UPDATE (13th January 22:00 BST): This piece has been updated with a statement from CoinTerra regarding the lawsuit filed by C7.
In court documents, C7 Data Centers alleges that former partner CoinTerra acted in bad faith by intentionally underpaying for services and demonstrating a pattern of late repayment. In total, C7 is seeking $5.4m in damages, court fees and related charges.
The court filings follow unconfirmed reports that CoinTerra is seeking to resolve problems with unknown senior debt holders.
CoinDesk spoke to C7 CEO Wes Swenson, who confirmed the lawsuit and said that his company initially sought to solve the situation internally.
"We had filed suit against them, which is public, for non-payment over 60 days. So, their services were suspended with no attempt to solve that. We went ahead and filed suit for that non-payment, plus the breach of contract for the remaining contract."
Swenson added that other data centers servicing CoinTerra have experienced payment problems, but said he wasn't sure if other firms have taken similar action.
Breach of contract
According to court documents, CoinTerra signed an 18-month agreement with C7 in early April to provide data center colocation and hosting services. The company was also contracted to manage and oversee the data centers, with C7 arguing in court that it incurred $12,000 in daily electrical costs as a direct result of its deal with CoinTerra, as well as additional expenses to meet the company's operational demands.
C7 alleges CoinTerra soon became delinquent on payments despite what it argues was the company's ability to meet those obligations.
The document states:
"Almost immediately after entering into the contract, CoinTerra fell delinquent, often paying less than the amount required to bring it current. Upon information and belief, CoinTerra often had revenue sufficient to make larger payments to C7."
According to C7, CoinTerra was issued weekly invoices about the late payments. Swenson said that the company rebuffed his firm's efforts to come to an agreement on those charges.
"We did try a remediation process," he said. "We did try a remediation process [where] they continue mining but be paying us in the meantime, but they didn't attempt to resolve it that way."
CoinTerra issues statement on lawsuit
CoinTerra CEO Ravi Iyengar has sent the following statement to CoinDesk regarding the lawsuit filed by C7:
"CoinTerra, Inc. ("CoinTerra") disputes the allegations in the complaint filed by C7 Data Centers, Inc. ("C7") in Utah State court. CoinTerra has recently retained local counsel to address this dispute. Moreover, CoinTerra has filed a counterclaim against C7 in Federal Court in the District of Utah. CoinTerra intends to vigorously prosecute its claims against C7 while defending the claims levied by C7. Yet, CoinTerra is hopeful that the parties can resolve this matter quickly."
Pete Rizzo contributed reporting.
The full court documents can be seen below: