By Dietrich Knauth

NEW YORK Bankrupt Lordstown Motors must face trial over a rival carmaker's claim that Lordstown vehicles include stolen technology, a U.S. judge ruled Thursday, dealing a blow to the company's hopes for a quick bankruptcy sale.

The automaker, named after the Ohio town where it is based, filed for bankruptcy in June and had asked U.S. Bankruptcy Judge Mary Walrath in Wilmington, Delaware, to approve bidding procedures that would allow the company to sell its assets by September.

Walrath instead said a sale should not be expedited while a California court is weighing a lawsuit by a rival carmaker that raises questions about some of the assets Lordstown seeks to sell.

California-based Karma Automotive sued Lordstown in 2020 for allegedly poaching its employees and stealing technology used in vehicle infotainment systems. That case had been scheduled for trial in September before being placed on hold by Lordstown's bankruptcy.

"The critical issue in this case is whether the debtors own the property that they want to sell," Walrath said at a court hearing. "The California court ... should decide those issues."

Lordstown and Karma did not immediately respond to a request for comment.

Walrath said Lordstown was not at risk of running out of cash before a sale or a California verdict, because it entered bankruptcy with over $130 million in cash and it owed only about $20 million to its top creditors.

The September deadline "appears to be designed solely to get this done before a Karma decision can be made in the California litigation," Walrath said.

Walrath allowed Karma to proceed to trial on its claims against Lordstown, overruling bankruptcy protections that typically pause lawsuits against bankrupt companies. Because the lawsuit has been proceeding for three years, the California court is in a better position to rule on "exactly what Karma may or may not own," she said.

The judge said she intends to revisit Lordstown's proposed sale process in early August, taking a short delay to see whether it receives any initial bids by a July 31 deadline.

In addition to the Karma dispute, Lordstown is also engaged in litigation against several other parties, including its former partner Foxconn and several investor groups.

(Reporting by Dietrich Knauth; Editing by Bill Berkrot)