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Novell and SCO Agree on Interest, Trust Amounts; Final Judgment Still in Dispute - Updated
Friday, August 29 2008 @ 10:41 PM EDT

Novell filed today, as per the deadline, two documents, one an unopposed filing regarding interest due Novell by SCO -- SCO has agreed to the sum of $918,122 in prejudgment interest and $489 per day until the final judgment is entered.

That could be a while. The second filing informs the court that Novell still believes that a final judgment is premature, since the arbitration is not yet finished. It reminds the court that those claims were automatically stayed by the Bankruptcy Court, and that while SUSE disputed that, SCO successfully argued that the automatic stay should include the arbitration. When the Bankruptcy Court partially lifted the bankruptcy stay to allow Novell to drag SCO back to Utah on the two issues we saw at trial (the amount owed, and whether SCO had the right to enter into SCOsource licenses), the claims in arbitration remained under stay, so both the Utah court and the Bankruptcy Court stayed the arbitration claims, so Novell's position is that this prevents entry of final judgment at the moment.

Novell says it understands SCO may want to file a motion "advocating some particular disposition of those claims." Novell says if they do, as Novell expects SCO will, Novell will respond at that time.

Finally, we learn that all the negotiations between the parties resulted in an agreement "as to the proper amount of the constructive trust." The parties will present that agreement to the Bankruptcy Court, and Novell will inform the Utah court of developments.

What do I get from all this? SCO is frantic to get a final judgment, so it can file an appeal, and so it's trying to get all standing issues resolved.

Here are the filings:

08/29/2008 - 550 - RESPONSE re 542 Findings of Fact & Conclusions of Law, (Novell's Unopposed Submission Regarding Prejudgment Interest) filed by Defendant Novell, Inc.. (Sneddon, Heather) (Entered: 08/29/2008)

08/29/2008 - 551 - RESPONSE re 542 Findings of Fact & Conclusions of Law, (Novell's Submission Regarding Entry of Final Judgment) filed by Defendant Novell, Inc.. (Sneddon, Heather) (Entered: 08/29/2008)

Update: Here's Novell's Submission Regarding Entry of Final Judgment, as text:

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

MORRISON & FOERSTER LLP
Michael A. Jacobs (pro hac vice)
Eric M. Acker (pro hac vice)
Kenneth W. Brakebill (pro hac vice)
Mark J. Pernick (pro hac vice)
David E. Melaugh (pro hac vice)
[Address]
[Phone]
[Fax]

ANDERSON & KARRENBERG
Thomas R. Karrenberg, #3726
Heather M. Sneddon, #9520
[Address]
[Phone]
[Fax]

Attorneys for Defendant & Counterclaim-Plaintiff Novell, Inc.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, CENTRAL DIVISION

THE SCO GROUP, INC., a Delaware
corporation,

Plaintiff and Counterclaim-
Defendant,

v.

NOVELL, Inc., a Delaware corporation,

Defendant and Counterclaim-
Plaintiff.

NOVELL's SUBMISSION
REGARDING ENTRY OF FINAL
JUDGMENT

Case No. 2:04CV00139

Judge Dale A. Kimball

In its July 16, 2008 Order, the Court directed Novell "to file a brief within 15 days of this Order describing what, if any, prejudgment interest Novell seeks based on the amount awarded in this Order" and "to file within ten days from the date of this order a Final Judgment consistent with these Findings of Fact, Conclusions of Law, and Order, the court's August 10, 2007 Memorandum Decision and Order, and the parties' stipulations with respect to the disposition of certain causes of action." (Docket No. 542 at 42, 43.)

On July 30, Novell informed the Court that Novell believes entry of Final Judgment is inappropriate given the pendency of claims subject to an arbitration-related stay and given the Bankruptcy Court's reservation of issues pertaining to the entry of a constructive trust. (Docket No. 543.) Novell and SCO requested an extension of Novell's filing deadlines until August 22 to meet and confer regarding final judgment, which the Court granted. (Docket No. 544.) The parties subsequently requested and were granted a further extension to August 29. (Docket Nos. 548, 549.)

As reflected in Novell's unopposed request for prejudgment interest filed today, the parties have reached an agreement on an appropriate amount of prejudgment interest.

The parties have also reached an agreement as to the proper amount of the constructive trust. The parties anticipate taking this agreement to the Bankruptcy Court and expect resolution of trust-related issues in the near future. Novell will report to this Court any developments in that regard.

Notwithstanding the meeting and conferring, the parties have been unable to reach an agreement concerning the pendency of claims subject to an arbitration-related stay. These claims were stayed pending arbitration by this Court's order. (Docket No. 139.) The claims were subsequently automatically stayed by the Bankruptcy Court. SUSE disputed the effect of that stay on the arbitration, but SCO successfully argued to the Bankruptcy Court that the automatic

2

stay should apply to stop the arbitration. The Bankruptcy Court later partially lifted the bankruptcy stay, but only as to the following issues:
(1) the amount of the royalties to which Novell is entitled from certain SCOsource licenses that the District Court determined to be SVRX Licenses and any additional licenses that are determined to be SVRX Licenses; and (2) whether SCO had the authority to enter into licensing agreements with Microsoft Corporation and Sun Microsystems.
In re: The SCO Group, Inc. No. 07-11337 (KG), Docket No. 233 (Bankr. D. Del. Nov. 27, 2007). These claims therefore remain stayed by order of both this Court and the Bankruptcy Court. Those stays and the underlying pendency of the claims to which they apply prevent entry of final judgment.

Novell understands that SCO may elect to file a motion advocating some particular disposition of those claims. Novell will evaluate and respond to any such motion once filed.

DATED: August 29, 2008

ANDERSON & KARRENBERG

By: /s/ Heather M. Sneddon

Thomas R. Karrenberg
Heather M. Sneddon

-and-

MORRISON & FOERSTER LLP
Michael A. Jacobs, (pro hac vice)
Eric M. Acker, pro hac vice
Kenneth W. Brakebill, (pro hac vice)
Marc J. Pernick, pro hac vice
David E. Melaugh, pro hac vice

Attorneys for Defendant and
Counterclaim-Plaintiff Novell, Inc.

3

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on this 29th day of August, 2008, I caused a true and correct copy of NOVELL'S SUBMISSION REGARDING ENTRY OF FINAL JUDGMENT to be served to the following:

Brent O. Hatch
Mark F. James
HATCH JAMES & DODGE, P.C.
[address]

Stuart H. Singer
William T. Dzurilla
Sashi Bach Boruchow
BOIES, SCHILLER & FLEXNER LLP
[address]

David Boies
Edward J. Normand
BOIES, SCHILLER & FLEXNER LLP
[address]

Devan V. Padmanabhan
John J. Brogan
DORSEY & WHITNEY
[address]

Via U.S. Mail, postage prepaid:

Stephen Neal Zack
BOIES, SCHILLER & FLEXNER LLP
[address]

/s/ Heather M. Sneddon

4


  


Novell and SCO Agree on Interest, Trust Amounts; Final Judgment Still in Dispute - Updated | 272 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections
Authored by: bbaston on Friday, August 29 2008 @ 10:43 PM EDT
Please indicated errer > error in title.

---
IMBW, IANAL2, IMHO, IAVO
imaybewrong, iamnotalawyertoo, inmyhumbleopinion, iamveryold

[ Reply to This | # ]

Off topic
Authored by: bbaston on Friday, August 29 2008 @ 10:44 PM EDT
Links appreciated!

---
IMBW, IANAL2, IMHO, IAVO
imaybewrong, iamnotalawyertoo, inmyhumbleopinion, iamveryold

[ Reply to This | # ]

News Picks
Authored by: bbaston on Friday, August 29 2008 @ 10:46 PM EDT
Nice to repeat News Picks title for clarity!

---
IMBW, IANAL2, IMHO, IAVO
imaybewrong, iamnotalawyertoo, inmyhumbleopinion, iamveryold

[ Reply to This | # ]

Novell and SCO Agree that Interest is $900K plus $500/day; Novell balks at Final Order
Authored by: webster on Saturday, August 30 2008 @ 12:13 AM EDT
..
It is interesting that Novell didn't push the arbitration on the bankruptcy
court back when they were getting the constructive trust un-stayed. That
constructive trust was a bit distracting.

It is pretty brassy of Novell to just not draft an order reflecting the Court's
verdicts. But they are right. Some claims are stayed. Kimball can't do
anything about it since the Bankruptcy court has sway over arbitration and
constructive trust. SCO should ask the bankruptcy court to lift the arbitration
stay. Why don't they? Because Novell will also tell the bankruptcy Court to
decide on the constructive trust or let Kimball do it. SCO would need to put up
$3.4 million plus interest and then proceed to arbitration next year, BEFORE
they can get a final order and appeal. Looks like SCO wants a piecemeal
appeal.

And yet more fascination:

------------- "Novell understands that SCO may elect to file a motion
advocating some particular disposition of those claims. Novell will evaluate
and respond to any such motion once filed." -------------

Novell has evaluated and responded to SCO in these negotiations. "[S]ome
particular disposition of those claims" advocated by SCO were obviously not
agreed to by Novell either due to their substance or because Novell wants to see
the arbitration process take its course or both.

Arbitration will take months. Can SCO hang on that long?

~webster~

[ Reply to This | # ]

I'm feeling disagreeable, so I'll disagree with P.J.
Authored by: Anonymous on Saturday, August 30 2008 @ 02:14 AM EDT

Why?

Err... because... yea, that's the ticket... just because!

SCO is frantic to get a final judgment, so it can file an appeal.
Personally, I don't think SCOG want's final on anything. If they do get final Judgment, they will file an appeal but only because it means the whole game doesn't end yet. They'll keep playing this all the way to the Supreme Court if they can, not because they hope to win, but because they hope to drag it out.

I'm not a psychologist, however, their case of ... I don't even know what to call it... their case of simply causing as much damage (in this case financial cost) as possible in order to receive a buyout offer seems pretty straight forward.

Or I could just be confused with the antics of the Grinch!

RAS

[ Reply to This | # ]

Why is SCO so frantic to file an appeal?
Authored by: billyskank on Saturday, August 30 2008 @ 04:23 AM EDT
They can't have any realistic hope of a better outcome. Kimball bent over
backwards to give them every chance. They may even be found to owe Novell more
if they revisit it.

---
It's not the software that's free; it's you.

[ Reply to This | # ]

Sooo IBM case will be finished around late 2020?
Authored by: SilverWave on Saturday, August 30 2008 @ 05:08 AM EDT
Given the previous rate of this case...

Gotta love this case it makes it so easy to despise SCO and their fellow
travellers.

---
RMS: The 4 Freedoms
0 run the program for any purpose
1 study the source code and change it
2 make copies and distribute them
3 publish modified versions

[ Reply to This | # ]

Why?
Authored by: Yossarian on Saturday, August 30 2008 @ 05:51 AM EDT
"SCO is frantic to get a final judgment, so it can file an appeal"

I agree with your observation, the question is why?

My guess is that SCO's management has the following fear:
The judge will make some quick calculations, decide that SCO
method of burning money is bad for the creditors, kick the
management and let a trustee check the situation and report to
the court. Such a trustee will probably view an appeal as a
"high cost, no gain" process from the creditors point of view.

IMO if SCO wants to appeal then it has to do it now.

[ Reply to This | # ]

Value of judgement roughly equals cash
Authored by: fudisbad on Saturday, August 30 2008 @ 06:08 AM EDT
According to the latest BK monthly operating report (doc #517)
SCOXQ.pk had $3,503,071 in (restricted and unrestricted) cash, probably less by
now. The payout plus interest adds up to $3,466,428 as of today and will exceed
the cash amount in 76 days, assuming no changes. There are about $10.56 million
in assets. Since the payout wipes out their cash reserves, is it time to convert
this to liquidation?

Speaking of which, it's been more than five weeks since the last monthly
operating report was filed...

---
"SCO’s failure to provide code for the methods and concepts it claims were
misappropriated is [...] a violation of this court’s orders." - Judge Brooke
Wells

[ Reply to This | # ]

What can the Bankruptcy Court do?
Authored by: rsteinmetz70112 on Saturday, August 30 2008 @ 07:10 AM EDT
Could the Bankruptcy Court allow an appeal if a final judgment is not in place?

I was just wondering

10 if when this order is entered
20 and if it's not a final judgment
30 can the Bankruptcy authorize and appeal?

---
Rsteinmetz - IANAL therefore my opinions are illegal.

"I could be wrong now, but I don't think so."
Randy Newman - The Title Theme from Monk

[ Reply to This | # ]

Final Judgment Still in Dispute????
Authored by: Anonymous on Saturday, August 30 2008 @ 04:18 PM EDT
I don't remember there was a dispute about a Final Judgment.
Is it OK for Kimball to disregard his Orders when the Mofos say they have a
dispute about it with SCOX?

[ Reply to This | # ]

Maybe this is actually clever?
Authored by: Anonymous on Sunday, August 31 2008 @ 09:00 AM EDT
So, the stipulated amount of the trust will wipe out SCO's cash reserves, and
imposing it would effectively shut SCO down.

I'm wondering if this actually gives SCO some leverage. The following seems to
me to be a plausible strategy...
* SCO argues in Delaware that the turst should not be imposed until the Utah
judgement is final.
* Once the Utah judgement is final, SCO argues in Delaware that:
** They plan to appeal the Utah ruling.
** Imposing the trust pre-appeal will effectively shut them down.
** They have a reasonable belief that they can prevail on appeal.

Assuming the Delaware judge (who seems inclined to grant SCO an awful lot of
leeway) agrees to this, the trust judge orders the trust NOT be imposed until
SCO completes the appeals process.

Were the trust amount smaller, Novell could argue that imposing the trust
wouldn't keep SCO from having the means to appeal the decision, and the trust
might be imposed immediately...

[ Reply to This | # ]

Novell and SCO Agree on Interest, Trust Amounts; Final Judgment Still in Dispute
Authored by: Anonymous on Sunday, August 31 2008 @ 09:19 AM EDT
Well, the trial can't be finally settled until the arbitration is over. I
seemed to remember the judge specifying this, and I seem to remember SCO asking
the arbitration to be stayed until bankruptcy was done, so it appears to me they
brought this on themselves. And on top of everything they still want to
continue the lawsuit business when they get out of bankruptcy. They better
think long and hard on that. Any monies they owe IBM as a result of this fiasco
won't be determined until after the bankruptcy, and there is a limit to how soon
they can file for bankruptcy protection again.

[ Reply to This | # ]

How the MOR's and SEC Reports Work
Authored by: bezz on Sunday, August 31 2008 @ 10:56 AM EDT
There seems to be a lot of confusion about the accounting as reported on MOR's and SEC 10-Q / 10-K's. You can not point at any single table on the MOR's and get an accurate overall picture of SCO's condition. SCO Group and SCO Operations are the entities in US Chapter 11 Bankruptcy. Operations is the "operational entity" through which most of the cash flows and Group is the "holding company".

The MOR's only report US entities in BK and the SEC reporting is a consolidation of Group, Operations and the overseas subsidiaries -- the Big Picture that reports as "The SCO Group and Subsidiaries". The SEC reports are a consolidation of SCO Operations, SCO Group and the overseas subsidiaries.

Adding and subtracting the corresponding line items in the Operations and Group assets tables (e.g. page 11 of the Operations MOR's) does not account for everything. The overseas subs are not in US Bankruptcy and do not directly report on the MOR's. However, the cash in their bank accounts is reported on page 8 of the Operations MOR. Once I started adding up the reported cash balances in the Operations MOR and overseas accounts, the cash balance corresponded with what is reported to the SEC on the 30 April 10-Q. The restricted and unrestricted cash can be determined if you add up what is reported in Operations page 11 and overseas subs page 8.

That is not to say there are not asset, liability and net equity discrepancies between MOR and SEC reporting. On the Operations MOR, SCO adds $2 million of Goodwill as an asset that is not explained and not reported to the SEC. SCO also keeps its SVRX royalty liability under SCO Japan, so that does not show up on the Operations MOR. That skews the Net Equity reporting on the Operations MOR to appear larger than reported to the SEC.

The available acsh is SCO's most important asset because that is what keeps the lawyers and consultants paid. Through May, SCO had MORE cash than reported on page 11 of the Operations MOR because it had a positive cash balance in its overseas subs. That changed drastically in June. So much cash moved out of the overseas subs (see page 8 of the Operations MOR) that, after restricting $1.15 million owed Novell as SVRX royalties, SCO had a negative balance of about $340,000 overseas. Thus, although SCO Operations reported about $3.5 million of total restricted and unrestricted cash to the bankruptcy court, the consolidated SCO Group and Subsidiaries (not to be confused with SCO Group MOR, I refer to the SEC entity) condition is about $3.16 million total cash.

[ Reply to This | # ]

  • LMAO - Authored by: Anonymous on Sunday, August 31 2008 @ 12:42 PM EDT
Don't you need grounds to appeal too?
Authored by: Anonymous on Sunday, August 31 2008 @ 01:33 PM EDT
Surely you can't just "decide" that you disagree with the Judge, and so file an appeal. There must be more to it than that! Something like a legal argument, or new evidence, or anything?

[ Reply to This | # ]

lurker speaks
Authored by: Anonymous on Monday, September 01 2008 @ 06:33 AM EDT
As a long -time lurker hereabouts, I detect symptoms of "cabin fever"
here. The fact that SCO appear to be advancing the case is easy to understand.
The management have a well paid gig, and no real pressure to do anything but
progress the dream - those uncountable riches that would surely flow from being
able to get any dollars from the huge base of Linux corporate users, with a
second string (spoken of only very late at night, with the beer goggles welded
on) in the consumer user base, and, despite the limited vision available through
the goggles, the embedded market. As ridiculous as this might sound to any
rational person of average intelligence, the potential payout is so large that
it has a fatal attraction to these characters, especially when combined with
characteristics like naked greed and limited ability to comprehend the realities
of flogging a 30 year old technology that has been endlessly gussied up (think
lipstick on a pig).

So, a dream of riches beyond measure, clear defects of character, and the
American Justice System; hence, SCO will do anything that they believe will move
them closer to that fabulous payday. Meanwhile, they just have to play the
tactical game; the worst outcome would be that they had to bail on the dream,
and even then they could explain that complex legal issues ruined the dream and
snare another executive position - life goes on, but for now the dream still
burns bright!

People of Groklaw, your analysis and attention to detail is first-class but
please don't become trainspotters.

[ Reply to This | # ]
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