Official Transcript of Day 3.
Two cases, sentencing hearings, were heard by Altonaga before turning to Rossi v Darden:
- An elderly defendant had pled guilty to possession of child pornography. “I was curious,” he said in his statement. He had, however, downloaded multiple files from a Tor directory. Altonaga read the filenames and described the videos. Sex between adults and prepubescent children. The man had previously been convicted of sexual conduct with minors, was registered as a sex offender, was on probation. Curiosity killed the cat. Sex addict, I’ve seen and known many. We had a President who was a sex addict, willing to risk his entire career because an intern offered him some candy. Addictions can kill you. Altonaga sentenced him to 20 years. She read the descriptions of the videos without showing any emotion. He will almost certainly die in prison, and his life would be at risk there from other prisoners.
- A relatively young man, perhaps approaching middle age, pled guilty to distributing marijuana. He had been a mule, transporting, as I recall, roughly 500 kg from Canada 0ver a period of time. There was a plea agreement. Probation. The man turned around, looking at someone in the gallery, and flashed a smile, which I read, perhaps unfairly, as “I got away with it!” For his sake, I would hope that this didn’t translate to “I can do it again.” On the other hand, this is a mostly victimless crime — my opinion, though I have extensive knowledge of the topic.
So then RvD jury selection began again. This time, almost the entire Gallery was devoted to additional prospective juror seating. Others were allowed one row, six rows for possible jurors, and one empty row in between, to buffer the jurors from the public.
They started with sixty candidates, but one was excused before being brought in. In reading the list of witnesses, I noticed that Rossi was read with the honorific, “Doctor,” but the actual PhD (his expert witness Wong) was not. Nor were Bo Hoistad or Levi, who may have equivalent degrees.
The Judge explained the burden of proof for decision in a civil case as “preponderance of the evidence,” there is no prejudice for the defense as in criminal cases. However, with an “affirmative defense,” the defense has the burden of proof that the defense applies.
The case overview was read by the Judge.
The prospective jurors were told that the trial was to end the week of July 24.
One of the questions asked of the jury: “Have you ever been reprimanded by a third party for doing something your boss told you to do?”
There was a lunch break from 12:30 to 1:30.
With the panel still out of the room, the way that boiling down the jury occurred was that the judge made some recommendations to excuse certain jurors, and then the parties objected or didn’t. Almost entirely, or entirely, I’m not sure, they didn’t. This was very fast and I didn’t understand the language at first. I tried to keep track of jurors “struck,” but I think I missed the first ones. What I recorded, probably, was the ones struck on unprompted motion by the parties. That was 32.
The lawyer would say the juror number and something like strike for cause,” or just plain “strike.” if the latter, it was discretionary, and each party had only so many discretionary dismissals. Rossi and IH used them all. I’m not sure if the 3rd party lawyers used any. When this was all done, they were down to 13 jurors. There was no objection and Altonaga mentioned that if necessary, they could deal with the possible extra juror later. (The federal rules have 6-12 jurors, but apparently it is possible to have more if the parties consent, and if it is necessary to dismiss a juror later, they would still have 12.)
The last thing anyone wants is another mistrial. If that was going to happen, the morning of the second day was much better than later!
Then the jurors were brought in and the names of those chosen were read, and the rest were allowed to leave (with the same joke about locking down the courthouse. — it is probably also what they would do. Altonaga did not repeat her joke about “who is enjoying being here?”)
So, then, opening statements.
Plaintiff (Rossi, delivered by Chaiken again)
Quotations here are generally from the Law360 article, which was good coverage of the arguments presented. My comments are then in italics.
Chaiken told the jury that Cherokee boasted about the technology.
My recollection is that this was an internal memo, where distinction may have been lost between Cherokee qua Cherokee and Darden and Vaughn and the new LLC. The point would be that Cherokee considered itself the active party, supporting the Rossi narrative.
When it came time to pay, they refused.
This, again is familiar story. This doesn’t match the evidence, i.e., as to timing. IH protested that Doral was not the GPT and Penon not the ERV (for a GPT) no later than December of 2015, after Rossi had excluded the IH engineer, Murray, and the demand for payment was not issued by Rossi until toward the end of March, 2016. Annesser threatened IH with suit for anticipatory breach in December. It was not some sudden surprise, as implied.
Chaiken quoted a “Leader in LENR,” praising Rossi and the technology. Then at the end of those quotations he revealed that the “leader” was Darden.
As if Darden being initially enthusiastic proves anything about what happened later. It is quite clear that Darden was enthusiastic, but if one reads the statements to investors there were also caveats and concerns. Chaiken is presenting cherry-picked pieces of the story, which may well be normal for attorneys, but … this factoid demonstrates nothing of relevance, as far as I can see, other than what is obvious: Darden hoped for success. In order to maintain the full Rossi narrative though, Chaiken will need to show that Darden was lying to his own investors, which is about the most personally dangerous thing for an investment manager to do. Doing that, one can end up bankrupt and even in jail.
Chaiken claimed that if Rossi had known that IH wasn’t fully owned and backed by Cherokee, he would not have agreed.
As Pace will point out in his opening, the License Agreement contained an Entire Agreement clause, makin it a clear matter of written agreement that was no dependence on prior representations (oral or drafts or whatever). As well, Rossi had the better part of a year to change his mind with no loss (and even some gain, i.e., perhaps interest on $1.5 million. All he had to do was cancel by returning the $1.5 million.)
Chaiken created a “timeline,” this day (unlike Wednesday). It was a set of charts with a horizontal line with years labelled, set up on a series of easels. Three, I think. The lines did not line up and the charts were tilted.
Small thing, it might seem. However, my communications training would suggest avoiding that, it looked messy, and it got worse when Chaiken wrote on the chart. These things create subtle impressions.
Then, Chaiken wrote on the chart.
His writing was small and messy and mostly unreadable. It was surprisingly unprofessional. Chaiken is not the most experienced lawyer on the Rossi team, I’d bet that this would be Lukacs, but Lukacs is new to the case. Nevertheless, Chaiken does have substantial experience. He speaks in bursts, it was quite noticeable. The effect on me was that I didn’t trust what he was saying, but I know too much, I know many of the half-truths and misrepresentations already, so it is difficult for me to assess the effect on the jury. I’ll be watching for clues.
As I write this, I’m sitting in an apartment with a view of the Miami skyline to the west from a point a few blocks north of the Court. There are fireworks. Yay freedom!
As Chaiken described some bit of evidence, he would place a marker on the chart for when this was said. It took me some time to figure out what he was doing. My guess is that some jurors would be similarly confused.
He placed almost all the markers above the line, as “positive.”And then he claimed that in May, 2015, Darden changed his tune. What happened in May, 2015? “IH sold 4% of the company for $50 million, to Woodford Fund.
In fact, none of the company was sold, this is a misleading representation. It is in the Statement of the case this way:
“Second, in the alternative to their claim for breach of the License Agreement, Plaintiffs claim that Industrial Heat and IPH were unjustly enriched by certain benefits provided to them by Plaintiffs. Specifically, Plaintiffs claim that Industrial Heat and IPH successfully sold 4% of their
company in return for $50 million as a result of Dr. Rossi’s efforts in continuing to provide consulting services to Industrial Heat and IPH.”
There is no evidence that the Woodford investment was a result of Rossi’s continued activity, but was apparently in spite of it. When I get a chance, I’ll link to the Ampenergo Notes. The investment was planned in 2014. Woodford did visit the Plant in February, as the “test” was beginning. I’d have wanted to see it too. I would not have been impressed by an alleged 1 MW plant with the alleged steam disappearing through a hole in a wall, invisible, with no major radiant heat.
Second, 4% of IH was not sold. From whom was it bought? Who was allegedly enriched? What actually happened was that Woodford wanted to invest, but did not want to invest in the planned master LLC, IPH International, Bv. Why not? Almost certainly to avoid placing their investment at risk from Rossi behavior. IPH was on the hook for the License Agreement contingent liability, if that existed. (That is why IPH has been sued.) Instead, IH itself was sold, in toto, to IH Holdings International, Ltd., through a stock swap. So the original investors became investors in IHHI. They did not receive payments. Then Woodfford was allowed to buy preferred stock, at about $45 per share, this stock, if I understand it correctly, has the same voting power as shares worth 4500 times less.
This was a device for allowing Woodford to make a major investment, supporting the goals of IHHI (which is about research and development in LENR, definitely not quick profit), while allowing operational control to remain in the hands of Darden and other major investors. Obviously, Woodford trusted Darden and friends. This wasn’t an arms-length sale establishing a value of the company. IHHI has spent much or most of that investment, and Woodford, per Ampenergo and IH deposition, was prepared to invest another $150 million if needed (and may still be so prepared). So if they were convinced it was appropriate, IHHI could have paid Rossi his $89 million and had money left over for commercialization.
Nobody was “unjustly enriched.” IH was, perhaps, rewarded for taking a bold and very risky step, buying the License from Rossi. That made the entire field of LENR research safer for investment, though still very risky. Rossi is angry, obviously, because he didn’t and couldn’t get any of this money without doing what he either couldn’t or chose not to do, teach IH how to make devices that would pass fully independent testing.
“They wasted no time telling investors and potential investors that E-Cat actually works and that they were in possession of the technology,” Chaiken said.
At one point, in an investment memorandum, International Heat [sic, Industrial Heat] said the future success of the company was dependent on one key individual: Rossi, according to Chaiken.
This is all fundamentally irrelevant to these case. It establishes, if accurate, that someone was enthusiastic about the Rossi investment. (Who is not specified in this report, and the Chaiken opening is quite vague as to who did or said what. “They” is not specific. However, this is just an opening statement and can be vague. The goal is to plant ideas in the minds of the jury, that they then may stick facts they learn on.)
“They’re telling their investors they’ve got LeBron James on their team and if they’re going to the NBA Finals, they’re going to ride him all the way there,” he said.
There is no doubt that Darden was optimistic. Had he not been optimistic, behaving consistently with that, Rossi’s long-term behavior was well-known. He’d have pulled the plug.
But International Heat changed its tune in May 2015, he said, when it successfully sold 4 percent of the company for $50 million. After that investment, Chaiken said the narrative changed, and the company began to say that Rossi was unreliable and that the test results of his E-Cat technology were unreliable.
That was a highly selective reading of the record.
The evidence that has been revealed to the public shows that Darden had always, with investors, maintained caveats, and questions about the various tests, such as the Validation Test, and that Rossi had refused efforts by IH to gain more independent support for claimed results. IH simply did not use these to pull the plug on Rossi, continuing to hope that he would reveal what was needed to make devices that worked. Depositions show that if there was even a 1% chance that the reactors actually worked, with a transferable technology, they were willing to continue.
Chaiken is not about to mention the obvious turning point. By May, 2016, IH was realizing that they didn’t know what was actually happening in Doral. At the beginning of July ,then, Vaughn informed Rossi that he would be visiting with the new IH Director of Engineering. Rossi refused to allow it, giving no particular reason. This was a violation of the Term Sheet, and if this had actually been the GPT, would be a major offense, not allowing IH to observe the test with their own experts. (Rossi also prohibited independent experts from observing the Validation Test, claiming it would cause him “big problems.” Indeed.) At that point, all possibility of cooperation vanished. Rossi was shutting IH out. Johnson, in December, backed up Rossi, and so did Annesser.
Of course they changed their tune!
Defendants (Darden et al)
Christopher Pace of Jones Day … told jurors a different story, one in which his clients were deliberately lied to regarding the performance of the E-Cat.
That’s an easy take-away, but not the emphasis of Pace. Rather, he talked about, for example, a “fake customer,” and various examples of fakery shown in the evidence.
… That [GPT] performance test allegedly took place in a warehouse in Doral, Florida, but Pace told jurors the whole thing was a sham.
He said his clients let Rossi take the equipment from North Carolina, where the defendants are located, to Florida because Rossi said he had found a customer that wanted to use the E-Cat and could test it in a real-world scenario. Rossi told them the customer, JM Products, was an affiliate of Johnson Matthey, a U.K.-based multinational chemical company.
This gets really interesting. Rossi denies, under oath, that he told IH that about JM. Rossi has claimed that Darden has perjured himself, yet the documentary shows that IH believed that JM (notice the initials!) was the real customer. Rossi did not deny that to them, but affirmed that “their customer” was JMP, a newly formed corporation, formed by Johnson, all the while claiming that maybe the owners, after some successful operation, would allow their names to be revealed. And “I wasn’t supposed to mention their name.” This was outright lying while attempting to set up plausible deniability, and the jury will see this easily in the evidence. No knowledge of nuclear physics or steam engineering needed, just ordinary common sense.
James Bass, in correspondence with Rossi, clearly thought the real customer was JM. And Johnson admits that his certification that the owner of JMP was a “U.K. entity” was false, but a plan, and they decided not to create the “U.K. entity” because it was too expensive. However, why would they even want to create a U.K. entity? It is totally obvious: to justify that declaration that allowed the appearance to continue that JMC/JMP was owned by JM, a U.K. entity. Rossi will claim that IH knew that the “customer” was the Florida corporation, but who was the owner? The real party in interest. They had no way of knowing the reality other than what Rossi told them, and he was lying. There was no public record of the ownership. Rossi also demanded that IH not ask JM about the affair, it might spook them. This is all plain in the record.
Pace told jurors that his clients tried to gain access to JM Products’ warehouse but were blocked and told that the company was engaged in a secretive manufacturing process. When International Heat finally got an engineer into the warehouse, they found clear problems, he said.
The Law360 reporter is quite good. However, what I notice is nuances that she would not be aware of. IH did not attempt to gain access to the JMP customer area, where “secrets” would allegedly be, but to their own Plant, when that access had been guaranteed by the Term Sheet, the agreement between IH, Rossi, and JMC (later JMP). There were problems visible when Murray finally had access. He raised the issues with Penon, verbally, and then in writing later. Penon did not respond in writing. As I recall his deposition, he claimed that this was because he had already answered the questions verbally. This was radically unprofessional. We still don’t know what his answers were. It is not that the questions were necessarily sound. Murray ight have made mistakes. But this is not how a responsible engineer would behave. Not if the goal is convincing a company to pay $89 million for test performance. Rather, if the goal is to satisfy a technical requirement for a signoff, he signed off, and too bad if they don’t believe him. That is why IH sued Penon, but couldn’t find him to serve process. Chaiken claimed he would be at the trial to testify. We will see.
The amount of water that Rossi claimed the E-Cat machines were turning into steam each day — about 9,000 gallons — was impossible, because at most, the pumps available there could pump only 5,000 gallons of water per day, Pace said.
This is a complex issue. The Penon report claims that outlet pipe pressure was at atmospheric, and this pressure would propagate back to the individual reactors. The pumps used have a particular rating. In a post yesterday on e-cat world, Engineer 48 — who has claimed to be in direct negotiation with Rossi about reactor installations — claimed that the pump rating used by IH in the opening was based on rated flow against a particular back-pressure, if the back pressure were lower, more water could be pumped.
My understanding is that these were metering pumps, designed to insert a measured flow. As Penon claims very constant water flow, this would be likely to be how flow was controlled. There was also a pump in the customer area, apparently, a whole can of worms that could have been used to create certain appearances. IH will need to establish fact here, and that is what all the opening statements are doing, proposing fact that they will attempt to evidence during that phase of the trial, and proposing interpretations for the jury to keep in mind. This, again, is easy to understand.
The actual flow meter used was removed by Penon at the end of the test, but it appears that IH has tested identical flow meters, and, as installed, they can fail to accurately report flow under some conditions as may have existed, but this became difficult to clearly verify due to the removals by Rossi. (Others have pointed out possible failure modes, and flow meter failure has featured in prior LENR disasters, i.e., apparently successful tests that were not.)
IH’s expert witness, Smith, has opined that the system was flooded, and equipment that would have prevented that or detected it was removed by Rossi, it is alleged, before the beginning of the test. My sense of the test setup is that partial flooding, at least, would actually be likely. Consider the condition of a failed reactor (and apparently, by the end of the test, most reactors had failed): Constant flow of water in, but no boiling, say a heating element burned out, or the electrical input was inadequate to boil the water, what would happen? The reactor would fill with water, and then this water would flow in the outlet pipe. Penon’s protocol declared that what was done in the customer area need not be examined, thus demonstrating his practical incompetence. It matters, because there were various frauds (or accidental errors) that could be introduced in the customer area, and for $89 million, one would want redundant measures.
International Heat had also called Florida Power & Light to check on the electricity records for the warehouse and found discrepancies with what Rossi was reporting, according to Pace.
I’m skeptical about this, and so will be the Jury, I think. There are details to examine. I think that what was recorded by Penon was actually recorded by Fabiani, there is evidence for that. What should have been recorded would be accumulated power usage, the meter reading, not daily usage, which would then be calculated. With that, an error in recording would then be corrected by the next day’s reading.
(The Penon report also has a problem in this way with water flow. The flow meter was not a proper meter for the expected flow, it was too insensitive, operating below minimum rated flow. However, there should still be variation in daily readings, but Penon shows none. What should have been reported as raw data was actual meter readings, not a calculated difference.)
Florida P&L will report, on bills, actual meter readings. Power usage is then calculated. So error in one day, if that is what happened, should be corrected by the next day.
Fabiani, by the way, was on notice from IH that if he did not disclose full data and information to IH, he would be what he feared, “involved” in the lawsuit. In spite of that, he acknowledged destroying the raw data, and his emails with Rossi and Penon.
The FPL discrepancy is a mystery, and that comes out in depositions. It’s reason to suspect something, but proves nothing and is not even strong circumstantial evidence. IH would be advised to keep the case as simple as possible. Do not present mysteries to the jury, present clear fact and clear conclusions.
He said the defendants acknowledged to investors that Rossi was a risk because of previous failed business ventures and a reputation for being difficult, but they gave him latitude because they felt that he had a remarkable technology that produced clean energy cheaply. Pace argued that it is Rossi who should refund the $11 million paid out by the defendants because of the lies he told them.
More accurately, they felt there was some possibility that Rossi ight have a “remarkable technology,” and they wanted to “crush the test,” to find out, not merely to depend on relatively weak inference as from, say, his past.
“Those E-Cat boxes weren’t filled with magic,” he told jurors. “They were simply filled with lies.”
That is pure polemic, designed to create an impression, and it was skillfully delivered, my opinion. Pace’s manner is not “slick lawyer.”
This is not a “fact.” It’s a sound bite, and the jury will be looking to see if Pace can back this up with clear evidence. Nothing that Pace asserted was new. Anyone can read the case documents and find the evidence, but if anyone has questions, they may be asked here. I might even be able to pass on some questions for any party or attorney. I will be careful and polite if I do. There is a cordial atmosphere in the trial, and there is, so far, plenty of room for more spectators or reporters.
3rd Party Defendants Johnson, JMP, and Bass (de la Barra)
Both lawyers (de la Barra and Nunez) pointed out that lawyer statements are not evidence (which the Judge had told the jury already). I will here give the statements of the case, which is close enough to what they said.
They were largely boring, sounding like excuses, not actual defenses.
JM Products, Johnson and Bass Defense to Count IV:
FDUTPA JM Products, Johnson, and Bass deny Industrial Heat and IPH’s claim that they were engaged in a scheme to deceive Third-Party Plaintiffs. JM Products, Johnson, and Bass (i) did not participate in, and are not parties to, the License Agreement or other agreements between Plaintiffs and Defendants, (ii) do not have any interest in the outcome of the testing of the 1 MW Plant, (iii) and were not responsible for the operation or measurement of the 1 MW Plant. Furthermore, Bass did not play any role in Industrial Heat and IPH’s decision to move the 1MW Plant to Florida.
Claim (I) is false as to Johnson, because Johnson, for JMP, did participate in the Term Sheet, an agreement between the parties. Claim (ii) is possibly misleading. Johnson was (is?) President of Leonardo Corporation, and if Rossi obtains an $89 million payment, he’d be likely to benefit. There is also a problem with Claim (iii) because the Term Sheet required JMC/JMP to measure the power delivered to them. So JMP was responsible. Not Johnson personally, but he issued the invoice requests, drafted by Rossi. Johnson appears to be on the hook for some substantial expenses. Bass, much less so. Bass participated in maintaining the illusion of an independent customer, and basically lied as instructed by Rossi. That’s how the evidence appears to me at this time. It is not clear what losses were suffered by IH as a result of Bass’s behavior. Perhaps without that, they might have pulled the plug sooner. I think not. I think the Bass deception was without major consequence, it was basically Rossi foolishness. Bass may not end up with serious damage. I feel sorry for him.
Fabiani and USQL Defense to Count IV: FDUPTA
Fabiani and United States Quantum Leap, LLC (“USQL”) deny that they are liable to Industrial Heat and IPH for a violation of Florida’s Deceptive and Unfair Trade Practices Acts.
Fabiani and USQL assert in defense of the claim that they had no involvement in manipulating Industrial Heat and IPH into sending the E-Cat plant to Florida. Fabiani and USQL further assert in their defense that while the E-Cat plant was in Florida they did not engage in any deceptive or otherwise improper acts against Industrial Heat and IPH.
I have seen no clear evidence that Fabiani was involved in the “scheme.” It will be difficult to show that he was part of the plan, it is not clear what he knew about the “customer.”
Fabiani and USQL Defense to Count V: Breach of Contract
Fabiani and USQL deny that they failed to perform in accordance with the duties imposed by the Technical Consulting Agreement entered into with Industrial Heat. Fabiani and USQL assert that they properly performed all material terms as required under the contract with Industrial Heat. Fabiani and USQL also assert that they turned over all or substantially all data collected during the 1MW plant’s operation in Doral and any data not provided was excused by Industrial Heat’s failure to make full payment as required under the contract.
This, however, is clear in the other direction. “Substantially all” is not “all,” and there was a breach of contract. Fabiani promised to turn over all the data, then didn’t. Murray offered to give him his final check if he turned over the data he had. It was not necessary for Fabiani to do more work, just turn over the raw files. Instead, Fabiani erased them. That data belonged to IH, as work product. As well, Fabiani apparently destroyed his email records. That might cause him to be found to be a participant in the “scheme” by helping to cover up aspects. Very Bad Idea. Nonpayment is no excuse for destroying a client’s property.
Now, it’s late and trial begins again tomorrow.