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The U.S. Department of Justice says bankrupt EV startup Fisker’s plan to make owners pay for labor costs related to multiple recalls is illegal, according to a new filing.
The DOJ, writing on behalf of the National Highway Traffic Safety Administration (NHTSA), said in a filing submitted to Fisker’s bankruptcy docket Monday that the “scheme” violates the National Traffic and Motor Vehicle Safety Act in multiple ways. The agency told the court that it therefore objects to Fisker’s proposed settlement plan, which lays out steps to liquidate the remainder of the company. That plan could be confirmed by a judge as early as Wednesday during a previously scheduled hearing.
Fisker did not immediately respond to a request for comment.
The objection comes amid a flurry of developments in Fisker’s bankruptcy case. The U.S. Securities and Exchange Commission revealed Friday that it’s investigating the EV startup and has sent it multiple subpoenas, and objected to the settlement plan in part because it is worried Fisker hasn’t taken the proper steps to preserve company records. The landlord of Fisker’s final headquarters submitted a filing claiming that the company left the building in “complete disarray.”
Fisker first announced it would make owners pay for labor costs related to two recalls in mid-September. One has to do with the Ocean SUV’s door handles, and the other is centered around a faulty water pump that can cause loss of power. The company quickly reversed the decision. But then it changed course again near the end of last month, saying once again that owners would have to pay for these legally-required repairs.
NHTSA has contacted Fisker’s lawyers, as well as representatives for its creditors and the U.S. Trustee’s office, and says it has proposed revisions to the plan that would “resolve” its objection, according to the filing.
Fisker has stated as part of its settlement plan that it will set aside no more than $750,000 to cover the cost of physical parts required to remedy the two recalls in question. The company has also said that the total cost of those parts could be nearly twice that amount, and so it does not plan to have funds to cover labor costs.
NHTSA says in its filing that dividing “part versus labor” cost has “no legal significance” when it comes to complying with the National Traffic and Motor Vehicle Safety Act.
“The Safety Act is clear that all costs associated with remedying defective and noncompliant vehicles must be covered by the manufacturer,” the DOJ writes on behalf of the safety agency.
What’s more, the DOJ writes that attempting to cap the amount of funds available to address recalls “lacks any basis in law,” and says it specifically violates the Safety Act. It also notes that section 30120(a) of the Safety Act states that “a manufacturer’s filing of a petition in bankruptcy under chapter 7 or chapter 11 does not negate the manufacturer’s duty to comply” with the law.
Another section of the plan lays out a path for potential reimbursement of those labor costs, but that’s only if and when the Fisker Owners Association gets paid on the claim it has made as part of the bankruptcy. The DOJ says this also violates the Safety Act:
“As noted above, section 30120 of the Safety Act requires manufacturers—not vehicle owners—to cover all remediation expenses,” the DOJ writes. “This ‘owner reimbursement’ scheme compounds Fisker’s ongoing violation of § 30120(a) of the Safety Act. Therefore, the Amended DS and Plan should not be confirmed.”
Some owners have already paid out of pocket for the labor costs of these recall repairs, according to the filing. The DOJ writes that it doesn’t object to those customers being reimbursed in some way “as they should not have had to pay for that work in the first place.”
