I’ve written before about the legal traps in some agency clauses inserted into publishing agreements. Recently, a New York appeals court upheld the lower court decision in Peter Lampack Agency v. Martha Grimes, et al, a case that interprets these clauses favorably for authors.
First, some background. At one time, in a galaxy far far away, publishers paid royalties directly to an author, who in turn paid his or her agent a commission. This changed by the middle of the twentieth century, when publishers began sending the checks directly to the agent. Publishers, realizing the potential for disputes, began requiring an “agency clause” (see below) in the publishing agreement whereby the author authorized the payment to the agency in full payment of the author’s royalties.
Fair enough. Unfortunately, some agencies included in their agency agreements, or in the book publishing contracts, or both, a statement that their agency was irrevocable and “coupled with an interest.” The meaning of “irrevocable” is obvious; “agency coupled with a interest” means the agent has ownership or other interest in the thing being managed – in this case, a novel. Under either concept, if you terminate the agency, and the rights to your book revert back to you from the publisher, you would be obligated to pay the agency a commission for all future contracts for the work, even if the agency did nothing to cause that sale.
Cute, right? Not exactly author friendly. Some would even say a cynical exploitation of the client – except that many agents themselves are not aware of the import of these clauses because they have simply copied it from another agency’s form.
But wait – on to the the Lampack case. The Peter Lampack Agency (“PLA”) represented Martha Grimes (Mystery Writers of America’s 2012 Grand Master), beginning in 1996. In 2007, Grimes fired PLA. At the time, she had a four book contract with Penguin, negotiated by PLA, which gave Penguin an option on Grimes’s next novel, The Black Cat. Penguin exercised its option to buy The Black Cat after PLA was fired. PLA then sued Grimes for its commission on the sale, relying among other theories, the following agency clause:
The Author hereby appoints [PLA] irrevocably as the Agent in all matters pertaining to or arising from this Agreement…. Such Agent is hereby fully empowered to act on behalf of the Author in all matters in any way arising out of this Agreement…. All sums of money due the Author under this Agreement shall be paid to and in the name of said Agent…. The Author does also irrevocably assign and transfer to [PLA], as an agency coupled with an interest, and [PLA] shall retain a sum equal to fifteen percent (15%) of all gross monies due and payable to the account of the Author under this Agreement.
Accordingly, the Court had to decide whether the words “irrevocably assign” and “coupled with an interest” meant that PLA was entitled to a commission for The Black Cat. The Court stated the general rule that an agency for no definite term is revocable at will, but when an agent’s authority is coupled with an interest, the agency becomes irrevocable. However, “the mere fact that the commission provision ‘appoints PLA irrevocably’ as an agent is not enough to create an agency coupled with an interest.” More importantly, PLA didn’t have a property interest in Grime’s works, and “words alone are not enough to establish an agency coupled with an interest.” The Court also rejected PLA’s other allegations of breach of contract.
Therefore, despite the “irrevocable” and “coupled with an interest” language, the court ruled that the PLA agency clause only gave PLA a 15% interest in the proceeds arising from the royalties generated by books named in the 2005 contract — and not The Black Cat.
Although this decision applies only in New York, that is the jurisdiction where many (if not most) literary agents are located, and certainly may be cited in other jurisdictions.