Richards v. Direct Energy Services, LLC, 246 F. Supp. 3d 538

Background

Plaintiff Gary Richards sued Direct Energy Services, LLC alleging CUTPA violations and breach of the implied covenant of good faith and fair dealing based on Direct Energy’s post‑term “variable rate” electricity pricing for residential customers. Discovery followed a prior partial denial of a motion to dismiss.
Direct Energy’s standard contracts include an “Evergreen Clause” stating rates after the initial term will be “variable each month at Direct Energy’s discretion” and may change based on “business and market conditions.”
Richards’ claim rests on the contention that Direct Energy set substantially higher profit margins for variable‑rate customers than for fixed‑rate customers (i.e., cross‑subsidization or “gouging”) and that “business and market conditions” reasonably implied rates would track wholesale market costs.
Parties submitted competing expert reports: plaintiff’s experts (Charles River Associates) argued variable margins were far higher than justified by costs/risks; defendant’s expert argued the variable rates tracked market/competitor prices and that differing margins are a legitimate business condition.
After summary judgment briefing and discovery, the court concluded no reasonable jury could find the Evergreen Clause was deceptive, that pricing alone violates CUTPA as a per se or unfair practice, or that Direct Energy acted in bad faith in exercising contractual discretion. Summary judgment for Direct Energy was granted and class certification motion rendered moot.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the Evergreen Clause was deceptive under CUTPA	Richards: reasonable consumers would read “business and market conditions” to require variable rates to reflect wholesale costs and not permit excessive margins	Direct Energy: clause disclosed legitimate factors including company profit decisions; differing margins are a business/market condition	Court: Not deceptive — phrase permits the company discretion to set margins; no reasonable factfinder would read it to mandate a specific profit margin
Whether pricing practice amounted to an unfair trade practice under CUTPA	Richards: cross‑subsidization (low teaser fixed rates subsidized by high variable rates) is unscrupulous and violates public policy	Direct Energy: pricing is legitimate commercial strategy in a deregulated market and not per se unfair	Court: No CUTPA unfairness — pricing alone (absent other misconduct) doesn’t satisfy CUTPA’s unfairness prong; Votto and similar cases distinguishable
Whether violation of §16‑245o (statutory disclosure) creates a per se CUTPA violation	Richards: Evergreen Clause violates statutory disclosure requirement, so CUTPA per se violation follows	Direct Energy: contract language was reviewed/approved by PURA; PURA’s regulatory process controls	Court: Rejects per se theory — recognizing PURA reviewed/approved contracts and regulatory scheme counsels against upending agency oversight; summary judgment for Direct Energy
Whether Direct Energy breached the implied covenant of good faith and fair dealing	Richards: exercising discretion to extract higher margins from variable customers breached covenant	Direct Energy: no bad faith; pricing to pursue profit is not bad faith	Court: Dismissed — plaintiff offered no evidence of bad faith, improper motive, or pricing outside market range; high prices alone insufficient to prove breach

Key Cases Cited

Anderson v. Liberty Lobby, 477 U.S. 242 (summary judgment standard)
De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424 (2004) (implied covenant presupposes agreed contract terms and disputes over discretionary application)
Habetz v. Condon, 224 Conn. 231 (1992) (bad faith requires dishonest purpose or design to mislead)
Mead v. Burns, 199 Conn. 651 (1986) (CUTPA claims must be consistent with underlying regulatory schemes)
Ulbrich v. Groth, 310 Conn. 375 (2013) (CUTPA deceptive/unfair framework)
Votto v. American Car Rental, Inc., 273 Conn. 478 (2005) (pricing misconduct actionable where paired with other unscrupulous conduct)
M/A‑COM Sec. Corp. v. Galesi, 904 F.2d 134 (2d Cir. 1990) (parties may act in own interests even if it incidentally lessens other party’s contractual benefit)
Gary Friedrich Enters., L.L.C. v. Marvel Characters, Inc., 716 F.3d 302 (2d Cir. 2013) (evidence construed in favor of nonmoving party)