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Mr. Cahn Files a Bond

Monday, September 14 2009 @ 12:07 PM EDT

Edward Cahn, the attorney appointed as Chapter 11 trustee to take over for SCO management, has filed a bond, a requirement under bankruptcy law, and sent notices to the largest SCO creditors and all the attorneys who have ever appeared that in the future all legal notices are to be sent to his attorney. One such notice was sent to SCO's bankruptcy attorneys.

Filing the bond is one of the normal things that happens -- the trustee has authority to act as management, after all, and that means money, and any time money is in the picture and a new stranger walks in to run a company, appointed by the US Trustee's Office, which is part of the DOJ, they want some guarantee that he won't fly to Rio with the cash, and that if he does, the replacement money is already in hand in case someone sues over his decisions and actions. Hey. It happens. The bond is returned when he faithfully has fulfilled his responsibilities, and no, he's not responsible for anything SCO did or does, just his actions. Money clouds people's thinking, my mom told me. "It creates conflicts," is the way she put it. And the SCO saga is nothing if not a monument to the accuracy of her assessment. And what if the old SCOfolk don't like the way he runs the company? You think that's possible? Might they sue? Is the sky blue?

The book, Reorganization under Chapter 11 of the Bankruptcy Code by Richard F. Brooud puts it like this:

The trustee displaces previous management of the debtor and is essentially both the chief operating officer and the chief executive officer of a corporate debtor. The debtor continues to exist and has certain limited powers, including the power to file a plan. The trustee and the debtor are "separate and distinct entities." It has been said that the fiduciary duties of a trustee are to the estate, not to the debtor. Indeed, the Supreme Court has held that a trustee in bankruptcy has the power to waive a corporation's attorney-client privilege.

Yummy. His duty is to the estate, not the debtor. And waiving the attorney-client privilege sounds like a grand idea.

Here's what I'd ask if I were the Chapter 11 trustee. I'd ask them about Microsoft's role in all this, and I'd ask the ex-Novell guys who swore up and down that the copyrights were supposed to transfer what, if anything, they will get out of it if SCO hits the litigation lottery. Are there any oral agreements, like in the Canopy deal? How long ago did the idea to sue IBM over Linux first get mentioned? And why does SCO owe money to the creditors Maureen O'Gara, Alok Mohan, and a private detective? What was that money owed for? Wisely spent? Incidentally, that's where Darl McBride's brother Kevin works now, someone posted anonymously here last week:

Kevin McBride is a member of the California and Utah Bars. He holds a JD degree and BA degree in Economics, magna cum laude, from the University of Utah. After 15 years of civil litigation experience, Mr. McBride moved to a strategic intelligence advisory role with Wayne Black & Associates, assisting corporations and individuals involved in financial litigation, asset recovery and private investigative matters.
Mr. McBride has extensive experience in document analysis and witness interviews related to complex financial and corporate matters. He owns and operates a sophisticated document data center and analysis tools rarely matched by investigative agencies or law firms of any size. He has had extensive experience managing electronic discovery in complex financial cases. When document-intensive cases or investigations are at issue, McBride enables investigative, legal and expert witness teams to effectively collaborate in remote-access document investigation, analysis and sharing.
Mr. McBride is also trained in CQB techniques and assault team tactics. Residing in the Los Angeles area, he has traveled throughout much of the Middle East and maintains contacts in those areas.

J. Gordon Liddy is associated with the firm also.

Speaking of money, how much exactly did Boies Schiller get paid? Grand total. Not the ridiculously low figure they gave the bankruptcy court for the year prior to bankruptcy, but from 2002 onward. What is the grand total? After all, the trustee's job is to ascertain why the bankruptcy happened. What were they told to achieve? Did they warn SCO at any point that going forward could lead to bankruptcy? We at Groklaw tried in 2007 to figure out what the total figure was -- $26 million? 57? -- but in the end, we gave up, because there were pieces missing, like what they were paid in 2002 and who got what from the reimbursed expenses, since the attorneys were pooled under one of the retainers, at least, and Boies Schiller distributed. I never published the article as a result, but I'll let you see our rough draft now, because the raw data is still of some use, perhaps, even if we couldn't make sense of it firmly in the end. So remember, it's just for that purpose. I can't say how much they were paid. But surely at some point someone had to notice that there was a lot of money going out and not much coming in. Did the lawyers ever suggest cutting bait and quitting? If not, why not? What do they get out of it if SCO is sold off? What was SCO's long term business plan? No. Really. I'd like to ask the investors some questions too.

Who first thought up the idea to sue over Linux? When? If it was supposed to be about copyrights, why was there no attempt by SCO to file for copyright registrations prior to beginning the litigation strategy? If the idea of suing first hit in 2002, prior to setting up the stock sales plans for SCO insiders allegedly in January of 2003, I'd think the trustee would be interested in that. No one seems to have sold in 2002, but in March 2003, it began, four days after SCO sued IBM. How much have insiders made from this saga so far?

Since Caldera/SCO Group never made money as a company, other than the Sun and Microsoft license quarters, what exactly was the business plan? For the company, I mean, not management. For example, since Caldera began as a Linux company, and it stopped offering Linux allegedly until matters could be resolved and offered a SCOSource license to those who wanted to keep running Linux, what was the business plan behind SCO's offer of financial incentives for migration plans from Linux to Microsoft or any proprietary software in 2003?

In the coming months, SCO intends to expand the licensing program to include migration options for those end users who may be looking for alternatives to Linux. Over the past several months, SCO has had discussions with several major companies for the purpose of bolstering SCO’s intellectual property licensing and migration initiative."

I'd love to hear the numbers behind that idea. How would that pay off for a Linux company? For that matter, for a Unix company, if folks migrated to Microsoft? Computer Business Review explicitly mentioned Microsoft:

SCO would probably provide customers with financial incentives and discounts to migrate to SCO Unix, other vendors' Unix, and what he referred to as "other proprietary operating systems" but probably Windows.
"We are offering a migration path to other operating systems that have a stronger IP basis than Linux," the spokesperson said. Incentives will be offered 'in the coming months.

Someone should crunch those numbers. What was the plan, and how would SCO benefit out of it? I mean, how does a Linux company benefit from paying Linux users to stop using Linux? Does that mean SCO *never* intended for the allegedly infringing code to be removed? That it never intended to fix the problem or let anyone else fix it? Isn't that what SCOsource means, if you think deeply about it? And what other companies was SCO talking to about this? What did they offer SCO, if anything? And what was the ultimate goal? To kill off Linux or to get paid from never allowing an alleged infringement to be removed? Did the lawyers tell SCO that could work? What case or cases were they relying on that would allow SCO to charge for alleged copyright infringement -- not patent infringement -- on an ongoing basis, instead of telling what the code allegedly was and letting it be removed, with perhaps damages for past infringement? Remember that SCO asked for an injunction against AutoZone, to shut down their use of Linux, without ever saying where the allegedly infringed code was. So what was the legal underpinning to that?

I'd love to be the Chapter 11 trustee. Wouldn't you? You can probably think up even more questions you'd like to ask. Be my guest.

Here are the filings:

09/11/2009 - 911 - Bond (Notice of Filing of Bond) Filed by United States Trustee. (Attachments: # 1 Exhibit A -- Copy of Bond # 2 Certificate of Service)(McMahon Jr., Joseph) (Entered: 09/11/2009)

You may notice that the statute says the bond should be filed within five days. However, it also says that the US Trustee's Office figures out what the bond should be, so if they take some time figuring out what the amount should be, then you can't file your bond until you have a sum certain. How would you like to have to figure out a bond in a fact pattern like this one?

Update: If you would like to see what a Chapter 11 trustee report looks like, here are some to give you the flavor.

Mr. Cahn Files a Bond | 170 comments | Create New Account

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Corrections here.

Authored by: Erwan on Monday, September 14 2009 @ 12:12 PM EDT

If any.

---
Erwan