Novell files to lift SCO's bankruptcy stay

NOVELL FILED a motion yesterday in SCO's bankruptcy case in Delaware asking for the automatic stay on litigation to be lifted so that the SCO v. Novell lawsuit can go to trial in Utah Federal District Court.

Novell wants the money SCO owes it, and sooner rather than later. As Groklaw succinctly summarized it: "If the New York Daily News was coming up with a headline for this filing, it'd probably be something like this: Novell to SCO: Drop Dead. First Pay Up."

On August 10, the Utah court handed out several partial summary judgment rulings in SCO v. Novell. One of those found that SCO did not own the UNIX copyrights over which it had sued Novell. Another ruled that SCO had breached its fiduciary duty to Novell by converting UNIX SVRX royalties, which were part of more than $25 million it received for SCOsource licences, to its own use rather than remitting them to Novell as required by their contract.

The SCO v. Novell lawsuit thus became mostly about how much of those SCOsource licence royalties should be apportioned to Novell and, by the way, whether or not SCO even had the right to sell UNIX SVRX licences to Microsoft, Sun and others without Novell's permission.

Novell says the automatic bankruptcy stay on the SCO v. Novell litigation should be lifted for three reasons.

1. The SCO v. Novell case is at an advanced stage in a complex lawsuit. The Utah court is "fully versed" and ready to go to trial. SCO chose Utah as the venue for that case anyway. SCO already has lawyers there ready for trial, and the trial is expected to last for only five days. Since the case is already four years old, it doesn't make sense to start all over. The issues at trial have to be decided for SCO's bankruptcy to proceed in any event, and the court in Utah is the least expensive place to decide them.

2. For reasons of judicial economy. The Utah court's August 10 partial summary judgment rulings narrowed the issues in SCO v. Novell considerably and won't be reversed by the same court that made them, so the trial will just decide how much SCO owes Novell and whether or not SCO had the right to sell SCOsource licences without asking Novell first.

3. It's in the bankruptcy court's interest to have ascertained how much of the money SCO has on hand really belongs to it and not to Novell. Furthermore, the Utah court's August 10 rulings make SCO's "business model questionable." The only profits SCO ever made came from selling its SCOsource licences. Without that future revenue source, it's doubtful that SCO can reorganize successfully. Letting the SCO v. Novell trial proceed in Utah will establish "precisely how much of SCO's past income is attributable to its wrongful use of the SVRX copyrights."

In its third reason, Novell's mention that SCO's future business model is " questionable" is a strong hint to the bankruptcy judge that, if he allows the trial of SCO v. Novell go forward in Utah, the result could wind up making his job in Delaware a lot easier. It could provide evidence of SCO's likely future business nonviability that might lead him to convert SCO's Chapter 11 reorganization into a relatively more straightforward Chapter 7 liquidation.

Novell also filed a "Motion For Order Directing The Debtor [SCO] to Remit Undisputed Future SVRX Royalties to Novell Upon Receipt." In that, Novell says that SCO has no claim on any future UNIX SVRX royalties it may collect on Novell's behalf, and it wants SCO to be ordered to remit any such monies to Novell as soon as they are received.

Otherwise, Novell says it would become a "forced lender of new high-risk loans to [SCO]." It wants SCO to pay immediately to Novell any future UNIX SVRX royalties SCO receives, lest SCO "improperly use Novell's property to fund SCO's bankruptcy."

SCO might well find that its last minute flight to Chapter 11 bankruptcy to avoid trial in its own lawsuit won't save it, and it might have to pay the consequences for its past actions. µ

L'INQ
Groklaw