Karma Broadens Claims Against Lordstown Motors; Adds Conspiracy, RICO Violations

YOUNGSTOWN, Ohio – A California-based automaker has expanded its allegations against Lordstown Motors Corp. to include charges of conspiracy, fraud and violations of the Racketeer Influenced and Corrupt Organizations Act, according to court papers filed last week.

Karma Automotive LLC, based in Irvine, Calif., filed an amended complaint in U.S. District Court April 20 that alleges Lordstown Motors, its executives and former employees of Karma hatched a much wider scheme than initially believed to steal Karma’s trade secrets and repurpose them at Lordstown. 

“Defendants knowingly agreed to facilitate a scheme, a conspiracy, to defraud Karma through a pattern of interstate racketeering activity, which included the management of a RICO enterprise,” the amended complaint states. 

A second RICO count alleges that defendants “committed predicate acts of racketeering activity on multiple occasions and in violation of federal statutes,” court documents say.

The amended complaint was filed by Karma because of new information that was obtained through discovery, the company said. 

“Through the discovery procedure in this matter, we have learned additional concerning information which is alleged in the complaint,” Stefan Gudmundsson, Karma’s chief innovation officer, said in a statement.

Karma filed an initial civil complaint on Oct. 30, claiming Lordstown Motors “brazenly stole” proprietary information related to Karma’s vehicle entertainment – or infotainment – system in what court papers describe as a “classic corporate espionage case.”  

The original complaint alleged 10 counts ranging from computer fraud and misappropriation of trade secrets to breach of contract.  The amended complaint lists 28 counts including the conspiracy, fraud and RICO allegations.

The case involves a proposed joint venture the companies were involved in to develop new infotainment technology for Lordstown Motors’ all-electric pickup, the Endurance. The deal was expected to bring in $3 billion for Karma through 2024.

Karma alleges Lordstown Motors used the potential agreement as a “ruse” in order to obtain proprietary information related to the infotainment system from Karma, according to court papers.

However, the new filing alleges that the purported theft was not limited to Karma’s infotainment system, but cast a much wider net that includes “highly confidential and proprietary information regarding nearly every aspect of Karma’s vehicles.”

As an example, Lordstown Motors copied word for word one of Karma’s technical specifications for a vehicle power moding system, a critical design that specifies power management of an entire electric vehicle, the amended complaint reads. 

“Defendants did this brazenly and lazily, slapping ‘Lordstown’ on the front page of their technical specifications but then failing to remove references to Karma later in the document tables,” court papers say. 

New documents filed with the court also allege that defendants stole and then copied and pasted into their own company documents entire sections of Karma’s development plans – including software and hardware project plans and timelines, hardware specifications, design documents, and bills of materials identifying pricing and components used in electric vehicles.

Court documents also allege that the defendants even stole “secret plans for a new Karma vehicle.”

As of this posting, Lordstown Motors’ spokesman had not returned requests for comment. In a response to the October complaint, Lordstown Motors called Karma’s allegations a “fantasy.” 

“Lordstown Motors is focused on building the safest, most cost-effective, zero-emission work trucks ever made, and we are proud to attract top engineering talent to join in our mission,” the company stated then. “We have no need or use for Karma’s purported trade secrets, and we are confident that our dealings with Karma complied with all relevant laws.”

The company’s attorneys had not filed a response to the amended complaint as of Friday.

Other allegations say Lordstown Motors stole and used Karma’s production processes, tools, electric vehicle validation testing documents, process improvement methodologies, supplier information and project budgets, according to documents filed with the court.

“Sometimes the copying was so obvious, defendants forgot to fix the typos form the original Karma documents and even sometimes failed to remove the word ‘Karma’ and the Karma design logo from the text of the document itself,” the new complaint reads.

Court papers declare that the “information Lordstown Motors stole is conservatively worth hundreds of millions and perhaps billions of dollars.”

The amended civil complaint names Lordstown Motors, its CEO Steve Burns, now-President Rich Schmidt, chief operations officer John LeFleur and chief technology officer Darren Post as defendants.  

It also names as defendants former Karma employees Roger “Joe” Durre, Hong Xin Huan and Bei Qin. The complaint also includes contractors Stephen Punak, Punak Engineering Inc., Christopher Kim, Dan Zhihong Huang and 50 additional John Does as defendants.

Karma alleged in its initial filing in October that Lordstown Motors deployed a “Trojan Horse” scheme in which the company pretended to work with Karma on a joint venture while it was secretly planning to poach its employees and steal intellectual property.  

The parties signed a non-disclosure agreement in February 2020, according to exhibits filed with the court, allowing Lordstown Motors access to Karma’s trade secrets for five months.

The amended lawsuit alleges that Lordstown Motors coaxed Karma employees who had a deep understanding of that company’s engineering and technology to work for Lordstown while still employed at Karma. 

“Not content to steal Karma’s confidential and trade secret information, LMC incentivized multiple Karma employees to accept job offers from, and begin to work for, LMC while they were still employed by and working for Karma,” court documents say. 

“LMC did so not only to avoid paying for their services, but to ensure that these employees downloaded, saved, and/or sent to their personal email addresses massive amounts of Karma’s confidential and trade secret information,” according to court filings.

Furthermore, the amended complaint cites communications with Lordstown’s Burns who discussed it would be preferable to have Karma engineers “executing [LMC’s] program under Karma so that we don’t face the full costs of benefits and other costs to stand up the team right away.”

In another instance, court papers say that Durre continued to work for Karma for nearly a month while also newly employed at Lordstown.  “Durre downloaded and copied electronic files containing Karma’s trade secrets and confidential information, then permanently deleted thousands of files from Karma’s computer system to hinder Karma’s own development plans,” the lawsuit says. 

On July 28, for example, the amended complaint says that Lordstown’s Darren Post asked Durre – who was still employed at Karma – to recruit new talent.  “Excited by their own illicit work, Post and Durre conspired that, if ‘LMC owns all of the IP, it tallies into the billions,’” documents say.

Lordstown Motors cancelled the partnership and hired away Karma employees to start a tech division in California, court documents allege.

The lawsuit further alleges that some of this technology was used in Lordstown Motors’ Endurance. The company plans to launch the all-electric pickup in late September and is now manufacturing beta versions of the vehicle at its plant in Lordstown.

“In short, LMC lied about its interest in a joint development deal to further gain access to Karma’s trade secrets, and to understand which of Karma’s employees could most directly aid LMC by stealing Karma’s trade secrets and ideas,” the amended complaint says. 

Copyright 2021 The Business Journal, Youngstown, Ohio.