SCO is simply determined to entertain us with its creative filings. Its Trial Brief filed yesterday was enjoyably illogical, indeed. And before we can even finish reading it, here's yet another masterpiece, SCO's Reply Memorandum in Support of SCO's Motion for Judgment on the Pleadings on Novell's Claims for Money or Claim for Declaratory Relief [PDF],
in which SCO soldiers on with its claim that Novell has to tell us all this exact minute whether it ratifies SCOsource or not in order to get any money from those agreements.
This is an issue that eventually needs to be addressed by Novell and Sun and Microsoft et al, but I don't see how it's SCO's business. The issue that immediately faces them is whether SCO had the authority to enter into the agreements in the first place. If not, then for sure *SCO* doesn't get to keep the money. SCO acknowledges that possibility, but argues that in that case, the money should go not to Novell but back to Sun and Microsoft. Except it doesn't exactly ask for that relief, so in real life, it would end up staying in SCO's hands. SCO argues that if SCO had no authority to enter into SCOsource licenses, then the agreements are void. But no court has yet decided that question, and in the meantime, SCO took in millions. So now what?
SCO doesn't want Novell to get it, so it argues about whether Novell should get anything if it doesn't ratify, as if that were the very next issue that must be decided. It cites cases where the principal took the money and then *later* repudiated, whereas Novell never took any money, had no knowledge of the details of SCOsource, protested against them when they read about them in the media, asked for an accounting which SCO never provided, and now says that since SCO took in millions in what Judge Kimball has ruled are at least in part SVRX licenses, SCO owes Novell the money it improperly received and kept for itself. SCO's sophistry is based on the concept that Novell must choose *first* whether or not to ratify; Novell's position is that it wants the court to first decide if SCO had the authority to enter into the agreements at all. If not, then Novell will decide what to do next.
SCO's problem is that it never acknowledges that the purpose of a court is to figure out what is fair, not what is clever.
SCO responds to Novell's illustration about the car:
Novell offers a hypothetical factual scenario that serves only to underscore that, alleging SCO's lack of authority, Novell cannot prevail on its claims for money. In that hypothetical, Novell has Scott selling Nathan's car without Nathan's permission -- but where Scott and Nathan are merely "friends." As a fundamental matter, Novell thus side-steps a core premise of its own allegations -- that Novell and SCO have a principal-agent relationship.
In any event, the precedent illustrates that Novell's own hypothetical would not be resolved as Novell rhetorically proposes it should be, whatever the relationships between Nathan and Scott. If Nathan brought suit and alleged that Scott lacked authority to sell the car, these results would follow:
Where Nathan is an alleged principal, having declined to ratify Scott's sale of the car, Nathan would not have triggered the legal relations "as between" himself and Scott that would make Scott subject to a fiduciary duty to account to Nathan. ...
Where Nathan is merely Scott's friend, the necessary premise of Nathan's suit means the sales contract is void. It would be as if the contract never existed, so that Nathan would not be entitled to the sales proceeds....
Under either set of facts, Nathan would have no right to the money paid for the car. Otherwise, Nathan would get the money paid for a car that Marty could not even keep, because he actually never bought it -- a truly surprising result.
However, what SCO fails to address is this: who is going to make SCO pay back Microsoft and Sun? I guess they get to sue SCO later or something, in SCO's universe.
However, this illustration leaves out the reality -- namely that Novell has not yet failed to ratify. It's a decision SCO wants them to have to make before they even have the money in hand, before there is even a decision to make, since the court has not yet ruled on whether or not SCO had the authority to enter into the agreements. If they did, the agreements can't be void, I don't think, no matter how many of Nathan's cars can fit on the head of a SCO pin.
Following SCO's logic leaves out that step and it leaves the money with SCO, and if the court imagines that it is safer in SCO's hands than in Novell's, it will ride along with SCO's car theft illustration, in which SCO gets to scam people in Novell's name and then SCO gets to decide how to fix the problem, meanwhile holding on the the proceeds. Say, what?
Thanks to Steve Martin, we have it now as text:
Brent O. Hatch (5715)
Mark F. James (5295)
HATCH, JAMES & DODGE, PC
Stephen N. Zack (admitted Pro Hac Vice)
BOIES SCHILLER & FLEXNER LLP
David Boies (admitted pro hac vice)
Robert Silver (admitted pro hac vice)
Edward Normand (admitted pro hac vice)
BOIES SCHILLER & FLEXNER LLP
Devan V. Padmanabhan (admitted pro hac vice)
DORSEY & WHITNEY LLP
Stuart Singer (admitted pro hac vice)
BOIES SCHILLER & FLEXNER LLP
Attorneys for Plaintiff, The SCO Group, Inc.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
|THE SCO GROUP, INC., a Delaware
NOVELL, INC., a Delaware corporation,
|REPLY MEMORANDUM IN SUPPORT
OF SCO'S MOTION FOR JUDGMENT
ON THE PLEADINGS ON NOVELL'S
CLAIMS FOR MONEY OR CLAIM FOR
Civil No. 2:04 CV-00139
Judge Dale A. Kimball
Magistrate Brooke C. Wells
Plaintiff/Counterclaim-Defendant, The SCO Group, Inc. ("SCO"),
respectfully submits this Reply Memorandum in Support of its Motion
for Judgment on the Pleadings on Novell's Claims for Money or Claim
for Declaratory Relief.
Novell's opposition reflects a misapprehension of, or desire not
to confront, the basic law of agency. Novell's claims for money
concern this question: Is Novell entitled to money? Novell
alleges that SCO acted as Novell's agent in signing the SCOsource
Agreements and that SCO lacked the authority to do so. Under those
facts and the well-established law, Novell could be entitled to the
payments under the Agreements only if it had ratified them
— which Novell now emphasizes it has not done. SCO
therefore brings this Motion, because Novell fails to allege facts
necessary for Novell to win its claims for money, and the Court
cannot even infer "the opposite" of what Novell has alleged.
Novell improperly seeks to avoid what the Tenth Circuit has long
recognized as "the horns of a dilemma," contending that "as
between" itself and SCO, it should have the money it seeks. Under
the law, however, whether the agent holds the money paid for its
allegedly unauthorized contract has nothing to do with the merits
of the principal's claim for the money: "It is repugnant in
every sense of justice and fair dealing that a principal shall
avail himself of the benefits of an agent's act and at the same
time repudiate his authority." Yahola Sand & Gravel Co. v.
Marx, 358 P.2d 366, 372 (Okla. 1960) (citing authority,
quotations omitted). The most recent authority confirms: "Once
the principal has ratified the agent's act, the agent is
subject to a fiduciary duty to account to the principal as if the
agent had acted with actual authority," where
"legal relations as between agent and principal are
affected by whether the agent has acted with actual authority."
Restatement (Third) of Agency § 4.02, Comment b (2006)
It is also true that under its allegations, whether it is a
principal or not, Novell has rendered the Agreements "void" —
legal nullities for which Novell has no entitlement to the payments
made thereunder. In short, on SCO's Motion, the only question is
whether Novell has any right to payments under either
unratified or void contracts. It does not.
I. NOVELL CANNOT PREVAIL ON ITS CLAIMS FOR MONEY.
Novell mistakenly argues (at 2-5) that SCO must prove "that an
agent acting in excess of its authority is entitled to keep the
proceeds of that excess." Like any plaintiff seeking to recover
money from a defendant, Novell must allege facts giving it
the right to the money at issue. Novell has failed to make such
A. The Basic Law of Agency.
Contending as its central argument (at 1) that "[r]atification
is a matter between Novell and the licensee," Novell misapprehends
the law of agency. In disavowing them, Novell made the decision
that the SCOsource Agreements do not fall under the
principal-agent relationship between itself and SCO. It makes sense
that an alleged principal cannot have the fruits of such a
contract. The most recent authority confirms:
Ratification has an immediate effect on legal relations
between the principal and agent . . . . Ratification recasts those
legal relations as they would have been had the agent acted with
actual authority. Legal consequences thus "relate back" to the time
the agent acted. .. Once the principal has ratified the agent's
act, the agent is subject to a fiduciary duty to account to the
principal as if the agent had acted with actual
[L]egal relations as between agent and principal
are affected by whether the agent has acted with actual authority .
. . . The effect of actual authority, which the ratification
provides, relates to an action that the agent has already
Restatement (Third) of Agency § 4.02, Comment b (2006)
(emphasis added). "That is, when a person ratifies another's act,
the legal consequence is that the person's legal relations are
affected as they would have been had the actor been an agent acting
with actual authority at the time of the act." Id. §
4.01, Comment b.1
The longstanding authority — including precedent cited in
SCO's opening memorandum which Novell declines to address —
emphasizes the inequity of the position Novell here seeks to
maintain. "A principal may not, in equity, ratify those parts of
the transaction which are beneficial and disavow those which are
detrimental." The N. River Ins. Co. v. Transamerica Occidental
Life Ins. Co., No. Civ. A. 399-CV-0682-L, 2002 WL 1315786, at
*7 (N.D. Tex. June 12, 2002) (Ex. A) (citations and quotations
omitted). "It is repugnant in every sense of justice and fair
dealing that a principal shall avail himself of the benefits of an
agent's act and at the same time repudiate his authority."
Yahola Sand & Gravel Co. v. Marx, 358 P.2d 366, 372
(Okla. 1960) (citing authority, quotations omitted). Seeking to
preserve some later argument that counterparties like Microsoft and
Sun do not have any rights under their 2003 agreements with SCO,
Novell plainly cannot recover any alleged "SVRX Royalties"
under those agreements.
These equitable principles alone make clear that permitting
Novell to recover any alleged SVRX Royalties would result in a
"manifest injustice" warranting reconsideration of the Court's
Order dated August 10, 2007. (SCO's Opening Mem. at 2.)
B. Novell's Argument About SCO's Supposed Burden Is
Novell therefore misses the point in maintaining (at 3-4) that
the four cases cited in SCO's opening brief on which Novell chooses
to focus do not hold that "where an agent improperly takes money
from third parties in the principal's name, the agent is
entitled to keep that money if the principal disclaims the agent's
authority." The cases do not need to show that for SCO to
prevail on its Motion; they need only show, as they do, that the
principal cannot have the fruits of a contract that an agent
negotiated and that the principal has disavowed. (SCO's Opening
Mem. at 7-8.)
The precedent makes clear that the principal's lack of
entitlement to the money paid under such a contract does not turn
on who has possession of the money. The commentary to Section 47 of
the Restatement (First) of Restitution, which SCO cited and
which Novell does not dispute as relevant authority, provides the
following, telling illustrations:
1. A shows B a telegram from C, A's principal and the
owner of Blackacre. By erroneous interpretation of the legal effect
of the telegram, both parties believe that it authorizes A to sell
Blackacre. B pays A for Blackacre. B is entitled to restitution
from A unless C ratifies or A, before learning of the
mistake, pays C the money.
Restitution (First) of Restitution § 47 (1937)
(emphasis added). In either event — whether he had come into
possession of the money or not — the principal is not
entitled to the money. This
2. Same facts as in Illustration 1, except that B sends the money
to C. B is entitled to restitution from C, unless C
authority belies Novell's argument (at 2-3) that the precedent
turns on whether the agent had already "properly remitted" the
fruits of the contract to the principal. The illustrations make
clear that there is no requirement that an agent must remit the
fruits to the principal before the principal's lack of entitlement
to them can be resolved. Novell does not — because it cannot
— cite any case holding that a principal can recover the
fruits of a contract that the principal chose to disavow as
unauthorized. The precedent says the exact opposite.
In addition, any contract executed by a party without the
authority to execute it is "void."2 Novell (at 4-5) thus unsuccessfully seeks
to downplay the significance of the "unremarkable principles" it
purports to summarize from the cases SCO has cited: A void contract
is "no contract at all,"3 but rather an unenforceable
The law provides that
"when a contract is void, it is as if the contract never
Under a void contract, as shown in SCO's opening brief and herein,
the counterparty who made payments under the purported agreement is
entitled to those payments.
C. Novell's Hypothetical Does Not Come out as Novell Assumes
Novell offers a hypothetical factual scenario that serves only
to underscore that, alleging SCO's lack of authority, Novell cannot
prevail on its claims for money. In that hypothetical, Novell has
Scott selling Nathan's car without Nathan's permission — but
where Scott and Nathan are merely "friends." As a fundamental
matter, Novell thus side-steps a core premise of its own
allegations — that Novell and SCO have a principal-agent
In any event, the precedent illustrates that Novell's own
hypothetical would not be resolved as Novell rhetorically proposes
it should be, whatever the relationships between Nathan and Scott.
If Nathan brought suit and alleged that Scott lacked the authority
to sell the car, these results would follow:
- Where Nathan is an alleged principal, having declined to ratify
Scott's sale of the car, Nathan would not have triggered the legal
relations "as between" himself and Scott that would make Scott
subject to a fiduciary duty to account to Nathan. (See Part
Under either set of facts, Nathan would have no right to the
money paid for the car. Otherwise, Nathan would get the money paid
for a car that Marty could not even keep, because he actually never
bought it — a truly surprising result. Most relevant to SCO's
Motion, Nathan's allegations would not create any scenario under
which he could have the money at issue.
- Where Nathan is merely Scott's friend, the necessary premise of
Nathan's suit means the sales contract is void. It would be as if
the contract never existed, so that Nathan would not be entitled to
the sales proceeds. (See Part I.B, above.)
II. IN THE ALTERNATIVE, NOVELL'S CLAIM FOR DECLARATORY RELIEF
IS IMPROPER AND MUST BE DISMISSED.
Novell seeks to reserve the right to ratify the SCOsource
Agreements, contending without citation (at 1) that whether to
ratify "is not a choice that Novell needs to make now" and (at 5)
that "Novell is under no obligation to decide now whether to ratify
SCO's improper acts." These arguments are wrong.
First, contrary to its uncited legal argument, Novell
clearly did have the obligation to choose whether to ratify
the Agreements. Novell was obligated to "promptly repudiate" SCO's
authority to execute the SCOsource Agreements "within a reasonable
time" — a matter of "months" — after learning of
Novell cannot now reverse course, whatever the resolution of its
claim for declaratory relief at trial. Indeed, Novell cites no
authority even suggesting that a
principal can use a trial to determine whether to make the
binding decision on whether to ratify the allegedly unauthorized
contract at issue.
Novell therefore is wrong in contending that SCO has merely
manufactured Novell's obligation to have made such a choice years
ago. In fact the Tenth Circuit long ago observed that, faced with
the choice of whether or not to ratify, "the principal is impaled
on the horns of a dilemma." Maryland Cas. Co. v. Queenan, 89
F.2d 155, 157 (10th Cir. 1937); accord First Nat'l Bank
of Cicero v. United States, 625 F. Supp. 926, 932 (N.D. Ill.
1986). Yet "when the principal has no avenue through which to claim
ownership of the disputed property except through its agent," it
must ratify (and accept the consequences flowing from that
ratification) to claim such ownership. Cicero, 625 F. Supp.
Second, even in trying to reserve the right to ratify the
Agreements, Novell conflates the narrow, backward-looking
declaratory relief it seeks with a general, forward-looking
declaration. The declaratory relief Novell actually seeks at trial
is improper. SCO showed in its opening brief that where a party
seeks a declaration that amounts to an "advisory opinion" or that
would apply to only a "hypothetical state of facts," the
declaratory claim fails. (SCO's Opening Mem. at 9-10.) That is
precisely the type of declaration Novell seeks through its
arguments in its opposition brief. The question of whether SCO had
the authority to execute the SCOsource Agreements would be
relevant only if, after trial, Novell were to decline
to accept any recovery on its claims for money, and only if,
at the time, the Court were to conclude that Novell had
exercised its right to choose whether to ratify within a reasonable
period of time. The record thus leaves no doubt that Novell is
seeking a declaration regarding only a hypothetical state of
Novell as much as admits that it seeks an advisory opinion,
maintaining without citation (at 5) that "one might reasonably
expect Novell to wait until the propriety of SCO's acts is resolved
by this Court before it makes any decisions regarding the SCOsource
licenses," and (at 7 n.5) that "a decision by this Court that SCO
did have the authority to enter into the agreements renders any
ratification decision-making unnecessary." Novell's uncited
argument is wrong — as an alleged principal, Novell was
obligated to make the referenced decision well before trial; it
cannot base that decision on how its claim for declaratory relief
Finally, even under Novell's apparent argument that the solely
backward-looking declaratory relief its seeks is somehow the same
as the separate, forward-looking relief it seeks in the same Fourth
Claim for Relief, at a minimum the Court should dismiss those
portions of Novell's claim that relate to the Sun and Microsoft
Agreements. There is no evidence at all that the unique
circumstances under which those two agreements were negotiated are
likely to recur; the propriety of SCO's execution of these
agreements has no bearing on future Linux-related agreements of the
sort that Novell says it is concerned SCO may execute.
SCO respectfully requests, for the reasons set forth herein and
in SCO's Opening Memorandum, that the Court dismiss Novell's Sixth,
Seventh, and Eighth Claims for Relief or Novell's Fourth Claim for
DATED this 24th day of April, 2008.
HATCH, JAMES & DODGE, P.C.
Brent O. Hatch
Mark F. James
BOIES, SCHILLER & FLEXNER LLP
Stuart H. Singer
DORSEY & WHITNEY LLP
Devan V. Padmanabhan
By: ___/s/ Edward Normand________
CERTIFICATE OF SERVICE
Plaintiff/Counterclaim-Defendant, The SCO Group, Inc., hereby
certifies that a true and correct copy of the foregoing Reply
Memorandum in Support of SCO's Motion for Judgment on the Pleadings
on Novell's Claims for Money or Claim for Declaratory Relief was
served on this 24th day of April, 2008, via CM/ECF to the
Thomas R. Karrenberg
John P. Mullen
Heather M. Sneddon
ANDERSON & KARRENBERG
Michael A. Jacobs
Matthew I. Kreeger
Kenneth W. Brakebill
David E. Melaugh
MORRISON & FOERSTER
___/s/ Edward Normand________
||The same rules apply even as to someone who was only purporting
to be an agent of the principal — a situation in which, by
Novell's logic, the principal supposedly would be even more
"entitled" to any benefits the purported agent had received.
Instead, the law provides that "if he was not an agent when he
acted, the subsequent ratification by the principal subjects
him to the liability of a fiduciary with respect to the
transaction. Thus, if he made a profit or received property which
would have been a violation of his fiduciary duty if in fact he had
been an agent, the ratification subjects him to a duty to
pay to the principal what he has received." Id. § 4.08,
||CSX Transp., Inc. v. City of Garden City, 325 F.3d 1234,
1240 (11th Cir. 2003) (citing authority); Prescott v. United
States, 731 F.2d 1388, 1393 (9th Cir. 1984) (same); Emerson
v. Labor Investment Corp., 284 F.2d 946, 949-50 (10th Cir.
1960) (same); SBRMCOA, LLC v. Bayside Resorts, Inc., No.
2006-42, 2007 WL 1795732, at *5 (D.V.I. Apr. 18, 2007) (Ex. B)
(same); CSX Transp., Inc. v. City of Garden City, Ga., 391
F. Supp. 2d 1234, 1239 (S.D. Ga. 2005) (same); Demko v. Luzerne
County Community Coll., 113 F. Supp. 2d 722, 729-33 (M.D. Pa.
2000) (same); Byrd v. Martin, Hopkins, Lemon and Carter, 564
F. Supp. 1425, 1428-29 (W.D. Va. 1983) (same); Poway Royal
Mobilehome Owners Ass'n v. City of Poway, 149 Cal. App. 4th
1460, 1473 (2007) (same); St. Charles County v. "A Joint Bd. or
Comm'n", 184 S.W.3d 161, 165-66 (Mo. Ct. App. 2006) (same);
Pierce County v. Wash. Shellfish, Inc., 126 Wash. App. 1020,
2005 WL 536097, at *3 (2005) (Ex. C) (same); Miller v. Marshall
County, 641 N.W.2d 742, 750-51 (Iowa 2002) (same); Red Dog
Saloon v. Sedgwick County Bd. of Comm'rs, 33 P.3d 869, 871
(Kan. Ct. App. 2001) (same); Failor's Pharmacy v. Dep't of
Social and Health Servs. v. Dep't of Social and Health Servs.,
886 P.2d 147, 153 (Wash. 1994) (en banc) (same); Weese v. Davis
County Comm'n, 834 P.2d 1, 3 (Utah 1992) (same); In re
Estate of Griffin, 812 P.2d 1256, 1258-59 (Mont. 1991) (same);
Vt. Dep't of Pub. Serv. v. Mass. Municipal Wholesale Elec.
Co., 558 A.2d 215, 220 (Vt. 1988) (same).
||Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 109 n.7
(3d Cir. 2000); accord Lum v. Kauai County Council,
Civ. No. 06-00068 SOM/BMK, 2007 WL 1482403, at *3 (D. Haw. May 18,
2007) (Ex. D); In re Donnay, 184 B.R. 767, 784 (Bankr. D.
Minn. 1995); United States ex. rel. Gulbronson v. D&J
Enters., No. 93-C-233-C, 1993 WL 767689, at *7 (W.D. Wis. Dec.
23, 1993) (Ex. E); Gull Labs., Inc. v. Diagnostic Tech.,
Inc., 695 F. Supp. 1151, 1154 (D. Utah 1988).
||See 1 Williston on Contracts § 1:20 (4th ed.
2007) ("Void promises are not legally binding, have no legal
effect, and, therefore, are not contracts."); Restatement
(Second) of the Law of Contracts § 7 (1981), Comment a (an
unenforceable promise "is often called a void contract," "such a
promise is not a contract at all," and "[i]f the term 'contract'
were defined to refer to the acts of the parties without regard to
their legal effect, a contract could without inconsistency be
referred to as 'void.'").
||Laborers' Pension Fund. v. A&C Environmental, Inc.,
301 F.3d 768, 779 (7th Cir. 2002); accord Bd. of Trustees
of the Masons and Plasters Pension Fund Local 56 Dupage County,
Ill. v. O'Donnell Plastering, Inc., No. 01 C 9257, 2003 WL
174207, at *4 (N.D. Ill. Jan. 27, 2003) (Ex. F).
||Dodson Int'l Parts, Inc. v. Hiatt, No. 02-4042-SAC, 2003
WL 22327176, at *13 (D. Kan. Sept. 25, 2003) (Ex. G); Inamed
Corp. v. Kuzmak, 275 F. Supp. 2d 1100, 1119 (C.D. Cal. 2002);
Merex A.G. v. Fairchild Weston Sys., Inc., 810 F. Supp.
1356, 1370-71 (S.D.N.Y. 1993); Heller Ehrman White &
McAuliffe v. Price, No. A106899, 2005 WL 2293512, at *6-7 (Cal.
App. Sept. 21, 2005) (Ex. H); Norcal Mut. Ins. Co. v.
Newton, 84 Cal. App. 4th 64, 78-79 (Cal. App. 2000); Riss v.
Angel, 934 P.2d 669, 683 (Wash. 1997); Moran v. Knights of
Columbus, 151 P. 353, 360 (Utah 1915).