Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—W.D. Wis.: Wisconsin DTPA claim dismissed as time-barred, out-of-scope, (Aug 25, 2023)

By Patricia K. Ruiz, J.D.

The claim concerned court determined the complaint was filed more than three years after the alleged misrepresentations took place.

The U.S. District Court for the Western District of Wisconsin granted a motion to dismiss in a suit alleging violations of Wisconsin’s Deceptive Trade Practices Act (DTPA) in connections with the parties’ contract for the development of a landfill gas processing facility. The court held that all of Montauk’s alleged misrepresentations were either time-barred by the three-year statute of repose or otherwise outside the scope of the DTPA, having occurred after the parties formed a contractual relationship and not “to the public” (Galveston LFG, LLC v. BIOFerm Energy Systems, LLC, August 21, 2023, Conley, W).

Parties. Galveston LFG, LLC, owns and operates a gas processing facility in Galveston, Texas. It is a wholly owned subsidiary of Montauk Energy Holdings, LLC, which itself is a wholly owned subsidiary of Montauk Renewables, Inc. Galveston LFG, Montauk Energy Holdings, and Montauk Renewables (Montauk, collectively) specializes in processing landfill gas for beneficial use as a fuel. BIOFerm Energy Systems, LLC, designs and manufactures biodigesters that convert organic waste into renewable natural gas (RNG). In developing a landfill gas processing facility near Galveston, Texas, Montauk decided on the so-called pressure swing adsorption (PSA) process to convert landfill gas. The PSA process uses a special absorbent media to separate the gas species in landfills under high pressure, pushing the undesirable gasses into pores of a molecular sieve media. Dropping the pressure, a vacuum then releases the undesired gases and regenerates the media, leaving purified RNG.

Negotiations. In August 2017, Montauk and BIOFerm negotiated over possible biogas facility systems for Galveston to use. A presentation from BIOFerm states that it provides a “complete performance guarantee/warranty” for its PSA systems. Montauk further alleged BIOFerm represented its partner in the Galveston project would be Carbotech Gas Systems, Gmbh, a German company that supplies activated carbons used as absorbent media in the PSA process. Before reaching an agreement, Montauk alleged their representatives observed a PSA processing facility in Oklahoma running on one of BIOFerm’s systems and that BIOFerm offered Montauk a 24-month comprehensive warranty, agreeing the plant would be free from defects in material and workmanship for a period of 12 months and warranting parts for 12 months from the date of service or expiration of the plan warranty.

Contract execution, performance. The parties executed the contract on April 17, 2018. Under the contract, BIOFerm agreed to design and commission an RNG conversion facility for Montauk in exchange for $13 million. Work commenced on the project in late spring 2018, and the parties agreed to a series of change order during construction. Power was first applied to the system in August 2019, though performance testing did not start until February 2020.

Montauk alleged the performance results did not meet what it understood to be the minimum contractually agreed requirements. Montauk discovered additional problems over time, including that the plates holding the media had been improperly welded by BIOFerm’s subcontractor. In a memo to Montauk, BIOFerm recommended a fix and reinstalled the media as proposed during a scheduled shutdown period in April 2020. However, Montauk alleged BIOFerm failed to replace all of the media it removed, causing continued performance problems with the RNG conversion project. Montauk further alleged that BIOFerm claimed the facility needed replacement blowers and parts but refused to cover the costs. Additionally, BIOFerm insisted that the contract warranty would expire August 2020, one year after power was first applied, despite the delay in conducting preliminary testing and performance problems that existed during the first several months.

In late 2020, Montauk sought the assistance of Carbotech, the manufacturer of the media, to assist it with the installation of new media and to assess whether BIOFerm had improperly installed the system. Montauk alleged BIOFerm systematically sought to prevent Carbotech’s direct involvement. Montauk was able to secure Carbotech’s assistance in properly replacing the media, resulting in charges of more than $850,000. Montauk alleges BIOFerm has not taken responsibility for failures under the contract and that BIOFerm refused to recognize the plant’s performance issues within the warranty period.

DTPA claim. Montauk filed suit against BIOFerm for breach of contract, breach of warranty, and other causes of action under Wisconsin state law including violation of the state’s Deceptive Trade Practices Act (DTPA). The only cause of action at issue before the court in BIOFerm’s pending motion to dismiss is Count 6 for breach of the DTPA, which accused BIOFerm of making false, misleading, and deceptive statements and representations for the purpose of deceiving the public through twelve statements relating to the Galveston project.

BioFerm argued there are two reasons to dismiss Montauks claim at the pleading stage: (1) all of Montauk’s allegations fall outside the scope of the DTPA as time-barred, non-public statements or both; (2) none of the alleged statements in Montauk’s claim satisfy the elements of the DTPA. The DTPA prohibits a person or firm with intent to offer anything for sale or hire from making any representations to “the public” that are “untrue, deceptive or misleading.” The statute provides a three-year statute of repose after the occurrence of the unlawful act or practice, and the cause of action accrues at the time of the false representation, not at the time of the injury. A claim under the DTPA requires three elements: (1) a representation to the public with the intent to induce an obligation; (2) the representation was untrue, deceptive, or misleading; and (3) the representation caused a pecuniary loss.

Claims out of scope, time barred. BIOFerm argued that seven of the allegations in the complaint were barred by the statute of repose because, on the face of the complaint, more than three years had already passed between the occurrence of the allegedly unlawful representations and Montauk’s filing of the complaint. Specifically, the complaint was filed on September 20, 2022, making the critical date September 20, 2019. However, the allegedly deceptive representations that induced them to form a contract on April 17, 2018, appeared to occur more than four years before filing the complaint. The court agreed, finding that all deceptive statements expressly alleged to have been made before the parties’ formation of a contract were barred by the DTPA’s statute of repose.

BIOFerm further argued that any remaining allegations of Montauk’s claim occurred after contract formation were barred by the “public” scope of the statute. Further, BIOFerm argued that the representations made after the contract’s execution logically could not have caused Montauk to execute the contract. The court found that representations made after Montauk and BIOFerm had formed a “particular relationship” by entering into a contract, taking it outside of the reach of the DTPA.

Finding that all of Montauk’s alleged misrepresentations were either time-barred or otherwise outside the scope of the DTPA, it was unnecessary to consider BIOFerm’s alternative argument.

The case is No. 3:22-cv-00538.

Attorneys: John J. Laffey (Laffey, Leitner & Goode, LLC) for Galveston LFG, LLC. Eric James Van Schyndle (Quarles & Brady LLP) for Bioferm Energy Systems, LLC.

Companies: Galveston LFG, LLC; Bioferm Energy Systems, LLC

Cases: StateUnfairTradePractices WisconsinNews