Picking Losers

Lawsuit accuses Obama Energy Department of cronyism in green energy loan program, leaked patented technology

XP Vehicles
January 15, 2013

A high-tech electric car manufacturer and its related battery manufacturer are suing the Department of Energy, alleging the department improperly denied the companies a loan and leaked patented technology to competitors.

Cause of Action, a government watchdog group, is representing XP Vehicles and Limnia Inc. in two separate lawsuits in two different courts against the Department of Energy, Secretary of Energy Steven Chu, and director of the Advanced Technology Vehicles Manufacturing [ATVM] loan program Lachlan Seward.

The Department of Energy is guilty of an implied breach of contract and unconstitutional taking of private property and of violating a federal statute protecting confidential information, constitutional due process protections, and the Administrative Procedures Act, the plaintiffs allege.

Dan Epstein, executive director of Cause of Action, said XPV was an "innovative start-up company" with the potential to reshape the American automobile market that had suffered "severe due process violations" at the hands of the government.

XPV had developed an all-electric powered car that used "polymer plastics and skinned expanded foam pressure membranes to replace metal doors, body panels, hoods, and roofs on a lightweight alloy frame," according to the complaint filed in the Court of Federal Claims. The car was designed to be extremely light and affordable.

The ATVM loan program was ideal for XPV and Limnia as it allows the government to take "very high risks" on innovative companies who would have trouble accessing capital in the market, Epstein said.

XPV applied for an ATVM loan late in 2008 and Limnia in early 2009. The DOE’s "own Excel comparison matrices … placed XPV in the top 5 percent of all applicants," the complaint states.

XPV’s loan was delayed and eventually denied despite assurances that the loan application was on track. Limnia’s loan was denied just over two months after it applied.

ATVM loan recipients Fisker Automotive and Tesla Motors received special help from the Department of Energy on their applications, with Fisker getting free use of DOE conference rooms and "extraordinary access to DOE staff time," according to the complaint. Fisker has since experienced financial and supply-chain troubles that have delayed its manufacturing.

Fisker and Tesla received help and ultimately their loans because they were politically connected to the government, the suit alleges.

XPV and Limnia sought explanations from the DOE after their loan applications were denied.

According to the complaint, the explanations the department provided are inadequate and misleading. For example, the department cited the fact that XPV’s all-electric SUV did not use E85 gasoline as one reason for denying its application.

The DOE’s decision was "arbitrary and capricious" and in violation of the Administrative Procedures Act, Epstein said.

XPV and Limnia argue that their applications’ denial along with the success of their competitors’ applications demonstrates political cronyism.

"In truth, DOE’s ATVM Loan Program was nothing more than a veil for political officials to steer hundreds of millions of taxpayer dollars to government cronies, including Tesla and Fisker," states the complaint.

The Department of Energy did not return a request for comment.

XPV and Limnia also allege that the Department of Energy leaked their patented technology to competitors General Motors and Ford.

XPV and Limnia transferred so-called "protected information" to the Department of Energy through Sandia National Laboratories multiple times between 2002 and 2009. The information included patented energy-storage and pressure membrane technology. The department was bound by law to keep this information confidential.

Nevertheless, an XPV representative touring Sandia in September 2008 spotted a presentation for General Motors that incorporated Limnia’s energy-storage technology.

"When Sandia scientists Chris Moen and Daniel Dedrick were informed of this discovery, they admitted that there might be ‘a problem with that’ and suggested XPV and Limnia contact GM for a ‘partnership’ so that ‘there was no acrimony,’" the suit states.

A Sandia spokesman said Sandia does not discuss "pending litigation as a matter of policy."

XPV and Limnia also discovered late last year that Ford had incorporated their patented technology into its own plans without their knowledge. The DOE is "the only plausible conduit through which Ford obtained" Limnia and XPV’s patented and legally protected information, according to the suit.

Ford received $5.907 billion in loans from the DOE, more than 70 percent of the total amount loaned through the ATVM program.

GM did not return a request for comment.

The loans were competitively awarded, Ford spokeswoman Christin Baker said.

"Ford and Nissan were among the first companies selected to participate in the DOE program after meeting a stringent financial viability test. Ford entered into a loan agreement with DOE in 2009 and the company will pay back the entirety of this loan—with interest," she wrote in an email to the Free Beacon.

William Yeatman, an energy policy expert at the Competitive Enterprise Institute, said the lawsuit illustrates the dangers of cronyism.

"Whenever the government engages in industrial policy (i.e., whenever the government tries to create industries out of whole cloth, like the ‘green energy’ industry), politics invariably corrupts the process," Yeatman wrote in an email.

Citing Peter Schweizer’s book Throw Them All Out, Yeatman noted "$16.4 billion of the $20.5 billion in loans granted by the stimulus-created loan guarantee program ‘went to companies either run by or primarily owned by Obama financial backers.’"

Cause of Action’s Epstein said the lawsuit shows "what happens when you have the government picking winners and losers."

Limnia and XPV were an "ambitious small business enterprise effectively being destroyed by the federal government," he said.