Library Losses Could Reach $50 Million in divine Suit

Jan 21, 2003

The New York attorney general's office has filed a suit against divine over the failure of divine's Faxon/RoweCom subscriptions unit to pay publishers and place 2003 orders on behalf of New York libraries. An article in the Chicago Tribune estimates that libraries nationwide could lose as much as $50 million. According to a statement by divine's general counsel, money collected from customers was used throughout 2002 to pay operating costs and make debt payments. As it has in years past, the company sought to borrow against future payments to carry it through the end of 2002, but such financing was not obtained. The divine subsidiary, RoweCom, aggregates periodical subscriptions from libraries and orders them from publishers. A large library can order as many as 40,000 different publications. "What they have been told is RoweCom cannot place their orders for 2003," according to Jude Sullivan, general counsel for divine. He has also been quoted as saying divine is trying to sell RoweCom to competitors, which might resolve the problem. According to Sullivan, money the libraries paid to RoweCom was used in other divine operations having nothing to do with the subscription business, but he also said other divine money was used to fund RoweCom. On balance, he said, RoweCom received a $10 million subsidy from divine. The service told libraries in December it could not supply the publications they had ordered, and said its corporate parent, divine, would not support the business going forward, according to a RoweCom announcement. Executives have declined to say how RoweCom's problems could affect divine, which has reportedly gone through tens of millions of dollars is yet to earn a profit.

"This is unconscionable, unethical and moving rapidly toward grand larceny," Susan Davis, head of periodical acquisitions at the State University of New York at Buffalo has said. Her email, sent to a RoweCom sales representative last month, is part of a lawsuit filed against the company by the New York State attorney general's office. The university's library had paid RoweCom $1.3 million to subscribe to various periodicals. The university has recovered $500,000 and is demanding the rest of the money.

Thousands of other libraries remain in limbo, with little hard information available. Many libraries consider journals necessary for professors, students, and researchers. Some libraries could be forced to cut other spending to replace needed journals, which translates into fewer new books. Without a resolution, many large libraries could be out hundreds of thousands or millions of dollars. But smaller libraries, such as those at hospitals, might be the most affected because of their limited budgets. The reality these libraries may be faced with is a closing of their doors.