Industrial Heat Motion to Dismiss Rossi Complaint – Granted in Part, Dismissed in Part

by David French

On July 19, 2016, U.S. District Court Judge Cecilia M. Altonaga submitted her decision on the motion filed by Industrial Heat and other defendants in the Florida District Court action initiated by Andrea Rossi and Leonardo Corporation. The defendants had asked the Court to dismiss every one of the counts included in the Complaint. Some have suggested that the failure of the Judge to dismiss every one of the eight counts represented a failure for Industrial Heat. We will reflect on that assessment at the end of this report.

A motion to dismiss all or parts of the Complaint based on the grounds that the Complaint fails to disclose a basis in law which would support holding a trial and submitting the issues to a jury is not unusual. Such motions do not, however, occur very often, and they are granted even less often. The issue before the Judge is whether the plaintiff has asserted facts which, if true, could justify going to a jury, leading to a judgment. 

This is not a mini-trial, such as a summary judgment application. This is a procedure where the Complaint is closely analyzed to see if it asserts wrongs allegedly done by the defendants which are recognized in law. For the purposes of this review, the Judge will assume that everything asserted in the Complaint, including in the documents attached as exhibits to the Complaint, are true. The party placing the motion before the Court cannot file any supplementary evidence. The simple issue is: are the objections made by the plaintiff recognizable as an abuse that the Court would remedy if everything asserted in the Complaint were true?

Ruling on such a motion is a delicate matter for the Judge. Many cases have occurred where a plaintiff who has been told that some of the counts in his Complaint cannot go forward has filed, and succeeded on, an appeal. The Court of Appeal endeavors to ensure that everybody has access to a fair day in Court. On the other hand, when allegations are made that just simply cannot support a ruling in favor of the plaintiff, then it’s quite proper for such allegations to be struck by the trial Judge; and that decision will be upheld by the appeal court. The problem is identifying the parts of the Complaint that are doomed to fail. In this case the Court struck out the following allegations in the Complaint:

Count II: Breach of Contract (Exceeding Scope of License) Dismissed
Count V: Civil Conspiracy to Misappropriate Trade Secrets Dismissed
Count VII: Constructive and Equitable Fraud Dismissed
Count VIII: Patent Infringement Dismissed

Count II: Breach of Contract for Exceeding the Scope of the License
The gist of the Complaint on this count was that Industrial Heat and others breached the contractual commitment made by them in the license agreement by: stating that they owned E-Cat IP rights, filing an application for a European patent for E-Cat IP; applying for a U.S. patent for E-Cat IP and naming their employee Thomas Barker Dameron as a co-inventor in such applications. The court rightly ruled that the defendants had never promised not to do these things when they signed the license agreement.

A license agreement gives permission for a party to do certain things. But that does not mean that if they do other things that they breach the license agreement. Breaching an agreement requires that a party has agreed not to do something which they then proceed to do. On the face of the license agreement, attached to the Complaint, this count could not be established.

Count V: Civil Conspiracy to Misappropriate Trade Secrets
Rossi’s team won on the issue of Count IV: Misappropriation of Trade Secrets. The judge refused to strike-out that allegation. Count V endeavored to add, as a gloss to this Complaint, an allegation of an improper civil conspiracy. But there is a rule respected in the Federal Circuit that individuals who are all inside the same corporate entity cannot be charged with conspiracy for what they do amongst themselves. They are, in fact, the same entity and a conspiracy requires that there be separate entities. Accordingly, Count V, alleging as civil conspiracy was dismissed. 

This should hardly matter to the plaintiffs, as their complaint based upon theft of trade secrets is still in the action.

Count VII: Constructive and Equitable Fraud
The gist of this complaint of “constructive fraud” was that the defendants owed a duty of good faith—a “fiduciary” obligation—or a duty of confidentiality towards the plaintiff which they abused. Not addressing the issue of a duty of confidentiality (perhaps on the basis that Count IV: Misappropriation of Trade Secrets was to be retained in the action), the judge simply ruled that the defendants did not have a “fiduciary” obligation towards Rossi et al.

These kinds of obligations are the type that a lawyer owes to a client, or a trustee owes to the child whose estate they are administering. Once a fiduciary obligation is established, the burdened party must take care to “look after” the interests of the weaker party. The court ruled that this kind of relationship did not exist. The parties to the business negotiations were all independent, competent entities that were obliged to look-out for their own interests. No claims based on a breach of fiduciary duty could therefore be asserted under the style of “constructive and equitable fraud.”

Count VIII: Patent Infringement
The fourth count struck out—that of patent infringement based upon the U.S. patent issuing on August 25, 2015 to Leonardo Corporation—was doomed to failure. A patent only gives the owner the right to stop other people from making, using or selling a patented article, or similarly exploiting a patented process. Filing for a patent, whether in the United States or in Europe doesn’t fall in that category. It was simply hopeless for Rossi to have ever asserted that his U.S. patent had been violated by the defendants.

The Judge also quite rightly pointed out that the policy of the patent law is to encourage people to file for patent protection based on the ideas that they invent. If Industrial Heat and its employee Dameron had made in improvement on the original Rossi process, then they are entitled to file and obtain a patent for that improvement. If the improvement were put into effect, it might infringe. But infringement doesn’t occur until there’s been a making, using or selling of the underlying patented technology.

This allegation was far-fetched from the moment that the words were typed on the paper.

What is Next?
As far as this Judge is concerned, the case can go forward based on the following allegations:

Count I: Breach of Contract for Non-Payment
Count III: Unjust Enrichment
Count IV: Misappropriation of Trade Secrets
Count VI: Fraud and Deceit

This ruling is subject to appeal by both sides. If no appeals are filed, then the case can go forward by the filing of an Answer setting-out the defense of Industrial Heat and the other defendants. This will then be followed by the discovery stage based on these four allegations of wrong behavior, and the issues raised by the Defendants in the Answer. Even if an appeal is filed, it’s not clear that the discovery proceedings will have to stop. 

Without Prejudice Dismissal
The Court in striking portions of the Complaint did so on a “without prejudice” basis. This means that the plaintiffs, Rossi and Leonardo Corporation, could come back to the Court and try to reassert some of these struck assertions, presumably rewording the text and adding further allegations. The Court would then have to consider the matter all over again, if Industrial Heat chose to make a fresh motion to dismiss based upon failure to disclose a reasonable cause of action in this amended version.

Until the truth comes out at trial or another evidence is filed in court, it’s clear that Rossi and Leonardo Corporation will persist in their story. If the evidence proves this version to be true, they will be vindicated by the legal system.

It’s hard to imagine that the plaintiffs could both win $89,000,000 and “take away” the right of the defendants to use whatever intellectual property they purchased when they paid Rossi the $10,000,000 in 2013. But litigation is an unruly horse. You never know the direction that the horse may choose to run off.

See Judge Altonaga's full ruling.

See the interview with David French in Issue 127 of Infinite Energy.