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SCO Objects to Some Claims, Including Snow Christensen's - Updated 2Xs
Thursday, October 09 2008 @ 08:07 AM EDT

SCO has filed its First (Non-Substantive) Omnibus Objection to Claims [PDF], which I gather is where a company tries to shuck off any claims they think they can. And the omnibus hearing scheduled for October 15, 2008 has been cancelled. Also Tanner has filed its 12th bill in the bankruptcy. Here's the relief SCO asks for in its Omnibus Objection to Claims:
7. By this First Omnibus Claims Objection, the Debtors seek entry of an order pursuant to section 502(b) of the Bankruptcy Code and 3007 of the Bankruptcy Rules disallowing and expunging the Disputed Claims listed on Exhibits "A" through "D" to the proposed First Omnibus Claims Order because such claims are claims asserting ownership of stock (Exhibit A), late filed claims (Exhibit B), for which the Debtors have no liability (Exhibit C), or claims with insufficient documentation (Exhibit D).
They want the claims "disallowed and expunged". One of the claims is one from Snow Christensen & Martineau for $100,000. That's the law firm that represented Caldera in the Caldera v. Microsoft case, if you recall, when Ryan Tibbitts was with Snow Christensen, before he joined SCO as general counsel. Nice touch. It's the same firm that Microsoft is now trying to subpoena in the Novell v. Microsoft antitrust litigation. It seems never to pay off, doing business with SCO, does it? They list the same claim from the firm on both Exhibit A, a list of "Disputed Claims which improperly assert claims of ownership of stock", and on Exhibit C, which is the list that purports to be claims that lack a basis in SCO's books and records. So if they can't get it expunged one way, they'll try the other. Maybe SCM will start *really* digging in those 158 boxes now.

You'll find the exhibits attached to the proposed order. We learn from Jean Acheson's affidavit that there have been 190 proofs of claims filed. You'll recall the list, Creditor Matrix [PDF].

There's one other large item on that Exhibit A list, a Vincent DeSisto, for around $50,000. I don't see him on the Creditor Matrix list. Hopefully, for his sake, he has a paper trail.

If they are disallowed, or expunged, I'm guessing they don't get to change their shares into yummy new ones, if or when the company is able to reorganize. I can't help but wonder if that is the purpose in trying to scrape them off SCO's shoes. (Update: This article indicates I'm wrong about that. They can get rid of shareholders anyhow, by just issuing new shares upon reorganizing and saying old shareholders don't get any.) Maybe SCO would rather there be no outside attorneys from a firm that no longer represents SCO watching from the inside as SCO morphs from tadpole to toad? I mean from caterpillar to butterfly, of course. Or maybe they really can't figure out the claim, like they seem to be saying, but SCO listed them on the Creditor Matrix list itself, before Snow Christensen could have sent them anything, I'd think, since it was filed the very first day of the bankruptcy. So at what point did SCO think the claim was invalid? I'm puzzled, but there is a lot I don't know about bankruptcy law, so I have to leave room for that. If Snow Christensen fights, we'll find out more, I've no doubt. It just isn't Snow's week.

So, if SCO asks you to work for stock, think deep thoughts. Remember Boies Schiller almost did that, and then asked for cash instead? Like, totally upfront cash? That's one firm that I gather does not weigh itself down with anything so quaint as old-fashioned trust. Here's a helpful SEC page, "Corporate Bankruptcy", that explains how totally you lose out if you are a shareholder in a company that files for Chapter 7 and how usually you lose out if it files for Chapter 11. It also explains what happens if the company emerges from bankruptcy in Chapter 11, and then starts to sell the new shares while sometimes still trading the old, which may be totally useless. It also tells what it takes for the SEC to get involved. Like fraud that is obvious enough that it's like a pimple on the company's nose and they have no choice, as I read it. Or something like that. I confess, the wacky world of Wall Street is amazing indeed to a plain soul like me. Of course, I don't gamble, so there you are. Invest if you dare, you wild and crazy guys.

I worked for one attorney, years ago, who told me in all seriousness that attorneys sometimes burn out young because they have to be so paranoid all the time. They have to protect their clients from the opposition parties, so they have to be thinking defensively and offensively there. And then they have to protect themselves from their clients, who sometimes try not to pay after they get what they wanted or who file harassing complaints to avoid paying or just because they are nuts or expected more from the legal system than the system can provide.

Here's Bankruptcy Rule 3007, Objection to Claims, which is the rule SCO invokes, along with 11 U.S.C §502(b), which lists claims or interests that can be disallowed.

Of course, there is a process whereby the claimants can respond, and they must do so by November 13 in writing, according to paragraphs 16 through 20 and then attend the hearing, scheduled currently for November 20, 2008 at 9:30 AM.

Here are all the filings:

10/03/2008 - 572 - Certificate of No Objection (No Order Required) Regarding Twelfth Interim Application of Berger Singerman, P.A. for Compensation for Services and Reimbursement of Expenses, as Co-Counsel to the Debtors in Possession for the Period from August 1, 2008 through August 31, 2008 (related document(s) 545 ) Filed by The SCO Group, Inc.. (Attachments: # 1 Certificate of Service and Service List) (O'Neill, James) (Entered: 10/03/2008)

10/07/2008 - 573 - HEARING CANCELLED. Notice of Agenda of Matters Scheduled for Hearing. Filed by The SCO Group, Inc.. Hearing scheduled for 10/15/2008 at 09:30 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. (Attachments: # 1 Affidavit of Service and Service List) (O'Neill, James) (Entered: 10/07/2008)

10/07/2008 - 574 - First Omnibus Objection to Claims (Non-Substantive) Pursuant to 11 U.S.C. Section 502(b) and Bankruptcy Rule 3007. Filed by The SCO Group, Inc.. Hearing scheduled for 11/20/2008 at 09:30 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 11/13/2008. (Attachments: # 1 Notice # 2 Declaration of Jean Acheson# 3 Proposed Form of Order # 4 Certificate of Service and Service List) (Makowski, Kathleen) (Entered: 10/07/2008)

10/07/2008 - 575 - Monthly Application for Compensation [Twelfth] for Services and Reimbursement of Expenses, as Accountants to the Debtors for the Period from September 1, 2008 through September 30, 2008 Filed by Tanner LC. Objections due by 10/27/2008. (Attachments: # 1 Notice # 2 Exhibit A# 3 Certificate of Service and Service List) (Makowski, Kathleen) (Entered: 10/07/2008)

Update: SCO's most recent 10Q outlines various possibilities regarding stock:

Under the priority scheme established by the Bankruptcy Code, unless creditors agree otherwise, post-petition liabilities and prepetition liabilities must be satisfied in full before stockholders are entitled to receive any distribution or retain any property under a plan of reorganization. The ultimate recovery to creditors and/or stockholders, if any, will not be determined until confirmation of a plan or plans of reorganization. No assurance can be given as to what values, if any, will be ascribed in the Chapter 11 cases to each of these constituencies or what types or amounts of distributions, if any, they would receive, or as to the timing of such distributions, if any. A plan of reorganization could result in holders of the Company’s stock receiving no distribution on account of their interests and cancellation of their existing stock. If certain requirements of the Bankruptcy Code are met, a plan of reorganization can be confirmed notwithstanding its rejection by the class comprising the interests of the Company’s equity security holders.

Under the supervision of the Bankruptcy Court, the Company may decide to pursue various strategic alternatives as deemed appropriate by the Company’s Board of Directors to serve the best interests of the Company and its stakeholders, including asset sales or strategic partnerships.

Update 2: Here's an article in American Bankruptcy Institute Journal that explains the process better than I did, which isn't surprising, considering how little I know about the subject. Specifically, it says that creditors who wish to protect their claims from being expunged can appear pro se, by telephone, and if they do hire an attorney, it doesn't have to be a local Delaware lawyer. Also, there were recent updates to both federal (December 2007; Cf. here) and local Delaware (February 2008) bankruptcy rules, including rules regarding omnibus claims objections, and if there is a conflict, Delaware goes by the local rules [PDF], and you'll find the stuff about omnibus claims objections beginning on page 26 of the document. The article begins like this:
As most practitioners are aware, the Bankruptcy Code is a debtor's code, just as Article 9 of the UCC is a secured creditor's code. Thus, the Code seeks to give debtors what they most need: a chance at a fresh start.
That's basically how we've been seeing things play out, and it's the explanation.

This article on Bankruptcy Basics explains the position of equity security holders:

Equity Security Holders An equity security holder is a holder of an equity security of the debtor. Examples of an equity security are a share in a corporation, an interest of a limited partner in a limited partnership, or a right to purchase, sell, or subscribe to a share, security, or interest of a share in a corporation or an interest in a limited partnership. 11 U.S.C. § 101(16), (17). An equity security holder may vote on the plan of reorganization and may file a proof of interest, rather than a proof of claim. A proof of interest is deemed filed for any interest that appears in the debtor's schedules, unless it is scheduled as disputed, contingent, or unliquidated. 11 U.S.C. § 1111. An equity security holder whose interest is not scheduled or scheduled as disputed, contingent, or unliquidated must file a proof of interest in order to be treated as a creditor for purposes of voting on the plan and distribution under it. Fed. R. Bankr. P. 3003(c)(2). A properly filed proof of interest supersedes any scheduling of that interest. Fed. R. Bankr. P. 3003(c)(4). Generally, most of the provisions that apply to proofs of claim, as discussed above, are also applicable to proofs of interest.

*******************************

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

In re: ) Chapter 11
)
THE SCO GROUP, INC., et al,2 ) Case No. 07-11337 (KG)
) (Jointly Administered)
)
Debtors. )

Objection Deadline: November 13, 2008 at 4:00 p.m. prevailing Eastern Time
Hearing Date: November 20, 2008 at 11:00 a.m., prevailing Eastern Time

DEBTORS' FIRST (NON-SUBSTANTIVE) OMNIBUS OBJECTION TO CLAIMS
PURSUANT TO 11 U.S.C. 502(b) AND BANKRUPTCY RULE 3007

The above-captioned debtors and debtors in possession (collectively, the "Debtors"), hereby submit this first (non-substantive) omnibus objection to claims (the "First Omnibus Claims Objection") pursuant to section 502(b) of title 11 of the United States Code, as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the "Bankruptcy Code") and Rule 3007 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") and Delaware Local Bankruptcy Rule 3007-1 and object to the claims (the "Disputed Claims") listed on Exhibits "A" through "D" to the proposed order submitted herewith (the "First Omnibus Claims Objection Order"). In support of this First Omnibus Claims Objection, the Debtors respectfully state as follows:

(1)

Introduction

1. On September 14, 2007 (the "Petition Date"), the Debtors each filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code, as amended (the "Bankruptcy Code").

2. This Court has jurisdiction over this Objection under U.S.C. §§ 157 and 1334. This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A) and (L). Venue of this proceeding and this Objection is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409.

3. The statutory predicates for the relief requested herein are section 502(b) of the Bankruptcy Code, Bankruptcy Rule 3007 and Del. Bankr. LR 3007-1.

Background

4. By order dated August 18, 2007 [Docket No. 29], the Court authorized Epiq Bankruptcy Solutions, LLC, to serve as the Debtors' claims agent (the "Claims Agent").

5. On March 5, 2008, the Court signed the Order Granting Debtors' Motion For Order Establishing A Bar Date For Filing Proofs of Claim And Approving the Form and Manner of Notice Thereof [Docket No. 380] (the "Bar Date Order"). Pursuant to the Bar Date order, the deadline for filing proofs of claim was April 21, 2008 (the "Bar Date"). Notice of the Bar Date was sent via first class mail to (a) the Office of the United States Trustee for the District of Delaware; (b) all persons and entities who have requested notice pursuant to Bankruptcy Rule 2002 as of the date of the Bar Date Order; (c) all persons or entities listed in the Schedules at the addresses set forth therein; (d) All known holders of equity securities in the Debtors as of February 22, 2008; (f) all taxing authorities for the jurisdictions in which the Debtors maintained

2

or conducted business up to one year prior to the Petition Date; (g) all known holders (and, where known, their counsel) of Prepetition Claims against the Debtors; (h) all parties that have filed notices of appearance in these chapter 11 cases; (i) all entities that are parties to any litigation in which the Debtors are a party (and, where known, their counsel); (j) all indenture trustees; (k) the District Director of the Internal Revenue Service for the District of Delaware; and (l) the Securities and Exchange Commission. Notice of the Bar Date was also published in the Salt Lake Tribune, the Salt Lake Tribune & Deseret, and the Wall Street Journal, National Edition.

6. To date, almost 200 proofs of claim (the "Proofs of Claim") have been filed in these cases. The Proofs of Claim are recorded on the official claims registry in these cases (the "Claims Registry") which is maintained by the Claims Agent.

Relief Requested

7. By this First Omnibus Claims Objection, the Debtors seek entry of an order pursuant to section 502(b) of the Bankruptcy Code and 3007 of the Bankruptcy Rules disallowing and expunging the Disputed Claims listed on Exhibits "A" through "D" to the proposed First Omnibus Claims Order because such claims are claims asserting ownership of stock (Exhibit A), late filed claims (Exhibit B), for which the Debtors have no liability (Exhibit C), or claims with insufficient documentation (Exhibit D).

Basis for Relief

8. Since the Bar Date, the Debtors and their advisers have been reviewing the Proofs of Claim filed in these cases. Based upon such review, and as indicated in the Declaration of Jean Acheson, Controller of the Debtors attached hereto, the Debtors have determined that the Disputed Claims should be disallowed and expunged.

3

9. As noted above, Exhibit A contains Disputed Claims which improperly assert claims of ownership of stock. The Debtors respectfully object to these Disputed Claims pursuant to section 502(b) of the Bankruptcy Code, Bankruptcy Rule 3007(d)(7) and Local Rule 3007-1(d).

10. Exhibit B contains Disputed Claims which are filed late. As noted above, the Bar Date in this matter was April 21, 2008. The Disputed Claims listed on Exhibit B were filed after the Bar Date. Therefore, the Debtors object to the Disputed Claims listed on Exhibit B pursuant to section 502(b) of the Bankruptcy Code, Bankruptcy Rule 3007(d)(4) and Local Rule 3007-1(d)(iv).

11. Exhibit C contains Disputed Claims for which the Debtors have no liability. Each of the Disputed Claims listed on Exhibit C should have been filed against another company altogether. The Debtors have no liability to the claimants with respect to these claims. Accordingly, the Debtors object to the Disputed Claims listed on Exhibit C pursuant to section 502(b) of the Bankruptcy Code, Bankruptcy Rule 3007(d)(2) and Local Rule 3007-1(d)(vi).

12. Exhibit D contains Disputed Claims which contain insufficient documentation and, therefore, does not constitute prima facie evidence of the validity and amount of the claim as contemplated by Bankruptcy Rule 3001(f). Accordingly, the Debtors object to the Disputed Claims listed on Exhibit D pursuant to section 502(b) of the Bankruptcy Code, Bankruptcy Rule 3007(d)(6) and Local Rule 3007(d)(vi).

13. For the reasons set forth above, the Debtors object to the Disputed Claims and seek entry of an order disallowing such Disputed Claims in their entirety and authorizing and directing the Claims Agent to expunge such Disputed Claims from the Claims Registry.

4

Applicable Authority

14. Code Section 502(b) provided in pertinent part that:

The court, after notice and a hearing, shall determine the amount of [a] claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that ... such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.
11 U.S.C. § 502(b)(1).

15. For reasons set forth above and on Exhibits A through D attached to the proposed form of order, the Disputed Claims are claims asserting ownership of stock, late filed, for which the Debtors have no liability, or for which there is insufficient documentation and, therefore, are unenforceable against the Debtors. Therefore, pursuant to Code Section 502(b)(1) and Bankruptcy Rule 3007, the Court should disallow the Disputed Claims and expunge them from the Claims Registry in these cases.

Responses to Objections

16. Filing and Service of Responses. To contest this First Omnibus Claims Objection, a claimant must file and serve a written response to the First Omnibus Claims Objection (a "Response") so that it is received no later than 4:00 p.m. (Eastern time) on November 13, 2008. Claimants should read the proposed First Omnibus Claims Objection and Order and the exhibits carefully. A claimant who has timely filed a writted Response and wishes to oppose the First Omnibus Claims Objection must attend or make other arrangements to participate in the hearing on the objection, which hearing is scheduled to be held on November 20, 2008 at 9:30 a.m. before the Honorable Kevin Gross, United States Bankruptcy

5

Judge, at the United States Bankruptcy Court for the District of Delaware, [address] (the "Hearing").

17. Every Response shall be filed and served upon the following entities at the following addresses: (a) Office of the Clerk, United States Bankruptcy Court for the District of Delaware, [address]; and (b) Pachulski Stang Ziehl & Jones LLP, [address], Attn: Laura Davis Jones, Esquire with a copy to Berger Singerman, PA, [address], Attn: Arthur J. Spector and Grace E. Robson.

18. Content of Responses. Every Response to the First Omnibus Claims Objection must contain at a minimum the following:

a. a caption setting forth the name of the Court, the names of the Debtors, the case number and the title of the objection to which the Response is directed;

b. the name of the claimant and description of the basis for the amount of the Disputed Claim;

c. a concise statement setting forth the reasons why the Disputed Claim should not be disallowed for reasons set forth in the First Omnibus Claims Objection including, but not limited to, the specific factual and legal bases upon which the claimant relies in opposing the First Omnibus Claims Objection;

d. all documentation or other evidence supporting the Disputed Claim not included with the proof of claim previously filed with the Bankruptcy Court, upon which the claimant relies in opposing the First Omnibus Claims Objection and

6

e. the name, address, telephone number, and fax number of the person(s) (which may be the claimant or a legal representative thereof) to whom counsel for the Debtors should serve a reply to the Response and who possesses authority to reconcile, settle or otherwise resolve the objection to the Disputed Claim on behalf of the claimant.

19. Timely Response Required. If a claimant fails to file and serve a timely Response, then without further notice to the claimant or a hearing, the Debtors will present to the Court an order disallowing the Disputed Claim in its entirety and authorizing and directing the Claims Agent to expunge the Disputed Claim.

20. Service Address. If a Response contains an address for the claimant different from that stated on the Disputed Claim, the address in the Response shall constitute the service address for future service of papers upon the claimant with respect to the First Omnibus Claims Objection unless or until counsel for the Debtors receives written notice from the claimant or the claimant's counsel of a changed service address.

Adjournment of Hearing

21. The Debtors reserve the right to adjourn the Hearing on any Objection. In the event that the Debtors so adjourn the Hearing, they willstate that the Hearing on the Objection and/or Response has been adjourned on the agenda for the Hearing on the First Omnibus Claims Objection, which agenda will be served on the person designated by the claimants in a Response pursuant to paragraphs 18(e) and 20 above.

Reservation of Rights

22. The Debtors expressly reserve the right to amend, modify or supplement this First Omnibus Objection, and to file additional objections to the Disputed Claims or to any other claims (filed or not) that may be asserted against the Debtors. Should one or more of the

7

grounds of objection stated in this First Omnibus Objection be overruled, the Debtors reserve their rights to object to the Disputed Claims on any other ground that bankruptcy or non-bankruptcy law permits.

Further Information

23. Questions about or requests for additional information about the First Omnibus Claims Objection should be directed to the Debtors' counsel in writing at the address listed for Berger Singerman, PA (Attn: Grace E. Robson, Esquire) or by telephone at [phone] or by email at [email].

24. Claimants should not contact the Clerk of the Court to discuss the merits of their Proofs of Claim or this objection.

Notice

25. Notice of this Motion has been given to the following parties, or in lieu thereof, to their counsel, if known: (i) the Office of the United States Trustee; (ii) parties requesting notice under Bankruptcy Rule 2002; and (iii) all holders of claims which are the subject of this First Omnibus Objection. The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given.

No Prior Request

26. No prior motion for the relief requested herein has been made to this or any other court.

Compliance with Delaware Bankruptcy Local Rule 3007-1

27. This First Omnibus Claims Objection complies with the requirements of Del. Bank. LR 3007 except as indicated above. To the extent that the First Omnibus Claims

8

objection does not comply with the Local Rules, the Debtors request a waiver of the Local Rules solely for the purposes indicated herein.

WHEREFORE, the Debtors respectfully request that the Court enter an order (i) disallowing the Disputed Claims in their entirety and authorizing the Claims Agent to expunge the Disputed Claims from the Claims Registry and (ii) granting the Debtors such other and further relief as is just and proper.

Dated: October 7, 2008

PACHULSKI STANG ZIEHL & JONES LLP

(signature)
Laura Davis Jones (Bar No. 2436)
James E. O'Neill (Bar No. 4042)
Kathleen P. Makowski (Bar No. 3648)
[address]
[phone]
[fax]
[email]

and

BERGER SINGERMAN, P.A.
Paul Steven Singerman
Arthur J. Spector
Grace E. Robson
[address]
[phone]
[fax]
and
[address]
[phone]
[fax]
[email]
Co-Counsel for the Debtors and Debtors-in-Possession

(9)

2 The Debtors and the last four digits of each of the Debtors' federal tax identification numbers are as follows: (a) The SCO Group, Inc., a Delaware corporation, Fed. Tax Id. #2823; and (b) SCO Operations, Inc., a Delaware corporation, Fed. Tax ID. #7393.

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