Bankruptcy Judge OKs LMC Motions – and Exception Raised by Foxconn

LORDSTOWN, Ohio – The first-day motions hearing in the Chapter 11 bankruptcy filed by Lordstown Motors Corp. quickly got to “the high-level matters before the court,” as the EV startup’s lead lawyer described them.

Thomas E. Laurie’s interpretation of those matters portrayed Foxconn as the villain whose failure to fully make good on its promise to invest $170 million in Lordstown Motors Corp. led to its insolvency. “Lordstown Motors has been operating at a substantial cash loss since its expectation, its belief in its partnership with Foxconn would get it to the end of the road. … That didn’t happen,” he said.

Countered Foxconn attorney Matthew Murphy, that’s “a story to tell, a litigation tactic,” which Lordstown Motors is using to disguise the cascade of management, legal and production problems that began almost as soon as Lordstown Motors began operations in 2019. “The company had operational, financial, production and litigation issues long before Foxconn,” he said.

Murphy objected to derogatory statements about Foxconn by LMC chief financial officer Adam Kroll, contained in Kroll’s affidavit filed with the Chapter 11 petition. He argued Kroll’s statements should not be accepted by the court for any purpose other than affirming first-day motions regarding payable obligations in the normal course of business.

The judge agreed.

The dispute between LMC and Foxconn underscores the issues U.S. Judge Mary F. Walrath must decide in determining if, how and when the assets of Lordstown Motors will be sold. And it is the focus of accompanying litigation against Foxconn, alleging breach of contract, tortious interference with a contract and fraud. That case, an adversary proceeding, also will be decided by Walrath.

Murphy said Foxconn will object to how Lordstown Motors wants to establish bidding and auction procedures for its assets. That motion suggests such a sale could be resolved by the middle of September.

Instead, the hearing in U.S. Bankruptcy Court in Delaware, conducted via Zoom, suggested bumpy roads ahead on several fronts.

In his opening remarks, Laurie said LMC’s board “was concerned if the company continued to operate at its current level for any period of time, the pot would shrink in value.

“The company is involved in numerous litigations that are costly to defend,” he said, and an automatic stay of those court cases by bankruptcy court “would bring them to an end so resources can be preserved for those holding claims when they become allowed claims.”

Laurie listed six litigation issues beginning with the lawsuit filed by Karma Automotive LLC, which seeks damages of more than $1 billion, he said, for LMC allegedly poaching key employees and trade secrets.

Numerous lawsuits have been filed against the company and certain of its past and current directors, chiefly among them securities litigation. Lordstown Motors is paying legal costs to defend all the lawsuits, Laurie said.

Meanwhile, the Securities and Exchange Commission continues to investigate potential civil claims against LMC. “There have been confidential settlement negotiations but no settlement,” he said.

Then there’s the lawsuit that Lordstown Motors filed Monday against Foxconn, “the reason Lordstown Motors had to file Chapter 11. … We believe there are significant claims against Foxconn, and we believe those claims will be best resolved in bankruptcy court.”

At the end of the hearing, Walrath again recognized Murphy, who cited paragraphs from Kroll’s declaration that summarized all the financial, legal and operational challenges LMC faced since it was established.

Murphy noted that the New York investment banking and financial adviser firm Jefferies LLC, which LMC intends to use to solicit bids for its assets, previously solicited investment interest in Lordstown Motors to no avail.

Jefferies was first retained by LMC in September 2021 “to explore all market alternatives.” That process resulted in the sale of the LMC plant, formerly operated by General Motors, to Foxconn “and the intent to form a joint venture with Foxconn,” court papers say.

Then, in June 2022, “Jefferies, in consultation with Foxconn, prepared a list of more than 50 potential investors and strategic original equipment manufacturing partners across the globe seeking potential acquirors and/or strategic partners,” court documents say. Although Jefferies, LMC and Foxconn divided the list, each holding meetings with the prospects “and in-person evaluations” of the Endurance, no “actionable indications of interest” were received.

This go-around, Jefferies and LMC “have developed a list of contact parties whom they believe could be interested in, and would have the financial resources to consummate, a sale,” states the motion to establish bid procedures and a timetable. The plan is to “distribute a teaser to the contact parties and facilitate access to diligence materials.”

The court has set a July 27 hearing date on bidding procedures. Objections to how the assets would be sold are due July 20.

“We are pleased with the court’s approval of our first-day motions, which enable Lordstown to move forward with the elements of our strategic restructuring process, and we can now turn toward preparing to initiate our sale process to maximize the value of Lordstown’s assets,” Edward Hightower, CEO and president, said in a statement released late Wednesday.

This morning Lordstown Motors notified the SEC that in light of its Chapter 11 bankruptcy filing, the company’s Class A common stock has been delisted by the Nasdaq stock market.

Accordingly, trading of the stock will be suspended at the opening of business July 7, the company said.

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