Federal Appeals Court Reverses Dismissal Of Suit Over Retail Supplier Pricing, Specific Contractual Language Prompts Departure From Recent Precedent

July 29, 2019 --- Updated

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Reporting by Paul Ring • ring@energychoicematters.com

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The United States Court of Appeals for the Second Circuit has reversed a dismissal of a purported class action against XOOM Energy, LLC and an affiliate (defendants) over pricing, as the Second Circuit said that XOOM's contractual language differed from that in another retail supplier proceeding, and that plaintiffs have stated plausible claims for breach of contract given such language

A statement from XOOM Energy is below

The plaintiffs (the Mirkins) in the case alleged that XOOM's rates substantially exceeded what the plaintiffs calculated was the "market supply cost" of wholesale energy, based on plaintiffs' calculations of NYISO prices. The Mirkins sued XOOM for allegedly breaching their agreement, alleging that XOOM did not base its rates on its supply costs as allegedly required under their contract. In an amended complaint, plaintiffs also alleged that XOOM's rates exceeded ConEd's rates

The contract and pricing at issue are from 2013.

The contract provided that, "Your rate for energy purchases will be a variable rate, per kWh, that may change on a monthly basis, plus taxes and fees, if applicable. Your monthly variable rate is based on XOOM’s actual and estimated supply costs which may include but not be limited to prior period adjustments, inventory and balancing costs."

The United States District Court for the Eastern District of New York dismissed the complaint, reasoning that customers had no way of determining defendants’ supply costs, as rate-setting was a purely internal company activity

The District Court dismissed the Complaint because it concluded that the contract did, "not incorporate any references to external rates or market prices," and therefore, "provides customers with no clear formula for the calculation of its costs."

Thus, according to the District Court, there is no way the Mirkins could successfully state a claim without detailed information on the internal costs and rate-setting processes to which only XOOM is privy.

The Second Circuit said that the District Court erred in dismissing, as the Second Circuit said that the complaint, and an amended complaint, "plausibly stated a claim for breach of contract."

The Second Circuit said that plaintiffs alleged that Xoom has stated in customer-facing materials that it purchases energy, "from wholesale markets," and resells that energy to its customers.

"Consistent with this concession, the Mirkins plausibly allege that '[t]he cost of wholesale energy is the primary component of the non-overhead costs XOOM incurs.' We must therefore draw the reasonable inference from the Complaint and the PAC [amended complaint] that XOOM’s actual or estimated supply costs should track the Market Supply Cost," the Second Circuit said

"The Mirkins have alleged, with the support of the expert calculations included in the Complaint and the PAC, that XOOM’s rates showed significant upward deviations from the Market Supply Cost and continued to rise even when that cost fell. These allegations are sufficient to state a claim for breach of contract, as XOOM promised to base its rates on its supply costs and the Mirkins’ allegations and calculations plausibly allege that this did not occur. Notably, XOOM failed, in its briefs and at oral argument, to cast doubt on the plausibility of these allegations simply by pointing to a single factor that could cause such substantial deviations from the Market Supply Cost in just a few months," the Second Circuit said

The Second Circuit contrasted this finding with its recent decision, in Richards v. Direct Energy Services, LLC (915 F.3d 88 (2d Cir. 2019)), in which the Second Circuit found that the default service rate was not an appropriate comparison for the retail supplier's rate given the contract at issue

However, the Second Circuit said that the contractual language in Richards v. Direct Energy Services, LLC is different than the language in Xoom, compelling the different outcome

The Second Circuit said, in Richards v. Direct Energy Services, LLC, "we were asked to determine the import of the following contractual provision in an agreement between an ESCO, Direct Energy Services, LLC, and a consumer: 'After the Initial Term and during the Renewal Period, the rate for electricity will be variable each month at Direct Energy’s discretion. The rate may be higher or lower each month based upon business and market conditions.' The consumer sued, principally alleging 'that Direct Energy breached its contract . . . by not pegging its variable rate to Direct Energy’s procurement costs.'"

In Richards v. Direct Energy Services, LLC, "Our Court concluded that the breach of contract theory could not stand. While the consumer-plaintiff’s breach of contract theory in Richards was identical, or at least nearly identical, to the one the Mirkins now advance, the relevant contractual provisions are critically different. The Agreement required XOOM to base its variable rates on its supply costs. In contrast, the contract in Richards, by its plain terms, imposed no such requirement; the relevant provision there made no mention of procurement costs. In light of this crucial difference, Richards does not control the outcome of this appeal," the Second Circuit said

The Second Circuit reversed the District Court dismissal in part, directing the District Court to allow an amended complaint to be filed, and remanding for further proceedings

XOOM Energy said in a statement that, "XOOM Energy is disappointed by last week's decision. The District Court correctly determined that the plaintiffs’ legal theory was so deficient that it did not deserve further consideration. XOOM Energy looks forward to prevailing on the merits as the case proceeds."

The Second Circuit did affirm dismissal of plaintiffs' claims for breach of the implied covenant of good faith and fair dealing and for unjust enrichment, which had not been pursued on appeal.

No. 18-3138, Mirkin v. XOOM Energy, LLC

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