We finally have permission from the court to share the transcript of the hearing on the summary judgment motions [PDF] heard on April 30th, on the second day of the Novell-SCO trial in Utah, with you. Yay!
I'm so grateful to Chris Brown for following through and obtaining it for us, and to those who donated to make it possible, and to the court for its gracious permission.
I enjoyed reading this transcript more than any of the other trial transcripts. If you only have time to read one transcript, this is the one, since it sums up the two sides' positions. Morrison & Foerster's Michael Jacobs is, as usual, able to make complexity seem simple and easy to grasp, and Boies Schiller's Stuart Singer, given an impossible position to argue, does so. I'd love to see what he could do with the facts and the law on his side. To say that Sun got nothing new in the 2003 agreement that it didn't have in 1994 is, of course, hard to argue without blushing, when the latter agreement gave Sun the right to open source Solaris.
On the second motion, it's Ted Normand for SCO, and it is he who presents SCO's complex arguments regarding Novell, fiduciary relationships, ratification, and who gets the money. Or, more accurately, he argues why Novell shouldn't get it. If you look at it as an incredibly creative legal argument, which it is, you will understand why, when Jacobs stands up, he says this:
MR. JACOBS: I have to confess, Your Honor, this is in a case that has had lots of interesting issues, this is one of the more -- more interesting ones because of this issue. And we have had a lot of law school exam questions in this case and this is another one of those. But I think here is the problem with SCO's argument.
He means that Boies Schiller raised arguments many law firms might not have. And the case itself presents a lot of tricky issues. That's what he means by law school exam questions -- that you don't see this every day and to figure out the answers, you have to think deeply after doing significant legal research. For sure, SCO can never complain about the level of its representation. It's just the truthiness thing that sinks its ship over and over, in my view.
I've already shared with you my reactions to the transcript, and provided a link to the filings on both motions argued at this hearing, so now I'll just happily share with you the transcript:
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION
THE SCO GROUP, INC., a Delaware
Plaintiff and Counterclaim-
NOVELL, INC., a Delaware
Defendant and Counterclaim-
Case No. 2:04-CV-139 dak
BEFORE THE HONORABLE DALE A. KIMBALL
DATE: APRIL 30, 2008
Motion for Summary Judgment
|Laura W. Robinson, CSR, RPR, CP
Appearances of Counsel:
||Michael A. Jacobs
Attorney at Law
MORRISON & FOERSTER LLP
|| Edward J. Normand
Attorneys at Law
Salt Lake City, Utah, April 30, 2008
* * * * *
THE COURT: We're here this afternoon to argue
Novell's motion for summary judgment on its fourth claim for
relief and SCO's motion for judgment on the pleadings on
Novell's claim for money or claims for declaratory relief,
MR. NORMAND: Correct.
THE COURT: And we're here in SCO Group, Inc. versus
Novell, Inc., 2:04-CV-139 and I see all of the usual
suspects here and present. Which one should we do first?
MR. SINGER: We don't have a particular preference.
MR. JACOBS: Nor do we, Your Honor.
THE COURT: Well, on my list, Novell's motion on the
fourth claim for relief is first.
How long do you need for this one, do you think?
MR. JACOBS: Five minutes, Your Honor.
THE COURT: Five minutes?
MR. JACOBS: Yes.
THE COURT: And how long do you need, Mr. Singer?
MR. SINGER: I was going to say 10, but I'll see if I
can keep it down.
THE COURT: I'm so heartened by that, I'm afraid to
ask how much time you need on the second motion?
MR. JACOBS: Five minutes, Your Honor.
THE COURT: Okay. Go ahead.
MR. JACOBS: Thank you, Your Honor. Of course, this
in some sense, this motion has been overtaken by events
we're trying many of the underlying issues before Your
Honor, and we're also sort of in a fashion, unusual perhaps
to a legal dispute in which lawyers are principal witnesses
or arguing the motion through the witnesses to some degree.
Nonetheless, it is worth stating our view that the question
of whether SCO had the authority under these agreements is a
question of law that there are no genuine disputed, no
genuinely disputed facts, no material disputed facts. I
think that is probably easiest to show with respect to the
Sun agreement. The agreement on its face purports to amend
the agreement. There is a question of law about the
meaning of amendment number two. The language is clear. It
is any agreement concerning a buy out. It doesn't say any
agreement representing a buy out or some narrower language.
I suspect as a matter of the history that language came from
Santa Cruz at the time which wanted broad language but the
language is what the language is. And the Sun agreement,
the agreement, purports to amend an SVRX agreement.
There is no dispute that the agreement is an SVRX
agreement particularly in the wake of Your Honor's summary
So that really is the -- on the Sun agreement we do
think that is a question of law. And the Microsoft
agreement, as a matter of law, we think that the agreement
on its fashion purports to grant substantial brand new SVRX
rights. Those are -- it is therefore an SVRX license. They
had no authority to enter into that SVRX license. We're
hearing a lot of testimony around the significance of SVRX
rights. As a matter of undisputed fact, SCO is out in the
marketplace saying legacy UNIX code has substantial value.
And it was in the wake of that activity that that agreement
was entered into.
So, again, as a matter of law, we think that agreement
that they had no authority to enter into that agreement.
Thank you very much.
THE COURT: Thank you, Mr. Jacobs. Mr. Singer, I
assume you have a different view?
MR. SINGER: Well, we do, Your Honor. And as we have
customarily done, we have put together a few argument
slides, although fewer than usual if I might approach.
THE COURT: Yes, thank you sure.
MR. SINGER: I think as an opening proposition we
agree with what Mr. Jacobs said about events overtaking the
motion. I think it is hard to see a rationale for summary
judgment being a vehicle to decide this issue now that we're
in the middle of trial and the same issues are going to be
fully tried by the time, what within the next hours we
We look at the first slide here. Four issues which we
think leads to why the motion should be summarily denied.
The first is a genuine fact dispute over whether the Sun and
Microsoft agreement, SVRX component, is incidental to the
licensing of UNIX ware. If it is incidental, then we have
the authority to enter into it. The issue of whether it is
incidental we don't think can be resolved as an issue of
law. You don't just count up the number of releases of a
prior product and say well that must mean it is substantial.
For example, we have evidence in this case showing a
prior pattern and practice of licensing those earlier
versions incidental to the current version. That itself is
grounds to deny summary judgment as well as the question of
what is the value of those earlier products. If you have
new equipment, you need newer products to run on, there
certainly has been no showing on summary judgment or really
no showing in the plaintiffs case that there has been any
commercial value to those older products.
Now with respect to intellectual property rights, when
we're talking about giving someone a license, it is the
license that gives them those rights. And the UNIX ware
license gave them all the rights they needed because they
included rights to everything that was in that UNIX ware
product. So on the first point, we think there is a genuine
The second point only relates to the Sun agreement.
Because obviously there is no issue about the Microsoft
agreement being a buy out. There is nothing to buy.
Mr. Jacobs says that you only have to concern a buy out and
this clearly concerned a buy out and so it triggered that
provision of the APA that required Sun's approval. And
while Mr. Jacobs accurately states the language in the APA,
I think there are two reasons why it doesn't lead to the
conclusion he suggests.
The first is that concerning a buy out means more, we
submit, than simply that in the whereas clauses in the
agreement it says it amends and restates that 1994 agreement
which was a buy out. We think it is important that nothing
here changed that buy out. They got paid 82 and a half
million dollars for buying out all of these binary royalties
in 1994. Nothing in 2003 amended that. So nothing
concerned it. We don't think that the plain language of
that agreement means that when you already have a buy out
years before, and you come up with a new agreement that
doesn't change the terms of that, that that is something
that we had to go back to Novell. But there is a second
reason why their argument is, we believe, doesn't lead to
the conclusion they suggest and that if we could, turn to --
it is slide number seven.
THE COURT: Seven?
MR. SINGER: Seven.
THE COURT: Okay.
MR. SINGER: And which is also on the screen. And
that is the language of amendment two which is the amendment
that deals with the buy out issue. It says specifically in
paragraph B(5) that Novell may not prevent SCO from
exercising its rights with respect to SVRX source code in
accordance with this agreement. So even if that amendment
number two was triggered by it being an agreement that
concerns a buy out, all the elements of our amendment
involving source code are not things that Novell had a right
to prevent us from doing by the very language of amendment
So we think even if amendment number two applied,
overwhelming the Sun agreement deals with source code rights
and therefore all aspects -- all those aspects of the
agreement are authorized. So to the extent they have an
argument here, it only applies to non source code issues in
the Sun agreement and I don't even think they have
identified any of those.
Now if we go back then to the four issues that are
implicated in this -- that deals with the first two. The
third involves SCO's source licenses. Turn to tab eight in
THE COURT: Tab eight?
MR. SINGER: Tab eight. And I'll be very brief on
this. There is no -- first of all, summary judgment
determination by this court in your prior order regarding
SCO source licenses being SVRX licenses at all, that was
never raised, never dealt with in the August 2007 order.
There is ample evidence in this record, and also in the
summary judgment record, that SCO was concerned with
technology that was in open server at UNIX ware being
improperly used at Linyx. It is not just a concern with the
historical Unix System V code although that was certainly
part of the concern but as well as things that in the more
recent UNIX library and open server. But I think the most
important fact here is the third point. That SCO had the
right to release its own claims. Because these SCO source
licenses are essentially releases and licenses of SCO's
intellectual property rights. If Novell's argument is right
here, that because of their ownership of certain copyrights
we didn't have much to release to these third parties who
bought these licenses as we thought, it just meant that
those third parties didn't get as much. But it doesn't
change the SCO source license into a license of Novell's
intellectual property. There is nothing on the face of the
agreement that does it. And unless it did that, there is no
issue here about it being an SVRX license within the meaning
of that agreement or something that required Novell's
These aren't people who are being given source code
licenses or going off and doing things with this. This was
a release from litigation claims, essentially. If it is a
smaller release than we thought, that may be an issue
between SCO and that licensee about what they paid for. It
is not an issue that relates to Novell.
The final point, the fourth issue, also relates to the
SCO source licenses and that is our estoppel argument. And
we think that is inherently factual. And you're hearing
some of those facts in this trial. That Novell was aware
from late 2002 and early 2003 that SCO intended to launch a
licensing program for the intellectual property of UNIX that
was in Linyx. And they said they wouldn't help us. They
never said don't do it, they never said we don't have the
rights to do it, they never said if you do it you're going
to owe us the money. And so there is at least a factual
issue on that estoppel defense that precludes summary
judgment. Thank you, Your Honor.
THE COURT: Thank you, Mr. Singer. Any reply,
MR. JACOBS: Briefly, Your Honor. The only thing
worth focusing on, because I don't think the briefing really
paid a lot of attention to this, is the B(5) provision in
amendment number two. The language is under the category of
heading B which is relating to buy outs. In addition,
Novell may not prevent SCO from exercising its rights with
respect to SVRX source code in accordance with the
agreement. The only way to read that is as a reminder that
SCO has some rights in accordance with the agreement and SCO
can't and Novell can't prevent SCO from using those rights.
It doesn't expand anything. It doesn't contract anything.
It is language that is sort of inherently circular and adds
nothing or detracts nothing from the overall asset purchase
agreement or from amendment number two. Thank you, Your
THE COURT: Thank you. Thank you both. We'll now
move to SCO's motion for judgment on the pleadings on
Novell's claim for money or their claim for declaratory
Mr. Normand, how much time do you need on this matter?
MR. NORMAND: I don't want to be a drag on the ticket,
but I probably need 20 minutes, Your Honor.
THE COURT: All right.
MR. NORMAND: May I approach, Your Honor?
THE COURT: Yes.
MR. NORMAND: Your Honor, we think there are five
questions before the court on this motion. Now, this is a
motion for judgment on the pleadings, of course, so this
pertains to Novell's own allegations, Novell's own version
of the facts. Arguments out of Novell's mouth. Your Honor
will appreciate, given that we're in the middle of trial,
there are aspects of these allegations that we disagree
with. But the question here is under Novell's own version
of the facts, did they have a claim? We don't think they
The first question was SCO Novell's agent? Second
question was SCO authorized to execute the agreements at
issue? Third question, if SCO was not authorized to execute
the agreements, as SCO's principal has Novell ratified them?
Here we get in to the principal agent law in terms of our
ratification. Four, if SCO was not authorized to execute
the agreements, and Novell has not ratified them, do the
counter parties to the agreement get back the money they
paid under principals of restitution? And the fifth
question, where SCO was not authorized to execute the
agreements, Novell has not ratified them, and the counter
parties do get back the money they paid, does Novell have
any claim to hold the money in the interim?
Question one, Your Honor, was SCO Novell's agent?
Under Novell's version of the facts, we were. Novell makes
the specific allegation and we acknowledge that the court
concluded in its August 2997 order that SCO was and is
Novell's quote agent for SVRX licenses. I don't think this
is a controversial point.
Question two, was SCO authorized to execute the
agreements? Again, under Novell's version of the facts,
clearly not. Novell alleges in its pleadings that SCO
lacked the authority to execute the agreements. Novell has
moved for summary judgment on the grounds that SCO lacked
the authority to execute the agreements. And Novell is
arguing at trial, of course, that SCO lacked the authority
to execute the agreements.
So far so good. Question three, if SCO was not
authorized to execute the agreements as SCO's principal, has
Novell ratified? No. Novell does not allege in its
pleadings that it has ratified the agreements. In support
of its pending motion for summary judgment, Novell
emphasizes that it has rejected the agreements at every
step. And when we explained a few months ago in opposition
to that motion that we were confused as to that position,
they explained that our view that they had implicitly
approved the agreement that was wrong. They said that
nothing could be further from the truth.
Now, Novell also wrote letters to Sun and Microsoft in
September 2007, those came in today as exhibits, those were
produced yesterday morning. I don't know why they were
produced six months after they were sent. I don't know why
they were produced two months after we brought our motion.
And I don't know why they were produced the morning of
trial. Um, but they don't help Novell. One quote, we'll go
through some more in both letters, we believe that the
agreement is unenforceable, void or invalid. And, of
course, you heard Mr. Jones from Novell say today repeatedly
if he had known about the Sun and Microsoft and SCO source
agreements, if Novell had known about them, they would not
have approved them. Clearly, under its own version of the
facts, Novell has not ratified these agreements.
Question four, SCO was not authorized to execute the
agreements and Novell has not ratified them, do the counter
parties get back the money they paid under the agreements?
Again, this is Novell's version of the facts. Under the
law, they do. They get restitution. As to any void or
invalid contract, taking a step back from principal agent
law, for a second, as to any void or invalid contract, the
counter party who made payments under the contract is
entitled to restitution of them. As to a principal in
particular, if the principal disclaims the agents acts as
unauthorized, he has no grounds to retain the fruits
thereof. That is from the Tenth Circuit. That is the
Maryland Casualty case. And we put in another quote because
we like it so much, one court says it is repugnant in every
sense of justice and fair dealing that a principal shall
avail himself of the benefits of the agent's act and at the
same time repudiate his authority. And in these letters
that were produced yesterday, Novell acknowledges the
likelihood of restitution telling Microsoft and Sun if we
recover money from SCO on account of the agreement, we
intend to hold it for remittance to Microsoft or Sun or a
determination that no such remittance is necessary.
So I think it is clear that the answer to question
four is yes, these counter parties have restitution rights.
So we come to question five where SCO was not authorized to
execute the agreements, Novell has not ratified them, and
the counter parties get back the money, does Novell somehow
have a claim to hold the money in the interim. Hold being
the word that Novell actually used in the Sun Microsoft
letters. The answer to that question under the law is no.
The most recent authority, from the restated third and
reflects as well the restated second agency, makes clear
that quote, "as between the principal and the agent," that
is a phrase Novell itself used in opposing our motion, "as
between the principal and agent, if the principal declines
to ratify the agent is not even under a duty to account to
Can you pull up section 402 and blow up that
highlighted part. This is from the restatement third of
agency. This is from 2006. 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 authority. And then
the next paragraph, legal relations as between agent and
principal, are affected by whether the agent has acted with
actual authority. So ratification clearly bears on this
If we pull up Section 401, this is also from the
restatement third of agency. "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." Again, ratification is keen.
One more here on Section 408. If you would pull that
up. We show, Your Honor, this language as a sort of a
fortiori argument. Novell's argument has been somehow the
court should assess as between Novell and SCO who has a
better claim, who would it be more just to allow it to hold
onto the money. That is not what the law says. The law
actually says if you're not even an agent, let alone whether
you lack the authority, if you were just purporting to be an
agent, it is still the case that the principal can't get the
money if he doesn't ratify. 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, the ratification subjects him to a duty to the
principal as to what he has received.
Why don't we go back to the slides, slide six. The
well-established authority, Your Honor, also makes clear
that the third-party, the counter party, is entitled to
restitution from either the principal or agent. There is no
suggestion in the law that the third-party has to wait until
the money goes to the principal and then seek restitution on
Let's pull up Section 47, and blow that up, just the
highlighted part. I won't belabor these, Your Honor. And
sometimes A's, B's and C's are hard to follow but I think
these are pretty straightforward. These are illustrations
from the restatement of restitution. A shows B a telegram
from C. A is a principal and the owner of Black Acre by an
erroneous interpretation of the legal effect of the
telegram, both parties believe that it authorizes A to sell
Black Acre. B pays A for Black Acre. B is entitled to
restitution from A unless C ratifies or A before learning of
the mistake pays C the money. And number two, the same
facts as illustrated in one, except that B now sends the
money to C. B is entitled restitution from C unless C
The point of these illustrations, Your Honor, to get a
chance to stick with them for a minute, is there is no
suggestion in here that the third-party has to wait for the
principal to get the money. That the third-party has to
wait for the principal to resolve its dispute with the agent
and then it has a right to restitution. There is no
suggestion of that. Whoever has the money, if the principal
was entitled to get it, the third-party gets restitution
from the agent. So Novell is wrong about that area of law,
And finally, Your Honor, to go back to slide six. We
point out that the Tenth Circuit has long observed that
faced with the question of ratification, quote, the
principal is impelled on the horns of a dilemma. I think
Novell suggested in its opposition brief that we're trying
to put them in some uncomfortable or incongruent situation
that they're not. They are in the same situation as any
principal. You have to choose whether to ratify, and if you
have chosen not to, which Novell has chose not to, legal
Two more slides, Your Honor, to try to bring this
home. We read the court's August 2007 order as leaving open
for determination in this trial as to whether we owe Novell
money. And, you know, our position is that any SVRX
component in these agreements at issue has de minimis value.
So our position is that liability on SCO's part to Novell
has not been established as such. We suspect Novell takes a
different view. If they do, we respectfully submit that
reconsideration of at least part of the August 2007 order is
appropriate. Now why would that be? I can understand Your
Honor's reluctance to hear motions for reconsideration so
many months later, but we think we have good grounds. We
would be happy to set them forth in more detail, but in
summary, first, the authority we have gone through reflects
it would be a manifest injustice in one of the standards for
reconsideration for Novell to recover any money while it
disclaims SCO's authority. Remember the quote that we like
so much, "repugnant in every sense of justice and fair
And second, Novell's production yesterday of the
September 2007 letters is crucial new evidence. I think
that would have been very relevant for the court to know if
at the time of the summary judgment ruling it had been made
clear that Novell had rejected these agreements and at the
same time was acknowledging the possibility of remittance.
Or, as we go to the next slide, the -- actually let me
finish that thought, the possibility that Novell reserves
the right to keep the money. They have told Sun and
Microsoft there may be grounds for remittance, but if we get
money from SCO we may keep it. Well, they can't keep it
under any theory of law. We don't think they can get it
from us but they certainly can't keep it if at the same time
they are claiming authority. This would have been relevant
information to know if at the time of summary judgment they
were taking these positions and therefore we submit that
reconsideration might be appropriate.
Final point, Your Honor, and we have made this point
in our trial brief so I won't belabor it. Under the APA
amendment number one, SCO is entitled to retain 100 percent
of quote, "source code right to use fees attributable to
USVRX licenses as approved by the seller," that is Novell,
"pursuant to Section 4.16(b) hereof." If Novell now
reverses course and chooses to ratify the agreements, and
the court were to allow it, SCO keeps a substantial portion
of the alleged SVRX royalties that Novell seeks under these
Now why would that be? We know Novell didn't give its
approval, we never sought it. Why would section 4.16(b) in
this language of amendment number one be satisfied? Two
reasons. One, the literal effect of ratification as we saw
in the earlier authority makes Novell's approval relate back
to the time of the execution of the agreement. It would be
as if they had approved the agreements. If they have
approved them, as Novell has argued up and down for the
first two days, the agreement's at issue involve significant
source code right to use fees. Monies paid for the rights
to use source code.
And second, Your Honor, we do detail this in our trial
brief, Novell might argue that it can't be that we get this
money under any theory because they didn't give approval at
the time. Well to preclude us from attaining these fees
because we failed to get their approval at the time would
create penalty provision. There has to be some relationship
between how much money we would be forfeiting, to use the
word Mr. Jones used today, how much money we would be
forfeiting, and whether at the time of the agreement,
whether at the time of amendment number one, Novell actually
thought it could be harmed in any where approaching that
amount, the amount that we would be forfeiting. There has
to be a relationship between those things.
In Novell's view, SCO could forfeit millions of
dollars when Novell has not even alleged in its pleadings
that our failure to get approval has harmed Novell. They
are presenting no evidence at trial that they have been
harmed. They are not even pursuing a claim for breach of
contract. So in short there would be incongruity between
the size of SCO's forfeiture on the one hand and on the
other hand that prospect that Novell could have been harmed
by our failure to get their approval before the execution of
So for all these reasons, Your Honor, under Novell's
own version of the facts, we don't think they have a claim
to hold onto this money. Thank you.
THE COURT: Thank you, Mr. Normand. Mr. Jacobs?
MR. JACOBS: I have to confess, Your Honor, this is in
a case that has had lots of interesting issues, this is one
of the more -- more interesting ones because of this issue.
And we have had a lot of law school exam questions in this
case and this is another one of those. But I think here is
the problem with SCO's argument.
Number one, the third parties aren't here. In the
cases that SCO is advancing in the sections of restatement
that SCO is talking about, we're talking about three way
disputes. We should not be ourselves penalized for
proceeding step wise to determine -- to be absolutely sure
that SCO didn't have the authority to enter into these
agreements before we go off and create our own imbroglio in
the computer industry by filing lawsuits and creating
uncertainty about whether code is infringing or isn't
So the fact that we have decided to proceed, if you
will, between SCO and Novell first, means that our situation
is different from the situations that SCO is citing in the
case law. In the case law it is true that the third-party
could proceed against SCO or could proceed against Novell
for the restitution. That isn't our case. We don't have
Sun and Microsoft or any of the other licensees here seeking
restitution from SCO and Novell.
In the third-party case, it is also true that if we
retain the benefits of the agreement, if we retain those
benefits, they may then claim if we have a subsequent follow
on dispute with them look Novell you retained the benefits
you can't now disclaim the agreement. But that again is a
third-party argument. That is an argument that Sun or
Microsoft or the SCO source licensees might make but again
only if we retain the benefit of that. The purpose of these
letters was to two parties who are not in this proceeding.
We don't think -- SCO doesn't stand in their shoes and argue
their case for them about why the agreement is or is not
void or is or is not ratified. Those are arguments for Sun,
Microsoft for the third-party licensee to make.
Here is an analogy that makes this point clear. I
have a business. I have an employee. The employee goes
off, signs an agreement, collects money and keeps the money.
And meanwhile, we're the employer, we look at that agreement
we go that is not an agreement that the employee could --
could permissibly have entered into. We think that it is
not valid. In the meantime, does the employee get to hold
the money? That can't be right. One reason it isn't right
one reason it is right is that the employer and the employer
employee situation there is no question about the agency
status of the employee. The employee is an agent. So we're
not disclaiming -- the employer in that case is not
disclaiming the agency as such and that is true here as
well. There is no question that SCO is Novell's agent.
We're not disclaiming the agency relationship. And there is
no question that SVRX, in its broadest sense, is the scope
of that agency.
We are claiming, we are alleging that they lacked the
authority as our agents to enter into those agreements. So
that is -- that is why these cases about disclaiming the
agency are irrelevant. And that is why the
employer/employee hypothetical, I think, is the right one to
think about when considering whether SCO gets to hold the
There is another reason SCO doesn't get to hold the
money which makes this case different from the cases that
SCO cited. We have this complex agreement that defines the
nature of the relationship and defines SCO's duties to
Novell. Those duties include the duty to account. They
include the duty to remit. They include the duty to make
the -- to have, as the court has found, a fiduciary
relationship with Novell as to the SVRX revenues. The
manifest injustice would be if SCO gets to keep the money
under those circumstances. And again our case here is not
analogous to the cases that SCO has cited.
In fact, Your Honor, I don't -- I cannot claim to have
perused every one of the dozens of cases that SCO cited
throughout its brief. But if SCO had a case that answered
their question, the last question that they posed on all
fours with ours, I'm sure they would have cited it. That
question is what happens in the interim? In this case does
SCO get to hold the money having breached their fiduciary
duties, having failed to account, having converted, having
been unjustly enriched, as the court has found, or is the
right answer here for the principal to hold the money and
for the principal to work this out with the third parties,
Sun, Microsoft and the SCO source licensees.
There is nothing inconsistent with the position we
have taken in the case or in our letter to Sun and Microsoft
with that proposition. It is the right thing to happen
here. Novell is ultimately going to have to work out with
Sun and with Microsoft and the SCO source licensees exactly
what happened here and exactly what should follow as a
There are a couple of other minor points. I'm
exceeding five minutes, I apologize. They anticipated our
arguments. It cannot be that what happens as a result of
the follow-on negotiation dispute, whatever, with Sun,
Microsoft and the SCO source licensees necessarily amounts
to a ratification that necessarily relates back and
constitutes approval dating back to of what SCO did
here. There is far too much water under the bridge for that
to be the legal effect of the outcome when Novell and the
third parties sit down and figure out what to do about that.
There are all sorts of intermediate scenarios between
Novell saying at the end of all of this oh yeah those
agreements are fine, no problem. And by the way, whatever
we said about SCO breaching, whatever we said about their
breach of our fiduciary duties, whatever the court's
findings that they breached, oh, this is all retroactive, a
ratification back to 2003. SCO has no -- cites no case that
is on all fours with that scenario and the idea that this is
an unenforceable penalty, this is not a contract case, this
is an unjust enrichment case. This is a conversion case.
SCO has no cases in which a defendant who has been found
liable for unjust enrichment and now we're figuring out
exactly how much should be awarded, gets to say well that is
a penalty that is an unlawful penalty. There are no penalty
cases that deal with the situation we're dealing with here.
So I started out by saying that this is an interesting
issue, but our case is unusual and our case doesn't fit with
SCO's cases. The most -- the basic failure of SCO's legal
argument is they have no case that deals with the situation
between a principal and an agent as between the two of them
when the third-parties are not present and the court is not
actually called upon to declare, with the third-party
present, whether the agreements are void or not.
Last point. We believe, as we say in our letters,
that the agreements are void or invalid or not enforceable
or whatever. That is our belief. But we'll find that out.
But when an authoritative decision-maker like a court
decides that question. And until that question is finally
decided, this is the statement of our position and a
statement of our belief but it is not -- but the legal
effect of voiding of the agreement has not yet occurred.
Thank you very much.
THE COURT: Thank you, Mr. Jacobs. Mr. Normand?
MR. NORMAND: Thank you, Your Honor. Five quick
points, Your Honor, to mirror the five points I started
First, Novell cites no cases that support its theory
that it gets to hold this money. If you look at Novell's
brief there are no cases that use counsel's phrase are on
Second, the law has long made clear, including the
Tenth Circuit, that when a principal learns of what the
agent has done, the principal is on the horns of a dilemma.
Novell suggests that it gets to go to court, have a
resolution of the issues that will bear in this decision and
then make the decision. That is not the horns of a dilemma.
Three, the law says that in this sort of situation
principal has to quote promptly make a decision. If there
was any ambiguity as to whether a principal got to go to
court, that language clarifies it. We cited a lot of that
law in our brief. The principal has to make its decision
Now, what happens when the principal makes its
decision? The question is whether the principal wants to
use a phrase, fall into the principal agent box or not.
That is the horns of the dilemma. Do I want to ratify this
transaction? Do I want to regard it as one that is within
my relationship with the agent? Do I want to go into the
principal agent box or not? It could be a hard decision,
but you have to make it. Novell has made the decision. It
did not ratify the agreements.
Fourth, the question on this motion is not whether SCO
gets to keep the money. The question is whether Novell is
entitled to the money. This is what I alluded to earlier in
my argument, Your Honor. It is not a court of equity where
we're assessing relative rights. We have got allegations of
principal agent relationship and the question on Novell's
claims and therefore on our motion is Novell affirmatively
entitled this money. The law says it is not.
Fifth, do we have any authority that is on all fours?
We do. Can we pull up Section 402. The key phrase that
Mr. Jacobs keeps using and suggesting that we don't have any
direct authority bearing on it is as between the principal
and agent. We all agree we're in a trial as between the
alleged principal and agent. We saw this law earlier.
Ratification retests those legal relations as they would
have been had the agent acted with actual authority. Legal
consequences thus relate back. Bottom Your Honor, legal
relations as between agent and principal are affected by
whether the agent has acted with actual authority. How are
they affected? They're affected because if you ratify,
you're in the principal agent box. It is at that point once
the principal has ratified the agent's act, once the
principal has ratified the agent's act, the agent is subject
to a fiduciary duty to account to the principal.
Finally, Your Honor, to use Mr. Jacobs example, and to
bring it home as to the claims at issue, if that employer
wanted to go to court and seek money, he would have to have
ratified. Novell has not done that. They have done the
opposite. And our motion for judgment on the pleadings even
bending over backwards to draw all inferences in favor of
Novell, the court cannot infer the opposite of what Novell
has alleged and we cited that law as well. Thank you, Your
THE COURT: Thank you. I'll take the motions under
advisement. Let me just ask you a couple of questions
generally. There was a suggestion, and it might have been
in Novell's briefing, that you were defending on among other
things estoppel and unclean hands, but I didn't see any
unclean hands in the briefing, in your briefing.
MR. SINGER: We are not pursuing that aspect of the
THE COURT: Estoppel yes?
MR. SINGER: Estoppel with respect we are.
THE COURT: And then in Novell's briefing, there was
some reference toward the end of your trial brief about a
constructive trust. But that didn't come out -- that was
not released from the stay, that is part of the bankruptcy,
MR. JACOBS: That is exactly right, Your Honor. What
we told the bankruptcy judge was that because that affects
the bankruptcy estate, we would seek a judgment here as to
the amount. We have a finding that we're entitled to a
constructive trust but because it is a preference, arguably
a preference related impact on the bankruptcy estate, that
quantification would occur in the bankruptcy court.
THE COURT: All right. Do you have anything you want
to say about that?
MR. SINGER: We agree with Your Honor that the issue
of constructive trust is not before this court because of
the ruling of the U.S. Bankruptcy Court.
THE COURT: And I assume that the time we have spent
here this afternoon does not count against the hours; is
MR. JACOBS: That is correct, Your Honor.
MR. SINGER: Although I think that we are making
pretty good progress.
THE COURT: Let me raise one potential problem and a
solution if it is a problem. I agreed several months ago to
help make a presentation to the Federal Bar Association
Criminal Law Seminar on Friday which I thought started at
3:00 when I made the agreement. They tell me now it starts
Now, it is just up just a block away so that isn't a
problem. But if we need to, we can start at eight on Friday
and still get in our five hours if we need them on Friday
and be done at 1:30 instead of 2:00. Is that --
MR. JACOBS: Absolutely, Your Honor.
MR. SINGER: That is certainly fine with us. And we
may -- we'll probably know by the end of the day tomorrow.
THE COURT: By the end of the day tomorrow, you'll
know how much time you need Friday. But if you need the
whole five, we'll start at eight if that is okay.
MR. JACOBS: Great.
THE COURT: All right. Thank you. We'll be in
MR. JACOBS: Thank you, Your Honor.
MR. SINGER: Thank you.
(Whereupon, the hearing concluded at 3:59 p.m.)
STATE OF UTAH )
COUNTY OF SALT LAKE )
I, Laura W. Robinson, Certified Shorthand
Reporter, Registered Professional Reporter and Notary Public
within and for the County of Salt Lake, State of Utah, do
That the foregoing proceedings were taken before
me at the time and place set forth herein and were taken
down by me in shorthand and thereafter transcribed into
typewriting under my direction and supervision;
That the foregoing pages contain a true and
correct transcription of my said shorthand notes so taken.
In witness whereof I have subscribed my name and
affixed my seal this 7th day of May, 2008.
Laura W. Robinson, CSR, RPR, CP
and Notary Public
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December 1, 2008