Lordstown Motors must face rival’s trade-secret theft trial despite bankruptcy

A Delaware bankruptcy judge said she’s worried Lordstown Motors Corp. was attempting to sell itself in Chapter 11 before a rival EV maker can take it to trial over allegations Lordstown stole designs and technology to develop its flagship vehicle, the Endurance electric truck.

Judge Mary Walrath on Thursday permitted rival vehicle maker Karma Automotive to move forward with an upcoming trial in California against Lordstown. The outcome of the trial will determine which company owns assets related to the Endurance which are being marketed in to potential buyers, she said.

Judge Walrath also said she worried that the investment bank Lordstown retained to help sell its assets, Jefferies LLC, wasn’t informing potential bidders about the ownership dispute with Karma. Lordstown did mention the Karma litigation in papers it submitted to court when it filed Chapter 11 in June and lawyers said during Thursday’s hearing that the dispute has been mentioned in Securities and Exchange Commission filings.

The result of the trial will determine what assets Lordstown is able to sell in Chapter 11 and could dictate if the startup is able to survive bankruptcy, Judge Walrath said.

“This is deciding what the debtor owns and does not own,” Judge Walrath said.

The ruling is a setback to Lordstown, which filed bankruptcy last month in order to conduct a quick sale of its assets. Karma filed the lawsuit in 2020, accusing Lordstown of poaching key employees and lifting trade secrets to speed up its development of the Endurance. Karma seeks $913.2 million in damages, plus fees, costs and additional penalties.

Lordstown has denied liability and said it spent millions of dollars to independently develop designs and technology for the Endurance, or used other sources that didn’t involve Karma. The bankrupt EV startup argued that the Karma lawsuit should be paused so it could pursue a sale in Chapter 11, which generally gives companies a respite from costly litigation.

Lordstown said allowing Karma to move ahead with the trial could impede its ability to sell its business as a going concern. But the outcome of the trial and determination on which company owns specific assets could dictate if Lordstown gets any bids for its assets, Judge Walrath said.

A verdict should be reached sometime in September, Judge Walrath said. Jefferies didn’t immediately respond to a message sent after the hearing seeking comment on Judge Walrath’s concerns about the sale process.

The bankruptcy is Lordstown Motors Corp., 23-10831, U.S. Bankruptcy Court for the District of Delaware.