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SCO's Lawyers Analyzed
byteCoder writes "Today's Wall Street Journal has an article (subscription required) which highlights the arrangement disclosed by this freely available SEC filing made between SCO and its law firm (run by lawyer David Boies) giving the law firm of Boies, Schiller & Flexner LLP 20% of the proceeds from the settlement or of "a sale of SCO during the pendancy of litigation." (Search down for "Arrangement with Counsel".) Apparently, if SCO is taken over while litigation is pending, Mr. Boies' law firm could stand to earn 20% of yesterday's market cap of $247M = $49.4M plus the premium associated with the increase in stock price due to the takeover. Of course, if SCO is successful in getting any part of their requested $3Bn in damages from IBM, the payday to the lawyers would be much greater."
Note also that they get 20% of any equity financing. They've already gotten 10 million from the $50 million Baystar deal. Hardly working on contingency. I mean, yeah, it's a contingency basis, but with a $10 mill downpayment.
> In addition, this modification may result in the payment to such law firm of up to $1,000,000 and
> the issuance of up to 400,000 shares of SCO's common stock.
Okay.. So, they are paying thier lawyers either 1) 20% of the settlement for what they beleive is their most valuble asset (The Unix IP), 2) 20% of the company value, *and* up to $1M + up to 400K stock shares.
Wouldn't it have been cheaper to buy a few law firms? That is a friggin ton of compensation. And for that (plus the small price of their reputations and soul) they get some really bad legal service.
With management making decisions like that it's no wonder the only asset the company really has anymore is stupid. But at least they have plenty.
As I read the SEC filing, Boies's law firm gets 20% of any new stock offering. This would seem to include the $50 Million recently received from the private investment from BayStar and Royal Bank of Canada.
Thus, the lawyers are no longer working strictly on contingency, they have received a lot of money up front (or, in the middle, anyway.)
thad
I love Mondays. On a Monday, anything is possible.
Let me expand by quoting the NY Bar Associations ethics code (Code of Professional Responsibility)--note to Bar: I claim fair use!
"EC 5-7: The possibility of an adverse effect upon the exercise of free judgement by the lawyer on behalf of the client during litigation generally makes it undesirable for the lawyer to acquire a proprietary interest in the cause of the client of otherwise to become financially interested in the outcome of the litigation... a reasonable contingent fee is permissible in civil cases because it may be the only means by which a non-lawyer can obtain the services of a lawyer of his or her choice..."
So, in your opinion, is this the case? Can SCO not afford an attorney? I suppose, if you were a lawyer, you would argue that they can't afford the attorney of their choice because that particular attorney is demanding a contingency, but this defense is so broad it would make this clause worthless, so it is probably not what the Bar Association meant.
The conflict of interest arises because the attorneys are supposed to represent SCO's best interests. Now, what if SCO's best interests were to drop the litigation and continue as an independent entity? Wouldn't that present an ethical conundrum for Boies et al? To wit: best interests or get paid? I am not saying that the lawyers wouldn't do what is right, only that the conflict exists.
Milo
It is just one more disturbing piece. I'm almost starting to lose sleep over this whole SCO debalacle. From the begining, I actually thought that SCO was put up to this whole thing by an outside source. (MS perhapse) as a way of severly harming the linux/FSF/GPL movement.
:)
Now we see:
1. Novell bought out SuSE. (one down)
2. Redhat won't be messing with the desktop anymore. (twp down.)
3. Sun Microsystems has all but said "Linux is for the birds". The'll ship boxes with it if you want, but don't reccomend it. (Three down.)
And now this thing about the laywers getting a cut if SCO sells out.
Now we must ask, who is right now looking around and buying stuff up: Novell's out, since they just got SuSE. MS's looking for searchengines and feeling the market... So if the "deal" was, if SCO could take out three Linux companies, or at least shift their focus, they'd get bought out.
I just hope it isn't six. If MS buys them out this month, I'll sleep a lot better.
The only Gem in this whole mess is that IBM is staying true and HP is continuing with its Pro linux initiative. I haven't had a driver issue in either windows or linux/Mac OSX since.
Best,
-=fshalor
Normally, MS cannot get into the unix business due to an agreement they signed when they spun off Xenix to a different company (They agreed that they would not compete against the product line they were selling off to someone else, and thus they would not get involved in the unix market again.) But - here's the interesting thing - what's the company they signed this agreement with? SCO. (Not the current people at SCO, mind you, but I would imagine the company still owns that contract even though none of its members are the same people as back then.) So, the ONLY way Microsoft could get into the Unix business legally would be if SCO ceased to exist (or became a part of Microsoft so that MS would be in charge of both sides of the agreement and thus could nullify it.)
I've sometimes suspected that this is the reason some aspects of Windows that are copies of some unix idea get greatly mutated. They can't just use all of the same technology directly the same way without being in danger of producing a unixy enough system that it might violate that previous agreement. So they make stupid changes perhaps just to cover their ass legally.
Don't label something "offtopic" unless you know the topic well enough to tell what's on topic.
Redhat is focusing on selling products that will make it money. So Redhat won't make boxed sets of their cheapest product anymore, but who were buying them anyway? You've always been able to get it in tons of books, magazines, on the net etc., and Fedora is taking over the mantle. So what you have is a situation where companies still get support if they pay for it, just as before, and consumers get a ditro, just as before, but the name will be different, and they'll have to go to some cheap CD packager to get CD's of it much like most people have been doing anyway.
Sun? Who cares about Sun except Sun itself?
All in all I see the Novell and Redhat events as good - it will likely help both companies, which will only mean better business penetration for Linux, and that will filter down to consumers eventually.
This is a serious post, so please take it seriously. What, in truth, does anyone do at your company ? I mean , besides Darl & Co. making pronouncement after pronouncement, what do the rank and file employees really do ? Do you write code ? Do you debug existing code ? Are you selling stuff ? What stuff are you selling ? Do you write documentation ? About what ? Are you working support lines ? Seriously, I'm wondering about this because it seems like a crappy job to work for people like Darl. I mean, it's pretty obvious that he doesn't care about SCO's product line (which to us out here seems to consist only of lawsuits). Do you stand to personally make out well financially from an outcome favorable to SCO ? Do you like working at SCO ? Do you feel that you're doing creative and/or useful work there ? Really, does anyone actually work at SCO ?
One of my old consulting customers in the 80s was a company that provided services for lawyers.
..., and bill the legal firm.
They would do depositions, private detective work, pick up and deliver evidence,
Many of the lawyers and legal firms were of the opinion that they didn't have to pay any of the bills for this until the cases were settled.
So that company got into a serious cash flow problem at one point. They had hundreds of thousands of receivables, but not enough cash coming in on them.
At some point, they couldn't make their quarterly tax payments because of the problem. They were audited and the IRS found several thousand more in taxes they owed.
But the company just didn't have the money.
The president/owner of the company told the IRS that he wished he could turn over that much of his receivables to the IRS. The IRS agent replied that they could.
So he spent the weekend pouring over the receivables and identified enough to cover the tax debt of the oldest, most difficult to collect receivables that they never thought they had much of a chance to collect.
The following Monday, he gave the list to the IRS.
The IRS agent started calling the lawyers and law firms.
"Hello. I'd like to confirm that you own XYZ company (some dollar amount). Can you confirm this?"
Lawyers know that if you admit the debt and say you are going to pay it later, you can often put off paying it for years, but if you deny the debt, it becomes a legal matter and they can drag you into court real fast and get a judgement against you. I saw one lawyer who was very wealthy but got ticked off at someone over very late delivery of a $50,000 computer take years to pay the debt just to teach them a lesson.
So they all admitted that they owed the debt.
The IRS agent then said, "I'm Agent (insert name) of the IRS and we've been assigned this debt. I expect you to have the check in the mail by tomorrow morning."
He collected every single penny of every one of those ancient receivables.