SCO v. Novell Litigation to Resume Despite Bankruptcy Petition
The judge presiding over the SCO Group's bankruptcy case has lifted the automatic stay that stopped the SCO v. Novell and SCO v. IBM litigations in their tracks recently. Recall that in August of this year, in the SCO v. Novell slander of title litigation in Utah, Judge Dale Kimball issued a ruling rejecting SCO's claims of copyright ownership in the code that was the subject of the 1994 licensing transaction between Novell and SCO's successor in interest. Not only does the ownership of the code underly the slander of title claims at issue in that litigation, it also largely determines the outcome of SCO's copyright litigation against IBM, which is predicated upon ownership of the allegedly infringed code.
A trial date had been set for September 17 on the remaining issues in the slander of title case, which consisted primarily of the amount of royalties due to Novell under the license. Facing the prospect of a multimillion dollar judgment that might sink the company, SCO decided to get out of Dodge (or Utah, at any rate), and filed the Chapter 11 bankruptcy petition in the District of Delaware just a few days before the trial was to proceed before Judge Kimball.
Novell responded with a motion to lift the stay, in order to allow the remainder of the SCO v. Novell case proceed to trial. In granting Novell's motion to lift the stay, the Bankruptcy Court concluded that without resolving the question of SCO's liability to Novell "simply cannot file a confirmable plan of reorganization." The court rejected SCO's argument that preparation for the trial would distract SCO management from the task of reorganizing the company, noting that the petition was filed on the very eve of trial, after the preparation by management and by trial counsel had already taken place. Further delay, the court concluded, would be more burdensome than moving forward now.
The Bankruptcy Court also made particular note of Judge Kimball's expertise in the SCO litigations pending in Utah:
Of particular importance to the Court are the specialized knowledge that the District Court has developed in presiding over the Lawsuit for four years, the interests of judicial economy and the expeditious and economical resolution of litigation and, as stated earlier, the fact that the parties are ready for trial. The Court does not presume that the busy District Court will be able immediately to schedule the anticipated five day trial in the Lawsuit, and respectfully defers to the District Court on scheduling.
It is undeniable that the Lawsuit involves many highly technical issues that the District Court has already addressed and mastered. Debtors concede that it is unreasonable to expect this Court to spend a significant amount of time learning and resolving the Liability Issues when the District Court already has the knowledge required to adjudicate the Liability Issues. Moreover, to do so would be economically inefficient and unnecessarily time consuming.
The Bankruptcy Court's order does not lift the stay entirely, it is quite specific as to the action (SCO v. Novell) and the specific claims that can be adjudicated:
(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.
The court expressly reserved to itself the further question of whether a constructive trust should be imposed on SCO's assets in favor of Novell, depending upon the outcome of the trial.
As the Bankruptcy Court recognized, the determination of the amount of royalties due to Novell is likely to determine SCO's future as a going concern. And that, in turn, will largely determine the ultimate disposition of SCO's long-running open source litigation against IBM.
In re The SCO Group, Inc., No. 07-11337 (Del. Bankr. Ct. Nov. 27, 2007).
Comments