UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Presby Environmental, Inc.

v. Civil No. 13-cv-355-LM Opinion No.

Advanced Drainage Systems, Inc. (Corrected Opinion Number)

O R D E R

Presby Environmental, Inc. (“Presby”) has sued Advanced

Drainage Systems, Inc. (“ADS”) based on ADS’s alleged violation

of a settlement agreement previously entered into by the

parties. Now pending before the court are ADS’s Motion for

Judgment on the Pleadings and Presby’s Motion for Leave to Amend

Complaint. For the reasons that follow, the Motion for Judgment

on the Pleadings is GRANTED IN PART and DENIED IN PART and the

Motion for Leave to Amend Complaint is DENIED.

Factual Background1

This dispute is the latest iteration in a long-running

legal feud between Presby and ADS. Presby is a New Hampshire-

based company that develops, manufactures, tests and sells

products for septic systems. Compl. ¶ 2. ADS is a Delaware

corporation and occupies a similar niche in the market. ADS

manufactures pipe that is used in agricultural, commercial and

1 The facts are summarized from Presby’s Complaint and Demand for Jury Trial (Document No. 1; cited as “Compl.”). highway drainage systems, as well as septic and leaching

systems. Id. ¶ 3.

Presby has developed an in-ground waste treatment disposal

system known as “Enviro-Septic.” Id. ¶ 7. ADS competes with

Presby by marketing and selling its own in-ground septic system

known as “GEO-Flow.” Id. ¶ 8. Both Enviro-Septic and GEO-Flow

are innovative products designed to replace traditional septic

systems, and both are subject to regulation by certain

environmental authorities. Id. ¶ 10.

Presby and ADS first found themselves on opposite sides of

a courtroom in the mid-1990s in a patent infringement dispute

brought by ADS. Id. ¶ 11. Then, in 2008, Presby brought a suit

of its own (the “2008 Litigation”).2 Id. ¶ 12. Presby alleged

that ADS was securing approvals for the GEO-Flow system from

various state environmental regulators by improperly relying on

testing that Presby had conducted on its own Enviro-Septic

system. Id. In essence, Presby alleged that ADS was seeking to

avoid the cost of conducting its own tests of GEO-Flow, and

instead was bootstrapping Presby’s test results by falsely

representing to regulators that Enviro-Septic and GEO-Flow were

functionally equivalent. Id. ¶ 13. Presby also alleged that

2 See Presby Envtl., Inc. v. Advanced Drainage Sys., Inc., No. 08-cv-434-JL (D.N.H.).

2 ADS infringed several of its copyrights by including Presby’s

materials in certain product manuals. Id. ¶ 14.

The 2008 Litigation came to a close in May 2009 when the

parties entered into a Settlement Agreement and Mutual Release

(the “Settlement Agreement”). Id. ¶ 16. Two provisions of the

Settlement Agreement are of central importance to this dispute.

First, the Settlement Agreement provided that “ADS will not

represent in the marketplace that GEO-Flow is the ‘functional

equivalent’ of Enviro-Septic.” Id. ¶ 17. Second, it provided

that “[w]ith respect to any regulatory or approval processes

regarding the use and approval of [GEO-Flow], ADS agrees that it

will not use any test data relative to Enviro-Septic, as though

such data were applicable to [GEO-Flow].” Id. ¶ 18.

The instant dispute involves alleged breaches of the

Settlement Agreement by ADS. Specifically, Presby alleges that,

in 2009, an individual by the name of Dick Batchelder

(“Batchelder”), on behalf of ADS, made a series of

representations to the Vermont Department of Environmental

Conservation (the “Vermont DEC”) regarding the functional

equivalence of GEO-Flow and Enviro-Septic. Id. ¶¶ 19-31. These

representations included providing the Vermont DEC with a copy

of a document prepared by the New Hampshire Department of

3 Environmental Services (the “NH DES”) that compared the two

systems. Id. ¶ 21.

Also in 2009, Batchelder (again allegedly acting on behalf

of ADS) provided a copy of the NH DES report to the Indiana

State Department of Health in connection with regulatory

proceedings there. Id. ¶¶ 32-34. Batchelder also allegedly

made various additional statements to Vermont and Indiana

regulators suggesting that GEO-Flow and Enviro-Septic were

similarly-sized and functionally equivalent. Id. ¶¶ 33-34.

Finally, the complaint alleges that ADS provided similar

information to environmental regulators in Massachusetts and New

York. Id. ¶¶ 36-37. Presby has brought this action seeking

damages for breach of the Settlement Agreement and violation of

the Lanham Act,

et seq.

Presby’s Motion for Leave to Amend Complaint

Presby has moved for leave to amend its complaint in order

to add several allegations, including those relating to

additional statements made by employees and other

representatives of ADS regarding the functional equivalence of

Enviro-Septic and GEO-Flow. Many of these statements were

allegedly made at an industry “field day” event in New Hampshire

in October 2013.

4 Certain aspects of the procedural posture are of relevance

to this discussion. First, the court previously issued a

scheduling order that gave Presby until December 30, 2013, to

amend its pleadings. Second, however, Presby’s motion for leave

to amend was not filed until May 2014, after ADS had filed its

dispositive motion for judgment on the pleadings.

I. Legal Standard

The parties dispute the applicable standard of review.

Presby contends that the matter should be governed by Federal

Rule of Civil Procedure 15. Rule 15(a)(2) provides that “a

party may amend its pleading only with the opposing party’s

written consent or the court’s leave. The court should freely

give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2).

And, Rule 15(d) further provides that “[o]n motion and

reasonable notice, the court may, on just terms, permit a party

to serve a supplemental pleading setting out any transaction,

occurrence, or event that happened after the date of the

pleading to be supplemented.” Id. at 15(d). Rule 15 generally

presents a favorable standard for parties seeking to amend a

pleading, as “leave to amend is to be freely given unless it

would be futile or reward . . . undue or intended delay.”

Resolution Trust Corp. v. Gold,

(1st Cir. 1994)

(citations omitted) (internal quotation marks omitted).

5 Unfortunately for Presby, Rule 15 no longer governs these

proceedings, because “[o]nce a scheduling order is in place, the

liberal [Rule 15 standard] is replaced by the more demanding

‘good cause’ standard of Fed. R. Civ. P. 16(b).” Steir v. Girl

Scouts of the USA,

(1st Cir. 2004); see also

O’Connell v. Hyatt Hotels,

(1st Cir. 2004)

(holding the same and noting that “[f]or Rule 16(b) to operate

effectively, litigants cannot be permitted to treat a scheduling

order as a frivolous piece of paper idly entered, which can be

cavalierly disregarded without peril”) (citations omitted)

(internal quotation marks omitted). Thus, Presby’s motion for

leave to amend must be governed by Rule 16(b)(4), which provides

that “[a] schedule may be modified only for good cause and with

the judge’s consent.” Fed. R. Civ. P. 16(b)(4).

This good cause standard represents a high hurdle. As an

initial matter, a court “may extend a scheduling order deadline

on a showing ‘of good cause if the [deadline] cannot reasonably

be met despite the diligence of the party seeking the

extension.’” O’Connell,

(quoting Advisory

Committee Notes to the 1983 Amendments to Fed. R. Civ. P.

16(b)). And, the hurdle to show good cause becomes even higher

where it can be demonstrated that the party seeking leave to

amend knew (or should have known) about the facts at issue prior

6 to the deadline for amendments. See, e.g., Trans-Spec Truck

Serv. v. Caterpillar Inc.,

(1st Cir. 2008).

Finally, a showing of good cause is made even more difficult

where the opposing party has filed a dispositive motion prior to

the motion for leave to amend, or amendment would otherwise

result in prejudice to the opposing party. See Steir,

.

II. Discussion

Presby has failed to demonstrate the good cause necessary

to amend its complaint at this late hour. A review of Presby’s

proposed amended complaint reveals that Presby seeks to add

allegations regarding the following:

 Practices whereby ADS surreptitiously encouraged contractors to install GEO-Flow instead of Enviro-Septic, without the homeowner’s knowledge.

 Batchelder’s statement, sometime fairly soon after execution of the Settlement Agreement, that “ADS never should have signed the [] Settlement Agreement.”

 Statements made by ADS employees and representatives at the October 2013 industry field day event likening GEO-Flow to Enviro- Septic.

Presby had information about each of these issues at the

time it filed its initial complaint and, in any event, as of the

December 30, 2013, deadline to amend its pleadings. In support

7 of its motion for leave to amend, Presby included a series of

affidavits from, among others, several of its employees and

officers. In one of these affidavits, David Presby, Presby’s

president, states that “[o]ver the years, my employees and I

have gone to several sites where homeowners have called us with

problems regarding their Enviro-Septic systems. . . . However,

upon arrival . . . we found that in fact [GEO-Flow] had been

substituted and installed without their knowledge.” See Aff. of

David Presby ¶¶ 7, 9, Exh. 3 to Presby’s Mot. for Leave to Amend

Compl. Mr. Presby’s characterization of these events as having

taken place “over the years” suggests that Presby has long known

about this situation.

Mr. Presby’s affidavit also establishes that Presby was

long-aware of Batchelder’s statements regarding the Settlement

Agreement. It states that “[s]ometime in the year or two after

signing the [Settlement Agreement in May 2009] . . . I attended

an industry conference where Dick Batchelder told me that ADS

never should have signed the Settlement Agreement.” Id. ¶ 5.

Thus, these statements must have been made in 2010 or 2011, in

either case long before these proceedings.

Finally, Presby concedes – on page two of its motion for

leave to amend, no less – that “[a]t the time Presby initially

brought suit, it had second- and third-hand information about

8 [ADS’s] breaches of the Settlement Agreement, principally via

statements allegedly made by ADS employees and representatives

at training seminars, classes, trade shows and similar places

attended by industry professionals.” See Presby’s Mot. for

Leave to Amend Compl. ¶ 5. Presby attempts to explain that it

took time to obtain detailed information about these alleged

breaches. But, not only does the complaint fail to even allude

to these issues, but a full three months passed between the

industry field day event in early October 2013 and the deadline

to amend the pleadings on December 30, during which Presby could

have amended the complaint to lodge these allegations.

Presby had substantial knowledge of all of the allegations

that it now seeks to add prior to the deadline for amending its

pleadings, and Presby’s motion to amend was filed subsequent to

a dispositive motion. What is more, allowing Presby’s proposed

amendments would prejudice ADS by imposing added discovery costs

and causing a delay in trial. In light of these considerations,

Presby has failed to demonstrate the good cause necessary under

Federal Rule of Civil Procedure 16(b)(4) to merit amendment of

its complaint. Therefore, Presby’s motion for leave to amend is

denied.

9 ADS’s Motion for Judgment on the Pleadings

ADS has moved for judgment on the pleadings with respect to

both the breach of contract and Lanham Act claims.

I. Legal Standard

A party may move for judgment on the pleadings “[a]fter the

pleadings are closed [] but early enough not to delay trial

. . . .” Fed. R. Civ. P. 12(c). “The standard for evaluating a

Rule 12(c) motion . . . is essentially the same as that for

deciding a Rule 12(b)(6) motion.” Pasdon v. City of Peabody,

(1st Cir. 2005). The plaintiff must make

factual allegations sufficient to “state a claim to relief that

is plausible on its face.” Bell Atl. Corp. v. Twombly,

(2007). A claim is facially plausible when it pleads

“factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct

alleged. The plausibility standard is not akin to a

‘probability requirement,’ but it asks for more than a sheer

possibility that a defendant has acted unlawfully.” Ashcroft v.

Iqbal,

(2009) (citations omitted). In

deciding such a motion, the court views the facts contained in

the pleadings in the light most favorable to the nonmovant and

draws all reasonable inferences in his favor. Zipperer v.

Raytheon Co., Inc.,

(1st Cir. 2007). “Judgment

10 on the pleadings is proper ‘only if the uncontested and properly

considered facts conclusively establish the movant’s entitlement

to a favorable judgment.’”

(quoting Aponte-Torres v. Univ.

of P.R.,

, 54 (1st Cir. 2006)).

II. Discussion

A. Count 1: Breach of Contract

ADS seeks judgment in its favor on Presby’s claim for

breach of the Settlement Agreement. As an initial matter, the

Settlement Agreement is governed by New Hampshire law. See

Settlement Agreement ¶ 7 (Document No. 14). And, accordingly,

its interpretation is a question of law. Audette v. Cummings,

(N.H. 2013). Courts are to “give the

language used by the parties its reasonable meaning, considering

the circumstances and the context in which the agreement was

negotiated, and reading the document as a whole.”

Two provisions of the Settlement Agreement are principally

at issue. The full text of those provisions reads as follows:

ADS will not represent in the marketplace that [GEO-Flow] is the “functional equivalent” of Enviro-Septic. Provided, however, ADS is not otherwise limited in advertising or marketing [GEO-Flow] or responding, consistent with applicable law, to competitive claims of [Presby]. ADS will send a letter to each of its distributors (copying [Presby]) instructing each distributor that it is not to represent to purchasers or potential purchasers of [GEO- Flow] that [GEO-Flow] is the “functional

11 equivalent” of Enviro-Septic. ADS will provide a copy of this letter to [Presby] prior to its distribution.

. . .

With respect to any regulatory or approval processes regarding the use and approval of [GEO-Flow], ADS agrees that it will not use any test data relative to Enviro-Septic, as though such data were applicable to [GEO-Flow]. Where ADS has not conducted independent testing of [GEO-Flow], ADS will not claim to any regulatory or approving agency that, had ADS performed such testing, it would have equaled, surpassed, or compared favorably to test results for Enviro-Septic. To the extent testing is required by a particular regulatory or approving agency, ADS will rely on test results relating specifically to [GEO-Flow] or test results available in the public domain other than test data relative to Enviro-Septic. If a regulatory or approving agency conducts or sponsors testing of both Enviro-Septic and [GEO-Flow], nothing in this paragraph shall bar the use of the data generated and results of such testing in any other context or for any other purpose.

Settlement Agreement ¶¶ 1, 3 (emphasis added). Presby alleges

that ADS’s disclosures and representations to state regulators

in Vermont, Indiana, New York and Massachusetts constitute

breaches of these two provisions.

i. Representations of Functional Equivalence “In the Marketplace”

Presby has not stated a plausible claim for breach of the

provision related to marketplace representations of functional

equivalence, because the plain meaning of this provision would

12 exclude representations made solely to government regulators.

The complaint describes the parties’ 2008 Litigation as

involving ADS’s alleged use of Presby’s test results in seeking

regulatory approval, and the infringement of Presby’s copyrights

in several product manuals. See Compl. ¶¶ 13-14.

The Settlement Agreement, which purported to resolve the

2008 Litigation, included two separate provisions to address

these distinct issues. The first above-cited provision bars

marketplace representations by ADS as to the functional

equivalence of GEO-Flow and Enviro-Septic. The language and

circumstances of this provision plainly denote its applicability

to representations made in the context of advertising and

marketing, and not to efforts by ADS to secure regulatory

approvals. The complaint alleges that ADS made representations

to environmental regulators in four states in order to seek

approval for the marketing and sale of GEO-Flow systems. It

does not allege, however, that ADS made any additional

representations “in the marketplace” or elsewhere.

Representations made to government regulators would be

captured under the second above-cited provision, relating to

“regulatory or approval processes.” Considering the reasonable

meaning of the Settlement Agreement, the circumstances of the

2008 Litigation under which it was negotiated, and reading the

13 document as a whole (including the two cited provisions),

Audette,

, the court finds that Presby has not

alleged facts suggesting that ADS made representations “in the

marketplace” in violation of the Settlement Agreement.

ii. Use of Test Data “With Respect to Any Regulatory or Approval Processes”

On the other hand, Presby has adequately alleged that ADS

violated the provision of the Settlement Agreement barring ADS

from using “test data relative to Enviro-Septic” in the context

of “regulatory or approval processes.” For example, the

complaint alleges that ADS submitted to the Vermont DEC a

document prepared by the NH DES comparing GEO-Flow and Enviro-

Septic.3 Compl ¶ 21. And, in subsequent conversations, ADS is

alleged to have represented to the Vermont DEC that other states

had approved GEO-Flow based on its similar sizing and functional

equivalence to Enviro-Septic. Id. ¶¶ 25, 26. ADS also

allegedly made similar representations to regulators in Indiana.

Id. ¶¶ 32-34. Thus, Presby has plausibly stated a claim that

ADS violated the Settlement Agreement when it made these

representations and disclosures to state regulators.

3 ADS maintains that it was required by law to provide these materials to Vermont regulators. Nothing in this Order bars ADS from using this defense at trial.

14 In sum, Presby may proceed with its claim for breach of the

Settlement Agreement solely as it relates to breach of the

provision barring ADS’s use of certain test data in regulatory

or approval processes. Presby is not entitled to proceed on its

claim for breach of the Settlement Agreement relating to

marketplace representations of functional equivalence.

B. Count 2: Lanham Act

Presby seeks relief under Section 43(a) of the Lanham Act,

(a). Section 1125(a) “creates two distinct

bases of liability: false association and false advertising.”

Lexmark Int’l, Inc. v. Static Control Components, Inc.,

(2014). It is not immediately apparent whether

Presby seeks to proceed on a false association theory, a false

advertising theory, or both. But, regardless, ADS is entitled

to judgment because Presby has failed to state a plausible

Lanham Act claim under either theory.

i. False Association

The so-called “false association” provision of the Lanham

Act provides as follows: “[a]ny person who . . . uses in

commerce any word, term, name, symbol, or device, or any

combination thereof, or any false designation of origin, false

or misleading description of fact, or false or misleading

15 representation of fact, which is likely to cause confusion, or

to cause mistake, or to deceive as to the affiliation,

connection, or association of such person with another person,

or as to the origin, sponsorship, or approval of his or her

goods, services, or commercial activities by another person

. . . shall be liable in a civil action . . . .”

(a)(1)(A) (emphasis added). Generally, claims brought under

the false association provision involve the alleged misuse of a

trade or servicemark by the defendant. See, e.g., Oriental Fin.

Group, Inc. v. Coop. De Ahorro Crédito Oriental,

(1st Cir. 2012); Shell Co. (P.R.) v. Los Frailes Serv. Station,

, 21 (1st Cir. 2010); Flynn v. AK Peters, Ltd.,

(1st Cir. 2004).

But, regardless of the genesis of the claim, the

dispositive legal issue concerns customer confusion. WCVB-TV v.

Bos. Athletic Ass’n,

(1st Cir. 1991). “[T]he

law has long demanded a showing that the allegedly infringing

conduct carries with it a likelihood of confounding an

appreciable number of reasonably prudent purchasers exercising

ordinary care.” Int’l Ass’n of Machinists & Aerospace Workers,

AFL-CIO v. Winship Green Nursing Ctr.,

(1st

Cir. 1996).

16 Review of the complaint reveals that Presby has not made a

single allegation regarding the confusing effect of ADS’s

actions on consumers (or on anyone else for that matter). The

only relevant allegations involve ADS’s representations to state

environmental regulators, but the complaint is silent as to

consumer confusion that might result from these actions.

Presby makes two arguments on this issue that must be

addressed. First, Presby contends that deliberately false

statements, made with an intent to deceive, do not require

accompanying allegations of consumer confusion. See Cashmere &

Camel Hair Mfrs. Inst. v. Saks Fifth Ave.,

(1st Cir. 2002) (“Where the advertisement is literally false, a

violation may be established without evidence of consumer

deception.”). In advancing this argument, Presby conflates the

legal requirements for a false association claim with those for

a false advertising claim. While a false advertising claim

involving a “literally” false statement may proceed in the

absence of allegations regarding consumer confusion, the First

Circuit has emphasized the need for evidence of confusion to

proceed on a theory of false association. Winship Green Nursing

Ctr.,

.

Second, Presby refers the court to the affidavit of David

Presby and its content regarding the surreptitious installation

17 of GEO-Flow instead of Enviro-Septic at certain job sites. As

an initial matter, having denied Presby’s motion for leave to

amend the complaint (to which Mr. Presby’s affidavit was

appended), the court declines Presby’s invitation to consider

these materials. See Collier v. City of Chicopee,

(1st Cir. 1998) (noting that a motion for judgment on the

pleadings must be converted to one for summary judgment if the

court considers material outside the pleadings).

What is more, even if the court were to consider these

claims, it would do little to change the equation. Isolated

incidences of swapped septic systems are not tantamount to

“confounding an appreciable number of reasonably prudent

purchasers exercising ordinary care.” Winship Green Nursing

Ctr.,

. For all of these reasons, Presby has

failed to state a claim for false association.

ii. False Advertising

Presby would fare no better were it pursuing a false

advertising theory. The Lanham Act’s false advertising

provision provides that “[a]ny person who . . . uses in commerce

any word, term, name, symbol, or device, or any combination

thereof, or any false designation of origin, false or misleading

description of fact, or false or misleading representation of

fact, which . . . in commercial advertising or promotion,

18 misrepresents the nature, characteristics, qualities, or

geographic origin of his or her or another person’s goods,

services, or commercial activities, shall be liable in a civil

action . . . .”

(a)(1)(B). To prove a false

advertising claim, a plaintiff must demonstrate that: “(1) the

defendant made a false or misleading description of fact or

representation of fact in a commercial advertisement about his

own or another’s product; (2) the misrepresentation is material

. . . (3) the misrepresentation actually deceives or has the

tendency to deceive a substantial segment of its audience; (4)

the defendant placed the false or misleading statement in

interstate commerce; and (5) the plaintiff has been or is likely

to be injured as a result of the misrepresentation . . . .”

Cashmere & Camel Hair Mfrs. Inst.,

(emphasis

added).

ADS is entitled to judgment because Presby has not pled

facts suggesting that ADS engaged in commercial advertising of

any kind. The complaint merely alleges that ADS made a series

of representations to environmental regulators in Vermont,

Indiana, Massachusetts and New York that compared GEO-Flow to

Enviro-Septic.

To constitute “commercial advertising” for purposes of the

Lanham Act, however, the representation in question must “(a)

19 constitute commercial speech (b) made with the intent of

influencing potential customers to purchase the speaker’s goods

or services (c) by a speaker who is a competitor of the

plaintiff in some line of trade or commerce and (d) disseminated

to the consuming public in such a way as to constitute

advertising or promotion.” Podiatrist Ass’n v. La Cruz Azul de

P.R., Inc.,

(1st Cir. 2003) (citations omitted)

(internal quotation marks omitted). “To constitute advertising

or promotion, commercial speech must at a bare minimum target a

class or category of purchasers . . . not merely particular

individuals.”

“Thus, to pass the pleading threshold . . .

a plaintiff at the very least must identify some medium or means

through which the defendant disseminated information to a

particular class of consumers.”

.

Courts have consistently found that statements made to

government regulators do not constitute commercial advertising.

See, e.g., Caldon, Inc. v. Advanced Measurement & Analysis Grp.,

Inc.,

(W.D. Pa. 2007); Radolf v.

Univ. of Conn.,

(D. Conn. 2005). And,

this makes sense because statements made to regulators generally

are not intended to influence consumer choice. See In re

Warfarin Sodium Antitrust Litig.,

,

at *42 n.13 (D. Del. Dec. 7, 1998), rev’d on other grounds, 214

(3d Cir. 2000) (noting that petitions by the defendant

to several governmental agencies were not commercial speech

because they did not propose a commercial transaction).

Presby seeks to circumvent the commercial advertising

requirement by taking the position that the state environmental

regulators to which ADS made its representations are “gate

keepers,” whose approval is a necessary prerequisite to ADS’s

ability to market GEO-Flow in those states. Presby does not

cite – and the court has been unable to find – any authority

standing for this proposition. This being the case, Presby’s

false advertising claim must necessarily be dismissed because

Presby has not alleged facts suggesting that ADS engaged in

improper commercial advertising in violation of the Lanham Act.

Conclusion

For these reasons, Presby’s Motion for Leave to Amend

Complaint (Document No. 20) is denied, and ADS’s Motion for

Judgment on the Pleadings (Document No. 12) is granted in part

and denied in part. Judgment shall enter in favor of ADS on

Presby’s Lanham Act claim. And, while Presby may proceed with

its claim for breach of the Settlement Agreement relating to the

use of test data in regulatory and approval processes, Presby’s

claim for breach of the Settlement Agreement relating to

21 representations of functional equivalence in the marketplace is

dismissed.

SO ORDERED.

__________________________ Landya McCafferty United States District Judge

September 30, 2014

cc: David W. Alexander, Esq. Mark Sutherland Derby, Esq. Daniel J. Mullen, Esq. David W. Rayment, Esq. Heather L. Stutz, Esq.

22