Here is IBM's Reply Memorandum in Support of Motion to Compel Production of Documents on SCO's Privilege Log [PDF], as text, thanks to Greg Cardell. Its original memo in support of its motion is here. I have made a chart, showing all the cases used by the parties, which I'll put up next. IBM makes the arguments we thought they would in response to SCO's claim in its opposition memo that it inherited the privilege with the business it bought: Even if the sale of a mere "business" (as opposed to a corporate entity) could transfer the privilege, the transactions at issue here did not involve the sale of an entire business, as SCO contends. It details everything that SCO didn't get, one hop at a time, and it uses one of SCO's own SEC filings at one point to do so. Then IBM demonstrates that it really put some extra effort into preparing this memorandum.
IBM makes mincemeat of Mr. Broderick, upon whose declaration SCO depends: SCO bases its opposition brief on the declaration of William Broderick. Putting aside the fact that Mr. Broderick's declaration fails to dispute any of the foregoing facts, it is plainly insufficient to carry SCO's burden of proof. First, Mr. Broderick lacks personal knowledge of the facts about which he purports to testify. He admittedly was not involved in any transactions purporting to sell UNIX assets, did not negotiate the contracts associated with any such sale, and only found out about the transactions after the fact having absolutely no personal involvement in the transactions prior to their occurrence. ...Second, Mr. Broderick's deposition testimony is inconsistent with his declaration. For example, in his declaration, Mr. Broderick purports to "have been continuously employed managing contracts for the successive companies that have owned the UNIX technology and business". ... But when pressed at his deposition, Mr. Broderick acknowledged that there was a distinct break in his employment, including a recent layoff by SCO, at which time he became employed by a completely unrelated company for several months before being rehired by SCO..... In addition, though Mr. Broderick claimed in his declaration that "the makeup ... of the UNIX business continued as constituted through and after each transition" ..., he conceded in his deposition that, in his opinion, Novell retained at least some part of the "UNIX business" when it sold UNIX assets to Santa Cruz. That's very damaging to SCO, that last part, because it implies that the lawyers may have squeezed this witness' testimony in the declaration until it said what they wanted it to say. It raises doubts about the witness. IBM also points out that, not being an attorney, Mr. Broderick is not qualified to offer the court legal conclusions. That's a kind of lawyer joke. A touch of sarcasm. Legal conclusions are really for the judge to make, or an attorney might put analysis in a memorandum of law and offer it to persuade the court, but in an affidavit, or declaration, it's supposed to be facts that you can personally testify to. That's really all Mr. Broderick is supposed to offer, so they are really making fun not of him so much, because he can't know all this, but of the SCO lawyers, who drew up the declaration and tried to include some things that shouldn't have been in there. You can see that IBM took the time to really do some digging, which indicates to me that they were somewhat concerned that the court might take SCO's argument, that what they bought was a business and not just some assets, seriously. But the most striking new thing is a case that I think it's fair to say SCO wasn't expecting: Caldera v. Microsoft:
Notably, SCO's predecessor-in-interest made the same arguments that SCO makes here in essentially the same circumstances before this very Court in another case. In Caldera, Inc. v. Microsoft Corp., Civil No. 2:96-CV-00645B, Caldera, Inc., SCO's predecessor,
argued that it had acquired not just assets in a transaction, but a full business, and was thereby entitled to claim privilege over documents that were transferred with the assets. Magistrate Judge Boyce rejected the argument. He found that because transfer of the entity holding the privilege had not occurred, it was "a simple waiver situation" and granted a motion to compel the documents.....
The mere fact that SCO or its predecessors might have viewed the assets as a line of business lends no support to SCO's position, as Judge Boyce ruled in the Caldera case.
... Caldera argued that it had not acquired "a simple asset" in the transaction, but rather "a fully operational business division", and claimed that it "thereby acquired the right to exercise privileges associated with
that business". ... Magistrate Judge Boyce flatly rejected Caldera's argument.... In fact, after this ruling, counsel for Caldera stated that it had already determined that it was going to concede the issue. ... In denying [the] motion, Judge Boyce noted that "Caldera has no basis to assert a work product or attorney/client privilege with respect to the materials at issue" and that its only interest in the privilege was "as a means of prohibiting discovery". Caldera, Inc. v. Microsoft Corp., 181 F.R.D. 506, 508 (D. Utah 1998). The same is true of SCO here, who offered to produce to IBM all of the documents at issue so long as IBM would agree not to argue that production of the documents constituted a subject-matter waiver. This Court should follow Judge Boyce and order SCO to turn over all of the documents created by and for third parties that SCO is currently withholding under an invalid claim of privilege. Here is the interesting part. If you go to Pacer and look up the Caldera case, you'll find that the transcript of the hearing is not available digitally, although the dispute is listed in the descriptions. So, IBM here gives evidence that it is very, very familiar with this case, to even know to go find the transcript at the courthouse, or wherever they obtained it, and that IBM is truly leaving absolutely no stone unturned. Now we may have the reason why IBM asked for and was granted more time [PDF] to file their reply. This IBM motion is now fully briefed, which means SCO will have no opportunity to answer this Caldera case until the oral arguments. Another detail, to illustrate IBM's thoroughness: The Magistrate Judge in this case is the Honorable Brooke Wells. Her mentor was Judge Ronald Boyce, whose position she fills, as you can see from this bio: It may be some time before a story about newly-appointed federal magistrate Judge Brooke Wells does not begin with a story about her predecessor, the late Judge Ronald Boyce. After all, Judge Wells is widely regarded as having taken Judge Boyce’s place -- his robe even hangs in her chambers, a gift from Judge Boyce’s widow, Darlene Boyce. Judge Boyce also left a deep impression on Judge Wells: “He was such a unique person,” she recalled, describing his years on the bench as a “time in life when everything was right” and concluding that “we were blessed with him under those circumstances.”
But with Judge Boyce now gone, Judge Wells is the first to admit that she is replacing the irreplaceable. “While the robe fits, the shoes never will,” she said, pointing to Judge Boyce’s old garment hanging on a hook in her chambers. “Fortunately for me, it’s quite a legacy to have inherited his position, but there is no expectation that anyone, much less me, would ever completely fill his position.” To be able to use not only a Utah case (SCO's are mostly not from the district, let alone from Utah), but a case from a judge esteemed by Judge Wells, is just priceless. *************************
SNELL & WILMER L.L.P.
Alan L. Sullivan (3152)
Todd M. Shaughnessy (6651)
Amy F. Sorenson (8947)
[address, phone, fax]
CRAVATH, SWAINE & MOORE LLP
Evan R. Chesler (admitted pro hac vice)
David R. Marriott (7572)
[address, phone]
Attorneys for Defendant/Counterclaim-Plaintiff
International Business Machines Corporation
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
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THE SCO GROUP, INC.,
Plaintiff/Counterclaim-Defendant,
v.
INTERNATIONAL BUSINESS MACHINES
CORPORATION,
Defendant/Counterclaim Plaintiff.
|
IBM'S REPLY MEMORANDUM IN
SUPPORT OF MOTION TO COMPEL
PRODUCTION OF DOCUMENTS ON SCO'S
PRIVILEGE LOG
(ORAL ARGUMENT REQUESTED)
Civil No. 2:03-CV-0294DAK
Honorable Dale A. Kimball
Magistrate Judge Brooke Wells
[REDACTED VERSION]
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Defendant/counterclaim-plaintiff International Business Machines Corporation
("IBM"), respectfully submits this reply memorandum in support of its motion to compel the
production of documents listed on SCO's privilege log that were created by and for third parties
AT&T and its affiliates and subsidiaries ("AT&T), UNIX Systems Laboratories ("USL"),
Novell, Inc. ("Novell"), and The Santa Cruz Operation, Inc. ("Santa Cruz").
Preliminary Statement
As explained in IBM's opening brief, SCO cannot properly claim privilege over
documents that originated with other corporations and their attorneys. The transfer of assets
from one company to another, without an actual transfer of control over the selling entity, does
not transfer the attorney-client privilege or work product immunity. SCO does not control any of
the corporations from which it purports to have acquired privileged documents. Therefore, the
privilege was waived when the documents were transferred to SCO, and SCO cannot properly
claim privilege over them. Nothing IN SCO's opposition papers shows otherwise.
In opposing IBM's motion, SCO argues that it is entitled to the privilege of the
previous owners of certain UNIX assets on the grounds that the UNIX assets SCO acquired from
Santa Cruz represent a "business". However, the mere fact that SCO considers its UNIX assets
to be a separate line of business is insufficient to result in passage of the privilege. Virtually any
set of assets could be labeled a "business", as illustrated by the fact that numerous companies
have UNIX businesses, all of which are different. In any event, neither SCO nor its
predecessors-in-interest acquired UNIX assets constituting an entire line of business. They
merely acquired some but not all of the UNIX assets of their predecessors.
Notably, SCO's predecessor-in-interest made the same arguments that SCO
makes here in essentially the same circumstances before this very Court in another case. In
Caldera, Inc. v. Microsoft Corp., Civil No. 2:96-CV-00645B, Caldera, Inc., SCO's predecessor,
2
argued that it had acquired not just assets in a transaction, but a full business, and was thereby
entitled to claim privilege over documents that were transferred with the assets. Magistrate
Judge Boyce rejected the argument. He found that because transfer of the entity holding the
privilege had not occurred, it was "a simple waiver situation" and granted a motion to compel the
documents. (Ex. 1 (Transcript of Jan. 28, 1998 hearing) at 19.)1 As is further discussed below,
the same result should obtain here. SCO cannot properly claim privilege over the documents at
issue, and IBM's motion to compel should be granted.
Argument
I. CONTRARY TO SCO'S CONTENTION, THE PRIVILEGE DOES NOT PASS IN AN
ASSET SALE, EVEN IF THE ASSETS CONSTITUTE A LINE OF BUSINESS
As stated in IBM's opening brief, when a corporation merely sells or transfers
assets to another corporation, without transferring control of the corporation, the attorney-client
does not also pass to the purchasing company. See, e.g., In re Grand Jury Subpoenas, 734
F.Supp 1207, 1211 n.3 (E.D. Va. 1990) ("A transfer of assets...is not sufficient to effect a
transfer of the privileges; control of the entity possessing the privileges must also pass for the
privileges to pass."), aff'd in relevant part, 902 F.2d 244 (4th Cir. 1990); Federal Deposit Ins.
Corp. v. McAtee, 124 F.R.D. 662, 664 (D. Kan. 1988) ("The transfer of assets from one entity to
another does not generally transfer the attorney-client privilege."). Instead, "the power to invoke
or waive a corporation's privilege privileges is an incident of control of the corporation." In re In-Store
Advertising Sec. Litig., 163 F.R.D. 452, 458 (S.D.N.Y. 1995) (citations and quotations omitted).
"Where confidential attorney-client communications are transferred from a corporation selling
3
assets to the corporation buying the assets, the privilege is waived as to those communications."
Id.2
SCO does not dispute that the transactions at issue involved the sale of assets.
Nor does SCO dispute that it did not acquire control of its purported predecessors-in-interest.
Rather, SCO seeks to justify its refusal to produce more than a thousand documents on the
ground that the assets it purports to have acquired constitute a line of business. The mere fact
that SCO or its predecessors might have viewed the assets as a line of business lends no support
to SCO's position, as Judge Boyce ruled in the Caldera case.
In Caldera, Inc. v. Microsoft Corp., Caldera similarly sought to assert a privilege
with regard to documents that it had obtained in a purchase of assets from Novell via an Asset
Purchase Agreement similar to the one between Novell and Santa Cruz. Caldera argued that it
had not acquired "a simple asset" in the transaction, but rather "a fully operational business
division", and claimed that it "thereby acquired the right to exercise privileges associated with
4
that business". (Ex. 2, Mem. In Opp. to Def. Motion to Compel (12/15/97) at 2, 6-11.)
Magistrate Judge Boyce flatly rejected Caldera's argument:
I don't think I really need argument on the attorney-client privilege matter. I've
done a lot of work on that, and I'm satisfied that the claim of attorney-client
privilege is not valid. When the Novell documents were turned over to Caldera,
that destroyed the privilege. Caldera is not the alter ego or successor-in-interest in
the legal context of those materials. The analogies to the Supreme Court's
decision with regard to its successor of interest, such as a Trustee in bankruptcy,
are an imperfect analogy. That case simply does not apply.
It's a simple waiver situation. You have separate entities, and one entity hands
over all of the technology and information and materials covered by an attorney-
client privilege. Without some type of additional protection that privilege is gone,
and so the Motion to Compel will be granted with regard to those documents.
(Ex. 1 at 18-19.) In fact, after this ruling, counsel for Caldera stated that it had already
determined that it was going to concede the issue. (Id. at 19.)
Judge Boyce reaffirmed this view when Novell attempted to intervene in the case
to claim a work product privilege as to certain documents it had given to Caldera. In denying
Novell's motion, Judge Boyce noted that "Caldera has no basis to assert a work product or
attorney/client privilege with respect to the materials at issue" and that its only interest in the
privilege was "as a means of prohibiting discovery". Caldera, Inc. v. Microsoft Corp., 181
F.R.D. 506, 508 (D. Utah 1998). The same is true of SCO here, who offered to produce to IBM
all of the documents at issue so long as IBM would agree not to argue that production of the
documents constituted a subject-matter waiver. This Court should follow Judge Boyce and order
SCO to turn over all of the documents created by and for third parties that SCO is currently
withholding under an invalid claim of privilege.
5
SCO relies on six cases in an attempt to circumvent Judge Boyce's decision. Not
only are they not from this district, but they are also plainly inapposite. Three of the cases, Graco
Children's Products, Inc. v. Regalo Intern, LLC, (1999 WL 553478 (E.D. Pa. 1999), _In re I
Successor Corp. (321 B.R. 640 (S.D.N.Y. 2005), and Tekni-Plex, Inc. v. Meyner & Landis, 674
N.E.2d 663 (N.Y. 1996), concern attorney disqualification, not privileged documents. In Pilates, Inc. v. Georgetown Body Works Deep Muscle Massage Cntrs., Inc., the court found no basis for
the claim of attorney-client privilege and ordered the documents at issue produced. 201 F.R.D.
261, 263-64 (D.D.C. 2000). The court in R.G. Egan Equip., Inc. v. Plymag Tek, Inc. similarly
denied a privilege claim. 758 N.Y.S.2d 763, 770-71 (N.Y. Sup. Ct. 2002). That leaves SCO
with Soverain Software LLC v. The Gap, Inc. That case, however, arose in bankruptcy, and the
court specifically cited bankruptcy policy concerns in making its decision. 340 F. Supp. 2d 760,
763-64 (E.D. Tex. 2004) ("The Court is reluctant to adopt a principle that unnecessarily inhibits
the effective administration of bankruptcy estates"). Judge Boyce likewise considered, and
rejected, authority arising in the bankruptcy context. See Ex. 1 at 18-19 ("The analogies to the
Supreme Court's decision with regard to its successor of interest, such as a Trustee in
bankruptcy, are an imperfect analogy. That case simply does not apply.") In none of these cases
did the court rule that the privilege passes where a business entity sells one or more of its
corporate divisions and continues to exist as a solvent business entity. 3
6
II. IN ANY EVENT, NEITHER SCO NOR ITS PREDECESSORS PURCHASED OR
SOLD "THE UNIX BUSINESS".
Even if the sale of a mere "business" (as opposed to a corporate entity) could
transfer the privilege, the transactions at issue here did not involve the sale of an entire business,
as SCO contends. Thus, SCO's privilege claims as to the documents at issue cannot survive
scrutiny even under its own rule (which is not the law in this district).
SCO claims privilege with respect to more than a dozen AT&T and USL
documents, nearly a hundred Novell documents, and more than a thousand Santa Cruz
documents. Even under SCO's rule, these documents are not protected by the privilege unless
Novell sold its "UNIX business" to Santa Cruz and Santa Cruz sold its "UNIX business" to
SCO.4 Contrary to SCO's contention, Novell did not sell its entire "UNIX business" to Santa
Cruz, and Santa Cruz did not sell its entire "UNIX business" to SCO.
The transaction between Novell and Santa Cruz was governed by an Asset
Purchase Agreement (the "APA") dated September 1995. The APA makes clear that Novell did
not sell its entire UNIX business to Santa Cruz. Schedule 1.1(b) of the APA expressly excludes
significant UNIX assets from the sale, including (but not limited to) veto rights over future UNIX
licensing activities and all UNIX patents. (Ex. 1 to Declaration of Amy F. Sorenson In Support
of IBM's Motion to Compel Production of Documents on SCO's Privilege Log, dated Sept. 26,
2005.) In fact, Novell retained rights to 95% of ongoing UNIX System V licensing royalties for
existing licensing agreements. Id. (excluding "All right, title and interest to the SVRx Royalties,
less the 5% fee for administering the collection thereof" from the transaction). Since Novell
7
retained 95% of its ongoing UNIX licensing royalties, it cannot be said that it sold its UNIX
business to SCO -- only that it sold certain UNIX assets to Santa Cruz.
Similarly, Santa Cruz did not sell an entire business to SCO. SCO acquired less
than all of the assets of Santa Cruz's Server Software and Professional Services Division. SCO's
2003 Annual Report expressly acknowledged that it acquire[d] substantially all [but not all] of
the assets and operations of the server and professional services groups" of Santa Cruz. (Ex. 3
(The SCO Group Inc., Annual Report (Form 10-K) (Jan. 28, 2004)) at 4.) SCO did not even
acquire all of the UNIX assets owned by Santa Cruz. Santa Cruz excluded from the sale certain
assets relating to OpenServer and products traditionally bundled with OpenServer and
UnixWare7.
[REDACTED]
SCO, therefore, did not acquire an entire
UNIX business from Santa Cruz.
SCO bases its opposition brief on the declaration of William Broderick. Putting
aside the fact that Mr. Broderick's declaration fails to dispute any of the foregoing facts, it is
plainly insufficient to carry SCO's burden of proof. First, Mr. Broderick lacks personal
knowledge of the facts about which he purports to testify. He admittedly was not involved in any
transactions purporting to sell UNIX assets, did not negotiate the contracts associated with any
8
such sale, and only found out about the transactions after the fact having absolutely no personal
involvement in the transactions prior to their occurrence. (Ex. 5 (Transcript of the Deposition of
William Broderick) at 27, 31-32, 50-51, 70-71.) Second, Mr. Broderick's deposition testimony
is inconsistent with his declaration. For example, in his declaration, Mr. Broderick purports to
"have been continuously employed managing contracts for the successive companies that have
owned the UNIX technology and business". (Broderick Decl. ¶ 4.) But when pressed at his
deposition, Mr. Broderick acknowledged that there was a distinct break in his employment,
including a recent layoff by SCO, at which time he became employed by a completely unrelated
company for several months before being rehired by SCO. (Ex. 5 at 17-18.) In addition, though
Mr. Broderick claimed in his declaration that "the makeup ... of the UNIX business continued as
constituted through and after each transition" (Broderick Decl. ¶10), he conceded in his
deposition that, in his opinion, Novell retained at least some part of the "UNIX business" when it
sold UNIX assets to Santa Cruz. (Ex. 5 at 60-61.) Third, Mr. Broderick's declaration purports to
establish the legal conclusions that "the UNIX business ... transferred successively from
AT&T/USL to Novell to Santa Cruz to Caldera (now SCO)", and also that in each instance the
selling company "transferred control" of the UNIX business. (Broderick Decl. ¶¶9-10.) He also
asserts that even though the various transactions were structured differently, the transactions "did"
not differ except as to form." (Id. ¶16.) Mr. Broderick, however, is not an attorney nor does he
have a basis to opine on any legal aspect of the transactions involving the transfer of the UNIX
assets. In fact, Mr. Broderick admitted at his deposition that he was not prepared or able to give
any legal opinions regarding the transactions he discusses in his declaration. (Ex. 5 at 7-8.)
9
CONCLUSION
For the foregoing reasons, IBM respectfully requests that this Court order SCO to
immediately produce all documents created by or for AT&T, USL, Novell, or Santa Cruz.
DATED this 8th day of December, 2005.
SNELL & WILMER L.L.P.
___[signature]____
Alan L. Sullivan
Todd M. Shaughnessy
Amy F. Sorenson
CRAVATH, SWAINE & MOORE LLP
Evan R. Chesler
David R. Marriot
Attorneys for Defendant/Counterclaim-Plaintiff
International Business Machines Corporation
Of counsel:
INTERNATIONAL BUSINESS MACHINES CORPORATION
Donald J. Rosenberg
Alec S. Berman
[address, phone]
Attorneys for Defendant/Counterclaim-Plaintiff
International Business Machines Corporation
1 True and correct copies of exhibits supporting this memorandum are attached to the Declaration
of Todd M. Shuaghnessy, submitted concurrently herewith, and are cited herein as "Ex.____."
2SCO attempts to distinguish these cases are unavailing. With regard to both Grand Jury
Subpoenas and In-Store Advertising, SCO focuses on irrelevant quotation quibbles. Neither the
presence nor absence of the words "without more" and "therefore" changes the correct rule stated
in those cases: "control of the entity possessing the privileges must also pass for the privileges to
pass," Grand Jury Subpoenas, 734 F. Supp. at 1211 n.3, and "the power to invoke or waive a
corporation's privileges is an incident of control of the corporation," In-Store Advertising, 163
F.R.D. at 458. With regard to McAtee, the language SCO quotes (distinguishing the
management of an entity from liquidation) does not come from the McAtee opinion itself, but
rather from a different case that the opinion is quoting, and furthermore was not part of that
court's analysis of the privilege issues, but instead merely a general description of the role of a
bankruptcy trustee. See F.R.D. 662, 664 (D. Kan. 1988). Even if SCO were correct that the
McAtee court would have reached a different conclusion had the FDIC not liquidated the pre-existing entity, it would be unavailing since neither SCO nor any of its so-called predecessor-in-interest were bankruptcy trustees when they received the UNIX assets; nor were any of the
selling entities in bankruptcy at the time of the sale.
3 SCO also attempts unsuccessfully to distinguish Zenith Electronics Corp. v. WH-TV
Broadcasting Corp., No. 01C4366, 2003 WL 21911066 (N.D. Ill. Aug. 7, 2003). The fact that, in
Zenith, the "proponent of the privilege did not argue, and the court did not find, that the
transferred assets constituted a business" (SCO's Memorandum of Law In Opposition to IBM's
Motion to Compel Production of Documents on SCO's Privilege Log ("SCO Br."), dated
October 21, 2005, at 10) is not an indication that the case is distinguishable. It is an indication
that SCO's distinction between assets and a "business" is irrelevant in this context, where control
of the corporation is the essential factor.
4SCO contends that IBM concedes that the privilege transferred with AT&T's sale of USL to
Novell. (SCO Br. at 8.) That is incorrect and irrelevant. Even if the privilege passed in the
AT&T/Novell sale, it was waived when Novell passed its documents to Santa Cruz and when
Santa Cruz passed its documents to SCO.
10
CERTIFICATE OF SERVICE
I hereby certify that on the 8th day of December, 2005, a true and correct copy of the
foregoing was sent by U.S. Mail, postage prepaid, to the following:
Brent O. Hatch
Mark F. James
HATCH, JAMES & DODGE, P.C.
[address]
Robert Silver
Edward Normand
BOIES, SCHILLER & FLEXNER LLP
[address]
Stephen N. Zack
Mark J. Heise
BOIES, SCHILLER & FLEXNER LLP
[address]
___[signature]___
Todd M. Shaughnessy
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