Corporate spying alleged in suit
California company claims Lordstown Motors stole trade secrets
LORDSTOWN — A Southern California-based maker of luxury electric cars is suing Lordstown Motors Corp., claiming the electric truck startup stole trade secrets in a “classic case of corporate espionage,” the lawsuit states.
Karma Automotive LLC claims in its lawsuit Lordstown Motors “brazenly stole” secrets about Karma’s infotainment system and plundered a specialized team of Karma employees who were designing it.
Lordstown Motors accomplished that by engaging in a “Trojan Horse” strategy, where it pretended to be engaged in a five-month due diligence period that culminated in a fraudulent partnership letter with a promise to pay, but pulled out of the “fake deal” at the last minute to create LMC Infotainment Group using Karma’s stolen trade secrets and confidential information, the lawsuit states.
“The courtship was a ruse; the check never arrived,” the lawsuit states. “Instead, LMC secretly poached and onboarded key Karma employees and started stealing Karma’s secrets.”
Lordstown Motors in court papers called Karma’s claims a “fictional tale” and “fantasy.”
The company states Karma omitted several key facts: Lordstown Motors cannot implement the allegedly private information into the infotainment system for its truck, the Endurance, because of hardware differences; former Karma employees chose to leave for Lordstown Motors because Karma was cutting back its engineering and manufacturing programs; Lordstown Motors did not buy the infotainment system because the cost was “far too high” and Karma’s former employees “have simply not used” Karma’s trade secret or confidential information in their work at Lordstown Motors.
A scheduling conference in the case filed in U.S. court in the Central District of California is set for Feb. 2, 2021.
Last week, the court denied Karma’s request for a temporary restraining order.
“We are pleased that the court denied Karma’s request for a temporary restraining order. As our response to Karma’s request made clear, Karma’s story is a fantasy,” according to a statement from the company. “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. 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 lawsuit names Lordstown Motors; its CEO, Steve Burns; John LaFleur, chief operating officer; Darren Post, chief engineer; Rich Schmidt, chief production officer; and former Karma employees now employed by Lordstown Motors, Roger J. Durre and George Huan. It seeks unspecified damages.
Karma claims the deal with Lordstown Motors would have meant more than $3 billion in revenue for the Orange County, Calif., company.
The complaint states the sides on Feb. 7 signed a mutual nondisclosure agreement that allowed the parties to exchange confidential and trade secret information as part of the exploration process toward Karma developing the infotainment system for the Endurance.
In April, Karma submitted a statement of work for the project and in June, Lordstown Motors selected Karma for the project; they signed a letter of intent June 11, the complaint states. On July 9, Lordstown Motors informed Karma they would be moving forward with the project and would issue payment, and on Aug. 6, Lordstown Motors terminated the letter of intent, the lawsuit states.
Karma claims Lordstown Motors began talking with Durre as early as April on a plan to transition his team to Lordstown Motors and on March 30, he began talks with a commercial real estate agent using his personal email account on his Karma computer about commercial office space. Those talks continued intermittently until Durre connected the agent with LaFleur in August to help Lordstown Motors find commercial space in Orange County, the lawsuit states.
On July 30, seven days before Lordstown Motors terminated the deal with Karma, the suit states Post, who previously worked as chief engineer / vice president of engineering at Karma, emailed Durre for help to quantify the cost savings that Lordstown Motors would have by hiring Durre and his team and moving with the infotainment system in-house without Karma.
The email, an exhibit to the lawsuit, shows Post estimated Lordstown Motors would save $4.6 million by hiring Durre and his team compared to Karma’s cost of $10.9 million.
The email “reflects clear evidence” of Lordstown Motors’ “intent to sabotage the deal with Karma, raid its workforce and misappropriate Karma’s trade secrets,” the lawsuit states.
Durre, the lawsuit states, was offered the director of software job at Lordstown Motors on Aug. 1 and put into the company’s payroll system on Aug. 3. He informed Karma of his intent to leave on Aug. 27 and left Sept. 1.
The lawsuit also states Durre downloaded at least seven of Karma’s files with trade secrets and confidential information and intentionally deleted thousands of Karma’s files.
Durre, court papers show, stated he has not used any of Karma’s trade secrets or confidential information in his work at Lordstown Motors, and “I have not shared any such information with anyone at LMC.”
He said by the end of his time at Karma, it was cutting back its engineers and reorganizing. He said he no longer was involved with hardware and software development for infotainment or connected systems, “which is what I was brought to Karma to do,” but was leading electrical systems engineering.
Durre also said Lordstown Motors’ infotainment system does not use hardware or software in common with Karma, the document states.
Lordstown Motors also is being sued by Ann Arbor, Mich.-based DTE Lordstown LLC, which claims it is owed more than $2.5 million in unpaid bills for utility-related work at Lordstown Motors’ plant, the former General Motors assembly plant.
Most of the $2.5 million is a contract termination fee DTE Lordstown claims it is owed. Lordstown Motors claims it is paid up through when DTE Lordstown terminated the contract and DTE is not entitled to the termination fee.