Proximate cause defeats false advertising claims against standard setting body allegedly packed by competitors

Geomatrix, LLC v. NSF International, --- F.4th ----, 2023 WL 5925977, No. 22-1947 (6th Cir. Sept. 12, 2023)

Discussion of opinion below.

Geomatrix sells a septic system that substantially differs from those sold by its competitors. It asserts defendants, those competitors and NSF International (the primary standard-setting organization for the wastewater product industry), conspired to exclude its unique system from the marketplace.

The court of appeals affirmed the dismissal of the complaint—the antitrust claim on Noerr-Pennington grounds, which I will now ignore.

NSF certification is practically required for residential septic systems; at least 37 states have adopted its requirements into law. Although Geomatrix obtained a Standard 40 certification, NSF—allegedly packed by competitors using a different method—started to question whether Geomatrix’s method, which does not require aeration devices to treat wastewater before it leaches into the drain field, should be certified under that standard. This agitation for a new, separate standard allegedly disparaged and promoted unfounded concerns about Geomatrix’s system; one proposed different standard has been adopted in only one state, and another proposed standard for high-strength systems (used by, e.g., restaurants) that would exclude Geomatrix’s system. This allegedly harmed Geomatrix’s business.

Lanham Act and state unfair competition law: Although Geomatrix alleged disparagement, it failed to describe what “independent harm” occurred in the market or how defendants’ actions actually “influenc[ed] consumers’ purchasing decisions.” Although the complaint states that NSF published false statements to regulators and customers and then used the standard-setting process to limit competition, and that individual defendants made false statements about the reliability of T&D systems or adopted disparaging terms, there was no description of how consumers “with[held] trade from the plaintiff.”

Even if it had done so, Geomatrix didn’t plausibly allege that these statements caused the harm: Geomatrix could not market its products in certain states because state regulators did not approve their product, which was the actual cause of Geomatrix’s injuries. “While Geomatrix contends that its injuries resulted from the conspiracy by itself, the regulators’ decisions were still an intervening cause and the proximate one. Any deception on defendants’ part was not the cause of consumers’ decisions, for consumers were not the ones who decided to do anything.”

Unusually, but soundly, the court proceeded to analyze the Michigan common law unfair competition claim separately. Though courts usually group competitor claims together under state and federal law, the court pointed out that Lexmark is a rule of construction for the federal statute. “Michigan common law does not rely on the words of a statute, let alone a federal one.” The causes of action are similar for likely confusion/deception, but not for statutory standing.

Still, Geomatrix needed to plead proximate causation, because Michigan common law requires causation as an element of any tort action, and it didn’t.

A similar fate awaited other Michigan common-law business tort claims: business defamation/injurious falsehood, fraud/misrepresentation, and interference with prospective economic advantage. For defamation/injurious falsehood, the alleged statements weren’t “of and concerning” Geomatrix but about systems of the type Geomatrix made, which apparently isn’t limited to Geomatrix. Disparaging an industry or type of product isn’t defamation, and injurious falsehood requires pleading special damages, which wasn’t done.

Fraud/misrepresentation and interference with prospective economic advantage claims were also based on conduct immunized by Noerr-Pennington, which the court predicted Michigan would apply.

Michigan Consumer Protection Act: covers only “conduct of a business providing goods, property, or service primarily for personal, family, or household purposes.” Standard 40 certification is not a “consumer” good or service.

A concurrence would have resolved the fraud and tortious interference with prospective economic advantage claims on different grounds, declining to predict that Michigan would extend Noerr-Pennington to them. The argument is pretty interesting: the Michigan lower courts that have applied Noerr-Pennington to state law claims did so as a matter of First Amendment reasoning directly, rather than constitutional avoidance (the explicit ground on which Noerr-Pennington was decided). The concurrence would give no deference to their First Amendment analysis, and it would go far beyond NYT v. Sullivan in immunizing even knowingly false, fraudulent statements. But proximate cause/damages would still lead to the same result.