Cross-Office Trade Secrets Litigation Team Secures $40 Million Settlement for Karma Automotive

A team of litigators from seven different Seyfarth offices led by Michael Wexler and Jesse Coleman secured a $40 million settlement on behalf of firm client Karma Automotive. The settlement brings a favorable end to three years of contentious litigation involving claims of trade secret misappropriation, mass data theft, breaches of contract, computer fraud, workforce raiding, destruction of evidence, and a host of other issues.

Karma, an electric vehicle manufacturer, filed the lawsuit in the US District Court for the Central District of California after it alleged uncovering an elaborate scheme between several of its former employees and several executives of a competing company, Lordstown Motors Corporation (“LMC”).

The alleged scheme began in early 2020 when LMC approached Karma about developing an infotainment system for LMC’s flagship vehicle, the Endurance. Those discussions culminated in a letter of intent, in which both parties agreed to work in good faith towards a development contract. 

Unbeknownst to Karma, however, LMC executives and the lead Karma engineer for the Endurance project allegedly were secretly discussing ways for LMC to cut Karma out of the deal. Ultimately, LMC terminated the letter of intent, hired dozens of Karma engineers, and allegedly used Karma’s confidential documents and source code to develop technology for the Endurance. After Karma filed the lawsuit, LMC allegedly attempted to conceal the scheme by deleting evidence, which resulted in multiple spoliation sanctions.

Discovery involved multiple forensic examinations, dozens of fact and expert depositions, and the production of more than 10 million documents. Two months before trial, LMC filed a petition for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware, which automatically stayed Karma’s lawsuit against LMC in California. 

Seyfarth’s bankruptcy team, led by partner James Sowka, immediately moved for relief from the automatic stay, and the bankruptcy court granted Karma’s motion just one month before the September 2023 trial in California. Facing hundreds of millions of dollars in potential liability, LMC agreed to settle Karma’s claims for $40 million, and the bankruptcy court approved the settlement.

The settlement is a huge win for Karma, especially in light of LMC’s financial struggles and the procedural hurdles presented by LMC’s ongoing bankruptcy. Karma is extremely satisfied with the outcome and Seyfarth’s work.

The trial team included partners Kevin Mahoney, Emma Mata, Robyn Marsh, and Matthew Christoff, as well as associates Bessie Fakhri and Connor Bateman. Other Seyfarth attorneys assisting over the years included Robert Milligan, Joshua Salinas, Sierra Chinn-Liu, Drew del Junco, Robert Terzoli, JC Swizler, Eron Reid, Kate Miller, and Emily Kessler. Lori Anne Schwenkel, Margaret Slavik, Julee Prentice, and Michelle Trull also provided invaluable assistance throughout the litigation.