gitman v. pearson ed. complaint

8/10/2019 Gitman v. Pearson Ed. Complaint

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UN ED

S T ~ s f L T R C V o u R T S

6

2

6

SOUTHERN

I ~ ~

OF NEW YORK

LAWRENCE

J

GITMAN AND MICHAEL D

JOEHNK, on behalfof themselves and all others

similarly situated,

Plaintiffs,

v

X

14 Civ.

CLASS CTION

COMPL INT

JURY

TRI L

DEMANDED

0

PEARSON EDUCATION, INC., PEARSON

PLC, and PEARSON, INC.,

~ - ~ :

Defendants.

X

_

Lawrence J Gitman and Michael D Joehnk, by their attorneys, make the following

allegations and claims for their Complaint against Pearson Education, Inc. ( Pearson

Education ), Pearson PLC, and Pearson, Inc. (hereinafter referred to collectively as Pearson ),

its divisions, predecessors, and successors in interest. The following allegations are made upon

information and belief, except as to allegations specifically pertaining to Plaintiffs, which are

made upon knowledge.

PRELIMIN RY ST TEMENT

1 Plaintiffs are emeritus university professors who have authored several widely

used finance textbooks and entered into publishing agreements with various predecessors in

interest to Pearson Education. Plaintiffs bring this action on their own behalf and on behalf

of

other authors of textbooks to seek redress for Pearson's practice of systematically short-changing

textbook authors on the royalties they are owed.

2. Prices for college textbooks have, on average, increased by more than 82% over

the past ten years. The wholesale prices for college textbooks (which is the basis for the

calculation

of

royalties owed to Plaintiffs and the class they represent) have increased at a similar

rate. This increase in the retail and wholesale prices

of

textbooks should result in increased

1



royalty payments to textbook authors, including Plaintiffs and the class they represent, who

receive a royalty that is a percentage

of

the selling price

of

their works.

3

However, even though there has been no reduction in the royalty rate Plaintiffs

are entitled to over the past ten years, Plaintiffs' royalty payments for each copy

of

their works

have remained constant

or

declined, when they should have increased.

4

For example, between the year 2000 and 2011, the retail price for Plaintiffs'

textbook

FUNDAMENTALS OF

INVESTING increased from 108 to 260. Given the increase in the

retail and wholesale price

of

this textbook (it would be helpful to have wholesale cost since we

allege wholesale price increased commensurately), Plaintiffs' per unit royalties should have more

than doubled over this time period. However, Plaintiffs' per unit royalties remained virtually

stagnant as they moved from approximately 12.59 per copy to only 14.30 per copy, an

increase

of just

1% a year, as compared to a 140% increase in retail prices during this time

period.

5.

While

pnces

for Plaintiffs' works have increased dramatically, the sole

beneficiary

of

the price increases has been Pearson. A recent audit

of

the royalty statements

Plaintiffs received over a five-year period for four textbooks revealed that they are owed more

than 4 70,000 in additional royalties. Numerous other textbook authors who entered into

materially similar standard form agreements with Pearson Education or various predecessors in

interest have also been underpaid royalties. Extrapolating from the amount of underpaid

royalties owed to the Plaintiffs, it appears that Pearson Education has improperly retained for

itself millions of dollars in royalties owed to the proposed class. ow does Pearson manage to

enrich itself at the expense

of

Plaintiffs and the class they represent?

6. There are seven systematic practices employed by Pearson that have permitted it

to steadily usurp

an

ever greater share

of

the revenue from sales

of

textbooks, all at the expense

of

the textbook authors.

7

First in order to expropriate a greater share

of

sales revenue from textbook

authors, Pearson Education improperly categorizes domestic sales as export sales in order to pay

the lower royalty rate applicable to export sales. Under the standard form contracts at issue,

2



authors usually receive a royalty of 10 of export sales (i.e., sales that involve the exporting

of the book to a foreign country), and

15o/o

or

18

of domestic sales. Pearson short-changes

authors by counting mere bookkeeping entries in which Pearson Education notes a sale from

Pearson Education to another Pearson entity controlled by Pearson PLC or Pearson, Inc., as an

export sale, even though the books never leave the United States as part

of

this purported sale.

The bookkeeping entry does not reflect an arms-length transaction between different Pearson

entities; indeed, it is generally a single Pearson employee based in the United States that makes

the bookkeeping entry reflecting the export sale. The actual exporting of the books occurs

only when the Pearson, Inc., or Pearson PLC subsidiary with nominal ownership of the books

actually makes a bona-fide sale to an unrelated third-party. With respect to the textbook

FUNDAMENTALS OF INVESTING, between

25%

and 50o/o of total unit sales were categorized by

Pearson as export sales, even though a very small portion of those units were actually sold in a

foreign country.

8. Second Pearson Education short-changes its authors by failing to use

commercially reasonable best efforts to make bona-fide export sales to unrelated third parties,

and pay authors royalties on those sales. Instead, a single Pearson employee simply makes

bookkeeping entries in which a sale is noted from one Pearson entity to another, at a price

determined by Pearson. Essentially, royalties are paid to authors based upon the price at which

Pearson decided to sell itself the books.

f

the Pearson entity with nominal ownership of the

books later sells and exports the books to an unrelated third-party at a higher price than the price

set by Pearson in its internal bookkeeping entry, Pearson does not remit additional royalties to

authors based upon the higher sale price eventually realized by Pearson. With respect to the

textbook

FUNDAMENTALS

OF

INVESTING,

the net effect of this practice is that the sale prices

(i.e., the royalty basis) for export sales is often less than

25%

of

the price realized for bona-fide

domestic sales.

9. The bottom line impact

of

these sham export sales with respect to

FUNDAMENTALS OF INVESTING is that export sales accounted for approximately 34% of the

total units sold, but only

12 of

the royalties received by Plaintiffs. With these sham export

3



allocating revenues from kit sales to royalty-free or reduced royalty study guide products,

Pearson creates custom bundles with unique ISBN numbers, and claims that this customization

justifies the reduction in the share o

the royalties allocated to Plaintiffs' textbooks. For the

textbook

FUNDAMENTALS

OF

INVESTING

the number

o

custom editions with unique ISBN

numbers has more than quadrupled in the past ten years. These custom editions have little or

no additional material that would justify the artificially low royalty allocation to Plaintiffs

textbooks.

12 Sometimes, these custom editions are created as part o an academic payola

scam in which Pearson gives a kickback in the form

o

a royalty to professors who select

Pearson published books for their class. After agreeing to use a Pearson textbook in a course, a

professor or academic department will supply a small and worthless amount

o material to create

a custom edition, and in return receive a royalty/kickback for the material supplied for the

custom edition. These kickbacks further reduce the royalty basis for Plaintiffs and the class they

represent. t

is

unknown at this juncture whether Plaintiffs have been victims o this kickback

scheme.

13

The bottom line impact o these practices with respect to the textbook

FUNDAMENTALS

OF

INVESTING

is that the royalty basis for these kit sales was typically

between 75% and 40% less than the royalty basis for regular domestic sales.

14

Fifth in addition to lowering the royalty basis through kit sales, Pearson

categorizes the kit sales

as

discounted domestic sales, and apply arbitrarily low royalty rates

ranging from 2.5% to 10% to those sales, rather than the higher domestic royalty provided in the

standard form contracts entered into by Plaintiffs and the class they represent. These

discounted sales, as a percentage o total sales, have dramatically increased since the

development

o

the My Lab web-based study guides. For example, for the textbook

FUNDAMENTALS OF

INVESTING

these discounted domestic sales now represent a majority o

the sales o that textbook. Thus, Plaintiffs are receiving a lower royalty rate calculated on an

artificially low basis, while Pearson reaps an ever-greater share o the revenue from textbook

sales.



15. Sixth Pearson Education breaches the covenant of good faith and fair dealing by

(i) routinely engaging in below-market sham sales in order to reduce the basis on which royalties

are calculated, and (ii) overstating the value

of

materials contributed by Pearson as part

of

any kit

sales in order to reduce the basis on which it owed royalties for the kit sales. n order to injure

the ability

of

authors to receive the royalties they are due and reasonably expect to receive under

the standard form contracts, Pearson Education enlists various Pearson

PLC and Pearson, Inc.,

subsidiaries and related parties to participate in sales at below-market prices, and then pays the

authors a royalty based upon this below-market sales price. These below-market sales, which

Pearson Education seeks to disguise by calling them export sales (even though the books never

go anywhere), are designed to deprive authors

of

the benefits they are owed under the publishing

contracts they entered into. Then, subsidiaries of Pearson PLC and Pearson, Inc., and/or related

parties sell the books at market price and retain the proceeds, allowing Pearson to reap excess

profits at the expense of the authors. To the extent Pearson Education is permitted to engage in

these related-party transactions, it is required to act in good faith by selling the books at the

market price, so that these sales

do

not injure or destroy the authors' ability to reap the benefits

of

their contracts with Pearson Education. With respect to kit sales, to the extent such sales are

authorized, Pearson Education must act in good faith in determining the relative value

of

the

components contributed by Pearson Education or other Pearson entities, so as not to deprive

authors of their fair share of royalties owed on kit sales. Instead, Pearson deliberately

understates the relative value of Plaintiffs' works in order to deprive them of royalties.

16. Seventh Pearson PLC and Pearson, Inc., interfere with the contracts between the

authors and Pearson Education by: (i) participating in the sham bookkeeping entries reflecting

export sales that never actually occurred, and (ii) engaging in below-market sham transactions

with Pearson Education in order to lower the basis upon which the authors' royalties are

calculated.

JURISIDI TION

AND VENUE

17. This Court has jurisdiction over all causes of action asserted herein pursuant to 28

U.S.C. §1332(d), because the aggregate claims of the Class exceed the sum or value of



5,000,000.00, and there

1s

diversity

of

citizenship between proposed class members and

Defendant.

18. Venue is proper in this District under 28 U.S.C. §1391(a)(l) and (2). Defendant

Pearson, Inc., maintains its headquarters at 1330 Avenue

of

the Americas,

New

York,

New

York,

and otherwise conducts substantial business in this District, including conduct directed at

members of the Class, such as contracting for the publication of books and the accounting,

reporting, and payment of royalties owed to Plaintiffs and the proposed class. Defendants

Pearson, PLC and Pearson Education, Inc., engage in interstate commerce by regularly

conducting business in this district by selling, promoting, and marketing books and other items in

this District. In the past year, Pearson,

PLC and its subsidiary Pearson Education, Inc., have sold

millions of dollars of textbooks, and other types of books in this District.

P RTIES

19. Plaintiff Lawrence J. Gitman is a citizen and resident of the State of California,

County of San Diego, and an Emeritus Professor of Finance at San Diego State University. Mr.

Gitman entered into standard form publishing agreements with Harper Row Publishers for

three text books that were tentatively titled: BASIC FINANCE: A MANAGERIAL APPROACH

PRINCIPLES OF MANAGERIAL

FINANCE

2nd ed. ), ESSENTIALS OF INVESTMENTS (co-authored with

Michael Joehnk), and

BASIC

MANAGERIAL

FINANCE.

Mr. Gitman also entered into a standard

form publishing agreement with Addison Wesley-Longman for a textbook tentatively titled

INTRODUCTION TO FINANCE

(co-authored with Jeff Madura). These textbooks have been widely

used for decades.

1

20. Plaintif f Michael D. J oehnk is a citizen and resident

of

the State

of

Arizona,

Coconino County, and an Emeritus Professor of Finance at Arizona State University. Mr.

Joehnk entered into a standard form publishing agreement with Harper

&

Row

Publishers for a

textbook that was tentatively titled ESSENTIALS

OF INVESTMENTS

(co-authored with Mr. Gitman).

1

The actual names of the textbooks were changed upon publication to: FUNDAMENTALS OF

INVESTING PRINCIPLES OF

MANAGERIAL

FINANCE PRINCIPLES OF

MANAGERIAL

FINANCE

BRIEF and INTRODUCTION TO

FINANCE.

7



21. Defendant Pearson, PLC ( Pearson PLC ) is a corporation formed under the laws

of

the United Kingdom with its principal offices located in London, England and ew York,

ew

York. Pearson PLC operates in the United States through its wholly owners subsidiaries

Pearson, Inc., headquartered in

ew

York City, and Pearson Educational, Inc., headquartered in

Saddle River,

ew

Jersey. One of Pearson PLC' s businesses is educational publishing, and it is

presently one

of

the largest publishers

of

educational textbooks in the world. Through a series

of

acquisitions and mergers, Pearson PLC acquired the College Division of Harper & Row

Publishers as well as the publishing house Addison Wesley Longman, the entities with which

Plaintiffs entered into standard form publishing contracts.

22. Defendant Pearson, Inc. ( Pearson Inc. ), is a Delaware Corporation, with its

principal place of business located in ew York, ew York. Pearson Inc., is a wholly owned

subsidiary of its parent Pearson PLC, and one of the entities through which Pearson PLC

operates in the United States. Pearson Inc., is one

of

the largest book publishers in the world.

23. Defendant Pearson Education, Inc. ( Pearson Education ), is a Delaware

Corporation with its principal place

of

business located in Upper Saddle River,

ew

Jersey, and

a wholly owned subsidiary of Pearson, PLC. Pearson Education is one of the largest publishers

of educational textbooks and was created through a series

of

acquisitions and mergers by which

Pearson PLC acquired the educational publishing business of Prentice Hall, Simon Schuster,

Harper Collins, and Addison Wesley.

24. Pearson Education is the successor in interest to the College Division ofHarper

Row Publishers and Addison Wesley Longman, the two publishing houses that are the actual

signatories to the publishing contracts with Plaintiffs. In 1996, Pearson PLC acquired Harper

Collins Educational Publishing (a division of Harper Collins, the successor to Harper Row

Publishers) and merged it into Addison Wesley Longman, the educational publishing subsidiary

of Pearson PLC. In 1998, Pearson PLC purchased the educational publishing businesses of

Simon & Schuster, and merged that business with the Pearson PLC subsidiary Addison Wesley

Longman, which was renamed Pearson Education.

8



GENERAL ALLEGATIONS

A. TH STANDARD FORM PUBLISHING AGREEMENTS

25. Pearson Education and its predecessor entities (e.g., the educational publishing

businesses ofHarper Row, Addison Wesley Longman, Prentice Hall, Simon Schuster, etc.)

regularly entered into written publishing agreements with authors of textbooks and other

academic books. These publishing agreements (the Agreements ) are standard form

agreements drafted by Pearson Education or its predecessor entities with blank spaces for the

date

of

the contract, the title

of

the book to be published, and the name

of

the author

to

be filled

In.

Copies

of

the publishing agreements entered into by the Plaintiffs are attached hereto

as

exhibits A through E.

26. These Agreements are typical publishing agreements in which the author grants

the exclusive right

to

publish a book to the publisher, and in return, the publisher pays to print

the book, use reasonable best efforts to try to maximize the total sales

of

the book by dollar

volume, and pay the author a royalty equal to a percentage

of

the gross receipts realized from

sales

of

the book. The author is not paid a fixed amount up-front in the Agreements, because it

is uncertain how many books can be sold and at what price. Thus, the Agreements contemplate

that the publisher will sell the books

to

various third parties, with the number

of

books purchased

and the price

to

be paid a matter

of

negotiation in a future arms-length transaction between the

publisher and the third parties to whom the book is sold.

27. The Agreements also invariably provide for a higher royalty rate for sales made in

the United States and Canada than for export sales in which the books are shipped abroad.

(The Agreements exclude sales to Canada from export sales and provide for payment

of

royalties at the domestic rate for sales in Canada.) The Agreements typically provide a

standard royalty rate of

10

for export and international sales. The royalty for domestic sales

and sales

to

Canada

is

invariably higher than 10 , and typically ranges between

15o/o

and 18%

9



of

sales. For the textbook

FUNDAMENTALS OF

INVESTING

the royalty rate for domestic sales is

18%.

28. With respect to the royalty basis for kit sales, many

of

the Agreements do not

authorize Pearson Education to sell the books as part of a kit or pay a reduced royalty for such

sales. To the extent such sales are authorized, or the Plaintiffs have permitted such sales,

Pearson is required to act in good faith and not place its own interest ahead

of

the Plaintiffs in

conducting

of

those sales and calculating royalties on those sales.

29. Plaintiffs entered into five of these standard form Agreements with Pearson. The

agreements entered into between Plaintiffs and Pearson grant Pearson the exclusive right to

publish the texts in exchange for the payment

of

a royalty equal to a percentage

of

the dollar

value

of

any sales. The four agreements with Harper Row publishers for the texts

BASIC

FINANCE:

A

MANAGERIAL APPROACH PRINCIPLES OF MANAGERIAL FINANCE 2nd

ed.),

ESSENTIALS

OF INVESTMENTS and

BASIC MANAGERIAL FINANCE

each provide for a royalty

of

between 15% and 18% for domestic sales and export sales to Canada, and a royalty of only 10%

on export sales to countries other than Canada. The standard form publishing agreement with

Addison Wesley Longman for the text

INTRODUCTION

TO

FINANCE

is substantively identical to

the Harper

Row

contracts with respect to export royalties, and provides for a royalty

of

between 15% and 18% for domestic sales and export sales to Canada, and a royalty of only 10%

on export sales to countries other than Canada.

B. ALLEGATIONS RELATED

TO TH

CLAIM

FOR BREACH OF CONTRACT

30. In 2011, Plaintiffs retained IP Royalty Auditors LLC, an accounting firm that

specializes in royalty audits, to conduct an audit

of

their royalty account with Pearson Education.

The audit, as well as a further examination of Pearson Education's business practices, revealed

that Pearson Education short-changed Plaintiffs on royalties owed under the Agreements, and

that Plaintiffs are owed more than 470,000 in additional royalties.

10



Pearson Misclassi/ies U.S. nd Canada Sales as ((Export Sales

31. Pearson Education engages in the systematic practice o improperly classifying

domestic sales as export sales in order to reduce the royalty rate owed to authors under the

Agreements. Under the standard form contracts at issue, authors usually receive a royalty

o

10%

o

export sales (i.e., sales that involve the exporting o the book to a foreign country other

than Canada), and 15% to 18% o domestic sales and sales to Canada. In order to pay royalties

at the lower export royalty rate, Pearson Education classifies its internal bookkeeping entries in

which Pearson Education notes a transfer from Pearson Education to another Pearson entity

(typically a subsidiary o Pearson PLC or Pearson, Inc., or other related party)

as

a bona fide

export sale. The books, o course, are never actually exported or sold abroad. The transaction

exists only on paper; the books never

go anywhere and no money is actually exchanged. Indeed,

it is usually a single Pearson Education employee that sits on both sides

o

the transaction and

makes the bookkeeping entry. Pearson Education, however, treats these internal bookkeeping

entries as export sales, and pays royalties at the lower export rate on the books covered by these

bookkeeping entries.

32. The standard form Agreements, including the Harper Row and Addison Wesley

Longman contracts between Plaintiffs and Pearson Education, allow for the payment o the lower

royalty rate for export sales only on books that are actually exported.

33. Pearson Education cannot avoid its royalty obligations by cooking its books

with sales that are nothing more than an internal accounting artifice. With respect to the textbook

FUNDAMENTALS OF

INVESTING between

25%

and

50%

o total unit sales were categorized by

Pearson Education as export sales, even though a very small portion o those units were

actually sold in a foreign country.

34. Pearson's wild claims as to export sales simply defy reason, logic, and common

sense. Pearson has substantially underpaid Plaintiffs royalties they are owed by falsely claiming

that 25o/o to 50%

o

all unit sales were export sales subject to a 10% royalty rate, rather than an

18%

royalty rate.

11



Pearson Education Fails to Undertake ny Efforts to Make

Bona-Fide Export Sales or the Benefit ofPlaintiffs

and

the Class

35. The Agreements also contemplate that Pearson Education, as the holder

of

the

exclusive right to publish the works aboard, will use commercially reasonable efforts to make

bona-fide export sales to unrelated third-parties and pay authors royalties on those sales. Instead

of

undertaking efforts to make sales abroad for the benefit

of

Plaintiffs and· the class, Pearson

Education takes a shortcut by estimating how many units it will sell abroad and at what price,

and making an internal bookkeeping entry reflecting such a

sale from Pearson Education to

another Pearson entity, typically a subsidiary

of

Pearson PLC

or

Pearson, Inc.,

or

other related

party. Rather than reaping the benefits of reasonable best efforts to sell their books abroad,

Plaintiffs and the class are paid royalties only upon these internal Pearson Education

bookkeeping entries, which do not reflect any effort to actually sell the books abroad. Indeed,

the same Pearson employee typically sits on both sides

of

the transaction, and decides how many

books will be sold and at what price, and makes an internal bookkeeping entry reflecting this

purported sale.

36.

f

the books are later sold and exported to an unrelated third-party (i.e., the

export sales and sales to independent distributors or bookstores contemplated in the form

Agreements), at a higher price than the price set by Pearson Education in its internal

bookkeeping entry, Pearson Education does not remit additional royalties to authors based upon

the higher sale price eventually realized.

37. Pearson Education essentially turns its obligation under the Agreements to sell

and market the books abroad for the benefit of the authors on its head. Rather than undertake

such efforts for the benefit

of

Plaintiffs and the class, Pearson Education undertakes such efforts

only for itself. When bona-fide export sales are actually made, Pearson retains the benefits of

such efforts for itself.

38. With respect to Plaintiffs' textbook

FUNDAMENTALS O INVESTING

the net effect

of this practice is that the sale prices (i.e., the royalty basis) for export sales is, far more often

12



than not, less than 25

of

the price realized for bona-fide domestic sales. There are no cost

savings or market efficiencies related to sales of English language textbooks abroad that would

account for the substantially lower sale price and resulting royalty basis. The only plausible

explanation for the price difference is that the sale price and resulting royalty basis reflects

Pearson's efforts to reduce royalty payments to textbook authors, and retain a greater share of

sales revenue for itself.

Pearson Arbitrarily Reduced the Rovaltv Rate in Violation o he Publishing Contracts

39.

The standard form agreements require Pearson Education to pay a royalty to

textbook authors

of

between 15-18% on all domestic sales. For example, for Plaintiffs' textbook

FUNDAMENTALS

OF INVESTING Pearson Education is required to pay them a royalty of 18% of all

domestic sales. During 2005, in an effort to retain a greater share of the domestic sales revenues,

Pearson Education introduced a

new

category of sales called discount domestic sales, and

initially started paying royalties at rate of only 10 for such sales. This trend of Pearson

Education expropriating an ever-greater share

of


of

textbooks has

accelerated since 2005. In 2012, Pearson Education started to unilaterally impose royalty rates

of only

5

and 10% for discounted domestic textbook sales. In 2013, Pearson Education

unilaterally dropped the 10% royalty rate altogether, and unilaterally reduced royalty rates for

domestic sales of FUNDAMENTALS OF INVESTING to only 5%

or

2.5o/o. Presently, rather than

receiving the 18o/o royalty they are contractually entitled to on domestic sales

of FUNDAMENTALS

OF

INVESTING

Plaintiffs are receiving a royalty of only 2.5% on any domestic sales that Pearson

Education chooses to categorize as a discounted domestic sale.

40. A royalty auditor determined that Pearson owes at least $263,878.03 in additional

royalties for the purported export sales of

FUNDAMENTALS

OF

INVESTING PRINCIPLES

OF

MANAGERIAL FINANCE FOUNDATIONS OF MANAGERIAL

FINANCE

and

BASIC

MANAGERIAL

FINANCE.

13



Pearson Underpays Royalties {or Kit and ''My Lab Sales

41. Pearson Education will often commission a study guide for the textbooks it

publishes pursuant to the Agreements. The study guide is typically a work for hire for Pearson

Education, and Pearson Education is not required to pay any royalties to the authors

of

the study

guide. Pearson Education then sells the textbooks it publishes pursuant to the Agreements (and

on which it must pay royalties) as part

of

a kit with the companion study guides (on which no

royalties are typically owed).

42. In 2008, Pearson Education introduced the My Lab product, which provides web-

based textbook specific study guides for use with textbooks published by Pearson Education.

More than 9 million students are currently using a My Lab product in conjunction with textbooks

published by Pearson Education. Presently, many if not most textbooks sold by Pearson

Education, are sold as part

of

a kit

or

bundle that includes a key to access the related My Lab

study guide. The

My

Lab products are created as works for hire for Pearson, and as such,

Pearson Education is not required to pay royalties on sales

ofMy

Lab products.

43. In an effort to expropriate a greater share

of


of

textbooks

than it is contractually entitled to, Pearson Education underpays royalties

on

textbooks sold as

part

of

a kit

or

with the

My

Lab product. Regardless

of

whether a publishing contract

permits the sale

of

a textbook as part

of

a kit (and most do not), Pearson Education pays a royalty

on only the portion of the sale price of the kit or

My

Lab product that Pearson Education

attributes to the textbook.

44. Many

of

the standard form Agreements, including the four standard form Harper

Row agreements between Plaintiffs and Pearson Education, do not authorize the publication

of

the books as part of a kit, or allow Pearson Education to pay a lower royalty on such sales by

allocating the sale price

of

a kit between the underlying text (on which royalties are owed) and

the Pearson Education-created materials (e.g., My Lab) for which royalties are generally not

owed. Pearson Education breached many

of

the Agreements, including the standard form Harper

14



Row

agreements, by selling books as part of a kit, without authorization, and paying a

reduced royalty (arbitrarily determined by Pearson Education) on such sales.

45

To the extent kit sales are permitted, Pearson Education artificially lowers the

basis upon which domestic royalties are calculated by assigning an arbitrarily low value to the

textbook component

of

the bundled/kit products.

f

course, the written study guides as well as

the web and software based study guides that constitute the My Lab line

of

products are useless

without the underlying textbook upon which they are based. However, Pearson often uses a

royalty basis for the bundled kit/My Lab sales that is substantially less than the typical stand-

alone sale price for a textbook. Under Pearson's business practices, a textbook somehow

becomes worth less when sold as part

of

a kit or with the My Lab product.

46. Essentially, Pearson Education applies a bogus and artificially low valuation to

the textbook component

of

a bundle/kit product in order to reap a greater share

of

the revenue

from that product for itself, all at the expense

of

Plaintiffs and other textbook authors.

47. With respect to the textbook

FUNDAMENTALS OF INVESTING

the royalty basis for

bundled/kit sales was typically between 25o/o and 60%

of

the regular domestic sale price.

Further, these discounted sales as a percentage

of

total sales have dramatically increased since

the development

of

the My Lab product line, and with respect to the textbook

FUNDAMENTALS

OF INVESTING

these discounted domestic sales now represent a majority of sales.

48

Plaintiffs and members

of

the proposed class are owed additional royalties for (i)

all unauthorized kit sales, and/or (ii) kit sales in which Pearson underpaid royalties by

assigning an arbitrarily and unfairly low value to the textbook component of the kit. Plaintiffs'

auditor determined that Pearson owes Plaintiffs at least $187,413.18 in additional royalties for

kit sales

of FUNDAMENTALS OF INVESTING

and

PRINCIPLES OF

MANAGERIAL FINANCE.

15



C ALLEGATIONS RELATED TO THE CLAIM

FOR BREACH OF THE IMPLIED COVENANT

OF GOOD FAITH AND FAIR DEALING

49

The Agreements at issue are simple publishing agreements in which the author

grants the publisher the exclusive right to publish a work, and in return, the publisher agrees to

pay a royalty based upon a percentage o the sales o the work. Plaintiffs and the class can only

reap the fruits

o

the Agreements

i

Pearson Education acts in good faith in setting the price at

which it sells the books it publishes.

Pearson Education, however, routinely breaches the

covenant

o

good faith and fair dealing by engaging in two standard business practices to deprive

Plaintiffs and the Class

o

the royalties they are owed under the Agreements.

50 First, Pearson Education routinely engages in below-market sham sales in order to

reduce the basis on which royalties are calculated. Pearson Education makes sales at below

market prices to Pearson PLC, Pearson Inc., and various subsidiaries and related parties, and then

pays the authors a royalty based upon this below-market sales price. Because export sales are

typically made at a lower price than domestic sales (which includes sales to Canada in the

Agreements), Pearson Education typically seeks to disguise these below market sales by calling

them export sales, even though the books never go anywhere. Pearson PLC, Pearson, Inc., and

various subsidiaries and related parties, then sell the books at the higher market price to third

parties, and retain the proceeds o this sale, or remit the proceeds to Pearson Education. The

authors, however, never receive a royalty based upon this subsequent sale at the higher market

price. To the extent Pearson Education is permitted to engage in these related-party transactions,

it is required to act in good faith by selling the books at the market price, so that these sales do

not injure or destroy the authors' ability to reap the benefits

o

their contracts with Pearson

Education.

51

The net effect

o

this practice is that the sale prices (i.e., the royalty basis) for

export sales is often less than 25%

o

the price realized for bona-fide domestic sales.

6



52 Second, to the extent kit sales are authorized under any o the form

Agreements, Pearson Education routinely overstates the relative value

o

the study guides and

other Pearson Education-created content to the price

o

the kit. By selling the textbooks as part

o

a kit, and overstating the relative value

o

the study guide to the overall sale price

o

the

kit, Pearson Education reduces the basis on which it calculates the royalty owed on the

textbook.

53 For example, under the Addison Wesley Longman standard form agreements,

Pearson Education may sell textbooks as part

o

a kit with a study guide, and the proportion

o

the selling price

o

the kit attributed

to

the study guide is based upon a price Pearson Education

arbitrarily sets for the study guide, which

is

far higher than market price for sales

o

the study

guide as a stand-alone product. (The study guides have little or no value to students unless

accompanied by the underlying textbook.) By setting an arbitrarily high price for the study

guides sold as part

o

a kit, Pearson Education lowers the royalty basis for the textbook

component o the kit, and thereby deprives Plaintiffs and the class

o

the fruits

o

the

Agreements.

54 To the extent kit sales are authorized, Pearson Education must act in good faith

in determining the relative value o the components contributed by Pearson, so as not to deprive

authors o their fair share o royalties owed on kit sales. Plaintiffs suffered substantial damages

on account o Pearson Education's practice

o

overstating the price for the study guide relative to

the price

o

the underlying textbook for kit sales.

55

A royalty auditor determined that Pearson Education's conduct resulted in

Pearson Education retaining at least $613,228.27 that should have been paid to Plaintiffs as

additional royalties.

CLASS ACTION ALLEGATIONS

56

Plaintiffs bring this action as a nationwide class action, pursuant to Rule 23 o the

Federal Rules

o

Civil Procedure (hereinafter FRCP ) on behalf

o

themselves and all other

authors (and any

o

their respective successors in interest), who, as o the date o this Complaint,

7



have entered into publishing contracts with Pearson Education (or any of its predecessors or

successors in interest) and i) had Pearson Education purport to sell their works for export,

and/or (ii) had Pearson Education purport to sell their works as part

of

a kit (hereafter, referred

to as the Class ). Excluded from the Class are the Defendants herein, and any person, firm,

trust, corporation, or other entity related to or affiliated with the Defendants including, without

limitation, persons who are officers, directors, employees, associates or partners

of

Pearson

Education.

57. This action is properly maintained as a class action. This Class satisfies all

of

the

requirements

ofFR P

Rule

23

for maintaining a class action.

58. The Class is so numerous that joinder

of

all members is impracticable and the

disposition

of

their claims in a class action will provide substantial benefits to the parties and the

Court. Upon information and belief, thousands of persons have entered into Agreements with

Pearson Education, and have not been properly compensated by Pearson Education for sales of

their works that are purportedly sold for export or as part of a kit.

59. There are questions

of

law and fact which are common to the Class and which

predominate over questions affecting any individual Class member. Defendants pursued a

common course

of

conduct toward the Class as alleged. This action arises out

of

a common

nucleus

of

operative facts.

60. The common questions of law and fact include, without limitation:

a Whether Pearson Education breached the express terms

of

the Agreements

with members

of

the Class;

b Whether Pearson Education misclassified domestic sales as export

sales, and owes Plaintiffs and the Class additional royalties for such misclassified sales;

c. Whether Pearson Education failed to undertake efforts to effect export

sales for the benefit

of

Plaintiffs and the Class;

d

Whether Pearson Education owes Plaintiffs and the Class additional

royalties on export sales to Pearson PLC, Pearson, Inc., and various subsidiaries and related

18



parties, where the books are subsequently sold to a third party in an arms-length transaction at a

higher price than Pearson set for the export sale;

e. Whether Pearson Education breached the Agreements, including the

standard form Harper &

Row

agreements, by selling books as part

of

a kit and paying a

reduced royalty on such sales;

f Whether Pearson Education engaged in below market sales of works

authored by Plaintiffs and the Class in order to reduce the basis upon which royalties are

calculated, and whether additional royalties are owed;

g Whether Pearson Education, on the one hand, and Pearson PLC, Pearson

Inc., on the other hand, engaged in below-market sales transactions of works covered by the

Agreements in order to enrich themselves, while depriving Plaintiffs and the Class

of

the benefits

they reasonably expected to receive under the Agreements;

h Whether Pearson PLC and Pearson Education interfered with the

Agreements between the authors and Pearson Education by: (i) participating in the sham

bookkeeping entries reflecting export sales that never actually occur, and (ii) engaging in

below-market sham transactions with

Pearson Education in order to lower the basis upon which

the authors' royalties are based;

1. To the extent kit sales are permitted, whether Pearson Education inflated

the price

or

overstated the value of study guides or other Pearson supplied components of the

kits in order to lower the royalty basis for the textbooks sold as part of the kits;

j

Whether Pearson Education inflated the price or overstated the value of

study guides

or

other Pearson supplied components

of

the kits in order to deprive Plaintiffs and

the Class of the benefits they reasonably expected to receive under the Agreements;

k Whether Pearson Education breached the implied covenant

of

good faith

and fair dealing by engaging in below market sales and setting an inflated price (i.e., above

market price) for Pearson supplied components

of

kits;

1

Whether Plaintiff and the Class have been injured by the Defendants'

conduct;

19



m. Whether Plaintiffs and the Class sustained damages and are entitled to

restitution as a result o Defendant s wrongdoing and, i so, what is the proper measure and

appropriate statutory formula to be applied in determining such damages and restitution; and

n. Whether Plaintiffs and the Class are entitled to declaratory and/or

injunctive relief.

61. Plaintiffs claims are typical o the claims o the Class and Plaintiffs have no

interests adverse or antagonistic to the interests o other members o the Class.

62. Plaintiffs will fairly and adequately protect the interests o the Class and have

retained experienced counsel, competent in the prosecution o class action litigation.

63. A class action is superior to other methods for the fair and efficient adjudication

o the claims asserted herein. Plaintiffs anticipate that no unusual difficulties are likely to be

encountered in the management

o

this class action.

64. A class action will permit a large number o similarly situated persons to

prosecute their common claims in a single forum simultaneously, efficiently, and without the

duplication o effort and expense that numerous individual actions would engender. Class

treatment will also permit the adjudication o relatively small claims by many Class members

who could not otherwise afford to seek legal redress for the wrongs complained o herein.

Absent a class action, the Class members will continue to suffer monetary damages and i

Defendants conduct proceeds without remedy Defendants will continue to reap and retain the

proceeds o its ill-gotten gains.

65. Defendants have acted on grounds generally applicable to the entire Class,

thereby making appropriate final injunctive relief or corresponding declaratory relief with

respect to the Class as a whole.

20



FIRST

CAUSE OF

CTION

Breach

of

Contract

(against Pearson Education)

66. Each

of

the above allegations set forth in paragraphs 1 through 6 is incorporated

herein as though recited verbatim and at length.

67. Pearson Education breached the express terms

of

the Agreements with Plaintiffs

and the Class by failing to pay the royalty rates specified in the Agreements, and instead

arbitrarily substituting far lower royalty rates.

68. Pearson Education breached the express terms of the Agreements with Plaintiffs

and the Class by misclassifying domestic sales

as

export sales, and paying Plaintiffs and the

Class the lower royalty rate for export sales on these misclassified sales.


and the Class by failing to undertake any effort to effect bona-fide export sales for the benefit

of

Plaintiff and the Class.


and the Class by failing to pay to Plaintiffs and the Class additional royalties on export sales to

Pearson PLC, Pearson, Inc., or any of their subsidiaries or related parties, where the books are

subsequently sold to a third party in an arms-length transaction at a higher price than Pearson

Education, Pearson PLC, Pearson, Inc., or any of their subsidiaries or related parties set for the

export sale.


and the Class, including the standard form Harper

&

Row agreements, by selling works authored

by Plaintiffs and the Class as part

of

kits and paying a reduced royalty on such sales.

72. To the extent kit sales are permitted, Pearson Education breached the express

terms of the Agreements with Plaintiffs and the Class by artificially inflating the value of the

Pearson content sold

as

part

of

the kit (e.g., the My lab product and study guides) relative to the

2



value of the textbook such content relates to, in order to assign an unfairly low royalty basis to

the textbook sold as part

of

the kit.

73. As a result

of

these breaches by Pearson Education, including the failure to pay

royalties owed under the Agreements, Plaintiffs and the Class have suffered damages

of

at least

$613,228.27, according to a royalty auditor, and continue to suffer damages.

SECOND CAUSE O ACTION

Breach of Implied Covenant of Good Faith and

air

Dealing

(against Pearson Education)

74. Each

of

the above allegations set forth in paragraphs 1 through

7

is incorporated

herein as though recited verbatim and at length.

75. Pearson Education is bound by the implied covenant

of

good faith and fair dealing

with respect to its conduct relating to the Agreements. The implied covenant

of

good faith and

fair dealing precludes Pearson Education from engaging in conduct that has the effect

of

depriving Plaintiffs and the Class

of

the benefits they are entitled to under the Agreements.

76. In order to enrich itself at the expense

of

Plaintiffs and the Class, Pearson

Education engaged in below market sales

of

works authored by Plaintiffs and Class in order to

reduce the basis upon which royalties are calculated. For example, Pearson Education might

engage in a related-party sale

of

a book for $50 a copy, even though the book could be sold for

$100 to a third-party in an arms-length transaction. Pearson Education then pays royalties on

only the $50 sale and not the market price

of

$100, thereby cutting the royalties paid to the

author

of

the book by 50%. These below market sales injure the ability

of

Plaintiffs and the

Class to receive the fruits

of

the Agreements. To the extent Pearson Education is permitted to

engage in related-party transactions to sell books authored by Plaintiffs and members

of

the

Class, Pearson Education is required to act in good faith by selling the books at the market price,

so that these related-party sales do not unfairly reduce the basis upon which royalties are

calculated.

22



77. Pearson Education also breached the implied covenant of good faith and fair

dealing by inflating the price or overstating the value of study guides or other Pearson Education

supplied components

of

the kits in order to reduce the royalty basis for the textbooks sold as

part of the kits. For example, if the kit consisting of a study guide and textbook sells for

$100, Pearson Education might set an arbitrary price of $50 for the study guide and $50 for the

textbook, even though the textbook sells for $80 as a stand-alone item, and the study guide sells

for $20 as a stand-alone item. Pearson Education then pays royalties on the lower $50 value for

the textbook when sold as part of a kit, rather than the actual stand-alone price of $80. By

inflating or overstating the price of the Pearson supplied components to the kit, and

proportionally reducing the relative price

of

the textbooks sold

as

part

of

kits, Pearson

Education is improperly lowering the basis upon which royalties paid to Plaintiff and the Class

are calculated.

78. Pearson Education must act in good faith in determining the relative value of the

components contributed by Pearson Education,

so as

not to deprive authors of their fair share of

royalties owed on kit sales. By arbitrarily inflating the value or price of the Pearson Education

supplied components to the kits, and proportionally reducing the relative price of the underling

textbooks sold as part of kits, Pearson Education is injuring the ability

of

Plaintiffs and the

Class to receive the benefits they reasonably expected to receive under the Agreements.

79. As a result of these breaches

of

the implied covenant of good faith and fair

dealing by Pearson Education, Plaintiffs and the Class have suffered damages

of at least

$613,228.27, according to a royalty auditor, and continue to suffer damages.

THIRD

CAUSE OF ACTION

Intentional Interference with Contract

(against Pearson PL and Pearson, Inc.)

80. Each of the above allegations set forth in paragraphs 1 through 79 is incorporated

herein

as

though recited verbatim and at length.

3



81. Plaintiffs and the Class entered into the Agreements with Pearson Education,

which entitled them to royalties based upon domestic and export sales of their works.

82. Pearson PLC and Pearson, Inc., interfered with the Agreements between the

authors and Pearson Education by: (i) participating in the sham bookkeeping entries reflecting

export sales that never actually occurred, and (ii) engaging in below-market sham transactions

with Pearson Education in order to lower the basis upon which the authors' royalties are based.

83. Pearson PLC and Pearson, Inc., were at all times of aware of Pearson Education's

obligations under the Agreements, including the covenant of good faith and fair dealing, and

sought to interfere with the proper performance of those obligations in order to enrich Pearson

Education, Pearson PLC and Pearson, Inc., and deprive Plaintiffs and the Class

of

the benefits

of

the Agreements.

84. Pearson PLC and Pearson Inc., were aware that there is no legitimate purpose for

the sham bookkeeping entries called export sales, but participated in those bookkeeping entries

in order to deprive Plaintiffs and the Class of royalties they are owed under the Agreements.

85. Similarly, Pearson PLC and Pearson Inc., were aware that there is no legitimate

purpose for the below-market sales to intermediaries, but Pearson PLC and Pearson Inc.,

participated in those sales in order to deprive Plaintiffs and the Class

of

royalties they are owed

pursuant to the Agreements.

86. Pearson PLC and Pearson Inc.'s, conduct was undertaken with the intent

of

preventing Plaintiffs and the Class

of

reaping the benefits they are entitled to under the

Agreements. By the foregoing conduct, Pearson PLC and Pearson Inc., caused Pearson

Education to pay Plaintiffs and the Class less than what they are owed under the Agreements.

87. As a result of Pearson PLC and Pearson Inc. 's, interference with the Agreements,

Plaintiffs and the Class have suffered damages and continue to suffer damages.

PRAYER OR RELIEF

WHEREFORE, Plaintiffs respectfully request that this Court enter judgment

as

follows:

a Declaring that this action is properly maintainable as a class action and certifying

Plaintiffs

as

Class representatives;

24



b Issuing a preliminary and permanent injunction restraining Defendants, its

employees, agents and successors from, inter alia, engaging in the wrongful conduct and

practices set out above;

c

Awarding Plaintiffs and the Class damages for Pearson Education s breach

o

contract;

d Awarding Plaintiffs and the Class damages for Pearson Education s breach

o

the

covenant o good faith and fair dealing;

e

Awarding Plaintiffs and the Class damages for Pearson PLC and Pearson Inc. s,

intentional interference with the Agreements between Plaintiffs and Pearson Education;

f Awarding pre- and post-judgment interest;

g

Awarding Plaintiffs and the Class costs

o

this action, including reasonable

attorney s fees and expenses; and

1.

Awarding Plaintiffs and the Class such other and further relief

as

the Court may

deem just and proper.

25



JURY DEM ND

Plaintiff demands a trial by jury.

DATED: October 29 2014

MILBERGLLP

SANFORD P. DUMAIN

MILBERGLLP

Sanford

P.

Dumain

Leigh Smith

One Pennsylvania Plaza

New York, New York 10119

Telephone: 212) 594-5300

Facsimile: 212) 868-1229

[email protected]

lsmith@mil berg.com

Robert I Lax

3 80 Lexington A venue, 31st Floor

New York, NY 10168

Telephone: 212) 818-9150

Facsimile: 212) 818-1266

[email protected]

THE SOBELSOHN LAW FIRM

Daniel E. Sobelsohn

1801

Century Park East, 24th Fl.

Los Angeles, CA 90067

Telephone: 31 0) 775-0504

Facsimile:

31

0) 861-5205

[email protected]

Attorneys for Plaintiffs

26



EXHI IT



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si natura

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1Ji5 :32 Z :7? ·



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The

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hts

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c tory

nusoript ; i l l b rep r d. d sign by t he

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j

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••

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r-P.ceipt of

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wi •A

tA:

e ~ : ~ ~ ~ ~ : :"::

:

: ;; ; : ~ t ~ o : u ~ ; : :

h; :::: 8:

= = ~ " : : R ~ ~ ~ <



Amend.ment - Pri

noiples

~ E N D M E N T

made

th i s 6th day

of

August,

1992

to

an

a g r e e m e n

~

dated

March

21, 1977, as

amended

(the

Agreement ),

between

Lawrence J .

Gitman,

of San Diego Sta te

Universi ty ,

5435

' Calumet Avenue, La 3ol la , California

92037

th Author )

.and

HarperCollins

College

Publishers,

a

divisioJ l ().f

Harp rco l l ins Educational

Publishers

succ sso1:s i n ,'

in te res t to

Harper

& Row,

Publishers,

I

nc. ,

of

10 E s t

53rd

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New York, New York

10022

(the Publisher ) , with

r

sp c t to

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work ent i t led

PRINCIPLES OF

M A N A ~ E R I A L

FIN

ANCE

Second Edition (the W o r k

W H E R E A

J>;l l:l':suant to

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Agreement between Author and

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oubl i sh

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cert in

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WHEREAS

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Effec t i

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Sixth Edit io

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Par 9raph

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.(1} of

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1s t

based 'the amounts received

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2. (a) Effect ive Ju ly 1,

1992, with respect to the

Study

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Guide to

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sixth

Edit ion

of the

Work,

published

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pursuant to

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separate agreement dated

November

22, 1989 by

and

between

Thomas

M. Krueger,

D. J\nthony Plath

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and the Publisher ,

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shall pay Author

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override of 2\

based

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o t Publisher 's edi t ions

of such

Study

Guide



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Th

royalty

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turns , of

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of

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S e ' V ' e J " l ~ h

E d i t i o ~

~ n d a l l

S l l ~ s e q u e n t

edi t ions

of

t h ~

Work.

Effective J u l y 1 , 1992, with

respec t

to the Sixth

Edit io

n.

and a l l

su

.bsequent edi t ions of the Work, Paraqr

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3. The Publ.lst.ie:r agrees tha.t s ta tements of ccount

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A p r i l

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O\t' the

t

hree-month per iod ending

the

.

prior March 31, June 30, September JO,

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· 1993 one copy of the complete m nuscript for

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.,

K-kr

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9 7 6

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I

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te

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rigbt

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proposed revisions

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rrns

and

condi t ions o,f the Aqre,el\lent ca re. hereby ra t i f ied and

continued

.

:IN

WIT

Ess

WHEREOF,

·tb e part ies hereto have s i gned th i s

a m e n d ~ e n t

to b e

e f

~ e c t

i v e

as o ~

the d te f i r s t wri t t en

bove.

AGREED

Author

\ Lawren.ce

, ,

HarperCcl l ins College

Publishers,

a divis ion

of

HarperCol l ins

Educat ional

Publ i s e r s Inc. :

or



Octob er

.

da'i of ..

R M NT

between . . . . . 3 : ~ J

~ n ~ e

.J . .

Ci

0 ? ~ . 1 1 ,

_

P ~

- ~ ~

1

~ Y .

. and .Mi.chael D• . Jo.ehnk .

of

Te¥as

HARPER & ROW, PUBLJSIIERS. 1 '-.C'. (tile PUI:S ISIIFRI :

The

AUTHOR

nd

I'IIDUSHJ;R a ~ l ' C C

lhJt

1. Thl" At.'TI-IOR will

write for public.1tion work

rrnracivdy

tir.l<.'d

. . . .

,

.

. .

. .

E S S E l ~ ~ S Of. ~ N V E

M E N f S . .

..

. . . , , , . . .

refer

red

ro u the wor-k")

and

rhc

AIJTHOR

grants

and

an ign ), (

h

P L llt.f< rh. ~ x c l u s i \ · t

to print, pubHsh, and

sdl

lhc work in ;).U J a n ~ u . ~ r s on the terms

..

cr fonb,

uodt>

r its own name:" ·

under

other imprincs, (hroucthom the

o r l d

durinq

the:-

full term f cop · ,he

nd

U

~ n C

. b , ·

and to prO<"ur(' and

r r ~ r ~ r

l :nited tares r o p v r i ~ : l ; rhr-rciu H• rt, n m (•l rhcX.lhi.U&.x ·

Al.'TIIOR; lso thr c::xdu

iv

rig

hts

liMed

in

P n r a ~ r a p h K

bclav.,

-...ath cl '

ve

uth

>ri

tr to

Cl ~

righ

ts

in all

coum

and

in

111-ln

u 1 ·

2.

The

PC8L

1 R < l ~ C e s ro

puhlish

the work ,

v

.·hr n th e

m

au

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J

rhc work ~ J . t i s -

factory

to

l h ~ P U B L I S H E R , ~ us

own

x p c n in $uch tvle :tnd

mtlnn

cr a.1 he-

I' I'

I·

H.: . Ht:R con

t d c ~

best

suirrd

ro i sale' :1nd to

pa ·

to

rbe

..-.vrHOR;

ty J . fv low ·

Fi f teen percent ( l S ~ ) of the a t : ~ o u n t rc c

iv

c by the

u

b l i shc r on he f i r s t 10,000 copies old in

each

~ a

l e n d a r year , and e ish teen pe rceo

t

(1 8 %) o f the

a ~ o u n t r eceived by the Publ isher

on

~ 1 1 c opi s sold

t here .;t.f t e x , in each

ca l enda r

y e

(2)

t JO

c;xporr

roy

lty of 10 of rhe

il<:tu I amount

rl c ived

by

che

l'uu r

l f t :R,

3. The

Pl i8UJHER

agn·cs rtut

.t lCtnc:n W.

oun( will

fxo rrnder('d h ~ · mJtl

Jn

Orrohrr l

and ApriJ I e, ch r

for the

six-monrh period endin t h ~

prio

r June 30 and Ot·

s

· p

cc

tJ ··v·e I

·

Y·

accomp: anicd by rcminance

Cor rhe ctiV'

mounr rhrr('o(.

.J JJ

4 . P.:ara phs A through

X.

't inc

on

P• es 2 lhrough . t f o ~ ~

lhis a cmenc

as

t

o ~ h

P ~ C J : c ; c ( i

before 1he

si

n tar

Au1.hor's Citizenship &

Social

S«urity

umbo--

&

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~

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lax

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t a f i ) n .o f ~ h e Work

........,

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·



DE.UVIRY

OF

,

MANUSCRIPT

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pt. cont

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or about. . . . .

Qc:

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SUBMISSION OF B. The AtrnrOR agrea rhar the manu.teript of the work,

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The

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tke ru

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~ ; ; : ~

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· ~ · r • •

h A • , •• q ) · ' ~ ' ;/;

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p

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JC

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uch

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h,

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INTERPRE- Q . Re ardleu or

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REPRESENT

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i

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P

USH

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l\VE.S

~

*Rid

r

to

Paragraph

A: cknowl

ds

n t

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of

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ivery

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·:

up

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ll

be charged

OVER



..

ga ins Au t h o r s . r n L n

hereunde

r .

U.

Al l

monies

p ~ y a b l e to

the

Au tho r

he r eunde r

h

: l l l

b paid

f i f t y percen t (50 ) to L wrenc e J . G i t m ~ n

and f i f ty

p rcen t

(507.) to

Michael

D Joehnk.

V.

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ees

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s n

on

ccount

of the royal ty

and

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t n

thousand

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to be paid upon the

u t hor

wri t ten r e q ~ e s t a f t e r

the

s i g n i ~ S of th i s

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upon

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~ cr cceptance by the Publ isher ~

the

complete o s t i s f c tor

J

i r s t ~ r a f t c l m a n u s s r i p ~ ~ ?

/l,r

b

f o r ~ 1 5 ~ 1979 ~ Q__ ·

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towar4

exp nses

i ncur r ed

in th p r p a ~ ~ t i o n of the

no ou t r igh t gran t o f

f iv thou and

d o l l ~ r

($5000).

understood

that

payments

wi l l

b

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to the

Author

~ r i t t

n

requ at ~ f t e r the s ign ing th i

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~ ~ ~ ~ ~ = - ~ ~

X. I f

th '

Pub l i she r

the d a t e

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t

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hereunder

m n u s c ~ i p t f ~ i

the

or

in

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to

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pa ic

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.i.or

ye-ar.

7



- • strued

ml

rpreled according to rhe laws of he

hall

e bi.ndin

upon the parties hereto their heirs

d ref nces

to

you and us hnll include the

igns.

and

pcnon3l rep n ·

es

of

each

pany

subject

to

the

re::atriction

on ignmcn

ted in

Paragrnph

18.

For purposes of computing royaltie1 under

or p u ~ u n t to this Agreement. 11J1 publication· :md saJe y •ny

f

our 1uhsidilries sball be

rleemc:d to

be

p u b l i ~ a t i o n s nnd snlc.s by us.

lnd

11

:sale

. o· er n

lC'tions

belween

us

a00

our

ub

idiaries

and all

ignments by

us of

this

Agrecme l

hole ~ n d

any lran.sfer

of

i n v ~ : ; n t o r y co the igoce in connection t h e ~ ' ' i l h , hnll

he

< ll rc dcd.

_40_ _ _

SpHt

8



JS44C/SDNY

REV. 4/2014

PLAINTIFFS

:t

fJ{\ilS

CIVIL COlfRIEET £

J \ I U ~ cover sheet

and

the information c o n t l ~

nher

re \J .

. r

upplement go l

pleadings

or

other papers as required by law, except as provide y local rules

of

court. This form, apprqved

~ t ~

'

Judicial Conference of the United States in September 1974, is required for use of the Clerk of Court for the purpos

initiating the civil docket sheet.

DEFENDANTS

Lawrence J. Gitman and Michael D. Joehnk

Pearson Education, Inc., Pearson PLC and Pearson, Inc.

ATTORNEYS (FIRM NAME, ADDRESS, AND TELEPHONE NUMBER ATTORNEYS (IF KNOWN)

Robert Lax, Lax LLP, 380 Lexington Avenue, 31st Floor, New York, NY

10168; Sanford P. Dumain and leigh Smith, One Pennsylvania Plaza, 49th

Floor, New York, NY 10119; and Daniel E. Sobelsohn, The Sobelsohn Law

Firm.

1801

Centura Park East. 24th Floor.

los

Anaeles. CA 90067

CAUSE OF ACTION

(CITE THE U.S. CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE A BRIEF STATEMENT OF CAUSE)

(DO NOT CITE JURISDICTIONAL STATUTES UNLESS DIVERSITY)

Breach

of

Contract, Breach of the Implied Duty

of

Good Faith and Fair Dealing, and Intentional Interference with Contract

Has this action, case, or proceeding, or one essentially the same been previously filed

in

SONY at any time?

Ncfates0Judge

Previously Assigned

If yes, was this case Vol.

lnvol.

0

Dismissed. No

0

Yes

If yes, give

date &

Case

No .

IS THIS AN INTERNATIONAL ARBITRATION eASEl No [ ]

Yes

0

(PLACEAN

{x]

IN

ONE BOX ONLY)

NATURE OF SUIT

CONTRACT

[ ]110

[ ]120

[ ]130

[ ]140

]150

[ ]151

[

]152

[

]153

[

]160

K)

190

[ ] 195

INSURANCE

MARINE

MILLER

ACT

NEGOTIABLE

INSTRUMENT

RECOVERY OF

OVERPAYMENT &

ENFORCEMENT

OF JUDGMENT

MEDICARE ACT

RECOVERY OF

DEFAULTED

STUDENT LOANS

(EXCL VETERANS)

RECOVERY OF

OVERPAYMENT

OF VETERAN'S

BENEFITS

STOCKHOLDERS

SUITS

OTHER

CONTRACT

CONTRACT

PRODUCT

LIABILITY

[

]196

FRANCHISE

REAL PROPERTY

I

]210

LAND

CONDEMNATION

I ]220 FORECLOSURE

[

]230

RENT LEASE &

EJECTMENT

[ ] 240 TORTS TO LAND

[ ] 245 TORT PRODUCT

LIABILITY

I ]

290 ALL

OTHER

REAL PROPERTY

TORTS

PERSONAL INJURY

[

]310

AIRPLANE

[ J315 AIRPLANE PRODUCT

LIABILITY

[ ] 320 ASSAULT, LIBEL &

SLANDER

[

]330

FEDERAL

EMPLOYERS'

LIABILITY

[ I 340 MARINE

[ I

345 MARINE PRODUCT

LIABILITY

[ J 350 MOTOR VEHICLE

[ I 355 MOTOR VEHICLE

PRODUCT LIABILITY

[ ] 360 OTHER PERSONAL

INJURY

[ ] 362 PERSONAL INJURY -

MED MALPRACTICE

AtnONS

UNDER STATUTES

CIVIL RIGHTS

PERSONAL

INJURY

FORFEITURE/PENALTY

[ I 367 HEALTHCARE/

PHARMACEUTICAL PERSONAL 1 I625 DRUG RELATED

INJURY/PRODUCT LIABILITY SEIZURE OF PROPERTY

[ I

365 PERSONAL INJURY

21

USC

881

PRODUCT LIABILITY

[ ] 368 ASBESTOS PERSONAL [ 1

690

OTHER

INJURY PRODUCT

LIABILITY

PERSONAL

PROPERTY

[ ] 370 OTHER FRAUD

[ I 371

TRUTH IN LENDING

[

]380

OTHER PERSONAL

PROPERTY DAMAGE

[ I

385 PROPERTY DAMAGE

PRODUCT LIABILITY

PRISONER PETinONS

[ ] 463 ALIEN DETAINEE

[ ] 510 MOTIONS TO

VACATE SENTENCE

28

usc

2255

LABOR

[ I

710 FAIR LABOR

STANDARDS ACT

[ I 720 LABOR/MGMT

RELATIONS

[ ] 740 RAILWAY LABOR ACT

[ I 751 FAMILY MEDICAL

LEAVE ACT (FMLA)

[

]530

HABEAS CORPUS [

]790

OTHER LABOR

[ ] 535 DEATH PENAL TY LITIGATION

[ ] 440 OTHER CIVIL RIGHTS ( ] 540 MANDAMUS & OTHER [ ]791 EMPL RET INC

(Non-Prisoner) SECURITY ACT

[ J

441 VOTING

IMMIGRATION

[ ]442 EMPLOYMENT

PRISONER CIVIL

RIGHTS

[ ] 443 HOUSING/ [ ] 462 NATURALIZATION

ACCOMMODATIONS [ ]550 CIVIL RIGHTS APPLICATION

[ ] 445 AMERICANS WITH [

]555

PRISON CONDITION [

]465

OTHER IMMIGRATION

DISABILITIES- [ ]560 CIVIL DETAINEE ACTIONS

EMPLOYMENT CONDITIONS OF CONFINEMENT

[

]446

AMERICANS WITH

DISABILITIES -OTHER

[

]448.

EDUCATION

Check i demanded in complaint

ACTIONS UNDER STATUTES

BANKRUPTCY

[ 14 22 APPEAL

28

usc

158

[ I

423 WITHDRAWAL

28

usc

157

PROPERTY RIGHTS

[ J

820 COPYRIGHTS

[

]830

PATENT

[ I 840 TRADEMARK

SOCIAL SECURITY

[ I 861 HIA (1395ff)

[

]862

BLACK LUNG (923)

[ ] 863 DIWC/DIWW (405(g))

[ ]864 SSID TITLE XVI

[ I 865 RSI (405(g))

FEDERAL TAX SUITS

[ J 870 TAXES (U.S. Plaintiff or

Defendant)

[ I

871

IRS-THIRD PARTY

26

usc

7609

OTHER STATUTES

l

]

75 FALSE CLAIMS

}400 STATE

REAPPORTIONME

[ I 410 ANTITRUST

[ I 430 BANKS & BANKING

[ I 450 COMMERCE

[ 1460 DEPORTATION

[ 1470 RACKETEER INFLU

ENCED CORRU

ORGANIZATION

A

(RICO)

[ ] 480 CONSUMER CRED

[ ]490 CABLE/SATELLIT

[ I 850 SECURITIES/

COMMODITIES/

EXCHANGE

[ 1890 OTHER STATUTOR

ACTIONS

[ ] 891 AGRICULTURAL AC

[ I 893 ENVIRONMENTAL

MATIERS

[ I 895 FREEDOM OF

INFORMATION AC

[ ] 896 ARBITRATION

[ 899ADMINISTRATIVE

PROCEDURE ACT/REV

APPEAL OF AGENCY D

[ ] 950 CONSTITUTIONA

STATE STATUTES

1 ;1 CHECK IF THIS

IS

A

CLASS ACTION

~ U N E R

F.R.C.P.

23.

f ( P s b ~ M T A ~ ~

THIS CASE IS RELATED TO A CIVIL CASE NOW PENDING

IN

S.D.N.Y.

DEMAND

_________

OTHER

_________ JUDGE ______________________

DOCKETNUMBER.

_________

Check Y S only i demanded in

CO ]plaint

JURY DEMAND: [ ]YES

LNO

NOTE: You must also submit at the time

of

filing the Statement

of

Relatedness form (Form



PLACE

AN

IN

ONE BOX

ONLY)

{ ] 1 Original

Proceeding

D 2

Removed from

D 3

State Court

D

a all parties represented

D b. At least one

party

is

pro sa.

Remanded

from

Appellate

Court

ORIGIN

D 4 Reinstated or

Reopened

D 5 Transferred from

(Specify District)

6 Multidistrict

Litigation

D

7

Appeal to Dis

Judge from

Magistrate Ju

Judgment

PLACE AN IN ONE

BOX

ONLY)

0

1

U.S. PLAINTIFF

0

2

U.S. DEFENDANT

BASIS OF JURISDICTION

3

FEDERAL QUESTION

(U.S. NOT A PARTY)

{ ]4

DIVERSITY

IF DIVERSITY, INDICATE

QTIZENSHIP

BELOW.

CITIZENSHIP OF PRINCIPAL PARTIES (FOR DIVERSITY CASES ONLY)

(Place an

[X)

in one box for Plaintiff and one box for Defendant)

PTF DEF

CITIZEN OF THIS STATE

PTF DEF

[ ] 1 [ ] 1 CITIZEN OR SUBJECT

OF

A

FOREIGN COUNTRY

PTF DEF

] 3

]

3

INCORPORATED and PRINCIPAL PLACE [ ] 5 [ ]

CITIZEN

OF

ANOTHER STATE [x]2 [ ] 2

INCORPORATED or PRINCIPAL PLACE [ ] 4 [

14

OF BUSINESS IN THIS STATE

PLAINTIFF{S) ADDRESS{ES)

AND

COUNTY(IES)

7560 Hillside Drive, La Jolla, CA 92037 (San Diego County)

3481 Griffiths Spring, Flagstaff,

AZ

86005 (Coconino County)

DEFENDANT{S) ADDRESS(ES)

AND

COUNTY{IES)

OF BUSINESS IN ANOTHER STATE

FOREIGN NATION

Pearson, PLC, 1330 Avenue

of

the Americas, New York, NY 10019 (New York County)

Pearson, Inc., 1330 Avenue of the Americas, New York, NY 10019 (New York County)

] 6

]

6

Pearson Education, Inc., One Lake Street, Upper Saddle River, New Jersey 07458 (Bergen County)

DEFENDANT{S) ADDRESS

UNKNOWN

REPRESENTATION IS HEREBY MADE THAT, AT THIS TIME, I HAVE BEEN UNABLE, WITH REASONABLE DILIGENCE, TO ASCERTAIN

RESiaENCE ADDRESSES OF THE FOLLOWING DEFENDANTS:

Check one: THIS ACTION SHOULD BE ASSIGNED TO:

0

WHITE PLAINS [ ] MANHATTAN

(DO NOT check either box

if

this a PRISONER PETITION/PRISONER CIVIL RIGHTS

COMPLAINT.)

DATE

10/29/14

SIGNATURE

O ~ T T O R N E

ADMITTED TO PRACTICE

IN

THIS DISTRICT

gitman v. pearson ed. complaint

Documents