Thank you, Tom. The file is a watermark that I use often, so I copied it from another timeline. That's the same reason I know it should work.
This could be a Finder bug also, but Apple is going to have to fix this because they keep forcing me to update my project libraries, even with minor level updates. I can't go back to an older version of FCPX without losing a lot of work. Apple used to write good software. Now it looks like they're just interested in making money.
The really crazy part is that I really only wanted the audio crossfade feature, and it turns out that my audio crossfade workaround is faster than the new feature, so I continue to make my audio crossfades with a simple drag and drop rather than clicking 2 clips and using a hot-key or menu selection.
My primary source of income is from software development. I know Apple could easily create a library format that doesn't require updating every time they add a feature. Apple uses XML for all sorts of things. There is no reason they couldn't use it in FCPX libraries.
On an unrelated note: I can no longer drag and drop a file onto a Finder tab, since a recent OS upgrade. My computers not running Catalina can, but not my iMac with Catalina. Had you noticed that? Can you reproduce it? I haven't been able to find a thread about it.
