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In re Fisker Automotive Holdings Inc. Shareholder Litigation

United States District Court, D. Delaware

August 21, 2018

IN RE FISKER AUTOMOTIVE HOLDINGS, INC. SHAREHOLDER LITIGATION

          MEMORANDUM OPINION

          SMITH, CHIEF CIRCUIT JUDGE

         Before the Court is a motion by Richard Li Tzar Kai (Li) and Ace Strength Ltd. (Ace) to dismiss for lack of personal jurisdiction the Consolidated Second Amended Complaint (SAC) under Federal Rule of Civil Procedure 12(b)(2). See dkt. 427. For the reasons set forth below, I will deny the motion as to Li but grant the motion as to Ace.

         I. Facts and Procedural History

         A. Procedural History

         Plaintiffs, who are various investors, filed three securities actions at the end of December 2013. Those actions named as defendants some of the officers and directors of Fisker Automotive (FA), a Delaware Corporation, [1] as well as other individuals and entities, and were consolidated. Among the various defendants were Li and Ace. Li was a member of FA's Board of Directors from January 2010 until he resigned effective July 15, 2011. He is also the owner of Ace, an “investment holding company incorporated in the British Virgin Islands, ” which invested in FA and is allegedly a controlling shareholder. Dkt. 40, ¶ 2.

         Li and Ace moved to dismiss the consolidated action for lack of personal jurisdiction under Federal Rule of Civil Procedure 12(b)(2). That motion was stayed pending jurisdictional discovery. Dkt. 81 at 49. In granting jurisdictional discovery, District Judge Robinson[2] expressed her belief that the plaintiffs had failed to plead sufficient facts “showing that Li or Ace exercised control over the challenged disclosures or engaged in substantial acts purposefully directed at the United States and sufficient to establish minimum contacts.” Dkt. 81 at 47-48 (internal quotation marks and citations omitted).

         Plaintiffs responded by filing the Consolidated Amended Complaint (hereafter referred to as the Second Amended Complaint or SAC). Dkt. 145. The first count alleged that Li and other defendants, but not Ace, “were sellers and offerors and/or solicitors of purchasers” of FA Securities and that “Plaintiffs purchased these securities as a result of . . . material omissions.” SAC ¶ 128. After setting out the various omissions, the plaintiffs alleged that the identified defendants violated Section 12(a)(2) of the Securities Act.

         Count two named Li, Ace and others as defendants. It alleged that these defendants were “each a controlling person of [FA]” and that they “had the power and influence and exercised the same to cause [FA] to disseminate offering documents that omitted material information” in violation of Section 15 of the Securities Act. SAC ¶ 143. Count three alleged that Li and other defendants, but not Ace, violated section 10(b) and Rule 10b-5 of the Exchange Act by “knowingly or with deliberate recklessness disseminated or approved materially false and misleading statements [which] failed to disclose material facts necessary . . . to make the statements made . . . not misleading.” SAC ¶ 147. The fourth claim alleged that Li, Ace and others violated section 20(a) of the Exchange Act as they “acted as controlling persons” of FA that “had the power to influence and control, and did influence and control, directly or indirectly, the decision-making of [FA], including the contents and dissemination of the various statements which Plaintiffs contend omit material.” SAC ¶¶ 162, 163. A common law claim of fraud against all defendants was the fifth and final claim for relief.

         The SAC specifically stated that it “sets forth non-fraud claims under Sections 12(a)(2) of the Securities Act . . . . and non-fraud claims under Section 15 of the Securities Act.” SAC ¶ 3. It “expressly disavow[ed]” any fraud-related allegations pursuant to the Securities Act, instead premising these claims “on the fact that there were material omissions in the disclosures related to the offerings of [FA].” Id. Li and Ace again moved to dismiss for lack of personal jurisdiction. Dkt. 427.

         A. SAC's Factual Allegations

         FA was launched in August 2007 as “a new venture to produce premium plug-in hybrid automobiles, ” SAC ¶ 38, with the objective of manufacturing and delivering a four-door sports sedan by December 2009. Id. ¶ 39. FA initiated efforts to raise a substantial amount of capital to “complete future phases of development, testing and tooling for the new vehicle platform.” Id. ¶ 39. In 2008, it completed a $20 million Series B round of financing. Id. ¶ 41. A published report on FA indicated that Henrik Fisker, a cofounder and the chief executive officer of the company, stated that FA had “all the capital we need to move forward according to the plan.” Id. ¶ 42. The report also noted that Fisker indicated the design of the car had been finalized, and the safety concerns arising because of lithium-ion batteries had “been resolved.” Id. On December 31, 2008, FA applied for a loan from the U.S. Department of Energy (DOE) under its Advanced Technology Vehicles Manufacturing Loan Program. (ATVM). Id. ¶ 44.

         In March of 2009, FA offered a $68.5 million Series C round of financing. SAC ¶ 45. In August of the same year, Bernard Koehler, another cofounder and chief operating officer, urged DOE to approve FA's loan application as bankruptcy loomed over the horizon. Id. ¶ 46. Within a month, DOE conditionally committed millions of dollars to FA, allocating $169 million for the Fisker Karma luxury vehicle, and $359 million for a low cost hybrid named Nina. Id. ¶ 47. The DOE loan, which was not a public document, provided that an “‘Event of Default' would include Fisker's ‘fail[ure] to achieve any Milestone by the relevant Milestone Completion Date.'” Id. One milestone required the commencement of commercial production of the Karma by February 2011. Id. ¶ 51. To that end, during 2010, FA acquired a previously closed manufacturing plant in Delaware and entered into supply agreements with several entities. Additional private equity was raised in a financing offer designated as Series A-1. SAC ¶ 52.

         Although commercial production of the “Karma” vehicle was to begin in February 2011, that milestone was passed without production commencing. The following month, FA represented to the DOE that “the February 2011 Karma production milestone under the AVTM loan had been met.” SAC ¶ 53. This representation that FA had satisfied the February 2011 milestone “avoided a default on the ATVM Loan” and enabled FA to draw further advances on the Karma portion of the loan. Id. ¶ 64. In April 2011, FA completed a Series C-1 Preferred Stock round of financing (the April 2011 Offering). SAC ¶ 56. The following month, after FA had drawn down all of the portion of the AVTM loan allocated to the Karma vehicle, DOE issued a “non-public ‘Drawstop Notice'” on the loan “to prevent [FA] from making any further draws on the [FA] Nina phase of the AVTM loan.” Id. ¶ 61. Then, in June 2011, FA made another private presentation to the DOE during which it contradicted its earlier representation that it had met the February 2011 milestone of commencing production. Id. ¶ 64.

         In the meantime, FA continued to raise capital, including through a Series D- 1 offering in July 2011. Id. ¶ 66. Late that same month, Joe DaMour, FA's chief financial officer, represented that FA had raised more than $600 million and had the ability to draw on its loan with the DOE. In DaMour's view, FA was “very well capitalized.” Id. ¶ 67.

         Yet FA sought to raise more capital. “Starting on September 15, 2011 and ending on December 2, 2011, FA closed on twelve rounds of sales of Series D1 stock, raising a total of approximately $86 million.” Id. ¶ 69. “Investors expressed concerns about the AVTM Loan” in the wake of the bankruptcy filing of another DOE loan recipient. SAC ¶ 71. In addition, A123 Systems, Inc, the battery supplier, lowered its 2011 revenue projections based on a reduction in the battery orders it received from FA. Id. ¶¶ 72-73. In the meantime, a FA investor advised DOE that FA's ability to raise additional equity was hampered by the prospect of FA defaulting on the DOE loan on December 31 unless DOE agreed to move certain “milestones back by one year.” SAC ¶ 77. On December 5, 2011, DOE acceded to FA's request to push certain milestones back by one year in order to remove the barrier to raising capital. Id.

         On December 8, 2011,

[t]hrough an obscure provision in the [Series C-1 Preferred Stock, i.e., ] April 2011 Offering documents called a “pay to play” capital call provision . . . [FA's] Board of Directors unanimously approved a 40% “pay to play” capital call imposed on all Fisker Automotive investors (the “December Capital Call”). The December Capital Call required funding beginning within as soon as three weeks. Investors, including plaintiffs, faced the severe penalty[, ] if they did not participate[, ] of having each share of preferred stock they had an interest in converted to one-half share of common stock, as well as the severe dilution of their existing interests in [FA].

SAC ¶ 79. Fisker characterized the December Capital Call as a “prudent business decision.” Id. ¶ 83.

         A safety recall of the Karma's battery was issued on December 21, 2011 by the National Highway Traffic Safety Commission. Yet FA failed to disclose that recall until Thursday December 29, 2011, “the day after the first deadline to invest in the December Capital Call had passed.” Id. ¶ 91.

         In February 2012, Henrik Fisker, FA's CEO, resigned, and was replaced by Tom LaSorda. SAC ¶ 100. The AVTM loan designated Fisker as “Key Personnel.” Another capital call was issued by FA in March 2012, SAC ¶¶ 101-02, and again in September 2012, SAC ¶ 111. By March 2013, FA was seeking advice on filing for bankruptcy. Id. ¶ 114. In November 2013, FA filed a petition seeking bankruptcy protection. Id. ¶ 125.

         B. Jurisdictional Discovery as to Li

         Jurisdictional discovery established that Li resides in Hong Kong. Dkt. 429, tab 1, at 4.[3] As explained below, Ace, whose successor is Pacific Century Group Investments (PCGI), was “a single purpose vehicle for the investment into [FA]” for Li. 442/A/11.

         Li became a member of FA's Board of Directors on January 14, 2010. 442/B. He personally attended a Board meeting in Irvine, California in March 2010. Although Li was not physically present for a Board meeting in Livornia, Michigan on September 9, 2010, he attended telephonically. 442/A/6.

         In October 2010, FA was working to complete a Series B-1 financing offer. In furtherance of that transaction, the voting agreement was to be amended so that FA would have 9 rather than 10 Directors, and that a majority would be independent directors. To effect this change, Fisker suggested to FA's Board Chairman, Ray Lane, that Li's status could change from director to observer. 429/8/2. Lane was also a managing partner of Kleiner Perkins, a venture capital firm. In an email to Fisker, Lane expressed doubt that Li would accept this proposal. 429/8/2. He also noted that Li had “played a crucial role when the company was at the brink, ” but that he did “not show up for meetings.” Id. From the email chain, it appears that Lane approached Li about the proposal. Lane explained to Li that having a representative from Ace, which Li owned, observe the Board meetings “did not constitute holding a board seat[.]” 429/8/1; see also 429/1/6/20. Usually the representative from Ace was David Manion, a member of Ace's management team. Lane informed Li that Manion's presence was not a problem but noted that Manion did not contribute. The email chain further indicates that after communicating with Li, Lane informed Fisker that Li would try to increase his involvement and that Li “definitely wants to keep the board seat, ” “but [Lane had] started the discussion about making the seat more useful.” Id.

         In November 2010, a Series B-1 Preferred Stock Purchase Agreement was issued. 442/I. It contained a “Consent to Jurisdiction” clause, which provided:

The Company, and each of the purchasers hereby irrevocably submit to the jurisdiction of the state or federal courts located in Delaware[, ] County New Castle in connection with any suit, action or other proceeding arising out of or relating to this agreement and the transactions contemplated hereby, and hereby agree not to assert, by way of motion, as a defense [a lack of jurisdiction.]

Id. This very same provision had been in the D-X Series issued in September 2009. 442/J.

         Li personally attended the December 3, 2010 Board meeting in Newport Beach, California, which afforded the directors an opportunity to test drive the Karma. 429/6. The “overall opinion was that [the] vehicle performed very well.” 429/6. On December 8 and 12, 2010, Li participated telephonically in a FA compensation committee meeting. 442/A/3. Shortly thereafter, on ...


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