A Chicago federal judge has put the brakes on a class action suit filed by investors, who alleged they were ripped off for hundreds of millions of dollars in a failed electric car venture, saying the investors were asleep at the switch because they launched their suit after the statute of limitations expired.
However, the judge gave plaintiffs an opportunity to take another shot with an amended suit.
The July 20 ruling was issued by U.S. District Judge Rebecca Pallmeyer, dismissing an October 2016 suit lodged by Orgonne Capital, Lincolnshire Fisker LLC, David Burnidge, Kenneth A. Steel Jr. and Robert F. Steel on behalf of themselves and about 100 putative class action members.
Defendants are the venture capital firm Kleiner Perkins Caufield & Byers and its managing partners Ray Lane and John Doerr, as well as Keith Daubenspeck and Peter McDonnell.
Daubenspeck founded the now-defunct Advanced Equities Inc., a Chicago investment bank that sold millions of dollars worth of securities for Fisker Automotive from 2009 to 2012. McConnell was a senior managing director, and both worked with Kleiner Perkins, which "exercised substantial control" over Fisker's operations and finances.
Plaintiffs did not sue Fisker Automotive.
Fisker was set up to build luxury hybrid electric cars, raising $1.3 billion in private capital and $192 million in public money to that purpose, before going belly-up in late 2012.
Plaintiffs alleged defendants misled them into buying more than $10.2 million in Fisker stock between October 2009 and September 2012, by not revealing the company was in crisis, because the federal government froze further draw-downs on a $528.7 million U.S. Department of Energy loan.
The DOE refused to release further funds because Fisker was on the brink of insolvency, according to the suit. However, defendants kept this information secret and persuaded investors to continue putting money into the project, based on the federal loan, the suit said.
Plaintiffs lost their investments, describing the Fisker affair as the "largest venture capital-backed debacle in U.S. history."
Defendants filed a motion to dismiss the suit, saying plaintiffs were bound by the Illinois Securities Law, which sets a three-year limit for such suits. Plaintiffs countered that their agreements to buy Fisker stock, contained clauses that any disputes would be decided under Delaware law, which sets a five-year limit. Plaintiffs said they could not have invoked Illinois law even if they so desired, because of the clauses in the agreements.
Judge Pallmeyer had no use for plaintiffs' argument, saying plaintiffs presumed if they filed their suit under Illinois law, defendants would have asserted the supposedly overriding Delaware law. Further, plaintiffs presumed a judge would have found Delaware law applied, Pallmeyer added.
Simply put, Pallmeyer said: "Plaintiffs cannot assert a defense on behalf of an opponent that has not asserted it. Plaintiffs waited too long and now rely on this conjectural, procedurally inverted route to a timely claim."
Determining the three-year Illinois law applied, Pallmeyer ruled plaintiffs knew of their claims more than three years before bringing suit in October 2016, most likely in April 2013, when reports of alleged fraud and breach of fiduciary duties in the Fisker matter hit the news.
Pallmeyer said she was puzzled plaintiffs did not attempt the "more straightforward route" of simply arguing Delaware law should be followed. If plaintiffs wish to do so, Pallmeyer gave them 21 days to amend their suit accordingly and keep the litigation alive.
Plaintiffs are represented by the following firms: Wexler Wallace, Chicago; Berger & Montague, Philadelphia; Klafter, Olsen and Lesser, of Washington, D.C. and Rye Brook, N.Y.; and Rosenthal, Monhait & Goddess, of Wilmington, Del.
The defendants, with the exception of Peter McDonnell, who is representing himself, are defended by the firms of Freeborn & Peters, Loeb & Loeb and Stetler & Rotert, all of Chicago; Keker, Van Nest & Peters, of San Francisco; and Pepper Hamilton, of Wilmington, Del.