Federal Appeals Court Reverses Dismissal Of Suit Over Retail Supplier Pricing, Specific Contractual Language Prompts Departure From Recent Precedent
July 29, 2019 --- Updated Email This Story Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • email@example.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.