Wednesday, July 12, 2006

Reviewing This Major Development

In response to the many inquiries we've received, let's review the implications of the new blockbuster development in the UnSettlement: the parties' acknowledgment that they filed misleading information with the Second Circuit Court of Appeals.

We'll have a pop quiz tomorrow. It's really not that complicated.



We objected to the settlement on -- among other grounds -- the structure that forced only the C's, or holders of copyrights that were not registered with the Copyright Office, to bear the entire risk of having claims reduced in the event the settlement fund became overloaded with claims. The trigger for the "C Reduction" (which even allows for the scenario that C claim awards get reduced all the way to zero) is $11.8 million in total claims. (The remainder of the $18 million settlement fund goes to lawyers and to the costs of mediation, notice, and claims administration.)

The other side said, effectively, "Don't worry. The C Reduction will never, ever happen."

In our appeal brief we reiterated our argument. In their opposition brief to the Second Circuit they said, most dramatically, "It would be absurd to reverse class certification on this ground, since the claim period expired last September and the submitted claims as reported by the claims administrator make plain that there will be no C reduction whatever, even if every claim asserted were valid." At various other points in their briefs the settlement parties called our point about the possibility of the C Reduction's kicking in "exceedingly remote," "inconceivable," and something which "as a factual matter" has "no chance" and "[n]o basis in reality."

To prove this, they then -- in violation of the Federal Rules of Appellate Procedure, which generally prohibit the introduction of new information from outside the lower court record -- told the Second Circuit that the claim administrator had reported to them "prima facie valid claims" totaling $10.76 million, more than $1 million below the C Reduction trigger.

The question then became, How were "prima facie valid claims" defined? It was clear from the claim administration memorandum (an exhibit to the settlement agreement) that the claim administrator, in this initial calculation, was supposed to reject A and B claims that were not accompanied by documentation of copyright registration, and to preliminarily count all such deficient claims as C's or unregistereds. This procedure was confirmed by the mailing that went out to so many of us, dinging us for failure to enclose documentation and telling us that, absent a cure of this defect by a new due date, the claims would be considered C's.

As you know, the lawyers then reversed themselves and did a new mailing saying, OK, so you don't need the actual documents, after all, just valid copyright registration numbers, and sorry for the inconvenience.

But they'd already given the court that figure of $10.76 million. As claimants proceed to provide the registration numbers and/or the documents requested, many, many, many claims -- we don't yet know how many -- that were busted down to low-paying C's will be elevated again to higher-paying B's or A's. So calling attention to the C Reduction was not a crazy, outlandish, wildly theoretical and academic speculation. Indeed, when all the precincts are counted it almost surely will be a living, breathing reality!

Lawyers for both the plaintiffs and the defendants ducked objectors' attorney Charles Chalmers' questions about this for more than a week. Then they admitted that the $10.76 million number was a mistake and, tacitly, admitted that it seriously misled the Court of Appeals. (We're currently investigating whether parallel misleading information was given to Judge Daniels of the district court as part of the basis for his approval of the settlement, but we don't have any conclusions on that yet.) The parties filed "corrected" briefs, a step so extraordinary that many experienced court observers are saying they'd never before seen such a thing, especially from law firms as highly regarded as the defendants'.

We're investigating the possibility of asking for sanctions against the other side. We're also looking into how to get the screwy process that led to the formulation of the $10.76 million number into the record for consideration of our appeal by the three-judge Second Circuit panel.

That's basically the story, except for one more crucial angle, which exposes why the named plaintiffs and their lawyers have a conflict of interest and why C claimants (by all accounts, more than 99 percent of the class) should have their own representation.

As noted, the $10.76 million figure will rise. We don't know by how much -- let's hypothetically say to $15 million. The next step will be a review of the claims by the Defense Group (the database companies and publishers). Under the procedures spelled out in the claim administration memorandum, they have a right to challenge claims.

In turn, the lawyers for the plaintiffs have a fiduciary duty to advocate for members of the class whose claims are challenged. That sets up an obvious conflict. If they aggressively support the C's whose claims are challenged, then they risk seeing the claim pool stay above the $11.8 million C Reduction trigger. The lawyers, and the named plaintiffs and the associational plaintiff writers' organizations, have staked their credibility on the argument that the C Reduction is an absurdity that could never, ever happen.

Which is why we reiterate our call for freelancers across the globe to contact the Authors Guild, the American Society of Journalists and Authors, and the National Writers Union, and demand that they be held accountable for this atrocity of a settlement.

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