A Blog About Intellectual Property Litigation and the District of Delaware

Last week I wrote about the Xcoal breach-of-contract bench trial, which was adjourned after opening statements due to an "anonymous letter" discussed at a sidebar.

The Court has now unsealed the transcript of that sidebar, which includes the contents of the "anonymous letter" (as read into the record).

It turns out that the letter, signed "Xcoal whistleblower" and sent to defendants' counsel, alleges that plaintiff Xcoal's founder had planned to "cause a default" on the contract at issue, so that the company could collect on a $10 million guarantee that was part of the contract.

It alleges that he planned "to cause default by delayed coal shipments, withhold payments, and extract penalties from [defendant] Bluestone."

The contract involved lab tests to show that coal that was delivered met certain criteria. The letter alleges that "[t]he coal penalties from lab results were false. Xcoal has someone inside [SGS Mineral Services] and Standard Lab. Charleston, West Virginia is dependent on the . . . Xcoal business. On previous trains, [third-party fact witness] Rick Taylor directed the lab to obtain fault [false?] results."

It also makes various other allegations, including (oddly) that Xcoal has not paid their expert witness.

Defendant's Counsel Opened the Letter 10 Minutes Before Plaintiff's Opening Statement

Defendant's counsel says in the transcript that the letter arrived at his office on the Monday before trial, and he missed it because his secretary was out of the office. He said that he had not read it until "ten minutes before the openings were set to start."

Plaintiff's counsel, for his part, says that

Well, clearly, in light of [plaintiff Xcoal's founder] Mr. Thrasher's experience with the other side, he feels pretty confident as to what the source of this letter is and it's not authentic and that it doesn't come from somebody it purports to come from, and all the circumstances are unbelievably coincidental, which would support that, including it arriving on the day of trial.

Trial is to be rescheduled after discovery on the allegations in the letter.

No Meet-and-Confer or Heads Up Before Raising the Letter

As discussed in the transcript (9:14-22), plaintiff's counsel first heard of this letter when it was read to the judge (who is also the fact finder in the bench trial) at the sidebar, despite asking on a break why defendants had requested a sidebar.

When the Court asked why defendants' counsel hadn't let plaintiff's counsel know earlier, he said that he "ha[d] been so stunned by this that [he] just thought, let's just get to court and get it out all at once."

The full transcript is below, from the now-public filing (the highlights are the proposed redactions, which the Court rejected).

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