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Novell Objects to SCO's Request for More Time; Suggests There May Be No SNCP Deal - Updated, as text
Tuesday, September 09 2008 @ 05:34 PM EDT

Finally, someone is saying it out loud: Novell has filed a Response to SCO's 3rd Motion to Extend Exclusivity, and in it Novell says that perhaps there is no Stephen Norris deal. And it asks the court to "look carefully and skeptically" at SCO's request for an indefinite extension:
If one asks a series of illuminating questions -- why SCO cannot propose a plan without a final judgment given what it now knows from the District Court Litigation and its apparent contention that it does not need to have a result in the Arbitration, how convincing its claim is that it cannot proceed now because others want to know when the appeal will begin, why SCO in all these months since beginning to restructure its deal with SNCP has not been able to do that despite allegedly working at it diligently and why SCO has continued to avoid restarting the Arbitration -- one sees in the obvious lack of good answers to any of these questions accumulating evidence that SCO simply is stalling. Perhaps SCO really has no prospective deal with SNCP or anyone else; perhaps SCO hopes to pressure Novell into either an appeal of only a partial result in the District Court Litigation or into settling the litigation altogether to get it over with. Either way, the Court has additional reason to deny the Third Extension Motion. Stalling is not "cause" to extend the deadlines.

If anyone has time to OCR this for me, I'd appreciate it greatly. [It's done now. Thanks.] Remember, the hearing on SCO's motion is set for September 16. That hearing should be smoking.

There is also a 10th bill from Pachulski Stang, which I haven't read yet. When I do, I'll let you know anything I see that looks interesting, along with more on the Novell filing as I have time to read it carefully and absorb it all. The filings:

540 - Filed & Entered: 09/08/2008
Application for Compensation
Docket Text: Monthly Application for Compensation [Tenth] and Reimbursment of Expenses as Co-Counsel to the Debtors and Debtors in Possession for the Period from June 1, 2008 through June 30, 2008 Filed by Pachulski Stang Ziehl & Jones LLP. Objections due by 9/29/2008. (Attachments: # (1) Notice # (2) Exhibit A # (3) Certificate of Service and Service List) (Makowski, Kathleen)

541 - Filed & Entered: 09/09/2008
Response (B)
Docket Text: Response to the Debtors' Third Motion to Extend Exclusivity (related document(s)[525] ) Filed by Novell, Inc. (Greecher, Sean)

Update Novell phrases things even more strongly than I quoted earlier. Here's a choice bit:

That SCO and SNCP slunk away when Novell and others demanded some real information and have not reappeared on the plan screen ever since suggests that the Original Plan was bogus, that SNCP is equally so and that, confirming the first two points, SCO has no other white knights in the wings. In short, there is very credible evidence that SCO's prospects for a viable plan are suspect.

So what is SCO after in seeking an extension? Novell suggests SCO is maybe seeking to pressure Novell into agreeing to a quick appeal, before the arbitration is finished, or perhaps they are looking for an exit strategy, or they are looking for a litigation advantage, none being reasons for granting them the extension. Novell is quite clear with the court, stating unambiguously that there is no way it can properly grant an open-ended extension. It lays out all the cases for the judge.

And we learn that the arbitration was just a week away, when SCO shut it down with the bankruptcy. (A reader points out, correctly I believe, that I misread that sentence, and that the meaning is that the arbitration would last for a week and was scheduled for a few months away, in December of 2007, when the stay was granted in October.) If there is a delay with the arbitration, it was SCO that made it happen. Trying to blame Novell for the delay is simply ridiculous, Novell says. SCO is stalling, it says pointblank. SCO will certainly have to respond to the questions Novell asks here when it comes time for Arthur Spector, SCO's lawyer, to do his next Dance of the Hearings on September 16. One would expect some evidence of lack of bogosity, at a minimum, some proof that the deal with SNCP ever was real and/or is still in the works. It's been half a year since SCO began claiming to be diligently working on that plan. How come they never finish? Where is it?

****************************

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

In re

THE SCO GROUP, INC., et al.,

Debtors.
Chapter 11

Case Number 07-11337 (KG)
(Jointly Administered)
Objection Deadline: September 9, 2008 at 4:00 p.m. (prevailing Eastern time)
Hearing: September 16, 2008 at 10:00 a.m. (prevailing Eastern time)

NOVELL'S RESPONSE TO THE DEBTORS' THIRD
MOTION TO EXTEND EXCLUSIVITY

Novell, Inc., and its subsidiary, SUSE Linux GmbH ("SUSE" and together with Novell Inc., "Novell") hereby respond to the Third Motion by Debtors under Section 1121(d) for Extension of Exclusivity Deadlines (the "Third Extension Motion"). By the Third Extension Motion, debtors and debtors in possession The SCO Group, Inc., and SCO Operations, Inc (together, "SCO"), ask this Court in this year-old case to extend their deadlines for filing and confirmation of a plan of reorganization for a third time. SCO asks the Court for an indefinite period of 45 days to file and 60 days to confirm after the District Court enters a final judgment in the Novell/SCO litigation in Utah. But not only does such an indefinite extension risk contravening the absolute limits of 18 months to file a plan and 20 months to confirm the plan now prescribed by Code1 section 1121(d)(2), but also SCO's rationale for the extension conflicts both with earlier positions SCO has taken about whether certain pending litigation has to be resolved for there to be a plan and with the realities of the current posture of this reorganization case. In trying to blame Novell for the delay that the pending litigation allegedly injects into SCO's plans, moreover, SCO astonishingly overlooks its having prevented that litigation from proceeding in the first place when it had the chance to let it advance last year. Novell submits

that the Court should look carefully and skeptically at granting the Third Extension Motion even on terms that are otherwise permitted by the Code.

I. BACKGROUND

A. Events Leading to and Commencement of the Cases

Before filing these chapter 11 cases, SCO was involved in litigation against various parties, including Novell, involving SCO's claims that the other parties were interfering with SCO's alleged ownership of certain software code copyrights that are central to SCO's business. (See Memorandum Opinion (filed herein November 27, 2007) (the "Opinion") 1-2.)

The central litigation was the Utah District Court litigation (the "District Court Litigation"). At the same time, an international arbitration (the "Arbitration") was set for December of 2007 between SCO and SUSE that related to certain issues in the District Court Litigation that the District Court had agreed should be decided, instead, in the Arbitration to be blended into a final judgment in the District Court Litigation. (Debtor The SCO Group, Inc.'s Motion to Enforce the Automatic Stay (filed September 28, 2007) (Docket No. 69) (the "Arbitration Stay Motion")); Transcript of Hearing of November 6, 2007 (Docket No. 207) ("11/16 Tr.") at 34:19-36:20; 60:15-64:21.)

On August 10, 2007, Novell, Inc., won important rulings against SCO on partial summary judgment in the District Court. (Opinion 3-4; Third Extension Motion 5, 8.) That left only Novell, Inc.'s counterclaims against SCO to try. (Opinion 4.) The trial on those residual issues was set for September 14, 2007, a Monday. (Opinion 4.) Having all but lost its litigation with Novell, Inc., the Debtors filed their voluntary chapter 11 petitions before this Court on September 11, 2007, the preceding Friday. (Ibid) The filing stayed all SCO's litigation, including both the District Court Litigation and the Arbitration.

B. SCO's Record in the Cases: A Year of Wasted Motion

At first, SCO proceeded in this case as though the outcome of the District Court Litigation and Arbitration were inconsequential to its reorganization plans. Just two months after

2

filing the case, SCO tried to sell substantially all its assets to York Capital Management ("York") [Docket No. 149]. That SCO characterized the motion (the "York Sale Motion") as an "emergency" motion while having stayed the District Court Litigation and Arbitration via the automatic stay through filing the case only underscores that SCO believed that resolution of those proceedings was wholly unnecessary for it to proceed with what amounted to a de facto plan.

In fact, at this very time, consistent with its view that resolution of the pending litigation was not important to its plans, SCO was opposing Novell's motion for stay relief to complete the District Court Litigation and seeking a determination by this Court that the automatic stay also stayed the Arbitration. (See Novell, Inc.'s Motion for Relief from Automatic Stay [etc.] (filed October 4, 2007) (Docket No. 89) (the "Novell Stay Motion"); Debtors' Memorandum of Law in Response to Novell, Inc.'s Motion for Relief From Automatic Stay [etc.] (filed October 23, 2007) (Docket No. 150); Arbitration Stay Motion.) In invoking the stay to halt the Arbitration, the Debtor knew both that the Arbitration was all but ready for a mere week-long proceeding and that a postponement could mean many months of delay before the Arbitration could be rescheduled. The Debtor got its wish on November 14: the Court granted the Arbitration Stay Motion as requested by SCO. (Order Granting The SCO Group, Inc.'s Motion to Enforce the Automatic Stay (filed November 14, 2007) (Docket No. 204).) On November 27, 2007, the Court also granted the Novell Stay Motion over SCO's opposition so that the parties could complete the District Court Litigation. (Opinion.)

The Court refused to approve the York Sale Motion in the face of substantial opposition focusing on the sale motion's lack of transparency. (See Novell's Objection to the Debtors' Proposed Disclosure Statement (filed March 26, 2008) (the "Novell DS Obj.") 2-3.) SCO finally withdrew the York Sale Motion altogether on November 20, 2007, just days after Novell and others filed objections to it. (Docket No. 225.) In these circumstances, SCO on January 2, 2008 filed its Motion by Debtors Under Section 1121(D) [sic] to for Extension of Exclusivity Deadlines (the "First Extension Motion") seeking an extension of its original plan and

3

confirmation deadlines to May 11 and July 11. Novell did not oppose the First Extension Motion, which the Court granted. (Order [etc.] (filed February 5, 2008 (Docket No. 329).) In fact, only one party -- an interest holder -- opposed it. On February 29, 2008, SCO filed the Debtors' Joint Plan of Reorganization (the "Original Plan") and the related proposed Disclosure Statement in Connection with Debtors' Joint Plan of Reorganization (the "Disclosure Statement"). As with the York Sale Motion, SCO structured the Original Plan to proceed without prior resolution of the District Court Litigation or Arbitration. Paralleling the like assumption of the York Sale Motion, the Original Plan contained provisions to deal with either a favorable or an unfavorable subsequent ruling by the District Court on the unresolved balance of the issues (and appeals, if needed). However, in the face of extensive objections on other issues filed by Novell and others (see, e. g., Novell DS Obj.), many of which again focused on the Original Plan's lack of transparency, SCO withdrew the Original Plan and Disclosure Statement at the scheduled hearing on the Disclosure Statement on April 2, 2008. A need to wait for the outcome of the District Court Litigation and Arbitration was not among SCO's principal reasons for withdrawing the Original Plan. Rather, according to SCO, both it and the Original Plan sponsor, Stephen Norris Capital Partners ("SNCP"), had already decided to restructure their underlying deal in some unexplained ways and begun redrafting the necessary documents. (Transcript of April 2, 2008 hearing ("April Tr."), 8:9- 12: 17.) Moreover, SCO did not indicate that any of that plan restructuring it had already begun with SNCP had anything to do with a need to await the outcome of the District Court Litigation or the Arbitration. That is no surprise, since SCO all along had not seen any such need in proposing both the York Sale Motion and later the Original Plan.

On May 9, 2008 SCO filed its Second Motion by Debtors under Section 1121(d) for Extension of Exclusivity Deadlines (the "Second Extension Motion"). This time, however, SCO -- contrary to its stated position in earlier filings -- suddenly proclaimed that it would be a good thing to await the District Court's ruling in the District Court Litigation. It made no mention of the Arbitration. The Court granted the Second Extension Motion, as well.

4

II. THE THIRD EXTENSION MOTION

In the Spring, the District Court conducted the trial as permitted by the Court's order granting the Novell Stay (Third Extension Motion 8.). In its July ruling after trial (the "July Ruling"), it found, among other things, that SCO's debt to Novell was "$2,547,817 [exclusive of prejudgment interest and certain other items], an amount significantly less than the approximately $30 million reflected in the proof of Claim Novell filed .... " (Third Extension Motion 8.) SCO even has characterized the potential debt it faced as $40 million. (Third Extension Motion 5.) However, the District Court has not entered a judgment because of lingering issues over exactly what SCO owes Novell and because the issues in the Arbitration, which were to be blended into the judgment, are not yet resolved since the Arbitration has been stayed. (Third Extension Motion 8-9.)

The Third Extension Motion seeks a further, open-ended extension of SCO's exclusivity periods for plan filing and confirmation until 45 and 60 days after there is a final judgment in the District Court Litigation. According to SCO, this extension is necessary because it, its creditors, its customers and its potential investors want to know what the results of the District Court Litigation pending appeal are and to have some idea when an appeal by SCO (and perhaps Novell) will be decided. SCO claims that these parties will be comfortable about the nagging question of 'when it will all be over' once they know when SCO's appeal of the results in the District Court Litigation can begin. (Third Extension Motion 5-6, 9-10.) Moreover, SCO says, it needs time to formulate a plan even after when it knows an appeal can commence so that it has time "to allow an amended plan to take into account the extent of the SCO Group's rights [in the intellectual property] . . .to prepare an amended plan, including the liquidation and feasibility analysis to accompany such plan, as well as to incorporate the July 2008 Ruling's impact on terms of the plan .... " (Third Extension Motion 13.) In the meantime, SCO contends, it has continued to work diligently with SNCP to reformulate a plan (since starting that process nearly half a year ago). (Third Extension Motion 10.) To further demonstrate its alleged earnest

5

progress towards reorganization, SCO says it even has begun claims review. (Third Extension I Motion 13.)

In making its argument that it must await the entry of an appealable judgment in the District Court Litigation, SCO essentially blames Novell for its inability to commence an appeal. Largely, SCO says, this is because Novell has insisted that no final (and appealable) judgment is possible until the Arbitration is decided. (Third Extension Motion 9-10.) Moreover, SCO suggests, Novell has taken this position because it wants to sabotage SCO's attempts to propose and confirm a plan. (Third Extension Motion 10 ("SCO anticipated that a final judgment would be entered soon after the ruling from the trial came down. Novell apparently has other plans.").)

III. THE COURT SHOULD DENY THE THIRD EXTENSION MOTION

The Court should deny the Third Extension Motion for several reasons. Novell will discuss them after a brief review of applicable law.

A. General Standards for the Granting of Extensions.

The purpose of the limited exclusivity provisions of Code section 1121(d) is to give the debtor the initiative in a case without putting creditors, who have an important stake in the outcome of the enterprise and should therefore have a say, at the debtor's mercy. E. g., Matter of Mother Hubbard Inc., 152 B.R. 189, 195 (Bankr. W.D. Mich. 1993); Matter of All Seasons Indus., Inc., 121 B.R. 1002, 1004 (Bankr. N.D. Ind. 1990). Regulation of exclusivity in the debtor's hands is a powerful and important tool serving the purposes of chapter 11. It has been recognized that even where the debtor knows of no competing plan, the very threat of the possibility of another plan attendant on the termination of its exclusivity may induce it to produce a real and timely plan. Official Committee of Unsecured Creditors v. Henry May Newhall Hosp., Inc. (In re Henry Mayo Newhall Hosp., Inc.), 282 B.R. 444, 453 (B.A.P. 9th Cir. 2002)

The granting of an extension of plan and confirmation deadlines for cause under Code section 1121(d)(1) is a fact-driven issue within the Court's sound discretion. In re Adelphia

6

Communications, Inc., 352 B.R. 578, 586 (Bankr. S.D.N.Y. 2006); accord In re R. G. Pharmacy, Inc., 374 B.R. 484, 487 (D. Conn. 2007); All Seasons Indus., 121 B.R. at 1004. The party seeking the extension has the burden of proof to show "cause." In re R. G. Pharmacy, Inc., 374 B.R. at 487 (D. Conn. 2007) (and cases cited therein); Bunch v. Hoffinger Industries, Inc. (In re Hoffinger Industries, Inc.), 292 B.R. 639, 643 (B.A.P. 8th Cir. 2003); All Seasons Indus., 121 B.R. at 1004. In general, in deciding whether to grant an extension:
[c]ourts typically rely on nine enumerated factors:
(a) the size and complexity of the case;

(b) the necessity for sufficient time to permit the debtor to negotiate a plan of reorganization and prepare adequate information;

(c) the existence of good faith progress toward reorganization;

(d) the fact that the debtor is paying its bills as they become due;

(e) whether the debtor has demonstrated reasonable prospects for filing a viable plan;

(f) whether the debtor has made progress in negotiations with its creditors;

(g) the amount of time which has elapsed in the case;

(h) whether the debtor is seeking an extension of exclusivity in order to pressure creditors to submit to the debtor's reorganization demands; and

(i) whether an unresolved contingency exists.

Adelphia, 352 B.R. at 587 (footnote omitted); accord In re R. G. Pharmacy, Inc., 374 B.R. at 487; Hoffinger Industries, 292 B.R. at 643-44.

Furthermore, the pendency of even important litigation normally is not grounds for an extension -- that is, does not count as an "unresolved contingency" -- since the debtor presumably can provide for alternative litigation outcomes in the plan, precisely as SCO did in the Original Plan. E. g., R. G. Pharmacy, 374 B.R. at 488 (that "[t]he ongoing government Medicaid investigation and the matters raised in the pending adversary proceeding present unresolved issues affecting the largest claims asserted against the debtor and the debtor's value as a viable business" not a sufficient ground for exclusivity extension); All Seasons Industries, 121 B.R. at 1004-1005 (in November 1989 chapter 11 case, even pending "critical" litigation that had been

7

set for trial in April of 1990 but was continued to July of 1990 not grounds in June 1990 for an extension, the more so because judgment only likely to be followed by appeal). Finally, as presaged in item (h) of the Adelphia factors, courts should not grant a request to extend exclusivity when the debtor's purpose is to gain a tactical advantage over another party rather than obtain further time genuinely needed to negotiate and formulate a plan. Eg., Hoffinger Industries, 292 B.R. at 643.

With the legal framework thus set, Novell now turns to analyzing the Third Extension Motion. First, however, Novell will point out that the relief Third Extension Motion seeks simply is, in part, unavailable under the Code.

B. The Code Prohibits An Open Ended Extension

In seeking an open-ended extension of the plan filing and confirmation dates, SCO is asking the Court to grant relief the Code does not authorize. Code section 1121(d)(2) expressly says that the deadlines "shall not be extended" beyond 18 and 20 months from the petition date, respectively. The Court simply cannot grant the relief SCO seeks. Nor is it unimaginable that the case will get to the point of transgressing the outside deadlines. The case already is a year old, SCO has gone from saying it does not need resolution of the District Court Litigation to proceed to saying it is indispensable, and from proposing a plan with SNCP that collapsed in early April to saying in the Second Extension Motion and again in this Third Extension Motion that it has been working (diligently, SCO claims) with SNCP since sometime in March -- that is, now for a full six months already -- to restructure its plan.

C. The Relevant Adelphia Factors Weigh Against Another Extension

I. Preliminary Observations

Much of SCO's reasoning melts away in the presence of some common sense and facts even before a more rigorous evaluation of it according to the Adelphia criteria. First, the idea that the commencement of an appeal somehow will give sufficient needed comfort to others about when the Novell/SCO legal issues will be resolved begs credulity. There is nothing any

8

more mechanical about the timing of the decision in an appeal of complex issues than there is about the time between the current status of the District Court Litigation and the prospective entry of an appealable judgment. Both are fraught with an equal level of uncertainty about when the final result will be available. If anything, the timing of a appellate disposition is far more speculative than when the District Court might enter an appealable judgment. And that is even without considering the uncertainties that any further appeal to the United States Supreme Court might entail. SCO is temporizing.

Next, the notion that there is anything yet to be settled in the District Court Litigation (apart from what the Arbitration will decide) that is so important as to justify granting SCO further time to proceed with a plan is unconvincing. The facts simply belie this rote formula that SCO is yet again using. The District Court has resolved all the intellectual property ownership . and infringement issues it was going to decide itself (that is, apart from what it wanted the Arbitration to decide). Moreover, the debt magnitude issue that SCO played up in the Second Extension Motion has been put to bed. After all, SCO and SNCP were ready to champion a plan in which SNCP allegedly would provide up to $100 million to cover, among other things, the possible debt to Novell of up to $40 million. But now by SCO's own account that debt has been reduced (at least at the trial stage prior to any appeal) by more than a full order of magnitude from up to $40 million down to +/- $3 million.2 Surely, the debt figure remaining after trial no longer has anything like the importance of the debt figure at the time of the Second Extension Motion. In short, the question is, "What else does SCO need to know substantively to proceed with a plan?" And the answer is, "Nothing!"

Finally, SCO's attempt to blame Novell for the delay in the entry of judgment in the District Court Litigation due to the unresolved issues in the Arbitration is fatuous. As Novell explained in connection with the Arbitration Stay Motion, the District Court agreed with Novell that the Arbitration should serve to resolve certain issues between the parties for purposes of

9

judgment in the District Court Litigation. (11/16 Tr. at 34: 19-36:20; 60:15-64:2l.) Ever since that time, it has been clear to SCO that there could be no judgment in the District Court Litigation until resolution of the Arbitration. But the party solely responsible for the fact that the Arbitration is incomplete is none other than SCO, since it was SCO that successfully asked the Court to find that the automatic stay applied to all aspects of the Arbitration, including SUSE's defensive reaction to the infringement claims asserted by SCO publicly and SCO's own, related offensive counterclaims against SUSE that were so important to the District Court Litigation. (Nor has SCO at any time since offered to stipulate to stay relief for the Arbitration; in fact, it has declined Novell's request to do so.) If SCO faces a delay in the entry of final judgment in the District Court Litigation, it is delay of its own strategic, conscious making. Clearly, SCO would like to pick and choose which proceedings should go forward for its own strategic convenience. It wants an appealable judgment in the District Court Litigation, but only on terms that suit it. That hardly is "cause" for an extension of the plan and confirmation deadlines. Equity must discount this issue as a rationale for an extension.

In fact, stepping back from things just a bit provides a perspective that paints a very different picture from SCO's account of determined progress towards confirmation frustrated by the status of the District Court Litigation. If one asks a series of illuminating questions -- why SCO cannot propose a plan without a final judgment given what it now knows from the District Court Litigation and its apparent contention that it does not need to have a result in the Arbitration, how convincing its claim is that it cannot proceed now because others want to know when the appeal will begin, why SCO in all these months since beginning to restructure its deal with SNCP has not been able to do that despite allegedly working at it diligently3 and why SCO has continued to avoid restarting the Arbitration -- one sees in the obvious lack of good answers to any of these questions accumulating evidence that SCO simply is stalling. Perhaps SCO really has no prospective deal with SNCP or anyone else; perhaps SCO hopes to pressure Novell into

10

either an appeal of only a partial result in the District Court Litigation or into settling the litigation altogether to get it over with. Either way, the Court has additional reason to deny the Third Extension Motion. Stalling is not "cause" to extend the deadlines.

2. Application of the Specific Adelphia Factors

Assessing the Adelphia criteria points uniformly to a denial of the Third Extension Motion:

Size and Complexity of the Case. SCO has declared again and again that a major justification for extensions of its exclusivity periods is the size and complexity of the case. (Second Extension Motion 9; Third Extension Motion 12.) But as is indicated by the preceding discussion of where things stand with SCO after the July Ruling, particularly in light of SCO's prior willingness to propose a plan without a decision in the District Court Litigation, this case no longer is complex (if it ever was), does not involve a mass of creditors, does not involve massive creditor claims and does not involve numerous employees, multiple sites or far-flung operations.

Time to Permit the Debtor to Prepare a Plan and Disclosure Statement. This case is already a year old. It has seen one attempt by SCO to sell its assets and an attempt by SCO to confirm a plan. SCO has known what factors affect its prospects virtually since the case was filed. It now even has the July Ruling. There has been plenty of time to negotiate with the various case constituencies, although SCO has chosen to ignore any but its potential white knights (SNCP, York and (perhaps) others). What more time and information could it possibly need to be able to negotiate a plan and prepare disclosures?

Good Faith Progress Towards a Plan.

What progress? All SCO has offered is that it keeps working on restructuring the Original Plan with SNCP. Already half a year old, how complicated can that project be? In fact, as noted above, one must ask whether SCO is doing anything but stalling in the hope of finding an exit strategy for the case or gaining a tactical advantage over Novell? Neither of those reasons are "cause" for yet another extension.

11

Reasonable Prospects for a Viable Plan. If SCO is to propose a plan, it will have to be before the District Court Litigation is fully resolved on appeal. If SCO can propose such a plan, there is no reason why it could not have done so already. Its Original Plan was a model for what might work had the Original Plan not violated the anti-discrimination provisions of the Code and had SNCP been real enough to be exposed openly to the Court and creditors. As directed in R. G. Pharmacy, supra, it provided for alternative outcomes. That SCO and SNCP slunk away when Novell and others demanded some real information and have not reappeared on the plan screen ever since suggests that the Original Plan was bogus, that SNCP is equally so and that, confirming the first two points, SCO has no other white knights in the wings. In short, there is very credible evidence that SCO's prospects for a viable plan are suspect.

Progress in Negotiating With Creditors. There have been none. Yet, the lack of engagement with creditors is one of the very problems the exclusivity deadline is supposed to ameliorate. This factor supports an extension least of all, perhaps.

Elapsed Time. A whole year has passed without a confirmed plan, or even a currently-pending plan, and six months have passed since SCO retreated precipitously from the Original Plan to begin its further secret, interminable restructuring negotiations with SNCP.

Pressuring Creditors. As discussed above, there is reliable evidence that SCO is using delay to pressure Novell into a settlement or to avoid dealing with the Arbitration.

Unresolved Contingency. The only candidate for this factor is the District Court Litigation. But if it ever was a convincing reason for the past exclusivity extensions SCO has obtained, it no longer is. That litigation is essentially complete insofar as what SCO must know about it is concerned (unless, of course, one considers SCO's peculiar aversion to completion of the Arbitration as a further important piece of the litigation puzzle it contends it must assemble before proposing a plan). In any case, as the cases say, litigation uncertainties, even on central issues, are not grounds for an extension of exclusivity; a debtor should simply propose a plan that provides for the possible outcomes, as SCO already did in the Original Plan. See R. G. Pharmacy, supra; All Seasons, supra.

12

In sum, every applicable Adelphia factor points exclusively to a denial of the Third Extension Motion.

IV. CONCLUSION

The Third Extension Motion seeks unauthorized relief. It also offers wholly inadequate reasons for the relief it seeks, reasons that actually undermine SCO's arguments when scrutinized with any care. The Court should deny the Third Extension Motion and leave it to creditors to decide along with SCO when and what plan, if any, should be the focus of this case. At the very least, the termination of exclusivity may prod SCO into action of which it clearly is capable at this very moment if it really has a plan in the wings, as it has told the Court it does.

13

Dated: September 9, 2008
Wilmington, Delaware

YOUNG CONAWAY STARGATT & TAYLOR, LLP

/s/ Sean T Greecher
James L. Patton (No. 2202)
Michael R. Nestor (No. 3 526)
Sean T. Greecher (No. 4484)
[address, phone]

-- and --

MORRISON & FOERSTER LLP
Adam A. Lewis
[address, phone]

-- and --

MORRISON & FOERSTER LLP
Larren M. Nashelsky
[address, phone]

Counsel for Novell, Inc. and SUSE Linux GmbH


1 The "Code" is the Bankruptcy Code, 11 U.S.C. §§ 101-1532.

2 This is all subject, of course, to the appeal that SCO has indicated it will pursue come hell or high water.

3 Also puzzling is why SCO has just begun the claims review process after all the peace and quiet from which it has benefited for most of this ease.


  


Novell Objects to SCO's Request for More Time; Suggests There May Be No SNCP Deal - Updated, as text | 326 comments | Create New Account
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Authored by: Aladdin Sane on Tuesday, September 09 2008 @ 05:46 PM EDT
Please note corrections to the article under this comment.

A summary in the title, and a reference to where in the article the problem was spotted are very helpful.

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[NP] News Picks discussion
Authored by: Aladdin Sane on Tuesday, September 09 2008 @ 05:49 PM EDT
Discuss Groklaw News Picks here. Please fail to conceal which News Pick your comment corresponds to.

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"The choice to exact consideration in the form of compliance with the open source requirements..., is entitled to no less legal recognition." --US CAFC

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[OT] Off Topic discussion
Authored by: Aladdin Sane on Tuesday, September 09 2008 @ 05:51 PM EDT
Discuss topics not related to the current Groklaw story here.

Please break up long URL's with spaces or hard returns, if you choose not to make them click-able.

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"The choice to exact consideration in the form of compliance with the open source requirements..., is entitled to no less legal recognition." --US CAFC

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Novell bluntly calls Norris Plan "Bogus"
Authored by: stats_for_all on Tuesday, September 09 2008 @ 05:55 PM EDT
From 541:
That SCO and SNCP slunk away when Novell and others demanded some real information and have not reappeared on the plan screen ever since suggests that the Original Plan was bogus , that SNCP is equally so and that, confirming the first two points, SCO has no other white knights in the wings. [my emphasis]

Mark Robbins and Stephen Norris have been in the news a bit since the last hearing on exclusivity.

The judge ruled on Mark Robbins motion for summary judgment in the fraud trial where he is and MadTrax are defendants -- RICO fraud was dismissed, but civil fraud will proceed to trial. Link is to Judge Ted Stewarts decision.

A Alexis-de-Tocqueville board member, ex-Senator Robert Kasten (Wisc) appears on the Norris-Robbins investment website.

Stephen Norris was appointed to the board of a corporation: Stratos Renewable (SRNW.ob). This company plans to make Sugar Cane Ethanol in Peru. It made a secondary stock sale in August to continue development of the sugar cane plantation, there no indication that Norris, Robbins or their partners participated in the secondary.

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OCR underway
Authored by: eggplant37 on Tuesday, September 09 2008 @ 06:00 PM EDT
I'm working on a OCR of the PDF right now.

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Novell bluntly calls Norris Plan "bogus"
Authored by: Anonymous on Tuesday, September 09 2008 @ 06:09 PM EDT
From 541:
That SCO and SNCP slunk away when Novell and others demanded some real information and have not reappeared on the plan screen ever since suggests that the Original Plan was bogus , that SNCP is equally so and that, confirming the first two points, SCO has no other white knights in the wings. [my emphasis]

Mark Robbins and Stephen Norris have been in the news a bit since the last hearing on exclusivity.

The judge ruled on Mark Robbins motion for summary judgment in the fraud trial where he is and MadTrax are defendants -- RICO fraud was dismissed, but civil fraud will proceed to trial. Link is to Judge Ted Stewarts decision.

A Alexis-de-Tocqueville board member, ex-Senator Robert Kasten (Wisc) appears on the Norris-Robbins investment website.

Stephen Norris was appointed to the board of a corporation: Stratos Renewable (SRNW.ob). This company plans to make Sugar Cane Ethanol in Peru. It made a secondary stock sale in August to continue development of the sugar cane plantation, there no indication that Norris, Robbins or their partners participated in the secondary.

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Why do Novell bother?
Authored by: Anonymous on Tuesday, September 09 2008 @ 06:22 PM EDT
I just cant understand.

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Cool
Authored by: digger53 on Tuesday, September 09 2008 @ 06:22 PM EDT
Love it! Delightfully caustic.

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A bold move
Authored by: bezz on Tuesday, September 09 2008 @ 06:42 PM EDT
First, the easy stuff: Pachulski's bill. Nothing interesting other than they did no work on a new reorganization plan in June. If you are interested in seeing the reorganization plan work, read the Berger Singerman bills. That's the meat.

Novell is making a very bold move here. The objection highlights the case to date and points out the inherent contradictions in SCO's arguments:

1. SCO tried to stay both the Novell case and the SUSE arbitration while it pursued the York deal; it got arbitration stayed.

2. SCO pursued the first SNCP deal before it had a judgment in Novell, while the SUSE arbitration was stayed. It was able to factor in alternative outcomes potentially amounting to $40 million from Novell.

3. SCO was able to pursue the first SNCP deal with the SUSE arbitration stayed.

But here is where Novell gets right in the judge's face. Judge Gross said he may consider additional extensions to exclusivity and Novell points out that there are an absolute limit of 18 and 20 months. But now SCO is arguing that it needs an open-ended extension -- a final judgment must be entered and the appeal process started -- not completed -- before it can file a reorganization plan. Yet SCO was the party that stayed the SUSE arbitration that is holding up entering a final judgment.

Novell continues that SCO is stalling and may be using its motion to extend to force Novell into accepting an incomplete final judgment or just settling to get it over with. SCO was able to get near completing a plan with SNCP before the Utah trial six months ago, yet now it can not finalize the plan with a smaller than expected judgment rendered? SCO knows what the potential liabilities in arbitration are and should be able to factor them in, while claiming they can not. "That SCO and SNCP slunk away when Novell and others demanded some real information and have not reappeared on the plan screen suggests that the Original Plan was bogus, that SNCP was equally so and that, confirming the first two points, SCO has no other white knights in the wings. In short, there is very credible evidence that SCO's prospects for a viable plan are suspect". Finally, SCO has made no progress negotiating with creditors.

Brutal. Maybe Novell does not want SCO in Chapter 7 and wants to file its own reorganization plan. A court-appointed trustee would oversee liquidation under Chapter 7 and Novell's could pursue much more palatable options if allowed to file its own reorganization plan. Among those options: settling all outstanding litigation and a cash payment for all of SCO's assets. That would be the worst case scenario for SCO because Novell could make an offer that gives them control over everything, including the retained documents.

One final note. I now filter out anonymous posts in articles to which I am posting. If you want me to see it, please log in. Although the vast majority of the anons here at groklaw are insightful, I have been baited into a couple flame wars with anons and it is a waste of time to engage in flame wars.

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Slightly OT : That hearing should be smoking.
Authored by: Erwan on Tuesday, September 09 2008 @ 07:02 PM EDT

Will the 22-Sep-2008 Status Conference in Las Vegas be a public hearing?

Are we going to eagerly await for two court reports a few days apart?

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Erwan

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SNCP subpoena
Authored by: Anonymous on Wednesday, September 10 2008 @ 03:26 AM EDT
Couldn't Novell send a subpoena to SNCP, forcing them to tell whether there was
a deal in the wings and all and any documentation surrounding such a deal?

Maybe that is not the way to do it. I don't know.


______
IMANAL

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Arbitration was not a week away
Authored by: Anonymous on Wednesday, September 10 2008 @ 07:13 AM EDT
PJ, I think that you misunderstood the reference to a "week" regarding the arbitration. You said:
And we learn that the arbitration was just a week away, when SCO shut it down with the bankruptcy.
From Novell's Objection:
an international arbitration (the "Arbitration") was set for December of 2007
SCO filed for bankruptcy in September, so the arbitration hearing was still 3 months away when the bankruptcy shut it down. Even the later motions and order from the bankruptcy court that officially extended the automatic stay to the arbitration happened in October, still 2 months before the arbitration hearing was scheduled to begin.

The only thing in Novell's most recent filing that speaks about the arbitration and references a time period of a week is the following:
In invoking the stay to halt the Arbitration, the Debtor knew both that the Arbitration was all but ready for a mere week-long proceeding and that a postponement could mean many months of delay before the Arbitration could be rescheduled.
Perhaps you did not read this sentence correctly and interpreted it as meaning that the arbitration was a week away when it was really 2 or 3 months away but was scheduled to last only a week once it started.

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If this gets granted...
Authored by: turambar386 on Wednesday, September 10 2008 @ 09:17 AM EDT
...watch for SCO's "motion to extend exclusivity until final judgment on
our appeal" next.

That will be followed, of course, by SCO's "motion to extend exclusivity
until final judgment in SCO v IBM"

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I don't see that it matters.
Authored by: Anonymous on Wednesday, September 10 2008 @ 04:02 PM EDT
SCO will be given the bennifit of the doubt, the same as always after all we
must be fair now musn't we, and the extension will be granted.

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Novell Objects to SCO's Request for More Time; Suggests There May Be No SNCP Deal - Updated, as text
Authored by: Anonymous on Wednesday, September 10 2008 @ 04:44 PM EDT
Novel expresses a failure to understand
"In short, there is very credible evidence that SCO's prospects for a
viable plan are suspect."

Understanding will be achieved when you read submittals in which
"suspect" has been with "criminal bogus".

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Eighteen months of Chapter 11?
Authored by: Anonymous on Wednesday, September 10 2008 @ 05:10 PM EDT
So what happens after eighteen months?

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Novell's Gambit?
Authored by: rsteinmetz70112 on Thursday, September 11 2008 @ 01:00 AM EDT
Novell has flatly stated that SCO has refused to agree to let the arbitration go
forward. I wonder if Novell plans on getting an admission of that and using it
to force a liftng of the stay.

I don't see how SCO gains any leverage over Novell by refusing anything. Novell
can afford to wait and every dollar they spend on this case is marketing to the
Open Source Community. The stakes for Novell are relatively insignificant.

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Rsteinmetz - IANAL therefore my opinions are illegal.

"I could be wrong now, but I don't think so."
Randy Newman - The Title Theme from Monk

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  • Novell's Gambit? - Authored by: Anonymous on Thursday, September 11 2008 @ 06:19 PM EDT
El Corton finds another Norris fraud allegation:
Authored by: stats_for_all on Thursday, September 11 2008 @ 10:13 AM EDT
Author: El Corton
A glimpse into the world of Stephen Norris

This post is based entirely on court documents downloaded from PACER. I have no opinion as to the truth or falsity of the allegations made in those documents.

On July 23, 2008, a Notice of Removal was filed in U.S. District Court for the Southern District of New York in the matter of Crimson Capital LLC et al v. The Spartan Group Holding, LLC et al:

07/23/2008 1 NOTICE OF REMOVAL from Supreme Court, County of New York. Case Number: 601873-08. (Filing Fee $ 350.00, Receipt Number 657535).Document filed by Spartan Partners GP, LLC, Spartan Capital Management, LLC, M82 Group LLC, Marshall Manley, DDD Ventures LLC, The Spartan Group Holding, LLC, Spartan Investment Partners LP, Spartan Investment Association LP, Dennis Dammerman.(rdz) (Additional attachment(s) added on 7/25/2008: # 1 Exhibit) (rdz). Modified on 7/25/2008 (kkc). (Entered: 07/25/2008)

The case was removed from Supreme Court, County of New York, where it bore the index number 601873-08. It was assigned to Judge John F. Keenan under the case ID 1:08-cv-06554-JFK.

The notice is titled as follows:
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

CRIMSON CAPITAL LLC and MICHAEL STAISIL,

Plaintiffs,

v.

THE SPARTAN GROUP HOLDING COMPANY,
LLC, SPARTAN INVESTMENT PARTNERS LP,
SPARTAN INVESTMENT ASSOCIATES LP,
SPARTAN PARTNERS GP, LLC, SPARTAN
CAPITAL MANAGEMENT, LLC, STEPHEN
NORRIS CAPITAL PARTNERS LLC, STEPHEN
NORRIS, M82 GROUP LLC, MARSHALL MANLEY,
DDD VENTURES LLC, DENNIS DAMMERMAN,
GE ASSET MANAGEMENT INCORPORATED,
INFLEXION CAPITAL PARTNERS, LP, ABC LLC,
DEF LLC, UVW LP, and XYZ LP,

Defendants.

NOTICE OF REMOVAL
08 Civ. 6554 (JFK)

It cites diversity jurisdiction as the grounds for removal. Attached to the docket as Exhibit 1 is a copy of the complaint originally filed in state court on June 23, 2008.
It reads in part as follows:

1. This is an action for breach of contract, breach of fiduciary duties, shareholder oppression, and (in the alternative) unjust enrichment and promissory estoppel. In 2007, plaintiff Michael Staisil and defendants Stephen Norris, Marshall Manley, and Dennis Dammerman agreed to create, own equally, and operate a private equity fund business. In July 2007 they signed a limited liability company agreement that reflected their equal ownership of that venture. Mr. Staisil contributed a disproportional amount of the work and money required to create and promote the business. On December 6, 2007, GE Asset Management virtually assured the venture's success by agreeing to invest tens of millions of dollars in it. The very next day, December 7, 2007, Messrs. Norris, Manley, and Dammerman repudiated their agreement with Mr. Staisil, insisting that his interest in their venture be reduced and that he have no management role in it. They even refused to reimburse him for substantial sums of money he paid to establish and promote the fund business notwithstanding the agreement to do so. ...

3. Plaintiff Michael Staisil is an individual residing in the City and State of New York and is the principal of plaintiff Crimson Capital LLC. An offensive guard on the 1988 Rose Bowl champion Michigan State football team and alumnus of the Harvard Business School, Mr. Staisil worked in corporate finance, management consulting, and investment banking at major companies and at his own firm prior to the events alleged herein.

4. Plaintiff Crimson capital LLC is a Nevada limited liability company. Mr. Staisil formed Crimson Capital in mid-2007 in order to own interests in The Spartan Group Holding Company LLC and/or related entities through it together with defendants Stephen Norris, Marshall Manley, Dennis Dammerman and entities they controlled.

5. Defendant Stephen Norris is on information and belief an individual residing in the State of Florida. Mr. Norris was on information and belief a co-founder of The Carlyle Group, a major private equity fund.

6. Defendant Stephen Norris Capital Partners LLC is on information and belief a Delaware limited liability company formed by its principal, Stephen Norris. ...

19. Michael Staisil met Stephen Norris in or about January 2007, when Mr. Norris and others approached Mr. Staisil during their search for financing for a real estate acquisition. Thereafter, Messrs. Staisil and Norris discussed several possible business opportunities in which they might both be involved, including the formation of various types of investment funds. In the spring of 2007 they discussed inter alia the formation of a private equity fund with XE Capital Management, a substantial New York investment firm with which Mr. Staisil had done business. XE Capital proposed that it provide Messrs. Staisil and Norris, operating through a Delaware limited liability company called Staisil Norris Partners, LLC, with money to explore real estate investments; to forward millions in working capital for the general partner of a private equity platform that Messrs. Norris and Staisil were contemplating; and to invest and raise hundreds of millions more in that private equity fund.

20. Also in the spring of 2007, Messrs. Staisil and Norris began to discuss with Marshall Manley and Dennis Dammerman the participation of Messrs. Manley and Dammerman in the private equity platform Messrs. Staisil and Norris were discussing. As the discussions proceeded, the name of the contracting entity on the draft documents that were being exchanged with XE Capital Management was therefore changed from Staisil Norris Partners to the four individuals and then to "The Spartan Group Holding Company LLC" (Spartan Holding). They formally changed the name of Staisil Norris Partners to Spartan Holding in or about late June 2007. The name of Spartan Holding was inspired by the mascot of the Michigan State athletic teams.

21. Starting in early 2007 and running through the end of that year, both before and after Messrs. Manley and Dammerman joined the contemplated private equity business, Mr. Staisil expended substantial time and effort to create and promote that business and raise money for it. Mr. Staisil did most of the legwork and expended most of the money spent for those purposes. In or about March 2007 he hired Proskauer Rose to perform legal work for the venture and paid that firm a retainer of $50,000. He paid travel and entertainment expenses and paid for development of a logo, business cards, and a "pitch book. " He also paid for space in offices he occupied at 520 Madison Avenue for use by the others when they did business on behalf of the venture in New York City, as they often did.

22. In or about June 2007, Mr. Staisil transferred $50,000 to an account at the direction of Stephen Norris after Mr, Norris, claiming he was tight for cash, asked him to "front" it in order to pay expenses. Mr. Norris, who is surely a multimillionaire, requested those moneys on the eve of a business trip that both of them took to the Middle East to meet potential investors in the Spartan venture. Throughout 2007, Mr. Staisil even paid a disproportionate share of the tabs at restaurants when two or more of the principals dined together as they often did. Messrs. Manley and Norris, both of whom are also certainly multimillionaires, strangely made themselves scarce and did not offer to pay when the checks arrived. ...

32. In the fall of 2007, the four spartan principals negotiated with GE Asset Management regarding its potential investment of moneys in the Spartan venture. Although Mr. Dammerman had close contacts at that company, they decided to make the approach through Merrill Lynch, which had agreed to raise money for the fund. After several meetings between the principals and GE representatives, Mr. Dammerman met with GE personnel alone on or about December 6, 2007. The principals expected a deal to be struck that day. They were not disappointed. Mr. Dammerman called them in New York, where they had assembled, and told them that he had reached an agreement with GE Capital Management for its commitment of $50,000,000 in capital and its investment of up to ten percent of Spartan's capital raises. It also agreed to pay the management fee of 1.25 percent per annum that the fund charged its clients. In return, it would receive seven percent of the fund's general partner.

33. GE's commitment was a gigantic boost for the Spartan private equity fund venture because it would be much easier to raise money after the investment by such a preeminent "anchor" investor. They were now virtually assured of raising large sums ot money for their fund. Mr. Staisil suggested that they all go out to dinner and celebrate. The principals had often dined together. However, on that occasion the others demurred.

34. Following GE'S commitment, Messrs. Manley, Norris, and Dammerman wasted little time in repudiating their agreement with Mr. Staisil. The very next day, December 7, 2007, Mr. Norris sent an electronic mail message to Mr. Staisil in which he stated that "Dennis, Marshall and I have met regarding the current status of the Fund. We have decided that we need to realign the Fund to reflect current realities." Mr. Norris went on to assert falsely that Mr. Staisil had agreed from the outset to provide the venture's working capital. Because, as he alleged, Mr. Staisil had failed to live up to his commitments and had not even "spent any material time on Fund activities," they proposed to oust him from ownership of the fund's general partner and management company and instead to give him far lesser consideration that did not include any management role in the venture.

35. Incredibly, Mr. Norris, attempting to render the parties' agreement illusory through creative interpretation, went so far as to assert in his December 7 message that:

we have carefully examined the document that we all signed [presumably referring to the LLC Agreement] and it does not assure any of us a participation in either the GP or the management company of the Fund - of particular compensation from the Fund or related entities - should it actually be established. To the extent that it could be read otherwise, it clearly empowers any three of us to act.

On July 25, some of the defendants filed an answer to the complaint, insofar as it concerned them, and asserted counterclaims. Notably, those defendants did not include Norris or SNCP.

07/25/2008 3 ANSWER to Complaint., COUNTERCLAIM against Crimson Capital LLC, Michael Staisil. Document filed by Spartan Partners GP, LLC, Spartan Capital Management, LLC, M82 Group LLC, Marshall Manley, DDD Ventures LLC, Dennis Dammerman, The Spartan Group Holding, LLC, Spartan Investment Partners LP, Spartan Investment Association LP. (Attachments: # 1 Exhibit A Part 1, # 2 Exhibit A Part 2, # 3 Affidavit of Service)(Hibsher, William) (Entered: 07/25/2008)

Docket 3 reads in part:

79. In the spring of 2007, defendant Norris and plaintiff Staisil represented to defendants Manley and Dammerman that they were partners in an entity called Staisil Norris Partners and engaged in discussions with Manley and Dammerman about starting a co-investment fund which would invest side-by-side with other investors.

80. Upon information and belief, Manley and Dammerman were approached because of their contacts with potential investors for a co-investment fund, business knowledge, background, experience, and reputation, among other things.

81. Plaintiff Staisil represented to Defendants that, among other things, he was a highly liquid New York based investment banker, someone who had his own Gulfstream airplane, that he had $50 million available for a co-investment fund, and that he would bring a combination of Fortress and XE Capital as potential anchoring investors to a potential co-investment fund.

82. Defendants Manley and Dammerman were also told that Staisil would contribute $5 million as initial capital for the potential co-investment fund.

83. In or around May 2007, and in reliance on Staisil’s representations, defendants Manley and Dammerman agreed to form a co-investment fund in which Dammerman, Manley, and Norris were each to receive a salary of $700,000 per year, and an expense account of $60,000 per month.

84. Defendants, in reliance on the promises and representations of Plaintiffs, entered into the LLC Agreement on or about July 25, 2007.

85. As it turned out, Staisil’s representations were false. He did not raise or contribute any working capital, nor did he spend material time on activities related to Spartan Holdings.

86. Defendants Marshall Manley, M82 Group LLC, Dennis Dammerman, and DDD Ventures LLC spent substantial time, effort, and money to pursue the Spartan co-investment fund (the “Co-Investment Fund”).

87. Despite months of effort and outreach to scores of potential investors, Spartan has been unable to secure commitments from more than one investor, which limited its participation to a maximum of five percent of the Co-Investment Fund.

88. As a result, Spartan’s efforts are being wound down.

The final docket entry is an unopposed remand:
09/02/2008 5 ORDER OF REMAND: the matter having been reviewed by substitute counsel, and on the suggestion that of subject matter jurisdiction is lacking, this case is hereby remanded to the Supreme Court, the State of New York, County of New York. (Signed by Judge John F. Keenan on 9/2/2008) (tve) (Entered: 09/02/2008)

I was unable to find anything about the case in the state court ECF system. Norris and SNCP didn't appear in the district court, nor is there any indication that they were terminated as parties.

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OT SCOGBK#542
Authored by: Anonymous on Thursday, September 11 2008 @ 06:50 PM EDT
I'll asssume this is genuine, then please let all the see SCOundrels for the
vile worms these dreadful individuals have become.

For justice sake, slap these charlatans in the stocks, and let the people throw
their rotten vegetables and fruits.

Shmae on you, so called justice system, shame on you.

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