Keystone Can't Strike Claims in Contract Case
JACKSONVILLE, Fla. (CN) - A federal judge refused to strike certain statements from a contract action against Keystone Industries that the coal producer called irrelevant and scandalous.
The case turns on Cargill Inc.'s ending of an agreement in 2013 to buy coal from Keystone Industries LLC after Keystone's creditors seized coal Cargill had bought from the producer.
Cargill's $13.1 million federal complaint accuses Keystone and its owner, Tom Scholl, of breach of the contract and personal guaranty.
The 140-year old Keystone sells coal and petcoke in U.S. and international markets.
Cargill is an international conglomerate that provides food, agricultural, financial and industrial products in 67 countries.
While the parties were negotiating a forbearance agreement, Keystone and Scholl asked Cargill to sell some of its coal through Keystone's broker in Asia, Keystone Global. Cargill said Keystone was supposed to deposit the transaction proceeds into an escrow controlled by Cargill, but instead diverted the money to its broker's bank account in South Korea.
The bank, a creditor of Keystone Global, used some of the money in the account to pay other obligations the broker owed the bank, further damaging Cargill, according to court records.
Cargill claimed that Keystone and Scholl, who owned part of Keystone Global, should have known that the broker was not able to pay its debts at the time it asked Cargill to get involved in the Asian transaction.
Keystone asked the court to strike some of Cargill's allegations as "impertinent, immaterial and scandalous," claiming they would force Keystone into expensive and unnecessary discovery.
It said proving that Scholl had no controlling interest in Keystone Global and was unaware of its financial difficulties would require testimony from third parties, many of whom reside in Korea.
What's more, "such testimony and evidence will do little more than 'muddy the waters' with respect to the breach of contract claims framed by Cargill's complaint," and would cast a derogatory light on the defendants, Keystone claimed in its motion.
Cargill countered that the challenged allegations were directly related to the breach of contract claim, did not prejudice the defendants in any way, and did not reflect on their moral character. The allegations are central to explaining Keystone's alleged breach of contract and its relationship with Cargill, it argued.
U.S. Magistrate Judge Monte Richardson refused to strike the allegations Tuesday, finding that they were not confusing or unfairly prejudicial to Keystone. To the contrary, the disputed allegations seem relevant to understanding the rest of the complaint, Richardson noted.
Keystone and Scholl may object to unnecessary or costly efforts after discovery starts, by appropriate motions, the judge concluded.