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Ch. 11 Trustee Cahn Opposes SUSE's Motion to Lift Stay - Updated
Wednesday, December 16 2009 @ 02:40 AM EST

Edward Cahn, SCO's appointed Chapter 11 Trustee, now making decisions for SCO, has filed an opposition to SUSE's request to lift the bankruptcy stay so the arbitration can go forward. And Al Petrofsky has filed a motion pro se demanding that SCO file its missing MORs.

The Cahn objection to SUSE's request can be summed up simply. SCO has limited funds, and Cahn doesn't want to spend them on the arbitration. The trial in Utah is set for March, and if SCO loses and the jury decides it doesn't own the copyrights, then there will be no need for the arbitration to go forward. If, on the other hand, it wins, then it can proceed with the arbitration issues because, as footnote 5 puts it, "resources may become available to the Debtors if they prevail at trial". SCO has to pay the lawyers for the Swiss arbitration. That is not covered by the agreement with Boies Schiller, and the lawyers in Europe are on top of that. Then they'd have to hire experts. Cahn tells the court that it should defer to his judgment on how to proceed in the various litigations.

Some of us might prefer to see the money spent on the arbitration than on financial advisers. But there is something else, something Cahn doesn't mention, namely that when Judge Dale Kimble ruled on Novell's motion to stay, back in 2006, granting the motion in part and denying it in part, and sent the SUSE claims to arbitration, he also said that if the arbitration was still ongoing when all the rest was ready for trial, he would then decide if the trial needed to be stayed until the arbitration was concluded:

If the arbitration concludes before the parties are ready for trial in this matter, then the court will address the preclusive effect of the arbitrator's ruling on the claims in this case. If this case is ready for trial before the arbitration concludes, the court will revisit the issue of whether to stay the trial on the APA and TLA claims pending the conclusion of the arbitration.
Novell relied upon that commitment, as it had a right to. That is, essentially, all SUSE is asking for, that the stay be lifted so all that can go forward, in that the arbitration is still pending, and the trial on the APA claims is about to begin. Each affects the other, but of the two, the arbitration matters most. While Kimball didn't want to waste time, so allowed both to go on separately simultaneously, he did recognize that the arbitration could have a preclusive effect on the Utah matters. And he left open the possibility of staying the trial on the issue of the APA, namely who owns the copyrights, if the arbitration had not yet concluded. Maybe Novell will end up asking the new judge to look at this question, if the bankruptcy court doesn't lift the stay. He, at least, is not supposed to look at things all tilted in SCO's favor the way bankruptcy court seems to. And somebody has to honor Judge Kimball's order that the matter of staying the trial would be revisited if the arbitration wasn't finished when it was ready to begin.

If SUSE wins the arbitration, then it won't matter who owns the copyrights. No one will be able to sue on the basis of the copyrights. So it would moot SCO's litigation strategy. SCO will be precluded from using them against Novell or any sublicensee, and since the GPL makes it possible, that would include all of us, including IBM. So that means that doing the Utah trial first is actually wasting assets in the sense that the copyrights only have value if SCO can use them to sue people. So figuring that piece out is what matters. Can they sue? Finding out if SCO owns the copyrights is only useful if SCO can use them in litigation. So deciding whether SCO has any rights to sue anybody is more important than whether it owns the copyrights. It saves assets too, because SCO has to pursue the arbitration if it wins in Utah. So it's a two-step process. The other way, doing the arbitration first, has the value that it moots the Utah copyright claims completely, from all that we've read in the filings if SUSE prevails.

Here are the new filings:

12/13/2009 - 989 - Notice of Address Change and Preference for No Redundant Non-Electronic Service Filed by Alan P. Petrofsky. (Petrofsky, Alan) (Entered: 12/13/2009)

12/13/2009 - 990 - Motion to Compel - Motion of Petrofsky for an Order Compelling the Trustee's Compliance with Reporting Requirements and Setting Reporting Deadlines Filed by Alan P. Petrofsky. Hearing scheduled for 12/30/2009 at 10:00 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 12/23/2009. (Attachments: # 1 Notice # 2 Proposed Form of Order # 3 Declaration of Alan P. Petrofsky) (Petrofsky, Alan) (Entered: 12/13/2009)

12/14/2009 - 991 - Certificate of Service of Motion of Petrofsky for an Order Compelling the Trustee's Compliance with Reporting Requirements and Setting Reporting Deadlines (related document(s) 990 ) Filed by Alan P. Petrofsky. (Petrofsky, Alan) (Entered: 12/14/2009)

12/15/2009 - 992 - Objection to SUSE's Motion for Relief From the Automatic Stay to Complete International Arbitration (related document(s) 951 ) Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al. (Attachments: # 1 Exhibit A # 2 Exhibit B # 3 Exhibit C-1 # 4 Exhibit C-2 # 5 Exhibit C-3) (Fatell, Bonnie) (Entered: 12/15/2009)

Petrofsky apparently believes that Judge Kevin Gross's bankruptcy court runs like the Army. It doesn't. If this judge cared about the rules the way Petrofsky does, SCO would have been in Chapter 7 long ago. The judge wants to enable SCO's litigation gamble, or so it seems to me, and that is what he is doing. He evidently sees it as SCO's only hope of staying alive and maybe paying off its creditors. He doesn't know what UNIX is, very likely, or the history of it, or the tech, or why it's obvious Linux would never misuse anyone's IP. It's written in public, on the Internet, so getting caught would be inevitable, after all. And he likely has no clue how the GPL has already written SCO's doom. But he thinks in old fashioned IP terms. So he thinks he is doing the right thing. His job is to protect SCO from creditors, in large part, and he has.

As for the MORs, I'm sure the picture they'd paint would be awful, and he doesn't care about that now. He's hitched SCO's wagon to the litigation star. He isn't going to send them into Chapter 7 prior to the Utah trial in SCO v. Novell unless somebody makes him. And who will make him?

Given the complexity of the SCO bankruptcy, and the prior litigation, and the Wayne Gray detour, not to mention the termination of Darl McBride and the others, the Ch. 11 trustee has been busy. And I've no doubt that is how the judge will view the matter, that he has to be given time to figure out where up is, and he gets to define what is reasonable. What the judge charged him with doing as his first task was to evaluate the litigation, not file the paperwork about the continuing bleeding of assets that is no doubt the reality. But let's face it. When SCO began, it was flush. Now it's bankrupt. And the judge has done nothing to address that. It is what it is. This is, after all, the judge who asked what would happen if he didn't abide by a timing rule, would they take him out and shoot him? Bankruptcy court is more seat of the pants, and that is what we have been watching play out. It is shocking, of course. I don't disagree. But I doubt motions to compel will fix what is wrong in this picture.

And I expect the judge to let Cahn do whatever he wants to do.

A lot of what is filed in the arbitration is sealed, so we can't be certain of all the details, but if you would like to review the arbitration story, here are some links:

Update:

Cahn has now filed a correction:

12/18/2009 - 995 - Notice of Service // Notice of Errata With Respect to Objection of Chapter 11 Trustee to Suse's Motion for Relief From the Automatic Stay to Complete International Arbitration (related document(s) 951 , 992 ) Filed by Edward N. Cahn, Chapter 11 Trustee for The SCO Group, Inc., et al.. (Attachments: # 1 Exhibit A # 2 Exhibit B) (Fatell, Bonnie) (Entered: 12/18/2009)

Here's the hub of the correction:
"Paragraph 19 on page 6 of the Trustee's Objection incorrectly stated that in early 2008 some of Novell's claims where stayed in favor of the SUSE Arbitration. This statement was in error - none of Novell's claims were stayed in favor of the SUSE Arbitration. This notice of errata is filed to correct that statement."

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