Questions about Industrial Heat

A discussion on E-catworld, about the ownership of J.M. Products, brought up Industrial Heat, casting suspicion on their behavior.

My comments are in indented italics.

Abd Ul-Rahman Lomax December 30, 2016 1:58 PM

On CFC, I have been reviewing various discussions, and reviewed this one, yesterday. It is at http://coldfusioncommunity.net… … comments and corrections are welcome.

Omega Z Abd Ul-Rahman Lomax January 3, 2017 4:18 AM

Why does no body asks questions about IH/Darden.

I have previously written (in the post linked above) about Omega Z’s apparent misquotation of Woodford’s comments on Rossi v. Darden. Omega Z is anonymous, there is no readable Disqus profile/. Here, Omega Z raises questions about Industrial Heat, most of which have, in fact, been raised before, and answered; most of them are of the “how come” variety, that implies something suspicious or bad is going on. This is standard paranoid thinking, and follows what Rossi has been claiming. The thinking is apparently that if some sort of misbehavior or mysterious behavior can be attributed to Darden and IH, then Rossi will look better. It’s a very strange idea.

Shouldn’t it have been Rossi draging his feet If there was problems with the E-cat. Why was it Darden delaying the 1 year test.

There is no evidence in the record that Darden delayed the test. There is actually some contrary evidence, but, in any case, the parties agreed on a delay, in 2013. That it is now attributed to Darden shows the thinking involved. In the lawsuit, Rossi ascribes the delay to difficulties in obtaining permits in North Carolina, but in his email proposing the move to Florida, it is apparent that IH was proposing to install the plant in a factory in North Carolina, and it was Rossi refusing that. It is ironic that his objection to the factory is that the building was formerly owned by Cherokee (or the like), which could then make it less impressive as a demonstration, as it would not then be seen as a “fully independent” customer, whereas the “customer” Rossi was proposing was, in fact, completely controlled by Johnson, President of Leonardo Corporation. Rossi obviously wanted to move the Plant to where it would be completely under his control.

However, would Darden have a motivation to delay the test? Of course! What was crucial for IH was to test the technology, their own ability to make reactors that worked, not a “1.5 MW Plant,” which, under the actual test conditions in Doral, would not provide the critical information. Rossi’s job for a year, per the Agreement, was to teach them how to do this. If they were unable to make functional reactors, a GPT would be premature. I.e., they could only raise the money to pay Rossi the $89 million if they could assure investors that they had working technology. The technology transfer was crucial, they were not willing to pay $100.5 million only for a 1 MW reactor! (Which was expensive at $1.5 million, actually. According to Rossi’s email, the construction cost was $200,000.)

Any reasonable person would want that accomplished as soon as possible to know whether they had a viable business product. Darden could have selected the location and the customer of his choice. Where were Dardens Priorities?

Is the point here that Darden is not “reasonable”? That he had the wrong “priorities”?

Consider the “GPT” as it was run. It was not a test of a single product. Two reactors were installed, the original reactor sold to IH in 2013, plus a new one built, apparently, in 2014. In operation, there was continual replacement and repair of individual reactors, but all that was considered in the “GPT” was “COP.” The GPT was not designed by engineers to provide what information would be needed, and even if the Plant worked with constant attention from Rossi — I have called that “Rossi Grease” — that would not show IH that they had a product. Only their own independent testing of individual reactors would provide that information. There is some suspicion that Rossi withheld a crucial secret (and this is from Rossi supporters, though it is mentioned as a possibility by IH in their counterclaim). If he slipped the secret ingredient in during the Test, it could be fully successful, yet IH would have nothing of value, and … Rossi removed the fuel on the last day of the Test.

The GPT did not contemplate any customer. This was something Rossi added in, as supposedly more convincing. From the Rossi email, July 5, 2014:

Your proposal to put the plant in a factory owned by yourself at least until recently is dramatically less convincing.

(He talks about their “factory in Florida,” which did not exist. Johnson filed for incorporation June 27, 2014, and the “owner” of JM Chemical Products, a trust, was formed July 14, 2014.)

Why was Darden Inc filing patents on Rossi’s IP without Rossi’s knowledge. You can start to see where Dardens Priorities were. To squeeze Rossi out of the picture without ever finishing the agreement and fully paying for Rossi’s IP.

This is about a protective patent filing that listed Rossi as an inventor. The Lugano report was about to issue. If it had been issued without this protective filing, Rossi technology could have entered the public domain. The claim of improper filing was made by Rossi in his Complaint. (Paragraphs 86(c) – Count II – and 109 – Count V). Those counts were dismissed by the Judge.

This is playing on common ignorance about patents. There is no way that the filing in question could “squeeze Rossi out of the picture.”  Rather, the law apparently allowed a filing without the signature of an inventor, and the Agreement allowed them to do this — or, if not, it was still precautionary and protecting Rossi. I find it difficult to believe that it was done without Rossi’s knowledge, but even if so, it did not harm him in any way. He was upset about the naming of Thomas Barker Dameron as “co-inventor,” apparently thinking that this was in some way equating Dameron with him. What Rossi showed was his ignorance of patent law. The Lugano reactor was built by Industrial Heat, with Dameron as their chief engineer at the the time. If there was any contribution to that specific design — which was new — then patent law would require Dameron to be listed as a co-inventor. The patent does not deal with such issues as revenue or contractual relationships, and commonly a minor co-inventor will assign rights, or, if not, they will work it out later. Rossi’s Claim in the suit was off-the-wall. It is no better here.

Why was Darden creating new LLC’s in different juridictions all the while telling Rossi they were all the same as doing business with Industrial heat LLC & Cherokee.

There are not many LLCs, actually. Omega Z is assuming that Rossi’s account of what he was told is factual. There are a series of issues that get collapsed here.

Rossi claims that he had expected an agreement with Cherokee Investment Partners, but that at the last minute, Darden switched this to Industrial Heat, a new LLC formed for the purpose. That was, in fact, normal operating procedure for Cherokee, they create LLCs to run individual projects. These environmental remediation projects can be quite lucrative, but also are risky, some of them fail and go bankrupt. Overall, and obviously, Cherokee has been successful, they lose maybe $20 million when one of the projects fails. (They do not profit from failed projects, as some have implied. They lose. But only $20 million, not what might be larger debts. The rest of the loss would be shared by the other investors.)

Rossi believes that his agreement was with Cherokee. I find it highly likely, from the ignorance of business that he’s shown in this case — and in his personal history — that he did not understand what he was being told, but, in any case, the Agreement had a clause that explicitly sets aside any prior representations and is the “entire agreement.” In addition, the Agreement was secured by an immediate payment of $1.5 million, but Rossi could have cancelled at any time in the next year, by returning the payment. So he had a year to consult an attorney and consider if he wanted to deal with IH. Verbal agreements securing a future payment more than a year in the future are not enforceable, any attorney would have told him that. The fact is that if the occasion had arisen, Cherokee might have assisted Darden in raising funds, perhaps as a loan, if he obtained the permission of the board and the substantial consent of the Cherokee Partners. That Darden had those connections was relevant and remains relevant. But it was not a guarantee of payment, only an opportunity.

Then there was IPH. IPH is an IP holding company, formed for that pure purpose. This was all open and caused no harm to Rossi. IPH is, as was represented to Rossi, wholly owned by IH. This is meaningless, but among those who lack any understanding of business practice, it looks “suspicious,” and that’s the purpose here: to raise suspicion of wrong-doing.

But then there is another limited liability company, IH Holdings International, Ltd., formed in the U.K., 2015, and obviously to receive the Woodford — a U.K. firm — investment of US $50 million. This put the Woodford money close to Woodford, should there be a problem. Rossi believes that was properly his money, that Woodford invested because of his IP and the Doral demonstration. All stock in IH, which was probably out of money by this time, was purchased with stock in IHHI, probably penny for penny! So IHHI is the sole owner of IH. IH still owns the License, through its wholly-owned subsidiary, IPH.

And that Rossi should assign the IP to these new LLC’s. Was there any legal paper work to this all being of the same entity. I don’t think so.

First of all, there was only one IP assignment, to IPH. IHHI does own the IP, i.e., the License, through its ownership of IH, which owns IPH. Rossi covers the assignment to IPH in his Complaint, paragraphs 50 through 55. There is no claim that Rossi was harmed by this. No, there is no such legal paperwork, because, first of all, there is no “same entity.” There is a partial coincidence of officers. What Omega Z seems to want is not legally required, such information is not necessarily available except to those with a need to know. Such as, for example, Rossi. Notice that ownership of JM Products was totally concealed until Johnson was compelled to disclose it in the suit. This is reasonably standard business. The shareholders of IHHI are listed in the U.K. corporate page. The U.S. LLC had no such public list, it’s not required here. LLC information is generally only available to the investors (who would get reports). There are also reports to tax authorities, because, at least in the U.S., LLC profits (and losses) are generally taxable — or deductible — to the investors. 

Multiple LLC’s is a Darden business M.O. creating a legal quagmire down the road.

This is massively confused. Partitioning activities into separate LLCs is a Cherokee practice, for sure, but it creates no “legal quagmire,” because each LLC is independent, generally. Each LLC has its own investors, and enters into its own business relationships. For brownfield projects, it may receive funding and loans. Those will not depend on any other guarantor (unless it is explicit, and the funder or lender will certainly know. These LLCs may go bankrupt, but usually do have some assets, which, after satisfying debts, will be distributed to the investors proportionally, in general. The first to lose are the investors, and Cherokee is one of them. They only get their investment back, in part, if funds are left after paying debts. This is far, far simpler than trying to consider some network of investors and companies.

As 1 business litigant against Darden in 1 of His brownfield projects said, It makes it very hard to follow the money and determine who is legally liable allowing that burden to fall on others.

It is very easy to determine who is liable. In general, it is not the investors, and, in general, there is only one LLC involved. As is common with these allegations, there is no evidence, only what some litigant allegedly said, with no citation, and litigants often say much that is …. stretched. I read all the information I could find, last year, on these failed projects, and much of it was yellow journalism, with no followup. I.e., claims that the LLC and/or Cherokee were being investigated, but no result. When someone does business with an LLC, and there is a loss, they will be searching for someone to blame, to go after, to recover the loss. Bottom line: if you are dealing with any kind of corporation, and unless someone committed fraud — which can change the picture — you are stuck with the corporation as the responsible party. Normally, the officers and stockholders are exempt; this is what “limited liability” means! A corporation is a legal person, with its own assets and its own liabilities. Again, if the corporation goes bankrupt, it is the shareholders who lose the most, unusually. Some corporations, though, manage to acquire debt that is far beyond their assets. If officers were siphoning off money, yes, they might be liable. Nothing like that is visible in any of the Cherokee situations, nor in this one. IH raised perhaps $20 million, gave $11.5 million to Rossi, and probably spent the rest trying to get the IP to work and supporting Rossi in various ways.

Rossi say’s Darden implied the Backing of the Cherokee fund and I have no reason to disbelieve otherwise.

There was an implied backing, possibly, but it was vague and not a legally enforceable loan guarantee. If Rossi had any shred of business knowledge, he’d know that such would need to be in writing, whereas the writing that exists explicitly contradicts such an idea. Was it plausible that Darden, because of his association and reputation with Cherokee, could have raised $89 million (and the hundreds of millions of dollars more needed for development? Yes. But were the conditions where he could do that created? Not with the Rossi technology. Darden managed to raise $50 million without any commercial product in line, and only owning what might be called a hedge, against a Rossi product appearing (making it safe to invest in other technologies, in case Rossi was hiding his technology from IH). If Rossi develops a functioning product, Rossi could negotiate a GPT or equivalent with IH. He just can’t bludgeon his way past the legal requirements.

In multiple interviews with Darden, Cherokee was always mentioned and tho Darden never claimed Cherokee backing, He NEVER said it was not. In Court, A lie by omission is still a lie. Is Darden guilty of fraud???

No. And a “lie by omission” is not a lie, unless it is directly misleading and reasonably would be expected to be so. We do not yet know if any Cherokee money was involved in the original $1.5 million paid to secure the Agreement, but if there was, I’m pretty sure it would have been a loan. I think it is more likely that this was Darden’s personal funds, or a very small group. I think it was paid back with the IH stock offering in 2013. It appears that Cherokee had no interest in Industrial Heat, and is not an investor in IHHI.

The matter is not as simple as Omega imagines. Darden more or less is Cherokee, as to control, but Cherokee is a separate company, with distinct investors and activities. It appears that having this position with Cherokee gave Darden entree to Rossi. But Darden was not about to put the investors of Cherokee at risk by dealing with Rossi directly. And Cherokee simply doesn’t do this, it creates project-specific LLCs, precisely because something can go wrong and LLCs protect Cherokee and the investors in all the other projects. That Rossi included Cherokee and Darden and Vaughn personally in the lawsuit is legally very questionable, very unlikely to survive much longer, as discovery brings out the facts. Rossi claimed plenty that simply was not so, and without evidence.

As Darden is not the sole Founder of Cherokee, I also doubt he had the authority to claim such backing.

“Backing” is a vague term. Darden may have talked, for example, about “us,” or “we will make sure that our obligations are paid.”
Was that Cherokee or Darden and some friends? And how well does Rossi remember those conversations, over four years later? There are reasons for the Statute of Frauds.

In any case, because Rossi continued to accept the Agreement, after a lapse of a year, accepting an additional $10 million, he is estopped from claiming fraud in the original Agreement. This was complicated enough that the Judge decided to let it stand through discovery. Basically, if there was any possibility Rossi could establish with evidence what he was claiming, she was obligated to let the lawsuit go forward. Notice that four out of eight claims were dismissed. That’s a very high ratio, most motions to dismiss fail completely.

Even if he did, Cherokees income is far short of what would be necessary. It would take well over half a dozen years to pay Rossi and as multiple brownfield projects have fallen into bankruptcy, likely doesn’t have a credit line to achieve such.

Perhaps Omega Z knows something I don’t. Yes, Cherokee probably doesn’t have $89 million burning a hole in their pocket, but there is no sign that Cherokee is in trouble. What appears to be not understood is that Cherokee runs many projects and the nature of what they do is that some will fail. It’s expected. The ones that work can make a lot of money. Of course, I am not privy to the internal finances of Cherokee. Shit Happens. But there is no sign of it. Woodford would not trust a loser, and Woodford obviously trusts Darden, because Darden and Vaughn have a majority interest in IHHI, even though most of the money was provided by Woodford.

Omega Z, like Rossi, seems to think that the issue was how much money IH or Cherokee could individually pay. No, that would not be the plan. The plan would be, if the internal, now-independent (from Rossi) tests showed commercial potential, to raise more money, much more, and if anyone could do this, it would be them. Rossi has attempted to kill the golden goose. Why? Personally, I think he is insane, and may or may not be a deliberate fraud. Too many signs point to this, including the Lewan bio.