In re Quantum Cool, LLC

IN RE: QUANTUM COOL, LLC DEBTOR

CASE NO. 12-00260-8-SWH

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NORTH CAROLINA RALEIGH DIVISION

SIGNED: July 15, 2013

SO ORDERED.

____________

Stephani W. Humrickhouse

United States Bankruptcy Judge

ORDER REGARDING DEBTOR'S MOTION TO DISMISS INVOLUNTARY PETITION

The matter before the court is Quantum Cool, LLC's ("Quantum Cool") motion to dismiss the involuntary petition filed by Wanchese Fish Company, Inc. ("Wanchese"), Victor B. Matthews and Arthur M. Herman (the "Petitioning Creditors"). The motion was heard in Raleigh, North Carolina, on April 30 and May 1, 2013.

BACKGROUND

Steve Kehrer and Mike Beacham created Quantum Cool in 2008 and remain the only two members of the company. Quantum Cool is a Delaware limited liability company and was in the business of developing thermal energy products and technologies, specifically focusing on research and development for an innovative cold storage trucking operation. However, the company is no longer in operation and has very few, if any, assets.

Wanchese is a North Carolina corporation and a fully integrated seafood business. Wanchese is owned by Daniels Enterprises, Inc., another North Carolina corporation. Daniels Enterprises, Inc., is owned by Daniels Enterprises Holding Company, Inc., a Virginia corporation. The holding company has fifteen shareholders, all of whom are members of the Daniels family. Wanchese is one of many subsidiaries owned by the holding company.

In or around 2008, an affiliate of Quantum Cool entered into a lease agreement with an affiliate of Wanchese for the use of thermal energy equipment in Wanchese's shipping operations. Based on this business relationship, Steve Kehrer, on behalf of Quantum Cool, approached Tim Daniels, a Vice President of Wanchese, around November of 2010 to discuss the possibility of Wanchese funding an expansion of Quantum Cool's business.

In December of 2010, Steve Kehrer solicited funding from Wanchese and provided Wanchese with a packet of materials, including a confidentiality agreement, an itemized list of objectives and benefits relating to a potential partnership between Quantum Cool and Wanchese, and a letter of intent relating to this partnership. See Quantum Cool's Exhibits A - C. The copy of the confidentiality agreement introduced at the hearing was executed by Mike Beacham, on behalf of Quantum Cool, and Tim Daniels, on behalf of Wanchese; however, the admitted copy of the list of objectives and the letter of intent were unsigned.

The letter of intent is accompanied by an "Attachment A," which provides in part that Wanchese will partner with Quantum Cool "in a New Company, to be named by the Partners." It states that Wanchese will provide (1) $100,000 to the "Quantum Cool Owners," (2) another $100,000 for "existing Quantum Cool obligations," and then (3) the balance of the funds for "Capitalization of Operations of the New Company." The letter of intent provides that the balanceof funds for capitalization would be $800,000, bringing Wanchese's total contributions to $1,000,000. Finally, the letter of intent states that Quantum Cool would transfer "all technologies and business assets to the New Company."

On January 19, 2011, Wanchese advanced $50,000 to Quantum Cool. See Wanchese Exhibit E. On the same day these funds were advanced, Mr. Kehrer and Mr. Beacham executed a promissory note on behalf of Quantum Cool in favor of Wanchese in the original amount of $50,000. See Wanchese Exhibit A. The note is payable within thirty days from the date demand is made by Wanchese. The payment of this note is guaranteed by Eden Labs, L.L.C. Mr. Kehrer signed the guaranty agreement as a managing member of Eden Labs, L.L.C.¹ The note states that it should be construed under the laws of the Commonwealth of Virginia.

At the time these funds were advanced, the parties continued to discuss the development of a joint venture. The discussions took place at both Wanchese's and Quantum Cool's facilities. Steve Kehrer testified that all fifteen of the Daniels family members were usually present when the meetings were held at the Wanchese facility. During these discussions, the parties decided that Quantum Cool and the Daniels family would each create their own separate entity to become an owning member of an entirely separate limited liability company serving as the operating entity for the parties' joint venture. At some time prior to February 4, 2011, the parties decided that the name of the limited liability company would be Thermic Green, LLC.

On February 4, 2011, Mike Beacham sent an email addressed to Tim Daniels and Mark Palmer,² to which Steve Kehrer was copied, purporting to set out Quantum Cool's "recommendations for proceeding with business" with the joint venture, at least until the parties were able to finalize and sign an operating agreement governing Thermic Green, LLC (the "February 4, 2011 Email"). The email summarizes the funding requests made in "Attachment A" to the letter of intent that was provided by Steve Kehrer to Wanchese during the December 2010 presentation.

The February 4, 2011 Email acknowledges that the $50,000 previously advanced from Wanchese to Quantum Cool constituted a portion of the funding for the "old" business. It also describes a "Friday Feb. 4 Payment," another request by Quantum Cool for funds from Wanchese. According to the email, Quantum Cool was requesting an additional minimum of $20,000 that would constitute a portion of the "old" business funding and $50,000 that would constitute a portion of the "new" business funding. The email states, however, that Quantum Cool "could really use" $30,000 that would constitute a portion of the "old" business funding and $70,000 that would constitute a portion of the "new" business funding. Finally, the email contains notes from Steve Kehrer itemizing the estimated costs of developing the cold storage trucking operation.

On February 4 and 9, 2011, Wanchese advanced additional funds to Quantum Cool in the total amount of $100,000.³ See Wanchese Exhibit E. On February 9, 2011, Steve Kehrer and Mike Beacham executed another promissory note on behalf of Quantum Cool in favor of Wanchese in theoriginal amount of $100,000. See Wanchese Exhibit B. Similar to the note executed on January 19, 2011, this note is also payable within thirty days from the date demand is made by Wanchese, its payment is also guaranteed by Eden Labs, L.L.C, and the note is to be construed pursuant to Virginia law. When the February 9, 2011, note was executed, the parties had not yet finalized or signed an operating agreement that would govern Thermic Green, LLC. In fact, the parties had not yet registered Thermic Green, LLC, under the laws of any state nor had they formed the entities that would eventually serve as the members of Thermic Green, LLC.

Steve Kehrer testified that, after discussions with Mark Palmer and Mike Beacham, it was suggested that Mr. Kehrer be responsible for forming Thermic Green, LLC. On February 21, 2011, Mr. Kehrer created and registered Thermic Green, LLC, under the laws of Delaware (the "Delaware Thermic Green"). Mr. Kehrer then opened a bank account for the Delaware Thermic Green. He testified that Tim Daniels and another employee of the Daniels Enterprises Holding Company, Inc., had access to this account. Mr. Kehrer also formed Thermic Solutions, LLC, which is the entity that would serve as one of the members of Thermic Green, LLC. He and Mike Beacham are the members of Thermic Solutions. It is unclear, however, from the evidence when Thermic Solutions was created.

On March 14, 2011, the Daniels family created and registered Cool D, Inc. ("Cool D") with the North Carolina Secretary of State to serve as the other owning member of Thermic Green, LLC. See Wanchese Exhibit H. According to the testimony of Joey Daniels, Cool D's officers consist of himself, Tim Daniels and Kenneth Todd Daniels.⁴ However, all fifteen of the Daniels family members are shareholders of the company. On March 16, 2011, two days after Cool D wasregistered and almost one month after Steve Kehrer registered Delaware Thermic Green, the Daniels family formed their own Thermic Green, LLC, under the laws of North Carolina (the "North Carolina Thermic Green"). According to Steve Kehrer's testimony, he was unaware, for at least some period of time, that the Daniels family had decided to form North Carolina Thermic Green. Accordingly, as of March 16, 2011, there were two separate entities with the organization name Thermic Green, LLC, one formed by Steve Kehrer in Delaware and the other formed by the Daniels family in North Carolina.⁵

It is unclear how Cool D and North Carolina Thermic Green fit, if at all, within the corporate structure of Daniels Enterprises Holding Company, Inc. Ms. McChesney is the current chief financial officer of Daniels Enterprises Holding Company, Inc., and has held this position since June of 2012. According to her testimony, she is extremely familiar with the holding company's corporate structure and Cool D is not one of its subsidiaries. In fact, she had no knowledge of Cool D's existence until around September of 2012. Ms. McChesney also stated that the holding company maintains detailed and accurate records for all of its subsidiaries, and she is not aware of any records maintained by or for Cool D. She also lacks any knowledge of whether Cool D owns any assets or maintains any bank accounts. No testimony regarding the existence of records on North Carolina Thermic Green was provided by Ms. McChesney.

During the creation and registration of all of these entities—Thermic Solutions, Delaware Thermic Green, Cool D, and North Carolina Thermic Green—the parties continued to negotiate theterms of an operating agreement that would govern Thermic Green, LLC. Steve Kehrer testified that he had significant discussions with the Daniels' attorney over the terms of the operating agreement and that many revisions were...