing company, LSP Digital, LLC, which to all appearances is still a going concern, publishing books and accepting submissions. Although it seems pretty clear that LSP Digital is simply a re-named Light Sword Publishing (most, if not all, of Light Sword's books are offered by LSP Digital, and the company's URL--www.lightswordpublishing.com--and some of its META tags remain unchanged), LSP Digital has been set up as a separate corporation (Light Sword Publishing's corporate info is here).

If Daly's petitions are granted, a trustee (or possibly trustees, since two petitions are involved) will be assigned by the court to determine assets, decide what can be sold to satisfy creditors, and disburse the resulting funds. Assets include all property owned by the corporation and/or individual--not just tangible items such as office equipment, supplies, clothing, cars, etc., but intangibles such as intellectual property and interests in incorporated/unincorporated businesses.

However, Daly's personal bankruptcy petition, which Writer Beware has seen, makes no mention of her interest in LSP Digital, or of the contracts in her/the company's possession. Also, while the bankruptcy petition for Light Sword Publishing (which Writer Beware has also seen) claims that Light Sword has had no income for the previous 12 months, LSP Digital was only incorporated last June. So what happened between December 2007 and June 2008, when Light Sword was still Light Sword, and was still publishing and selling the books that are now with LSP Digital?

Is Daly hoping that she can solve her personal and corporate credit problems by declaring one publisher bankrupt while continuing to operate the other? I can't help but be reminded of literary scammer Martha Ivery, who declared bankruptcy for her vanity press Press-Tige Publishing, but attempted to shield Press-Tige's assets by transferring them to a "new" publishing company called New Millennium. The bankruptcy trustee in her case wasn't fooled. I'm not a lawyer, so take this for what it's worth--but if Daly's petitions are granted, the possibility that the trustee will fail to discover the existence of LSP Digital seems equally remote.

What does this mean for LSP Digital authors? If Daly's petitions are granted, they should probably be prepared to be caught up in the mess--and if there is a bankruptcy clause in LSP Digital's contracts (which I haven't seen), they should not rely on this to protect them. Although bankruptcy clauses in publishing contracts guarantee the return of authors' rights in the event of the publisher's bankruptcy or liquidation, such clauses are rarely heeded by the courts, which tend to view publishing contracts as assets that can generate income to help pay off creditors. Contracts are generally held by the trustee until a decision is made to sell or abandon them. (See this post from the Dear Author blog, which provides a good summary of what happens when a publisher files for bankruptcy).

In the Martha Ivery case, the bankruptcy petition was filed in June 2002, but Press-Tige authors' rights were not released until December 2003, when the judge handed down an order to close administration of the estate and abandon all property (this long delay was partly the result of Ivery's several perjuries, both in court hearings and on the petition itself). Things went more quickly when romance publisher Triskelion declared bankruptcy--Triskelion closed its doors in June 2007, and assets were auctioned off in November of that year.

There will doubtless be more developments in this situation. I'll provide updates as I receive them.

15 comments:

Anonymous said...

Thanks for updating everyone, Victoria. This is precisely the scenario Linda Daly laid out to me on the telephone several months ago. I was a Light Sword author at the time, and this plan--to declare bankruptcy and open a new house in order to protect her interests from creditors--was one of myriad reasons that accumulated, causing me to go to extraordinary lengths to extricate myself and my intellectual property from this mess.

Please note that the Light Sword contract I signed left all rights with me. I am supposing that all the contracts are boilerplated in like manner. Let's hope so; otherwise, these LSP authors could find their works tied up for years to come.

I have not checked, but I believe that there was a bankruptcy clause, as well as an insolvency clause, both of which would immediately release an author from any and all contractual obligations (I will check to be sure, and let you know). That, of course, does not mean that physical books held as inventory by Light Sword Publishing would be released. Although my understanding of bankruptcy proceedings is limited, it is clear to me that those books would be considered physical assets of the company and would be seized as part of the bankruptcy.

Furthermore, I can tell you that federal courts take perjured testimony very seriously, as they do any attempts on the part of a petitioner to hide assets from the court. They are also particularly interested in conspiracies to delude the court. A conspiracy exists when two or more parties conspire to commit a crime. It will be interesting to see whether the court ends up issuing indictments in that regard, here.

Trustees are pretty bright folk, too. They won't miss the nexus between Light Sword Publishing and LSP Digital.

This is just another example of how convoluted this 'business' is. Hopefully this jaunt will be the last trip down the Yellow Brick Road for this CEO and this pair of companies.

JS said...

Trustees are pretty bright folk, too. They won't miss the nexus between Light Sword Publishing and LSP Digital.

Considering that "LSP Digital"'s web address is "lightswordpublishing.com" they wouldn't have to be too bright to catch it (and I agree, they usually are bright and well-informed folks).

Oh, what a tangled web we weave
When first we practice to deceive!

Glad to hear that you've protected your own rights, Anonymous.

Andra M. said...

This provides a good warning to to the rest of us. We should all require a bankruptcy clause in any contract we sign with publishers and/or agents.

Thanks for keeping us apprised.

Anonymous said...

uh... I read into Vic's post that these bankruptcy clauses are pretty well worthless...

???

Victoria Strauss said...

"uh... I read into Vic's post that these bankruptcy clauses are pretty well worthless..."

As I understand it, you do want a bankruptcy clause in your contract, because it enables you or your agent to enter a formal demand for rights reversion if there is a bankruptcy declaration. The court can then consider this demand, and (hopefully) make the decision to abandon your contract when the publisher's assets are disposed of (as opposed to selling it, if there is a buyer, as in the Triskelion case).

The problem is that most bankruptcy clauses guarantee automatic and immediate rights reversion if there's a bankruptcy or liquidation, and the courts don't honor that. The publisher's assets, including contracts, are held while the bankruptcy trustee assesses them and determines if and how they can be sold and how funds will be disbursed to creditors--a process that can take months, if not longer. So authors who figure that they will immediately regain their rights if there's a bankruptcy, and need do nothing to ensure that, are in for a shock. That's why I say that authors should not rely on bankruptcy clauses to protect them if their publisher goes belly-up.

Jill Elaine Hughes said...

The Triskelion remaindered books are now showing up for sale at Borders locations, as well as other chain bookstores. Ironic, since Triskelion never got the books into distribution when it was still in existence. And those authors will get no royalties from those sales.

Victoria Strauss said...

Just to note: while there's a high rate of attrition among small presses, and they go out of business with alarming frequency, it is RARE for them to declare bankruptcy. Declaring bankruptcy is time-consuming and expensive, and ultimately requires you to pay off your creditors. It's far easier just to close your doors and disappear--which can actually be just as difficult for authors, since the publisher may neglect to release rights before doing a bunk.

Anonymous said...

I think Triskelion might have gone into bankruptcy because it reportedly had warehouses full of literally thousands of unsold books (the cost of print them put them out of business). The owners probably also wanted to shield their personal finances from seizure as well. Triskelion was a major crash-and-burn, since it had some prominent people behind it, was heavily promoted by the Romance Writers of America, signed a bunch of authors, and then collapsed before it even got off the ground.

firsttimeauthoress said...

Yawn! Another story about 'corrupt' publishers. Grrr! It makes me mad. You're so much about naming names. Can you give me the name of ONE, just one, agent or publisher that will actually look at a person's book without rejecting it? You guys are the catholic church of publishing. Only our way is right and anyone else is a scammer, a crook... In our current economic climate, everyone from banks to car companies are going under, but when it's a 'vanity' publisher it just has to be a premeditated scam. Have you ever heard of capitalism? Some companies actually do go under in hard times of recession. Anyway, in the true spirit of Writer Beware democracy, my comments will be deleted and I'll be banned from posting again. The true spirit of this site. The brown noses are all on first name terms, any dissenters are mad, scammers, crooks and banned! For the truth, see firsttimeauthoress.blogspot proof that you can make it the 'unconventional' way.

Victoria Strauss said...

Sorry, Firsttime authoress, can't help you--with the banning and deletion, that is.

Jane Smith said...

Victoria, I think that Firsttimeauthoress's real problem has nothing to do with bannings or deletions, and more to do with Michele Glance Rooney who supposedly represents her.

Karen said...

Just a few words to "Firsttimeauthoress". You are right about getting a book and/or manuscript to be considered by a major publishing house. That is one of the reasons why many authors choose to self-publish. Others are enticed by a small publisher who does seem to take the time to consider their work. Unfortunately, when the author is most vulnerable, a publishing house that says just what the author wants to hear can very easily take advantage of that need.

I don't really know anyone in this site, but have always been thankful for their unbiased reviews. I also know that any information that is given to Victoria is researched so that this site doesn't become one of the "gossip blog" sites. The only remarks that are censored here are those that are personal attacks and/or inappropriate by virtue of their language (cursing).

The author who brought suit against LSP DID something to help other authors from being scammed by this company. Not many people have the courage and the tenacity to fight unethical practices. By doing so, the author who sued, protected future authors from falling into the same trap.

LSP did, among other things, represent itself as something it wasn't..."a time-honored traditional pubhisher". A court in Michigan obviously believed the charges because a judgement in the author's favor was made. That information is public record.

Thank goodness that there is a Writer's Beware site to report these companies and that there was one author who did something about the treatment that she received. It was a difficult thing to accomplish. Her efforts cost money (legal fees) that most likely won't be retrieved, but the worst cost was emotional; the loss of her dream.

This forum is one that does invite opinions, divergent views and reliable information whether positive or negative. Oh, and one other thing, my nose isn't brown.
Karen A. Medford

Anonymous said...

First Time Authoress, I'm a little confused. Tell us please, does someone duct tape you to a chair and force you to read the posts here? If not, and you hate WB so much, why on earth do you bother?

I take it you've either never been scammed, or, if you are one of a previously-mentioned agent's clients, you're just in denial. In either case, you're clearly standing in the wrong puddle.

Having at one time been contracted to LSP, I am intimately familiar with not only their publishing acumen, but their business practices. If you think they've gone bankrupt because of current market fluctuations, I have this steamboat for sale, really cheap. Pay no attention to the holes in the hull, they are only there to let the water out, not in.

ALC said...

firsttimeauthoress said: Can you give me the name of ONE, just one, agent or publisher that will actually look at a person's book without rejecting it?

There are plenty of them, Einstein. How else would books continue to be published. The real key to not getting rejected "automatically" is to send a polished MS. You know - one that isn't riddled with grammatical, syntax & spelling errors. From reading your comments I have to assume that you've never been clued in on this little gem of advice. You want a legitimate agent? Take a course in remedial grammar & start over. Otherwise, you are just they type who NEEDS to stick to fee-charging charlatans like MGR.

Oh, wait, you ARE MGR. Oooops! Silly me.

Anonymous said...

Per my attorney, I am releasing the following:

Author, J. G. Eastwood announces that her lawsuit against Linda Daly and Light Sword Publishing, LLC has been resolved. While confidentiality provisions agreed to by the parties prevents disclosure of the specific terms of the settlement, public records on file with United States Bankruptcy Court for the Eastern District of Michigan reveal that Daly and Light Sword's attempt to discharge in bankruptcy a court judment obtained by Eastwood was unsuccessful. As such, the judgment against Daly and Light Sword was not discharged and remains subject to collection.
-JG Eastwood