SCO bankruptcy sale: no ruling today, maybe "by the end of the week"
Al Petrofsky
Caldera International, Inc), No. 07-bk-11337, Bankr. D. Del.:
The hearing lasted from 2:00 to 4:49 p.m. (-0500), at which time Judge
Gross took the matter under submission, stating that he hoped "to get
something out by the end of the week." That was a few minutes after
he said "I actually thought I had a better handle on this case before
today's testimony and arguments", but that the excellent arguments
from both sides had "given [him] reason to go back and look at
things".
Novell stated that, should the Court rule against it, that it would
like to have the ordinary Rule 6004(h) two-week stay while it starts
an appeal (in contrast to the wording in trustee Edward Cahn's
proposed order, which would eliminate the stay). Judge Gross replied
"I understand, and we don't like to impose on the people across the
street with unnecessary emergency motions." (i.e., as I understand it,
he would be inclined (if he rules against Novell) to stay his order
for at least a week or two, so that the district court (across the
street) would have a little time to consider an application by Novell
for a longer stay pending appeal).
It appeared that the main question upon which Judge Gross wished to
ponder is whether SCO's and Novell's obligations under the 1995 Asset
Purchase Agreement still add up to an "executory contract" under 11
U.S.C. sec. 365, which may determine whether Novell's consent to the
sale is required per sec. 365(c)(1)(B).
In the trustee's argument that there is no executory contract, the
authority his counsel emphasized at the hearing (but which hadn't been
mentioned in his brief) is In re Exide Technologies, 607 F.3d 957 (3d
Cir. 2010)
<http://scholar.google.com/scholar_case?case=469700837055772695>,
which says:
With congressional intent in mind, this Court has adopted the
following definition: "`An executory contract is a contract under
which the obligation of both the bankrupt and the other party to
the contract are so far underperformed that the failure of either
to complete performance would constitute a material breach excusing
the performance of the other.'" In re Columbia Gas, 50 F.3d at 239
(alteration omitted) (quoting Sharon Steel Corp. v. Nat'l Fuel Gas
Distrib. Corp., 872 F.2d 36, 39 (3d Cir.1989)). "Thus, unless both
parties have unperformed obligations that would constitute a
material breach if not performed, the contract is not executory
under 365." In re Columbia Gas, 50 F.3d at 239.
(This is a different opinion from the Exide opinion that Novell quoted
in its brief, In re Exide Techs., 340 B.R. 222, 229
(Bankr. D. Del. 2006). Novell cited that opinion for what it says
about the question of whether a contract is integrated. Novell
erroneously wrote "affirmed 607 F.3d 957 (3d Cir. 2010)" at the end of
its citation (in para. 12 of dkt #1225), but the 2010 opinion actually
does not affirm anything, and doesn't address the integrated contract
question at all. What it does is reverse the lower court rulings on
the executory contract question.)
(By the way, note the timescale of bankruptcy appeals: it took two
years for that Delaware bankruptcy court order to be affirmed by the
Delaware district court, and then two more years for the Third Circuit
to reverse.)
The trustee argues that under the APA, Novell has no remaining
material obligations to SCO that would satisfy the Exide test.
I'll try to get an audio recording of the hearing posted at
scofacts.org by the end of the week. (Like Judge Gross, I will
probably fail to deliver anything this week. Chances are pretty good
for next week, though.)