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Karma dismisses suit against Lordstown, bankruptcy moves forward for Lordstown

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Karma Automotive has dismissed its $900 million intellectual property rights lawsuit against Lordstown Motors on the condition that it receives a $40 million settlement.

The suit was filed in California in October 2020. It alleged:

    • Violation of the U.S. Computer Fraud and Abuse Act;
    • Misappropriation of trade secrets in violation of the U.S. Defend Trade Secrets Act;
    • Misappropriation of trade secrets in violation of the California Uniform Trade Secrets Act;
    • Breaches of a confidentiality agreement, independent contractor agreement, letter of intent, duty of loyalty, and fiduciary duty;
    • Tortious interference with contract and prospective economic advantage;
    • Unfair competition in violation of California’s Business and Professions Code;
    • Conspiracy;
    • Fraud; and
    • Violation of the U.S. Racketeer Influenced and Corrupt Organizations Act (RICO).

Karma argued that Lordstown misappropriated trade secrets and intellectual property from them, putting a pause on the sell of the company because Karma claimed partial ownership of its property. Some of the accused included former Lordstown employees.

The case was dismissed with prejudice. Lordstown and other individual named and unnamed defendants have until Oct. 12 to make a good faith effort to return or confirm the destruction of all Karma-related hard-copy and electronic documents and information that were provided during discovery, according to the order.

In August, the companies came to a $40 million settlement agreement that awaited court approval. It has been approved and the parties agreed that it cannot be appealed. Part of the settlement terms was the dismissal of the suit with prejudice.

Attorneys have previously noted that Lordstown has only been able to operate on a limited basis since June when it filed Chapter 11 bankruptcy and a lawsuit against Foxconn.

Foxconn allegedly didn’t hold up its promise to invest millions in manufacturing the Endurance and a new vehicle development platform. Essentially, Lordstown blames Foxconn for its bankruptcy in the suit stating that Foxconn “over time, had the intended effect of destroying the business of an American start-up,” including when it bought what Lordstown says was its unique and most valuable asset — a factory in Lordstown, Ohio.

Foxconn hasn’t filed a response to the lawsuit in court yet and has been granted extensions of time to respond three times.

On Thursday, the lead plaintiff in an Ohio class action lawsuit against Lordstown, which combines six cases, filed an objection to the court’s bankruptcy decision. Allegations are that Lordstown violated the Securities Exchange Act of 1934 and SEC Rule 10b-5. The SEC rule prohibits the use of any device, scheme, or artifice to defraud as well as untrue or omitted statements of material fact, and act in any way that would defraud or be deceitful.

The lead plaintiff cited concern that the bankruptcy terms don’t include instructions on evidence preservation when Lordstown sells its company.


Featured image: Lordstown’s EV pickup truck, the Endurance. (Provided by Lordstown Motors)

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