Geomatrix, LLC v. NSF Int'l
| Decision Date | 21 September 2022 |
| Docket Number | 20-13331 |
| Parties | GEOMATRIX, LLC, Plaintiff, v. NSF INTERNATIONAL, BIOMICROBICS, INC., HOOT SYSTEMS, LLC, and JAMES BELL, Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
Plaintiff Geomatrix, LLC has filed an extensive complaint alleging that Defendants colluded to restrain competition in violation of the Sherman Act and engaged in unfair competition in the market for “onsite wastewater treatment systems,” colloquially referred to as septic systems. (ECF No. 24.) Plaintiff also asserts a number of related claims under Michigan law. Before the court is Defendants' joint motion to dismiss this action in its entirety pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). The court has reviewed the record and does not find a hearing to be necessary. E.D Mich. LR 7.1(f)(2). For the reasons provided below, the court will grant Defendants' motions (ECF Nos. 30, 31), and dismiss Plaintiff's Amended Complaint in its entirety.
Plaintiff Geomatix is a manufacturer and supplier of onsite wastewater treatment and dispersal products in the commercial and residential markets. Defendants BioMicrobics, Inc. and Hoot Systems, LLC are competitors that also manufacture onsite wastewater systems.
Defendant NSF International, based in Ann Arbor, Michigan, is a non-profit organization accredited by the American National Standards Institute (“ANSI”) to set quality standards for several industries and certifies many of the onsite wastewater products brought into commerce. While NSF is not a governmental organization, many of NSF's standards are adopted into federal and state laws. NSF standards are developed through a voluntary consensus process, and it has long developed standards for onsite wastewater treatment. NSF's wastewater standards are created and overseen by its “Joint Committee on Wastewater Technology,” and both NSF employees and employees of product manufacturers sit on the committee.
Defendant James Bell, an employee of Defendant BioMicrobics, served as ViceChair of the Joint Committee and as chairman of the High-Strength Wastewater Task Group-a subcommittee charged with the development of a new standard for high-strength wastewater. Plaintiff alleges that “Bell essentially ran the Wastewater Technology standard-setting process on behalf of NSF between 2010 and 2020.” (ECF No. 24 PageID.435.)
To understand the allegations in the complaint, a brief overview of onsite wastewater technology is required. Traditional, residential and commercial onsite wastewater systems are comprised of a septic tank and a drain field or “leaching” system, which is installed in native soil or sand. The septic tank separates water constituents by density; septic tank effluent then runs to a drain field where it contacts soil or sand, where microorganisms are present to provide treatment before dispersing treated water back into the environment. However, due to increasing environmental regulations and other constraints, customers are increasingly turning to more advanced technologies to ensure sewage is thoroughly treated before it reenters the water table.
According to Plaintiff, customers who need more advanced treatment systems generally have two main opinions. The first is an “aerobic treatment unit” known as an “ATU,” or “Contained System,” which generally consists of a tank of water with aeration devices or various saturated and unsaturated media that more thoroughly treats the water before it is released into the drain field. In other words, a contained system works more like a mini-municipal wastewater treatment plant, cleaning the water within a controlled environment before its release. According to Plaintiff, the majority of its competitors produce contained systems.
The second option for consumers is “Treatment and Dispersal” systems, also known as “Open Bottom” systems, which operate much more like a traditional septic system, only in place of a traditional drain field. They employ more advanced dispersal devices which allow in oxygen (thereby increasing the growth of microorganisms) and provide additional filtration media allowing the effluent to be effectively cleaned as it leaches back into the ground. Plaintiff largely produces treatment and disposal systems, including its “GeoMat,” “GST,” and “SoilAir” systems. Collectively, Plaintiff's offerings cover a wide swath of the onsite treatment market, from residential systems to “high-strength” commercial applications for businesses like restaurants.
Plaintiff alleges that its treatment and disposal systems are both cheaper to install and operate than contained systems. But much like the late 19th-century “war of the currents,”[2] which pitted Thomas Edison's direct current (DC) against the more efficient alternating current (AC) standard advanced by his upstart competitors George Westinghouse and Nikola Tesla, Plaintiff asserts that some of its competitors have resorted to spreading misinformation about safety and efficacy of treatment and disposal technology to preserve market share for their inferior products. This being the 21st century, however, instead of resorting to absurd public displays to shape popular opinion, Plaintiff avers that its revivals engaged in a stealth campaign, enlisting an obscure standard-setting organization (here, NSF) to convince state regulators to effectively bar its cheaper products from the market.
Plaintiff's allegations are factually complex, but the gist is, beginning in 2017, that “BioMicrobics, Mr. Bell, the other Co-conspirators, and NSF entered into a conspiracy to further the Corporate Defendants' efforts to exclude competition by Treatment and Dispersal Systems through the standard setting process.” (ECF No. 24, PageID.440.) Each manufacturer pays NSF annually to renew the “listing” for each wastewater products it has certified under its standards. So, Plaintiff theorizes that NSF participated in the conspiracy to protect its own revenue since the majority of the products it certified are contained systems. (ECF No. 24, PageID.444 ().) To effectuate this scheme, Plaintiff asserts that Defendants conspired to have the Wastewater Joint Committee (the NSF committee overseeing wastewater certification) appoint Defendant Bell and other conspirators to key sub-committees or “Task Groups” to collectively rewrite and propose new NSF standards.
This alleged conspiracy utilized multiple means to achieve its objectives. First, Plaintiff alleges that Defendants “disparage[d]” its GeoMat product, a Treatment and Dispersal System that has already been certified under the existing rules of NSF Standard 40- which applies to “wastewater treatment systems having rated treatment capacities between . . . (400 gal/day) and . . . (1500 gal/day).” (Id., PageID. 405, 427.) In doing so, they allegedly (1) raised concerns about the efficacy of Treatment and Dispersal Systems at each Joint Committee meeting, (2) adopted the disparaging term “uncontained” system to refer to its products, (3) allowed working grounds to “dominate” committees, and (4) published an issue-paper authored by an NSF employee “suggesting that Treatment and Dispersal Systems should be removed from NSF Standard 40 and placed in a yet to be created standard.” (Id., PageID.428.) According to Plaintiff, “NSF's publication of these false and defamatory statements by its participants began the process of eroding confidence in Treatment and Dispersal Systems by state regulatory authorities.” Plaintiff states NSF published issue papers and other information critical of its products to state regulators around the country. Because “NSF conspired with the Co-conspirators to raise questions of the legitimacy of the certifications granted to Treatment and Dispersal Systems,” Plaintiff asserts that it was “unable to receive approvals in most states” for GeoMat in states that had adopted statutes and regulations “requiring NSF Standard 40 certification” for onsite wastewater systems. (Id., PageID.432.)
Second, Plaintiff alleges that the conspirators worked to ensure a new NSF standard for certifying high-strength wastewater ("Standard 441") would not allow for the inclusion of treatment and disposal systems. While NSF has not officially adopted a version of Standard 441, Plaintiff asserts that Defendants have taken steps, including failing to fund a study of high-strength treatment and disposal systems, and circulating a “straw poll to the HSW Task Group” about excluding the products from the final version of the standard. (Id., PageID.474.)
Plaintiff alleges that its business was severely impacted by Defendants' conspiracy and seeks both damages and injunctive relief. Plaintiff brings a total of eleven claims against Defendants on both federal law, state statute, and Michigan common law. Plaintiff asserts this court has jurisdiction over this action on both federal question and diversity grounds. See 28 U.S.C. §§ 1331, 1332, 1367. Defendants, through their two motions to dismiss (ECF Nos. 30, 31), collectively move to dismiss Plaintiff's Amended Complaint in its entirety.
Federal Rule of Civil Procedure 12(b)(6) provides for dismissal of a complaint for failure to state a claim upon which relief may be granted. Under the Rule, the court construes the complaint in the light most favorable to plaintiff and accepts all well-pleaded factual allegations as true. Barber v. Miller, 809 F.3d 840, 843 (6th Cir. 2015).
Federal Rule of Civil Procedure 8 requires a plaintiff to present in the...
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