Court: District Court, E.D. New York; September 21, 2018; Federal District Court
Plaintiffs Susanna and Boris Mirkin, a married couple from Brooklyn, have filed a putative class action against XOOM Energy, LLC and XOOM Energy New York, LLC, claiming breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment related to their March 2013 agreement for residential electricity services. The defendants sought dismissal under Federal Rule of Civil Procedure 12(b)(6), which the court granted, although it noted that plaintiffs were not required to exhaust XOOM's dispute-resolution remedies before filing.
The Mirkins allege that after signing up for XOOM's SimpleFlex Variable Rate Plan, their initial electricity rate of 8.99¢/kWh was increased to much higher rates, which they characterize as part of a "bait and switch" scheme. While acknowledging that the rates were variable, they argue that the extent of the increases went beyond reasonable expectations established by the agreement. The agreement stated that rates would change monthly based on XOOM's actual and estimated supply costs, with no guaranteed savings. However, the plaintiffs contend that XOOM's rates did not correspond to these supply costs and instead were inflated.
To support their claims, they attempted to compare XOOM's rates to a calculated "Market Supply Cost," a term not included in the original agreement, which they derived from various factors in the electricity market. This calculation included elements such as day-ahead prices, ancillary services costs, and capacity costs, along with an undisclosed margin to reflect potential retailer fixed costs.
Plaintiffs allege that their 'Market Supply Rate' was based on the costs incurred by a retailer supplying residential customers, calculated by an experienced consulting expert. They provided a table in their complaint comparing XOOM's rates to the 'Market Supply Cost,' showing that XOOM charged up to 58.55% more than this cost during most billing periods, despite lower rates during the initial 'teaser' month. Plaintiffs assert that XOOM's variable rates increased steadily for the first four months, decreased in September 2013, and then rose again in their final month of service. They claim this demonstrates that XOOM's rates were consistently higher than justified by supply costs, violating the terms of their contract. The plaintiffs argue that XOOM exploited deregulated energy markets with misleading claims about its rates being based on supply costs. Dissatisfied with XOOM's pricing, they canceled their service in November 2013 and filed a complaint in April 2018, which was later removed to federal court under the Class Action Fairness Act. XOOM's motion to dismiss contends that the plaintiffs have not adequately stated a claim, arguing that the contract permits them to set variable rates based on a broad set of factors, rather than the specific 'Market Supply Rate' claimed by the plaintiffs. To survive a motion to dismiss under the applicable legal standard, a complaint must include sufficient factual matter to make a plausible claim, avoiding mere conclusory statements.
In evaluating a motion to dismiss under Rule 12(b)(6), the court must interpret the complaint liberally, accepting all factual allegations as true while drawing reasonable inferences in favor of the plaintiff. However, the court is not required to accept legal conclusions presented as factual allegations. A well-pleaded complaint must provide sufficient factual content to allow a reasonable inference of the defendant's liability.
XOOM contends that the plaintiffs' claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment lack sufficient grounds for relief. The agreement between the parties specifies that it is governed by North Carolina law, and New York law dictates that when a contract includes an express choice-of-law provision, that law should apply unless there is fraud or public policy concerns.
Regarding the dispute-resolution clause, XOOM argues for dismissal based on plaintiffs' failure to utilize the outlined provisions. The agreement states that, in the case of billing disputes, a party "should contact XOOM's Customer Care Center" and that disputes may be submitted to the New York State Department of Public Service. While parties must pay their bill in full except for disputed amounts, the clause does not impose a mandatory exhaustion requirement. The court finds the language of the clause to be permissive, indicating that customers have discretion in invoking the pre-suit procedure, as evidenced by the use of the terms "should" and "may." This contrasts with the mandatory term "must" used in other contexts within the agreement, suggesting that if the drafters intended a mandatory requirement, they would have explicitly stated so.
The applicability of the dispute resolution provision to the plaintiffs' systemic violation claims is questioned, as their complaints do not center on a specific billing dispute. XOOM's reliance on cases involving arbitration clauses under the Federal Arbitration Act is deemed unconvincing. Legal precedent suggests that provisions containing "may" indicate mandatory arbitration unless otherwise stated, and the forty-five-day waiting period for customers intending to utilize dispute mechanisms applies only to those customers. Consequently, plaintiffs are free to pursue legal action in federal or state court without exhausting these mechanisms.
In evaluating the plaintiffs' breach of contract claim, it is established that a valid contract exists, but a disagreement remains regarding XOOM's pricing practices. Under North Carolina law, to assert a breach of contract, a plaintiff must demonstrate both the existence of a valid contract and a breach of its terms. The court must interpret any ambiguities in the contract in favor of the plaintiffs, acknowledging that differing interpretations alone do not render a contract ambiguous. The interpretation should not stretch the contract language beyond reasonable meanings, and the court will focus solely on the written terms to ascertain the parties' intent at the time of execution.
Plaintiffs assert that XOOM's mention of "actual and estimated supply costs" implies a connection between its variable rates and wholesale electricity prices. They reference various federal court cases involving deregulated energy service companies (ESCOs) to support their claim. However, the contractual terms in those cases differ significantly from XOOM's agreement, revealing weaknesses in the plaintiffs' argument. The plaintiffs' attempt to align XOOM's costs with an external, verifiable electric rate is undermined by the contract's lack of mention of wholesale rates or market factors relevant to their "Market Supply Cost" calculations, such as load-weighted prices or ancillary service costs. XOOM does not indicate that it sources electricity from the wholesale market, nor do the plaintiffs specify how XOOM meets its supply needs. Unlike other contracts that explicitly reference wholesale prices, XOOM’s agreement does not provide any clear formula for determining costs, making customers unable to predict XOOM's pricing based on the broader market context. Thus, the agreement frames XOOM's rate-setting as an internal process, inaccessible to customers lacking expertise in the electricity market.
Customers lack a reliable method to compare their actual rates with utility costs due to the limited information provided by XOOM about the factors influencing its pricing. The court's ruling in Hamlen v. Gateway Energy Services Corp. illustrates this issue, where it was found that the electricity provider had significant discretion in setting variable rates based on various factors, leading to the conclusion that customers could not assume that higher charges signified neglect of their costs or market conditions.
In contrast to the contracts in Hamlen and Daniyan, XOOM's agreement specifies that prices are based on its costs. However, this reference does not imply a stable or easily determined rate for customers to use as a benchmark. The plaintiffs' claims fail because they confuse XOOM's internal costs with complex factors not explicitly outlined in the agreement. Ultimately, the mention of XOOM's costs is characterized as vague, lacking the clarity necessary to assure customers that these costs align with wholesale market rates. The contract is not deemed ambiguous, as plaintiffs' interpretation exceeds the reasonable meaning of the language used. Comparisons to similar cases further highlight these distinctions.
In Mirkin v. Viridian Energy, the court determined that plaintiffs sufficiently alleged that Viridian Energy violated its contract by failing to set variable rates based on wholesale market conditions. The plaintiffs presented a comparison showing that Viridian's rates were significantly higher—up to 384.43%—than the average wholesale market rate for the NYC region. Similarly, in Yang Chen v. Hiko Energy, plaintiffs demonstrated that Hiko Energy did not comply with its promise to charge rates 1-7% lower than those of the local utility, PSE&G. In contrast, the current plaintiffs did not convincingly argue that XOOM's reference to "actual and estimated supply costs" led customers to believe prices would be aligned with wholesale rates, nor did they establish a clear connection between their "Market Supply Cost" and XOOM's actual or estimated supply costs. Consequently, the breach of contract claim was dismissed. Furthermore, the claim for breach of the implied covenant of good faith and fair dealing was also dismissed, as it typically hinges on the breach of an express contract term, which had already been determined not to exist in this case.
A claim for breach of good faith that is closely related to a breach of contract claim will be treated together with that breach of contract claim. Plaintiffs argue for the separation of these claims based on differing, albeit overlapping, facts and cite cases from other jurisdictions, such as New York, as support. However, under North Carolina law, similar claims are typically evaluated together, even if the facts aren’t identical. The court agrees with the defendants that the plaintiffs have not presented distinct factual bases for their claims, despite using terms like “price gouging” and “arbitrarily and unreasonably.” These allegations are still tied to the contract's terms regarding expectations about variable pricing, which the court finds do not substantiate a breach of the implied covenant. Furthermore, the plaintiffs have not successfully demonstrated that XOOM was required to set prices based on wholesale rates or their own market supply costs. Consequently, the claim fails as a matter of law. Additionally, the plaintiffs' claim for unjust enrichment lacks merit; under North Carolina law, such a claim is recognized as a quasi-contract claim and requires an implied contract, which the plaintiffs have not established.
If a contract exists between parties, it governs any claims, and the law will not imply a contract. Plaintiffs acknowledge that their claim can only be brought in the absence of a governing contract but argue it may be pleaded as an alternative under Federal Rule of Civil Procedure 8. XOOM contends that the unjust enrichment claim can only proceed if there is a genuine dispute regarding the underlying contract's validity. While XOOM argues that the plaintiffs' claim fails for not being explicitly pleaded as an alternative, this is not seen as a critical defect.
XOOM also claims that the plaintiffs' unjust enrichment claim is time-barred under New York's three-year statute of limitations for such claims seeking monetary damages. However, plaintiffs counter that the statute of limitations is less clear since they seek both monetary and equitable relief. The prevailing view among courts is that the statute of limitations for unjust enrichment claims in New York is six years, regardless of the type of relief sought.
Additionally, an unjust enrichment claim may only be sustained as an alternative to a contractual claim if the existence of that contract is disputed. Plaintiffs argue for the first time that the validity of the underlying agreement is in question due to XOOM's interpretation of a dispute resolution provision that could render the contract void. However, the court finds this argument unpersuasive, stating that questioning a specific clause does not invalidate the entire contract, as severable provisions can still be enforced.
Plaintiffs' unjust enrichment claim is fundamentally linked to the existing contract, essentially replicating a conventional contract claim as established in prior case law. The court aligns with the decision in Madison River Management Co. v. Business Management Software Corp., asserting that since an express contract exists, plaintiffs cannot assert an implied contract claim. Consequently, the unjust enrichment claim is dismissed. XOOM's motion to dismiss is granted entirely, and the case is ordered to be closed.
Defendants contend that XOOM Energy, LLC is not a proper party to the lawsuit, citing a lack of involvement in the underlying contract and licensing issues in New York. Plaintiffs counter that liability can be established through agency principles and veil-piercing theories; however, the court does not address these arguments as plaintiffs have not sufficiently stated a claim against either defendant.
Plaintiffs assert they were charged a rate that included New York State tax but later present an adjusted figure excluding tax, indicating a maximum variance of 51.73 between the market supply cost and XOOM's rate. The court resolves the motion based on the briefs submitted without oral argument. It also notes that as a federal court in diversity, it adheres to New York's rules regarding choice-of-law provisions. Plaintiffs suggest there is a dispute over the contract's validity, but the court finds that disagreements regarding the dispute-resolution clause do not equate to questions about the contract's validity itself. Defendants are noted to misinterpret plaintiffs' arguments regarding the contract's terms, including the acknowledgment of variable pricing.
Plaintiffs allege that XOOM did not base its rates on actual and estimated supply costs, despite a contractual commitment to use such costs as the basis for rate-setting. They argue that they reasonably expected the rates to align with these costs. XOOM highlights that the rate disparity is approximately 50, which is significantly lower than in other cases where plaintiffs successfully survived motions to dismiss, indicating a material difference in this complaint. The contract interpretation follows North Carolina law, while the statute of limitations applicable to the claims is that of New York. In diversity cases, state statutes of limitations govern the timeliness of state law claims. The choice of law provision in the Client Account Agreement does not necessitate the application of New York’s statute of limitations to all claims, as such provisions typically address substantive issues. Both parties only discuss New York's statute of limitations regarding the unjust enrichment claim, with no contention for North Carolina's statute.
