Cronyism Lawsuit Against Energy Department’s $25 Billion Green Energy Program Advances

Federal judge rules ‘political favoritism’ lawsuit against DOE can proceed

Tesla Model S Sedan
Tesla Model S Sedan / Wikimedia Commons
August 6, 2015

A federal judge in Washington, D.C., has ruled that a lawsuit filed by a government watchdog group against the Department of Energy over "political favoritism" within a multi-billion dollar federal green energy loan program can advance.

Cause of Action, a nonpartisan watchdog group, submitted the lawsuit against the DOE arguing the agency awarded loans to companies based on political connections and donations while denying money to similar companies who do not have the same political clout.

The DOE program in question, the $25 billion Advanced Vehicle Manufacturing Loan Program, was created in 2008 with the intent of supporting the development of energy-efficient cars. The group submitted the lawsuit on behalf of the now dissolved XP Vehicles and Limnia—a former California vehicle company.

Within the complaint, which was initially filed on Nov. 14, 2012, in the U.S. Court of Federal Claims, XP alleges "corruption and negligence" pervaded the Department of Energy’s decision to award loan guarantees to Nissan, Ford, Tesla Motors, and Fisker Automotive for the development of electric vehicle technology.

"When politicians and agencies allow companies to purchase government access, the basic foundation of our free market economy is compromised," Dan Epstein, president of Cause of Action, told the Washington Free Beacon.

Epstein elaborated on this point in a recent op-ed published in The Hill.

Epstein notes Tesla Motors—one of the companies awarded money from the Advanced Vehicle Manufacturing Loan Program—had plenty of connections and access to give them an advantage over a company such as XP Vehicles.

Tesla’s founder, Elon Musk, was a maxed out donor to President Obama. Steven Westly, a board member of Tesla, was appointed to a Department of Energy advisory board. Additionally, an investor and adviser of Tesla, Steven Spinner, served as a program analyst at the Department of Energy from 2009 to 2010. Spinner helped monitor the issuance of the $25 billion coming from the program.

Another beneficiary of the program, Fisker Automotive, also had high-dollar donors to President Obama.

Fisker was backed by a San Francisco-based venture capital firm whose senior advisers donated millions to Democrats during the 2008 election cycle, including Obama. John Doerr, a partner of the group, later secured a seat on the President’s Council of Jobs and Competitiveness and helped Fisker land $192 million in government energy loans. The company has since gone bankrupt.

XP Vehicles and Limnia, on the other hand, were rejected twice by the Department of Energy for what Epstein says are "bogus reasons" despite being similar to other companies who received federal money to aid the manufacturing of energy-efficient cars.

"For starters, the department made claims that were laughably false. To take one example: It rejected XPV’s application because its vehicle was powered by hydrogen. It was an electric SUV. It also raised objections that it didn’t raise with other companies whose applications were approved," Epstein wrote. "For instance: The bureaucracy criticized the proposed all-electric vehicle for not using a specific type of gasoline. Yet Tesla and Fisker received the loans despite producing similar all-electric cars."

As a result, XP Vehicles could not compete with the other heavily subsidized companies and has since gone out of business.

Epstein called the recent ruling by a federal district court that allows his lawsuit to advance "groundbreaking" and a victory for individuals and businesses everywhere.

"For the first time, a federal district court has confirmed there is a legal remedy when cronyism influences federal administrative discretionary spending," Epstein told the Free Beacon. "This groundbreaking opinion establishes that the government owes everyone—not just presidential campaign donors—a fair shake when awarding government funds."

"Judge Ketanji Brown Jackson’s common-sense judgment that government decisions tainted by cronyism and political favoritism are ‘arbitrary and capricious’ is a victory for individuals and businesses everywhere."