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And Novell Fires the First Shot - Motion to Lift Stay and Motion to Compel
Thursday, October 04 2007 @ 06:09 PM EDT

Here we go: Novell has filed a Motion For Relief From Automatic Stay to Proceed With District Court Action to (I) Apportion Revenue From SCOSource Licenses and (II) To Determine SCO's Authority to Enter Into SCOSource Licenses, Etc. [PDF] and a Motion For Order Directing The Debtor to Remit Undisputed Future SVRX Royalties to Novell Upon Receipt [PDF]. Also, there's an Affidavit of Greg Jones [PDF] in support and attachments.

OK. The battle has begun. Happy now? I don't know about you, but the suspense was killing me.

Novell tells the court in its motion to compel that it wants all its future SVRX money as SCO collects it, without it touching the estate. Otherwise, Novell says, SCO may "improperly use Novell's property to fund SCO's bankruptcy" -- and all I can say to that is Amen -- and Novell says in that case, it will become a "forced lender of new high-risk loans to the estate."

This was not something intended by the parties in the APA, which gave Novell the right to reclaim the SVRX licenses and the collection of their royalties in its sole discretion precisely to enable it to protect itself against SCO as a credit risk. Indeed, Novell could seek to exercise its rights under the APA Section 4.16 forthwith, thereby denying SCO the ability even to earn its 5% administrative collection fee. Nor is such a forced "loan" of another's property authorized anywhere in the Bankruptcy Code.

Novell does have a way with words. Actually, it goes on, it would "turn Novell's property into an involuntary gift to the estate and its creditors. Nothing in the APA or Bankruptcy Code sanctions SCO's use of Novell's property this way."

As for the disputed monies from SCOsource licenses, like the Microsoft and Sun licenses, Novell wants the stay lifted so it can forthwith go back to Utah and get it apportioned. It started four years ago, so it's without question prepetition. And in footnote one of the lift-stay motion, Novell "expressly reserves the right to assert that SCO's Chapter 11 cases were filed in bad faith." And significantly, on page 7, it says that Novell's claim against the SCO is "almost surely the largest". I take it Novell would like to chair the creditors' committee, let alone just be on it.

It's not asking the Bankruptcy Court for relief with respect to those matters, except for the stay to be lifted:

As Novell is concurrently filing a lift-stay motion to allow the District Court to continue with that litigation in order to address the apportionment issues (among other things), Novell does not seek relief in this Motion with respect to the Disputed SVRX Royalties. Accordingly, only the Undisputed Future SVRX Royalties are subject to the relief requested in this Motion.

As you see, they would prefer to have Judge Dale Kimball in Utah decide the apportionment, and they argue it is only fair, since the parties chose that forum and it's almost finished there. Novell says the Bankruptcy Court has the authority to grant the relief it is requesting with regard to future SVRX monies, and it quotes from a case that found that it is "not the objective of the bankruptcy laws to confer windfalls on debtors."

SCO may be disappointed to learn that.

: )

SCO shouldn't be allowed, Novell sums up, to "hijack" Novell's funds, particularly when the APA specifically agrees. Novell points out that all it's asking for is "an order implementing that bargain-for safeguard of its Bankruptcy Code-protected property rights."

As for the lifting of the automatic stay, Novell says it's entitled to go back to Utah for three reasons:

  1. The advanced stage of litigation in Utah in a complex matter. The Court there is now "fully versed". The summary judgment motions alone, Novell says, and it almost sounds like a warning to Judge Kevin Gross as to what his future will be like if he doesn't lift the stay, added up to more than 1,500 pages of briefing. And Utah is, after all, the forum SCO chose for that litigation. Further, it won't interfere with the bankruptcy, because SCO already has lawyers for the Utah matter who are ready to go to trial, which is only expected to last five days. Given the four years that went before, it makes no sense to start over. The issues have to be decided somewhere. And Utah is the cheapest place to do it at this point.
  2. Judicial economy - it'd be hard to start all over from scratch and nothing that could happen in Utah will undo the August 10 order, so it's just a matter of figuring out the apportionment and whether SCO had the right to enter into the SCOsource licenses in the first place;
  3. It aids the estate to have finality as to what the estate consists of. Further, the August 10th Utah ruling makes SCO's "business model questionable". The only time SCO made a profit was from the SCOsource licenses, and if you look at the rest of SCO's picture, Novell says, it is doubtful it can reorganize successfully under the old model. Getting all that clarified, Novell says coolly, will make it possible to determine "precisely how much of SCO's past income is attributable to its wrongful use of the SVRX copyrights" and then "SCO can then turn its focus to trying to create a sustainable business model or other strategy in furtherance of its attempt to confirm a reorganization plan." Oof. "Or other strategy." They just want their money. SCO can work the rest out as it pleases. But it needs to go forward without relying on conversion of Novell's money, Novell says, "because, obviously, SCO's post-petition business model cannot continue to be based on Novell's property." Obviously.

Whether you look at the matter from the standpoint of balance-of-the-hardships standard used in the Third Circuit or by the usual test, Novell should be allowed to go back to Utah now, and that is what it says it wants.

If the New York Daily News was coming up with a headline for this filing, it'd probably be something like this: Novell to SCO: Drop Dead. First Pay Up.

The parties, Novell tells the court, "have already run virtually the entire, grueling race; they should be allowed to take advantage of the only step that remains -- to cross the finish line."

That probably sounds better to Novell than to SCO, which is running away from the finish line with all its might, and with four law firms in tow, whispering in its ear. "Run like a bunny! Go left, now right, don't stop!"

Here are the docket entries:

89 - Filed & Entered: 10/04/2007
Motion for Relief From Stay (B)
Docket Text: Motion for Relief from Stay to Proceed With District Court Action to (I) Apportion Revenue From SCOSource Licenses and (II) Determine SCO's Authority to Enter Into SCOSource Licenses, Etc.. Fee Amount $150. Filed by The SCO Group, Inc.. Hearing scheduled for 11/6/2007 at 02:00 PM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 10/23/2007. (Attachments: # (1) Notice) (Greecher, Sean)

90 - Filed & Entered: 10/04/2007
Motion to Compel (B)
Docket Text: Motion to Compel Directing the Debtors to Remit Undisputed Future SVRX Royalties to Novell Upon Receipt Filed by The SCO Group, Inc.. Hearing scheduled for 11/6/2007 at 02:00 PM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 10/23/2007. (Attachments: # (1) Notice # (2) Attachment Part 1 # (3) Attachment Part 2# (4) Attachment Part 3 # (5) Attachment Part 4 # (6) Attachment Part 5 # (7) Attachment Part 6) (Greecher, Sean)

10/04/2007 - 91 - Affidavit of Greg Jones in Support of Motion for Relief - From Automatic Stay and Motion for Order Directing the Debtors to Remit Royalties (related document(s)90, 89 ) Filed by The SCO Group, Inc.. (Attachments: # 1 Exhibit A # 2 Exhibit A1 # 3 Exhibit B # 4 Exhibit B1) (Greecher, Sean) (Entered: 10/04/2007)

The clerk wrote that these were filed by the SCO Group, but they were not; they are filed by Novell, as you will see from the smoking prose. And 91 and all the attachments are a repeat of the attachments on 90, the Affidavit of Greg Jones and exhibits.

And of course! we need help OCRing the PDFs. Thanks if you can. Just send it to me by email, and leave a comment letting folks know what part you are doing, so we don't duplicate.

And just so we can find things again down the road, here are the contents of the attachments to #90:

  • Attachment Part 1 is the Affidavit of Greg Jones, plus the APA through page 19, Article 3
  • Attachment Part 2 is the continuation of the APA, from Article 4-7
  • Attachment Part 3 is the continuation of the APA, from Article 8 to the end (partly redacted), and Schedule 1.1(a) (assets), 1.1(b) (excluded assets), 1.1(c) (assumed liabilities), 1.2(b), 6.3(a), Exhibit 5.1(c) (Eiger development), Seller Disclosure Schedule, Attachment A (largest volume of OEM customers of Seller), Attachment B (Agreements with Most Favored Customer Pricing or Exclusive Marketing Rights for Business Products or Territories), Attachment C (trademark status report)
  • Attachment Part 4 is the APA continued, Attachment D (inventory of patents per country), Attachment E (selling copyrights in products), Attachment F (certain 3rd party royalty payments), Attachment G (seller contracts containing business-related rights which are terminable in the event of acquisition), Representations and Warranties of Buyer Disclosure Schedule, Judge Dale Kimball's Aug. 10, 2007 Memorandum Decision and Order through page 12
  • Attachment Part 5 is the Kimball order continuation from page 13 through 53
  • Attachment Part 6 is the Kimball order continuation from page 54 through the end.

While 91 is the same materials, they are set up like this:

  • Affidavit of Greg Jones is #91
  • Exhibit A is the APA through Article 7
  • Exhibit A1 is the APA continued from Article 8 through Attachment G and Representations and Warranties of Buyer Disclosure Schedule
  • Exhibit B is Judge Kimball's Aug. 10 Memorandum Decision and Order through page 53
  • Exhibit B1 is the continuation of the Kimball order to the end.

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