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Hong Kong -- Here Comes Me Inc Software! -- & More Bankrupcy Bills - Updated 2Xs
Thursday, August 21 2008 @ 01:07 PM EDT

More bills, bills, bills in the bankruptcy, but it's winding down. But SCO is winding up. Guess where Me Inc Software, the subsidiary, is located? In Utah, or Delaware, or anyplace that the US bankruptcy court in Delaware or the creditors can get at the profits, which SCO executives have described as an anticipated "river of revenue"? Nay, m'lords. In Hong Kong. We learn from the bills that there is a Me Inc Software foreign subsidiary now in China, filing profits tax forms.

So, what do you think? Can Novell get its money from a Hong Kong foreign subsidiary? I'm sure we all agree that SCO would never try to stiff anyone, so the fact that they are setting this up just before the bankruptcy court is about to decide on the question of how Novell will get the money the Utah court decided SCO owes them must be entirely coincidental. I feel a song coming on:

Ah, sweet mystery of life
At last I've found you...
T'is love and love alone that can repay

I hope Novell likes music, because methinks it will never see that $3 million. The other creditors? Do they still hope? Like a raisin in the sun. Hark! There is one, buried in the bills, asking about the status of the case. Dream on, my friend! Lie back, try to relax, while I tell you about Hong Kong.

First, Mesirow sends a bill again. This is its 3rd quarterly bill [PDF], so we've seen the individual items before in monthly installments, but it is something to see the total for the last quarter: $56,771 plus expenses. They voluntarily offer to reduce the fee to $50,276.70, which reflects their 10% reduction they offered already in their agreement with SCO plus another $908 reduction on the hours it took them to prepare the last three monthly bills plus this quarterly.

Interestingly, Mesirow asks for the full amount this time, which means there will be a hearing on the bill first, set for September 16th. I'm thinking they see the spigot about to be turned to the Off position in the not so distant future, given SCO's current finances. I know. I know. Their prince will come and all that, but financial advisors tend to look at what you have in hand, not so much birds in the bush.

You can also see, if you look at Exhibit A [PDF], that while they billed $30,000 and change in April, for June it was only $452.70, so it's winding down. Maybe SCO isn't so much in need of a financial advisor, when there isn't a lot of coin in the bank. If there are no objections though, they will likely get it easily approved.

Dorsey and Whitney filed an 8th monthly bill [PDF], for around $13,000. They are winding down too, I'd say, looking at the prior bills, and this bill is for 46.9 hours, which probably means the firm has lots of clients taking more of their time. However, I wondered, considering how little happened in June in the bankruptcy, how they managed to rack up that much time, little though it is.

Here's how. Exhibit B [PDF] tells us that the firm spent 3.25 hours on "Hong Kong Corporate Formation", 22.15 on "Business Operations", 11.95 on "Securities", and 9.55 on "Fee/Employment Applications". Most of the hours were racked up by associates and a paralegal.

The breakdown is in Exhibit D [PDF]. And guess what S. Chan spent most of his time on? "Me Software Limited". Now Simon Chan works in Hong Kong, so I think we can assume that SCO is setting up the Hong Kong corporate entity for their Me Inc future business. Hong Kong. OK. You see items involving a mortgage, Articles of Association, various corporate filings, including profits tax:

6/21/08 S. Chan 0.50 257.50 Consider urgent e-mail from C. Yeung of BDO regarding urgent fling of profits tax return and draft e-mail to C. Young of BDO

BDO is probably BDO Seidman, accountants. The bill reflecting the Business Operations work includes lots about Hong Kong too. You'll see items about researching issues relating to foreign subsidiaries, work on "corporate matter" (what? they don't want us to know the details?), and references to a board meeting and a stockholder meeting. I can see it now: "Yes! Yes! Send our only hope for a profitable business to Hong Kong." Just imagining. You know my sense of humor.

Some issue came up regarding "question of R. Tibbits relating to his stock sale", and a couple of days later Marx responded to "Section 16 questions of R. Tibbitts", and a couple of days after that Marx responded to "questions of R. Tibbits relating to insider trading questions." Hmm. Don't ask what my sense of humor comes up with for that item.

I see the compensation committee met also. Uh oh. And D. Marx worked on "submissions for California and Utah to register stock incentive plans." I don't know why, but watching all this scurrying about, I'm getting the feeling Novell will never see a penny. Ah, well, perhaps Microsoft can make it up to them. Say, if those SUSE certificates are going like hot cakes, like they say, do the figures for Linux market share show an increase? They should.

Berger Singerman also filed a bill [PDF], its 11th monthly. They want another $10,711.50 plus expenses. That's the smallest bill of them all. The largest chunk of time was on "Plan and Disclosure Statement." You know what would be interesting? To add up all the fees SCO has paid to one and all for various failed reorganization plans. If any of you wondrous chart makers could come up with one, that would be great. In Exhibit A [PDF], the breakdown by category, you find out exactly what was done by the firm in July on "restructure matter". I notice a creditor, TrialGraphix, would like to know "status of the case". They apparently would like to know just how long this crazy bankruptcy is going to last. Well, so would we all. I say crazy, because SCO wasn't bankrupt when it filed, just worried that it might get that way if it owed what it felt in its heart it was going to be ordered by the Utah court to pay to Novell. It was ordered to pay much less, and if SCO is now virtually bankrupt, it's because of the expenses of the bankruptcy.

Ah, sweet irony.

Here are all the filings:

530 - Filed & Entered: 08/18/2008
Application for Compensation
Docket Text: Quarterly Application for Compensation [Third] and Reimbursement of Expenses as Financial Advisors to the Debtors for the Period from April 1, 2008 through June 30, 2008 Filed by Mesirow Financial Consulting, LLC. Hearing scheduled for 9/16/2008 at 10:00 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 9/8/2008. (Attachments: # (1) Notice # (2) Exhibit A # (3) Proposed Form of Order # (4) Certificate of Service and Service List for Fee App# (5) Certificate of Service and Service List for Notice only) (Makowski, Kathleen)

531 - Filed & Entered: 08/19/2008
Application for Compensation
Docket Text: Monthly Application for Compensation of Dorsey & Whitney LLP (Eighth) for the Period June 1, 2008 Through July 31, 2008 Filed by Dorsey & Whitney LLP. Objections due by 9/8/2008. (Attachments: # (1) Exhibit A # (2) Exhibit B# (3) Exhibit C# (4) Exhibit D # (5) Declaration Certification of Counsel # (6) Notice) (Schnabel, Eric)

532 - Filed & Entered: 08/20/2008
Application for Compensation
Docket Text: Interim Application for Compensation for Services and Reimbursement of Expenses, as Co-Counsel to the Debtors in Possession for the Period from July 1,2008 through July 31, 2008 Filed by Berger Singerman, P.A.. Objections due by 9/9/2008. (Attachments: # (1) Notice # (2) Exhibit A# (3) Certificate of Service and Service List) (O'Neill, James)

Update: I was reminded that we never posted #s 522 and 523 from the bankruptcy docket, bills from Pachulski Stang and Tanner, so here they are, so you can pick over them too:

522 - Filed & Entered: 07/28/2008
Application for Compensation
Docket Text: Application for Compensation /Ninth Monthly Application for Compensation and Reimbursement of Expenses of Pachulski Stang Ziehl & Jones LLP, as Co-Counsel to the Debtors and Debtors in Possession, for the Period from May 1, 2008 through May 31, 2008 Filed by Pachulski Stang Ziehl & Jones LLP. Objections due by 8/18/2008. (Attachments: # (1) Notice # (2) Exhibit A # (3) Affidavit with service list) (O'Neill, James)

523 - Filed & Entered: 08/07/2008
Application for Compensation
Docket Text: Monthly Application for Compensation (Tenth) for Services and Reimbursement of Expenses, as Accountants to the Debtors for the Period from July 1, 2008 through July 31, 2008 Filed by Tanner LC. Objections due by 8/27/2008. (Attachments: # (1) Notice # (2) Exhibit A# (3) Certificate of Service and Service List) (Makowski, Kathleen)

Exhibit A to the Berger Singerman bill has a couple of other interesting things. One is that there seems to be a problem with the New Jersey lease, surprise, surprise, and there are some items about negotiating a new lease and a little research on whether a landlord action would violate the automatic stay. That's on page 5. And lookee here:

7/10/2008 DL Confer with Client, Etc Regarding Status of Case and Next Steps in Deal Process, Updating Board of Directors, Coordinate with Reorg Team, Etc

That could be related to the old deal, of course, so it may be old news. On page 7, we see them analyzing the Utah order in SCO v. Novell. Page 8 sees them working on an "amended plan", and page 9 has an item about a telephone conference regarding "various exit scenarios". No, they don't mean a midnight plane to Rio. And then this, on page 9:

7/23/2008 AJS 2 Office Conferences with G. Robson Regarding Extensive Research Project Involving Choice of Law, the Law of Judgments, Etc. 0.30

7/28/2008 DL Prepare for and Participate in Conference Call Regarding Litigation Developments, Next Steps Regarding Plan and Exclusivity, Term Sheet for Plan, Follow Up Regarding Novell Pleadings, Etc. 0.70

Lots of conferences on what Novell's reaction to the final judgment dispute, and then the filing for the extension of the term of exclusivity, while they work on a plan some more. They mention Novell Draft Documents in Utah Litigation on page 10, so they are seeing things we haven't seen yet. I gather Wayne Gray will be filing a motion to lift the stay so he can move forward on his side action in Florida, from items on pages 10 and 11.

Someone emailed me asking what "choice of law" means. You have no idea how complex the answer to that can be, particularly here where it's a phrase being used in a bill and may be being used loosely, but this will get you started. Choice of law, in simple terms, means which law does the judge follow? Federal courts usually involve parties from different states. So which state's law will apply? In a contract, you will often see a particular state chosen. In the Project Monterey deal, if you recall, it stated that the laws of the state of New York were the ones to go by.

But sometimes it's not about a contract, so somebody has to decide whether the incident that gave rise to a lawsuit goes by the law of the state where the victim lives, or by the laws of the place where the action happened. For example, suppose there is libel. Which laws apply? Australia, where the victim lives and his reputation was damaged, or New York, where the magazine that contained the alleged libel is published? The Internet makes that hugely more complicated than it used to be.

Sometimes laws conflict, so which will it be? Which law will be chosen when you can't choose both? You saw that play out when Novell moved the case against it from Utah state court to Kimball's federal court and then SCO unsuccessfully tried to get it remanded back to state court? Remember that? Was it to be copyright law, and so have to be handled in federal court, or not? That is a jurisdictional issue, not an issue of choice of law from a federal judge's perspective, but SCO was looking at the matter from the standpoint of what law it thought would help it more, so I mention it only because when you see lawyers are researching "choice of law" issues, it sometimes means they are looking to see which strategy would play out the best, either defensively or offensively.

But it could also just be that there is a contract being contemplated, and they are trying to decide which state's laws will be most helpful. Or if litigation is anticipated, it can just mean they are looking to see where they are allowed to sue. You can't just throw a dart at a map. Or if you think the other party will be suing in a certain state, they could be researching if there a way to get out of that state and into one they like better. Remember in AutoZone, there was a dispute about which state was appropriate? Or if, for example, you thought the stay might be lifted and a landlord was going to sue you in New Jersey, you might want to research if there is any way to move it to bankruptcy court instead. If you'd like to dig deeper, here's a paper all about 2007 choice of law cases.

Update 2: There were no objections to Pachulski Stang's 9th monthly bill, so SCO filed a Notice of No Objection. And Dorsey & Whitney have filed their third quarterly bill, covering April 1 through the end of July. Being a quarterly bill, we have seen it all before before.

Here are the filings:

533 - Filed & Entered: 08/21/2008
Certificate of No Objection
Docket Text: Certificate of No Objection (No Order Required) Regarding Ninth Monthly Application of Pachulski Stang Ziehl & Jones LLP, As Co-Counsel to the Debtors and Debtors in Possession for the Period from May 1, 2008 through May 31, 2008 [Objection Deadline: 8/18/08 at 4:00 P.M.] (related document(s)[522] ) Filed by The SCO Group, Inc.. (Attachments: # (1) Certificate of Service and Service List) (Makowski, Kathleen)

534 - Filed & Entered: 08/22/2008
Application for Compensation
Docket Text: Quarterly Application for Compensation and Reimbursement of Expenses Sought in the Monthly Fee Applications for the Period from April 1, 2008 through July 31, 2008 Filed by Dorsey & Whitney LLP. Hearing scheduled for 9/16/2008 at 10:00 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 9/9/2008. (Attachments: # (1) Notice # (2) Exhibit A # (3) Exhibit B # (4) Exhibit C # (5) Certificate of Service and Service List - Fee Application# (6) Certificate of Service and Service List - Notice Only) (Makowski, Kathleen)

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