A state district judge wants $10 million in cash or investments to be set aside for a potential award after a Tarrant County jury ruled earlier this year that an Arlington woman was cheated out of royalties from the blockbuster novel Fifty Shades of Grey.
State District Judge Susan McCoy ruled that she wanted Amanda Hayward of Australia to put the money into an investment fund and escrow accounts until a final accounting, expected to be completed in July, determines how much she may owe Jennifer Pedroza of Arlington.
A Tarrant County jury in February ruled that Hayward defrauded Pedroza out of the financial windfall created by the erotic New York Times bestseller which also inspired a movie by the same name.
Records on the royalties have been sealed, but at a hearing last week it was divulged that the e-publishing business that Hayward, Pedroza and two other women formed, which originally released what would become an international blockbuster, made up to $40 million.
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McCoy said Pedroza, under the partnership agreement, would be entitled to 25 percent of the $40 million.
Michael Farris, Pedroza’s attorney from Dallas, on Monday said he is still preparing the final order for McCoy to sign that would set up a mechanism for securing the funds.
“We were pleased with the judge’s rulilng. We think it is keeping with the facts at the trial and the laws in Texas that allows for these kind of remedies,” Farris said.
Robert Kantner, the Dallas attorney representing Hayward, declined to comment Monday, saying that his clients don’t want to “litigate this in the press.”
But during the court hearing last week, Kantner said his client has used the royalties to pay bills to run her company and that a large percentage of the money she received, as high as 50 percent, was paid in taxes in the United States and Australia.
His clients also brought in Fort Worth attorney David Keltner, who is planning an appeal of the jury’s verdict after McCoy last week declined to set it aside.
“I don’t know if there is $10 million left to be identified,” Kantner said in court.
Fifty shades of complicated
Pedroza sued Hayward last year, contending that she conned her out of her rightful partnership interests in advances and royalties.
Pedroza and Hayward, who lived in Dural, a Sydney suburb, were partners in The Writer’s Coffee Shop, which started out as an online blog in 2009, along with Waxahachie resident Jennifer McGuire. Visitors to the fan-based website discussed books and wrote “fan fiction” stories.
McGuire did design work for the blog, Pedroza uploaded contributors’ writing, and Hayward worked with the authors, court records show. Later, Christa Beebe, another Arlington resident, joined and helped with marketing and distribution.
By 2010, Pedroza and Hayward had the Coffee House operating as a publishing house. And in 2011 it published Fifty Shades of Grey, a romance novel by E.L. James, a British author, as an e-book and print-on-demand full-length book.
The company published the sequels, Fifty Shades Darker and Fifty Shades Freed, in 2011 and 2012. The Fifty Shades of Grey trilogy became an online sensation, selling 250,000 copies through e-book and print-on-demand, with another 20,000 print copies.
In 2012, Random House made a deal with Hayward and James to publish the books. Pedroza received a one-time payment of $100,000 after the Random House contract was signed, but she was never told of the full terms of the transaction. Random House was not named in the lawsuit.
The lawsuit acknowledges that the two Texans — Pedroza and McGuire — and Hayward never signed a prepared partnership agreement. But in 2011, The Writer’s Coffee Shop filed a partnership income tax return, naming Pedroza as a general partner, it says.
Pedroza contended in her suit that Hayward in 2012 secretly converted the Coffee Shop into a company she alone owned. The jury determined that there was a partnership between the women. Beebe settled her claims in December in a confidential agreement.
Following the money
During the hearing last week, McCoy expressed some concern about her ability to encumber property and cash in Australia. She said that during the trial, because of the attorneys’ reputations, she set aside worries that the “money would disappear.”
Nonetheless, McCoy decided to honor a request from Farris to have the $10 million put into a fund. She also told an attorney at the hearing representing Random House that she wanted a royalty check that is expected to be issued this week to be put into an escrow account.
That check is expected to be worth about $1 million, the attorney said.
During the hearing, Farris mentioned that Hayward now lives in a house worth $4.8 million and that she owned a gym and several other homes.
“Our concern is that we have no way to follow the money once it gets to Australia without going to Australia and following legal steps down there,” Farris said Monday.
Max B. Baker, 817-390-7714