Tesla and Bricklin in Court: A Tangle of Legal Issues

Last Updated Sep 23, 2009 2:52 PM EDT

This is the week for legal action in the auto world. First, Tesla Motors announced that it had settled the bitter lawsuit brought against it by company founder Martin Eberhard. The terms are confidential, and the company isn't talking about the details, but they appear to have kissed and made up.

"I'm glad that we could put this behind us and direct all our energy toward making Tesla one of the great car companies of the 21st century," said CEO Elon Musk. He described Eberhard's contribution as "indispensable," and Eberhard returned the favor by describing Musk as "extraordinary."

This was quite a departure from last June, when Musk said that Eberhard's version of events was "at odds with the truth." According to Newsweek, Musk also said, "Martin is the worst individual I've ever had the displeasure of working with." Musk said then that Eberhard had been disingenuous about materials costs for the Tesla Roadster. The $92,000 car (the preorder price) was actually costing $140,000 to build, he said. There was a lot more, but its ancient history now.

Tesla did need to get rid of distracting lawsuits, because it's deep into expansion mode, having secured $82.5 million in its series F funding round, with investments by Fjord Capital Partners in Europe and Aabar Investments in Abu Dhabi.

When Daimler put in $50 million last May, it evaluated Tesla as being worth $550 million. But Tesla has had a total of $783.5 million in investment to date, recently won $465 million in federal Department of Energy loan funds and, with partners SolarCity and Rabobank (and supported by two state California Air Resources Board loans), yesterday opened a Los Angeles to San Francisco EV charging corridor--exclusively for Tesla Roadsters so far. Tesla has also filed lawsuits, notably in 2008 against Henrik Fisker for wrongful use of trade secrets over the aborted White Star project (later taken in-house as the Model S). Fisker won that one. Fisker is now, like Tesla, flying high: its own huge $528 million Department of Energy loan was announced September 22. Fisker will use the money largely for Project NINA, which is to launch a U.S.-built plug-in hybrid priced at around $39,900 (after $7,500 in federal tax credits, so expect a MSRP of $47,400).

In other legal news, the always colorful Malcolm Bricklin announced that he has finally been able to serve papers in his federal court suit against the Chinese automaker Chery Automobile. The story, told in The Entrepreneur, a documentary about Bricklin, is lurid. Bricklin claims that the Chinese automaker entered into an agreement with Bricklin's V Cars (then Visionary Vehicles) but broke the deal and stole intellectual property. A 72-page lawsuit, filed last year, claimed the loss of $26 million in investment and $14 billion in potential profits.

According to Bricklin, Chery repeatedly refused V Cars' FedEx packages. "In accordance with the Hague Convention, V Cars had the documents translated and sent to the Central Authority in China, where it was received November 10, 2008," says V Cars in a release. But six months later, according to V Cars, the Ministry of Justice refused to serve the papers on Chery because a line in the lawsuit referred to China as a "Communist, autocratic state." Another attempt was derailed, Bricklin says, when Chery (one of the largest automakers in China) could not be located.

V Cars said September 23 it had finally delivered the suit to Chery, and the Chinese company has retained Miller Canfield as counsel in Michigan. A call to attorney Matthew Leitman was not returned.

In a telephone interview, Bricklin told me, "Welcome to China! If they're going to do business outside of China, they'll have to agree to some common rules." He said he believes that Chery will settle the suit rather than see it reach a Michigan court. But Chery may well take issue with that.