Exclusive From The Electric: Why Has QuantumScape Moved to Seize the Home of Its Former Chief Strategy Officer?
In the bizarre climax of a four-year legal dispute over stock options, next-generation battery developer QuantumScape has moved to seize the home of its former chief strategy officer to cover $1.1 million in lawyer fees it says it racked up in the case.
The move—which could allow the company to force the sale of industry veteran Bart Riley’s five-bedroom home in Weston, Mass.—stems from QuantumScape’s 14-year-old effort to develop a lithium-metal battery to power electric vehicles.
Riley joined QuantumScape as its 27th employee in 2012, leading the design of its battery. But in 2016, then-CEO Jagdeep Singh fired him. As part of the separation agreement, QuantumScape gave Riley a consulting contract that allowed him to keep one-quarter of his vested options, which he estimated would have been worth $24 million in 2021, a few months after QuantumScape went public.
In 2020, however, just before QuantumScape announced its coming public listing, Riley learned that his contract had lapsed the previous year, invalidating his options. In 2021, Riley filed a complaint with an arbitrator—as he was required to do under the agreement—claiming that QuantumScape was supposed to notify him if it wasn’t renewing his contract so he had a chance to exercise his options. The company replied that it had met its contractual obligations, and an arbitrator and two federal courts have ruled in its favor. Most recently, the Ninth Circuit Court of Appeals in San Francisco on March 1 denied Riley’s claim, affirming a U.S. District Court ruling that also ordered Riley to pay $1.1 million in attorney’s fees, costs and interest that QuantumScape says it accumulated fighting his lawsuit.
On Aug. 5, a Massachusetts state judge granted a motion allowing QuantumScape to attach Riley’s home to cover its legal fees, according to court documents. If Riley cannot come up with the money by Aug. 31, the order allows QuantumScape to seek a forced public auction of the house to cover its legal bills. Riley would receive whatever is left over. The 5,000-square-foot house, which sits on 2.9 acres of land, is worth more than $2.5 million, according to online real estate websites.
The dispute reflects the central place options hold in Silicon Valley, where they can account for much of an employee’s compensation. Startups typically attract employees with lavish option grants; most startups fail, but when they succeed, those options can be worth millions.
Still, options disputes are usually settled well before they reach an arbitrator or a courtroom, according to Patrick Hammon, a financial, civil litigation and intellectual property lawyer with Pillsbury Winthrop Shaw Pittman in Palo Alto, Calif. Hammon said he had never heard of an options dispute resulting in someone’s home being seized. "When you’re dealing with an executive where there’s already some concern about bad publicity, where there should be a recognition that we may be doing business with that same person or need that person in the future, it does seem a little bit aggressive,” Hammon said.
In Riley, QuantumScape had hired one of the best-known figures in the then-nascent U.S. battery industry. In 2001, Riley co-founded A123 Systems along with Yet-Ming Chiang, a professor at Massachusetts Institute of Technology. The company developed one of the world’s first commercial lithium-iron-phosphate batteries, today the world’s most prevalent EV battery.
By 2009, A123 was a Wall Street darling, and it conducted the largest initial public offering of that year. Those heady days were short-lived. In 2012, Fisker Automotive recalled its EVs containing A123’s batteries over a mechanical issue, forcing cash-strapped A123 into bankruptcy.
Shortly after, QuantumScape hired Riley on a half-time contract, granting him options on 1% of the company’s shares to run its research and development effort. I knew him at the time, and he was much in demand to consult for battery startups.
Over the next four years, QuantumScape developed its battery much as it is today, with a separator made of lithium lanthanum zirconium oxide allowing for the safe use of highly volatile lithium metal. The battery also employs a design known as “anodeless,” in which the battery self-creates the anode, eliminating the need for a lot of expensive conventional factory equipment.
Riley said that tension built between him and Singh, then CEO and now company chair. QuantumScape declined to comment.
In the separation agreement, contained in court documents, Riley agreed not to poach QuantumScape employees, disparage the company publicly or work for a direct competitor. He also agreed to be available for any questions the company might have about the technology. In exchange, Singh granted him 25% of his vested options for a six-year period. According to Riley, Singh said the board would not agree to a six-year contract, so he would be given a two-year contract, followed by a series of one-year renewals.
In late 2018, QuantumScape extended Riley’s contract for a year. But in August 2020, Riley realized he had not received the second extension, due eight or nine months earlier. He contacted a QuantumScape executive, who told him the company would work through how to proceed, Riley said.
In September 2020, QuantumScape announced it was going public. Riley said he again contacted the company, which now told him it would not renew or honor the lapsed contract. Instead, it offered 15,000 to 20,000 restricted stock units—10% of what he had been promised in the separation letter.
In February 2021, Riley filed for arbitration, saying the offer was not “fair in light of his agreement with the company when he left and his contributions to the company’s success.”
The crux of Riley’s claim was that, according to the separation agreement, the company had to give him 14 days’ notice in writing if it wanted to terminate the arrangement, and that it had not done so. The company replied that the one-year contract renewal, which expired on Dec. 31, 2019, served as notice that the agreement would terminate. The arbitrator agreed with the company, as did two federal courts to which Riley appealed.
I had been speaking with Riley for months about his pursuit of what he considered unfairly lost options. But last weekend, he left a phone message with a more urgent tone—it was about the attachment order. In a subsequent conversation, he said he didn’t have $1 million in cash and was scrambling to get it—potentially from a retirement account, a second home in Martha’s Vineyard or options from another startup with which he was involved.
“Their recourse if I don’t pay is to start a sheriff’s auction on my home, which would be sad since this is where I raised my kids,” he said. “But that’s the situation in terms of correspondence with the company—try and get them to be human beings.”