The Psystar case has taken a odd path. Just after the Court-ordered deadline for production of financial records and just prior to the date scheduled for the deposition of the Psystar representative who would not answer “I don’t know” over 90 times when asked about the company’s finances, Psystar filed for Chapter 11 bankruptcy (reorganization) in its home state of Florida. While not conclusive, the timing certainly seems suspicious. It would be helpful to know if they fully complied with the production of the financial records. Apple’s statements to the Bankruptcy court did not state whether Psystar complied with that first deadline. If they did, it would not seem likely that avoiding the Court Order was a motive in the bankruptcy filing as they would have done so prior to that date and avoided the whole issue.

I believe it is helpful to provide a timeline of events leading up to the current posture of this matter, and I have done so at the conclusion of this piece with links for additional reference and past World of Apple analysis to those who are interested. Additionally, within the timeline I have provided copies of previously obtained transcripts that have not been posted elsewhere. I am able at this time to post them as the time limit noted in the Federal Court docket for public release has passed.

Current Status

On June 11, 2009, the Bankruptcy Court denied Psystar’s request for continued use of its check stocks and deposit slips but granted Psystar’s request to continue to use its business forms. This has been misreported in several places leaving the impression that Psystar was allowed to use none of its business documents while in fact they were allowed the use of some.

However, it is significant that they were denied access to their bank accounts. The exact reasons are somewhat mystifying as it is my understanding that such requests are routinely granted, though often with the requirement of a notation on the forms indicating that the business is in bankruptcy status. One factor may certainly be the fact that Psystar’s two requests did not satisfy the Local Rules for such requests which require the amounts in said accounts to be disclosed.

(J) Motions for Authority to Maintain Prepetition Bank Accounts. A motion seeking authority to maintain prepetition bank accounts shall include:

(1) a schedule listing each prepetition bank account which the debtor seeks to maintain postpetition;

(2) the amount on deposit in each such account as of the petition date; and

(3) whether the depository is an authorized depository pursuant to 11 U.S.C. §345(b).

If the debtor is unable to provide the foregoing information, the motion shall set forth the reason why such information is not available, and provide an estimate as to when the debtor shall be able to supplement its motion with such information.

This appears to be yet another example of Psystar desiring to hide financial information at worst or sloppy lawyering at best. There simply isn’t enough information to form a solid theory though the pattern and practice of Psystar’s hiding the financial ball certainly is the circumstantial culprit.

On June 5, 2009, Apple requested that the Bankruptcy Court lift the automatic stay of proceedings in the California Court case and argued that the outcome of that case must be adjudicated as Psystar’s very business model depends upon its being able to use intellectual property claimed by Apple. Psystar opposed arguing that it would be prohibitively costly for it to maintain both proceedings simultaneously. On June 19, 2009, the Court granted Apple’s request. If in fact Psystar was hoping that the bankruptcy would stall Apple’s probe into their finances and potential backers; it didn’t succeed. That was certainly Apple’s theory as to the timing:

What I found odd in Apple’s request is that in its description of its amendments to its original complaint, the ten John Doe defendants are glaring in their absence:

However, there was another document filed at this time that has received little to no attention from the Apple web: the Declaration of Rudy Pedraza. In that document, Psystar openly declared that it is considering a second bite at the anti-trust apple in a future suit filed under Florida state laws rather than Federal.

On July 1, 2009, Psystar requested a voluntary dismissal from the bankruptcy proceeding. Below are the pertinent portions distilling their position.

I personally believe that there is an elephant in Psystar’s warehouse that is left unmentioned in this pleading: a bankruptcy trustee could unilaterally reach a settlement with Apple if the case is ongoing. I might be mistaken in this as I am not an attorney and do not claim significant knowledge of bankruptcy proceedings, but that was one of my first thoughts which was also mentioned by P.J. at Groklaw:

[T]his is an argument they have to make to persuade the judge that this motion should be granted instead of just shutting the company down in Chapter 7, with a trustee appointed to take over for the current management, who could settle the litigation, maybe tell Apple who was behind all this, and turn out the lights. Leaving Chapter 11 is their best option, they argue. Maybe their one and only, others might be thinking. Or, it’s all just chess. If Psystar has secret backers, then they maybe could afford to do both, but they’d prefer not to continue with a strategy that didn’t pan out.

As discussed above, Apple has yet to response to Psystar’s request.

Psystar’s Attempt at Rehabilitating its Public Image

As I am on Psystar’s mailing list, a few days ago I received this tactless email (in my personal opinion which is founded on my belief that Psystar is an opportunistic leach of a company—yes, that is an entirely subjective personal opinion):

Upon receipt, I immediately forwarded a copy to Apple and its attorneys. The part that I found particularly tasteless was Psystar’s attempt to paint itself as some champion of the “little people,” when in fact their own EULA is hypocritically more restrictive than Apple’s. Further, the twist on the common lemonade saying to “When life gives you apples, make applesauce,” is embarassingly unfunny. Life didn’t “give” them apples. They purposefully sought a fight and are not some innocent victims. Additionally, their parasitic business model depends upon the very company that they boast to grind into sauce. Without Apple’s work, there would be no Psystar. The analogy that comes to mind is a virus that requires its host to survive but mindlessly kills it at times.

All that aside, there is some interesting information revealed. Apparently this new product announcement is going to be the mystical goose that laid the golden clone in order to convince the bankruptcy judge that they should be released from the bankruptcy proceedings because they have found a viable product to revitalize their business. That is a very slim reed. Psystar also brazenly claims that they will be formally discharged by the Bankruptcy Court. I would suggest that Apple file a Motion to Inspect Psystar’s Crystal Ball.

What’s Next?

Now that the Bankruptcy Court has lifted its Stay, and Psystar apparently agrees, the California Federal Court will proceed. However, due to the interpolated bankruptcy case the Scheduling Order may need to be amended, and a hearing to discuss that issue is scheduled for 7/9/09. Additionally, since it is unknown whether Psystar met the 5/18/09 deadline to produce financial records, that may also be an outstanding issue to be addressed by the Court. If Psystar failed to meet that deadline (which was prior to its bankruptcy filing), they will likely be required to pay Apple’s attorney’s fees with regards to that portion of the discovery dispute. A new date for the supplementary 30(b)(6) deposition will need to be decided as the prior date became mute when Psystar filed for bankruptcy before it arrived. Additionally, as already mentioned, Apple has yet to file a response to Psystar’s request for voluntary dismissal (if they are permitted a response—I do not know bankruptcy cases well enough to say for certain, but since Apple features so prominently in Psystar’s request, it would seem reasonable to presume Apple would be permitted to respond.)

Timeline of Major Events

The majority Northern District case docket can be found at Justia with hyperlinks to the actual filings. As Justia can be about one week behind, here is a copy of the docket as it existed on 7/4/08.

April 2008: Miami-based Psystar begins selling desktop Mac clones from its website.

June 2008: Psystar adds a rack-mount server Mac clone to its line-up.

3 July 2008: Apple files its Complaint against Psystar in the Northern District Court of California.

8 August 2008: Psystar files its Apple files its Motion to Dismiss Psystar’s Counterclaims.

16 October 2008: Psystar files its Opposition to Apple’s Motion to Dismiss. World of Apple reported on this filing here.

23 October 2008: Apple files its Reply to Psystar’s Opposition to its Motion to Dismiss. World of Apple reported on this filing here.

6 November 2008: Case Management Conference held before Judge Alsup.

6 November 2008: Hearing held on Apple’s Motion to Dismiss Psystar’s Counterclaims. World of Apple reported on this filing here. Now for the first time, and only on World of Apple, a copy of the entire transcript of this hearing may be found here.

7 November 2008: The Court enters the Case Management Scheduling Order. World of Apple reported on this filing here.

18 November 2008: The Court enters its Order Granting Apple’s Motion to Dismiss. World of Apple reported on this filing here and here.

26 November 2008: Apple requests Leave of Court to file its Amended Complaint with Psystar’s Consent. World of Apple reported on this filing here.

2 December 2008: Apple files its Amended Complaint adding ten “John Doe” co-defendants and a DMCA count. See article above for our commentary.

8 December 2008: Psystar files its Motion for Leave to File its First Amended Counterclaims. World of Apple reported on this filing here and here.

16 December 2008: Psystar files its Answer to Apple’s Amended Complaint. World of Apple reported on this filing here.

30 December 2008: Apple files its Opposition to Psystar’s Motion for Leave to File its First Amended Counterclaims. World of Apple reported on this filing here and also provided a four-part issue analysis:

8 January 2009: Psystar files its Reply to Apple’s Opposition to its Motion for Leave to File its First Amended Counterclaims. World of Apple reported on this filing here.

22 January 2009: Hearing held on Psystar’s Motion for Leave to File its First Amended Counterclaims. World of Apple reported on this filing here. Again for the first time, and only on World of Apple, a copy of the entire transcript of this hearing may be found here.

6 February 2009: The Court enters its Order Granting in Part and Denying in Part Psystar’s Motion for Leave to File First Amended Counterclaims. World of Apple reported on this filing here.

12 February 2009: Psystar files its Amended Counterclaim for Declaratory Relief Against Apple based on its new theory of copyright misuse. World of Apple reported on this filing here.

18 February 2009: Mediation conducted. No settlement was reached.

3 March 2009: The Court enters its Order Granting the Parties’ Joint Motion for Protective Order. World of Apple reported on this filing here.

4 March 2009: Apple files its Answer to Psystar’s First Amended Counterclaims. World of Apple reported on this filing here.

20 March 2009: Deposition taken of Psystar CEO Rudy Pedraza.

29 April 2009: Apple files its Letter Brief Regarding Discovery Dispute. World of Apple reported on this filing here.

4 May 2009: Psystar files its Letter Brief in Response to Apple. World of Apple reported on this filing here.

5 May 2009: Hearing held on discovery dispute between the parties.

8 May 2009: The Court enters its Order Compelling Psystar’s Production of Financial Documents and 30(b)(6) Deposition.

18 May 2009: Court-ordered deadline for Psystar to produce certain categories of financial documents.

The entire Bankruptcy docket may be viewed here.

21 May 2009: Psystar files for Chapter 11 Bankruptcy in the United States Bankruptcy Court for the Southern District of Florida and also requests that it be allowed to maintain its existing bank accounts.

26 May 2009: Psystar files its Suggestion of Bankruptcy with Attached Copy of Bankruptcy Petition with the California Court.

1 June 2009: The California Court enters its Order Staying Case.

3 June 2009: Court-ordered deadline for Psystar to produce a knowledgeable representative for a 30(b)(6) deposition regarding Psystar’s finances.

5 June 2009: Apple requests the Bankruptcy Court for relief from the automatic stay. World of Apple reported on this filing here.

9 June 2009: Bankruptcy schedules filed by Psystar. A virtual storm of inaccuracies blew through the Apple web over the $75,000.00 value that was assigned to the Apple lawsuit. World of Apple reported on this filing and the many misconceptions here.

11 June 2009: The Bankruptcy Court denies in part and grants in part Psystar’s request to continue to use its business forms and records. This is discussed above.

15 June 2009: Psystar’s files its Response to Apple’s Request to Lift Automatic Stay.

19 June 2009: The Bankruptcy Court grants Apple’s request to lift the automatic stay.

25 June 2009: Apple puts the California Court on Notice that the Bankruptcy Court granted its request to lift the automatic stay.

26 June 2009: A Case Management Conference for the California case is set for 7/9/09.

1 July 2009: Psystar files its request to the Bankruptcy Court for Voluntary Dismissal.

9 July 2009: Scheduled date of Case Management Conference with the California Court.

4 August 2009: Hearing scheduled for Psystar’s request to the Bankruptcy Court for Voluntary Dismissal.

Apple has yet to respond to Psystar’s request. This is discussed above.

I had been feeling under the weather for about a month and thus the delay in getting this information to my readers. Thank you for your patience, support, and loyalty. [Editors note – big thanks to dizzle for this superb work.]