Peak Hosting declares bankruptcy following legal action

Data storage vendor Peak Hosting has declared Chapter 11 bankruptcy and laid off 135 workers after its primary customer, game developer Machine Zone, Inc., sued it over failures contributing to an outage for its IP Game of War.

In the legal complaint (PDF), Machine Zone alleged that Peak Hosting had several best-practices failures in its data centers, including using improper cable management and insufficient safety standards.

"Cables were wrapped around steel poles and bent at unacceptable angles, which are not acceptable for fiber optic cables," Machine Zone wrote in its complaint. "Peak's failure to use industry minimum standards for its data center operations continue to put Machine Zone's systems at risk because any remediation of Peak's improper installation would put Machine Zone's live operations at risk for catastrophic failure."

Machine Zone blamed the failures for a two hour outage of Game of War in October 2015. It filed the lawsuit the following month and terminated its contract with Peak, which at $4 million per month was a primary revenue source for the Oregon-based firm.

Still, Peak plans to continue operations following its bankruptcy, and representatives from the company said the cuts and changes will make it leaner and more competitive.

"It is a very sound and strong company now that it has been downsized," Mark Calvert, Peak's newly hired chief restructuring officer, told Oregon Live. "It's back to the level it was right before Machine Zone so it's generating a positive cash flow and is a healthy company able to serve the needs of its customers."

In addition to continuing operations, Peak Hosting is seeking financing through the bankruptcy to pursue litigation amounting to over $100 million in claims against Machine Zone.

Peak claimed Machine Zone hadn't paid for its last three months of data hosting, and argued the California-based game developer should be on the hook for the remainder of its contract through October 1, 2017. It said Machine Zone's contract didn't allow for termination, and that its new data center uses Peak proprietary technology, according to Oregon Live.

In response, Machine Zone leveraged $23 million in claims of its own, relating to the outages and damages.

"After experiencing frequent outages," Tosh Lane wrote in a statement, "MZ visited Peak to investigate and found a data center riddled with scattered cardboard boxes and tangled cords. Peak's contract to keep our game up and running was a scam that harmed MZ's business. That's why we ran as far as we could from Peak, and that's why we sued them for damages."

For its part, Peak claimed the October outage of Game of War was due to a Cisco software bug.

The two parties are currently brawling it out in a California courtroom.

For more:
- see Machine Zone's legal complaint against Peak Hosting (PDF)
- read the Oregon Live story

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