Now we're getting down to it. Lots of filings in SCO v. Novell. I see Novell is arguing that SCO has no federal right to a jury trial since all the relief Novell now seeks is equitable in nature. After I have a chance to read it all, I'll explain the rest, but I figure we can read them together. Update: Steve Martin has done the Memorandum in Support of Novell's Motion to Strike SCO's Jury Demand [PDF] as text, so I've added it to the article. This filing fills us in on what they were talking about when the parties had their meet and confers: SCO wants a jury and Novell doesn't. So now we know why Novell has offered to drop damages and certain claims -- what's left, Novell argues, is equitable and doesn't need a jury, and in fact SCO doesn't have a right to one. And SCO, we find out, doesn't agree to Novell dropping its Third Claim, so that it can argue there is a need for a jury. That's how I see it anyway, but I can't read minds. So read it for yourself and see what you think.
Here is the first batch:
08/24/2007 - 383 - STATUS REPORT (Supplemental Joint Statement re: the Parties' August 17, 2007 Joint Statement) by Novell, Inc. (Sneddon, Heather) (Entered: 08/24/2007)
08/24/2007 - 384- NOTICE OF CONVENTIONAL FILING filed by Plaintiff SCO Group Re: SCO's Motion to Exclude Testimony of Terry L. Musika and SCO's Motion in Limine Regarding Apportionment of 2003 Microsoft and Sun Agreements (Normand, Edward) (Entered: 08/24/2007)
08/24/2007 - 385 - MOTION to Strike SCO's Jury Demand filed by Defendant Novell, Inc.. (Attachments: # 1 Text of Proposed Order) Motions referred to Brooke C. Wells.(Sneddon, Heather) (Entered: 08/24/2007)
08/24/2007 - 386 - MEMORANDUM in Support re 385 MOTION to Strike SCO's Jury Demand filed by Defendant Novell, Inc.. (Sneddon, Heather) (Entered: 08/24/2007)
08/24/2007 - 387 - MOTION to Dismiss Voluntarily Its Third Claim for Relief filed by Defendant Novell, Inc.. (Attachments: # 1 Text of Proposed Order)(Sneddon, Heather) (Entered: 08/24/2007)
08/24/2007 - 388 - MEMORANDUM in Support re 387 MOTION to Dismiss Voluntarily Its Third Claim for Relief filed by Defendant Novell, Inc.. (Sneddon, Heather) (Entered: 08/24/2007)
Here's 386 as text, thanks to Steve:
******************************
Michael A. Jacobs, pro hac vice
Eric M. Acker, pro hac vice
Kenneth W. Brakebill, pro hac vice
Marc J. Pernick, pro hac vice
David E. Melaugh, pro hac vice
[address]
[phone]
[fax]
ANDERSON & KARRENBERG
Thomas R. Karrenberg, #3726
John P. Mullen, #4097
Heather M. Sneddon, #9520
[address]
[phone]
[fax]
Attorneys for Defendant and Counterclaim-Plaintiff Novell, Inc.
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
THE SCO GROUP, INC., a Delaware
corporation,
Plaintiff and Counterclaim-
Defendant,
v.
NOVELL, INC., a Delaware corporation,
Defendant and Counterclaim-
Plaintiff.
|
MEMORANDUM IN SUPPORT OF
NOVELL'S MOTION TO STRIKE
SCO'S JURY DEMAND
Case No. 2:04CV00139
Judge Dale A. Kimball
|
(1)
BACKGROUND
In the wake of the Court's August 10 Memorandum Decision and Order, the parties have
narrowed the issues for trial to just three:
- Are additional SCOsource licenses, like the Sun and Microsoft licenses, "SVRX
Licenses" within the meaning of the APA?
- What proportion of the payments retained by SCO from the Sun, Microsoft and
additional SCOsource licenses must be restored to Novell?
- Did SCO have authority under the APA to enter into the Sun, Microsoft, and
additional SCOsource licenses?
The only remedies Novell seeks at this point — restitution and declaratory relief — are
inherently equitable.1 Accordingly, they are for the Court to decide, and no right to a jury trial
attaches.
Novell and SCO have conferred regarding this dispute but have been unable to reach
agreement. Novell therefore seeks a determination that the remaining claims are to be tried to
the Court.
ARGUMENT
I. THE REMAINING CLAIMS SEEK ONLY EQUITABLE REMEDIES THAT
SHOULD BE DECIDED BY THE COURT.
Under Federal law, a party is not entitled to a jury trial in an equitable action.2 Manning
v. United States, 146 F.3d 808, 811-12 (10th Cir. 1998) ("Actions at law entitle the parties to a
1 (2)
jury, but equitable cases do not."). The Supreme Court directs courts to resolve questions as to
the nature of an action through a two-part inquiry. Chauffeurs, Teamsters and Helpers, Local
No. 391 v. Terry, 494 U.S. 558, 565 (1990). First, courts compare the action to "18th-century
actions brought in the courts of England prior to the merger of the courts of law and equity." Id.
Second, courts "examine the remedy sought and determine whether it is legal or equitable in
nature." Id. "The second inquiry is the more important in our analysis." Id.; see also id. at 569
(Seventh Amendment right "depends on the nature of the issue to be tried rather than the
character of the overall action").
Here, the nature of the issues to be tried and the remedies sought by Novell are equitable.
SCO therefore has no Seventh Amendment right to a jury.
A. Novell's Restitution, Breach of Fiduciary Duty, and Conversion Claims Are
Equitable Because They Seek Equitable Remedies.
"Restitution" and "breach of fiduciary duty" are historically equitable; "conversion" is
historically legal.3 More important than the names a plaintiff employs to characterize his claims,
2 (3)
however, is the remedy the plaintiff seeks under those claims. Tull v. United States, 481 U.S.
412, 421 (1987) ("We need not rest our conclusion on what has been called an 'abstruse
historical' search for the nearest 18th-century analog. We reiterate our previously expressed
view that characterizing the relief sought is 'more important' than finding a precisely analogous
common-law cause of action in determining whether the Seventh Amendment guarantees a jury
trial."); Benach v. County of Los Angeles, 149 Cal. App. 4th 836, 845 (2007) (the "label attached
to a complaint or cause of action does not control").
Classic "legal" damages remedies compensate a plaintiff for its injuries — e.g., lost
profits, expenses incurred as a consequence of the harm and the like. By contrast, "equitable"
remedies, whether phrased as restitution, unjust enrichment, disgorgement, accounting,
constructive trust, etc., require a defendant to turn over to the plaintiff the benefits the defendant
gained unjustly, regardless of whether the defendant caused any harm to the plaintiff.
Fundamentally, Novell's Sixth, Seventh, and Eighth Claims, as narrowed for trial, each
seek the same equitable remedy — the restitution of SVRX Royalties wrongfully retained by
SCO. Novell's Sixth Claim seeks "restitution of all monies constituting SCO's unjust
enrichment" and imposition of a "constructive trust on revenues SCO unjustly received." (Am.
Compl. ¶¶ 135-36, Docket No. 142.) Novell's Seventh Claim likewise seeks the imposition of a
constructive trust. (Id. ¶ 142.) The Eighth Claim also seeks a constructive trust, as well as "a
writ of replevin, ordering the immediate return of the wrongfully withheld royalties."4 (Id.
3 (4)
¶¶ 149-150.) These claims do not seek the classic form of legal "damages" — compensation for
harm done to Novell — and therefore do not entitle SCO to a jury trial.
This doctrine is well-settled. In the course of analyzing whether a claim seeking
restitution entitled the defendants to a jury, Judge Friendly observed:
[T]he court must analyze the nature of the claim for a money
judgment. If that claim was triable to a jury, it must still be so
tried although it was asserted in a suit where the basic relief sought
was equitable. The name which the complaint affixes to the
money claim is not controlling, and if the money claim is triable to
a jury it must be tried first.
On the other hand, not all money claims are triable to a jury. A
historic equitable remedy was the grant of restitution by which
defendant is made to disgorge ill-gotten gains or to restore the
status quo, or to accomplish both objectives. And when restitution
is sought in the form and in the situations allowed in equity prior to
the rules or authorized by valid statutes there is no right to jury
trial.
SEC v. Commonwealth Chem. Sec., Inc., 574 F.2d 90, 95 (2d Cir. 1978); see also Crews, 788
F.2d at 338 ("[A]n action for restitution seeks an equitable remedy for which there is no Seventh
Amendment right to a jury trial."); see generally Great-West Life & Annuity Ins. Co. v. Knudson,
534 U.S. 204, 214 (2002) ("[F]or restitution to lie in equity, the action generally must seek not to
impose personal liability on the defendant, but to restore to the plaintiff particular funds or
property in the defendant's possession.").5
Indeed, even classically "legal" claims do not give rise to any right to a jury where the
remedy sought is equitable. In C & K Eng'g Contractors v. Amber Steel Co., 23 Cal. 3d 1, 9
(1978), the court considered whether a claim "seek[ing] recovery of damages for breach of
4 (5)
contract" sounded in equity or law. After acknowledging that such a claim was typically "an
action at law in which a right to jury trial ordinarily would exist," the court held that because the
underlying remedy sought — enforcement of a promise through estoppel — was equitable, the
plaintiff had no right to a jury. Id. at 9, 11 ("the legal or equitable nature of a cause of action
ordinarily is determined by the mode of relief to be afforded"); see also Klein v. Shell Oil Co.,
386 F.2d 659, 664 (8th Cir. 1967) (no right to jury trial where "despite the ingenious efforts of
plaintiffs to label and characterize their claim as one for legal relief, the conclusion is
inescapable that the remedy they sought was purely equitable in nature"); In re Friedberg, 131
B.R. 6, 12 (S.D.N.Y. 1991) (breach of contract action was "wholly equitable" and did not trigger
right to jury trial where it effectively sought specific performance of clause requiring return of
deposit); De Guere v. Universal City Studios, Inc., 56 Cal. App. 4th 482, 507-08 (1997) (holding
that where breach of contract action was at its base an action seeking accounting of monies
improperly withheld, claim was equitable and defendant had no right to jury)).
In sum, because Novell's Sixth, Seventh, and Eighth Claims all seek the equitable
remedy of restitution, SCO is not entitled to a jury trial on these claims under Federal or
California law.
B. Novell's Declaratory Relief Claim is Equitable Because It Seeks an Equitable
Remedy.
In its Fourth Claim, Novell seeks a declaration that "SCO had no authority to enter into
the Sun and Microsoft SVRX Licenses, as well as the Intellectual Property Licenses with Linux
end users and UNIX vendors." (Am. Compl. ¶ 123.) While a contract-based claim for
declaratory relief can be either equitable or legal, depending on the nature of the remedy sought,
here the relief Novell seeks is purely equitable.
The Tenth Circuit has held that "[t]he Declaratory Judgment Act does not create a right to
a jury trial, but merely preserves the right where one already exists. Declaratory relief may be
legal or equitable depending on the basic nature of the underlying issues. . . . [T]he nature of the
remedy that the plaintiff seeks in a contract action determines whether [a party] is entitled to a
5 (6)
jury trial." Fischer Imaging Corp. v. Gen. Elec. Co., 187 F.3d 1165, 1168-69 (10th Cir. 1999).
In Fischer, the Tenth Circuit held that a declaratory judgment action seeking a determination of a
reasonable price for medical devices under the parties' purchase agreement was an action at law
because, absent a declaratory action, the suit would be one for damages in which a reasonable
price was a factual issue determined by the jury. Id. at 1171-74. "The issue in the present case,
the reasonable price of goods, is a question of fact, not one of law[,]" the court reasoned, as
distinguished from a claim "requir[ing] a judge to construe a contract." Id. at 1173.
Where, as here, a declaratory judgment claim seeks construction of a contract and no
relief akin to damages, it is an equitable claim that does not implicate the Seventh Amendment
right to a jury trial. See Manning, 146 F.3d at 813 (holding no right to jury where declaratory
action sought no money, just declaratory relief); Owens-Illinois, Inc. v. Lake Shore Land Co.,
Inc., 610 F.2d 1185, 1189 (3d Cir. 1979) (defendant had no right to jury trial in declaratory
judgment action that sought determination that option contract was valid and that involved "no
claim for damages or any other legal remedy");Medtronic, Inc. v. Benda, 689 F.2d 645 (7th Cir.
1982) (adopting trial court's determination that defendant had no right to jury trial in declaratory
judgment action that sought determination that contract provision was valid and that did not seek
damages); Burlington N. R.R. Co. v. Nebraska Public Power Dist., 931 F. Supp. 1470, 1483 (D.
Neb. 1996) (defendant counterclaimant had no right to a jury trial of its declaratory judgment
claims requiring "construction of various provisions of a very complex contract" and not seeking
damages).
Indeed, construction of a contract, such as Novell seeks, was not the province of the jury
at the time the Seventh Amendment was adopted. Burlington, 931 F. Supp. at 1484. Drawing
on the Supreme Court's decision in Markman v. Westview Instruments, Inc., 517 U.S. 370
(1996), the Burlington court reasoned:
As the Supreme Court has unanimously stated, "we . . . know that
. . . during this period judges, not juries, ordinarily construed
written documents." In fact "it was generally the practice of
judges in the late 18th century 'to keep the construction of writings
out of the jury's hands and reserve it for themselves,' a 'safeguard'
6 (7)
designed to prevent a jury from 'constru[ing] or refin[ing] it at
pleasure.'
...
As Markman makes clear, this type of "plenary interpretation of
written instruments" was simply not given to juries at the time the
Seventh Amendment was adopted, and for good reason. Juries
lacked the training to properly supply "the meaning of
documentary terms." Even a cursory review of the interpretative
principles which govern cases like this makes clear why juries in
1791 (and today) lacked the training.
In conclusion, as Justice Souter has observed, the interpretative
function is better left to judges because the "construction of written
instruments is one of those things that judges often do and are
likely to do better than jurors unburdened by training in exegesis
[interpretation]." Consequently, it is not necessary (or proper) for
"the jury [to] shoulder [the] responsibility" of construction of the
contract in this case in order to "preserve the 'substance of the
common-law right of trial by jury.' "
931 F. Supp. at 1483-84 (internal citations omitted) (italics added).
Similarly, in an action for declaratory judgment governed by California law, "there is no
right to a trial by jury where the gist of the action is for the enforcement of a right cognizable
only in equity." Fowler v. Ross, 142 Cal. App. 3d 472, 478 (1983). Moreover, under California
law,
It is well established that a true action for declaratory relief is
equitable: An action for declaratory relief is an equitable
proceeding and the powers of a court are as broad and extensive as
those exercised by such court in any ordinary proceeding in equity.
It is elementary that questions relating to the formation of a
contract, its validity, its construction and effect, excuses for
nonperformance, and termination are proper subjects for
declaratory relief.
Caira v. Offner, 126 Cal. App. 4th 12, 24 (2005) (italics added) (affirming trial court's
determination that action to quiet title was equitable and jury verdict was therefore advisory),
citing Fowler, 142 Cal. App. 3d at 478. In Fowler, the court held defendants had no right to a
jury trial of a claim for declaratory relief concerning the interpretation of a real estate contract.
142 Cal. App. 3d 472. "Unlike an action at law which ordinarily seeks damages," the court
reasoned, "the plaintiffs here sought only a declaration of their rights and duties under the
7 (8)
contract." Id. at 478. "This is purely equitable in nature and that is the only relief the court
provided." Id.
To be sure, as under federal law, in some instances a contract-based claim for declaratory
relief is legal in nature. "[A] declaratory action to identify rights is distinct from a coercive
action to enforce rights." Caira, 126 Cal. App. 4th at 24. Thus, "[w]here an action for
declaratory relief is in effect used as a substitute for an action at law for breach of contract," a
party is entitled to a jury trial. Id. at 25 (italics in original). "That is because a suit to recover
damages for breach of contract is an action at law in which a right to a jury trial ordinarily
exists." Id. at 15 (italics added).
Here, by contrast, Novell is not using its claim for declaratory judgment as a proxy for a
legal claim by which it can recover damages from SCO. Instead, Novell's claim seeks no
damages and instead concerns only "the construction and effect" of contract language — namely,
whether the APA authorized SCO to enter into the Sun and Microsoft licenses without Novell's
explicit approval. See Caira, 126 Cal. App. 4th at 24; Nwosu v. Uba, 122 Cal. App. 4th 1229,
1241 (2004) (claim for declaratory relief seeking judicial determination of rights under
agreement to transfer property was equitable claim that did not entitle plaintiff to jury trial);
Culbertson v. Cizek, 225 Cal. App. 2d 451, 465 (1964) (claim for declaratory relief seeking
construction of contract was equitable; "the court in a declaratory relief action may properly
determine questions as to rights and duties arising out of an existing contract"); Evans v. Citizens
Nat'l Trust & Savings Bank of Riverside, 29 Cal. App. 2d 133, 143 (1938) (in action for
declaratory relief to determine contractual rights to manufacture and sell machines, trial court in
its decree "was exercising its jurisdiction to completely dispose of an equitable matter submitted
to it.").
In sum, because Novell's Fourth Claim seeks only declaratory relief entailing the
construction of a contract and no damages or damages-like remedy, SCO is not entitled to a jury
trial on this claim under Federal or California law.
8 (9)
CONCLUSION
For the reasons stated above, Novell requests that the Court strike SCO's request for a
jury and proceed instead with a bench trial.
DATED: August 24, 2007
ANDERSON & KARRENBERG
By: /s/ Heather M. Sneddon
Thomas R. Karrenberg
John P. Mullen
Heather M. Sneddon
-and-
MORRISON & FOERSTER LLP
Michael A. Jacobs, pro hac vice
Eric M. Acker, pro hac vice
Kenneth W. Brakebill, pro hac vice
Marc J. Pernick, pro hac vice
David E. Melaugh, pro hac vice
Attorneys for Defendant and
Counterclaim-Plaintiff Novell, Inc.
9 (10)
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 24th day of August, 2007, I caused a true and correct
copy of the MEMORANDUM IN SUPPORT OF NOVELL'S MOTION TO STRIKE SCO'S
JURY DEMAND to be served to the following:
Via CM/ECF:
Brent O. Hatch
Mark F. James
HATCH JAMES & DODGE, P.C.
[address]
Stuart H. Singer
William T. Dzurilla
Sashi Bach Boruchow
BOIES, SCHILLER & FLEXNER LLP
[address]
David Boies
Edward J. Normand
BOIES, SCHILLER & FLEXNER LLP
[address]
Devan V. Padmanabhan
John J. Brogan
DORSEY & WHITNEY, LLP
[address]
Via U.S. Mail, postage prepaid:
Stephen Neal Zack
BOIES, SCHILLER & FLEXNER LLP
[address]
/s/ Heather M. Sneddon
(11)
| 1 | As a formal matter, the parties have agreed that only Novell's Third, Fourth, Sixth,
Seventh, and Eighth Claims remain for trial. (Amended Complaint, Docket No. 142; Joint
Statement, Docket No. 379; Supplemental Joint Statement, Docket No. 383.) Novell has sought
to obtain SCO's consent to also dismiss its Third Claim, but SCO will not agree. Novell
therefore also moves, by separate motion filed herewith, to dismiss its Third Claim under the
same conditions as it has its First, Second, and Fifth claims. Even if that motion is denied,
however, and Novell's Third Claim remains, Novell contends (as discussed below) that the
restitutionary remedy it seeks is fundamentally equitable and that therefore SCO has no right to a
jury on this claim. |
| 2 | Federal law controls whether SCO has a Seventh Amendment right to a jury in this
matter. Where a court exercises diversity jurisdiction, federal law also controls underlying
questions as to whether a particular remedy is equitable or legal. Simler v. Conner, 372 U.S.
221, 222 (1963) ("In diversity cases, . . . the substantive dimension of the claim asserted finds its
source in state law, but the characterization of that state-created claim as legal or equitable for
purposes of whether a right to jury trial is indicated must be made by recourse to federal law.").
Here, the Court is exercising supplemental jurisdiction, not diversity jurisdiction, and while we
have not located controlling Supreme Court or Tenth Circuit law, we see no reason why the rule
should differ. Cf. Christopherson v. Humphrey, 366 F.2d 323, 325 (10th Cir. 1966) (noting that
"[t]he right to a jury trial in federal courts is a matter of federal law in diversity as well as other
actions," citing Simler).
California cases are also cited as additional support. See Mile High Indus. v. Cohen, 222
F.3d 845, 856 n.9 (10th Cir. 2000) (holding that Federal law controlled equitable/legal
characterization, citing Simler, but relying on Wyoming cases "as additional, supplemental
authority."). Because Novell's claims arise from rights and relationships established by the
APA, the APA's California choice-of-law provision applies. (Order at 43 n.4, 89.) |
| 3 | See, e.g., Pereira v. Farace, 413 F.3d 330, 338 (2d Cir. 2005) ("[T]he general rule is
that actions for breach of fiduciary duty, historically speaking, are almost uniformly actions in
equity — carrying with them no right to trial by jury." (internal citation and quotation marks
omitted)); Crews v. Central States, Se. & Sw. Areas Pension Fund, 788 F.2d 332, 338 (6th Cir.
1986) ("Historically, an action for restitution seeks an equitable remedy for which there is no
Seventh Amendment right to a jury trial."); Whitehead v. Shattuck, 138 U.S. 146, 151 (1891)
(noting difficulty of establishing "any general rule which would determine, in all cases, what
should be deemed a suit in equity as distinguished from an action at law," but finding conversion
claim historically legal). |
| 4 | The Seventh and Eighth Claims also seek special damages for, e.g., Novell's "costs
associated with making repeated requests for information necessary to confirm SCO's
compliance with its contractual obligations to administer [the] SVRX licensing program." (Id.
¶¶ 141, 148.) As Novell informed SCO during the meet and confer on the parties' in limine
motions, Novell will not seek these damages at trial. Novell has also dropped any claim for
punitive damages. |
| 5 | See also Kim v. Yi, 139 Cal. App. 4th 543, 546, 549-50 (2006) (action for apportionment
of settlement proceeds; held that apportionment of monies held in trust is "consistently
characterized as equitable in nature"; no right to jury trial); Getty v. Getty, 187 Cal. App. 3d
1159, 1176 (1986) (where defendant alleged to breach fiduciary duties by stealing funds that
should have been held in trust, court held that remedies sought were "equitable in nature"; no
right to a jury); Van De Kamp v. Bank of Am., 204 Cal. App. 3d 819, 864 (1988) (holding that,
"where the fiduciary becomes liable for various sums of money and plaintiffs do not know what
money is due them," the claim is equitable even though it seeks "damages," and therefore
affirming grant of motion to vacate jury trial in favor of bench); Johansen v. Pelton, 8 Cal. App.
3d 625, 633 (1970) (restitution is an equitable remedy). |
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