The committee representing the group of unsecured creditors in the Chapter 11 case of Lordstown Motors Corp. has asked a U.S. bankruptcy court judge to consider the “full range of alternative dispute resolution mechanisms.”

Also, Foxconn — which is being sued by Lordstown Motors over an investment deal gone sour — has asked the court either to convert the case to Chapter 7 liquidation or dismiss it.

The committee’s request filed Monday relates back to a motion July 20 that objects to California-based Karma Automotive LLC’s request for the court to lift an automatic stay of its lawsuit against Lordstown Motors.

An automatic stay is an injunction in a bankruptcy case to prevent certain creditors from starting or continuing action against a debtor — in this case, Lordstown Motors.

Karma sued Lordstown Motors in October 2020, claiming Lordstown Motors stole trade secrets about Karma’s infotainment system and plundered a specialized team of Karma employees who were designing it. The company is seeking more than $913 million in relief.

“Given the size of Karma’s claim, their resolution could mean the difference between unsecured creditors getting paid in full with interest, or recovering, at best, mere pennies on the dollar,” the July 20 motion states. The pending lawsuit in federal court in California “is nothing short of ‘bet the farm” litigation for the debtors in the bankruptcy case.

In Monday’s filing, the committee stated because Lordstown Motors has about $136 million and no meaningful secured debt, “there is every reason to believe that general unsecured creditors should receive a full recovery — if the estates are administered wisely.”

Restarting years of litigation and appeals with Karma Automotive would cause massive costs, delay and harm to the estates and their creditors, the filing states. It goes on to state that Lordstown Motors should put $20 million to $30 million in escrow to pay the undisputed general unsecured claims if a solution isn’t found quickly.

On July 13, Lordstown Motors asked the court for estimation — or to set the amount — of Karma’s claim. It’s a way for the bankruptcy court to avoid waiting for a resolution in Karma’s case against Lordstown Motors by estimating a claim, and temporarily allowing a claim to approve or reject a reorganization plan in Chapter 11.

Setting the claim amount is “critical to to determining the amount and timing of creditor and stockholder recoveries” in the case and administration of the Lordstown Motors’ estates, it states.

Without it, resolving Karma’s claim “will involve a lengthy and protracted process” that is likely to include appeals and deplete Lordstown Motors’ “limited resources.”

RESPONSE

Karma on Monday stated in a filing that allowing its case against Lordstown Motors to continue would not prejudice Lordstown Motors, but restarting it would with “substantial administrative costs.”

The company also argues Lordstown Motors cannot proceed with a sale while intellectual property remains a dispute and has not been fully litigated.

Also, keeping the stay in place would cause Karma more hardship than to debtors if lifted because the case is nearly ready for trial, forcing the company to redo its efforts in bankruptcy court.

“This includes three years of contentious litigation involving the production of millions of documents, more than 50 depositions and dozens of pretrial motions, including summary judgment,” Karma’s reply states.

Karma also argues the stay should be lifted because it has shown enough evidence it would be successful against Lordstown Motors based on the merits of the case.

A hearing on Karma’s request is set for Thursday.

LIQUIDATION?

Hon Hai Technology Group, also known as Foxconn, asked the court to convert Lordstown Motors’ Chapter 11 reorganization bankruptcy into Chapter 7 liquidation or to dismiss the case, claiming Lordstown Motors filed bankruptcy in “bad faith and without a valid bankruptcy purpose” and its unlikely the company can be rehabilitated.

Lordstown Motors sued Foxconn on June 27, the same day it filed bankruptcy, claiming fraud and bad faith by Foxconn led to the bankruptcy.

Foxconn called the depiction that Lordstown Motors is the victim of a fraud a “fictitious narrative” Lordtown Motors created “solely for the purpose of obtaining a tactical litigation advantage,” the filing states.

Foxconn acquired its auto assembly facility in Lordstown from Lordstown Motors for $230 million in May 2022. The purchase agreement also called for the two to partner to develop electric-vehicle programs.

Then in November, the joint venture development program was replaced by an equity investment agreement, where Foxconn agreed to invest $170 million into Lordstown Motors. A large portion of the funding was earmarked for a collaborative EV design and development program.

The companies closed on $52.7 million of the $170 million in November, but that was all.

In April, Lordstown Motors received a delisting notice from Nasdaq that stated the company’s stock had fallen below the minimum bid price requirement of $1 per share for 30 consecutive trading days.

That triggered a letter from Foxconn stating it believed Lordstown Motors, because of the notification from Nasdaq, had breached the investment agreement.

Foxconn then told Lordstown Motors it wouldn’t close on a second $47.3 million stock purchase included in the agreement because of the breach. Lordstown Motors then sued.

Foxconn’s motion states Lordstown Motors has a “fundamentally flawed and failed business model” that “has no prospect of a turnaround or return to operations.”

Despite projections it would manufacture 31,600 trucks in 2022 and 65,000 more in 2023, the company has made 65 despite having gone through $750 million, “an astounding $11.5 million per truck,” the filing states

The filing claims, in part, that after exhaustive efforts to attract more investment or find a partner, there has been no interest. Also, the U.S. government rejected a loan request, in part, because it could not satisfy a requirement that the company is viable.

“A bankruptcy forum will not fix a multi-year sale process that was unsuccessful outside of bankruptcy, and the debtors should not be authorized to gamble with stakeholders’ recoveries through an expensive and burdensome Chapter 11 process that has no likelihood of success,” the filing states.

A Chapter 7 process, the filing states, would provide greater value to creditors.

rselak@tribtoday.com