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IBM Objects to York Payment: SCO's Argument is "Nonsense"
Friday, April 11 2008 @ 06:32 PM EDT

IBM has now filed an Objection [PDF] to SCO's Motion to Authorize /Debtors' Motion for Authority to Pay an Expense Reimbursement to York Capital Management. Remember that one? The one where SCO said it had a "moral" duty to pay them, despite being under no contractual obligation to do so? York was the entity that first offered to buy assets from SCO, but the court blocked it, pointing out that the Utah court ruled that Novell owned the assets being proposed to be sold, and then when given a chance to resubmit, instead SCO dropped that reorganization plan without prejudice to resubmit. But despite the deal never happening, SCO claims a moral obligation to pay York's expenses. Here's what IBM calls that: "Nonsense." I'll show you that part of the Objection, and then I'll tell you what I think it means.

First, IBM's chief argument:
7. Approval of an expense reimbursement is not warranted where the purchaser did not enter into a legally binding agreement with the debtor, there was no information on the value of the proposed sale, and there was no evidence as to the time, effort, expense or risk that the purchaser contributed to the proposed sale....

8. Here, the proposed deal died at the negotiating table. York did not sign an agreement, attract any bidders or contribute to any sale. There is not even any evidence that the promise of expense reimbursement was necessary to attract York to enter into its non-binding commitment. York did nothing for the estate: no benefits given, no risks assumed. In fact, the failed transaction actually harmed SCO, which needlessly spent time and money presenting and defending the Sale Motion before its time, and IBM, Novell and the United States Trustee, who were required, also needlessly, to spend their own time and resources to respond by the objection deadline (as well as to this Motion).

9. SCO argues that failure to award the Expense Reimbursement will harm the estate, because "[i]f SCO does not honor this commitment, future negotiations may be made more difficult.... Nonsense. First, SCO never entered into a binding commitment to York. Second, Stephen Norris Capital Partners LLC came to the table (albeit with another non-binding commitment) even though this Court had not approved the York Expense Reimbursement.

10. If the Expense Reimbursement is treated instead as a use of property of the estate or a transaction out of the ordinary course of business under section 363(b), the Motion still does not meet the minimum requirements for approval. The use of assets out of a debtor's ordinary course of business requires, among other things, proof of "a sound business purpose".... SCO has not adduced a sound business purpose for the underlying York transaction, let alone for an expense reimbursement for which York provided no benefit to SCO's estate. The Motion displays only an eleemosynary purpose with the estate's scarce funds in favor of a not impecunious beneficiary. The Motion should be denied.

This is a little bit of lawyer humor. As you've seen, there is a certain decorum expected of lawyers. This can lead to subtle humor, as it does here. And IBM has always shown itself a master of this form of humor. Eleemosynary means essentially charitable, coming from the Latin and Greek words for alms and pity:

The source of eleemosynary is Medieval Latin eleemosynarius, from Late Latin eleemosyna, "alms," from Greek eleemosyne, from eleemon, "pitiful," from eleos, "pity."

IBM's joke then by using that word, eleemosynary, is that it is saying that since SCO has no legitimate business purpose in wishing to pay York, it must be out of a charitable impulse, but bestowed on an entity, York (plus client), that has more money than SCO, obviously, and doesn't need alms *from* the poor, meaning SCO. In short, it's a nonsensical giveaway.

IBM also takes a moment to point out to the court that if SCO is worried about causing expense to others, each incomplete and withdrawn SCO reorganization plan, with all the trimmings, costs folks money, folks SCO clearly feels no obligation to reimburse, or even prevent damage to, which it could do by filing a real plan instead of putting everyone through what Novell's attorney at the last hearing called another "fire drill".

So, if York and its client don't need the money, and there is no contractual obligation to pay York, and there's no business reason to do it, why would SCO dare to file such a motion?

I've been thinking a lot about that. Here's my theory, for what it's worth. It's the only theory that in fact does make any sense to me. Two pieces to my theory: First, I think someone pulls the strings that make SCO dance. No company would otherwise go into court and look so idiotic on its own volition. They must feel some compulsion from an external source. And if there is no legitimate purpose and they must couch it in nonsensical terms, that doesn't rule out that there is some purpose to the proposed payment, one SCO wishes not to detail in court.

Second, I think it must, therefore, be a group or an individual who has been an insider from early on, wishing to get some money back or some chance to recover something from this disastrous SCO litigation debacle and also wishing to keep control of and continue the litigation lottery scheme. SCO is seeking to give away up to $150,000 for nothing in return, so I think we must assume that there is something that SCO at some point got and wishes to pay back, at least in part, or some hope that future money will still be offered. Were they not in bankruptcy, I'm sure SCO would have paid York. So it would be fascinating indeed if it were possible to follow that trail by examining the books. Only Chapter 7 can make that happen, I think, so we are watching some mighty fast dancing to try to avoid anything like that happening, while skimming off whatever one can first, in case it all blows up anyway.

I think that rules out Microsoft. They certainly helped SCO in the beginning by taking out a license I don't think they needed, from what we know so far, and Microsoft employees continue to argue in favor of SCO here and there, but I don't believe they'd risk so much for such peanuts as this SCO motion offers York. So whoever York represented, I think it can't be Microsoft. It has to be someone who'd care about $150,000, in short, according to my thinking, and I am fairly certain that would not be Microsoft. Plus, Microsoft is too legally smart to even try a motion like this, I believe. They may not be good at writing software, but they built a monopoly at least in part by being mighty clever legally. Too clever by half, one might argue, after the EU Commission fines, but it certainly worked for a long time. This motion is a joke, small-town, unsophisticated, and for that reason, I can't believe Microsoft would touch it with a ten-foot pole. So my conclusion is that whatever role Microsoft may or may not have played, that isn't who York represented.


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