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Novell's Motion in Limine No. 3 to Preclude SCO's New Theory of Apportionment
Sunday, August 26 2007 @ 08:19 PM EDT

Do you remember that in Judge Dale Kimball's ruling on August 10, he declined to order a constructive trust or an accounting because he assumed Novell already had gotten the necessary information during discovery? In this filing, Novell breaks the wondrous news that his assumption is mistaken.

SCO has not provided the information Novell sought, we learn. It relied instead upon its theory that the information was not required to be provided, because the Sun and Microsoft licenses were not SVRX licenses. The judge ruled they are. So now what?

Novell's position is that SCO's only theory of apportionment throughout discovery has been nothing to Novell and all the money to SCO, and therefore, Novell argues, it should be precluded from presenting any new argument or evidence regarding any new theory of apportionment, as that would reward their breach of fiduciary duty. I know. I thought Novell must have the information by now too.

Here is Novell's Motion in Limine No. 3 to Preclude SCO From Introducing New Evidence or Argument Regarding Apportionment of SCOsource Revenue [PDF]. And here is the Opening Brief in Support of Novell's Motion in Limine No. 3 to Preclude SCO From Introducing New Evidence or Argument Regarding Apportionment of SCOsource Revenue [PDF], as text, in which you can read all about it.

Here's what the judge said:

Although the court finds that Novell meets the requirements for the imposition of a constructive trust, the question of fact as to the SVRX portion of the 2003 Sun and Microsoft Agreements precludes the court from imposing a trust for the appropriate amount. Furthermore, despite Novell's fears regarding its ability to collect its royalties, the appropriate amount of SVRX Royalties can be determined at trial. Because of the question of fact, the court denies both Novell's and SCO's motions for summary judgment on Novell's Sixth Claim for Relief for constructive trust.

Novell also seeks the equitable remedy of accounting under its Ninth Claim for Relief. The APA obligates SCO to give detailed monthly reports and to comply with audits. APA 1.2(b), (f). To the extent that SCO has failed to comply with these requirements with respect to the 2003 Sun and Microsoft Agreements, the court notes that it has a continuing duty to fulfill its contractual obligations. Novell also has continuing rights under the APA to conduct audits as to SVRX Royalties.

The court assumes that, through discovery in this action, Novell has actually obtained the information it needs to demonstrate its damages with respect to the SVRX Royalties it is due under the 2003 Sun and Microsoft Agreements. The imposition of an accounting usually arises where "the facts are peculiarly within the knowledge of one of the parties." Van de Kamp, 204 Cal. App. 3d 819, 864 (1988). In this case, Novell acknowledges that it received copies of the 2003 Sun and Microsoft Agreement during discovery. It is also apparent that Novell has received relevant financial records and documentation from SCO because it is aware of how SCO accounted for the payments under the 2003 Sun and Microsoft Agreements. Because Novell has the information that it would otherwise obtain through an accounting, the court denies Novell's Ninth Claim for Relief for an accounting.

In the previous article, we saw that SCO has filed a motion in limine asking that Novell be precluded from introducing evidence it recently added to its pretrial disclosure lists, which Novell told the court it was only going to use if SCO offered a new theory of apportionment. Now we learn in more detail what it's all about.

It seems that prior to Judge Dale Kimball's August 10 ruling, SCO's only theory of apportionment was 100% to SCO, 0% to Novell. Novell wishes to hold them to that theory now that the court has told SCO it indeed has a continuing fiduciary duty to provide Novell with an allocation of the Sun and Microsoft SCOsource royalties.

Novell tells the court that it has tried for years to get SCO to provide that information, and SCO wouldn't:

For years, Novell has requested such information -- in audits, letters, and, most recently, explicit interrogatory requests. Throughout, SCO has provided only one "allocation" of SCOsource revenues: Novell 0%, SCO 100%. SCO's experts, moreover, never opined as to any allocation model at all. SCO should thus not be permitted now to vary from its singular disclosure. To allow SCO to surprise Novell with a new, undisclosed allocation whether through fact witnesses or its one designated expert would reward SCO for its years of stonewalling and its breach of fiduciary duties.

To be clear, Novell does not seek to preclude, by this motion, SCO from advancing again its stark "Novell 0%, SCO 100%" allocation -- Novell agrees that SCO has provided fair notice of its intent to advance such an argument through, for example, its interrogatory responses. Instead, this in limine motion seeks to prevent SCO from surprising Novell at trial with evidence or argument supporting any other division of the SCOsource revenues.

SCO never gave Novell any figure but zero. That's what Novell got in discovery. And now that SCO lost that argument, it should be too late, Novell argues, for it to suddenly introduce a new and unknown apportionment theory that it failed to present in discovery:

Because SCO refused to disclose any apportionment of SCOsource revenue in response to Novell's interrogatories, it is precluded from introducing it now. Federal Rule of Civil Procedure 37(c)(1) states, "A party that without substantial justification fails to disclose information required by Rule 26(a) [written interrogatories] or 26(e)(1) [supplemental responses] shall not, unless such failure is harmless, be permitted to use as evidence at a trial, at a hearing, or on a motion any witness or information not so disclosed." See also Orjias v. Stevenson, 31 F.3d 995 (10th Cir. 1994) (upholding trial court's preclusion of testimony that was not disclosed in party's response to interrogatory on same subject). The failure here is anything but harmless -- without preclusion, SCO will be able to surprise Novell with a new and undisclosed apportionment.

Wow. Morrison & Foerster are playing hardball. SCO tried to play that way and they lost. Now they are being shown no mercy by Novell. Novell calmly points out that they asked repeatedly for the information and SCO didn't fork it over and didn't even provide an accounting, which the court has now ruled was a breach of SCO's fiduciary duty. When Novell asked for an audit, "SCO refused to provide any information, under the blanket claim -- now rejected as a matter of law -- that the Sun and Microsoft SCOsource contracts were not SVRX Licenses". The judge says they are SVRX licenses. So SCO may now be stuck in the failed stance it held to. Novell says SCO should be precluded from offering a new theory. Why should SCO be allowed to benefit from a breach of its duty and thus ambush Novell with a brand new apportionment theory that Novell can't possibly be ready for? That would be to reward SCO for its multiple breaches of its fiduciary duty.

Worse for SCO, SCO has listed as a possible witness its expert Thomas Cargill, but while Novell says it doesn't know what his testimony will be about, it points out that in his expert report, he never spoke about any apportionment at all:

Dr. Cargill never once opines on any aspect of the Microsoft, Sun, or other SCOsource licenses, on the relative values that SVRX or UnixWare contribute to those licenses, on how one would apportion between SVRX and UnixWare in those licenses, or on any damage-related issue whatsoever. Given Dr. Cargill's failure to discuss any apportionment issues in his expert report, the Court should not allow him to testify on apportionment at trial.

And footnote 2 tells us that somehow SCO never offered any expert to rebut Novell's expert, Terry Musika, who has offered an expert report in support of Novell's damages claim. Perhaps they elected not to do so because it would clash with their then-theory of zero apportionment. Now there is no expert to rebut but Cargill, who never previously opined on that subject, and Novell presents cases that experts can't testify to subject matter not in their expert report.

In short, it looks like maybe SCO is messed up a bit, and now it's trying to fix it, by motions in limine, the one in the previous article, and its sealed motion, number 384, asking the court to exclude Musika's testimony, along with a motion "Regarding Apportionment of 2003 Microsoft and Sun Agreements". Eventually, we are likely to have a redacted copy of the currently sealed SCO motions.

But think what it would mean for SCO if Novell succeeds in this motion. It means that SCO can only offer an argument that can't possibly prevail. Novell presents its expert and evidence that it is owed whatever it thinks it is owed. And SCO can only answer that SCO should get 100 percent, which the judge has already ruled out.

Here's what I know. If ever I am in any litigation that Morrison & Foerster is involved in, please God, don't let them be on the other side.

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

Michael A. Jacobs, pro hac vice
Eric M. Acker, pro hac vice
Kenneth W. Brakebill, pro hac vice
Marc J. Pernick, pro hac vice
David E. Melaugh, pro hac vice
[address]
[phone]
[fax]

ANDERSON & KARRENBERG
Thomas R. Karrenberg, #3726
John P. Mullen, #4097
Heather M. Sneddon, #9520
[address]
[phone]
[fax]

Attorneys for Defendant and Counterclaim-Plaintiff Novell, Inc.

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION

THE SCO GROUP, INC., a Delaware
corporation,

Plaintiff and Counterclaim-
Defendant,

v.

NOVELL, INC., a Delaware corporation,

Defendant and Counterclaim-
Plaintiff.
NOVELL'S MOTION IN LIMINE No. 3
TO PRECLUDE SCO FROM
INTRODUCING NEW EVIDENCE OR
ARGUMENT REGARDING
APPORTIONMENT OF SCOSOURCE
REVENUE


Case No. 2:04CV00139

Judge Dale A. Kimball

MOTION IN LIMINE

Defendant and Counterclaim-Plaintiff Novell, Inc. ("Novell") hereby moves this Court, in limine, to bar SCO from introducing new evidence or argument regarding an apportionment of SCOsource revenue. For the reasons set forth in Novell's opening brief, filed herewith, Novell requests that this Court grant this motion.

DATED: August 24, 2007

ANDERSON & KARRENBERG

By: /s/ Heather M. Sneddon
Thomas R. Karrenberg
John P. Mullen
Heather M. Sneddon

-and-

MORRISON & FOERSTER LLP
Michael A. Jacobs, pro hac vice
Eric M. Acker, pro hac vice
Kenneth W. Brakebill, pro hac vice
Marc J. Pernick, pro hac vice
David E. Melaugh, pro hac vice

Attorneys for Defendant and
Counterclaim-Plaintiff Novell, Inc.

1

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on this 24th day of August, 2007, I caused a true and correct copy of the foregoing NOVELL'S MOTION IN LIMINE NO. 3 TO PRECLUDE SCO FROM INTRODUCING NEW EVIDENCE OR ARGUMENT REGARDING APPORTIONMENT OF SCOSOURCE REVENUE to be served to the following:

Via CM/ECF:

Brent O. Hatch
Mark F. James
HATCH JAMES & DODGE, P.C.
[address]

Stuart H. Singer
William T. Dzurilla
Sashi Bach Boruchow
BOIES, SCHILLER & FLEXNER LLP
[address]

David Boies
Edward J. Normand
BOIES, SCHILLER & FLEXNER LLP
[address]

Devan V. Padmanabhan
John J. Brogan
DORSEY & WHITNEY, LLP
[address] 50 South Sixth Street, Suite 1500 Minneapolis, Minnesota 55401

Via U.S. Mail, postage prepaid:

Stephen Neal Zack
BOIES, SCHILLER & FLEXNER LLP
[address]

/s/ Heather M. Sneddon

2

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

Michael A. Jacobs, pro hac vice
Eric M. Acker, pro hac vice
Kenneth W. Brakebill, pro hac vice
Marc J. Pernick, pro hac vice
David E. Melaugh, pro hac vice
[address]
[phone]
[fax]

ANDERSON & KARRENBERG
Thomas R. Karrenberg, #3726
John P. Mullen, #4097
Heather M. Sneddon, #9520
[address]
[phone]
[fax]

Attorneys for Defendant and Counterclaim-Plaintiff Novell, Inc.

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION

THE SCO GROUP, INC., a Delaware
corporation,

Plaintiff and Counterclaim-
Defendant,

v.

NOVELL, INC., a Delaware corporation,

Defendant and Counterclaim-
Plaintiff.
OPENING BRIEF IN SUPPORT OF
NOVELL'S MOTION IN LIMINE NO. 3
TO PRECLUDE SCO FROM
INTRODUCING NEW EVIDENCE OR
ARGUMENT REGARDING APPORTIONMENT OF SCOSOURCE
REVENUE


[REDACTED pursuant to the August 2, 2006
Stipulated Protective Order]

Case No. 2:04CV00139
Judge Dale A. Kimball

RELIEF REQUESTED

Novell requests that this Court bar SCO from introducing new evidence or argument including through expert testimony regarding an apportionment of SCOsource revenue.

BACKGROUND

The Court's August 10, 2007 Memorandum Decision and Order ("Order") holds that SCO has a continuing fiduciary duty to provide Novell with an allocation of the Sun and Microsoft SCOsource royalties. For years, Novell has requested such information -- in audits, letters, and, most recently, explicit interrogatory requests. Throughout, SCO has provided only one "allocation" of SCOsource revenues: Novell 0%, SCO 100%. SCO's experts, moreover, never opined as to any allocation model at all. SCO should thus not be permitted now to vary from its singular disclosure. To allow SCO to surprise Novell with a new, undisclosed allocation whether through fact witnesses or its one designated expert would reward SCO for its years of stonewalling and its breach of fiduciary duties.

To be clear, Novell does not seek to preclude, by this motion, SCO from advancing again its stark "Novell 0%, SCO 100%" allocation -- Novell agrees that SCO has provided fair notice of its intent to advance such an argument through, for example, its interrogatory responses. Instead, this in limine motion seeks to prevent SCO from surprising Novell at trial with evidence or argument supporting any other division of the SCOsource revenues.

I. NOVELL'S INTERROGATORIES ASKED SCO TO APPORTION SCOSOURCE REVENUE; SCO SAID IT COULD NOT DO SO.

Novell repeatedly asked SCO to apportion its SCOsource revenue. At each opportunity, SCO answered that it was not possible to do so. In Interrogatory No. 7, Novell directed SCO to identify licenses of UNIX or UnixWare from which SCO retained revenues. (Declaration of David E. Melaugh in Support of Novell's Motions In Limine, filed herewith ("Melaugh Decl.") at Ex. 5 (Novell, Inc.'s Second Set of Interrogatories to the SCO Group, Inc.) at 4.) SCO identified, inter alia, the SCOsource licenses. (Id at Exs. 6 (SCO's Supplemental Responses and Objections to Novell's Second and Third Sets of Interrogatories) at 14 & 7 (Exs. C & C-1

1

thereto).) Novell also directed SCO to identify, on a license by license basis, the amount of revenue attributable to each of the rights conveyed under the responsive licenses -- i.e., to apportion the revenue. SCO responded that "SCO does not maintain, and it would be unduly burdensome for SCO to produce, that information." (Id at 13.)

In addition, in Interrogatory No. 11, Novell asked a similar question -- Novell directed SCO to identify (i) any amendment to an SVRX License SCO entered into that was incidentally involved in an effort to license UnixWare, and (ii) any license to SVRX source code. SCO again identified the SCOsource licenses. Novell directed SCO to apportion revenue from the licenses between the rights conveyed in the licenses, and SCO again said that it could not do so. (Id at 27.)

Because SCO refused to disclose any apportionment of SCOsource revenue in response to Novell's interrogatories, it is precluded from introducing it now. Federal Rule of Civil Procedure 37(c)(1) states, "A party that without substantial justification fails to disclose information required by Rule 26(a) [written interrogatories] or 26(e)(1) [supplemental responses] shall not, unless such failure is harmless, be permitted to use as evidence at a trial, at a hearing, or on a motion any witness or information not so disclosed." See also Orjias v. Stevenson, 31 F.3d 995 (10th Cir. 1994) (upholding trial court's preclusion of testimony that was not disclosed in party's response to interrogatory on same subject). The failure here is anything but harmless -- without preclusion, SCO will be able to surprise Novell with a new and undisclosed apportionment.

II. SCO WAS UNDER A FIDUCIARY OBLIGATION TO PROVIDE THIS APPORTIONMENT IN A TIMELY MANNER.

In the August 10 Order, the Court held that the Sun and Microsoft SCOsource licenses are SVRX Licenses as to which SCO has a fiduciary duty to account for and report SVRX Royalties. (Order at 95-96.) Where any allocation or accounting needs to be made, the Court held that this, too, is part of SCO's fiduciary duties to Novell. (Id at 96; see also Rosenfeld,

2

Meyer & Susman v. Cohen, 191 Cal. App. 3d 1035, 1051 (1987) (placing burden on fiduciary to show commingled funds were fiduciary's, not principal's.)

The Court held that SCO's failure to provide such an allocation was a continuing breach of its fiduciary duties. (Order at 95-96, 98, 101.) SCO should be prevented from taking advantage of this continuing breach by surprising Novell at trial with an undisclosed allocation of SCOsource revenues.

A. Despite a Fiduciary Duty to Do So, SCO Consistently Refused to Provide
Information Concerning the SCOsource Licenses.

SCO entered into the Sun and Microsoft licenses in early 2003. SCO did not disclose the licenses to Novell. On July 11, 2003, pursuant to its rights under the APA, Novell initiated an audit of SCO's compliance with its SVRX Royalty obligations. (Melaugh Decl. at Ex. 8.) During the course of this audit, Novell requested information concerning SCO's SCOsource licenses, but SCO refused. Novell requested such information again by letters dated November 21, 2003, December 29, 2003, and February 4, 2004. (Id at Exs. 9, 10 & 11.) On February 5, 2004, SCO refused to provide any information, under the blanket claim -- now rejected as a matter of law -- that the Sun and Microsoft SCOsource contracts were not SVRX Licenses. (Id at Ex. 12.) On March 1, 2004, Novell again requested SCOsource licensing information, pointing out that a blank, publicly available SCOsource license explicitly licensed Unix System V, making it by definition an SVRX License. (Id at Ex. 13.) When no response came, Novell wrote again, on April 2, then again on November 17. (Id at Exs. 14 & 15.) SCO never responded.

B. SCO Should Not Be Permitted To Profit From Its Continuing Breach of
Fiduciary Duty By Surprising Novell With An Apportionment Now.

The Court has held that SCO's concerted and continuing effort to withhold any allocation of the SCOsource revenue is a breach of fiduciary duty. To prevent SCO from profiting from its malfeasance, SCO should be precluded from surprising Novell at trial with such an allocation.1

3

III. THE COURT SHOULD PRECLUDE SCO FROM PROVIDING ANY EXPERT
TESTIMONY ON APPORTIONMENT.

In its Second Amended Rule 26(a)(3) disclosures, SCO listed Dr. Thomas Cargill as a witness whom SCO "may call" at trial. (Docket No. 381.) Novell does not know the subject matter on which SCO contemplates that Dr. Cargill might testify. But, to the extent SCO seeks to offer Dr. Cargill's testimony on any apportionment issue in the upcoming trial, the Court should preclude such testimony.

In his report in this case, Dr. Cargill

REDACTED

But Dr. Cargill never once opines on any aspect of the Microsoft, Sun, or other SCOsource licenses, on the relative values that SVRX or UnixWare contribute to those licenses, on how one would apportion between SVRX and UnixWare in those licenses, or on any damage-

4

related issue whatsoever. Given Dr. Cargill's failure to discuss any apportionment issues in his expert report, the Court should not allow him to testify on apportionment at trial. See Fed. R. Civ. P. 26(a)(2)(B); B.H. v. Gold Fields Mining Corp., No. 04-CV-0564-CVE-PJC, 2007 U.S. Dist. LEXIS 4612, at *17-*20 (N.D. Okla. January 22, 2007) (excluding expert testimony under Tenth Circuit precedent; "Plaintiffs should have sought to supplement Cravens' report if he intended to offer a more specific opinion on causation"); Osterhouse v. Grover, No. 3:04-CV-93 MJR, 2006 U.S. Dist. LEXIS 50282, at *6-*9 (S.D. Ill. July 20, 2006) ("any opinion that any of the plaintiffs' experts would express at trial is limited to only those opinions found in their respective expert report"); Paradigm Sales, Inc. v. Weber Marking Systems, Inc., 880 F. Supp. 1247, 1255-56 (N.D. Ind. 1995) ("If Mr. Harmon was meant to state an opinion on hypothetical claim analysis or any opinion based on hypothetical claim analysis, it should have been included in his Rule 26(a)(2) report. It was not.").2

CONCLUSION

For the reasons stated above, Novell requests that this Court bar SCO from introducing evidence or testimony regarding an apportionment of SCOsource revenue.

(signature page follows)

5

DATED: August 24, 2007

ANDERSON & KARRENBERG

By: /s/ Heather M. Sneddon

Thomas R. Karrenberg
John P. Mullen
Heather M. Sneddon

-and-

MORRISON & FOERSTER LLP
Michael A. Jacobs, pro hac vice
Eric M. Acker, pro hac vice
Kenneth W. Brakebill, pro hac vice
Marc J. Pernick, pro hac vice
David E. Melaugh, pro hac vice

Attorneys for Defendant and
Counterclaim-Plaintiff Novell, Inc.

6

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on this 24th day of August, 2007, I caused a true and correct copy of the OPENING BRIEF IN SUPPORT OF NOVELL'S MOTION IN LIMINE NO. 3 TO PRECLUDE SCO FROM INTRODUCING NEW EVIDENCE OR ARGUMENT REGARDING APPORTIONMENT OF SCOSOURCE REVENUE [REDACTED pursuant to the August 2, 2006 Stipulated Protective Order] to be served to the following:

Via CM/ECF:

Brent O. Hatch
Mark F. James
HATCH JAMES & DODGE, P.C.
[address]

David Boies
Edward J. Normand
BOIES, SCHILLER & FLEXNER LLP
[address]

Devan V. Padmanbhan
John J. Brogan
DORSEY & WHITNEY, LLP
[address]

Via U.S. Mail, postage prepaid:

Stephen Neal Zack
BOIES, SCHILLER & FLEXNER LLP
[address]

/s/ Heather M. Sneddon


1 In addition, Novell will argue that, as a legal matter, any doubts as to the proper apportionment should be resolved against SCO. See, e.g., Rosenfeld, 191 Cal. App. 3d at 1051-52 ("where a fiduciary has a legal duty to allocate receipts between those in which its beneficiary has some interest and those in which the beneficiary has none, and is fully and singularly capable of making that allocation but fails to do so, a court is justified in calling upon the fiduciary to bear the burden of differentiation at trial"); Kennard v. Glick, 183 Cal. App. 2d 246, 250-51 (1960) ("an agent who fails to keep an account raises thereby a suspicion of infidelity or neglect, creates a presumption against himself, and brings upon himself the burden of accounting to the utmost for all that has come into his hands; and in such case every doubt will be resolved against the agent, and in favor of the principal"); see also Leigh v. Engle, 727 F.2d 113, 138-39 (7th Cir. 1984) ("the burden is on the defendants who are found to have breached their fiduciary duties to show which profits are attributable to their own investments apart from their control of the Reliable Trust assets . . . . [W]hile the district court may be able to make only a rough approximation, it should resolve doubts in favor of the plaintiffs").

2 SCO had every opportunity to provide expert testimony on apportionment. SCO elected not to submit any expert report in rebuttal to Mr. Terry Musika's opening report in support of Novell's damages claims.


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