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denying motion to dismiss where the pleading contained "plausible factual allegations that defendant did not charge plaintiffs rates reflecting wholesale electricity and gas costs and other market-related factors" (record citation, emphasis, and quotation marks omitted)
Summary of this case from Stanley v. Direct Energy Servs.Opinion
14 CV 1771 (VB) 14 CV 2042 (VB)
12-29-2014
YANG CHEN and LAWRENCE SASSO, on behalf of themselves and all others similarly situated, Plaintiffs, v. HIKO ENERGY, LLC, Defendant.
MEMORANDUM DECISION :
Plaintiffs Yang Chen and Lawrence Sasso bring this putative class action against defendant Hiko Energy, LLC, a New York energy service company supplying electricity and gas to New York and New Jersey residents. Plaintiffs allege defendant misled New Jersey consumers about its prices for electricity and gas, and falsely promised to save consumers money if they agreed to hire defendant as their energy supplier. Plaintiffs assert claims for violations of Sections 349 and 349-d of the New York General Business Law ("GBL"), breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment.
Chen and Sasso initially filed separate cases, which were consolidated on August 8, 2014. (Doc. #30). Citations to (Doc. #___) refer to the docket in 14 CV 1771.
Plaintiffs also assert a claim under the New Jersey Consumer Fraud Act ("NJCFA"), but only in the alternative should the Court determine the New York choice of law provision in their contracts with defendant is inapplicable. The Court, however, will apply New York law, as the parties agree New York law controls here. Plaintiffs' claim under the NJCFA is therefore dismissed without prejudice.
Defendant moves under Rule 12(b)(6) to dismiss the second amended complaint ("SAC") (Doc. #21), or, in the alternative, to strike its class action allegations under Rule 12(f). (Doc. #27).
For the following reasons, the motion is GRANTED in part and DENIED in part.
The Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1332(d).
BACKGROUND
In deciding the pending motion, the Court accepts as true all well-pleaded factual allegations in the SAC and draws all reasonable inferences in plaintiffs' favor.
Defendant has its principal place of business in Monsey, New York, and receives payment for its services at its New York address.
In June 2012 defendant began supplying electricity and gas to consumers in New Jersey. Plaintiffs, both of whom reside in New Jersey, were two of defendant's customers; Chen from December 2013 to April 2014, and Sasso from October 2013 to April 2014. Before signing up with defendant, plaintiffs bought electricity and gas from a local utility, Public Service Electric and Gas Company ("PSE&G").
The electricity and gas are delivered to consumers' homes by local utilities.
Since at least September 1, 2012, defendant has required its New Jersey customers to sign a standard form contract. The contracts plaintiffs signed included a "Guaranteed Savings and Free Month Promotion." (SAC Ex. 2). Defendant represented its price for either electricity or gas would be "1-7% lower than the utility's price for the first six months of service. Afterwards, it will be rolled onto a competitive, monthly variable rate." (Id.).
Defendant's standard form contract has undergone three iterations. The version of the contract used between September 1, 2012, and July 17, 2013, did not include this "Guaranteed Savings and Free Month Promotion" provision. However, the versions in place between July 17, 2013, and March 16, 2014—the time period in which plaintiffs became customers—and from March 16, 2014, to the present, do include the provision.
Plaintiffs paid variable monthly rates for electricity and gas. Their contracts provided the rate would change monthly and "reflect the wholesale cost of electricity (including capacity, energy, balancing, settlement, ancillaries), transmission and distribution charges, and other market-related factors, plus all sales and other applicable taxes, fees, charges or other assessments and HIKO's costs, expenses and margins." (SAC Exs. 1-3). The contracts stated the variable rate for gas likewise would "reflect the wholesale cost of natural gas (including commodity, capacity, storage and balancing), transportation to the Delivery Point, and other market-related factors, plus all sales and other applicable taxes, fees, charges or other assessments and HIKO's costs, expenses and margins." (Id.).
The essence of plaintiffs' claims is that defendant falsely represented the rates would "reflect[] the wholesale cost of electricity and gas" and "that customers [would] enjoy guaranteed savings during the first six months of service." (SAC ¶¶ 17-18). Plaintiffs claim they did not, in fact, save money in their first six months of service; nor did defendant base its rates for electricity and gas on the factors specified in plaintiffs' contracts. Thus, plaintiffs allege they paid more for electricity and gas than they should have paid.
Plaintiffs allege defendant billed Chen $0.11 per kilowatt hour for electricity in January 2014 and $0.30 per kilowatt hour in February 2014, while PSE&G's rate was approximately $0.11 for both months. As for Sasso, in January 2014 defendant charged him $65.07 for gas for each of the first two floors of his home (a total of $130.14), $104.48 for electricity on the first floor, and $19.87 for electricity on the second floor. By comparison, PSE&G's January 2014 prices for the first and second floors of Sasso's home, respectively, were only $30.87 and $29.02 for gas, and $96.33 and $18.32 for electricity. In February 2014 Sasso's bills climbed to $106.93 (first floor) and $174.53 (second floor) for gas, and $292.72 (first floor) and $78.34 (second floor) for electricity. PSE&G's prices for Sasso's home in February 2014 were $36.37 (first floor) and $60.13 (second floor) for gas, and $110.06 (first floor) and $29.46 for electricity (second floor).
Although Chen was initially charged $0.89 per kilowatt hour in January 2014, defendant later acknowledged $0.11 was the correct rate and refunded Chen accordingly.
Plaintiffs allege "[n]o reasonable consumer who knows the truth about Hiko's exorbitant rates would choose Hiko as an electricity or gas supplier." (SAC ¶ 42).
Plaintiffs bring this action on behalf of all New Jersey residents who purchased either electricity or gas from defendant from June 1, 2012, to the present. This group allegedly includes more than 80,000 people.
Plaintiffs divide this group into two putative classes—"all persons who were Hiko Electricity customers from June 1, 2012 to the present and who reside in New Jersey," and "all persons who were Hiko Gas customers from June 1, 2012 to the present and who reside in New Jersey"—as well as two subclasses—"all persons who were Hiko [electricity] customers from July 17, 2013 to the present and who reside in New Jersey," and "all persons who were Hiko [gas] customers from July 17, 2013 to the present and who reside in New Jersey." (SAC ¶ 44).
DISCUSSION
I. Legal Standards
A. Rule 12(b)(6)
In deciding a Rule 12(b)(6) motion to dismiss, the Court evaluates the sufficiency of the operative complaint under the "two-pronged approach" announced by the Supreme Court in Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). First, plaintiff's legal conclusions and "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements," are not entitled to the assumption of truth and are thus not sufficient to withstand a motion to dismiss. Id. at 678; Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir. 2010). Second, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Ashcroft v. Iqbal, 556 U.S. at 679.
To survive a Rule 12(b)(6) motion, the allegations in the complaint must meet a standard of "plausibility." Id. at 678; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 564 (2007). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. at 678. "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." Id.
B. Rule 12(f)
Under Rule 12(f), "[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). "Motions to strike are generally looked upon with disfavor." Chenensky v. N.Y. Life Ins. Co., 2011 WL 1795305, at *1 (S.D.N.Y. Apr. 27, 2011) (internal quotation marks omitted). Such motions are "even more disfavored" in the class action context because they seek "to preemptively terminate the class aspects of litigation, solely on the basis of what is alleged in the complaint, and before plaintiffs are permitted to complete the [class certification] discovery to which they would otherwise be entitled." Id. (alteration and internal quotation marks omitted). Thus, unless a motion to strike class allegations "addresses issues separate and apart from the issues that will be decided on a class certification motion," the motion should be denied as premature. Chen-Oster v. Goldman, Sachs & Co., 877 F. Supp. 2d 113, 117 (S.D.N.Y. 2012) (internal quotation marks omitted); accord Blagman v. Apple, Inc., 2013 WL 2181709, at *2 (S.D.N.Y. May 20, 2013) (same); Kassman v. KPMG LLP, 925 F. Supp. 2d 453, 464-65 (S.D.N.Y. 2013) (same).
District courts have discretion in resolving Rule 12(f) motions. See, e.g., In re Platinum & Palladium Commodities Litig., 828 F. Supp. 2d 588, 593 (S.D.N.Y. 2011).
II. GBL § 349
Section 349 of the GBL prohibits "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state." GBL § 349(a). To state a claim under Section 349, a plaintiff must allege: "first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act." Stutman v. Chem. Bank, 95 N.Y.2d 24, 29 (2000). Plaintiffs must also allege the deceptive transactions at issue have a sufficient nexus to New York State to confer standing to sue under Section 349, which was "not intended to police the out-of-state transactions of New York companies." Goshen v. Mut. Life Ins. Co. of N.Y., 98 N.Y.2d 314, 325 (2002).
Defendant contends plaintiffs' Section 349 claim fails because plaintiffs (i) lack standing, as they are both New Jersey residents who signed the allegedly misleading contracts in New Jersey, and (ii) have not alleged a cognizable injury. The Court addresses each argument in turn.
A. Standing
For a plaintiff to have standing to sue under Section 349, "some part" of an allegedly deceptive transaction—but not necessarily the deception itself—must have occurred in New York. Cruz v. FXDirectDealer, LLC, 720 F.3d 115, 123-24 (2d Cir. 2013) (internal quotation marks omitted). In Cruz, the Second Circuit considered whether a Virginia resident had standing to bring a Section 349 claim against a New York company accused of engaging in deceptive practices in managing its online foreign currency trading business. Id. at 118-19. The court concluded "some part" of the deceptive transactions at issue occurred in New York because, among other reasons, the defendant was paid in New York. Id. at 123-24.
New York State courts have similarly held that completing a transaction in New York, either by paying for something or otherwise, satisfies Section 349's standing requirement—even if the plaintiff was not deceived in New York. See People ex rel. Spitzer v. Telehublink Corp., 301 A.D.2d 1006, 1010 (3d Dep't 2003) (upholding Section 349 claim when defendant received correspondence at New York address "to complete the deceptive transactions"); People ex rel. Spitzer v. H & R Block, Inc., 2007 WL 2330924, at *8 (Sup. Ct. N.Y. Cnty. 2003) (New York Attorney General could recover on behalf of any non-New York resident who "completed the transaction by depositing his or her funds in a New York money market account").
Here, accepting plaintiffs' factual allegations as true and drawing all reasonable inferences in their favor, it is plausible at least "some part" of a deceptive transaction involving each plaintiff occurred in New York.
1. Deceptive Transaction
Plaintiffs have plausibly alleged defendant billed them more for electricity and gas than it represented it would bill them, and thereby engaged in "deceptive" conduct. See Travieso v. Gutman, Mintz, Baker & Sonnenfeldt, P.C., 1995 WL 704778, at *3 (E.D.N.Y. Nov. 16, 1995) (plaintiffs stated Section 349 claim by alleging defendants sent them "false and misleading rent bills"). Plaintiffs' contracts provided that defendant would charge variable monthly rates reflecting the wholesale cost of electricity or gas, as well as various "market-related factors, plus all sales and other applicable taxes, fees, charges or other assessments and HIKO's costs, expenses and margins." (SAC ¶ 15). But the SAC alleges the electricity rate defendant charged Chen in February 2014 was nearly triple PSE&G's rate. The SAC also alleges defendant billed Sasso more than twice as much for gas in January 2014 than PSE&G would have charged, and nearly three times as much for both electricity and gas in February 2014. Additionally, Sasso's gas and electric bills increased significantly more between January and February 2014 under defendant than they would have increased under PSE&G.
Given the dramatic differences in pricing between defendant and PSE&G, it is plausible defendant's rates were not, in fact, reflective of the wholesale cost of electricity or gas, market-related factors, and defendant's "costs, expenses and margins." (SAC ¶ 15).
2. Completion of the Transaction in New York
Plaintiffs have also plausibly alleged "some part" of the deceptive transaction occurred in New York.
As noted above, completing a transaction in New York by, for example, paying for a product or service, satisfies Section 349's standing requirement. See Cruz v. FXDirectDealer, LLC, 720 F.3d at 123-24 (part of transaction occurred in New York when defendant was "paid in New York"); People ex rel. Spitzer v. H & R Block, Inc., 2007 WL 2330924, at *8 (investment in individual retirement account not completed until consumer "deposit[ed] his or her funds in a New York money market account").
Plaintiffs allege defendant "receives payment for its services" in New York. (SAC ¶ 10). Thus, plaintiffs have plausibly alleged defendant initiated deceptive transactions by sending them inflated bills, and those transactions were completed in New York when defendant received plaintiffs' payments. Plaintiffs therefore have standing to sue under Section 349(a).
B. Injury
A monetary loss is an actionable "injury" under Section 349. Spagnola v. Chubb Corp., 574 F.3d 64, 74 (2d Cir. 2009). But if a plaintiff asserts both Section 349 and breach of contract claims in the same case, the monetary loss allegedly sustained as a result of the defendant's deception "must be independent of the loss caused by the alleged breach of contract." Id.
Defendant contends the SAC does not satisfy Section 349's injury requirement because plaintiffs allege the same injury for both their Section 349 and breach of contract claims—they paid more for electricity and gas than they should have paid under their contracts.
The SAC, however, alleges different monetary losses resulting from defendant's alleged breach of contract, on one hand, and its deceptive practices, on the other.
Plaintiffs allege defendant breached its contracts by failing to save plaintiffs one to seven percent on the cost of electricity or gas for the first six months of service, and failing to charge them a rate reflecting the factors specified in their contracts. Thus, under a breach of contract theory, plaintiffs' loss would be (i) one to seven percent of the cost for electricity and gas charged by PSE&G for the first six months of service, and (ii) the difference between the amount defendant actually charged plaintiffs and the amount defendant should have charged them had it based its prices on the factors identified in plaintiffs' contracts.
But, drawing all reasonable inferences in plaintiffs' favor, plaintiffs also allege they would not have switched from PSE&G had defendant not deceived them. (See SAC ¶ 42 ("No reasonable consumer who knows the truth about Hiko's exorbitant rates would choose Hiko as an electricity or gas supplier.")). Under this theory, plaintiffs' loss would be the difference between the amount defendant charged them and the amount they would have been charged by PSE&G. Plaintiffs have therefore plausibly alleged the monetary loss caused by defendant's deceptive acts is "independent of the loss caused by the alleged breach of contract." Spagnola v. Chubb Corp., 574 F.3d 64, 74 (2d Cir. 2009); accord Waldman v. New Chapter, Inc., 714 F. Supp. 2d 398, 406 (E.D.N.Y. 2010) (upholding Section 349 claim in case also alleging breach of contract because "[p]laintiff allege[d] that, had she understood the true amount of the product, she would not have purchased it." (internal quotation marks omitted)).
The Court expresses no opinion on plaintiffs' alternative argument that any loss resulting from defendant's one to seven percent savings guarantee is a not breach-of-contract injury because "the savings guarantee is a separate promotional advertising not contained in the representations made under the 'Terms and Conditions' section." (Pls.' Mem. at 4-5).
Accordingly, defendant's motion to dismiss plaintiffs' Section 349 claim is denied.
III. Section 349-d
Section 349-d of the GBL was enacted in 2011 to "target[] abuses in the energy services market." Simmons v. Ambit Energy Holdings, LLC, 2014 WL 5026252, at *2 (S.D.N.Y. Sept. 30, 2014). Plaintiffs allege defendant violated Section 349-d(3), which states: "No person who sells or offers for sale any energy services for, or on behalf of an [energy service company] shall engage in any deceptive acts or practices in the marketing of energy services." GBL § 349-d(3).
The parties agree the requirements for a Section 349 claim "map onto Section 349-d," meaning that a plaintiff asserting a Section 349-d claim must also allege (i) some part of the deceptive transaction at issue occurred in New York, and (ii) an injury independent of any alleged breach-of-contract injuries. (Pls.' Mem. at 8; Def.'s Mem. at 10). Defendant thus argues plaintiffs' Section 349-d claim must be dismissed for the same reasons their Section 349 claim fails.
Because the Court has concluded plaintiffs plausibly alleged both standing and an independent injury in the context of their Section 349 claim, defendant's motion to dismiss plaintiffs' Section 349-d claim is denied.
IV. Breach of Contract
"Under New York law, a breach of contract claim requires proof of (1) an agreement, (2) adequate performance by the plaintiff, (3) breach by the defendant, and (4) damages." Fischer & Mandell LLP v. Citibank, N.A., 632 F.3d 793, 799 (2d Cir. 2011).
Defendant moves to dismiss the breach of contract claim only to the extent plaintiffs allege defendant breached their contracts by charging them "a rate that was not based on the factors upon which the parties agreed the rate would be based." (SAC ¶ 75).
In its reply, defendant asserted it would move to dismiss the breach of contract claim in its entirety in the event the Court credited plaintiffs' argument that defendant's one to seven percent savings guarantee was not, in fact, a contractual representation. (Reply at 5, 7). However, because the Court has expressed no opinion on plaintiffs' savings guarantee argument (supra, n.7), the Court will consider only defendant's more limited motion to dismiss. --------
However, as explained above, the SAC contains plausible factual allegations that defendant did not charge plaintiffs rates reflecting wholesale electricity and gas costs and "other market-related factors, plus all sales and other applicable taxes, fees, charges or other assessments and HIKO's costs, expenses and margins." (SAC Exs. 1-3). Indeed, the SAC alleges (i) Chen's electricity rate in February 2014 was nearly triple PSE&G's rate; (ii) Sasso's January 2014 gas bill was more than double the amount he would have paid under PSE&G, and his February 2014 bills for electricity and gas were more than three times greater than they would have been under PSE&G; and (iii) Sasso's electric and gas bills increased significantly more between January and February 2014 under defendant than they would have under PSE&G.
Accordingly, defendant's motion to dismiss plaintiffs' breach of contract claim is denied.
V. Breach of the Implied Covenant of Good Faith and Fair Dealing
New York law implies a covenant of good faith and fair dealing in all contracts. See Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 (1995). But a claim for breach of the implied covenant of good faith and fair dealing must be dismissed when it is merely duplicative of a breach of contract claim. See Cruz v. FXDirectDealer, LLC, 720 F.3d at 125.
Such is the case here. Plaintiffs allege defendant breached its contracts with them in part by charging rates "that [were] not based on the factors upon which the parties agreed the rate[s] would be based." (SAC ¶ 75). Plaintiffs similarly allege defendant breached the implied covenant by "representing [it] would base its electricity cost on the wholesale cost and market-related fact[or]s but failing to do so." (Id. ¶ 80).
Accordingly, because plaintiffs' breach of contract and breach of the implied covenant claims "clearly rest on the same alleged [] practices," the breach of the implied covenant claim is dismissed. Cruz v. FXDirectDealer, LLC, 720 F.3d at 125.
VI. Unjust Enrichment
An unjust enrichment claim lies when "the defendant has obtained a benefit which in equity and good conscience should be paid to the plaintiff." Corsello v. Verizon N.Y., Inc., 18 N.Y.3d 777, 790 (2012) (internal quotation marks omitted). Unjust enrichment, however, "is not a catchall cause of action to be used when others fail." Id. The claim "is not available where it simply duplicates, or replaces, a conventional contract or tort claim." Id. Rather, unjust enrichment arises only in "unusual situations," typically when "the defendant, though guilty of no wrongdoing, has received money to which he or she is not entitled." Id.
This case does not present the "unusual" circumstances needed to state an unjust enrichment claim. Plaintiff alleges defendant was unjustly enriched through "false, deceptive, and misleading statements and omissions with respect to its energy rates." (SAC ¶ 84). These allegations undermine any claim defendant is "guilty of no wrongdoing." Corsello v. Verizon N.Y., Inc., 18 N.Y.3d at 790.
Plaintiffs' unjust enrichment claim is therefore dismissed.
VII. Class Allegations
Defendant moves to strike the SAC's class allegations because, defendant contends, the SAC does not satisfy the superiority, commonality, and predominance requirements of Rules 23(a)(2) and (b)(3). Because the motion raises issues "that would be decided in connection with determining the appropriateness of class certification," the motion must be denied as premature, "without prejudice to the defendant's ability to oppose class certification on the[] same grounds." Kassman v. KPMG LLP, 925 F. Supp. 2d at 464-65 (internal quotation marks omitted).
CONCLUSION
Plaintiffs' claim under the New Jersey Consumer Fraud Act is dismissed without prejudice.
Plaintiffs' claims for breach of the implied covenant of good faith and fair dealing and for unjust enrichment are dismissed with prejudice.
Defendant's motion to dismiss is DENIED with respect to plaintiffs' claims for violations of Sections 349 and 349-d of the GBL and for breach of contract.
Defendant's motion to strike plaintiffs' class allegations is DENIED without prejudice.
The Clerk is instructed to terminate the motion. (Doc. #27). Dated: December 29, 2014
White Plains, NY
SO ORDERED:
/s/_________
Vincent L. Briccetti
United States District Judge