Judge Diane J. Humetewa of the District of Arizona denied a motion by former Nikola Corporation CEOs Mark A. Russell and Michael Lohscheller to extend the bankruptcy stay to their individual defense in a securities fraud class action.
The lawsuit, brought by public stockholders, alleges that Russell and Lohscheller violated Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5(b) through materially misleading statements regarding the company’s electric vehicles and financial condition.
Nikola Corporation has since filed for Chapter 11 bankruptcy, prompting Russell and Lohscheller to seek a stay of proceedings against them personally. They argued that the claims were inextricably linked to the corporate debtor and that they would face undue hardship from discovery.
The court rejected the argument for an automatic stay under Section 362(a) of the Bankruptcy Code, holding that plaintiffs had properly demarcated statements made by the individual defendants from those attributed to Nikola. The court noted that securities laws allow for personal liability against officers and directors, creating a meaningful distinction between the corporate entity and its former leaders.
The court also declined to exercise its inherent authority to stay the case, weighing the potential damage to plaintiffs against the burden on defendants. It accepted plaintiff arguments that witnesses’ memories of events occurring over three years ago, including defective truck battery rollouts and quality readiness meetings, were at risk of fading, creating a fair possibility that a stay would work damage on the plaintiffs.
Furthermore, the court determined that the bankruptcy proceeding was not sufficiently related to the securities claims against Russell and Lohscheller. The bankruptcy court is handling Nikola’s restructuring, not examining the individual defendants’ alleged misrepresentations, meaning a stay would not contribute to resolving the factual and legal issues in the district court.
The order denies the motion to stay proceedings and resets a Rule 16 scheduling conference for May 21, 2026.