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Darl Buys (Not Licenses) SCO's Mobility Assets for $100,000 - Updated 4Xs
Wednesday, April 07 2010 @ 04:39 PM EDT

First word from the bankruptcy hearing today on Darl McBride's offer to buy (and license the IP) SCO's mobility assets. Groklaw's UD has this quick report, with more to come later:
Just got out of the SCO BK hearing a little bit ago and thought I'd send a quick update for you.

The sale of the mobility business to Darl was approved, but he ended up paying $100,000 for it instead of the original $35,000 because there was a second bidder that responded to the sale ad in the newspaper. They had an auction this past Monday with a minimum bid of $100,000 for the outright sale of the assets. Darl bid, the other party didn't. The judge approved the sale.

More a little later when I don't have to type on my phone...

Update: Note that this was a *sale*, including the IP, not Darl licensing it, as originally proposed. Is there a word for the opposite of bait and switch?

And SCO has been given more time to respond to Novell's Supreme Court petition:

Mar 26 2010 - Order extending time to file response to petition to and including May 7, 2010.


As promised, here is the next UD report:
Edward Cahn began with a summary of the Utah court proceedings where he expressed his belief that going in to the trial he had a greater than 50% certainty that SCO would prevail. He thought the case was well argued and presented and opined that most of the people in the courtroom also thought SCO would win. He read verbatim Judge Stewart's praise of the fine lawyering he witnessed in this case. He still thinks they should have won and I believe he said something about filing a Rule 59 motion for a new trial. He said that Judge Stewart was going to issue further rulings on the 15th that would have an impact on SCO's future course so they were waiting for those rulings before moving ahead with a plan.

Ms. Patel (I think) then began talking about the sale of the mobility business. SCO's restructuring is continuing, there are pending motions for the sale of the mobility business (today) and the sale of the patent (4/20). There were no objections to the sale of the mobility business, so they had Ocean Park Advisors negotiate an APA with Darl McBride. They also identified 12 other targets that might have an interest in the IP so they sent out notices to them but none responded. Then there was an ad placed in the Salt Lake City newspapers to announce the sale and three parties expressed an interest - only one of which actually made a bid. Since they now had two interested parties, they decided they would have an auction for the assets. It was decided that it was in the best interest of SCO to sell the IP rather than license it and that the minimum bid was to be $100,000 (Darl's initial offer was $35,000). The auction was held by telephone this past Monday (4/5) and Darl opened with the minimum bid and the other party (Mobile Business Solutions) did not counteroffer. It was an all-cash purchase and is expected to close this Friday (4/9). The sale agreement is still being worked on so is not currently available but will be filed timely. SCO will also license back the IP for its internal use only.

The judge says he believes that that this is a good sale and in the best interest of the creditors and approves the sale. Darl and Me Inc. own the SCO mobility IP.

That was about it. Mr. McMahon was at the hearing (but didn't speak) and the judge joked about the rarity of his sighting. No other big players were present that I was accustomed to seeing at the other more momentous hearings.

And here's MikeD's report:
The hearing lasted 15 minutes.

Attendees

Joseph McMahon - U.S. Trustee
Sean Greecher - Novell
Bonnie Fatell - SCO/Ch. 11 Trustee
Stanley Tarr - SCO/Ch. 11 Trustee
Edward Cahn - SCO/Ch. 11 Trustee
Laurie Silverstein - IBM
For Groklaw
RFD
UD
MikeD
Ms. Fatell opened the hearing with a brief introduction, and then turned it over to Judge Cahn. Judge Cahn then proceeded to deliver his interim report:
- Court found that SCO did not hold the copyrights.
- He was there for 4 days of the trial.
- He thought that they would win during the trial.
- He is deeply disappointed in the jury verdict.
- Ms. Fatell will report on future steps.
- Will be filing under rule 50
- Will be filing for a new trial under rule 59
Judge Cahn then read Judge Stewart's comment about "the best set of attorneys he has ever worked with...."

He turned the podium back to Ms Fatell:

- Spoke about OPA
- They are going through an ongoing restructuring
- They are proceeding with an orderly liquidation.
- Selling Mobile business
- Selling patent.
- There have been ongoing discussions on selling the mobile business.
- They are addressing items and next steps in the Novell litigation
- They are pursuing the IBM litigation.
She then went into the one motion on the agenda - the sale of the mobile business.

She spoke about Mark Fisler, a managing director of OPA. He could speak to the process of identifying potential buyers for the mobile business.

[MikeD note: He sat beside me. I assume he was there to testify. Ms. Fatell spoke about all the things he could testify to. In the end, he was not called to the stand.]

Ms. Fatell continuing:

- They identified 12 potential targets
- Phoned and emailed them all over a two week-period.
- None showed interest
- They placed an ad in a Salt Lake newspaper
- Three parties showed an interest
- One provided a letter of intent
This party expressed an interest in buying the entire mobile product, including the IP. Darl had proposed only acquiring a license.

- There were two parties interested.

- Me, Inc (Darl)
- Mobile Business Solutions
An auction was held on April 5 by telephone. Minimum bid was raised to $100,000 (including the IP). Me, Inc (Darl) was the successful bidder. Deal closes April 9 with the Court's approval.

Judge Gross:

- Happy with the marketing and research efforts
- Feels the terms are fair
- Approved the sale.
That was it. Judge thanked everyone and the hearing was over.
What is the IP? Did no one even inquire? Just whoosh, and Darl owns unknown IP? It's like handing a loaded gun to a serial killer. What do you expect will happen next? I'll wait to see the transcript before reaching final conclusions, as always, but this looks very, very odd to me. In the original deal proposal, which isn't this deal, here's the list [PDF] of source code products, but I have no idea if the IP Darl just got matches the list.

And may I inquire if he paid for the trademark Me Inc? How does he name his new business Me Inc without having done so first? Did I miss something?

Here's Rule 59. I'll translate the legalese: SCO yearned for its day in court. It got it. Now it wants *another* one, a new trial. Blech. See why I always rest a while after each victory? SCO has 28 days from the jury's verdict to file for a new trial. And the judge can either accept SCO's reasons for asking for a new trial, or he can freestyle the same remedy, after granting the parties a hearing.

And here's Rule 50. It's a workaround if the jury ruled against you:

1) In General.

If a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue, the court may:

(A) resolve the issue against the party; and

(B) grant a motion for judgment as a matter of law against the party on a claim or defense that, under the controlling law, can be maintained or defeated only with a favorable finding on that issue.

(2) Motion.

A motion for judgment as a matter of law may be made at any time before the case is submitted to the jury. The motion must specify the judgment sought and the law and facts that entitle the movant to the judgment.

(b) Renewing the Motion After Trial; Alternative Motion for a New Trial.

If the court does not grant a motion for judgment as a matter of law made under Rule 50(a), the court is considered to have submitted the action to the jury subject to the court's later deciding the legal questions raised by the motion. No later than 28 days after the entry of judgment — or if the motion addresses a jury issue not decided by a verdict, no later than 28 days after the jury was discharged — the movant may file a renewed motion for judgment as a matter of law and may include an alternative or joint request for a new trial under Rule 59. In ruling on the renewed motion, the court may:

(1) allow judgment on the verdict, if the jury returned a verdict;

(2) order a new trial; or

(3) direct the entry of judgment as a matter of law.

(c) Granting the Renewed Motion; Conditional Ruling on a Motion for a New Trial.
(1) In General.

If the court grants a renewed motion for judgment as a matter of law, it must also conditionally rule on any motion for a new trial by determining whether a new trial should be granted if the judgment is later vacated or reversed. The court must state the grounds for conditionally granting or denying the motion for a new trial.

(2) Effect of a Conditional Ruling.

Conditionally granting the motion for a new trial does not affect the judgment's finality; if the judgment is reversed, the new trial must proceed unless the appellate court orders otherwise. If the motion for a new trial is conditionally denied, the appellee may assert error in that denial; if the judgment is reversed, the case must proceed as the appellate court orders.

(d) Time for a Losing Party’s New-Trial Motion.

Any motion for a new trial under Rule 59 by a party against whom judgment as a matter of law is rendered must be filed no later than 28 days after the entry of the judgment.

(e) Denying the Motion for Judgment as a Matter of Law; Reversal on Appeal.

If the court denies the motion for judgment as a matter of law, the prevailing party may, as appellee, assert grounds entitling it to a new trial should the appellate court conclude that the trial court erred in denying the motion. If the appellate court reverses the judgment, it may order a new trial, direct the trial court to determine whether a new trial should be granted, or direct the entry of judgment.

So there's your map for what SCO says it will be doing. Miles to go before we sleep... If you recall, SCO earlier filed a Rule 50 motion, that got mooted. Our reporter says Bonnie Fatell says SCO will be filing another one. But Novell filed one also that was denied, so I guess the last paragraph above applies to them, if I'm navigating through this legal labyrinth successfully. See why you need a lawyer always in any court of law?

Update 2: RFD adds to the above reports his impressions:

I don't have much to add to UD's and MikeD's reports. The hearing was short, about 15 minutes. Judge Cahn's report lasted about 4 minutes. He is either a very good bluffer, or else he has totally bought into SCOSource, or that's the impression I formed. He assured Judge Gross that he remains convinced that pursuing the Novell and IBM litigation is the proper thing to do. Is Judge Cahn thinking he can get IBM to settle rather then risk a trial? If so, I think he is in for a rude awakening.

I think I heard Ms. Fatell say that they are trying to put together a proposal to sell the Unix business. I am not sure if they are going to try to assume and assign the Novell-Santa Cruz APA as part of that sale. If so, they may have a difficult time coming up with the money to cure any default, I would think, as well as getting Novell to agree to accept the buyer as its fiduciary. If not, what viable business is there to sell?

Update 3: Here's the order approving the sale and the minutes of the hearing:

04/07/2010 - 1103 - Minutes of Hearing held on: 04/07/2010 Subject: Sale. (vCal Hearing ID (110728)). (related document(s) 1102 ) (SS) Additional attachment(s) added on 4/7/2010 (SS). (Entered: 04/07/2010)

04/07/2010 - 1104 - Order Under 11 U.S.C. Sections 105(A), 363, And 365 And Fed. R. Bankr. P. 2002, 6004, 6006 And 9014 (A) Approving The Sale Of Mobility Business Free And Clear Of All Liens, Claims, Interests And Encumbrances Pursuant To 11 U.S.C. Section 363, (B) Authorizing And Approving The Assumption And Assignment Of Certain Executory Contracts In Connection Therewith, And (C) Granting Related Relief (related document(s) 1066 ) Order Signed on 4/7/2010. (SDJ) (Entered: 04/07/2010)

I am so grateful to our three faithful reporters. Imagine if they had not attended, how many details of this behind-closed-doors sale to an insider we would have missed. Wait. I must correct myself. The Order says the Buyer is "a good faith purchaser." So there you are.

Here is all the information about the proceedings in the minutes:

HEARING HELD. AGENDA ITEMS:

#1 - Approved. ORDER SIGNED

Thank you guys. I know at least one of you drove 3 hours each way to attend a 15-minute hearing. And we are deeply grateful. Without your attendance, we would not know SCO's future plans, and now we do. SCO's incredible plans. And I think we can now put Mr. Cahn on the map with some certainty, as well.

Update 4: I have had an opportunity to listen to the audio of the hearing. I can't put it up on Groklaw, but I can tell you about it, and later when the transcripts are made available, you can verify my impressions. What Mr. Cahn told the court was that he had earlier said that he thought SCO's chances were a little better than 50-50.

That isn't what I remember. He said that SCO's claims were meritorious and should be aggressively pursued, or at least that is my memory. So either the judge is old enough that his memory is going, or he's caught the SCO disease. At a minimum, it explains to me why it doesn't bother him that they say one thing in one courtroom, and something else in another, or different things in the same courtroom on separate occasions. Personally, that would bother me, but that's just me.

He told the court this time that he thought SCO should have won. He's very disappointed. And he still thinks he was right to pursue the litigation, and they hope for better from Judge Stewart. They will file a renewed Rule 50 motion, not a new one, and, in the alternative, a Rule 59 motion, and they expect rulings from Stewart in the next few months. So the jury ruled against them, so they want the judge to overrule the jury. If he won't, they want a new jury and a new trial. They'll let Judge Gross know how things are going. And believe it or not, Judge Gross said that sounded great. Meanwhile, SCO will be spending the Yarro loan, and then how will they pay it back? Or if they default, then Yarro and friends get the assets, all of them, and he and Darl own it all, back in the saddle again.

So what is Cahn saying? Let's posit for the sake of this discussion that he is being truthful, that he really did tell the court that SCO's chances were a little better than 50-50. Would that not mean that the creditors' interests were gambled away on a hope and prayer on litigation they knew, which they *had* to know, might very well not work out, on a toss-up?

Are bankruptcy courts allowed to do that?

And Cahn wants to do it some more. And Judge Gross says he can. It reminds me of this interview with David Boies which a reader just remembered and posted, where he said, "If you start out with the best facts and the best team, you ought to win."

But SCO didn't win. Twice now SCO has lost, by judge and by jury. And yet they persist in declaring they are in the right? Where's the problem? It can't be the lawyers. Cahn read to the court Judge Stewart's praise for the lawyering in SCO v. Novell, so a logical brain would conclude the problem must be SCO doesn't have the best facts.

Did you ever see the movie, Moonstruck? Remember the scene in the restaurant where the college professor has a glass of water thrown in his face by his much younger date, one of his students? She storms out, and the waiter, with indignation at her, clears away her plate. Is it because he really feels indignation? We learn that it happens regularly with this guy in the same restaurant. So how indignant is the waiter really, the third or fourth time? Or is it that he has a steady customer he wants to please, so he acts indignant? SCOfolk remind me of that waiter. Their assertions that their case is so meritorious and ought to prevail ring hollow, certainly by now. So who are they trying to please? Who are these people, and what do they really want? It can't be what we are watching, I've concluded, because it really makes no sense at all to persist this way in a case that is obviously, to me anyway, a loser and which has always been a loser, unless the fix were in. That does seem to be SCO's only hope. They seem to be strongly, firmly relying on Judge Stewart to come through for SCO. Is this like the Court of Appeals, where SCO seemed to be positively clairvoyant as to the outcome, years in advance? Or is it just that they want IBM to settle, so they play their harassing part to the hilt? Or do they just love to gamble? I don't know.

But that isn't the oddest part. The truly odd part is that IBM, Novell and the US Trustee's Office were all there in the courtroom. And no one said a single word in objection. Not even when Bonnie Fatell said that the auction was held last Monday -- surprise -- , without telling the public, at least not on PACER, and by phone, so you couldn't even stumble upon it. Anyway, two bidders showed up, but only then, at the auction, SCO announced that the IP would be sold also, so the opening bid had to be $100,000, not $35,000. So the second bidder dropped out.

Now, a cynic might be thinking it was stacked to make more likely that Darl would win the bidding. I've never been a cynic myself, but I could get that way if this keeps going.

Why no objections? It makes me think of the lawyer who represented former Senator Ted Stevens, Brendan Sullivan, who when he was criticized for objecting too often in an earlier case famously said, "I'm not a potted plant. I am here as the lawyer. That's my job." Is there some strategy being followed whereby the lawyers for IBM, Novell and the US Trustee's Office have decided to act like potted plants, at least for now? Or is it just that Judge Gross, they've decided, is hopeless, like an overly indulgent father of an only daughter, and so there's no point in trying to stop him from granting SCO's every wish?

All I know is there is an eeriness to it. I think the judge feels it too, because at the end he makes an awkward joke about not seeing the U.S. Trustee Mr. McMahon much lately. My brain heard it as, why aren't you saying anything? Why is no one objecting to what is ridiculous? But who knows if my impression is correct or not, but for sure, this was by far the oddest hearing in all the peculiar bankruptcy hearings we've covered. All I can tell you is, we must not be in the loop, because it makes no sense to me. Whatever is going on is way over our heads, and we'll have to wait to watch it play out to be able to understand it. And play out it will.


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