INDYCAR: Inside The Dragon/Lotus Lawsuit

IndyCar

INDYCAR: Inside The Dragon/Lotus Lawsuit

Marshall Pruett takes a peek inside the papers filed in California by Dragon Racing and finds plenty of interesting items to discuss.

Marshall Pruett | Posted May 08, 2012

Provided Dragon Racing wins its lawsuit against Lotus, the Jay Penske-owned team could have a sizable cash award to go with the Chevy engines it's expected to use for the remainder of the season. (Photo: Marshall Pruett)

What’s 20 pages long and makes for some fascinating reading? The civil lawsuit filed by Dragon Racing against Lotus in California last Friday.

Lawsuits are filed for a variety of reasons, and in Case No. BC484135, Dragon Racing owner Jay Penske is seeking things that are tangible ($4.6 million) and intangible (vindication) as he looks to extricate himself from an engine supply contract and overall business deal gone bad.

Until we learn of a counter suit from Lotus, all we have to go on is Penske’s take on the situation. That’s not to say what Penske’s lawyer wrote (in a rather prose-laden manner) in Dragon’s suit is an accurate or inaccurate representation of what took place between both parties, but with only one side of the story being told thus far, it’s worth stating that the text from the claim below represents only one side of the argument.

The Summary

1) This action is brought by Dragon against Lotus to seek redress for fraud, breach of contract and other unlawful acts committed by Lotus arising out of a relationship forged by the parties just a few short months ago.

2) However, unbeknownst to Dragon at the time, Lotus was in the middle of a corporate reorganization, undisclosed to Dragon, and, despite its many representations to the contrary, lacked the financial ability to live up to its obligations from the inception of the relationship. Lotus immediately breached its commitments to Dragon by failing to deliver promised chassis; made false promises that it would compensate Dragon when Dragon was forced to acquire the chassis from third party sources; and repeatedly failed to honor obligations and sought to re-trade a deal it had just made. Then, already indebted (admittedly) to Dragon in an amount approaching $1 million, Lotus held Dragon hostage by refusing to deliver Lotus engines to Dragon on the eve of high profile racing events unless Dragon paid even further amounts of money. Later, rather than make good on its financial commitments to Dragon, Lotus resorted to spreading known falsehoods in an attempt to cover for its own shortcomings.

3) Simply put, Dragon has had enough of Lotus’ deceit and wrongdoing. Dragon has put an end to its ill-fated relationship with Lotus and now seeks recompense for the damages inflicted upon it.

What Does It All Mean?

The accounts of what took place vary slightly, but the end result is the same. While Lotus had its assets frozen when DRB-Hicom purchased the manufacturer from Proton in January, Lotus incurred a debt to Penske in the ballpark of $1M when he had to buy his own chassis—something Lotus was supposed to do—to which he was expecting to be re-paid. Dragon’s suit makes the clear assertion that a significant chunk of money was supposed to return to its bank account.

Dragon, for those who recall, barely made it out towards the tail-end of Spring Training in early March after “contractual issues” kept its engines sitting at Engine Developments Limited, makers of Lotus’ twin-turbo V6 powerplant.

At the time, it appeared to be another snafu on the part of Dragon, but in the days after the test session, the first public hints of a breakdown between both sides began to emerge. Dragon, feeling that it was owed $1M by Lotus, either expected (or asked) for the $100,000 engine lease deposit for Katherine Legge’s car to be subtracted from its balance.

During the protracted period where Lotus’ accounts were on lockdown, every Lotus team had shifted over to sending its payments directly to EDL, and whether it was due to a communication breakdown, or Penske being unaware of how the funding needed to be routed, the $100,000 was not apportioned from Lotus to EDL. As a result, its engine did not arrive as expected for Spring Training until Penske wrote a check to EDL.

It might seem like something as simple as forgetting to put a cover sheet on a TPS report, but the takeaway sentiment for Dragon was fairly obvious—you have our money and/or owe us money, so let’s keep things simple by you guys get an engine coming my way and then work out the internal billing for the lease deposit from the $1M that’s due.

Again, this is a one-sided take on how things went down, but based on what was filed, there appears to be a bit of salt-in-the-wound from Lotus towards Penske.

Lotus’ Miodrag Kotur told this writer at Long Beach, “I heard a lot of rumors that Jay Penske says we owe him $1 million; I don’t know from where,” which also seems to be addressed in the “rather than make good on its financial commitments to Dragon, Lotus resorted to spreading known falsehoods in an attempt to cover for its own shortcomings” part of the summary.

Over the next 10 pages, a deeper, more descriptive account of Dragon’s claims is chronicled. Here are some of the highlights:

Allegations Common To All Causes Of Action

12) On or about January 8, 2012, Defendants and Dragon entered into a binding agreement titled Memorandum of understanding (the “MOU”). The MOU is made expressly binding and was intended by the parties, barring further execution of a long form agreement, to extend through December 30, 2012.

(Interesting. Most Lotus IndyCar contracts are said to be one-year deals while Dragons’ was for two.)

13) Among other things the MOU required Lotus to provide to Dragon two (2) chassis, including manufacturer kits for use in the 2012 and 2013 IndyCar seasons. The MOUs contained further detailed terms concerning the sponsorship of Dragon, payments made to Lotus by Dragon resulting from the sponsorship agreement, promotions, drivers and details concerning the use of racing data.

(That’s a cauldron of info and possibilities. As a factory-supported team, Dragon was to not only receive a pair of Dallara DW12 chassis, but was also meant to receive funding for branding at least one of its cars (Sebastien Bourdais’ No. 7) in Lotus’ black and gold colors. Like the up-front engine lease money, Dragon, like every other team (despite its factory status), must pay for its engines per INDYCAR. It’s a bit of cat-and-mouse in practical terms; whether a team receives free engines or uses the sponsorship money it receives from a manufacturer to pay for those engines, it’s a wash in the end.)

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