Seitz v. Rheem Mfg. Co.

• Decision Date: 11 February 2008
• Docket Number: No. CV 06-2537-PHX-EHC.,CV 06-2537-PHX-EHC.
• Citation: 544 F.Supp.2d 901
• Parties: David E. SEITZ and Microtherm, Inc., Plaintiff, v. RHEEM MANUFACTURING COMPANY, Water Heater Innovations, Inc. d/b/a Marathon Water Heaters, Defendants.
• Court: U.S. District Court — District of Arizona

544 F.Supp.2d 901

David E. SEITZ and Microtherm, Inc., Plaintiff, v. RHEEM MANUFACTURING COMPANY, Water Heater Innovations, Inc. d/b/a Marathon Water Heaters, Defendants.

No. CV 06-2537-PHX-EHC.

United States District Court, D. Arizona.

February 11, 2008.

COPYRIGHT MATERIAL OMITTED

Gerald L. Shelley, Michelle Joan Roddy, Nicole Maroulakos Goodwin, Quarles & Brady LLP, Phoenix, AZ, for Plaintiff.

Howard Ross Cabot, Christopher Stuart Coleman, Perkins Coie Brown & Bain PA, Michael E. Hensley, Jones Skelton & Hochuli PLC, Phoenix, AZ, for Defendants.

ORDER

EARL H. CARROLL, District Judge.

Before the Court is Defendant Rheem Manufacturing's ("Defendant Rheem") "Motion to Dismiss Plaintiffs' Second Amended Complaint." (Dkt.31). Defendant Water Heater Innovation, Inc. d/b/a/ Marathon Water Heaters ("Defendant Marathon") filed a "Joinder in Defendant Rheem's Motion to Dismiss Plaintiffs' Second Amended Complaint and Separate Motion to Dismiss Plaintiffs Second Amended Complaint." (Dkt.30). The motions are fully briefed and the Court finds this matter suitable for decision without oral argument. For the reasons set forth herein, Defendants' motion is granted in part, and denied in part.¹

I. Procedural Background

Plaintiffs David E. Seitz ("Plaintiff Seitz") and Microtherm, Inc. ("Plaintiff Microtherm") (collectively "Plaintiffs") filed a Complaint against Defendants Rheem and Marathon on October 23, 2006, (Dkt.1), which was amended as of right on December 5, 2006. (Dkt.11). Defendants Rheem and Marathon filed a Motion to Dismiss the First Amended Complaint on February 2, 2007. (Dkt.18). Plaintiffs filed a Response to Defendants' first motion to dismiss and requested leave to file a Second Amended Complaint. (Dkt.21). On June 14, 2007, the Court granted Plaintiff's request for leave to file a Second Amended Complaint and denied without prejudice Defendants' motion to dismiss. (Dkt.25). Plaintiffs' timely filed a Second Amended Complaint on July 11, 2007, which is the subject of the pending motions to dismiss. (Dkt.26).

II. Factual Allegations

Plaintiff Seitz is the President and CEO of Microtherm, Inc. (Dkt.26, ¶ 1). "Mr. Seitz invented the tankless water heater and holds four (4) U.S. patents and a number of foreign patents for the electric tankless water heater." (Dkt.26, ¶ 1). Plaintiff Microtherm, "is a manufacturer of electric tankless water heaters and conducts business throughout the United States." (Dkt.26, ¶ 2). Defendant Rheem manufactures conventional tank water heaters. (Dkt.26, ¶¶ 3, 10). Defendant Marathon is a wholly-owned subsidiary of Rheem and is a seller of Rheem-manufactured conventional water heaters. (Dkt.26, ¶ 11). "Plaintiffs have designed, manufactured and are marketing an electronically controlled tankless water heater which is about the size of a briefcase and can be mounted on a wall virtually anywhere it is needed." (Dkt.26, ¶ 9). Plaintiffs allege that this tankless water heater "provides an endless supply of hot water, has a service life far in excess of conventional hot water heaters, and is environmentally friendly." (Dkt.26, ¶ 9).

A. The Watts Contract

On December 13, 2002, Plaintiff Microtherm entered a contract with Watts Water Technologies ("Watts") whereby Watts agreed to buy a minimum number of Microtherm electric tankless water heaters annually and re-sell these units under their own brand name. (Dkt.26, ¶¶ 13, 15). Pursuant to the contract, Watts ordered and Microtherm delivered 1,500 units of the Microtherm electric tankless water heaters. (Dkt.26, ¶ 16). Plaintiff alleges that both parties to the contract intended that it would act as a "catalyst for Plaintiffs' business plan and would provide nationwide access to Microtherm manufactured electric tankless water heaters in many large business." (Dkt.26, ¶ 17). Plaintiffs allege that once "Microtherm's electric tankless water heaters were marketed by Watts under the Watts name, Microtherm reasonably anticipated that tens of thousands of Microtherm manufactured electric tankless water heaters would sell." (Dkt.26, ¶ 18). To support its decision to contract with Microtherm, Watts conducted testing of Microtherm's electric tankless water heaters, which "proved that the Microtherm manufactured electric tankless water heaters were superior to the other tested products." (Dkt.26, ¶ 19).

On October 21, 2004, the Group Vice President of Watts sent a letter to Microtherm stating in part:

Reference is made to our recent telephone discussions in which I informed you that we were not going to be able to pursue retail placement of your product due to requests from tank water heater manufacturers that Watts not enter the marketplace. As you know, we do a great deal of business with several of these manufacturers on our pressure relief valves.

(Dkt.26, ¶ 22). "In July, 2006, Microtherm learned that Defendants were the tank water heater manufacturer(s) that were pressuring Watts to end its relationship with Microtherm." (Dkt.26, ¶ 23). Plaintiffs allege that "Defendants intentionally and purposefully entered into a conspiracy and/or agreement with Watts to reduce competition in the water heater market in the United States." (Dkt.26, ¶ 25).

B. Defendants' Alleged Defamatory Statements

Defendant Rheem "established its own line of gas powered tankless water heaters" in 2005. (Dkt.26, ¶ 29). Plaintiffs allege that Defendants have misled the "general public as wells as the water heater industry about the performance and reliability of electric tankless water heaters in general, and the Microtherm technology in particular." (Dkt.26, ¶ 30). Specifically, Plaintiffs cite a "2006 advertisement/ information circular by Marathon ... titled `Tankless Electric Water Heaters ... the rest of the story.'" (Dkt.26, ¶ 30a). This publication allegedly misrepresented the "suitability and performance of electric tankless water heaters," stating:

• Tankless electric water heaters lack "longevity" due to water purity issues;

• Tankless electric water heaters are not covered by a sufficient warranty;

• Tankless electric water heaters place an "uncontrollable" burden on the utility and its customers;

• Tankless electric water heaters require "significant "wiring upgrades" in addition to the cost of the heater itself;

• Servicing a tankless electric water heater is either cost prohibitive or impossible; and

• Twice the installed costs of a Marathon, more service (if you can find it), short life, and no savings over a Marathon — some deal Wouldn't your customers prefer cost effective and hassle free water heating, with a Lifetime Warranty Marathon? Better for you and better for your utility.

(Dkt.26, ¶ 30a). Plaintiffs allege that "Defendants knowingly and intentionally published this false, misleading and deceptive propaganda as part of an overall smear campaign that dates back several years." (Dkt.26, ¶ 30a).

Plaintiff further alleges that:

[D]efendants have held and continue to hold "seminars" with utilities and other powerful industry groups throughout the country whereby [D]efendants warn their audience of the mythical "issues" posed by electric tankless water heaters. At these industry meetings, [D]efendants knowingly and intentionally provide literature containing false, misleading and/or deceptive data to support [D]efendants' disingenuous claims against electric tankless water heaters. For example, one such article, "Tankless Water Heaters are Brutal on the Grid When Popularized," paints an untrue doomsday scenario for utility companies in the event that electric tankless water heaters become prevalent.

(Dkt.26, ¶ 30b)., Plaintiffs allege that Defendants sponsored publication of this article, and/or provided the arguments and substance of the article, and/or the authors were agents of Defendants, and/or the damaging substance in the article has its genesis in Defendants' illegal and tortious conduct. (Dkt.26, ¶ 30b). Microtherm claims that it learned about Defendants' advertisements and statement on or after July 11, 2006. (Dkt.26, ¶ 31).

C. Claims for Relief

The Second Amended Complaint sets forth nine claims for relief. (Dkt.26). The First Claim for Relief is under the Lanham Act, 15 U.S.C. § 1125, for Defendants' alleged dissemination of false information about electric tankless water heaters. (Dkt.26, ¶¶ 35-38). The Second Claim for Relief is under the Sherman Antitrust Act, 15 U.S.C. § 1, for Defendants alleged actions in restraint of trade that purportedly caused Watts not to pursue retail placement of Microtherm manufactured electric tankless water heaters. (Dkt.26, ¶¶ 39-44). The Third Claim for Relief is under the Sherman Antitrust Act, 15 U.S.C. § 2, for Defendants' alleged attempts to monopolize the water heater market in the United States. (Dkt.26, ¶¶ 45-48). The Fourth Claim for Relief is under the Clayton Act, 15 U.S.C. § 14, for Defendants' alleged conditional contracting with distributors like Watts, which Plaintiffs allege have the effect of lessening competition in the water heater market. (Dkt.26, ¶¶ 49-51). The Fifth Claim for Relief is under the Arizona Antitrust Act, A.R.S. § 44-1401 et seq. for Defendants' alleged contract, combination or conspiracy to restrain or monopolize trade or commerce. (Dkt.26, ¶¶ 52-54). The Sixth Claim for Relief is for Product Disparagement and Injurious Falsehood for Defendants' alleged knowing publication of false statements. (Dkt.26, ¶¶ 55-57). The Seventh Claim for Relief is for Commercial Defamation for Defendants' alleged false statements about Microtherm and electric tankless water heaters. (Dkt.26, ¶¶ 58-61). The Eighth Claim for Relief is for Intentional Interference with Performance of a Contract by a Third Person for Defendants' alleged interference with the Microtherm and Watts contract. (Dkt.26, ¶¶ 62-64). The Ninth Claim for Relief is for Intentional Interference with Another's Performance of His Own Contract for Defendants' alleged interference with Microtherm's...