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Eyewitness Report From Today's SCO Bankruptcy Hearing Re Wayne Gray and AutoZone
Friday, November 20 2009 @ 10:04 PM EST

I'm happy to tell you that we did have a reporter, MikeD, at today's SCO bankruptcy hearing. He says Bonnie Glantz Fatell is an awesome attorney. She represents SCO's Chapter 11 Trustee, Edward Cahn. We have the minutes from the hearing too, so we know how it all went.

This was the hearing mainly about two things: the AutoZone settlement agreement, the terms of which Cahn and AutoZone wanted to keep confidential, but which Joseph McMahon, the trial attorney from the US Trustee's Office had objected to having sealed; and second, the Wayne Gray motion [PDF], opposed by Cahn, to lift the stay so Gray could more or less compel SCO to investigate trademark claims on trademarks Gray claims SCO owns but SCO said a couple of years ago it doesn't own. He also wants SCO to participate in Gray's Florida litigation in some way I could never quite figure out.

The judge will issue an order, but MikeD reports that Judge Gross said clearly that he doesn't think Gray has standing. He'll take time to consider the arguments, but it sounds like curtains for Mr. Gray's hopes of SCO cooperation. As Ms. Fatell pointed out at the hearing, Gray accused SCO of fraud under the RICO Act, among other things, and now he is asking SCO to help him out in his appeal. What are the odds of that happening? As for the allegations of fraud, Gray wanted an investigation, but the judge said that will not happen.

As for AutoZone, MikeD says that at the hearing it was mentioned that both IBM and Novell have seen the settlement under an NDA, and they had no objection. The minutes seemed to indicate to me that the sealing will be allowed under certification of counsel, but MikeD reports that the judge is still considering the issue in some way. Happily, MikeD purchased for us a transcript of the day, and as soon as I have a chance to read it, I'll clarify on that point, if I can. I also want to see the exact wording about a question from the judge to Gray's attorney about whether Gray is a competitor in some way to "the transferee" from Novell. The attorney answered "Could be". That would mean he thinks he is competing against X/Open? Or SCO? I think the former, but again, one has to ask, what is this really all about? There is an X factor that we are missing in this puzzle, something we haven't been told yet. Anyway, I know you join me in thanking MikeD for attending on our behalf. These intriguing details are not in the minutes from the court, needless to say.

Here are the minutes and the order authorizing modification of Boies Schiller's retention order, which means that, as expected, the latter was approved:

11/20/2009 - 969 - Minutes of Hearing held on: 11/20/2009 Subject: OMNIBUS HEARING. (vCal Hearing ID (97407)). (related document(s) 967 ) (SS) Additional attachment(s) added on 11/20/2009 (SS). (Entered: 11/20/2009)

11/20/2009 - 970 - Order Authorizing Modification of Boies, Schiller and Flexner LLP Retention Order (related document(s) 941 ) Order Signed on 11/20/2009. (TAS) (Entered: 11/20/2009)

Here's a list of all the items on the day's agenda and what happened, as listed in the minutes and also so you can follow MikeD's report, because reference is made to these numbers:
#1 - Motion of the Chapter 11 Trustee for Entry of Order Authorizing Modification of Retention Order for Boies, Schiller and Flexner LLP Nunc Pro Tunc to August 6, 2009 [Dkt. No. 941, filed 10/30/09] - CNO Filed and Order Signed

#2 - Motion for Order Amending Administrative Order Establishing Procedures for Interim Monthly Compensation of Professionals [Dkt. No. 928, filed 10/15/09] - Order to be submitted under Certification of Counsel

#3 - Motion of Chapter 11 Trustee, Pursuant to 11 U.S.C. § 105(a) and Fed. R. Bankr. P. 9019, for Approval of Settlement Agreement With Autozone [Dkt. No. 935, filed 10/22/09] - Order will be submitted under Certification of Counsel

#4 - Motion of Chapter 11 Trustee to File Under Seal Exhibit A to the Trustee’s Motion, Pursuant to 11 U.S.C. § 105(a) and Fed. R. Bankr. P. 9019, for Approval of Settlement Agreement With Autozone [Dkt. No. 936, filed 10/22/09] - Order to be submitted under Certification of Counsel

#5 - Motion of Wayne R. Gray for Entry of Order Lifting Automatic Stay to Permit the Debtor, The SCO Group, Inc. to Participate in Florida Federal Court Action and Pending Eleventh Circuit Court of Appeals Proceeding [Dkt. No. 942, filed 11/2/09] - Judge will issue an opinion.

So that's the big picture. It looks like Berger Singerman will have to wait to get paid in full. That has a karmic quality. Wayne Gray had two lawyers there, Peter Duhig of Buchanan Ingersoll & Rooney, his Delaware lawyer, and Thomas Steele of Steele & Hale, a Florida firm. Mr. Gray also attended. Blank Rome on behalf of Mr. Cahn had two lawyers there also, Ms. Fatell and, if I've read his signature correctly, a Stanley Tarr, as you can see from the attachment to the minutes. His is a new name to us, and I note there is a Stanley Tarr in the firm's New York office, with an interesting background if LinkedIn has it right and if this is the same individual. Martindale lists him as an associate with the firm, and his area of specialty as financial restructuring. Ms. Fatell is a partner.

On the phone were George R. Coe of Boies Schiller, Alan Petrofsky, pro se, and David J. Stewart of Alston & Bird. Alston & Bird is the firm that represents AutoZone, if you recall, and I'll bet he's glad to be saying buh bye to SCO forever. To tell you the truth, I didn't recall myself, so I looked the firm up on our Cast of Characters page. I need to update the information to include the new attorneys.

He didn't sign the sheet, but our reporter says that Mr. McMahon of the US Trustee's Office, was also there. We learn from MikeD that he was late, because he was at another hearing, so that's no doubt why his signature is missing. [ Update: We now have the transcript [PDF].]

And here's MikeD's report about the hearing, with more details:

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

The hearing opened with Ms. Fatell. She proposed to do things a little out of order to allow Mr. McMahon to get there. He was at another hearing.

1. Motion [PDF] to Authorize Modification of Retention Order for Boies, Schiller and Flexner LLP Nunc Pro Tunc to August 6, 2009:

Judge has signed it. Ms. Fatell pointed out correction in first box on chart on page 4. It should read *UP TO* $100 million; not "in excess of" $100 million. [PJ note: I noticed that also, if you recall, that it didn't make sense as written.]
2. Motion [PDF] by Berger Singerman to modify compensation order for professional fees:
Agreement reached to allow them to use their retainer to cover amounts owed and they will wait until further in the case for additional compensation.
3 and 4 -- Autozone Settlement Motion and Motion to Seal [PDFs]:
Ms. Fatell pointed out that these items are tied together. Novell and IBM have reviewed the agreement under an NDA and have no objections to the settlement and sealing. This item was then put aside until Mr. McMahon arrived to address his concerns.
5. Motion [PDF] of Wayne Grey to Lift Stay:

Mr. Duhig representing Wayne Gray opened. He then turned the podium over to Mr. Thomas Steele.

Mr. Steele: Has 5 exhibits he wants to present. Judge has no problem with that. But....

Judge Gross: I have a question. Is Mr. Gray a creditor, or a party in interest, to creditor's estate?

Mr. Steele: In other words, do we have standing? SCO is defendant in the Florida case so we believe we do. There are two Unix trademarks in question. We will prove SCO is owner of those marks. SCO should be given the right to defend those marks. If this court does nothing, SCO could lose assets that should be preserved. This court has a duty to preserve these assets.

Judge: Why does a creditor have standing to intervene in a litigation issue in bankruptcy? I have concerns about standing in this case.

Mr. Steele: The Trustee should be forced to look into "bankruptcy fraud".

Judge: (paraphrased) Naww.... Tell me why you have standing here over what is an economic issue. I will listen to your case, but not sure he has standing.

Ms. Fatell: We are concerned about how they, who were not a party to any of the agreements, would have a right to come into court and ask the court to direct the trustee to investigate and take action without anything further. She found nothing to indicate they are a creditor or shareholder.

Judge: Seems to me it should be up to the debtor to determine what do with their assets.

[MikeD note: There is some back and forth as to what to do next. Should evidence be presented? Should oral arguments be held? Judge asks Mr. Steele how long it will take to present his case. Mr. Steele says "15 minutes". (I immediately regret not eating lunch). Judge agrees and we move on.]

I'm going to paraphrase Mr. Steele's argument that followed. He argued that the Judge should lift the stay so SCO can participate in their appeal in Florida. He has 5 documents to prove that SCO owns the Unix trademarks and that they were not owned by Novell when they were transferred to the Open Group. The trademarks are extremely valuable. Mr. Steele had documents from the Utah trial that he was using as exhibits. He does not identify them in court but gives hints.

The exhibits are presented and the Judge comments he has seen them and notes that they were disputed in court.

Ms. Fatell looked professional and was quiet up to this point. Don't be fooled. Many times she objected to "hearsay"; "that's not what the document says"; "out of context". At this point she reminded me of a sweet teacher, that we all once had, that brings out the ruler and starts rapping knuckles. She finally puts in a continuing objection.

Mr. Steele argues that in 1995 Novell transfers EVERYTHING to Santa Cruz. Includes business, trademarks, and goodwill. He argues they are all tied together. Nothing ever went back to Novell. In 1998, Novell transfers the trademarks to the open group. Argues that they were not Novell's to transfer. At exhibit 5 Mr. Steele gets visibly agitated at Ms. Fatell's objections, points at her, and says "Let me finish my sentence!"

Judge intervenes and calms him down. "We are professionals and officers of the court".

Mr. Steele wraps up:

1. Crystal clear SCO owns trademarks.
2. SCO disavows interest in them.
3. Wayne Gray being portrayed as a "litigation gadfly". Not true. The court should follow the documents.
4. We have standing because SCO is a defendant in the Florida case.
5. Valuable assets are in danger of being wasted.
6. If we are granted standing in this court, SCO should take whatever steps are needed to protect these assets.
7. What they want:
  • Judge should lift stay
  • Court should get the US Trustee (not Mr. Cahn) to represent SCO before the 11th circuit in Florida.
  • Enter an order to have the US Attorney investigate possible bankruptcy fraud for willful concealment of assets.
Judge: Why is this important? Is it because Novell assigned these marks to another party that it is hurting Mr. Gray's interests.

Mr. Steele: Harming SCO and Mr. Gray's interests....

Judge: How is it harming Mr. Gray's interests?

Mr. Steele: Because Novell transferred trademarks, goodwill, and business to Santa Cruz in 1995, and Novell did not own them to transfer in 1998 without the business and goodwill.

[MikeD note: Everyone in courtroom has puzzled looks on their faces. Made no sense. I guess the polite way of saying it is "Huh?".]

Judge: Is Mr. Gray's business in competition with the transferee from Novell?

Mr. Steele: "Could be".

Judge: OK. (very quietly)

Mr. Steele goes on about how they may lose their case if SCO does not participate in the appeal. SCO could lose their rights to the trademarks. The circuit they are in may feel SCO rights are being litigated behind their back.

Judge: There may be reasons why SCO has chosen to pursue or not pursue this issue. Not clear that Mr. Gray is in a position to tell SCO what or what not to pursue.

Ms. Fatell:

[MikeD note: She is awesome. On par with Mr. Levin, Mr. Marriott, and (grudgingly) Mr. Spector. She placed the Florida ruling on the lectern. Tabbed, marked, organized. She had the Judge's full attention. Begins evisceration of Gray case.]

Ms. Fatell: Result of court case in Florida was that Mr. Gray sued SCO, Novell, and the X/Open Group. All his claims were dismissed and are now what he is appealing. I'll quote from the Florida ruling:

"Gray's arguments are even less persuasive in light of the fact that he was not a party or an intended beneficiary to these contracts and therefore has no standing to challenge defenses assertions as to their intent into entering the subject contacts."
Gray has quoted from the Utah litigation, and he is not a party to that action, not involved in discovery there. He filed an amicus brief that was not accepted, (and opposed by SCO). Forcing the Trustee to respond to this is irrelevant and baffling to the trustee. Gray has burden to show no prejudice to estate, and to show less burden on estate than him, and a chance on winning on the merits.

Mr. Gray has accused SCO/Novell/ X/Open of fraud under RICO "and on and on" .... In February 2009, Gray lost. He is now appealing and wants SCO to participate -- the same guy who sued SCO for conspiracy under RICO. Now he is concerned that SCO have some valuable assets that are not being protected. When he talks of success and why he needs stay relief, SCO is not a party to his dispute.

Mr. Gray tried to use a trademark, X/Open challenged it, and suddenly Mr. Gray became investigator, decider of facts, evidence, and law, and he concluded on his own that SCO owns the trademark and it was not properly transferred. The Trustee (Mr. Cahn) has reviewed, discussed, examined and determined that SCO/Novell/ X/Open all agree the trademarks transferred.

[MikeD note: You get the idea. She quotes the Florida Court ruling numerous times. She points out that SCO has one of the best law firms on earth, Boies Schiller, and they see no reason to pursue it, and they would if it was there. When the Judge is nodding and smiling at you while you are talking, it's a good sign.]

Fatell: Mr. Gray wants the court to put a puzzle together the way Mr. Gray wants it put together. The Trustee is offended at this.

Mr. Steele: Responds with same material over again.

Judge: Mr. Gray likely does not have standing. Will not issue ruling from bench. He will consider arguments. Does not believe Gray will prevail. No chance that he will prevail on bankruptcy fraud complaint. Will rule "soon".

On Autozone:

At the bottom of my notes, but this is important. Novell and IBM have seen the agreement under NDA. They don't object. Mr. McMahon objected about sealing it. Judge will consider it. Ms. Fatell commented that if it is not sealed, Autozone can withdraw the agreement. So AutoZone does want it sealed.

MikeD


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