Groklaw - Novell Objects to SCO's Notice of Cure Amounts. It's Déjà Vu All Over Again.

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Novell Objects to SCO's Notice of Cure Amounts. It's Déjà Vu All Over Again.

Tuesday, October 26 2010 @ 01:02 AM EDT

Our third objection is in to SCO's Notice of Cure Amounts, and it's the one you expected all along, from Novell. Like EMC and then Oracle, Novell says it can't figure out what SCO is proposing to do either, so it objects on these grounds:

Novell objects to the Notice and proposed assumptions and assignments on at least the following grounds: (1) as to certain items, the Notice is so cryptic as to make it impossible to determine to what agreements the Trustee is referring; (2) as to the cure amounts, because the Trustee and Debtors have not provided the information that only they can and that they are required to supply regarding certain of the contracts at issue (the “SVRX Licenses”), Novell cannot at this time verify the sums in the Notice, and in any event the Trustee must cure other monetary defaults that he does not even mention in the Notice; (3) as to the Trustee’s intent generally, the Trustee cannot assume and assign any of the Debtors’ agreements with Novell without assuming and assigning all of them, something the Trustee does not attempt to do; and finally, (4) as to some of the agreements the Trustee wishes to assume and assign, he must obtain, but cannot get, Novell’s consent, and more generally, based upon (3) above, he must get, but cannot obtain, Novell’s consent to be able to assume all of the Novell agreements he must assume if he is to be able to assume any.

So there you are. A perfect loop. In short, Novell moves to block. It doesn't consent to this going forward, and it's Novell's view that SCO must get its consent, which it won't give. And just in case the court forgot, Novell reminds it that SCO needs its consent to assign the APA:

15. Finally, and of the utmost importance, APA Section 9.5(c) expressly prohibits its assignment by SCO without Novell’s consent.

So, no funny business, please, your honor.

Here are the filings:

10/25/2010 - 1191 - Objection of Novell, Inc. To Notice of Cure Amounts (related document(s) 1184 ) Filed by Novell, Inc., SUSE Linux GmbH (Attachments: # 1 Exhibit # 2 Exhibit # 3 Exhibit # 4 Exhibit) (Greecher, Sean) (Entered: 10/25/2010)

The exhibits are:

1 - Findings of Fact and Conclusions of Law, by the Hon. Ted Stewart, in SCO Group v Novell, the second trial in 2010, 2:04-cv-139-TS.
2 - Final Judgment from the second trial.
3 - The PACER docket listing from July of 2010 to the bitter end for SCO in October of 2010, in SCO Group v Novell, from docket numbers 881 (the notice of appeal) through 893. It also provides a list of every lawyer who ever worked on this case.
4 - Novell's proof of claim for costs from the 2008 Utah trial.

As for the Novell Agreements, or parts thereof, Novell isn't clear what SCO means to do. The notice is vague:

1. The Notice Is Vague in Certain Respects
5. As a preliminary matter, Novell finds certain aspects of the Notice so vague as to create serious uncertainty as to the Trustee’s intentions. First, the information in Exhibit A-2 to the Notice leaves it unclear whether the Trustee is purporting to assume and assign the APA itself, or only the SVRX Licenses (also defined below). Novell is advised unofficially that the Trustee’s intent is only the latter. However, out of caution Novell will address both possibilities.
In the end, both essentially share certain key underlying issues regarding assumption and assignment, whether the Trustee intends to try to assume and assign both the APA and the SVRX Licenses, or just the SVRX Licenses. There are not only cure amount issues, but fundamental questions about the Trustee’s ability to assume assign any of the Novell Agreements without Novell’s consent. Novell does not give its consent.
6. Similarly, Novell is not able to identify certain of the Novell Agreements listed on page 108 of Exhibit A-3 of the Notice (the “Unix Agreements”). For example, one of the Unix Agreements listed is described solely as “SOFT-01460.” There are no additional details or identification of corresponding products licensed through this purported agreement.³ As a result, Novell is unable at this time to adequately respond on the issue of whether these supposed agreements are assumable. Novell reserves the right to object to the assumption and assignment of the Unix Agreements until such time that the Trustee supplies Novell with necessary clarification.
____________
³ This is precisely the same problem that Novell noted in response to the last effort by the Debtors as debtors in possession to effect a sale. (See Novell’s Response to the Debtors’ Notice of Cure Amounts (Dkt. No. 858) 2, 4.) It thus appears that the Trustee has proceeded largely by adopting the work of the Debtors.

Nobody trusts SCO any more, that's clear. So it's cover all possibilities. Novell summarizes the problems like this:

2. Summary of Substantive Issues
7. Though important, vagueness is the least of the Notice’s problems. The first set of issues concerns the cure amounts. If the Trustee intends to(and can otherwise) assume and assign the APA itself, the $73,000+ cure amount listed by the Trustee on Exhibit A-2 is wholly inadequate. Even if the Trustee only intends to assume and assign only the SVRX Licenses (if that is permissible, which Novell will explain shortly it is not), Novell cannot confirm the purported $73,000 cure amount because the Trustee and the Debtors have failed for many months to provide the required royalty reports to Novell.
8. Two further sets of issues concern basic issues of assumability and assignability. First, the Novell Agreements cannot be assumed and assigned without Novell’s consent. Novell does not consent. Second, the Novell Agreements cannot be assumed and assigned separately; they must (along with certain other agreements) be read as a single agreement; under applicable law, the Trustee must assume and assign all of those agreements or none of them, but he is not proposing to do so even if he otherwise could.
9. Because of the insurmountable obstacles for the Trustee to assumption and assignment whatever may be the proper cure amounts, any monetary cure would be futile because the Trustee still could not assume and assign the Novell Agreements.
10. Finally, having failed to disclose who the bidders are or may be, let alone provide any financial and other information about them, the Trustee has not produced any evidence of adequate assurance of future performance of the Novell Agreements.

SCO had until October 25 to let Novell know who the winning bidder at the auction was, but apparently that hasn't happened. You'd think the purchaser might want to know the rights Novell has under the APA and realize it's necessary for it to get Novell's consent. Get a load of this footnote:

⁹ It would seem that at the very least the Purchaser would want Novell’s voluntary consent anyhow. Otherwise, the Purchaser faces the prospect of an unhappy Novell exercising certain of its rights that will detract from the value of the deal the Purchaser makes with the Trustee. For example, Novell, as laid out above, will have the right to require the Purchaser “to [re]assign [to Novell at Novell’s sole pleasure] any rights to . . . any SVRX License to the extent so directed in any manner or respect by” Novell. APA § 4.16(b) (emphasis added). Similarly, under the same provision of the APA, Novell can require the Purchaser to waive certain claims the Purchaser might otherwise have under the SVRX Licenses. See Final Judgment (Exhibit B hereto) 1-1, ¶3.)

Novell can undo what SCO tries to do, if it tries to sell without Novell's consent, despite the APA saying SCO can't do that in the first place.

It appears also, Novell says, that there is no "stalking horse" bidder:

1. The Trustee has not yet announced a proposed transaction in connection with the Sale Motion; his form of asset purchase agreement is unexecuted and lacks the relevant schedules. Evidently, the Trustee’s marketing process has not produced a “stalking horse” bidder. The Trustee is supposed notify Novell and others of any successful bidder immediately following an auction scheduled for October 25, 2010. (Sale Procedures Order ¶ 7.g.)

What. No one wants to buy these fabulous assets? Or is it that no one wants to tell Novell who it is?

And SCO can't cut up the agreements and assign some and retain the rest. It's all or nothing, Novell points out, under the law:

18. Novell’s objections to the Notice also require a brief summary of applicable principles of law. The Trustee must take each contract as he finds it, with all of its burdens along with its benefits. He thus may only assume a contract in whole; he cannot pick and choose which provisions or benefits or burdens he wishes to assume and assign and which he wishes to shed. In re Fleming Cos., 499 F.3d 300, 308 (3d Cir. 2007). The assumption and assignment of a contract is “‘intended to change only who performs and obligation, not the obligation to be performed itself.’” Id. (citation omitted) (emphasis added).

And if there are related documents, making up a whole, they have to be considered as one. That was SCO's favorite argument about the Amendment 2 to the APA, if you recall:

24. Based upon Exide Technologies, it is clear that the Novell Agreements are part of an integrated transaction that includes all of the APA Agreements. Consequently, the Trustee must assume all of the APA Agreements (not just the narrower class of the Novell Agreements set forth in Notice Exhibits A-2 and A-3) or none of them. Exide Techs.; Fleming Cos. Here the Trustee does not appear to be trying to assume all of the APA Agreements, but only the Novell Agreements (the APA (or just the SVRX :Licenses) and the agreements on Exhibit A-3). For that reason alone, Trustee cannot assume any of them.

Further, Novell says, the "Trustee may not assume, let alone assign, licenses of copyrights from the copyright holder without the former’s consent." And guess who is the copyright holder in this picture? It's been litigated up the wazoo, and it's Novell, every time.

P.S., Novell says, SCO owes us some real money not mentioned in its Notice, a whole lot more than the $73,000+ SCO does list:

17. Previously, Novell had also obtained an award in the District Court against SCO of $3,506,526 (including pre- and post-judgment interest), plus as-yet undetermined costs of up to $127,432.20.⁷ Of that sum, $625,486.90 plus accrued interest thereon was paid last Spring as funds held in trust for Novell (see Agreed Order Approving Stipulation [etc.] (Dkt. No. 1126), but the balance of about $2,881,040 (plus costs) remains unpaid....
22. If the Trustee intends to assume and assign the APA itself, the cure amount of $73,436.91 listed on Exhibit A-2 as being owed to Novell plainly is incorrect. It appears to comprise only the SVRX royalties the Trustee believes are due under Section 4.16 of the APA. It clearly does not include the $2.88 million balance owed to Novell pursuant to final judgment of the District Court in favor of Novell. Even if the Trustee could otherwise assume the APA, a subject Novell will discuss later in this brief, he cannot do so without paying the full balance of the judgment (including costs once awarded).
23. Second, Novell cannot independently confirm whether the $73,436.91 cure amount listed as due and owing as of September 30, 2010 is accurate even as to the SVRX Royalties alone. The Debtors and the Trustee have for many months failed to deliver the monthly reports required of them under APA Section 1.2(b) that Novell depends on for royalty information. Hence, whether the Trustee intends to assume the APA and the SVRX Licenses, or just the SVRX Licenses (if they can), the cure amount in the Notice as to the SVRX Licenses requires further documentation by the Trustee and review by Novell.

Even if Novell were to consent to assignment of the APA, it couldn't do so before being able to evaluate the purchaser:

27. Because the Trustee has not identified the prospective Purchaser or exactly what the Purchaser will be purchasing – there being no actual purchase agreement yet – he cannot yet provide Novell with adequate assurance of future performance of the terms and conditions of the Novell Agreements (and, indeed, of the larger family of APA Agreements) to which Novell is entitled under Code section 365(f)(2)(B). Should the Trustee have and identify a Purchaser by October 25, 2010 in accordance with Sale Procedures Order ¶¶ 7.e-g., Novell has until November 1 to raise any issues it has regarding the Purchaser’s ability to provide adequate assurance of future performance of both the Novell Agreements and, more generally, the APA Agreements that encompass the Novell Agreements (if, as Novell contends, the Trustee must assume and assign the latter to assume and assign any of the former and the Trustee seeks to do so. (Sale Procedures Order ¶ 7.h.) Novell observes in the interim that adequate assurance will require an assessment not only of such matters as the Purchaser’s technical competence and financial wherewithal, but also (if the Court agrees that the Purchaser must assume the APA) of the Purchaser’s ability to develop the “Business” Novell sold to SCO in accordance with APA Section 4.18. This provision means that the Purchaser must do more far more than simply collect and remit the SVRX Royalties, for example.

Here's Novell's conclusion:

The Notice and cure amounts therein fail to satisfy the standards for assumption and assignment of the Novell Agreements requires. In addition, cures would in any case be futile because, even apart from the open adequate assurance issue, the Trustee cannot assume the Novell Agreements.

SCO is such a tease. Just tell us already.

In short, to quote that profound legal scholar, Yogi Berra, "It's déjà vu all over again."

Novell Objects to SCO's Notice of Cure Amounts. It's Déjà Vu All Over Again. | 366 comments | Create New Account

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Authored by: maroberts on Tuesday, October 26 2010 @ 01:44 AM EDT

Is the Bankruptcy Court likely to take any notice of Novells objections?
Previously its been doing a pretty good line in ignoring them....