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Item 1. Legal Proceedings

2022-05-16 compared with 2021-11-15 · 42 added, 29 removed, 23 unchanged (76% of the section changed)

LEGAL PROCEEDINGS

On August 19, 2019, we filed suit in the United States District Court for the Southern District of New York against three former executives of the Company who were founders of Firestorm (the “Firestorm Principals”)—Rekor Systems, Inc.

On August 19, 2019, we filed suit in the United States District Court for the Southern District of New York against three former executives of the Company who were founders of two related former subsidiaries (the “Firestorm Principals”)—Rekor Systems, Inc.

Suzanne Loughlin, et al., Case no.

1:19-cv-07767-VEC.

On January 30, 2020, we filed a Second Amended Complaint (the “Complaint”).

The Complaint alleges that the Firestorm Principals fraudulently induced the execution of the Membership Interest Purchase Agreement wherein Firestorm was acquired by the Company.

The Complaint requests equitable rescission of that transaction, or, alternatively, monetary damages.

Following an initial amended complaint, answer and counterclaims, and defendants’ motion for judgment on the pleadings, on January 30, 2020, we filed a Second Amended Complaint, which the Firestorm Principals answered together with counterclaims on February 28, 2020.

Thereafter, on March 30, we moved to dismiss certain counterclaims against certain directors and officers named as counterclaim-defendants, which resulted in the Firestorm Principals voluntarily dismissing the counterclaims against those parties.

Thereafter we filed our response and affirmative defenses to the Counterclaims on April 22, 2020.

On April 27, 2020, the Firestorm Principals filed a Motion for Partial Judgment on the Pleadings, which we have opposed.

In addition, on December 9, 2019, the Firestorm Principals filed a motion for an interim award of expenses and attorney’s fees.

With respect to the Firestorm Principals’ motion for judgment on the pleadings, the Court’s November 23, 2020 order denied that motion in its entirety.

In that same order, the Court granted in part and denied in part the Firestorm Principals’ fee advance motion.

On April 27, 2021, the Firestorm Principals filed a notice of motion for partial summary judgment, seeking summary judgment on several of our claims and the Firestorm Principals’ counterclaims, along with supporting declarations and exhibits.

After the Court decided to allow the proposed motion to proceed, we, along with counterclaim-defendants Firestorm Franchising, LLC and Firestorm Solutions, LLC, filed their opposition to the partial summary judgment motion on June 21, 2021.

The Firestorm Principals filed their reply in support of their partial summary judgment motion on July 9, 2021.

The Complaint also alleges claims for breach of fiduciary duty, violations of the Computer Fraud and Abuse Act (“CFAA”), conversion, and trespass to chattels arising from the Firestorm Principals’

alleged deletion of company email records.

The Complaint requests equitable rescission of the acquisition transaction and monetary damages.

The Firestorm Principals answered together with counterclaims on February 28, 2020.

Thereafter, on March 30, we moved to dismiss certain counterclaims against certain directors and officers named as counterclaim-defendants, resulting in the Firestorm Principals voluntarily dismissing the counterclaims against those parties.

Thereafter the Company filed its response and affirmative defenses to the Counterclaims on April 22, 2020.

On April 27, 2020, the Firestorm Principals filed a Motion for Partial Judgment on the Pleadings, which we opposed.

In addition, on December 9, 2019, the Firestorm Principals filed a motion for an interim award of expenses and attorney’s fees.

With respect to the Firestorm Principals’

motion for judgment on the pleadings, the Court’s November 23, 2020 order denied that motion in its entirety.

In that same order, the Court granted in part and denied in part the Firestorm Principals’

fee advance motion.

On April 27, 2021, the Firestorm Principals filed a notice of motion for partial summary judgment, seeking summary judgment on several of the Company’s claims and the Firestorm Principals’

counterclaims, which the Company, along with counterclaim-defendants Firestorm Franchising, LLC and Firestorm Solutions, LLC, opposed.

On March 14, 2022, the Court issued an opinion and order which denied summary judgment to the Firestorm Principals on the Company's main fraudulent omission claim, the conversion and trespass to chattels claims as to Defendants Loughlin and Rhulen and the breach of fiduciary duty claim as to Defendant Loughlin.

The Court also denied summary judgment to the Firestorm Principals on their breach of warrants, anticipatory breach of warrants, and anticipatory breach of promissory notes counterclaims and the breach of contract counterclaim asserted by Defendant Satterfield.

The Court granted summary judgment to the Firestorm Principals on our CFAA claims, based on recent case law clarifying that such claims do not apply to employees who have authorized access to an employer’s computer and misuse that access, and granted summary judgment on our CFAA, conversion, and trespass to chattels claims against one defendant because Rekor represented it was prepared to dismiss those claims.

The Court also granted summary judgment on one breach of contract counterclaim asserted by a company related to the Firestorm Principals, holding that the $25,500 amount at issue could not be set off by or recouped from our damages in the case.

In 2020, the Firestorm Principals filed various suits in New York, Delaware and Virginia against our directors and officers, alleging breach of fiduciary duty and libel.

The defendants in the suits moved to dismiss the amended complaint.

At this stage of these litigations, suits against two of the directors have been dismissed and one has been permitted to proceed.

On September 28, 2021, the Court issued an order denying the motion to dismiss.

On October 21, 2021, the Delaware Action defendants filed a motion for reconsideration of the Court’s September 28, 2021 order.

The defendants in the suits moved to dismiss these complaints.

At this stage of these litigations, suits against two of the directors have been dismissed.

On September 28, 2021, the Court issued an order denying the motion to dismiss one of the actions in Delaware. On October 21, 2021, the Delaware Action defendants filed a motion for reconsideration of the Court’s dismissal order;

that reconsideration motion was denied on February 28, 2022. On March 16, 2022, the court in the Virginia Action dismissed the breach of fiduciary duty claim without prejudice (so it can be refiled in Delaware Chancery Court) and denied the motion with respect to the defamation claim on jurisdictional grounds.

The defamation claim will now be challenged on substantive grounds.

At this stage of these litigations, we are unable to render an opinion regarding the likelihood of a favorable outcome.

The we intend to continue vigorously litigating its claims against the Firestorm Principals and believe that the Firestorm Principals’ remaining counterclaims and suits against Rekor directors and officers are without merit.

We intend to continue vigorously litigating its claims against the Firestorm Principals and believe that the Firestorm Principals’

remaining counterclaims and suits against Rekor directors and officers are without merit.

On January 31, 2020, our wholly-owned subsidiary, OpenALPR, filed a complaint in the US District Court for the Western District of Pennsylvania against a former customer, Plate Capture Solutions, Inc.

(“PCS”) for breach of software license agreements pursuant to which software was licensed to PCS.

On June 14, 2020, PCS filed its operative answer to the Complaint.

On June 21, 2020, PCS filed a motion to join us and another entity, OpenALPR Technology, Inc., as parties to the litigation and made claims against them and counter claims against OpenALPR for defamation, fraud and intentional interference with existing and future business relationships.

On June 21, 2020, PCS filed a motion to join us and another entity, OpenALPR Technology, Inc., as parties to the litigation and made claims against them and counterclaims against OpenALPR for defamation, fraud and intentional interference with existing and future business relationships.

On July 13, 2020, OpenALPR filed an opposition to the motion for joinder.

On November 23, 2020, the court denied PCS’s Motion for Joinder with prejudice.

On August 30, 2021, OpenALPR and PCS filed a joint stipulation of dismissal with prejudice, and the court ordered dismissal of the case with prejudice on August 31, 2021.

1 unchanged sentence

On September 18, 2020, Fordham Financial Management, Inc.

(“Fordham”) commenced a lawsuit against us in the Supreme Court for the State of New York, New York County.

Fordham alleges that we breached an underwriting agreement with Fordham.

Fordham has brought claims for breach of contract, a declaratory judgment, and attorneys’ fees and expenses, and seeks damages.

Fordham has brought claims for breach of contract, a declaratory judgment, and attorneys’

fees and expenses, and seeks damages.

The Complaint was served to us on September 25, 2020.

We issued a motion to dismiss counterclaims on June 23, 2021, our opposition has been filed and Fordham’s reply will be due on August 19, 2021.

The Court granted Fordham’s motion to dismiss our counterclaims on October 21, 2021.

We issued a motion to dismiss counterclaims on June 23, 2021.

The Court granted Fordham’s motion to dismiss our counterclaims on October 23, 2021. On November 29, 2021, the Company filed a notice of appeal with the Appellate Division and a motion to reargue that decision and order, arguing that the court misunderstood the nature and purpose of the prospectus supplement, which was actually prepared by plaintiff after it set the prices for the 2018 offering. On March 3, 2022, the court denied the motion to reargue. In doing so, however, the court clarified that the dismissal was without prejudice, which would permit the Company to refashion the counterclaims.

Meanwhile, the Company’s deadline to perfect its concurrent appeal in the appellate division is May 30, 2022.

At this stage of the Fordham litigation, we are unable to render an opinion regarding the likelihood of a favorable outcome.

However, we maintain that Fordham’s claims have no merit.

To that end we intend to vigorously litigate this action.

1 unchanged sentence

Rekor Systems, Inc.

et al.) was filed in in the United States District Court for the District of Maryland, naming as defendants Rekor Systems, Inc.

et al.) was filed in the United States District Court for the District of Maryland, naming as defendants Rekor Systems, Inc.

and certain of its officers.

It alleges violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 related to our automatic license plate recognition technology and uninsured vehicle enforcement diversion related business and seeks damages on behalf of shareowners who acquired our stock between April 12, 2019 and May 25, 2021.

The court has appointed a lead plaintiff.

In November 2021, the plaintiff filed an order of dismissal, seeking to voluntarily dismiss without prejudice the Lawsuit that it had filed against us and several of our executives.

It alleges violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 related to our automatic license plate recognition technology and uninsured vehicle enforcement diversion related business and sought damages on behalf of shareowners who acquired our stock between April 12, 2019 and May 25, 2021.

The court appointed a lead plaintiff.

In November 2021, the plaintiff filed an order of dismissal, seeking to voluntarily dismiss without prejudice.

This matter was voluntarily dismissed without prejudice. 

In addition, from time to time, we may be named as a party to various other lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of business.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Legal Proceedings