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To read comments to this article, go here
The Boies Schiller Application Takes a Step Forward
Thursday, December 06 2007 @ 03:07 AM EST

Here are details from the yesterday's hearing, in the form of the orders, proposed orders, and other documents that you saw mentioned in the minutes, like extra materials from Boies Schiller in connection with the firm's application be retained as special litigation counsel. Some of the orders were signed, but not all.

The order on Boies Schiller's motion to be retained has not yet been signed. It was reworded and now has been served on everyone. We'll have to wait and see what happens next, but the idea we had formed that everything was signed at the hearing is incorrect. The US Trustee is apparently satisfied, and I'll show you the changes he made. They are substantial.

Stuart Singer had to file a Supplemental Declaration [PDF], listing any relationship with SCO's creditors, including the top 20 SCO creditors. And the firm filed a Certification of Counsel with a proposed order attached. I'd say the US Trustee has just turned the handle on the SCO money-to-lawyers spigot down to less of a torrent. Bills will be scrutinized by the Bankruptcy Court now, and that includes fees on transactions that under the Engagement Letter would have meant contingency fees for the firm. So those of you worried about the lawyers getting a cut of the York deal can relax a bit. Any transaction fee must now be approved by the court. Nothing is automatic now, not even if Boies Schiller were to win a victory, hardy har, in the Novell or the IBM litigation. With respects to Kevin McBride, there is an interesting situation. And there is nothing filed yet with respect to the Cattleback proposed deal.

In Mr. Singer's declaration, he had to list all relationships with the creditors, so we learn trivia, like the firm using DHL Express as a vendor. But we also find out some details about money and about the Amici connection:

11. The firm used AMICI LLC as a vendor for document management before that entity was acquired by Xerox Litigation Services. Members of the family of partner David Boies formerly held a passive, indirect minority interest in AMICI LLC, of which less than a 10% interest was formerly held by children who are also lawyers at the firm. Members of the family of firm partner Nick Gravante formerly held an interest of approximately 1.5%.

12. The firm uses AMLAW Discovery (d/b/a Echelon Group LLC) as a vendor for certain document-reproduction functions, including as the in-house document center for the firm. Entities in which certain firm partners and family members of certain of those partners are owners hold minority ownership interests in Echelon Group LLC.

Hmm. So, Amici, listed as one of the top SCO creditors, would be for document management prior to Xerox buying it? And then Boies Schiller moved its business to AMLAW, I gather since AMLAW is also listed as a creditor, and in both cases, family members have some involvement, however slight. But do you remember what Darl McBride said at the 341 Meeting his brother, Kevin McBride, did now for SCO? Let me remind you:

McMahon: He's your brother? What is his employment?

McBride: He is an outside attorney working on the case. It started off as an attorney, and then he rolled into more of a...a legal support that does basically the technology, I mean, sorry, the document management systems, supports on all the litigation....

McMahon: And when he's paid in connection with the payments to creditors...is he just being paid for legal services? Is that ...?

McBride: Yes. ...

McMahon: I'd like to take a look at ... Before turning to the schedule, I'm sorry...to 3C issues, payments to insiders. Was it your company's intention to employ your brother, going forward, as an attorney?

McBride: When I...I believe the intention is to continue with the services he's providing on the litigation support side which is the document management systems, so...I think whether it's as an attorney, or as doc management, I'm not sure how that might go. He is an attorney, but I'm not sure. I know that they have strong needs for, you know, the millions of documents that are in the system that he has, that he manages, so I would expect that will be a go-forward case.

Yet, Boies Schiller says it used AMICI and now it uses AMLAW for that function, not Kevin McBride. And what about Kevin McBride being owed for "legal work", as McBride indicated, not document management? Here's what Stuart Singer says about the money they've been paid and sharing arrangements with Dorsey & Whitney and Kevin McBride:

19. The firm is co-counsel with Dorsey & Whitney LLP for SCO in certain litigation and has paid the firm fees in that capacity, and proposes to continue to pay Dorsey & Whitney fees pursuant to the engagement agreement between BSF and SCO for that firm's continued assistance on certain litigation matters....

22. The firm is co-counsel with Hatch, James & Dodge for SCO in certain litigation and has paid that firm fees in that capacity and proposes to continue to pay Hatch, James & Dodge fees pursuant to the Engagement Agreement with SCO for that firm's continued assistance on certain litigation matters....

26. The firm is co-counsel with Kevin McBride and his law firm in pending litigation for SCO, and pursuant to the engagement agreement has paid McBride certain fees, and the firm has also previously acquired from Kevin McBride 2.5% of the 10% contingency fee interest he holds under the Engagement Agreement with SCO. By this current motion, the firm does not seek approval for retention of Mr. McBride or to pay him any amounts pursuant to the Engagement Agreement....

39. SCO has paid amounts to the firm pursuant to the Engagement Agreement. The firm does not hold any of these funds as property for SCO either as a retainer, as a separate segregated account or otherwise.

That last is saying that the firm didn't get paid in advance, with monies kept in a separate pile to be drawn against as the hours warranted, so the court can forget about trying to get any of it back. That's how I read it, anyway. But what about the Kevin McBride thing? Who is doing the document management? Who is paying him now? And how can he be owed for legal services, if Boies Schiller says they've paid him and they won't be paying any more for anything under the Engagement Agreement? I can't weave it all together. They need to all get together and get the story straight. But it looks like Kevin is odd man out.

Exhibit B to the Certification is the Proposed Order, as modified, and note this clause:

ORDERED that pursuant to section 327(e) of the Bankruptcy Code, the Debtors are authorized to employ and retain BSF as special counsel, effective nunc pro tunc to the Petition Date, on the terms set forth in the Application and the Declaration; provided, however, that any compensation payable to BSF shall be subject to review under 11 U.S.C. 328 with respect to (i) any Litigation Recoveries and/or (ii) any Transaction Recoveries where International Business Machines ("IBM") or Novell, Inc. ("Novell") is a direct party to the Transaction; provided further, that compensation payable to BSF for (i) Transaction Recoveries where entities other than IBM and/or Novell are direct parties to the Transaction; and (ii) the hourly rate services referenced in paragraph 14 of the Application shall be subject to review under 11 U.S.C. 330; ....

ORDERED that, with the exception of BSF, this Order does not authorize either the Debtors or BSF to employ and/or compensate professionals referenced in the Application and/or the Engagement Agreement; notwithstanding BSF's obligation under the Engagement Agreement to pay certain fees and expenses, the Debtors are obligated to separately retain such professionals before they are compensated; and it is further

ORDERED that, notwithstanding anything in the Engagement Agreement to the contrary, BSF submits itself to the jurisdiction of this Court with regard to any disputes relating to its employment in the above-captioned cases.

I read this as saying that Kevin McBride's gravy train just dried up. And there is no escape hatch into arbitration for any disputes, despite that clause in the Engagement Letter. Boies Schiller belongs to Judge Gross now with respect to any disputes, and those fees, including any contingency fees are subject to review by the court. You can see the changes in Exhibit C [PDF], both the additions in brackets and the cuts, blacklined. But the order has not yet been signed, the minutes of the hearing notwithstanding.

You may want to compare the original application, which was to retain the firm for the arbitration in Switzerland, now stayed, SCO v. IBM, SCO v. Novell, Red Hat v. SCO, SCO v. Autozone, SCO v. DaimlerChrysler, and a couple of other minor matters. But the SCO v. Novell case is going forward in Utah, whenever it gets scheduled in by Judge Dale Kimball, so there is some urgency on SCO's part, I would think, to get this order signed.

There is a closer oversight feel in evidence everywhere you look. We see an affidavit from the PR company SCO uses now, Coltrin & Associates, with hourly fees specified. Remember the US Trustee trial attorney, Joseph McMahon, asking about that payment arrangement at the creditors meeting? Now it is all spelled out. SCO can retain accountants, use the temp agency to hire a CFO, and do banking as they did before they filed for bankruptcy protection. Those orders were signed.

The order permitting SCO to hire the temp CFO sets the hourly rate, though, and the US Trustee, as well as "parties in interest," have 20 days from date of service of the monthy operating reports to object. Then page 3 lists some more limitations. Indeed this is a very different order than the one proposed, no doubt due to the objections of the trial attorney from the US Trustee's Office. One limitation is on what the agency can do for SCO -- basically nothing except provide Ken Nielsen. No one from the agency can serve as a director for SCO during the pendency of the bankruptcy. And significantly, there is to be no indemnification of the agency or its affiliates. That is a big change.

Here are all the documents:

256 - Filed & Entered: 12/05/2007
Affidavit
Docket Text: Affidavit of Ordinary Course Professional Coltrin & Associates, Inc. Filed by The SCO Group, Inc.. (Attachments: # (1) 2Affidavit of Service and Service List) (Werkheiser, Rachel)

257 - Filed & Entered: 12/05/2007
Order
Docket Text: Order Granting Motion of Petrofsky for an Order Deeming Electronic Filing Appropriate. Order Signed on 12/5/2007. (LCN, )

258 - Filed & Entered: 12/05/2007
Order
Docket Text: Order (FINAL) Authorizing the Debtors' Limited Waiver of Section 345(b) Deposit and Investment Requirements. (related document(s)[26], [7] ) Order Signed on 12/5/2007. (LCN, )

259 - Filed & Entered: 12/05/2007
Order on Application to Employ
Docket Text: Order Authorizing the Employment and Retention of Tanner as Accountants to the Debtors. (Related Doc # [158]) Order Signed on 12/5/2007. (LCN, )

260 - Filed & Entered: 12/05/2007
Order on Motion to Approve
Docket Text: Order Approving the Debtors' Employment of CFO Solutions to Furnish Chief Financial Officer to the Debtors Nunc Pro Tunc to October 1, 2007. (Related Doc # [139]) Order Signed on 12/5/2007. (LCN, )

261 Filed & Entered: 12/05/2007
Declaration in Support
Docket Text: Declaration in Support Supplemental Declaration of Stuart H. Singer, on Behalf of Boies, Schiller & Flaxner LLP, as Proposed Special Litigation Counsel for the Debtors, Nunc Pro Tunc to the Petition Date (related document(s)[115] ) Filed by The SCO Group, Inc.. (Attachments: # (1) Affidavit of Service and Service List) (Werkheiser, Rachel)

262 - Filed & Entered: 12/05/2007
Certification of Counsel
Docket Text: Certification of Counsel Regarding Order Granting Debtors' Application, Pursuant to 11 U.S.C. Sections 327(e), 328 and 330, for Approval of Employment of Boies, Schiller & Flexner LLP, as Special Litigation Counsel to the Debtors Nunc Pro Tunc to Petition Date (related document(s)[115] ) Filed by The SCO Group, Inc.. (Attachments: # (1) Exhibit A # (2) Exhibit B # (3) Exhibit C) (O'Neill, James)

263 - Filed & Entered: 12/05/2007
Affidavit/Declaration of Service
Docket Text: Affidavit/Declaration of Service for service of [signed] Order Approving the Debtors' Employment of CFO Solutions to Furnish Chief Financial Officer to the Debtors Nunc Pro Tunc to October 1, 2007 (related document(s)[260] ) Filed by The SCO Group, Inc.. (O'Neill, James)

264 - Filed & Entered: 12/05/2007
Affidavit/Declaration of Service
Docket Text: Affidavit/Declaration of Service for service of [Signed] Order Granting Motion of Petrofsky for an Order Deeming Electronic Filing Appropriate (related document(s)[257] ) Filed by The SCO Group, Inc.. (O'Neill, James)

265 - Filed & Entered: 12/05/2007
Affidavit/Declaration of Service
Docket Text: Affidavit/Declaration of Service for service of [signed] Final Order Authorizing the Debtors' Limited Waiver of Section 345(b) Deposit and Investment Requirements (related document(s)[258] ) Filed by The SCO Group, Inc.. (O'Neill, James)

266 - Filed & Entered: 12/05/2007
Affidavit/Declaration of Service
Docket Text: Affidavit/Declaration of Service for service of [signed] Order Authorizing the Employment and Retention of Tanner LC as Accountants to the Debtors (related document(s)[259] ) Filed by The SCO Group, Inc.. (O'Neill, James)


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