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The Hon. McConnell, Lucero & Baldock Deny Novell Petition for ReHearing - And Darl's "Ed" Letter - Updated
Tuesday, October 20 2009 @ 09:10 PM EDT

The same three appeals court judges who decided to send the copyright ownership issue in SCO v. Novell back to Utah for a jury trial, including the now-retired Judge McConnell, have denied the Novell petition for rehearing. Judge McConnell wrote the original ruling, so it's hardly a surprise that he would feel it was just right. But none of the appellate judges asked for an en banc hearing either, according to the decision. Novell asked for both. Here is the decision in its entirety:
Appellee’s petition for rehearing is denied. The petition for rehearing en banc was transmitted to all of the judges of the court who are in regular active service. As no member of the panel and no judge in regular active service on the court requested that the court be polled, that petition is also denied.
It was only sent to those in "regular active service". I gather that is how it's done, but I have no idea if that is typical. So back it goes to Utah District Court, to a new judge, Ted Stewart, appointed by President Clinton.

Of course, Novell could appeal this denial, I think. This is the kind of issue that ends up before the Supreme Court, frankly. I don't know if Novell will bother, but the decision doesn't match other court decisions, so I hope they do -- it's the kind of thing the Supreme Court sometimes decides to settle. And I've heard the 10th Circuit has a tendency to overrule Utah. I don't know why that would be, but that is what I've heard.

SCO is on life support, last I checked, so who knows if they can last long enough to make it to the Supreme Court, though. To tell you the truth, with Darl McBride threatening to sue to block the Chapter 11 Trustee's survival plan for the SCO Group, now that he's been "terminated", I'd say this thing could go on for years and years and years, particularly since Boies Schiller is paid to go all the way to the Supreme Court. It would not amaze me at all to see the copyright ruling before that court someday.

Here's the ruling:

10/20/2009 - Open Document - [9703322] Order filed by Judges Lucero, Baldock and McConnell denying petition for rehearing en banc filed by Appellee Novell, Inc.

On the topic of Darl McBride and the Chapter 11 Trustee, retired Judge Edward Cahn, Darl McBride sent a letter to him allegedly on Sunday, then "released to the press" according to Maureen O'Gara, in which he claims that he had funds lined up, sort of, from Cerberus, but no one from Blank Rome followed up on his lead. So here's what he wants -- to be made the head of SCOsource Licensing. Here's a snip from the letter. I'd call it a "Dear Ed" letter, but there's no "Dear":
When we met in Blank Rome's office in Philadelphia on August 28th, you tasked me to go into the financial markets to see if I could drum up interest in SCO's big win that it got in the 10th Circuit Court of Appeals in the Novell case that was issued on August 24th. I took on that assignment and in a matter of just 3 weeks, was able to get several significant funds to take a hard look at investing/lending money into SCO. The most promising of these investors was Cerberus Capital Partners, one of the largest hedge funds in the country. Cerberus sent us a term sheet that would include a $25 Million credit line, $3 million of which would be accessible within weeks, and invited us to enter into discussions to negotiate/counter the terms of the potential deal that they were proposing.

After bringing this term sheet to you, Bonnie Fatell, Bruce Comer, and Mark Fisler, I was told that I should let Bonnie and/or Ocean Park Advisors take over the deal and negotiate the terms with Cerberus. I deferred to your request. However, no one ever contacted the principal at Cerberus that we were dealing with. Bruce and/or Mark told me on three different occasions that they would call Cerberus. I even set up two different times that Bruce said that he would call Cerberus to talk to them about the deal. I confirmed with the Cerberus executive I have been dealing with on Friday that he in fact has never been contacted by Blank Rome or Ocean Park Advisors to negotiate the terms of the deal.

I have been told that no one has had time to follow up with Cerberus because they are too busy trying to cut expenses. I also have come to understand that Bruce and Mark are billing SCO $500 per hour and that Bonnie and other Blank Rome attorneys are billing SCO more than that. Yet with as many as 7 attorneys or financial people involved with SCO, I find it a serious breach of fiduciary duty of the Trustee's office that no one at Blank Rome or Ocean Park Advisors ever pursued the Cerberus opportunity. Yet, the billable hours continue to rack up for the Blank Rome attorneys and firm that represents you as Trustee while you are also a Blank Rome employee.

If Cerberus, or anyone else for that matter, in fact was willing to put up serious funding within a matter of weeks that would allow SCO to pay off creditors and also take care of shareholders, employees and customers, the ultimate fees that Blank Rome would bill on the SCO case would be significantly lower than path that you have chosen. While I get that a bankruptcy trustee has broad powers, the facts of the Cerberus deal appears to be an abuse of the powers in which you have been entrusted. This whole situation looks like a serious conflict of interest to me.

Pleasant, huh? NOT. I don't know if he thinks that will sweeten the air to threaten like that, but believe it or not, the very next part of the letter asks for a job. The man is just dying to sue Linux end users:
SCOsource Licensing

SCO's expert witnesses have given strong support of SCO's claims that the Linux operating environment has misused SCO intellectual property. There are over 20,000,000 Linux servers worldwide that SCO now has the opportunity to provide licensing support. SCO's license price for its IP is $699. The total market opportunity for this licensing program worldwide is $14 Billion dollars. A quick, cheap settlement with IBM would totally bury this significant financial opportunity for SCO. [Remainder of paragraph redacted for confidential information].

Options

Where do we go from here? While I obviously disagree on some key decisions that your office has taken in the SCO case, I believe that there is an opportunity for a win/win from where we currently stand. It has to do with the SCOsource licensing program. I believe that the value that I provide to SCO as CEO is significant. I believe that my $127/hr rate is, at a minimum, more valuable to SCO than the $500/hr that the bean counters at OPA [Ocean Park Associates] are billing SCO. But, if you disagree with me and feel that I should step down as CEO, then I would propose that you shift my role to be the senior licensing executive over the SCOsource program. I would agree to a comp plan that would be heavy on performance incentives and much lower on base salary. I also know without a doubt that I can help you raise capital into SCO given the recent positive 10th Circuit ruling. This could be a side project. The million or so dollars that you want Ralph Yarro [former chairman of SCO] and other shareholders to contribute in the form of a DIP [debtor-in-possession] loan may pay Blank Rome/OPA fees but it's not going to solve the broader issue of ensuring that creditors are paid in full and allowing the SCO cases to go to trial.

In the final analysis, if you believe that you want to go at the SCO battle alone without my services at all, then I will take the necessary actions to protect the interests of all SCO estate stakeholders. Those interests don't include winding the company down and settling the legal cases for pennies on the dollar for what they are worth.

Man, oh, man. I know how I'd feel if I got a letter like that. No. I wouldn't hire him after that to clean the offices even. But then I never did respond in a positive manner to threats. I don't know if the dates are true, for that matter. I don't know if the letter was really sent on Sunday or which day he was really fired. For all we know, the letter was composed today. Who knows with these folks? Judge Cahn knows. But I would take this as the first strike in the litigation to follow. Remember the letters to Novell? It's the same M.O. And it would not amaze me to see the dates of the alleged termination and when he was told about it turning up in court. So we'll find out someday. Hopefully not in another six years. I also take this letter, if it is accurate, as an indication that someone with money wants to harass Linux users further.

I don't know if we can trust the rest of what she reports either. For example, she says the SCO Group is currently being run by Jeff Hunsaker, Ken Nielsen and Ryan Tibbits, but in reality the Chapter 11 trustee runs the company now. He replaces them all, though they can work under his oversight. So, with that caveat, she also claims that both Hunsaker and Nielsen are leaving the company, Hunsaker by the end of the month. We'll see.

I trust nothing, personally, but it's interesting to watch, don't you think? And it may be the start of the next chapter of the SCO saga. Put this in the "FYI - We'll See File".

[If you want to read the entire letter, it is at http://dotnet.sys-con.com/node/1150867/ ]

Update: Might this be why no call was made to Cerberus? The Wall St. Journal, in the article, Clients Flee Cerberus, Fallen Fund Titan:

Investors in hedge funds run by Cerberus Capital Management LP, whose audacious multi-billion dollar bet on the U.S. auto industry went bust, are bolting for the door, clinching one of the highest-profile falls from grace of a superstar in the investment world.

Clients are withdrawing more than $4.77 billion, or 70% of the hedge fund assets, in response to big investment losses and their own need for cash, according to people familiar with the matter.

That article is dated August 29, 2009. The day before, the New York Times reported similarly:
While Mr. Feinberg said most of the firm’s clients continue to support the investment strategy, the mass exodus of investors is another black eye on the firm’s already-tarnished reputation. The New York firm, which prefers to operate out of the public eye, has suffered from several high-profile investments that left the funds down 24.5 percent last year — most notably its investment in Chrysler.

Some of those positions have recovered slightly, but the funds were unable to participate in the broad market recovery this year because they had very little new cash to invest, according to a person close to the firm.

BusinessWeek this month reported some more hopeful news:
Soon, the firm plans to file for an initial public offering of its fire arms manufacturer Freedom Group Inc., according to people familiar with the matter. Freedom Group, with an estimated $474 million in sales, is one of the largest manufacturers in the world of fire arms and ammunition for the hunting, shooting sports, law enforcement, and military markets. Its brands include Remington, Marlin, Bushmaster, Harrington & Richardson. Cerberus declined to comment.

The decision to take the company public comes on the heels of the wildly successful listing of Cerberus’ Talecris Biotherapeutics Holdings —a former Bayer maker of plasma-derived protein therapies that the firm bought in 2005

However, note this report in the Detroit News, published today, on trying to save Chrysler after Cerberus's management:
Rattner tells a dramatic back story of Chrysler's near-death experience. Daimler AG, which bought Auburn Hills-based Chrysler in 1998, had "badly run" it, he wrote, as did its successor, Cerberus Capital Management LP.

Rattner described Chrysler as "larded up with debt" and "hollowed out by years of mismanagement." It "never had a chance" under Cerberus.


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