Lordstown Motors Agrees to Pay Karma $40M to Settle Trade Secrets Claim
LORDSTOWN, Ohio –– Lordstown Motors Corp. and Karma Automotive LLC have agreed to settle Karma’s lawsuit that claims Lordstown stole trade secrets and poached its employees.
Instead, Lordstown Motors has agreed to pay Karma a total of $40 million, of which $5 million would be a one-time royalty payment required by Karma, court papers say.
The lawsuit was set for trial Sept. 12 in U.S. District Court in Central California. On July 31, U.S. Judge Mary F. Walrath lifted the automatic stay on the litigation that was imposed when Lordstown Motors filed Chapter 11 bankruptcy June 27.
In her ruling from the bench, the judge said the assets of Lordstown Motors could not be fully determined until the Karma litigation was resolved.
“The issue is whether property was stolen from Karma,” Judge Walrath said. …“I agree with Karma that the debtor cannot sell something that the debtor cannot establish is its property. …It’s critical to have that issue decided.”
Lordstown Motors and Karma subsequently “engaged in robust, arm’s length negotiations in a good faith attempt to resolve their disputes,” court papers say.
Late Monday Lordstown Motors outlined the settlement agreement in a filing that seeks court approval of the settlement agreement.
“Although the Debtors believe that Karma’s asserted claims are without merit (and would be prepared to defend against them absent settlement), the size of Karma’s asserted claims when coupled with the risks associated with all litigation creates significant uncertainty regarding the total size of the debtors’ claims pool and the recoveries that the debtors may be able to provide for stakeholders. Moreover, the costs associated with litigating a multi-week jury trial and post-trial motions practice and appeal would undoubtedly erode recoveries,” the motion states.
Earlier this month, attorneys for Lordstown Motors told the court that the company has received “expressions of interest” from 13 entities that could potentially buy all or part of its assets or liquidate them.
Lordstown Motors wants Judge Walrath to shorten the objection and hearing process for the Karma settlement agreement so that the sale of the company’s assets can proceed on schedule.
On Aug. 8, Judge Walrath approved a timetable of bidding and auction procedures. A stalking horse bid is due Aug. 24. Sept. 8 is the deadline for bids and objections must be received by Sept. 14.
An auction, if required, would be held Sept. 19, with objections due Sept. 26. An auction would be held if more than one qualified bid is submitted to the court.
The final hearing on the assets sale is scheduled for Oct. 5.
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