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Novell's Statement Re Mesirow's Bill, as text, and SCO Responds
Sunday, January 13 2008 @ 08:56 PM EST

SCO's lawyers read Novell's Statement Regarding First Monthly Fee Application of Mesirow Financial Consultants [PDF] and said, "uh oh." They have now responded with a filing of their own, saying that "in an abundance of caution" they talked matters over with Novell, and since Novell said in the Statement that it didn't object to interim payment, they have filed a Certification of No Objection (No Order Required) [PDF] (love the parenthetical emphasis). Mesirow will only take 80 percent of its fee now, SCO says, and all the expenses it billed for, and they'll hash it all out later.

Well. Very thrifty. But it's still $359,910.64 in fees and $48,702.11 in expenses, mostly for a deal that never had a ghost of a chance of happening in the real world.

We have the Statement by Novell as text now, thanks to Groklaw's E-man, which will, I think, give you insight into SCO's latest move. Novell expressed its concerns that the Mesirow bill takes such a hefty chunk out of the estate, and it is concerned in general that money is pouring out to advisors and lawyers and yet there has been little or no progress. One of SCO's law firms, Berger Singerman, has already, according to footnote 3, requested more than a half million dollars in fees and expenses just through November, and if you add that with the Mesirow bill, the requested fees and expenses well exceed $1 million already since SCO filed for bankruptcy. What troubles Novell as a significant creditor is that SCO seems no closer to a plan of reorganization. And here comes Dorsey & Whitney, another SCO law firm, filing its second monthly bill [PDF]. At this rate, will SCO even make it to the Utah trial, now set for April? Even if it does, will there be anything left for Novell? Probably not, so Novell is staking its claim now, letting everyone know that it reserves its right to go after some of this money gushing out in such abundance to SCO's advisors. What is complicating everything is that the trial in Utah hasn't happened yet.

If it had happened in September, when originally scheduled, there would have been several millions for Novell, if it prevailed, as expected. Instead, the millions are flying the coop and landing in the happy pockets of SCO's lawyers and advisors. But until there is a resolution of those issues in Utah and everyone knows what SCO owes Novell, no one can really do anything too dramatic about it, because certain rights are not yet finally determined. No one can get out of this mud now; only a decision in the SCO v. Novell matter will break the logjam, I'm afraid. Of course, if you're SCO's lawyers and advisors, it's party time. If you're SCO, it's probably not so bad to be stuck in the mud for now. SCO has the natural reluctance of a condemned man asked to walk to the Utah gallows. Being condemned isn't as bad as long as today's not the day.

But it's very expensive mud, from Novell's perspective, so Novell is telling the court and SCO that it is not interested in getting nothing out of this. Lawyers don't file statements of concern like this for nothing. It's letting everyone know not to spend all the sudden wealth. They might have to give a hefty portion back at the end of this bankruptcy.

Footnote 2 in Novell's Statement said that Novell was not asking that Debtors suspend payment "at this juncture", but it "reserves the right to object to the Requested Amount, in whole or in part, and seek appropriate remedy (including disgorgement) when final approval is sought." So everyone knows that there will be a fight over the way the money is disappearing into pockets that are not Novell's. Remember that from Novell's perspective, every penny of SCO's money is probably actually Novell's money.

So here's what the SCO filing, by two of SCO's law firms, the very same Berger Singerman and Pachulski Stang, says in reaction to Novell not objecting to "interim approval or payment of Mesirow's fees and expenses":

Furthermore, out of an abundance of caution, counsel to the Debtors spoke with counsel to Novell to confirm that Novell did not object to the filing of this certificate or the payment of fees and expenses to MFC on an interim basis.

Pursuant to the Administrative Order Establishing Procedures for Interim Compensation and Reimbursement of Expenses of Professionals (Docket No. 95), the Debtors are authorized to pay MFC $359,910.64, which represents 80% of the fees ($449,888.30) and $48,702.11 which represents 100% of the expenses requested in the Application for the period September 14, 2007 through November 30, 2007, upon the filing of this certificate and without the need for entry of a Court order approving the Application.

So everyone knows now that these bills are going to be challenged and examined more carefully down the road.

I expect future bills will be less breath-taking. But it doesn't really matter. The line has been drawn in the sand, and Novell has put everyone on notice that it reserves its right to ask for disgorgement of the monies being paid to Mesirow. Remember at the first hearing where the judge told Novell it would not be prejudiced? Novell, no doubt, hopes he means it and that there will be some equity at the end of the day, because to simple eyes like mine, Novell is being prejudiced like crazy.

Now, the relevant filings:

305 - Filed & Entered: 01/11/2008
Application for Compensation
Docket Text: Second Application for Compensation Second Interim Application of Dorsey & Whitney LLP, Special Counsel to the Debtors and Debtors-In-Possession, for Compensation and Reimbursement of Expenses for the Period November 1, 2007 Through November 30, 2007 Filed by Dorsey & Whitney LLP. (Attachments: # (1) Notice of Filing of Fee Application # (2) Exhibit A # (3) Exhibit B # (4) Exhibit C # (5) Exhibit D) (Schnabel, Eric)

306 - Filed & Entered: 01/11/2008
Certificate of No Objection
Docket Text: Certificate of No Objection (No Order Required) Regarding First Monthly Fee Application of Mesirow Financial Consulting, LLC as Financial Advisors to the Debtors for Compensation and Reimbursement of Expenses for the Period from September 14, 2007 through November 30, 2007 (related document(s)[280] ) Filed by The SCO Group, Inc.. (Attachments: # (1) Certificate of Service and Service List) (Werkheiser, Rachel)

And here's the Novell Statement, as text:



In re:

The SCO Group, Inc., et al.,

Chapter 11

Case No. 07-11337 (KG)
(Jointly Administered)

Re: Docket No. 280


Novell, Inc. ("Novell") hereby submits this statement (the "Statement") expressing its concerns with regard to the First Monthly Fee Application of Mesirow Financial Consulting, LLC as Financial Advisors to the Debtors for Compensation and Reimbursement of Expenses for the Period September 14, 2007 Through November 30, 2007 (the "Fee Application") of Mesirow Financial Consulting, LLC ("Mesirow"). As the Fee Application seeks only interim approval, Novell does not formally object to the fees and expenses requested at this time, but hereby reserves its rights to object to the fees and expenses for which Mesirow now seeks approval when final approval is sought.

In furtherance hereof, Novell respectfully states as follows:

Statement of Concerns Regarding the Fee Application

1. The Fee Application seeks interim approval of $449,888.30 in fees for services rendered and $48,702.11 in actual expenses, for a total interim application of $498,590.41 (the Requested Amount").1 In accordance with the Administrative Order establishing procedures for

interim compensation and reimbursement of expenses of professionals applicable in these cases, in the absence of any objection to the Fee Application, the Debtors are entitled to pay 80% of professional fees requested and 100% of expenses incurred.2

2. As a substantial creditor and party-in-interest, Novell is concerned by the astonishing level of fees and expenses generated at the Debtors' behest, given the lack of progress in these chapter 11 cases.3 Novell expresses its concerns on several levels. Most notably, Novell is concerned that the Fee Application reveals that Mesirow has spent more than 600 hours and in excess of $250,000 on analysis of merger, acquisition and divestiture of assets of the estates, for which no definitive value has been realized. As the Court is aware, though the Debtors filed a motion to sell substantially all of their assets, not only was no sale consummated, but an asset purchase agreement detailing the proposed sale was not docketed at the time of the sale motion, and, the motion was subsequently withdrawn without realizing value to the estates. In light of these facts, a Requested Amount of nearly $500,000 may well be excessive.

3. In addition to its concerns regarding the amount expended in professional fees when compared to the lack of concrete progress these cases have made, Novell also is troubled by potential issues of inefficiency and appropriateness of activity. For example, Mesirow has spent in excess of 350 hours and $100,000 on Court filings (excluding the Merger/Acquisition Divestiture Analysis discussed above) that may be duplicative, at least in part, to the time expenditures of Debtors' counsel. In addition, it will be worth inquiring whether Mesirow should be doing certain subsets of this work at all. Further, upon a review of the time entries


annexed to the Fee Application, Novell is concerned that some tasks are overstaffed, which appears to be further draining the estates of valuable resources.

4. As these few examples demonstrate, moreover, it appears that a major reason for the massive accumulation in fees so quickly in the cases is that the Debtors themselves are employing their professionals on unrealistic tasks that are both inappropriate and inefficient to the estates, as well as failing to responsibly manage the professionals.

5. In sum, Novell is troubled by the lack of progress in these chapter 11 cases when compared to the remarkably high expenditure of fees and expenses by the Debtors' professionals. Given that the Debtors' financial resources are thin, at best, this issue is especially significant. Indeed, at this rate, without a miracle there will soon be nothing left for prepetition creditors.

6. Accordingly, Novell has used this occasion to state its concerns (and reserve its right to object to the Requested Amount on final application to the Court, as well as, of course, to future interim applications) with the intent of inducing the Debtors and their professionals to be more thoughtful about their activities and the attendant costs to the estates.

Dated: January 9, 2008
Wilmington, Delaware
By: /s/ Christopher P. Simon
Richard H. Cross, Jr. (No. 3576)
Christopher P. Simon (No. 3697)
[address, telephone]
Adam A. Lewis, Esquire
[address, telephone]


Larren M. Nashelsky
Julie D. Dyas
[address, telephone]
Counsel for Novell, Inc.


1 This large figure is after a voluntary reduction by Mesirow of approximately $49,000, or about 10%, from an even larger dollar amount. Novell appreciates Mesirow's voluntary reduction; however, the gesture does not alter Novell's concerns regarding the Fee Application, discussed below, as the Fee Application still seeks a hefty portion of estate assets.

2 Novell does not request that the Debtors suspend payment to Mesirow or its other professionals at this juncture; rather, as stated above, it reserves the right to object to the Requested Amount, in whole or in part, and seek appropriate remedy (including disgorgement) when final approval is sought.

3 As the Court is aware, the Debtors' lead bankruptcy counsel, Berger Singerman, P.A. has already requested more than $500,000 in fees and expenses just through November. When combined with the Requested Amount and the fees of other professionals in these cases, requested fees and expenses to the estates well exceed $1 million.

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