SUSE has arrived, filing a "special opposition" [PDF] to SCO's motion to stay the arbitration in Europe. That isn't what SCO called the motion technically, but that is what SCO wants. SUSE says that the Bankruptcy Court has no jurisdiction over SUSE, and for a number of reasons which it outlines, even if it did, the arbitration can't be stayed. SUSE also
asks to file a couple of exhibits under seal [PDF], attached to the
affidavit of Felix Imendoerffer [PDF], SUSE's corporate legal counsel. So, this motion gets added to the list of those to be argued on November 6. Also, today was the creditors' meeting. Darl McBride showed up to answer questions. Thanks to this motion, its exhibits and the affidavit, we finally find out what's been happening in the Swiss arbitration. One thing that's happening is SUSE is alleging breach of contract and asks for up to $100 million in damages. SCO's counterclaims add up to a mere $10 million. I told you we'd eventually find out, despite the relatively closed nature of the Swiss arbitration.
The Bankruptcy Court has the option to say yes to confidentiality requests to "protect an entity with respect to a trade secret or confidential research, development, or commercial information," or to "protect a person with respect to scandalous or defamatory matter contained in a paper filed in a case". That's ll U.S.C. Section 107(b). The issue here is the former, because the two exhibits are contracts that in their language require confidentiality. So, SUSE wants the court to see it, but not the public, which is perfectly understandable. We do get to see Exhibit D [PDF], however, which is the October 21, 2006 document called "Terms of Reference" in the arbitration. We find out who all the lawyers are in that matter and who makes up the Arbitral Tribunal. And most importantly, we find a summary of the case, or more exactly a "Summary of the Parties' Respective Cases and Relief Sought".
It's in the damages section that we learn that SUSE is asking for damages to the tune of up to $100 million for breach of contract.
First, here are today's filings: 140 -
Filed & Entered: 10/18/2007
Minute Sheet/341 Meeting
Docket Text: Minute Sheet 341 Meeting Held and Concluded on October 18, 2007 Filed by United States Trustee. (McMahon Jr., Joseph)
141 -
Filed & Entered: 10/18/2007
Objection
Docket Text: Objection to [Special Opposition] to SCO Group, Inc.'s Motion to "Enforce the Automatic Stay" (related document(s)[69] ) Filed by SUSE Linux GmbH (Greecher, Sean)
142 -
Filed & Entered: 10/18/2007
Affidavit
Docket Text: Affidavit of Felix Imendoerffer In Support of SUSE's Special Opposition to SCO Group, Inc.'s Motion to "Enforce the Automatic Stay" (related document(s)[69], [141] ) Filed by SUSE Linux GmbH. (Attachments: # (1) Exhibit A - Under Seal# (2) Exhibit B - Under Seal# (3) Exhibit C # (4) Exhibit D) (Greecher, Sean)
143 -
Filed & Entered: 10/18/2007
Motion to File Under Seal (B)
Docket Text: Motion to File Under Seal Exhibits to Affidavit of Felix Imendoerffer Pursuant to Bankruptcy Code Section 107(b) and Fed.R.Bankr.P. 9018 (related document(s)[69], [142], [141] ) Filed by SUSE Linux GmbH. Hearing scheduled for 11/6/2007 at 11:00 AM at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware. Objections due by 10/30/2007. (Attachments: # (1) Notice # (2) Proposed Order) (Greecher, Sean)
The affidavit of Mr. Imendoerffer spills the entire story of what's going on. Mr. Imendoerffer tells the Bankruptcy Court, and hence you and me too, what has been happening in the arbitration: On July 5, 2007, the Tribunal addressed the parties' jurisdictional objections, completing Phase I. Rejecting SCO's jurisdictional objections, the Tribunal held that the UnitedLinux Contracts obligate SCO to arbitrate SUSE Linux GmbH's claims and certain of SCO's counterclaims in Switzerland before the Tribunal, subject to Swiss law. Thereafter both sides filed their legal documents, and there is scheduled to be a hearing on December 3-14, 2007. SCO has asked the Tribunal to postpone it, but so far no word has arrived on the Tribunal's ruling on that request. SUSE argues that it has no US presence. No offices here. No employees based here. No ads paid for here. Novell does marketing. Ditto with selling. SUSE doesn't sell its products in the US. When folks in the US download, it's from Novell's website. CDs are not done by SUSE either. SUSE is a subsidiary, but it has its own corporate existence. As SUSE's motion puts it, "Given that state of affairs, SUSE is not subject to this Court's personal jurisdiction and is therefore not within the ambit of the bankruptcy stay." SUSE says it isn't subject to specific jurisdiction either. There are Constitutional boundaries. A US court can't subject foreigners to its jurisdiction as a favor to SCO absent minimal contact.
Not only that, but SCO, SUSE says, didn't serve SUSE properly with the motion, so the court can't rule on SCO's motion to stay the arbitration until it does so. SCO forgot about the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, "as expressly required by Bankruptcy Rule 7004." What is with SCO and these kinds of service issues? I know. It's funny. SCO violated the Hague Convention, one might say. Joking. They merely overlooked it. Deeper, SUSE argues that it initiated the arbitration "to defend against SCO's claims that SUSE's products infringe SCO's copyrights. Such 'defensive' actions are not subject to the automatic bankruptcy stay." Therefore, SUSE sums up, the stay does not apply to the Swiss arbitration. Now, about those sanctions. According to the affidavit, SCO is improperly seeking sanctions against SUSE for filing an opposition to SCO's counterclaims. Now, that's the SCO we know. SUSE responds: 39. SCO acknowledges, as it must, that under existing law, the automatic stay applies only to claims "against the debtor."... Courts have uniformly held that the automatic stay does not apply to claims brought by the debtor....
40. Ignoring that it has asserted counterclaims against SUSE in the Swiss Arbitration, SCO seeks a blanket declaration that "the automatic stay prohibits the continuation of the SUSE arbitration," presumably meaning this to stay its own claims as well.... Though SCO seeks sanctions against SUSE for supposedly "continuing to prosecute its claim against the debtor," SCO neglects to inform this Court that the only substantive post-petition action SUSE has undertaken in the Swiss Arbitration -- other than to oppose SCO's request that the Tribunal grind its proceedings to a halt -- was to file an opposition to SCO's counterclaims. Even were SUSE subject to this Court's jurisdiction, SUSE cannot be sanctioned for defending itself against SCO's unstayed counterclaims. So. Would you say the Bankruptcy Court judge is getting an opportunity to get to know SCO the way we do?
Oh, my. If someone could please OCR this objection, exhibit D and the affidavit, I'd be in heaven. Update: Here's the Special Opposition Motion as text, followed by the Affidavit, and our thanks go to MDT for doing it for us:
***************************************************
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In
re:
The SCO Group, Inc., et
al.,
Debtors.
Chapter 11
Case No. 07-11337 (KG)
(Jointly Administered)
Re: Docket No. 69
SUSE'S SPECIAL OPPOSITION TO SCO GROUP, INC'S
MOTION TO "ENFORCE THE AUTOMATIC STAY"
SUSE Linux GmbH ("SUSE") appears specially to respond to SCO's request that this
Court "enforce the automatic stay" against SUSE. By filing this Opposition, SUSE does not
consent to the jurisdiction of this Court, which SUSE expressly contests.
PRELIMINARY STATEMENT
1. SUSE is a German company with no United States offices. SUSE is pursuing a
foreign arbitration arising out of contracts with SCO that explicitly choose Switzerland as the
forum for resolving any disputes concerning those contracts. Given that state of affairs, SUSE is
not subject to this Court's personal jurisdiction and is therefore not within the ambit of the
bankruptcy stay. Moreover, SUSE was not properly served with this motion. Unless and until
SCO properly serves SUSE, this Court cannot grant SCO any relief on this motion.
2. Even were SUSE subject to jurisdiction here and properly served, SUSE initiated
the arbitration to defend against SCO's claims that SUSE's products infringe SCO's copyrights.
Such "defensive" actions are not subject to the automatic bankruptcy stay.
BACKGROUND
3. SUSE is the developer of a popular version of the Linux operating system, SUSE
Linux.
4. SUSE is a German company with no United States offices. No SUSE employee is
based in the United States. (Decl. of Felix Imendoerffer, filed herewith ("Imendoerffer Decl."),
¶¶ 10-11.)
5. SUSE is a wholly owned subsidiary of Novell. SUSE nevertheless has its ovn
separate corporate identity. For example:
(a) SUSE has its own direotors. There is no overlap between the Novell and
SUSE directors.
(b) SUSE keeps its own colporate records and its own independent accounts.
(o) SUSE is sufficiently capitalized for its ongoing operations.
(d) There are multiple levels of corporations between Novell and SUSE. Novell
owns NSIL Cayman. NSIL Cayman in turn owns NISL Ireland. NISL
Ireland owns Novell Holding Deutschland GmbH. Novell Holding
Deutschland GmbH owns SUSE Linux GmbH, which, as discussed above,
owns SUSE Linux Products.
(Id. ¶¶ 14~15.)
6. In May 2002, SUSE and SCO entered into a Master Transaction Agreement
("MTA") and a UnitedLinux Joint Development Contract ("JDC," together "UnitedLinux
Contracts"). As explained in the preamble to the UnitedLinux Contracts, the UnitedLinux
project arose from the agreement of SCO (then Caldera International, Inc.), SUSE and two other
Linux vendors (Turbolinux and Conectiva) to jointly develop a standard form of the Linux
operating system, referred to as "UnitedLinux." By combining their respective expertise and
1
intellectual property to develop and promote a uniform Linux platform under the "UnitedLinux"
brand, the four UnitedLinux members sought to encourage widespread adoption of UnitedLinux
"as a standard for the information technology industry." (Id. ¶ 4 & Exs. A (MTA) & B (JDC).)
7. Consistent with this goal, the UnitedLinux members agreed in the UnitedLinux
Contracts that each member would have a broad license to use the technology included in the
UnitedLinux software, including any related intellectual property rights of the other members.
(Id. ¶ 5 & Exs. A § 3.2, B § 8.)
8. In early 2003, SCO initiated its "SCOsource" campaign. As part of this campaign,
SCO claimed that the Linux operating system infringed UNIX copyrights purportedly owned by
SCO. SCO's aim was to extract "licensing" revenue from Linux users, under threat of
infringement lawsuit.
9. In response to SCO's attack on Linux, SUSE stated that SUSE and its customers
were protected by the broad licenses in the UnitedLinux Conttacts. SCO's Senior Vice
President, Chris Sontag, replied in May 2003 that SUSE and its customers were not protected by
the Unitedldinux Contracts:
Regarding contracts we have with SUSE and UnitedLinux, I would
unequivocally state that there is nothing in those contracts that
provides them with any protection or shelter in the way they are
characterizing this in the press. If I were them, I would not be
making those kinds of statements.
(Id. ¶ 7 & Ex. C.) SCO later made good on these threats by bringing claims against Novell
asserting that Novell's distribution of SUSE Linux infringed SCO's copyrights.
10. In order to lift the cloud created by SCO's anti-Linux campaign and to assure its
customers that SUSE's products do not infringe any unlicensed SCO intellectual property right,
SUSE initiated arbitration in Switzerland with SCO ("Swiss Arbitration"). (Id. ¶ 8.)
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11. The nature of the Swiss Arbitration is made clear in the "Terms of Reference," a
document prepared by the Tribunal with input from SUSE and SCO. (Id. ¶ 9 & EX. D.)
12. In addition, the Tribunal has determined that the Swiss Arbitration wiil proceed in
phases. Phase I resolved the parties' jurisdictional arguments. Phase II will resolve the
declaratory relief sought by the parties and whether SUSE bears any liability under SCO'S
counterclaims. If necessary, in Phases III and IV the Tribunal will resolve any remaining
technical issues and assess all issues relating to damages. (Id. ¶ 9.)
13. The Swiss Arbitration is in Phase II now. In Phase II, SUSE seeks a declaration
interpreting the UnitedLinux Contracts to preclude SCO from claiming that SUSE products
infringe SCO's copyrights along with an order barring SCO from making such claims. (Id.)
14. Notwithstanding this bankruptcy, the Phase II relief SUSE seeks remains vital.
SCO continues to press its claim of copyright infringement and thus persists in clouding SUSE
Linux. It therefore remains important to SUSE that the arbitration proceed in order to provide a
definitive defense to SCO's claims of copyright infringement against SUSE's customers.
OPPOSITION
I. SUSE WAS NOT PROPERLY SERVED WITH NOTICE OF THIS
MOTION.
15. SUSE is a German corporation with a principal address in Nuremberg. SCO
purported to serve SUSE by sending copies of the Motion to SUSE's business address in
Germany, as well as to Morrison & Foerster LLP and to SUSE's Swiss counsel in the Swiss
Arbitration. Morrison & Foerster represents SUSE as co-counsel with Swiss counsel solely
4
with respect to the Swiss Arbitration and does not represent SUSE generally with respect to
SCO's Chapter 11 cases, nor does SUSE authorize Morrison & Foerster to act as its agent for
general service of process. As discussed below, SUSE has not been properly served with the
Motion in accordance with the applicable Federal Rules of Bankruptcy Procedure (the
"Bankruptcy Rules").
A. SCO's Service on the Foreign Addresses Was Improper.
16. SCO's attempt to serve SUSE at the foreign addresses was improper because SCO
did not follow The Hague Convention on the Service Abroad of Judicial and Extrajudicial
Documents in Civil or Commercial Matters (the "Hague Convention") in serving SUSE, as
expressly required by Bankruptcy Rule 7004. The Hague Convention requires that a German
corporation such as SUSE be served only through Germany's designated central authoxity. The
central authority then confirms that the Hague Convention rules have been followed and
effectuates service on the party-in-interest. Under the Hague Convention, both Germany and
Switzerland have expressly rejected service directly on a party via mail -- a valid and
enforceable election under the Hague Convention. Therefore, SCO's mail service on the
foreign addresses is improper.
5
17. The Bankruptcy Rules require that service on SUSE and its foreign counsel at
foreign addresses comply with the Hague Convention. Bankruptcy Rule 9014 governs
contested matters and provides, in relevant part, that motions must be served "in the manner
provided for service of a summons and complaint by Rule 7004." Fed. R. Bank. P. 9014(b).
Bankruptcy Rule 7004 then incorporates the portions of Federal Rule of Civil Procedure 4 that
govern service on foreign corporations. Federal Rule of Civil Procedure 4 provides that service
on SUSE may be effectuated in a place not within any judicial district of the United States: "by
any internationally agreed means reasonably calculated to give notice, such as those means
authorized by the Hague Convention . . . [or] by other means not prohibited by international
agreement as may be directed by the court." Fed. R. Civ. P. 4{f), (h).
18. As the United States, Germany, and Switzerland are all signatories to the Hague
Convention and this Court has not directed any other means of service, service in accordance
with the Hague Convention is the only proper means of service on SUSE or its counsel at a
foreign address. See, e.g., Harris v. Browning-Ferris Indus. Chem. Serv., Inc., 100 F.R.D. 775
(M.D. La. 1984). In Harris, the court held:
Germany has specifically rejected service by direct mail. If the
provisions of state law conflict with the provisions of an
international treaty, by virtue of the supremacy clause the
provisions of the treaty must prevail. State law cannot authorize
service of process in a manner inconsistent with a federal treaty.
Nor can the provisions of Rule 4 authorize service in this manner.
. . . Because the Hague Convention is specific as to how service is
to be made in a foreign country . . . the Court finds that the
provisions of the Hague Convention must control the manner of
service in this action.
6
Id. at 777-78 (citations omitted). Accordingly, the Harris court held that Volkswagen was not
properly served in Germany because the plaintiff, as here, failed to follow the Hague Convention
by serving through the central authority. Id. at 778.
B. SCO'S Service on U.S. Counsel Was Improper.
19. Likewise, SCO's service of notice of the Motion on Morrison & Foerster was
improper. Bankruptcy Rule 7004(b)(3) provides for service within the United States on "an
oficer, a managing or general agent, or to any other agent authorized by appointment or by law
to receive service of process." SCO bears the burden to show Morrison & Foerster is an "agent"
authorized to receive service under Bankruptcy Rule 7004. In re Harnischfeger Indus., Inc., 288
B.R. 79, 82 (Bankr. D. De1. 2003).
20. SUSE has not designated Morrison & Foerster as its agent for the receipt of service
of process, either generally or in connection with this bankruptcy. (Imendoerffer Decl. ¶ ¶ 16-17.) There can therefore be no claim that Morrison & Foerster has SUSE's express authority to
receive service of SCO's motion.
21. In "rare ... extraordinary circumstances," bankruptcy courts have sometimes deemed
counsel in one action an implied agent for the service of process in other actions. In re The
Muralo Co., 295 B.R. 512, 518 (Bankr. D. N.J. 2003). As Muralo suggests, the general rule --
in bankruptcy and otherwise -- is that an attorney's representation of a client in one matter does
not create any implication of authority to receive service as to other matters. "Even where an
attorney exercises broad powers to represent a client in litigation, these powers of representation
alone do not create a specific authority to receive service. Instead, the record must show that the
attorney exercised authority beyond the attomey~c1ient relationship, including the power to
accept service." United States v. Ziegler Bolt & Parts Co., 111 F.3d 878, 881 (Fed. Cir. 1997);
see also In re Villar, 317 B.R. 88, 93 (B.A.P. 9th Cir. 2004) ("We cannot presume from Paris'
7
handling the litigation that resulted in the judicial lien that he is also authorized to accept service
for a motion to avoid the judicial lien."); In re York, 291 B.R. 806, 811 (Bankr. E. D. Tenn. 2003)
("The debtors also mailed service to the lawyers who handled the foreclosure and who are
representing the bank in this proceeding. The lawyers' prior representation of the bank did not
necessarily make them the bank's agent for service of process in this proceeding.... Thus, service
on the lawyers was not proper service."). Because there is no evidence that SUSE has ever
empowered Morrison & Foerster to exercise "authority beyond the attorney-client relationship,"
Morrison & Foerster does not have SUSE's implied authority to accept service of contested
matters in these bankruptcy proceedings under Bankruptcy Rule 7004. (Imendoerffer Decl. ¶ ¶ 16-17.) As SCO has not carried its burden to show that SUSE was properly served with this
motion, SCO is not entitled to any of the relief it seeks.
II. SUSE IS NOT SUBJECT TO THIS COURT'S PERSONAL
JURISDICTION.
22. SCO acknowledges that SUSE is potentially subject to the automatic stay only if
SUSE is subject to the in personam jurisdiction of this Court. (Motion ¶ 15.) Where a party is
not subject to such jurisdiction, the automatic stay does not apply and the party is free to proceed
with, for example, foreign arbitrations.
23. Such was the case in Fotochrome, Inc. v. Copal Co., 517 F.2d 512 (2d Cir. 1975).
There, Copal, a Japanese corporation, initiated an arbitration against Fotochrome, a New York
corporation, before the Commercial Arbitration Association in Japan. During the pendency of
the arbitration, Fotochrome declared bankruptcy. In re Fotochrome, Inc., 377 F. Supp. 26, 28
(E.D.N.Y. 1974). The arbitration nevertheless proceeded and Copal obtained a favorable
judgment. When Copal sought to enforce the judgment as a debt against the estate, the
bankruptcy court held that the judgment was obtained in violation of the bankruptcy stay and
8
was therefore invalid. Id. The district court overturned that ruling and the Second Circuit
affirmed the district court. Id. at 34; Fotochrome, Inc., 517 F.2d at 520. The district court noted:
It is not surprising that the Japan Commercial Arbitration
Association made its award despite the bankruptcy court order.
Our courts were bereft of any basis to exercise in personam
juxisdiction over Copal -- much less the Arbitration Association -- in this case until after proceedings in Japan had terminated and
Copal filed its claim here.
In re Fotochrome, Inc., 377 F. Supp. at 28.
24. Establishing jurisdiction is SCO's burden. In re Astropower Liquidating Trust,
No. 04-10322, 2006 Bankr. LEXIS 2443, *5 (Bankr. D. Del. Oct. 2, 2006) ("The overwhelming
authority in the Third Circuit establishes that the Plaintiff has a burden of proving, by concrete
evidence and not merely the allegations in its complaint, that the [defendants] have the minimum
contacts necessary to establish personal jurisdiction.").
25. Personal jurisdiction comes in two types: general and specific. O'Connor v. Sandy
Lane Hotel Co., 496 F.3d 312, 317 (3d Cir. 2007). SCO does not identify what sort of
jurisdiction it claims exists over SUSE. Neither type subjects SUSE to jurisdiction here.
A. SUSE is Not Subject to General Jurisdiction in the United States.
26. General jurisdiction exists when a defendant has maintained systematic and
continuous contacts with the forum. Helicopteros Nacionales de Colombia, S.A. v. Hall,
466 U.S. 408, 41445 (1984).
9
27. There are no such systematic and continuous contacts here. SUSE is a German
company with no United States offices. No SUSE employee is based in the United States.
28. Linux software developed by SUSE is sold in the United States, but these sales are
made by Novell, not SUSE. (Imendoerffer Decl. ¶ ¶ 12-13.) Where the proper corporate form is
observed, the fact that one company imports and distributes a product developed by a foreign
affiliate does not subject that affiliate to general jurisdiction in the United States. See, e.g.,
Cambridge Literary Props., Inc. v. W. Goebel Porzellanfabrik G.m.b.H. & Co. Kg., 295 F.3d 59,
63 n.3 (1st Cir. 2002) ("[S]ales by an independent distributor ... or separately incorporated
subsidiary normally do not count as 'contacts' of the manufacturer or parent corporation.");
Kuenzle v. HTM Sport~Und Freizeitgerte AG, 102 F.3d 453, 459 (10th Cir. 1996)
("[I]n the
absence of an agency relationship, the acts of a distributor are not ordinarily attributable to a
foreign manufacturer for purposes of establishing general jurisdiction.").
29. Here, as discussed above, it is clear that proper corporate forms have been observed,
and SUSE is not the "alter ego" of Novell. (Imendoerffer Decl. ¶ ¶ 14-15.) SCO has not offered
any facts suggesting otherwise. Because SUSE is a genuinely separate entity with its own
corporate existence, Novell's sale of SUSE products does not subject SUSE to general
jurisdiction in the United States.
B. SUSE is Not Subject to Specific Jurisdiction in this Matter.
30. Nor is SUSE subject to the specific jurisdiction of this Court. Determination of
specific jurisdiction is a three part inquiry:
First, the defendant must have "purposefully directed [its]
activities" at the forum. Second, the litigation must "arise out of
or relate to" at least one of those activities. And third, if the prior
two requirements are met, a court may consider whether the
exercise of jurisdiction otherwise "comport[s] with `fair play and
substantial justice.'"
10
O'Cannor, 496 F.3d at 317 (internal citation omitted, emphasis added).
31. For these purposes "the litigation" is the Swiss Arbitration, the only proceeding in
which SCO and SUSE are parties to a controversy. See, e.g., Helicopteros, 466 U.S. at 416
(requirement for in personam jurisdiction is "controversy" arising out of or relating to
defendant's contacts with the forum). SUSE's claims in the Swiss Arbitration do not arise out of
any SUSE activity "purposefully directed" at the United States. Rather, SUSE's claims anise
from SCO's assertion of infringement claims against SUSE Linux that are inconsistent with
SCO's obligations under the UnitedLinux Contracts. (Imendoerffer Decl. Ex. D ¶ ¶ 18-25.)
Though part ofthe negotiations that led to the UnitodLinux Contracts took place in the United
States, that is not enough to subject SUSE to jurisdiction here. Sunbelt Corp. v. Noble, Denton &
Assoc., Inc., 5 F.3d 28, 32 (3d Cir. 1993). This is especially so given that these contracts are
each explicitly subject to Swiss law and choose Switzerland as the forum in which any disputes
shall be resolved. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972) (holding that
forum selection clause are "prima facie valid and should be enforced unless enforcement is
shown by the resisting party to be 'unreasonable' under the circumstances").
32. In support of its position, SCO cites the existence of another UnitedLinux
agreement, forming a Delaware LLC. (Motion ¶ 16, Ex. D.) No SUSE claim in the Swiss
Arbitration arises out of the LLC agreement -- indeed, neither SUSE nor SCO seeks to enforce
any right or obligation derived from the terms of the LLC agreement. Accordingly, the Terms of
Reference, the basic joint document that sets out SCO and SUSE's claims and defenses in the
Swiss Arbitration, makes no mention of the LLC agreement. (Imendoerffer Decl. Ex. D.) The
LLC agreement therefore cannot ground specific jurisdiction over SUSE.
11
33. SCO also cites a license agreement with Novell, a website for UnitedLinux, and a
printout of a Google search. (Motion ¶ 16, Exs. E-G.) As none of these bear any connection to
SUSE's claims in the Swiss Arbitration, they, too, cannot ground specific jurisdiction.
34. SCO's evidence of "minimum contacts" here stands in stark contrast to the contacts
evident in the cases SCO's motion cites. For example, in In re McLean Indus., 68 B.R. 690, 693
(Bankr. S.D.N.Y. 1986), the creditor had a New Jersey office, through which it negotiated the
disputed fuel oil contract, and at which the documentary record of those negotiations remained.
In re Lykes Bros. Steamship Co., 207 B.R. 282 (Bankr. M.D. Fla. 1997), and In re Chiles Power
Supply Co., 264 B.R. 533, 543 (Bankr. W.D. Mo. 2001), involved attempts by a creditor to seize
specific property of the bankruptcy estate (a ship in Lykes and a settlement fund in Chiles).
C. To The Extent SCO Proposes a More Relaxed Jurisdictional Test
Than Described Above, It Runs Afoul of SUSE's Fifth Amendment
Rights.
35. SCO does not discuss the boundaries the U.S. Constitution places on the personal
jurisdiction of this Court -- for example, SCO does not mention the terms "general" or
"specific" jurisdiction. Instead, citing three cases from other jurisdictions, SCO claims personal
jurisdiction is appropriate over any creditor that "(i) transacts business in the United States;
(ii) does an act in the United States; or (iii) has an effect in the United States." (Motion ¶ 15,
citing In re Lykes Bros. Steamship Co., 207 B.R. 282 (Bankr. M.D. Fla. 1997); In re Chiles
Power Supply Co., 264 B.R. 533, 543 (Bankr. W.D. Ma. 2001); In re McLean Indus., Inc., 68
B.R. 690 (Bankr. S.D.N.Y. 1986).)
36. It is unclear whether SCO contends that test allows for more expansive jurisdiction
than the traditional formulations of general and specific jurisdiction described above. If SCO
means that this Court has jurisdiction over any creditor who transacts any business, does any act,
12
or causes any effect in the United States, no matter how attenuated, SCO is simply wrong. The
Constitution requires "minimum contacts," not "any contact."
37. In particular, SCO appears to claim that the mere fact that the Swiss Arbitration
"has an effect in the United States" (i.e., on SCO) is enough to ground personal jurisdiction over
SUSE. (Motion ¶ 16.) That is flatly inconsistent with constitutional boundaries on this Court's
jurisdiction. Were that the ease, bankruptcy courts would automatically have jurisdiction over
any participant in any foreign proceeding that had anything to do with the debtor, and cases such
as Fotochrome would not exist. (See ¶ 23, supra.)
38. Instead, consistent with the constitutional limits on its jurisdiction, this Court has
circumscribed the scope of "effects" jurisdiction, holding that application of the "effects test" is
only appropriate where there is, inter alia, an intentional tort against a resident of the forum --
facts that are not present here. In re Astropower Liquidating Trust, No. 04-10322, 2006 Bankr.
LEXIS 2443, *12 (Bankr. D. Del. Oct. 2, 2006); see also Marten v. Godwin, No. 05-5520,
2007 U.S. App. LEXIS 19921, *11-*15 (3d Cir. Aug 22, 2007); IMO Indus. v. Kiekert AG,
155 F.3d 254, 265-66 (3d Cir. 1998)).
III. THE STAY DOES NOT APPLY TO SCO'S CLAIMS IN THE SWISS
ARBITRATION.
39. SCO acknowledges, as it must, that under existing law, the automatic stay applies
only to claims "against the debtor." (Motion ¶ 20, citing 11 U.S.C. § 362(a) (emphasis added).)
Coults have uniformly held that the automatic stay does not apply to claims brought by the
debtor. First Wis. Nat'l Bank v. Grandlich Dev. Corp., 565 F.2d 879, 880 (5th Cir. 1978)
(automatic stay did not bar district court's dismissal of debtor's counterclaim in action originally
brought against debtors, "because the counterclaim was not a proceeding against the debtors");
Trans Caribbean Lines v. Tracor Marine, Inc., 49 B.R. 360, 362 (S.D. Fla. 1985) (since
13
prosecution of oounterclaims and crossclaims by debtor is not stayed by § 362, oourt's dismissal
of dobtor's counterclaims or cross claims is not barred by § 362); In re Regal Construction Co.,
28 B.R. 413, 416 (Bankr. D. Md. 1983) (automatic stay did not preclude debtor from proceeding
on its counterclaim).
40. Ignoring that it has asserted counterclaims against SUSE in the Swiss Arbitration,
SCO seeks a blanket declaration that "the automatic stay prohibits the continuation of the SUSE
arbitration," presumably meaning this to stay its own claims as well. (Motion ¶ 17.) Though
SCO seeks sanctions against SUSE for supposedly "continuing to prosecute its claim against the
debtor," SCO neglects to inform this Court that the only substantive post-petition action SUSE
has undertaken in the Swiss Arbitration -- other than to oppose SCO's request that the Tribunal
grind its proceedings to a halt -- was to file an opposition to SCO's countorclaims. Even were
SUSE subject to this Court's jurisdiction, SUSE cannot be sanctioned for defending itself against
SCO's unstayed counterclaims. In re United States Abatement Corp., 157 B.R. 278 (E.D. La.
1993) (debtor's motion to reinstate debtor's counterclaim and its own motion for summary
judgment thereon did not violate stay), aff'd 39 F.3d 563 (5th Cir. 1994).
IV. SUSE'S CLAIMS IN THE SWISS ARBITRATION ARE DEFENSIVE IN
NATURE AND THEREFORE NOT SUBJECT TO THE AUTOMATIC
STAY.
41. As discussed above, SUSE initiated the Swiss Arbitration in response to specific
claims by SCO that SUSE's products infringe SCO's copyrights. (Imendoerffer Decl. ¶ 8.)
42. Because SUSE's Phase II claims are defensive in nature, the bankruptcy stay does
not apply oven if this Court has personal jurisdiction over SUSE:
14
Since section 362 mandates a stay only of litigation "against the
debtor" designed to seize or exercise control over the property of
the debtor ... it does not prevent entities against whom the debtor
proceeds in an offensive posture ... from "protecting their legal
rights."
In re Financial News Network Inc., 158 B.R. 570, 573 (S.D.N.Y. 1993). Here, SUSE is merely
trying to protect its own property and rights against interference and claims by SCO.
(Imendoerffer Decl. ¶ 8.)
43. The posture of the Utah litigation drives this point home. There, SCO brought
counterclaims claiming that Novell infringed SCO's copyrights by distributing SUSE products.
As affirmative claims, those claims are not subject to the bankruptcy stay. (See Section III,
supra.) Instead, Novell sought and obtained a stay of certain of SCO's counterclaims pending
resolution of the Swiss Arbitration, because the issues to be decided in the Swiss Arbitration
could provide Novell with a defense against those counterclaims in the Utah litigation. SCO
Group, Inc. v. Novell, Inc., 2006 U.S. Dist. LEXIS 59295, *11 (Aug. 21, 2006 D. Utah). So not
only are SUSE's claims in the Swiss Arbitration defensive against the general accusations made
by SCO against SUSE, they are also affirmative defenses against the specific claims SCO has
brought against distributors of SUSE products such as Novell.
44. Similarly "defensive" claims were at issue in In re Transp. Sys. Int'l, 110 B.R. 888
(D. Minn. 1990). There, the bankrupt entity (TSI) had demanded certain freight payments from
Honeywell, but had not instituted formal proceedings against Honeywell. Honeywell responded
by filing an ICC claim seeking a declaration that the freight billing was improper. TSI argued
that the ICC proceeding violated the bankruptcy stay. The bankruptcy court agreed with TSI and
awarded sanctions against Honeywell. On appeal, however, the court overturned that ruling,
finding that because the ICC proceeding was defensive in nature it was not "against the debtor"
15
within the meaning of the bankruptcy stay statute and therefore not subject to the automatic stay.
Id. at 893.
45. Because the Swiss Arbitration is primarily defensive in nature, it is unlike the
disputes at issue in many of the cases cited by SCO. Damages, if any, will not be decided until
Phase IV of the Swiss Arbitration, which is not scheduled to begin until 2008. SCO may well
have exited bankruptcy by that point; it is SUSE's understanding that SCO has given every
indication that it intends to complete this process quickly. Nevertheless, SUSE would not
oppose denial of this motion without prejudice to SCO renewing it if and when Phase IV nears.
CONCLUSION
46. For the reasons stated above, SUSE has not been properly served with SCO's
motion and is not subject to personal jurisdiction before this Court. Even were that otherwise,
SUSE's claims are defensive in nature and therefore not subject to any stay of claims against
SCO. SUSE therefore requests that the Court deny SCO's motion.
Dated: October 18, 2007
Wilmington, Delaware
YOUNG CONAWAY STARGATT & TAYLOR, LLP
/s/ Sean T. Greecher
James L. Patton (No. 2205)
Michael R. Nestor (No. 3526)
Sean T. Greecher (No. 4484)
[address, phone]
-~ and ~-
16
MORRISON & FOERSTER LLP
Adam A. Lewis
[address, phone]
~~ and --
MORRISON & FOERSTER LLP
Larren M. Nashelsky
Julie D. Dyas
[address, phone]
Special Counsel for SUSE Linux GmbH
1 Specifically, SCO's Certificate of Service for the Motion reflects that SCO attempted
service on SUSE at three addresses: (1) By Overnight Delivery to SUSE Linux GmbH,
Attn: Felix Imendoerffer, [address] Germany; (2) Overnight
Delivery, (counsel to SUSE), Georg Rauber, Esquire, Felix Dasser, Esquire, David
Rosenthal, Esquire, [address], Switzerland; and (3) Overnight Delivery, (counsel for SUSE), Michael A.
Jacobs, Esquire, Grant L. Kim, Esquire, Kenneth W. Brakebill, Esquire, Morrison &
Foerster LLP, [address].
2 See Hague Convention, notes 7 (listing countries objecting to mail service, including
Germany and Switzerland) & 8 ("service by a Central Authority is the exclusive method
for service of process in the Federal Republic of Germany" (emphasis added)), available at
http://travel.state.gov/law/info/judicial/judicial_686.html.
3 In addition, as discussed below, SCO's foreign counsel has no authority to accept service
of process concerning SCO's Chapter 11 cases.
4 O'Connor, and other cases cited in this opposition, concern the scope of a defendant's due
process rights under the Fourteenth Amendment. As a technical matter, the limits on the
Court's jurisdiction here are circumscribed by the Fifth, rather than the Fourteenth
Amendment. In re Plassein Intl' Corp., 352 B.R. 36, 38 (Bankr. D. Del. 2006). Courts
nevertheless rely without distinction on Fifth and Fourteenth Due Process cases when
determining the scope of a bankruptcy court's personal jurisdiction over a party. In re
Paques, 277 B.R. 615, 628 (Bankr. E.D. Pa. 2000).
5 SCO's Proposed Order is ambiguous in this regard. It prohibits SUSE from "commencing
or continuing" the "SUSE Arbitration," a term whose meaning the Proposed Order
indicates is found in SCO's Motion. The Motion appears to define that term as the entire
Swiss Arbitration. (Motion ¶ ¶ 6-7.)
6 Similarly, if the Court holds that SUSE is subject to the automatic stay, SUSE will move to
lift the stay, on substantially the same grounds as Novell's motion to lift the stay as to the
Utah litigation.
17
************************************
************************************
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In
re:
The SCO Group, Inc., et
al.,
Debtors.
Chapter 11
Case No. 07-11337 (KG)
(Jointly Administered)
AFFIDAVIT OF FELIX IMENDOERFFER IN SUPPORT OF
SUSE'S SPECIAL OPPOSITION TO SCO GROUP, INC'S
MOTION TO "ENFORCE THE AUTOMATIC STAY"
Felix Imendoerffer, being duly sworn, deposes and states the following:
1. I am Corporate Legal Counsel of SUSE Linux GmbH. I submit this affidavit in support of SUSE's Special Opposition to SCO Group, Inc's Motion to "Enforce The Automatic Stay." The facts averred to below are from my personal knowledge and my investigation.
2. I offer this affidavit only in opposition to SCO's claim that the United States Bankruptcy Court for the District of Delaware has jurisdiction over SUSE. By offering this affidavit I do not intend to submit SUSE to the jurisdiction of this Court. In addition, I do not intend this affidavit to represent a concession that SUSE was properly served with the motion this affidavit concerns.
3. SUSE Linux GmbH and its wholly-owned subsidiary SUSE Linux Products (together, "SUSE") are both based in Nuremberg, Germany.
UnitedLinux
4. In May 2002, SUSE and SCO entered into a Master Transaction Agreement ("MTA," attached as Ex. A) and a UnitedLinux Joint Development Contract ("JDC," attached as Ex. B, together "UnitedLinux Contracts"). As explained in the preamble to the UnitedLinux Contracts, the UnitedLinux project arose from the agreement of SCO (then Caldera International, Inc.), SUSE and two other Linux vendors (Turbolinux and Conectiva) to jointly develop a standard form of the
Linux operating system, referred to as "UnitedLinux" By combining their respective expertise and intellectual property to develop and promote a uniform Linux platform under the "UnitedLinux" brand, the four UnitedLinux members sought to encourage widespread adoption of UnitedLinux "as a standard for the information technology industry." (Ex. A, Background.)
5. Consistent with this goal, the UnitedLinux members agreed in the UnitedLinux Contracts that each member would have a broad license to use the technology included in the UnitedLinux software, including any related intellectual property rights of the other members. (Ex. A, Section 3.2; Ex. B, JDC, Section 8.)
6. The UnitedLinux Contracts provide for arbitration in Switzerland under Swiss law and do not subject the signatories to United States or Delaware law.
7. Notwithstanding the licenses, rights, and obligations exchanged in the UnitedLinux Contracts, SCO has claimed that SUSE's software products contain unlicensed code that infringes SCO copyrights. For example, in an interview with the publication Computerworld, a SCO executive stated:
SuSE feels protected against any legal action you may consider because of contracts with SCO and with UnitedLinux in which you are a member. Do SuSE and other Linux distributors including Red Hat have reason to be worried? Regarding contracts we have with SuSE and UnitedLinux, I would unequivocally state that there is nothing in those contracts that provides them with any protection or shelter in the way they are characterizing this in the press. If I were them, I would not be making those kinds of statements.
...
Wouldn't you agree that your legal action is causing uncertainty in the Linux community and that this uncertainty is undermining the marketing efforts of
2
UnitedLinux? There is definitely uncertainty and doubt. And there are problems identified within the Linux community. We were not the first ones to raise the intellectual property issue, but we certainly have a major issue now. Since digging into the lawsuit with IBM, we've become very aware of issues related to Linux and other areas.
(Ex. C (emphasis added).)
ICC Arbitration
8. To protect itself and its customers against SCO's claims of copyright infringement, SUSE Linux GmbH initiated arbitration before the ICC International Court of Arbitration ("Swiss Arbitration") on April 10, 2006, pursuant to the terms of the UnitedLinux Contracts.
9. I will briefly recite some of the key developments in the Swiss Arbitration: On October 21, 2006, the Chairman of the Arbitral Tribunal issued the "Terms of Reference" for signature. This document was subsequently signed by the other members of the Tribunal as well as by SCO and SUSE Linux GmbH. (Ex. D.) It is my understanding that this document summarizes the claims, counterclaims, and defenses of both SCO and SUSE Linux GmbH, as well as of the various procedural agreements reached between the parties and the Tribunal. I further understand. that the Terms of Reference serves as the guiding document defining the basis, scope and nature of the Swiss Arbitration, which has its seat in Zürich, Switzerland.
The Swiss Arbitration is to proceed in four phases. In Phase I, the parties were to raise any objections to the jurisdiction of the Tribunal. In Phase II, the Tribunal is to address SUSE Linux GmbH's claims for declaratory relief and whether SUSE Linux GmbH bears any liability under SCO's counterclaims. In Phases III and IV, the Tribunal is to resolve any remaining technical issues and assess all issues relating to damages.
3
On July 5, 2007, the Tribunal addressed the parties' jurisdictional objections, completing Phase I. Rejecting SCO's jurisdictional objections, the Tribunal held that the UnitedLinux Contracts obligate SCO to arbitrate SUSE Linux GmbH's claims and certain of SCO's counterclaims in Switzerland before the Tribunal, subject to Swiss law.
The parties proceeded to file briefs in support of and opposition to the claims and counterclaims at issue. On June 15, 2007, SUSE Linux GmbH filed its Statement of Claim, which is its opening memorial in support of its claims. On July 20, 2007, SCO filed its opening memorial in support of its counterclaims, and on August 22,2007, its opposition to SUSE Linux GmbH's claims. On September 24, 2007, SUSE Linux GmbH filed its opposition to SCO's counterclaims. Aside from several letters to the Tribunal concerning SCO's U.S. bankruptcy petition and opposing a stay of the Swiss Arbitration, the filing of its opposition is the only action SUSE Linux GmbH has taken in the Swiss Arbitration following the filing of SCO's bankruptcy petition. Subject to any decision of the Tribunal to the contrary, the parties will have to file replies ("rejoinders") in support of their claims on October 30, 2007. SUSE has offered to extend this deadline until November 9, 2007, but has not received a response from SCO.
On December 3-14, 2007, the Tribunal is currently scheduled to conduct a hearing, in Switzerland, on the Phase II issues. (SCO has asked the Tribunal to postpone the December hearing indefinitely, but, so far, the Tribunal has not ruled on this request.) If necessary, the remaining arbitration phases will proceed after the Tribunal's decision on the Phase II issues. At present, there are no Phase III or IV dates calendared.
SUSE's Lack of Jurisdictional Contacts
10. SUSE's only offices are in Germany. SUSE has no offices in the United States.
11.
SUSE has approximately 250 employees, none of whom are based in the United States.
4
12. SUSE does not market its products in the United States. In the last year, for example, SUSE did not pay for any advertisement in any U.S. publication. To the extent SUSE products are marketed in the United States, Novel1 is responsible for such marketing.
13. Although SUSE products are sold in the United States, as reflected in Exhibit E to SCO's motion, it is Novell, Inc. ("Novell"), not SUSE, that sells SUSE products in the United States. When SUSE products are distributed electronically in the United States, they are distributed through Internet websites run by Novell (e.g., http://www.novell.com/linux and http://en.opensuse.org, listed on Exhibit G to SCO's motion). When SUSE products are distributed physically in the United States, the mechanics of production and distribution (e.g., burning CDs, printing manuals and boxes, shipping the product) are handled by Novell or third parties under contract with Novell.
SUSE's Corporate Relationship with Novell
14. Though SUSE is a wholly owned subsidiary of Novell, SUSE has its own corporate existence. For example:
SUSE has its own directors. There is no overlap between the Novell and SUSE directors.
SUSE keeps its own corporate records and its own independent accounts.
SUSE is sufficiently capitalized for its ongoing operations.
15. Indeed, there are multiple levels of corporations between Novell and SUSE. Novell owns NSIL Cayman. NSIL Cayman in turn owns NISL Ireland. NISL Ireland owns Novell Holding Deutschland GmbH. Novell Holding Deutschland GmbH owns SUSE Linux GmbH, which, as discussed above, owns SUSE Linux Products.
Morrison & Foerster's Authority
16. Morrison & Foerster acts as co-counsel to SUSE in the Swiss Arbitration. Morrison & Foerster's responsibilities in the Swiss Arbitration are of the sort typically given to arbitration
5
counsel. Morrison & Foerster is not generally authorized to receive service of process on behalf of SUSE.
17. SUSE has not authorized Morrison & Foerster to receive service of any process in connection with SCO's bankruptcy proceedings.
I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct.
Executed this 18 day of October, 2007
___[signature]____
Felix Imendoerffer
6
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