Finally, the court has released the transcript of the June 15, 2009 hearing [PDF] in the SCO bankruptcy. This is the famous hearing where the judge, informed of certain time requirements, asked IBM's lawyer, who is the acknowledged expert in bankruptcy law, "I just have been wondering what happens if I don't decide it in 15 days. Do they take me out behind the building and shoot me?" Now, IBM's lawyer, Richard Levin, like all the IBM lawyers we've seen in the SCO cases, is truthful, and he answers truthfully that the law isn't as bright a line as it could be, having been poorly drafted by Congress, but that there is a better question: Is the court going to enforce its own deadlines?
It sort of tried, but it was clear part way in that this judge was going to let SCO get away with filing yet another unfinished deal, despite everything the creditors and the US Attorney's Office had to say. And they said plenty. So you can read this as an example of how to handle yourself in a court of law when a judge, for whatever reason, isn't listening to what you are saying with acceptance.
There can be many reasons why that happens. Without applying any of them to this case, in general they can be because the judge is overwhelmed by the issues and the lawyering; because he's corrupt; because he's buddies with one of the lawyers going way back or just trusts them after years of seeing them at work; because he's just not so bright; because he doesn't like you for no good reason; or because his personality is very much like the party he's favoring, and so he doesn't see their misbehavior as being serious. After all, if you don't care about deadlines and aren't much of a stickler for rules, if a party games the rules and plays the deadlines, you are a lot less likely to punish them for it. In short, judges are humans, too. I'm sure if I tried, I could come up with many more possibilities. But it really doesn't matter. In a courtroom, you treat the judge with respect, and whatever the issue is that is blocking you from prevailing, you try to work with it.
And you will see some masters at work doing exactly that. This hearing was supposed to be about IBM, Novell, and the US Trustee's motions to convert. At the absolute last minute, SCO instead walks in with yet another proposed deal, claims extraordinary circumstances, and wants to go forward with that instead. Everyone in the courtroom but SCO and the judge view it as gaming the system and deliberately sandbagging again.
The judge, however, orders a mini-trial of whether or not there was any good reason for it to be so last-minute. If it's sandbagging, he won't allow it, presumably, but having watched this judge in the SCO bankruptcy, you know he will allow it if he possibly can find a reason that is plausible. He's pulling for SCO all the way, and that's been the case from the beginning. He says that he sees that as his role, to try to help them survive Chapter 11 and come out still afloat, if that can happen, and he has an obligation to the creditors not to ignore a possible deal that might benefit them.
And so after Darl McBride tells how hard he's been working on 4 possible deals, and a Berger Singerman lawyer testifies to how hard he worked to get the deal on paper in time -- Mr. Spector has already done his dance about how amazed and surprised he was that there was a deal executed on the steps of the courthouse, so to speak -- Novell's Adam Lewis and IBM's Mr. Levin have at them. How do you convince a judge that witnesses are telling porkies in his courtroom, when you are blind sided by an event and have had no time to prepare or do discovery? Mainly you can't. That's why some lawyers love to blind side. It's fundamentally unfair, but it can work out for your side, so if you have no commitment to fairness, it can be what you choose. I would fire any lawyer who did that on my behalf, because I think the entire court system depends on honorable conduct within the rules, but not everyone shares my ethics.
Watch closely how Novell and IBM try to overcome the judge's inclinations. In essence, they remind McBride of what he said earlier in time. And they get the lawyer to admit there could still be some changes to the deal, making it yet another speculative sale, with terms no one really yet knows. How can they, when they only just got a copy of it? Mr. Spector represents that Novell will get paid by the terms of this deal, but later, as we saw it all play out, that turned out not to be so certain after all, since there was a clause that they
got nothing if no final decision in the Utah case arrived prior to a set deadline, and the deadline was set unrealistically, I thought.
So, did IBM's and Novell's and the US Trustee's work pay off? Back when all this happened, we thought not, since SCO got a delay, and the judge did say he thought he should hear the details of the deal and not just toss it due to a deadline. What if it was a great deal?
Right. Hope springs eternal. But once the judge said that, notice how then, after a break to confer, the emphasis shifts. Now IBM and Novell request that the judge *not* rule that day. Now they want time to do discovery, etc. Why? Because if the judge had ruled that day, it would have likely gone against them. By getting another hearing, they'd have a chance to prepare and rebut SCO's promises and representations about the deal. And you know what happened? It worked, in that after the next hearing in July (we will have that transcript next month), the judge realized this wasn't a good-faith deal, and he ordered that there be a Chapter 11 trustee assigned to take over, a neutral to advise him what to do.
Now, you and I might have ruled differently, and certainly sooner. We've watched SCO for a long time, and so we feel very much the way Novell's Mr. Lewis obviously does, when he is describing the proposal, that it's just SCO gaming the court, that they deliberately chose to come in at the last minute, and they really had no deal.
But the judge is the one whose opinion matters. And the thing about a court is, you have to deal with that judge, no matter what he is like and no matter what his perceived deficiencies might be in your eyes. Even if you suspected he was corrupt, that doesn't change your role, unless you can prove it, of course. It's not like a message board, where you might tell someone you think they are a shill, or whatever you do think. In court, you remain respectful. That doesn't mean you don't do all you can to make it hard even for a corrupt judge to rule against you. And certainly if it's just a matter of not getting it yet, you want to respectfully help the judge to understand things your way.
So, in the end, SCO got a delay, but there was no decision by the appeals court in time for them. So the real victors were IBM, Novell and the US Trustee's Office, because what they asked for, they eventually got in essence: a neutral to take over for SCO management. Law requires patience. Like I've told you often, it's like chess, but with people. You make your moves without telling folks the reasons why, and all that really matters is the end game.
There's also a filing of no importance by Epiq. certifying that there has been no claims activity:
10/13/2009 - 927 - Certification of No Claims Activity . Filed by Epiq Bankruptcy Solutions LLC fka Bankruptcy Services, LLC. (JRK) (Entered: 10/14/2009)
A couple of passing notes. McBride mentions a Hank Beinstein. I don't recall seeing that name before. Do you? I see there is a man with that name at Gagnon Securites, according to Jigsaw. Might that be the one?And I notice that McBride says that the York deal representative is the same as with the original proposed deal. Some speculated that the new York representative might be somehow working for IBM in some way. McBride's testimony makes that impossible, I believe, since IBM strongly opposed the York deal.
Update: Groklaw member ausage has done a color-coded transcript which is much easier to follow.
****************************************
UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE
In the Matter of
THE SCO GROUP, INC.,
Debtors.
______________________
Bankruptcy Action # 07-11337
Wilmington, Delaware
June 15, 2009
TRANSCRIPT OF MOTION HEARING BEFORE THE HONORABLE KEVIN GROSS UNITED STATES BANKRUPTCY JUDGE
APPEARANCES:
For Debtors:
JAMES E. O’NEILL, ESQ.
Pachulski, Stang, Ziehl & Jones LLP
[address]
ARTHUR J. SPECTOR, ESQ.
Berger Singerman, PA
[address]
STUART SINGER, ESQ.
THEODORE NORMAN, ESQ.
Boies, Schiller & Flexner
[address]
For Novell:
ADAM A. LEWIS, ESQ.
Morrison & Foerster
[address]
SEAN GREECHER, ESQ.
Young, Conaway, Stargatt & Taylor, LLP
[address]
1
APPEARANCES: (Continued)
For IBM:
RICHARD B. LEVIN, ESQ.
Cravath, Swaine & Moore LLP
[address]
For U.S. Trustee:
JOSEPH McMAHON, ESQ.
Office of the United States Trustee
[address]
Audio Operator: Jennifer Pasierb
Transcribed by: DIANA DOMAN TRANSCRIBING [address, phone, fax, email]
Proceedings recorded by electronic sound recording, transcript produced by transcription service.
2
I N D E X
WITNESSES |
VOIR DIRE |
DIRECT |
CROSS |
REDIRECT |
RECROSS |
FOR THE DEBTOR
DARL McBRIDE | - | 34,61 | 68(Lew) 75(Lev) | - | - |
FRANK CAPLAN | - | 39 | 51(Lew) 54(Lev) | - | - |
ARGUMENT ........................... PAGE
By Mr. Spector ..................... 79,90
By Mr. Lewis ........................ 82
By Mr. Levin .........................86
By Mr. McMahon ...................... 89
DECISION
By the Court ............................ 93
3
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THE CLERK: Please rise.
THE COURT: Good afternoon. Thank you and please be seated. Welcome. Mr. O’Neill, good afternoon.
MR. O’NEILL: Your Honor, James O’Neill, Pachulski, Stang, Ziehl & Jones appearing today on behalf of debtors. With me today, as the Court knows, my co-counsel, Mr. Arthur Spector, and also appearing today at counsel table are special counsel in this case, Stuart Singer and Ted Norman from the Boise Schiller firm. THE COURT: Yes. Welcome, gentlemen.
MR. O’NEILL: Mr. Singer has appeared before Your Honor before in this case.
THE COURT: Yes.
MR. O’NEILL: Both of these gentlemen are good members of the bar in good standing, and the Courts where they hail from, Mr. Norman from New York, Mr. Singer is admitted in the Federal Courts in Florida. So we would ask that they be permitted to appear pro hac vice today for today’s proceedings.
THE COURT: Yes.
MR. O’NEILL: We’ll follow-up with motions.
THE COURT: You certainly are admitted for this hearing, gentlemen, and welcome to you.
MR. O’NEILL: Thank you, Your Honor. May I turn the
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podium over to Mr. Spector, Your Honor.
THE COURT: All right. I guess it's not your
motion, but you may as well make the introduction.
I was thinking, if I may just express it, I see that
we have a number of witnesses. And certainly I think the
briefs that I've reviewed constitute very ample opening
statements, if not more. And I was thinking if it's all right
with everyone, we would just proceed right to the testimony.
MR. SPECTOR: Your Honor, of course this is your
courtroom. We would introduce our worthy adversaries first --
THE COURT: Of course.
MR. SPECTOR: -- because it is their burden.
However, on the point you just raised, there are things that
have happened since the response and the reply.
THE COURT: Okay.
MR. SPECTOR: Things that have happened literally
minutes ago.
THE COURT: Okay.
MR. SPECTOR: This is SCO, Judge.
THE COURT: Absolutely.
MR. SPECTOR: And I think it would be helpful for
you to know what else is out there that you didn't read.
THE COURT: I did not mean to foreclose anything
such as you're suggesting.
MR. SPECTOR: Okay. So I mean normally it's --
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MR. LEVIN: Your Honor.
THE COURT: Mr. Levin.
MR. LEVIN: Excuse me for interrupting.
THE COURT: Yes.
MR. LEVIN: Richard Levin from Cravath, Swain &
Moore for IBM.
THE COURT: Welcome to you.
MR. LEVIN: Good afternoon, Your Honor.
THE COURT: Good afternoon.
MR. LEVIN: You suggest that we dispense with
opening statements. If we are going to do that, and we
haven't been heard from that on subject yet, what Mr. Spector
was about to propose was an opening statement --
THE COURT: Yes.
MR. LEVIN: -- on things that were not previously in
the papers. If we are going to dispense with them and he has
evidence about that, we suggest that he put it on the witness
stand. And perhaps we can have a moment to confer on whether
-- of course as Mr. Spector said, this is your courtroom and
we will follow your dictates. But if you are asking for our
view on that, I would like just a moment, Your Honor.
MR. SPECTOR: Your Honor, there was a little debate
in-house. Whether I just do it in the cross -- in the direct
examination of one of our witnesses and say I show you exhibit
so and so and then spring it on everybody as a big surprise,
6
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or give it in the opening statement so you know what in the
opening statement is, Your Honor, you will hear testimony from
so and so about so and so.
And so, I'm thinking that it's a good idea in this
case that we do it that way. That's why I say that.
THE COURT: Well, I guess I'll ask our friends for
IBM and for Novell and from the United States Trustee's
Office, do you want it sprung on you or would you like a
little bit of an opening argument?
MR. LEVIN: Well, interesting, Your Honor. If we
say we want it sprung, then you'll say we can't complain that
it was sprung on us.
THE COURT: That's right.
MR. LEVIN: May we have just a moment to confer?
THE COURT: Sure.
(Pause)
MR. LEVIN: Your Honor, we think it would be
appropriate if Mr. Spector were going to produce a document
for the witness to authenticate or identify, that we don't
need his opening statement, we need to see the document. And
perhaps we can look at that before we -- before the witnesses
are called.
MR. SPECTOR: Not a problem. The document isn't in
the courtroom yet. It's still being photocopied, it's
enormous, and we're making five copies of it, so we can give
7
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three and two to Your Honor. So that's why -- after they look
at it they're going to say you dropped this on us now? Well,
the truth of the matter is it was just signed as of ten to
two.
THE COURT: Well, let me make a suggestion, because
we shouldn't proceed obviously by confusion. Would you like
five or ten minutes to take a look at what it is, and then
when I come back, I could come back in and you could at least
have a better sense of what position you want to take, Mr.
Levin?
MR. LEVIN: Yes. Especially since Mr. Spector
represents that it's enormous.
I was going to say, Your Honor, that -- I appreciate
his comment about this being sprung on us at the last moment
and a surprise and this is so huge and how can you deal with
this. The statute requires the Court to decide this matter
within 15 days after the hearing.
THE COURT: Yes.
MR. LEVIN: You've already given additional time,
only three days at SCO's request but some additional time
because of the Court's calendar. If this is going to go into
a trial about a new document that just was created this
afternoon, I don't know how we're going to stay within the 15-day limit, but we'll take a look and let you know what we
think.
8
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THE COURT: Well, rather than speculate, why don't
we -- why don't you share that document and then I will return
in five or ten minutes, if that's --
MR. LEVIN: We look forward to the sharing.
THE COURT: Yes.
MR. SPECTOR: Let me just tell Your Honor so you
don't have to just listen in on us. This is a purchase and
sale agreement that was just executed a few minutes ago. It's
in the works forever.
THE COURT: Okay.
MR. SPECTOR: But everything is now signed, sealed
and delivered. All the schedules, all the exhibits, all
that's together. It only just happened as I was walking over
to Court.
THE COURT: All right.
MR. SPECTOR: And so I will give this -- this is the
only copy in the courtroom. One of the counsel in the back
handed it up to me, it's her copy.
THE COURT: Oh, fine.
MR. SPECTOR: The rest of them are still being
marked for exhibits. So I'll give this to Mr. Levin and the
rest of them can share it, I guess.
THE COURT: Mr. Levin.
MR. LEVIN: Well, okay, then we'll need a little
more time since there are three parties here, and we have only
9
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one copy. When can we expect the other copies to arrive?
MR. SPECTOR: Minutes, I mean.
THE COURT: In minutes.
MR. SPECTOR: Your Honor, I know there's a 15-day
limit. We can do this. Now, if they say they're prejudiced
by the late delivery, well, so are we. I didn't know I had it
or I didn't have it when I prepared this case for trial. So I
have two different cases to try today.
THE COURT: Right.
MR. SPECTOR: So it's tough, this is bankruptcy.
Everything is done in an accelerated basis --
THE COURT: Understood.
MR. SPECTOR: -- and we do the best we can. The
suggestion I have is, they can -- we'll put it into evidence
through Mr. McBride's testimony, they'll have their copies.
If they are not prepared to cross-examine on it, not a
problem, we still have days. We can come back on another
date to Your Honor's suiting, and they can then do it then. I
don't think we should stop the presses for this.
THE COURT: No, I understand. And let me ask, how
many witnesses on the movant's side will you be presenting?
MR. LEVIN: We are relying on the record and the
Court, Your Honor.
THE COURT: Okay. Yes?
MR. SPECTOR: I'll tell you the names, except to the
10
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extent of any cross-examination.
THE COURT: I have a list, I think it's eight it
looks like.
MR. SPECTOR: Well, you know better than me. I can
tell you the names but I never did count them. Eight might be
right.
THE COURT: Yes, I have a list of eight. Give me a
sense how much time we're talking about for your -- for the
presentations.
MR. SPECTOR: I think this can be done today.
THE COURT: Okay.
MR. SPECTOR: Your Honor, I'm not saying by six
o'clock.
THE COURT: Right.
MR. SPECTOR: If you give us some allowances, we
might have it done today. If not, one more day.
THE COURT: All right, and I know that everyone is
here and we would like to finish it today, and I am certainly
prepared and willing to exceed our normal time limits so let's
see how we do. But I just wanted a general sense.
So why don't we give a little bit of time to the
movants to review the document. Hopefully additional copies
will be here soon enough, and you'll have an opportunity at
least to not be surprised.
MR. LEVIN: You mean to be less surprised.
11
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THE COURT: To be less surprised. Or at least --
well, I won't comment any further, but at least, we'll stand
in recess then for maybe or minutes, hopefully. Thank
you.
MR. LEVIN: Thank you, Your Honor.
(Off the record at 2:15 p.m.)
(On the record at 2:54 p.m.)
THE CLERK: Please rise.
THE COURT: Thank you, please be seated.
Mr. Levin.
MR. LEVIN: Your Honor, thank you for accommodating
us with a few extra minutes. Now I note it's almost 2:55.
We've had about 40 minutes to look at the document.
THE COURT: Yes.
MR. LEVIN: And it confirmed what we suspected
before we took the recess which is, this is too complicated to
understand in 40 minutes, or even an hour and 40 minutes.
We understand how bankruptcy works. But we also
understand how Courts work and how judicial procedures work.
I think I speak on behalf of Novell and the U.S.
Trustee as well when I say that our proposal, Your Honor, is
that we proceed with the motion as it existed when this
hearing started, not as it changed after the hearing started.
If the debtors wish to bring a motion to approve a bidding
procedures and a sale, they are certainly able to do that. But
12
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for us to try to get into -- to take a motion on a conversion
and convert it into the question of the approval of the sale
itself, on the theory -- and the reason I say that is because
if SCO proceeds now and says this shouldn't be converted
because we have this sale, we've in effect validated the sale
or the sale process in the face of a motion to convert. We
think that's a bit improper way to bring a sale before this
Court.
And we would be entitled to notice, in the absence
of an extreme emergency, to have a bid procedures motion or a
sale hearing on before this Court. This is not the way to do
it.
We propose that the Court proceed with the motion to
dismiss on the record as it existed. We will object to
witnesses addressing the sale and the apparent agreement that
we have in front of us as irrelevant to that motion and
procedurally improper. And we would ask Mr. Spector before we
start this hearing in light of that, to describe the topic of
each of the eight witnesses, the topic that each of the eight
witnesses will speak on. Not to describe their testimony,
that's an opening statement and we've already concluded to
dispense with opening statements, but we simply don't know who
the witnesses are or what the topic is that they'll be talking
about. And that's how we would propose to proceed, Your
Honor.
13
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THE COURT: Thank you, Mr. Levin. Anyone else?
MR. LEVIN: Thank you, Your Honor.
THE COURT: Yes, Mr. Spector?
MR. SPECTOR: Your Honor, let me tell you what we're
not asking for. We're not asking for approval of the sale
today.
THE COURT: Right.
MR. SPECTOR: We have to file a motion for that.
Before you file a motion, I think the Court
encourages us to actually have the sale. We've gone down the
route before. So we have the documents that we can really now
file a motion for sale.
We don't intend to ask for bid procedures. We
intend to do a sale to this party without any further ado, and
when the sale closes, get out of bankruptcy, pay the creditors
in full -- it's part of my opening statement, okay. I'm going
to be doing that -- it's like we're talking about talking
about it. I'd like to actually say it and not just you know,
pretend to say it.
We have -- the purpose of this, Judge, is to show
one of the many unusual circumstances, many cases, and now I
am going into an opening, many cases address if there's a
legitimate proposal to pay the creditors in full, that's an
unusual circumstance that even if there were cause, would
counsel the Court to deny the motion.
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We have a sale that can close in 30 days. If Your
Honor grants a motion for a 363 sale on June 30th, 15 days
from now, we have a proposal to close it before July 15th. We
will have testimony to show that we won't be losing money in
those next 30 days and why. We have backup ideas. There are
other -- we have lots of other causes.
For example, and I'm doing this without the
preparation that I ought to be doing it. We have a
stockholder standing up ready to underwrite any losses in the
next 30 days, with money. Real money, in case there are
losses. In case the deal goes sideways again, which has
happened before. But now we have the whole document, the
whole deal done, finally.
So, we have a case to make, Judge. They may not,
but we do. And I object to having somebody asking the Court
to say no, you can't present it this way, you have to present
it that way. This is a terminal event in the life of these --
life of these companies, and the ramifications Your Honor
knows about, or at least has some idea about from our
response. This is not something we think we should be
circumscribed about. We have an opening statement. We didn't
agree -- if Your Honor says we don't do it, we don't do it.
But we think, because as you have just heard, I've
already told you two things you didn't know. That's part of
our opening statement. And in the opening statement, I will
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highlight what it is the witnesses will testify about.
One of the things Mr. McBride will testify about,
he's one of our witnesses, of course is the sale. He'll tell
Your Honor and the parties in interest the highlights, the
purpose, the deal -- of the deal.
Mr. McBride is also going to testify about the
backstop. Mr. McBride will help the Court to understand Mr.
Nielsen's testimony which will precede it, about the financial
situation of SCO up to now and for the foreseeable next
days. And he'll -- the two of them will present that case to
show why, even if there were losses before, Your Honor can
take the risk with us that the creditors will be protected in
the next several days.
And of course, we're going to ask Mr. Singer in our
opening statement -- we're going to ask Your Honor if we can
have Mr. Singer reserve his opening statement to the beginning
of our defense proofs because we think that makes the most
sense. It will be more understandable that way than
bifurcating it in the middle of the opening statement that I
make.
I would like to handle all of the matters that don't
involve the litigation. We have somebody who knows it a lot
better than I ever could.
So we have a game plan for the presentation of our
proofs. You've heard the movants say that they don't have any
16
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witnesses. Well, we'd like to get on and give you our
witnesses, not all of them will take that long. Mr. McBride
may take some time, of course. And if we don't have enough
time today, all to the better for them. They can dissect the
agreement -- we're not talking about putting this off to
January. We're talking about within the 15 days that Your
Honor has.
And I wasn't, I was prepared -- I was hoping we
would have this signed a couple days ago so we wouldn't have
to go through the dramatics that we're going through today. I
knew this was going to happen. And I would have liked to have
been able to say they've seen it, we're ready to go. Hard
deadlines make deals close, nothing else.
THE COURT: This is about as close to a Perry Mason
situation as a bankruptcy judge gets.
(Laughter)
MR. SPECTOR: Judge, you should only know what it's
like to be in my shoes.
THE COURT: I can imagine.
MR. SPECTOR: Okay. So the point I'm trying to make
is, we don't have to have hysterics. We know they're
prejudiced by the late delivery of this, and we're not going
to take advantage of that. If they decide that they need more
time, they probably do -- and by the way, those schedules are
still being copied. One exhibit alone I found out was 500
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pages. That has to be delivered too as part of the contract.
So we'd like to begin, make our opening statement,
call our witnesses, do as much as we can today. And inasmuch
as it's likely that they'll want to have a chance to review
the most important piece of evidence, we come back when Your
Honor says we can, within the 15 days. We're not looking for
any extraordinary relief.
THE COURT: Understood.
MR. SPECTOR: Thank you.
THE COURT: Mr. Lewis.
MR. LEWIS: Thank you, Your Honor.
THE COURT: Good afternoon, sir. Welcome back.
It's always a pleasure to have you here.
MR. LEWIS: Thank you.
Your Honor, I want to start with the comment that
somehow this being a terminal event is the signal fact.
It being a terminal event, if it is, and I don't
think it is, we're just talking about conversion to Chapter 7.
It's the debtor that wanted to have the case dismissed rather
than having it converted to a 7. But just talking about
putting this whole process into someone else's hands for
awhile.
But more importantly than that, Your Honor, the fact
that it's allegedly a terminal event doesn't change the Rules
of Procedure and the notions of due process and fairness. And
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this is not the first time in this case, this is not the only
time that we've been faced with some last minute thing to beat
a deadline that came in after the door had closed and we were
trying to deal with it.
And the Court may remember another time that
happened and we heard from the debtor that "oh, yeah, I guess
we're kind of not quite ready yet and let's continue this and
we'll come back" and of course then they withdrew it.
Now we have this long agreement here, and yes, I
suppose we could come back and cross-examine the witness about
it. But Your Honor, it's much more effective to be able to
cross-examine a witness when he's there, right after he's
given his testimony, rather than waiting until a week or two
or three weeks later, but we can't possibly cross-examine, for
example, a witness on the so-called agreement because we can't
possibly understand it in the time we have available today.
THE COURT: I appreciate that.
MR. LEWIS: And it's just for the debtor to say
they're not trying to prejudice us and they admit all that,
it's just -- it is prejudicial.
And furthermore, in terms of scheduling, Your Honor,
this was originally set for the 12th, and the debtor asked to
have it continued because someone wasn't available that day.
And I advised the debtor in response that I had a very bad
schedule the rest of the month but I could do it today. And
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so we scheduled it for today.
Your Honor, I have -- I'm going back tomorrow on
this matter one way or another, not today. I'm in
Minneapolis, Saint Paul the rest of the week starting
Wednesday, I'm in the central valley of California as they
knew most of the following week. I'm in Honolulu for
depositions the beginning of the following week, so it's like
July.
And what this all amounts to, Your Honor, is the
debtor buying time, which is in its interest because it wants
to get to the end of the appeal, because it thinks that that's
the end all and be all of this case, and this just works in
its favor. It's already had some extra time on this
proceeding, and there's no reason why we shouldn't go ahead
today on the record that was available by the deadlines.
I think the debtor is going to advise the Court that
it's withdrawing its motion to file certain IBM documents
under seal. I would not have objected on the grounds that IBM
was going to object, because I'm not a party to that
confidentiality agreement. I was going to object on the
grounds that it's too late. We can't keep doing this at the
last moment.
And I understand bankruptcy, I've been doing it
years. And I understand there are some, you have to be
flexible and somewhat nimble. But this is really taking it to
20
Colloquy
an extreme, and it's not the first time in this case. The
debtor has already had accommodations again and again from
this Court and from the parties.
And I just today we should go ahead on the record
which we have. And which was prepared and the parties
responded to and came prepared for. We shouldn't be going
ahead on a record that no one is prepared for. Except the
debtor who's been apparently working on this, maybe we'll find
out some day, been working on this a long time and could have
done this sooner. No way to test that today.
So I ask the Court to proceed with the hearing as
originally scheduled on the original record to which parties
referred in their papers, and if as counsel for IBM suggested,
if they want to do something else in terms of a motion to
sell, they're free to do that. Although --
THE COURT: But I would have to take that into
account. Let's assume that today we close this record, and
tomorrow they came in and said Your Honor, we have a totally
new development in this case, we have a sale. Wouldn't the
Court have to take that into consideration?
MR. LEWIS: Your Honor --
THE COURT: Reopen this record? So how is that
different? How is this different?
MR. LEWIS: First of all, Your Honor, there are
deadlines the Court has to use in order to render a decision
21
Colloquy
on this matter.
THE COURT: Understood.
MR. LEWIS: And if we're going to have something on
a so-called sale, we should at least have it on some organized
basis, not this basis.
THE COURT: I agree with that.
MR. LEWIS: And the problem there, Your Honor, is my
schedule, as the debtor has known since asking me to reset
this thing, for the rest of the month is pretty well tied up.
And so, we are now in effect giving the debtor an extension
because of this last minute development. And there has to be
at some point with fairness to the other parties who's also in
Court.
There's just way much to go into with respect to
this so-called sale to make it even rational to try to put on
evidence and ask questions about it today. Debtor will get
up, we are told, and testify what's in the agreement. That
may be the debtor's interpretation of what's in the agreement.
There may be other things in the agreement that are equally
important to creditors, to my client. How am I going to
cross-examine on that, and why should we separate cross-examination from direct testimony where you have a witness
who's still up there and doesn't have a whole lot of time as a
consequence to prepare his testimony, to fit his testimony
when he's finally cross-examined. That's the whole point of a
22
Colloquy
live trial and life cross-examination.
THE COURT: Well, it isn't easy for the Court in
this certain situation, but I certainly cannot close my eyes
to what is potentially, and none of us know really for certain
at this moment, I haven't even seen the agreement that you've
looked at, what is potentially a very, very significant
development in this case.
MR. LEWIS: Your Honor, I don't disagree it might be
a significant development.
THE COURT: And not only a significant development,
would have substantial bearing upon a motion to convert. If
they have a very solid agreement of sale that is in the best
interest of these debtor estates.
MR. LEWIS: I guess the problem, Your Honor, is how
to fit that opportunity into what's available now and
unfortunately, the way things have panned out, as the debtor
knows, trying to fit that in on the current schedule is going
to be a very, very difficult thing for me, and I've been
involved in this case from the beginning for my client. I
can't just send someone else to do this.
THE COURT: I understand.
MR. LEWIS: But, you know, to meet the 15-day
requirement for the Court to rule on this matter, I'm not sure
what the answer is, except I'm sure that the answer is not to
turn this into a mini hearing on the sale motion when nobody
23
Colloquy
could possibly address it in any rational fashion today.
I mean, they've just finished it. Now there may
other testimony that we could dispense with today, and we'll
see about that, but I guess that's my concern, is it's just
really unfair. And this thing may turn out to be a complete
nothing of a sale. It may or may not be, I don't know. I
can't say that it is. I haven't really had a chance to study
it in any useful fashion.
THE COURT: Mr. Levin.
MR. LEVIN: Just to amplify on Mr. Lewis's points,
Your Honor.
Two things. Number one, we haven't learned much
about this agreement in the hour that we had or the minutes
we had to look at it. But the one thing that we have learned
is that it's signed by Stephen Norris of Stephen Norris
Capital Partners.
That deal has been before this Court for 15 or 16
months. This is not something that just arose last week, and
all of a sudden it came up, it's a last minute development.
Those negotiations have been going on or off, I don't know, we
have no idea, for at least 16 months. This Court has
deadlines. The local rules have deadlines.
Had the debtor decided well, we're not going to file
our opposition by the June 5th, which was the deadline, we're
going to wait until June 12th to file our opposition, just
24
Colloquy
because, well, we couldn't quite get it ready. We've been
working on it and working on it but we couldn't quite get it
ready. At some point, this Court says there's a deadline, and
you must meet the deadlines.
I understand the inclination of a Bankruptcy Court
to take any last minute information into account. This is a
dynamic process. As Mr. Lewis said, I've been doing this for
a long time, and I understand it's a dynamic process, and
things change. But at some point, especially with somebody
who's been at the table for months, this Court can and
should enforce deadlines. And this is past the deadline.
We think it should proceed as the record was set.
THE COURT: Well, let me make a suggestion, because
what I've got before me right now is in effect a motion -- an
evidentiary motion. And what I would like to do is to hear
evidence concerning the concerns that Mr. Levin has raised;
why it has now come -- why we have an agreement as of today.
MR. SPECTOR: That's part of the presentation I will
make, Your Honor.
THE COURT: Without the substance. But I think as a
preliminary matter, I would like to know where -- you know,
what the negotiations have been, why we are here today instead
of six months ago, you know, evidence to that effect. And
then, on that record, subject to cross-examination, not on the
merits, not on the substance, because I appreciate that the
25
Colloquy
movants have difficulty cross-examining on the merits of this
agreement, but I would just like to know, whether or not I
should in fact adjourn this hearing to take into consideration
the agreement of sale.
MR. SPECTOR: Your Honor, we do not request an
adjournment to the hearing.
THE COURT: I understand.
MR. SPECTOR: And I am sorry about the situation
we've put Mr. Lewis in. This is not the way I wanted to do it
either.
But, and this is -- I knew Mr. Lewis had a problem
this week. I didn't realize he was tied up for the whole
month. And maybe if he told me that, it didn't register. And
I wasn't planning on having to say they'll need more time. I
was planning to have this to them a few days ago.
But, we have no problem making the record Your Honor
asked for. It is part of our presentation of Mr. McBride's
testimony. And we also have the lawyers who negotiated this,
hundreds of thousands of dollars of legal fees just in the
last month probably, to get the very difficult issues
resolved.
Your Honor has appreciation of how difficult some of
these legal issues are, when we still don't have the clarity
of the Tenth Circuit ruling.
So, yes, we can make that record. But in the
26
Colloquy
interest of everybody's time, I would suggest that Your Honor
take the record in the ordinary manner and take it under
advisement that you can, if Your Honor thinks that there's
some reason why it shouldn't come in, this is a trial to a
Court, you can take that into account when you make your
ruling at the end.
But I think it's going to be very awkward to say
okay, we're going to have a record, we didn't prepare a record
for the lawyers to come and testify. I was out of the
picture, I can't even make a proffer of what all went on. My
head was on doing this.
So I think the easiest way to do that is to let Mr.
McBride tell you the highlights. I can in opening tell you
the highlights so you'll know what they know. It's just
service level of course. But Mr. McBride is prepared to
testify. And when asked, I can say well, isn't this the same
Mr. Norris. Well, yes, it is but it isn't really Mr. Norris
who we were negotiating with at the end, it was a different
cast of characters. These questions are valid questions, but
there are answers. And I shouldn't be getting up here trying
to tell you about them, I wasn't personally involved with
those.
So, again, I suggest, let's get to it. Let's, like
Nike says, just do it. Let's call our witnesses. Let them
make their case. I appreciate the difficulty with Mr. Lewis.
27
Colloquy
I don't know, I don't have a solution for that. All I can
suggest is -- and we are not looking to extend the time. We
can put -- if we started it on time, if we had this two days,
we could have possibly gotten this whole case in tonight. Not
now. It doesn't look like we'll have enough time now.
But, it is in their hands. If they want to
accommodate Mr. Lewis, and I'm not asking for this, I have a
vacation planned also after that, but you know, I'll make
accommodations -- oh, I take that back, my vacation is in
August. July is open. So if they can't -- if we can't get
that days in because Mr. Lewis has a difficult schedule,
it's in their hands, I don't have a problem going to July 1st,
July 2nd, July 7th, July, whenever it is that suits the
Court's calendar.
But, Your Honor is exactly right when you say this
is crucial. This is how we satisfy the Court that it should
not convert the case. That and a couple of other bells and
whistles of importance, but by no means there's anything as
nearly as important as the fact that we're going to get, and
this is in manner of opening statement, 2.4 million dollars.
The claims, you'll hear, are a million dollars or less.
What we plan to do with Your Honor's blessing, close
the sale, dismiss the case, pay the creditors in full, get no
discharge of any Novell claim. We have a bond set aside to
fully pay Novell. We're wondering if they may have missed
28
Colloquy
that. They should be in favor of that. We have a bond set
aside as part of this deal to pay Novell in full. IBM, we'll
meet them in Court, no discharge, get out of bankruptcy with a
dismissal, pay the creditors upon exit and go on our merry
way.
That is an elegant end to this case. All of that
depends upon doing what we propose. So again, in the nature
of opening, that's what our proposal would be.
THE COURT: All right.
MR. LEVIN: Your Honor, I'm not going to argue the
substance, as my learned colleague did. I want to just kind
of put a procedural framework about what the Court suggested.
And that is, as I hear the Court, you're saying we should
treat this as the debtor's motion for leave to file a late
opposition.
THE COURT: Or newly discovered evidence or however
we want to frame it, yes. That's really what I think, that's
where I think we are.
Now, it may make the order a little more unusual,
less workable, but I think that's -- that is how I would like
to proceed. I'd like to know why I should consider this
agreement of sale.
MR. LEVIN: And Your Honor, as I understand -- let
me go back to what I suggested a moment ago, and then what
you're going to consider.
29
Colloquy
But I suggested I think what fits with what the
Court has proposed is that, that the new evidence might be a
grounds for allowing them to file a late opposition. And
that's what they're going to show.
But, what I think I hear the Court saying is the
evidence in support of that motion to file a late opposition
is not going to go to the substance of why it's good evidence,
why it's a good deal or why it should be pursued, but rather
why it took them so long.
THE COURT: That's correct. But I want you all to
know that the practical result of my finding that they should
have leave to file this, and for the Court to consider this
would be either we proceed today on the merits --
MR. LEVIN: Yes.
THE COURT: -- or we adjourn.
MR. LEVIN: We understand that, Your Honor. But
we're first going to take whether they should be allowed to
file this late document.
THE COURT: Yes.
MR. LEVIN: Thank you, Your Honor.
THE COURT: I think that's the way we have to
proceed under these circumstances. And I do understand --
again, I'm very sensitive not only to a debtor being able to
maintain its case, but as well to what's in the best interest
of the creditors of these estates, of this estate, and that
30
Colloquy
may very well mean the sale.
So, but in the first instance, I need to know why I
should be considering the evidence.
MR. SPECTOR: So, Your Honor, you're asking me to
make a separate record or --
THE COURT: Yes.
MR. SPECTOR: -- to begin with an opening and call
my first witness and --
THE COURT: I think to make a separate record here
on the permissibility of my considering your evidence.
MR. SPECTOR: Well, that case, I will make my off
the cuff perfunctory opening on that point and then call a
witness.
THE COURT: All right.
MR. SPECTOR: The evidence will show, through Mr.
McBride and perhaps others, that after the debtor filed its
plan in January, 2009, that provided for a 363 sale of parts
of the business, and as a second alternative, a standalone
plan if the price was not sufficient to cover what we needed
to cover, that Mr. McBride received phone calls from a number
of different sources saying don't do that, fall in with us,
we'd like to be your sponsor, we'd like to buy the property
itself.
One of those calls was from the aforesaid Mr.
Norris, and frankly we had other calls. I think York also
31
Spector - Opening Statement
called again, and others. And so talks started again. And
rather than proceed with a sale, they warmed up those
ashes to see what they could do.
Skipping ahead to the current. In the meantime,
other parties in interest contacted the debtor for various and
sundry deals. As of the day I wrote this response, Your
Honor, we had four deals on the table that I didn't know which
one to address in my response. It was literally a horse race,
and we jokingly considered whose nose, who's in front and
who's catching up and so forth.
We had our deal team at Berger Singerman working on
four deals at one time. And Mr. McBride, who I was not
intending to ask about this, but given the new subject matter
I will have to go into this, we devoted a large part of our
time to other suitors that were until very recently out in
front. And we only -- and until we signed this deal, I had no
expectation for sure that we were going to get a GCP deal.
Mr. McBride will testify similarly. There were --
they were going back and forth while I was working on my
opening statement today, Mr. Caplan was in Pachulski's office,
sending drafts back and forth to the Bryan Cave folks for GCP,
Gulf Capital Partners, which is the investment banker for the
deal for the buyers.
And I've got to say, I was almost shocked when I got
the phone call walking over here that the deal was actually
32
Spector - Opening Statement
signed.
So that's the very high viewpoint. If you're going
to want more details on that, I'm going to put Mr. McBride on
the stand --
THE COURT: Yes.
MR. SPECTOR: I may have to put Mr. Caplan, our deal
partner on the stand. They may even wind up calling Bryan
Cave's counsel who are here, because that's just that deal.
Mr. Caplan could tell you about all the other deals he was
working on, he and Dan Lampert of our office were working on.
And so it was unbelievably stressful and hectic, and
we didn't know what deal we were going to bring to this Court
or if any. But that's my proffer of my opening statement.
And with that I'll call Mr. McBride, who's my first witness.
THE COURT: Very well. Thank you, Mr. Spector.
Mr. McBride, good afternoon. If you'll remain
standing while you're sworn, sir.
DARL McBRIDE, SWORN
THE CLERK: State your full name and spell your last
name for the record.
THE WITNESS: Darl Charles McBride, last name is M-
C, capital B-R-I-D-E.
THE CLERK: Please be seated.
THE COURT: You may proceed whenever you're ready.
DIRECT EXAMINATION
33
McBride - Direct (Spe)
BY MR. SPECTOR:
Q Your name, please for the record.
A Darl Charles McBride.
Q Thank you. I forgot, she already got that.
MR. SPECTOR: May I dispense with the pedigree for
this part of it?
THE COURT: Yes.
MR. SPECTOR: Thank you.
THE COURT: We had that on the record I think
previously.
MR. SPECTOR: I was going to do it in my regular,
but I'll pass on that.
THE COURT: All right.
BY MR. SPECTOR:
Q Mr. McBride, you've been in Court, you've heard what the
subject matter of this part of the trial is about?
A Yes.
Q Okay. Basically why is it that we showed up literally at
the last second with a contract of this sort? Right, that's
the issue?
A Right.
Q Please explain to the Court when -- oh, all right, we'll
do it the easy way.
Can you tell the Court why it took this long to get this
deal here now?
34
McBride - Direct (Spe)
A Well, there are a lot of circumstances. If you want to
talk to the very beginning of when the case was filed or --
Q Answer it any way you choose.
A Okay.
MR. LEVIN: Objection, Your Honor. That last
comment from Mr. Spector confirmed what we feared over here.
This calls for a very long narrative. Counsel should ask
questions.
THE COURT: All right. I'll sustain that.
BY MR. SPECTOR:
Q When did you first meet Mr. Norris?
A I first met Mr. Norris about a year and a half ago?
Q What was the subject matter of that meeting?
A The subject matter was discussion about investing in our
company, SCO.
Q Okay. And tell us what those negotiations were about at
the first stage.
A The first stage, Mr. Norris represented that he had a
group of investors from the Middle East that were prepared to
come in and invest in our company.
Q How long did those talks last before we finally put
something before the Court, if you can remember?
A We were talking for, I would say several weeks before we
filed something with this Court.
MR. SPECTOR: Your Honor, I don't know if you want
35
McBride - Direct (Spe)
me to go into what that deal was. It's all on the record.
THE COURT: It's not necessary.
MR. SPECTOR: Okay.
BY MR. SPECTOR:
Q Eventually, what happened with that proposal?
A Eventually the legal team from the Middle East investment
group that was doing due diligence had problems with the sale
-- or I'm sorry, the ruling that had come out of the Utah
courtroom which had been the reason that the York deal
previous to the Norris deal had not gone through and --
Q The ruling of 2007 you're speaking of?
A Correct, August of 2007.
Q They were unable to get their arms around this deal, was
that a problem?
A It was like how do you buy a house when you can't figure
out if you have the title to it here.
Q All right. Then skipping forward then to the end of
December of '08, January, beginning of January '09, do you
remember authorizing me to file a plan on behalf of the
companies?
A Yes.
Q All right. Can you describe that plan for the Court?
A Yes.
Q Just summarize it.
A The summary of that plan was that we would have a
36
McBride - Direct (Spe)
asset sale of our products businesses, and we would either
come back to the Court with a conclusion to that sale, or in
the alternative, we would come back and say we were going to
revamp the company down into a smaller non-product development
kind of company that would be profitable.
MR. SPECTOR: Your Honor, it's just occurred to me,
talking about people's schedules.
I haven't spoken to Mr. Caplan about this
eventuality. But, I may want to ask Mr. McBride to step down
and get Mr. Caplan. He has to -- he has an uncle who died in
Philadelphia, and he's got to go to a Shiva, he's got to leave
at 4:30. So if I'm going to ask him any questions, it just
occurs to me it's almost 3:30 now. I'd like to put him on so
he can be gone before.
THE COURT: All right.
MR. SPECTOR: Okay? Is that a problem for anybody?
MR. LEVIN: Excuse me, Your Honor, what is the topic
of his testimony?
THE COURT: He will -- go on, I'm sorry.
MR. SPECTOR: The topic of his testimony is why it
took so long, and what the issues were that took us to this
very minute to get the deal done.
THE COURT: Yes.
MR. LEVIN: No objection, Your Honor.
THE COURT: I certainly understand that.
37
Caplan - Direct (Spe)
MR. SPECTOR: Step down, please.
I call Franklin Caplan to the stand.
THE COURT: Mr. Caplan, if you will just step in the
box. May we waive the swearing of an attorney, or would you
like him sworn?
MR. LEVIN: He's an attorney, Your Honor?
THE COURT: Yes.
MR. LEVIN: I think that's appropriate.
THE COURT: To waive? Okay. You may just be
seated. Thank you, Mr. Caplan, I lost an uncle myself and I
rushed down to a funeral today and rushed back, so I certainly
sympathize with you.
MR. CAPLAN: I wonder if we're related, Your Honor.
THE COURT: I don't know. Pineland, New Jersey, of
all places.
MR. CAPLAN: Different uncle.
FRANKLIN CAPLAN, NOT SWORN
DIRECT EXAMINATION
BY MR. SPECTOR:
Q Frank, would you please state your name and occupation
for the record?
A Franklin Caplan, I'm an attorney.
Q You were present during the colloquy with the Court and
counsel regarding the purpose of this testimony?
A Yes.
38
Caplan - Direct (Spe)
Q Okay. Can you explain -- when did you first come into
the picture with respect to dealing with Mr. Norris or his
various interests relative to SCO?
A On one prior occasion prior to this transaction, roughly
the beginning I believe of 2009, I'm not certain, 2008, I'm
not certain about the date, it was quite awhile ago. And it
pertained to a deal that didn't occur.
Q Did you partake in the negotiations and drafting of the
deal that's before the Court now?
A Yes.
Q Tell the Court what difficulties you encountered in
getting this deal done.
A I became involved in this episode approximately between
three and four weeks ago. At that time, I came in to assist
another colleague of mine who was projecting to go on a
holiday. The timing within which we were thinking that this
deal had a chance to be reduced to a contract overlapped with
his vacation plan. So I became involved, and jumped into a
deal that had moved to a fairly evolved state but which was
substantially affected by, I wouldn't say so much disagreement
about, but the need to explain precisely what it was that was
being sold, what it was that was not being sold, and how
within the realm of assets not being sold, intellectual
property that supported the litigation that's been I'm sure
discussed in these proceedings from the beginning could
39
Caplan - Direct (Spe)
proceed. Such that SCO, in prosecuting those cases, wouldn't
be compromised in its standing and would have the full array
of rights that it intended to argue about in that proceeding.
Q And so that issue about how SCO can sell intellectual
property and retain sufficient rights in that property to
maintain lawsuits against IBM, Novell and perhaps others was
the sticking point?
A That was the major sticking point.
On top of that, the predictable array of buttoning up
points to make a document internally consistent took some
time, but that was the sticking point.
Q Well, did the bucket of assets change at any time during
your negotiation and drafting of this deal?
A The bucket of assets changed materially and frequently
during our drafting of this deal. In one respect, pertaining
to certain products that might or might not be included in the
sale, but more importantly, and more difficult to manage from
the draftsman's perspective, what exactly SCO needed to retain
so as to be able to maintain the standing and prosecute the
litigation.
Q Were there any other issues of difficulty that you had to
get around?
A There were conforming representations and warranties -- I
view that and suggest that one should view that in the context
of just making the document work.
40
Caplan - Direct (Spe)
But I think it's fair to say, and it would be accurate,
that all of those, I'll call them housekeeping issues
pertaining to this purchase and sale agreement, revolved
mostly and materially around the issue of the retained
litigation rights.
Q Other than the commonality of Mr. Norris and SCO, were
these the same cast of characters that were purchasing, that
you were dealing with the year before?
A No. The principal businessman who I'd spoken to on the
telephone once I believe but only met by email otherwise, is
not someone that I met previously.
Q Are you familiar with -- strike that.
Where is this person that you are referring to located?
A London.
Q So the principal of the buying group then is in London,
and Mr. Norris is not part of that buying group, he's part of
the -- well, let me strike that.
What is Mr. Norris's role?
A I'm not certain. Mr. Norris signed the document today.
I met Mr. Norris for the first time this afternoon. I've not
been aware of Mr. Norris weighing in on any of the
negotiations, although I believe he was copied on emails.
Q When did you first actually have a law firm to deal with
on the other side of the deal?
A I believe I met Mr. Pearce who's in the courtroom from
41
Caplan - Direct (Spe)
Bryan Cave probably -- well, again, between three and a half
weeks ago or a month ago.
Q And before that there were no lawyers for the buyers, is
that right?
A That's correct. At least to my knowledge.
Q So did this new group of individuals behind the buying --
behind the purchaser I should say, did they engage in new due
diligence or use the old due diligence or was it a
combination?
A I believe it was a combination although I wasn't
primarily involved with the due diligence. There were a great
many, very elaborate disclosure schedules that had been
developed from the York deal that were delivered to Bryan
Cave's team and were updated and swapped out as information
changed.
Q How about schedules to this deal? How difficult was it
to put together schedules for this deal?
A I perceived the scheduling was extremely difficult,
although I wasn't working on it directly.
Q Did you have help on that?
A Yes. We had a team at our law firm, Bryan Cave had an
extensive team of people, and SCO group had an entire team
dedicated only to responding to scheduling questions and
missing information and the like.
Q What were you doing about noon today?
42
Caplan - Direct (Spe)
A I was in the Pachulski conference room in Wilmington. I
drove here this morning from Philadelphia, to hopefully close
or sign rather, finalize and sign on this purchase agreement.
At around noon today, I was engaged in electronic
communication with Bryan Cave, a team of lawyers, exchanging
comments, principally on the subject of the, what we call the
retained litigation rights.
While that was occurring, there was shifting of
disclosure information from one schedule to another, to
describe assets that were to be sold as opposed to assets that
were to be retained.
Q What were you doing at one o'clock this afternoon?
A At one o'clock this afternoon, I was taking an Advil. I
was emailing with I think increasing interest Bryan Cave as to
whether we were actually going to see a contract. We were
aware of the Court start time of two o'clock today. We were
aware of the need to read it once it was delivered. And at
about one o'clock today it hadn't yet come, so we were anxious
about that.
Q When did you finally see the contract?
A I think the contract hit at about 1:15. It might have
been 1:10 or approximately. We received a black line. It was
not black lined against a draft that we had circulated as a
suggestion draft last evening. So it took a few minutes to
create that opportunity to read what Bryan Cave was coming
43
Caplan - Direct (Spe)
back to by way of final proposals against that which we had
suggested last evening.
At about 1:30 we had finished that review, and about
quarter to two we decided we were ready to sign.
Q Where did you do the signing?
A The signing took place in the lobby at the Hotel Dupont.
Q Around quarter to two or ten to two or something?
A It finished at about two o'clock.
Q Two o'clock.
A I went back to Pachulski to create duplicate sets of the
original document. I didn't pause to make photocopies because
I believed the Court hearing was going to commence at two
o'clock.
Q Now let's go back now. And three and a half weeks ago
when you came in to help out, and I think the partner's name
you helped was Dan Lampert, right?
A That's correct.
Q Were there any --
MR. LEVIN: Dan?
MR. SPECTOR: Dan Lampert.
THE COURT: He's been here before.
Q Were there any other deals that you were working on while
you were working on this Gulf Coast Partners deal?
A Yes.
Q Tell the Court about those deals.
44
Caplan - Direct (Spe)
A There were three other deals. One deal involved a plan
sponsor whose name was LSC Holdings, I believe. That deal was
proceeding -- it accelerated shortly after this deal, the deal
that's presented today, became rather fast and furious. As it
accelerated, it became apparent that what it was looking like
was a plan and a DIP loan. I believe it was -- the
negotiations were between five and six and a half million
dollars of DIP loan and a plan that would result in the
acquisition of a range of equity in SCO post-confirmation,
post-bankruptcy I guess.
Q Was there a time that it was the belief of the Berger,
Singerman and SCO team that that was the leading horse in the
race for the deal?
A Yeah, it was about a week, it was about a week's time,
five day, maybe into Saturday of the week before last, that
that deal received the bulk of our attention.
Q Now tell the Court about the other deals that we were
working on.
A At the same time, there was a third deal that was
proposed by a gentleman named Hank Beinstein. This deal
involved a subscription for warrants in SCO and a funding into
SCO of approximately -- to be determined but the range was I
think between two and a half million dollars and up.
And the consideration for that, in addition to warrants,
would be a share of litigation proceeds if there are any.
45
Caplan - Direct (Spe)
Q By the way, who was your counterpart on the DIP loan plan
sponsor deal, who were the attorneys on the other side of
that?
A The attorneys were Proskauer, Rose; the lead lawyer in
the deal was Peter, and I'm afraid I can't pronounce his --
Q I'll help you. Was it Antoszyk?
A That's it.
Q A-N-T-O-S-Z-Y-K?
A That's right.
Q Okay.
A We spent -- the same time we were working on this deal
with the Bryan Cave attorneys, we were working, at various
times more, probably never less, simultaneously with the
Proskauer lawyers.
Q Did the Hank deal have any face-to-face meetings between
the parties, to your knowledge?
A I believe the parties -- I believe the principals met on
at least three occasions that I'm aware of.
Q Weren't they in New York over this past weekend maybe?
A I don't know that. I was on the telephone myself with
Mr. Beinstein this weekend.
Q So as of this weekend, that deal was still very much
alive?
A My Saturday morning was spent on that deal.
Q Saturday morning was on the Hank deal?
46
Caplan - Direct (Spe)
A Yes.
Q Tell the judge about the fourth deal.
A The fourth deal was a bit of a hybrid. It involved the
investment on the part of one of the directors of SCO, of new
monies. It asked for a simultaneous commitment on the part of
other directors, shareholders for others who might be
interested in making a commitment to invest a sum of money,
the sum of which was minimum a million dollars.
The consideration for that investment or those
investments would be the issuance of warrants; again, with
conversion rights similar to the Hank deal that would depend
on various factors. And also, a share of the litigation
proceeds if there were any.
Q With whom did you work on the other side trying to
document that deal?
A I confess, a lack of memory. It was happening
simultaneously.
Q Well, let me ask you if this, if I got the right person.
Was it David Marx?
A David Marx was assisting -- my view of David Marx is that
he was assisting me in identifying corporate formality needs
that SCO would need to accomplish, to put SCO in a position to
do the deal. David Marx is a lawyer at Dorsey.
Q When were you last in conversation with him on the fourth
deal?
47
Caplan - Direct (Spe)
A Saturday.
Q So all of these deals were alive as of this weekend?
A As of this weekend, my personal psychology was that it
was more likely that we were going to perform either the Hank
deal or the so-called Ralph deal, the fourth deal, or a
combination of the two of them.
It was yesterday around o'clock in the morning when I
realized that we were gonna be working on this deal.
Q Was my analogy in my opening statement about the horse
race, is that something that was actually used?
A Well, yes, but it came about on Belmont Saturday so I
wouldn't take too much credit for it.
Q All right, so this Saturday was June 13th. Our response
deadline was, I'll submit to the Court is June 5th. So would
it have been possible -- this is a rhetorical question -- for
us to have highlighted in our response that we had a deal with
Gulf Capital Partners on June 5th?
A Not in my opinion.
Q Okay.
MR. SPECTOR: That's all I have for the witness.
Thank you.
THE COURT: All right.
MR. SPECTOR: By the way, one more -- like Columbo,
one more question.
BY MR. SPECTOR:
48
Caplan - Cross (Lew)
Q When was the last time you were in a courtroom?
A I guess this morning, in speaking to some of the Bryan
Cave attorneys that it was 1987.
Q Okay, thank you.
THE COURT: Thank you, Mr. Spector.
MR. LEVIN: Your Honor, since this is unplanned
testimony, and unplanned cross-examination --
THE COURT: Yes.
MR. LEVIN: -- it would be helpful to know from Mr.
Spector which other witnesses he will have on this narrow
issue, other than Mr. McBride of course. We know that.
MR. SPECTOR: Depending on how it goes, I may be
calling someone from Bryan Cave. I don't even know the names
of the people. They're in the courtroom, and I may want to
call them to get the other side of the deal, but I'm reserving
on that. I'm just giving the best I can tell you right now.
THE COURT: All right. Go ahead.
MR. SPECTOR: One more. Mr. Tibbitts reminds me
that there were people in our shop doing massive due diligence
all this time, and we may be calling Bill Broderick to testify
about that, and we'll see. I hadn't considered it because I
hadn't considered this whole thing yet.
CROSS-EXAMINATION
BY MR. LEWIS:
Q Good afternoon.
49
Caplan - Cross (Lew)
A Good afternoon, sir.
Q How are you?
A Fine, thank you.
Q Good. I am Adam Lewis. I represent Novell in this
matter. I just have a very few questions for you.
You gave some testimony about how you were dealing with
someone in London. Do you recall that testimony?
A Yes, sir.
Q Do you know who is affiliated with that person in London?
A Who is?
Q Who is affiliated with that person in London?
A You know, I'd be -- I don't. I know his name is Eric le
Blan. I don't know anything about him really.
Q And so you don't know whether -- who else might have been
behind whatever group he might be representing or anything
like that?
A I've assumed that Mr. Norris was.
Q But you don't know?
A I don't know how they're related in business or
otherwise. It never really came up.
Q Okay. Now the bucket of assets and transfer of the
litigation issue that you testified to as being really the --
the key issue I think you said in terms of the negotiations;
is that a fair statement?
A Yes.
50
Caplan - Cross (Lew)
Q Had that issue ever come up before for SCO in prior
contemplated transactions?
A Insofar as I've been involved, my major involvement was
in the York, attempted York deal from, I think it was
Christmas '07 approximately. And I don't -- the litigation
was important but the parsing of holding back intellectual
property insofar as I can remember was much less important
than was -- there was a certain class of mobility products
that was not to be sold, and trying to describe that so it was
clear what was and what wasn't being conveyed was more at
issue in York.
Q But it was an issue with York as well, whether larger or
smaller?
A It was relevant. I don't actually recall -- I don't
recall that anything like the type of negotiation that we went
through with respect to this deal was pertinent to that York
transaction.
Q And in the prior SNCP deal, the Stephen Norris, the plan
that was filed I think in the spring of last year, do you
recall whether that issue came up in that?
A I had very little involvement with that. I read a term
sheet and I didn't participate further.
Q When you decided to sign the agreement today, were you
satisfied that the agreement was in final form?
A Yes.
51
Caplan - Cross (Lew)
Q You don't anticipate any amendments, changes, cleanups,
fixes, issues that might have been overlooked?
A It's conceivable that a type of product that is intended
not to be sold -- this is not pertinent to the litigation
issues -- that a type of product that was not to be sold was
accurately reflected as excluded in one place but not another
place.
My clients are aware of that. I believe the Bryan Cave
team is aware of that. And the decision was there was no time
to fix it, but there was an understanding that this Me Inc.
class of assets is not to be sold.
Q Do you believe that there may be other issues that will
need some cleanup later on because of the rushed nature of the
negotiations?
A I'm not aware of any.
Q Do you think there might be, given your experience in
trying to document deals?
A I mean just in general, this type of work, this was an
extraordinarily fast process on a complicated document. At
the same time, we collaborated very well, especially yesterday
and this morning. It's possible, it wouldn't shock anybody
who's ever been around a transaction, but as I sit here, I
think we did a pretty good job in getting this right.
Q I have no further questions. Thank you, sir.
THE COURT: Thank you, Mr. Lewis. Anyone else? Mr.
52
Caplan - Cross (Lev)
Levin?
MR. LEVIN: Thank you, Your Honor.
CROSS-EXAMINATION
BY MR. LEVIN:
Q Good afternoon, Mr. Caplan. My name is Richard Levin, I
represent IBM.
A Good afternoon.
Q First, condolences on your loss. I'm sorry you have to
be here under these circumstances.
A Thank you.
Q I apologize if I didn't hear earlier, but what law firm
are you with?
A Berger, Singerman.
Q You are with Berger. You said that Mr. Lambert --
Lampert was handling the deal before you got involved?
A Yes.
Q Do you know how long he had been working at it?
A Not specifically. I believe that Dan is generally the
principal lawyer on our transactional team that's involved
with SCO. So, I'm surmising that whenever this latest round
of possible transactions occurred, he would have been involved
at the beginning.
Q But you don't know when that was?
A I don't.
Q What is your specialty?
53
Caplan - Cross (Lev)
A Business transactions, real estate transactions.
Q Real estate primarily?
A 50/50.
Q What is the other 50?
A Corporate and business transactions.
Q No particular focuses on IP?
A No.
Q Does Mr. Lampert focus on IP?
A No. Both of us have probably similar level of experience
with IP in the sense of deal lawyers who get involved in deals
that involve IP, but he and I, I think have both been
practicing around the same time, which is about 23 years. And
in that time, we confront copyrights and trademarks
occasionally. I've never been around a patent, and wouldn't
know what it looked like. But I have, I think a working
knowledge of copyrights and trademarks and intellectual
property issues.
Q You testified earlier that there was extensive discussion
on the -- on getting the assets in form, if I can say this
right, what SCO needed to maintain its ability to continue to
prosecute the litigation, approximately your words. How did
that issue come up? Rather than just we're transferring all
the rights to you.
A The deal structure, if I could put it in that term, was
to sell the business quote unquote, possibly with some hold
54
Caplan - Cross (Lev)
backs of certain types of products. The one that I mentioned
earlier, Me Inc. was an example of that carve-out.
But in any event, whatever the carve-out, to really
carve-out the litigation and whatever proceeds were derived
from being successful with the litigation. And that involved
considerations of standing and considerations of what happens
if they're successful and prosecuting claims that derive from
that success, and trying to describe all that was what I was
trying to allude to is that most difficult issue in terms of
documentation and structure.
Q And of course Mr. Lambert had been -- Lampert, I
apologize for mispronouncing his name continually, let me try
that again -- Mr. Lampert had been involved in that very issue
before you got involved, right?
A I don't know for sure. Let me -- someone will correct me
if I'm wrong on this point.
I believe the first draft of the asset purchase
agreement, the evolution of which is presented today, didn't
have this issue articulated in any way. I think this came
about in discussing you know, how this deal was actually going
to work and taking what struck me as not a generic asset
purchase agreement, certainly SCO tailored, but one that
didn't really drill down in any kind of precise way this
distinction between selling what I called the business a
moment ago, and retaining the litigation.
55
Caplan - Cross (Lev)
I think that altogether arose and happened on my watch.
Now when I say my watch, my colleague, Dan and others were
involved in this negotiation and the documentation as well.
Q You said you took it over from him about four weeks ago
when he was going on vacation. Has he come back from vacation
yet?
A He's back from vacation.
Q How long was his vacation?
A Six days, I believe. Six bloody days.
We worked together during I think two weeks before he
left. This was more about ramping up and being fluent on what
was supposed to be happening. He was around for -- if I was
involved in it a month, I would say he was around for all but
six days.
Q And did the Berger, Singerman legal team believe that
this issue about what you characterized as standing was
critically important to be able to maintain the litigation
pending in Utah?
A I used the word standing. I'm not sure that SCO and the
litigation team put it in quite precisely the same way. It
was a convenient way for me to describe what I was trying to
preserve.
Personally I think probably standing in the precise
technical sense of what that means is affected by this, but I
used that more as a convenient expression than as a litigation
56
Caplan - Cross (Lev)
necessity or strategy.
Q Let me phrase this in a more general term. Did you --
did the Berger, Singerman legal team believe that this issue
of the ability of SCO to continue to prosecute the litigation,
describing it in the particular way that you did in the asset
purchase agreement, was critical to SCO's ability to continue
to process -- prosecute the litigation?
MR. SPECTOR: I'm going to object. He's asking the
Berger, Singerman team. I think he's qualified to answer what
he believed but not as a team. There were multiple people on
that team.
BY MR. LEVIN:
Q Then I'll ask the same question with what you -- with
respect to what you believe, Mr. Caplan.
A Yeah. I believed and believe that it was important to be
able to maintain the litigation and to be successful at it,
that we describe this thing that I'm trying to articulate
correctly.
Q You mentioned the initial draft of the purchase
agreement. When was that initial draft?
A It preceded -- there was a draft that I inherited on a
particular Sunday, whenever it was, I'll say a month ago
roughly, and I believe that it came out of our office. And
when I received it, it was accompanied by a revision draft
that was prepared by Bryan Cave.
57
Caplan - Cross (Lev)
So my first review was to compare what Bryan Cave had
done to our starting document.
Q You've described three other deals. Do you know when
those deals -- when discussion over those deals began?
A With respect to what I call the Ralph deal, deal number
four, roughly two and a half weeks ago.
With respect to what I called the Hank deal, deal number
three, roughly the same time.
And with respect to the Proskauer deal, LSC, a little bit
prior to the time of the other two, possibly the prior week.
I think it's likely that I became aware of those deals
approximately when they first arose because we were so active
during that time and trying to figure out what we were going
to be doing.
Q And you also testified that you got a revised document at
1:15 this afternoon?
A 1:10, 1:15.
Q And that you were able to review all those revisions and
come to a decision within 15 to 20 minutes, you and the
client?
A I think we came to a decision at the hotel, so I'm
thinking that it was probably close to two o'clock. I came to
the hotel last because I stayed to print the document out, and
I think that others were reading it while I was reading it
too, and I had a conversation with our clients at the hotel,
58
Caplan - Cross (Lev)
and that was the point in time that we decided to go with it.
Q So it's fair to say that you accepted all of the
revisions that Bryan Cave proposed at that point?
A We talked about one possible alternative wording on a
point, and decided not to press the issue. And that was it.
Q Thank you, Mr. Caplan.
MR. LEVIN: I have no further questions, Your Honor.
THE COURT: Thank you, Mr. Levin. Mr. McMahon?
MR. McMAHON: Nothing, Your Honor.
THE COURT: No questions, all right, sir. Anything
further?
MR. SPECTOR: No. Thank you very much, Frank.
THE WITNESS: Thank you. Thank you, Your Honor.
THE COURT: You may step down and you are excused.
THE WITNESS: Thank you, sir.
THE COURT: Back to Mr. McBride?
MR. SPECTOR: If I might have a minute to find out
who here is from Bryan Cave and whether they have anything to
add.
THE COURT: Absolutely.
MR. SPECTOR: Thank you.
MR. LEVIN: Your Honor, while that's going on, may
we take a very short recess?
THE COURT: Of course we may, at anyone's request.
59
McBride - Direct (Spe)
Five to ten minutes.
(Off the record at 4:03 p.m.)
(On the record at 4:16 p.m.)
THE CLERK: Please rise.
THE COURT: Thank you, everyone. Please be seated.
MR. SPECTOR: Your Honor, we'll recall Mr. McBride
for the rest of his testimony.
THE COURT: Thank you. Mr. McBride, you've already
been sworn. You may just resume.
DARL McBRIDE, PREVIOUSLY SWORN
DIRECT EXAMINATION
BY MR. SPECTOR:
Q Mr. McBride, was there any significant change in the
landscape between when the York deal was being negotiated and
the first SNCP deal was negotiating on the -- being negotiated
on the one hand versus when you were dealing with Gulf Capital
Partners now, any significant change in the legal landscape?
A Yes, there was a significant change.
Q What was that?
A In the summer of 2008, we had a bench trial in the Utah
case regarding the 40 million dollar judgment that we had
hanging over our heads when we first showed up in this
courtroom. And during that bench trial, that amount was
reduced from nearly 40 million down to two and a half million
dollars plus interest.
60
McBride - Direct (Spe)
Q Besides the judgment amount, were there any intellectual
property issues that made things easier or harder in your
negotiations the second time around?
A Yes, there were a couple of things that helped in that
regard.
First of all, Judge Kimball recognized the sale of the
UNIX business, that it was proper for us to be selling the
UNIX products.
Secondly, he recognized that post- development work
that had gone on, those copyrights did belong to SCO.
And the general validation -- then there was the
recognition that we were able to do our SCO source licensing,
which was an important piece of our litigation recovery.
And then finally, he gave a general blessing of the fact
that we did have the rights to run the UNIX business -- maybe
that's back to point one.
Q So did that make it any different when you went to
negotiate the deal the second time around with Mr. Norris and
his different cast of characters?
A Yes. As we went into -- I wouldn't call them cast of
characters, because they're actually a pretty solid investment
firm, but the group that we're working with, going back to
Steve and his group on the second round, were -- let's say
that it opened the door that had previously been shut by the
other ruling.
61
McBride - Direct (Spe)
Q We -- where we stopped, we were asking what happened
after you put up for public notice the sale of the assets
through the 363 process, and the potential standalone plan in
the beginning of 2009.
A Right.
Q And you said you started getting -- maybe you didn't get
this testimony. Did you say whether you got interest from
people to not do a 363 sale and do a stand -- do a separate
deal with these people?
A We did receive interest. When we published in early
January that we were going to go out and do a sale, we did get
approached by various parties to try and consummate some kind
of a plan more than a deal.
Q I recognize that we weren't prepared for this, and your
memory may not be a hundred percent, but can you tell the
Court who, in addition to Mr. Norris which we know about, who
else contacted you to do a deal?
A Yes. There was a group out of Los Angeles, Platinum
Equity, buys a lot of software companies, they were a
contender. We received a call from Charles Hale from the York
deal, who was the principal involved in the early York deal.
He came back and we spent, I would say a good 60 days
negotiating with him.
THE COURT: What time period are you in?
THE WITNESS: This is the February through April
62
McBride - Direct (Spe)
time frame.
A Now, we -- during this period of time, importantly, Steve
Norris and his partners had come forward with a new investment
group that was London based. Eric le Blan who works with
Basil Al-Rahim out of London and runs an investment group
called MerchantBridge International, came forward, and this
was the second investment group who worked with Steve.
And from the period of early 2009 up until current day,
they have put a substantial amount of energy into due
diligence, into going through and drafting documents, getting
attorneys involved to get us to a point where we are right
now.
Q Talking about getting attorneys involved, was that an
easy thing to do?
A No. Actually it was a process just to get attorneys
involved. One of the problems we have in our cases, and we've
seen it not just in this case but in various ones, is other
law firms typically get conflicted out because our arch enemy
as it were, IBM, seems to have a lot of relationships with
attorneys.
And so, we went through a series of attorneys where they
would get engaged -- I think the first one was Latham &
Watkins, and they were ready to go and then they got
conflicted out. And there was -- I think there was another
group along the way there.
63
McBride - Direct (Spe)
But eventually we did get an attorney group here. So
that also caused some of the delay from the Norris team's
standpoint.
Q Was there any purpose on SCO's part to delay getting this
deal done?
A Our goal from the beginning has never been to delay; it's
been to try and get things accelerated, to get things finished
and completed.
Q How hard has SCO been working to put a deal together
finally?
A Well, I've done 35 deals, let's say in my career, and
this is by far been the hardest one. It's been the smallest
one and it's been the hardest one, which is a little bit
weird.
The problem point always keeps coming down to this ruling
of what do we own and what do we not own. And it's compounded
in the deal we're talking about with MerchantBridge
International and with Gulf Capital Partners because we're
talking about taking what's already a rough foundation of a
house if you will, and talking about splitting that up. You
know, how do we -- and so the general deal with Gulf Capital
Partners is the UNIX business that we've been in this
courtroom many months now talking about how critical the
customers are, the core operating systems they run are, how do
we take our customers, our partners, our products, our
64
McBride - Direct (Spe)
resellers, that whole ecosystem of UNIX and hand it off to
somebody that will take that forward.
And an important part of the Gulf Capital Partners deal
isn't just the money we get in going forward, but they're
committed to fund it going forward, that they will take it and
move it forward.
Now, that's not our concern from here forward once the
deal is done.
Q Whose benefit would that be?
A Well, that would be to the benefit of our customers, and
employees and partners and resellers, many of whom are in the
room here today.
So that was -- one of the things that we tried to do from
the beginning of these cases is to, to not prejudice our key
partners, whether it was --
THE COURT: Whose phone is that?
Q That was your phone.
A That was mine. Sorry about that. That was weird. I
just leaned up against it and it hit a speed dial. I'm going
to take that out. That's dangerous. Sorry about that, Your
Honor.
We've been trying to get a deal that takes care --
doesn't prejudice employees, does not prejudice customers, but
at the same time we respect that we may owe Novell some money.
Originally it was we thought we owed them 40 million, now it's
65
McBride - Direct (Spe)
down to two and a half, and that may be zero before the summer
is over. But if we owe them money, then we're committed to
pay them and this deal accounts for that.
We're committed to taking care of employees, taking care
of customers, creditors, and also shareholders are an
important piece of the pie.
Q And so I guess your answer to my question were you trying
to slow things down, your answer to that is?
A No. We were trying to get it done. I guess the whole
point of that diatribe was to let you know that we're doing
something that's very complicated. And the whole idea of
splitting this up and taking care of this group of people over
here and getting a contract that works for MerchantBridge and
Gulf Capital Partners and still works for the estate has not
been a short cut.
Q When did you get the board's approval to sign a deal with
Gulf Capital Partners?
A That came about just a couple of days ago.
Q That was after the response deadline, wasn't it?
A Yes.
Q And when I was preparing the response on behalf of your
company, did I know -- did you know what deal, if any, we
would have to present to the Court today?
A No. And I know that there was one point in time you
mentioned to me that your -- you were dizzy, which I think
66
McBride - Cross (Lew)
related to the deals but I'm not sure.
MR. SPECTOR: That's all I have for this witness on
this topic.
THE COURT: Thank you.
MR. SPECTOR: You don't get to leave.
THE WITNESS: Can I make more one comment? I guess
not.
MR. SPECTOR: No, you don't get to leave.
THE COURT: No, you're about to be cross-examined.
MR. LEWIS: Your Honor, Mr. Levin, who tried to
recruit me many years ago as I was coming out of law school --
MR. LEVIN: Darn, missed that one.
MR. LEWIS: -- always sends me up first.
THE COURT: I see.
CROSS-EXAMINATION
BY MR. LEWIS:
Q Mr. McBride, do you recall a hearing in this Court,
sometime a year ago this past spring in which SCO wanted to
assume its -- a lease with its landlord, do you recall that
hearing?
A Generally, yes. I don't remember the details but I
remember the point in time, yes.
Q Right. You remember the event?
A Yes.
Q And do you recall testifying at that hearing?
67
McBride - Cross (Lew)
A I don't remember. I know I've been up here a time or two
but I don't remember exactly.
Q Do you recall testimony in which you were explaining that
SCO had left off trying to find a transaction for awhile and
had just resumed its efforts and that explained why the case
had gotten so far without any resolution, and that now you
were starting to work again with SNCP. Do you remember that
testimony at all, a year ago last spring?
A I don't remember what I testified at that time.
Q Okay. Is it true that at some point in the perhaps early
spring of last year, SCO stopped trying to find a deal for
awhile?
A I would say that we -- there was a period of time where
after the original SNCP deal did not, so we tried the York
deal, we tried SNCP. As I recall at the end of the SNCP deal,
there was a lot of discussion about let's just see what
happens in this trial because if we owe million dollars,
that's one cap we'll need to solve, if it's less than that,
then that's a different one. So there was probably that
period of time where we took a breather.
Q Isn't it also true that you resumed your efforts before
the trial results?
A I know that -- I've been for the last year and a half
practically nonstop in trying to get a deal in place. I know
that during that period of time there hasn't been a month go
68
McBride - Cross (Lew)
by that I haven't had some discussion with Steve Norris or
other potential partners.
Q Do you recall a hearing at which the SNCP deal of last
spring, a year ago last spring was on the calendar, do you
recall that hearing? The SNCP plan?
Again, I'm not asking for -- please remember that --
A I remember that --
Q -- a year ago last April there was a hearing on the SNCP
plan.
A Yes. Yes.
Q Do you recall that at that time the debtor elected to not
go forward with that plan that day, do you recall that?
A Yes.
Q And do you recall that your counsel explained to the
Court that the reason that it happened was that SNCP had
wanted to restructure the deal, that you -- that SCO and SNCP
had begun to consider a different way to do the same deal?
A Yes.
Q Okay. Now, has the question of how to handle the
existing litigation in terms of what rights could or could not
be transferred come up before the negotiations in this deal
that you signed today?
A I'm sorry, could you repeat that?
Q You heard Mr. Caplan's testimony?
A Yes.
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McBride - Cross (Lew)
Q And in his testimony, Mr. Caplan indicated that it was
crucial to be sure that the debtor kept certain assets --
A Right.
Q -- because of concerns about being able to prosecute the
litigation. Do you recall that?
A Yes.
Q Had that issue come up ever before in the year and some
odd almost 20 months that SCO has been in bankruptcy?
A Yes.
Q When did it first come up?
A It first came up as an issue in the York deal. I think
Frank was accurate in his assessment. It wasn't as prominent
as it is now, but it was -- I think what happened in the York
deal was when the ruling came from this Court that it was hard
to move forward with the current ruling, that made it
difficult.
And then at various steps along the way there were
discussions of that issue.
Q And did it come up in the SNCP transaction of a year ago
last April?
A I don't remember, I don't recall specifically on that.
Q What to do with those assets, you were going to hold onto
the litigation --
A Yes.
Q -- in that deal, is that right?
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McBride - Cross (Lew)
A Yes.
Q Just as you are, I think from what we can see in your
current plan?
A One of the differential -- yes.
It was with a different group of people that we were
talking then than we are now though.
Q I understand. I'm focusing on the issue, not the people.
A Okay.
Q Now, in June of last year there was a hearing, do you
recall on the debtor's motion for an extension of an
exclusivity, do you recall that hearing generally?
A I don't remember specifics. I've been here a few times.
I don't remember what that one was. I remember --
Q Do you recall in connection with that motion the debtor -
- I think this is the third motion to extend exclusivity -- I
can't remember, I think it was, but it was in I think of June
of last year. And the debtor was arguing that the trial had
just taken place in the District Court of the balance of the
issues and really the debtor needs to know what the outcome of
the trial was before it could proceed. Do you recall that?
A Yes, I do remember that now.
Q And do you recall then in connection with the motion in
September of last year to extend exclusivity yet again, the
debtor argued that it really needed to get the appeal on file
before people would be willing to consider some kind of
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McBride - Cross (Lew)
transaction for the resolution of this case; do you recall
that?
A I remember the hearing and generally talking. I don't
remember specifically what my testimony was at that point.
Q Do you recall the argument though?
A Yes.
Q And do you recall that that was the debtor's position in
part, was that it needed to get -- that people who might be
interested in the debtor needed to know the appeal was on file
before they would come out of the woodwork; do you recall
that?
A I think that was an issue.
Q You mentioned your board approval as being within the
last couple of days?
A Yes.
Q Do you recall when the board was asked to consider the
transaction?
A Over the last few weeks we briefed the board continually
on this horse race that we've been in with the various horses
on the track.
Q Could you have submitted the transaction to the board
before the last couple of days?
A We did submit to them in substance. We submitted to them
generally what we were talking about. But again, they were
one of three other horses that we were evaluating.
72
McBride - Cross (Lev) >
Q So the board chose not to act on that for awhile, is that
right?
A We didn't have -- we had a material change in the Gulf
Capital Partners deal that came up this last week, at the end
of last week which was they posted a deposit of $250,000. And
so that was a material change that came up just last week.
Q But no one knew that was going to come up before it did,
is that right?
A No. One of the -- no, that's correct.
Q Okay. So the board might have acted before that
happened?
A Well, they didn't have anything to act on before that. I
mean you can only act on something if the other side's ready
to sign a deal, which we didn't have.
Q Was the other side ready to sign the deal two days ago?
A They were ready pending some changes that we wanted to
make. Before it was changes they wanted to make.
Q I think I have no further questions. Thank you.
A Okay.
THE COURT: Mr. Levin.
MR. LEVIN: Thank you, Your Honor.
CROSS-EXAMINATION
BY MR. LEVIN:
Q Good afternoon, Mr. McBride.
A Hello, Mr. Levin.
73
McBride - Cross (Lev)
Q I want to make sure I understood what your testimony was
earlier when you first were on the stand and now.
You said that the Middle Eastern legal team that Stephen
Norris Capital Partners was representing in early 2008 had
problems with the litigation in Utah Court and that was one of
the reasons they withdrew their offer?
A Correct.
Q And also that York had withdrawn for the same reason?
A Correct.
Q And you said that Mr. Norris came forward with a new
investor group early in 2009, early this year, is that
correct?
A Yes. I actually first met them in the latter part of 2008
but they became seriously engaged in the early part of
this year.
Q And from then until now they've put a substantial amount
of time into this transaction?
A Yes.
Q You also said that the board approval came a few days
ago, is that right?
A Yes, that's correct.
Q So the board hasn't approved the final agreement that Mr.
Caplan was describing there were still ongoing negotiations in
even as late as this afternoon, is that right?
A No, it's not right.
74
McBride - Cross (Lev)
Q The board approved the agreement this afternoon or a few
days ago?
A They approved it a few days ago.
Q But they didn't --
A They approved us to sign off what was within the realm of
what we signed off on.
Q But they didn't approve this particular --
A Yes, they did.
Q I'm not sure --
A What happens with the board is they give you latitude to
sign within a certain range of things. And if you get the
deal there --
Q I didn't ask you --
A -- then you sign and that's what we got to.
Q I didn't ask whether this agreement was within the
latitude of what the board gave you. I asked whether the
board approved this particular agreement.
A Yes, they did.
Q This particular one that didn't exist when they had the
board meeting?
A They approved this deal.
MR. SPECTOR: Objection. I think they're
argumentative. I think the facts are on the record and we can
just make our own conclusions from it. I object.
MR. LEVIN: I'll withdraw the question, Your Honor.
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McBride - Cross (Lev)
THE COURT: All right.
BY MR. LEVIN:
Q You also testified, I think you said that the ruling from
this Court, I guess although you didn't date it but I recall
it was in November of 2007, made it hard to move forward with
the York deal?
A I don't remember the time frame. It was sometime between
-- well, it was sometime in that general time range.
Q But did I get it right that you said that the ruling from
this Court made it hard to move forward with the York deal?
MR. SPECTOR: Your Honor, my recollection is
different. The record --
MR. LEVIN: I'm asking the witness to confirm what I
thought I wrote down and heard during the testimony.
THE COURT: Overruled.
A I recall that the York principal, Charlie Hale came back
to me and there was a writing that came from this Court. I
don't remember exactly when it came from, but I believe Your
Honor made a written statement that you weren't -- didn't
understand yourself how a deal could get done when so many
issues were in issue in the District Court out in Utah. And
that's the statement that I was referring to, that came up in
the York deal.
That was the statement that made it difficult for them to
complete a deal with us.
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Colloquy
Q Thank you, Mr. McBride.
MR. LEVIN: Your Honor, I have no further questions.
THE COURT: All right. Anything further?
MR. SPECTOR: I have no redirect, Your Honor.
THE COURT: All right. Mr. McBride, you may step
down.
(Pause)
MR. SPECTOR: Your Honor, I think we have other
witnesses but I don't want to belabor -- I don't think we wish
to call any more witnesses on this point.
THE COURT: On this point?
MR. SPECTOR: Yes.
THE COURT: I think they're resting on the issue of
the introduction of the agreement of sale into the record.
MR. LEVIN: Your Honor, as you can imagine, we would
not have any witnesses on that motion.
THE COURT: Understood.
MR. LEVIN: And since it is their motion to excuse a
late filing, I believe Mr. Spector would have the honor of
arguing the motion.
THE COURT: All right.
MR. SPECTOR: Not until he tells me he doesn't have
any witnesses. Then I can argue.
THE COURT: Of course.
MR. SPECTOR: All right, so now that the record I
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Spector - Argument
guess is closed evidentiary --
THE COURT: Yes.
MR. LEVIN: You know, Your Honor, there is a
complete record in this Court of all the proceedings over the
last 21 months. We are assuming that that is part of the
record on what we're proceeding.
THE COURT: Of course.
MR. LEVIN: Thank you.
MR. SPECTOR: And I wouldn't assume otherwise. The
Court can always take notice of what occurred in its own
Court.
THE COURT: Absolutely.
MR. SPECTOR: But having said that, you know, when
you're on the bench, things come before, but you can
appreciate, you see a slice of the case. You don't see how
the sausage is made.
This is the first time I believe that I can recall
anyway, that we've actually showed how the sausage was made.
And it's not a pretty sight in any case, and it wasn't pretty
in this case. All the different chefs and all the different
ingredients that were going in, we had -- well, I don't have
to make a dramatic or poetic explanation about it. Your Honor
heard the testimony, I'm not going to reiterate it. We didn't
know -- we didn't know until this Court commenced today that
we had a deal.
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Spector - Argument
It's not like we've been sandbagging. We've been
working our rear ends off for a long time. Even if Mr. Norris
was a principal a year and a half ago, things happened in that
time. Different people came to the table than the original
ones. The Court ruled in Utah that the 40 million dollars that
we were looking at is now two and a half plus interest. The
Court ruled that we owned the business we thought we owned,
with of course there are other issues that are still before
the Tenth Circuit, but we still did have a business to sell.
We had people coming to us as recently as this
weekend who were better situated to take this deal -- not this
deal, a different deal, than the folks who came to the table
today.
I don't know what else we could have done. We could
have -- we could have sprung it in the middle of Mr. McBride's
testimony. You know, that's one way we could have done it.
We could have said all right, Mr. McBride, have you got
anything interesting to say that happened today on the way to
Court. Oh, yeah, we signed a deal. I didn't think -- the
only other alternative to that was to do what we just did.
And I apologize. It's not the way I want to do it, and I
don't think anybody wants to do it that way.
But the fact of the matter, the evidence is plain.
You heard Mr. Caplan testify about what was going on. If you
want to call it newly discovered evidence, I'm not really sure
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Spector - Argument
that's the appropriate, it's really newly discovered facts,
events, they were evolving.
And I think Your Honor hit the nail on the head
before. If we were halfway through a trial and something
happened, that was material, that would change it, you
wouldn't say I'm sorry, you didn't tell us about it two weeks
ago.
Life doesn't play that way. You have to take what
comes. And this is what came. And it's material. A material
issue for the life of this case, and which way the Court will
go.
There's no sandbagging, there's no gamesmanship.
It's unfortunate that it came as late as it did. If I had my
druthers, we would have had it in time for me to write about
it in response. That was one of the deadlines that was called
a soft deadline by everybody. I wanted to be able to say it
in the response. Here's an unusual circumstance. We've got a
buyer who's going to pay two and a half times the amount of
debt, and will do it now, before you could ever get it done
with a Chapter 7 trustee and a 341 and a due diligence the
trustee has to do and starting all over. We've got the deal
done.
If we're worried about creditors in the case, we've
got them covered. Novell is covered, they've got a judgment,
Novell is covered. I'm sorry if I'm deviating into the merits
80
Lewis - Argument
of the deal but I'll cut it off pretty soon. The creditors
and Novell are covered. Everybody else under our scheme as I
suggested earlier will be taken care; that is IBM, Red Hat,
we'll deal with them in Court, there will be no discharge
and we'll be on our way.
I don't see why that isn't an acceptable deal to
everybody in the courtroom, number one. And number two, I
don't see why we should be faulted for bringing this to Your
Honor when we did. We couldn't have done it any sooner.
THE COURT: Thank you, Mr. Spector.
Oh, Mr. Lewis, I see you've drawn the straw again.
MR. LEVIN: Your Honor, Mr. Lewis does such a much
better job that I wanted him to go first this time.
THE COURT: All right.
MR. LEWIS: Your Honor, you're clearly on Mr.
Levin's side.
Your Honor, if you look at the picture here, not
just sort of the little bit of testimony you got today, what
you see, but certainly some of the testimony you got today was
important, what you see is a debtor that has not been able to
produce anything, struggles to produce something at the very
last moment, counsel apologizes that he doesn't like to do
things this way, and I'm sure he doesn't, but you know, Your
Honor, that's been the rule in this case, not the exception.
That's happened every time.
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Lewis - Argument
We saw this with the York deal. It wasn't complete
and counsel was up here saying gee, Your Honor, you know, it's
not the way I would do it but you know, it's the best we could
do. SNCP plan, the same thing. And now we're hearing it
again. And we're not even able to evaluate it like we did
with the SNCP or York deals because we don't have those papers
in front of us in a timely fashion.
And so, I would -- although I recall, it was in one
of those two, the papers were being brought as we spoke, as
has happened again this morning.
So I think you have to look at this in the big
picture, both in terms of the procedure in this that we've
lived with in this case. And also you have to look at it in
terms of the debtor's opportunity and what the debtor explains
was the problem.
We've heard one reason after another why the debtor
couldn't get something together. Needed the ruling in the
District Court. Needed the appeal to be on file. And
everybody would be come flooding out of the woodwork. Well,
that didn't happen, on any occasion.
And what you see today is apparently, if you look at
the timing, these deals all of a sudden started coming out of
the woodwork about the time the motions to convert got filed,
which is more than a coincidence, I suspect.
And what was the debtor doing in all this other time
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Lewis - Argument
that it was telling this Court that it was going to have a
deal? It told this Court that in June for the extension,
asked for that; it told this Court in September for the
extension and asked for it then; gave the Court reasons why
there was just one more little thing that had to be done and
everything would be on the table.
And now we have a sale agreement which counsel
represents does this, that and the other thing. Of course
we're not in a position to assess that today, because we don't
really know what's in it. We don't know what the terms and
conditions are. We don't know what the outs are.
I recall with the SNCP deal, what we were able to
look at was, the questions were more of what doesn't it do, or
what are the king's x's than anything else. Maybe this has it
and maybe it doesn't, but once again, we're in a position
where, because of the way this case has proceeded, not on
occasion, but essentially as a matter of course, we're in
another position where we are being blind sided at the last
moment because the debtor wasn't doing its job, and only
really started pressing, and other people only really started
responding when the motions to convert were filed. That's
what it looks like to me, if you look at the timing. It's
uncanny.
And so, -- and in terms of the effect of all of
this, an unspoken premise of this whole dispute is well, if
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Lewis - Argument
the Court grants the motion to convert today, this all
disappears. We don't know that.
Once again, I want to emphasize, we didn't ask to
have this case dismissed. We simply have asked to have it
transferred to the judgment of a neutral who could consider
what to do in a more thoughtful fashion than we think has been
the case here, and who could at least shut down the monies --
losing operations in the business, we're told well, Novell's
covered because there's something in this deal. Well, if the
deal doesn't happen and we go on for another couple of months
or weeks -- one of the things I did see in this sale agreement
is the closing is 90 days, or longer if they want to extend.
And of course, we don't know what the outs are.
So, how are we covered? We're only covered because
the debtor wants you to conclude that what it says about the
deal is not only in the deal, but the deal will close. Those
two things are certainly not obvious today, when this Court
has to rule, or in the next 15 days when this Court has to
rule on the motions to convert. And I want to emphasize
again, we're not talking about a dismissal of this case.
We're talking about putting a neutral in charge who will be
able to make some considered judgments that we think the
record in this case -- and I want to go back to the motions to
convert and the whole record in the case, we think the debtor
has demonstrated it lacks. And it has always sort of waited
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Levin - Argument
for the perfect opportunity to come along. And then when
somehow the opportunity doesn't come along, they file
something at the last moment and ask the Court for some
accommodation.
Well, I would ask the Court to look at the record in
this case, look at the facts, not the sort of semi-opinion
testimony we heard here. If you look at the facts, there's no
certainty this deal is really the deal. Mr. Caplan admitted
this was rushed, there might be changes. I'll bet we're going
to start hearing about all kinds of things that the sort of
whoops's and gee, we don't like to do it this way but we were
so rushed and now we have to change it again.
It's going to be the same story this Court has heard
again and again and again, not just intermittently. Thank
you, Your Honor.
THE COURT: Thank you, Mr. Lewis.
Mr. Levin, I read your articles on the case law with
great interest.
MR. LEVIN: Thank you, Your Honor.
THE COURT: I just have been wondering what happens
if I don't decide it in 15 days, do they take me out behind
the building and shoot me?
MR. LEVIN: You know, that's a little bit like that
45-day automatic dismissal for Chapter 7. Yes, Congress
wasn't so good at the drafting this last go-around, as I think
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Levin - Argument
we all agree.
THE COURT: Absolutely.
MR. LEVIN: Your Honor, if the Court determines to
consider this asset purchase agreement in connection with the
motion to convert, I have a lot to say about it, in the few
minutes I've had to think about it, and if the hearing gets
adjourned or continued, I'll have perhaps some more thoughtful
things to say about it than I can say on the fly this
afternoon.
I want to discuss -- and I think there will be ample
reason, which we will be able to address in that context of
whether that document should constitute unusual circumstances
for the motion to dismiss -- convert, excuse me.
I want to talk about whether this Court should
consider it, and what's the hurry up -- what's the hurry up
rush here.
There are local rules that require oppositions to be
filed by a certain number of days before the hearing. In this
case, there was a stipulation with the other side that they
would file their opposition by June 5th, and that was in
exchange for our agreement to go not only just beyond the
days from when the motions were filed, but then a few days
more beyond that. That was the deadline.
And the question is whether this Court is going to
enforce its own deadlines. As Mr. Spector said just a moment
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Levin - Argument
ago, and I think this is the key, oh, that was just a soft
deadline. We should would have liked to have had this
agreement in before the opposition but we didn't. Today was
the real deadline. That's not the agreement that we had with
the debtor, and that's not what this Court's rules say.
The testimony is clear that these negotiations have
been going on at least since December, maybe we can say since
January of this year, five to six months ago. Mr. McBride
testified that the Norris represented group, MerchantBridge
has been putting in substantial effort on this, at least for
the last five months.
Yes, it's not always easy to get to an agreement.
But if the parties understood that June 5th was really a
deadline and not just a soft deadline, the parties would have
found a way to get to an agreement, because deadlines do drive
agreements. And what Mr. Spector is telling you is that the
debtor does not respect this Court's deadlines, but it sets
its own. And it set the deadline at two o'clock this
afternoon, as Mr. Caplan's testimony showed; that the
agreement came in at 1:10, they debated whether they should
make any changes, they concluded that they shouldn't, we can
only surmise because it was ten till two and they knew they
had to have a signing. And that was what they considered the
real deadline.
Your Honor, we don't believe that the debtor should
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Levin - Argument
be allowed to flout this Court's procedural rules in such a
way and have this considered as part of the motion to convert.
It's entirely appropriate to have it considered on a motion to
approve the sale. And we will take it up as a motion to
approve the sale.
But, it shouldn't be heard as part of the motion to
convert, and that's why we argued earlier that we were
prepared to proceed on the record as it existed before this
hearing started. Thank you, Your Honor.
THE COURT: Thank you. Anyone else?
Good afternoon, Mr. McMahon.
MR. McMAHON: Good afternoon, and very briefly. I
just want to refer to a point that's made in our papers, Your
Honor, with respect to the cause for relief that's been put
before the Court.
As Your Honor knows, our office's motion
specifically identifies one ground for relief, that's the
substantial loss continuing. The language is in the motion.
I don't feel a compelling need to recite the statute for the
Court, other than to point out that in the text of our papers
we do note that the exceptional -- I'm sorry, the unusual
circumstances exception is the way we read the statute after
the BAPCPA was enacted, does not apply to that particular
section of the statute.
And clearly whether this entire, I guess, proposal
88
Spector - Rebuttal Argument
by the debtors and the analysis by the Court should be taken
into account whether or not the motion can proceed on that
individual ground alone, meaning that whether or not this is
effectively a request by the debtors to defer a hearing on the
motion to convert for unusual circumstances.
And that -- that is an issue which I think that the
Court has to consider in ruling on the instant request by the
debtors.
THE COURT: All right, thank you, Mr. McMahon.
MR. SPECTOR: Taking the latter one first, Your
Honor. There's a -- not only does unusual circumstances cover
the grounds that were alleged, it also -- substantial unusual
circumstances that deal with the gross mismanagement, that
deal with the Subsection J issue, and all the other ones. So
it would come in for those anyway.
We have other evidence on the -- we haven't gotten
to the merits of our case but we have other evidence on those
other issues. It goes to the reasonable likelihood of
rehabilitation, for one thing. I mean, rehabilitation in the
pure form of art form that is in the case law that has been
cited by both sides, exists when a company can continue in
business, pay all its creditors and go out of -- and that will
happen with this sale. It has to be relevant to that anyway.
So, the -- I'd like to get more to the -- talk about
deadlines and rules. I was told by local counsel, and review
89
Spector - Rebuttal Argument
of the local rules confirms, there was no formal pretrial in
this case. You would think that Congress would have allowed
Courts to have pretrials on big matters like this,
appointments of trustees, so that you didn't have trials on
the fly like we do. But it's okay, we have to deal what we
have to deal with.
But, there's no local rule that says what has to be
in a response. So, they file a motion to convert. We say
they will not make the case, they've got the burden, here are
unusual circumstances. We may be able to show unusual
circumstances. We may not even say those, but all the
response has to do is put it in issue.
There's nothing in the local rules, there's nothing
in practice, there's nothing in the national rules or the
Magna Carta that says we have to say in our response "oh by
the way, here's what we're gonna argue when we get there". I
would have done it anyway, because I want to be persuasive.
But there isn't any local rule, there isn't any deadline we
violated. We gave a response, we gave it on the day of the
deadline. It was pretty fulsome as it was. Now we had some
new fact that just happened.
Now this isn't technically a Rule 60 motion, under
Federal Rule of Civil Procedure . It's not technically a 9023
motion under the Federal Rules of Bankruptcy Procedure.
But if you use that by analogy -- Your Honor asked, we want to
90
Spector - Rebuttal Argument
know if the debtors stalled, is this a gamesmanship. I think
the record is absolutely clear that we didn't stall, it's not
gamesmanship. They're not even arguing that it was. They're
just basically saying "there they go again".
Yes, I know, there we go again. But it isn't
gamesmanship, it isn't stalling, not sandbagging. It's how
life exists from time to time in the messy trenches.
And there just doesn't seem to be any reason why,
under the parameters that Your Honor set down for this mini
trial, why the Court should not take this into evidence and
let us make our case to show why this deal is good either way.
There's other deals as well.
Now, I'm intruding on our time. You have till six
o'clock. And the reason I'm doing that is, if Your Honor
allows us to bring this deal before Your Honor for the purpose
of proving our case, not to sell, not to approve the sale, to
prove that we have a likelihood of rehabilitation -- remember,
it's got to be a reasonable likelihood of rehabilitation,
we've got that. We've also got an unusual circumstance. And
that's just this. I have other -- I never did get to my
opening -- all the other unusual circumstances that we would
bring to bear, Your Honor.
But, we have a trial to start, and we haven't
started now. So if Your Honor allows us to bring the deal
before Your Honor as evidence, we are never going to get the
91
Colloquy
trial done today anyway, and I'm intruding on my time just to
say Mr. Singer has a suggestion. He's got a witness here
who's an expert. She's come from somewhere else. Perhaps if
Your Honor then says okay, we'll let it in but we'll give you
time to cross-examine, we'll adjourn this to another date, and
we'll come back and we'll have Mr. McBride testify about the
contract and you can cross-examine to your heart's content on
that date, can we use the remaining time -- and I know I'm
being presumptuous to let's get some witnesses on Mr. Singer's
case out of the way so that when we come back it will be
strictly on the bankruptcy issues that we haven't really
gotten to today?
THE COURT: Well, we're mixing up issues. Let me
take one at a time on this, because the first one is difficult
enough. And you know, I think that Mr. Lewis stated it well
when he said the Court has to look at the big picture. And I
do, when I look at the record in this case. The big picture
is what is in the debtor's best interests, the debtor's
estate's best interest. That always has to be a Bankruptcy
Court's concern, and that is my concern here. And I don't
think that anyone could take issue with that.
I have not heard evidence which suggests that this
deal that may hopefully -- that will hopefully happen was
somehow manufactured simply to stall today's hearing. I don't
believe that's the case. In any event, we can't stall it
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because we've commenced the hearing today and it has to be
decided within days. So I think that any delay will be
obviously of a minimal extent, and it really will I think turn
upon counsel's schedules even more than mine because I will
make myself as available as I can.
So under these circumstances, I just think that the
big picture requires a bankruptcy judge to take into account
all evidence which may relate in any way and bear upon what is
the bankruptcy estate's and its creditors' best interests, and
that certainly includes a potential sale of assets.
And for that reason, I am going to allow the
evidence to be presented relating to this agreement of sale,
and I think it's a critical issue for the Court to consider.
I do -- you know, whether this is contrary to deadlines or
not, or whether it's late or whether it's new, I'm not really
quite sure, but I know that it is evidence which this Court
ought to take into account in the big picture.
That then brings us to the issue of whether we
proceed now or if the movants would like to have some time to
investigate, take discovery, whatever into this agreement of
sale.
MR. LEVIN: Your Honor, may we have a few moments to
confer?
THE COURT: You may certainly. Take five or ten
minutes. Perhaps even talk a little bit about scheduling.
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And talk with, if you will, with Mr. Spector about his
suggestion about testimony from the expert witness who is in
Court today.
MR. LEVIN: Thank you, Your Honor.
THE COURT: Thank you.
(Off the record at 5:04 p.m.)
(On the record at 5:40 p.m.)
THE CLERK: Please rise.
THE COURT: Thank you, please be seated.
Mr. Levin.
MR. LEVIN: Your Honor, thank you for accommodating
our procedural interlude.
THE COURT: Yes.
MR. LEVIN: We hope it was productive. Here's what
we have to propose, and I believe the debtors will agree with
this.
We believe there's a lot of common issues between
the motion to approve the sale which has not yet been filed
but which will be filed shortly, and the motion to convert.
I'm not saying they're all common issues, but there is some
overlap.
THE COURT: Sure.
MR. LEVIN: And in light of the develops today, on
our side, we would prefer to put everything off to a date
which would be the date for the hearing on the motion to
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approve the sale, assuming it gets filed within the next few
days, and we'll talk about that in a moment; to have
everything heard all at once, a combined hearing on the sale
motion and the motion to convert approximately 30 days hence,
depending upon the Court's calendar.
We would need to agree on some interim dates as
well. For example, a deadline for filing the sale motion, a
deadline for any amendments to the asset purchase agreement,
and we will also talk about discovery schedules as well.
I think those matters we can take off line, with
just counsel, and come back to the Court for a telephonic
hearing if we cannot reach agreement on those, once we know
what the hearing date will be, and the hearing date I think we
agree, we would like to get a full day, either a morning and
an afternoon or an afternoon and the next morning, either way.
THE COURT: So we're talking sometime, sometime
roughly around the middle of July.
MR. LEVIN: Yes, Your Honor.
THE COURT: Is that right?
MR. LEVIN: One other point if I may make --
THE COURT: And Mr. Lewis's schedule is of
importance to the Court as well.
MR. LEVIN: Yes.
MR. LEWIS: Thank you, Your Honor.
MR. LEVIN: Mr. Lewis's schedule would make it most
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convenient if the hearing were on July 16.
THE COURT: July 16?
MR. LEWIS: I have a hearing the next day in front
of Judge Sontchi, I'm going to be here already, and my
schedule is pretty tight until then. If that works for the
Court, if not, then we'll pick another day because there are
other people to consider as well as the Court here. But if
that works for the Court, that would be far the best for me.
THE COURT: Well, here's I'm going to do. I'm going
to try to -- I do have a number of things scheduled for the
16th. But if you will give me until tomorrow to check with
those parties, just to make sure that their matters are not
urgent and I can shift them a day or so, then we --
MR. LEWIS: That is very kind, thank you.
THE COURT: -- then we'll do that and we'll try and
schedule it for the 16th.
MR. LEVIN: That's very generous, Your Honor. Is it
-- should we put a backup date on right now in case that
doesn't work?
THE COURT: Yes. I see, from my calendar, I have a
lot of time either the 20th of July, which is a Monday, or the
14th which is a Friday, or the 27th which is a Monday. I mean
I'm --
MR. LEWIS: The 24th is -- the 20th doesn't work for
me because I'll be at the Ninth Circuit Judicial Conference,
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I'm a lawyer rep there.
THE COURT: Okay.
MR. LEWIS: So the 24th or the 27th, either one is
okay with me.
THE COURT: Any preferences from other folks?
MR. SINGER: Your Honor, I have a conflict on the
24th. The 27th I think would work.
THE COURT: The 27th would work?
MR. LEWIS: That works for me as well.
THE COURT: All right, so --
MR. LEVIN: We'd like that as a backup, Your Honor.
It's a little longer than we'd like to go.
One other procedural point I'd like to make -- I
told you he was better, he reminded me -- that that would be
deemed to be the 15th day after the start of this hearing
today.
THE COURT: Okay.
MR. LEVIN: The date of that hearing would be deemed
to be the 15th day.
THE COURT: All right.
MR. SPECTOR: I did remember hearing that --
MR. LEVIN: Well, I will let Mr. Spector comment on
that. I mean, of course we're willing to make it the 12th or
13th day if Your Honor needs a couple of days to decide, but
we're not willing to let more days run after that.
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THE COURT: I understand.
MR. SPECTOR: Your Honor, that wasn't the subject of
our discussion. I told them, I said make your proffer and I'm
just going to nod yes, but I take that back now.
What I would say is let us not agree on anything,
let Your Honor make the decision. Because if you decide
you're going to decide it that date, decide it that date.
THE COURT: Let me give myself at least a day to
decide it.
MR. SPECTOR: Well --
THE COURT: And look, I think the parties are
accommodating one another, you're working hard. I don't want
to do anything that you know, in any way interferes with those
efforts. I think a day would be sufficient for my purposes,
frankly.
MR. LEWIS: Your Honor, we're more than content to
the Court taking two days, maybe three days. Part of the
point is we just want to know it's going to end, and it's
going to end quickly.
THE COURT: I agree. I agree. I'm just looking at
my schedule. All right, let's do two days.
MR. LEWIS: Okay.
THE COURT: Let's do two days, just to be --
MR. LEWIS: We certainly want the Court to have time
to do it, consider a decision --
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THE COURT: Yes.
MR. LEWIS: -- and we don't want to create an
artificial rush on that.
THE COURT: Absolutely.
MR. SPECTOR: I don't understand. We're going to
try this for two days, Your Honor? Is that what --
THE COURT: No, no, no. We're going to have the
one-day hearing, and then I'll have two days to issue a
decision.
MR. LEWIS: Two days will be the 15th day.
THE COURT: Because I have only 15 days, you know,
under the Code, and I think that will be sufficient.
MR. SPECTOR: All I'm saying, Your Honor, and
suggesting --
THE COURT: Yes.
MR. SPECTOR: -- I know judges set their own
deadlines for themselves.
THE COURT: In this case, if it sort of helps things
along, I'm pleased to do it. And you know, I think it's best
sometimes to do -- to get right to something. So that's how
we'll handle that aspect.
MR. LEVIN: Thank you, Your Honor. And we will
spend a few minutes after the hearing among ourselves, trying
to talk about some of those interim dates --
THE COURT: All right.
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MR. LEVIN: -- and we'll wait to hear from your
chambers on the July 16th.
THE COURT: Yes, or the 27th.
MR. SPECTOR: We should tell the judge what types of
deadlines we're going to set?
MR. LEVIN: I thought I did.
THE COURT: I think it was the sale itself, of
course, the asset purchase agreement, and the amendments to
that and discovery.
MR. LEVIN: Sale motion --
THE COURT: And I guess you ought to also talk about
perhaps any additional submissions.
MR. LEVIN: Yes. Okay, so let me reviewing the
bidding on that. The deadline for filing the motion to
approve the sale.
THE COURT: Right.
MR. LEVIN: The deadline for any amendments to the -
- any amendments to the asset purchase agreement.
THE COURT: Yes.
MR. LEVIN: A discovery schedule, and a deadline for
further written submissions to the Court.
THE COURT: Right.
MR. LEWIS: Your Honor, I was also thinking, maybe
the same deadline, a deadline for submission of a list of
direct witnesses and the scope of their testimony. Not the
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detail but just something --
THE COURT: Right.
MR. LEWIS: -- which allows parties to prepare so
we're not all coming in here blind trying to figure out what
we're going to be doing.
THE COURT: Right.
MR. LEWIS: It would be a much more efficient
hearing for that reason, too.
THE COURT: I think that would be welcomed. A list
of witnesses and just a, at least an outline of what their
testimony will entail.
MR. SPECTOR: We've been happy to supply that all
day.
MR. LEVIN: And Your Honor, Mr. Spector advises me
that there may actually be bidding on this sale, not sure
yet --
MR. SPECTOR: No, no, sir.
MR. LEVIN: No? I misspoke.
MR. SPECTOR: Let's go -- when we were out in the
hallway, again, sausage, they proposed certain things to us.
And one of them was bid procedures motion and bidding and that
type of stuff. And I quickly said no, that wasn't what our
intention was, we were going to go with this deal, and that
was it.
But we don't know that parties in interest might
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have -- if parties in interest took a different point of view,
we're not sure we can foreclose them. And if there such a
thing as that, that the U.S. Trustee or party in interest --
THE COURT: I was thinking that.
MR. SPECTOR: You were.
THE COURT: I was thinking that the United States
Trustee might have an issue with no bidding.
MR. SPECTOR: Right.
THE COURT: At an auction.
MR. SPECTOR: The rule which I had already marked
allows for this and I just read a case recently where the
Court went into that. And then again, we've been doing
nothing but testing the market for two years almost. So I
would be making -- if I were taking that position, I would be
making an argument about that.
However, we wanted to leave -- they wanted to leave
the door open for that as a potential deadline for bid
procedures. And I finally acquiesced because I didn't want to
be difficult and Mr. Levin had raised it.
THE COURT: Mr. McMahon.
MR. McMAHON: Your Honor, good evening. Joseph
McMahon.
I actually jumped in with respect to the marketing.
I don't think we need to get into scheduling a two-tiered
structured at this point bid procedures and a sale hearing.
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My point in the hallway was simply that I trust that the
debtors would be serving their sale paper motions back on the
parties that were described in the testimony.
THE COURT: Certainly.
MR. McMAHON: I doubt that they're aware of the
terms of the finalized agreement, certainly we weren't walking
in the courtroom and -- I think that's where we start on that
point. In light of the, you know, Mr. -- I'm sorry, in light
of counsel's remarks regarding the length of these cases, we
know what the state of SCO is and has been for awhile. But I
think that there are certain things that have to be
demonstrated in order to show that the marketing effort was
complete.
THE COURT: Yes. And the last thing we need is one
of these parties who was in negotiations with the debtor
coming in at the sale hearing and saying you know, we were
prepared to do better or we never were consulted or whatever.
MR. LEVIN: Well, then if I can phrase the last
deadline that we should discuss, Your Honor, as follows.
THE COURT: Yes.
MR. LEVIN: We'll try to set a deadline for SCO, the
debtors, to change any of the process in the sale motion that
they will file in the coming days.
In other words, I expect --
THE COURT: Yes. Yes.
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MR. LEVIN: Understood?
THE COURT: Understood.
MR. LEVIN: Thank you, Your Honor.
THE COURT: Yes, Mr. Levin, that finally sunk in.
MR. LEVIN: I didn't mean it that way.
THE COURT: Yes, well, I understand that.
All right.
MR. SPECTOR: We've got the date the 16th, and I'm
getting whispers that if we're going to have all this
discovery and all this process, it may be necessary to push it
back to the 27th because -- if we're really going to do -- if
they don't do discovery, the 16th is fine. But if we're going
to have a lot of discovery, it may be --
THE COURT: I'll tell you what. Why don't you talk
about that.
MR. SPECTOR: Okay.
THE COURT: Because you'll know better perhaps what
kind of discovery you're contemplating. I would hate to see
anyone here lock in a schedule only to regret it later, with
vacations and the like. So, if you want the 16th, if the
movants want the 16th, that's fine. I will do everything I
can to get the 16th. Otherwise, if you prefer the 27th, I
know that that is open.
MR. LEVIN: We'll talk about it, Your Honor.
THE COURT: All right. All right, counsel.
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Anything further?
MR. LEVIN: No. We'll report back to chambers.
MR. SPECTOR: We'll report back to chambers.
THE COURT: Well, as usual, it was an interesting
hearing, and I'll look forward to the next one. So we'll
stand in recess. But really, if you need me, get me on the
phone tomorrow.
ALL COUNSEL: Thank you, Your Honor.
THE COURT: Thank you. Good evening everyone.
(Matter concluded at 5:52 p.m.)
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