Richards v. Direct Energy Servs., LLC
915 F.3d 88
| 2d Cir. | 2019Background
- Plaintiff Gary Richards signed a 12-month "Evergreen" fixed-rate electricity contract with Direct Energy that automatically rolled into a month-to-month variable rate thereafter; he could cancel anytime without penalty.
- The contract stated that, after the initial term, the variable rate would be set "at Direct Energy's discretion" and could be higher or lower "based upon business and market conditions."
- Richards paid the fixed rate for 12 months, then the variable rate for 3 months; the variable rate he paid was about 2.36¢/kWh above the PURA-approved Standard Service Rate during those three months.
- Richards sued for breach of contract (implied covenant of good faith), CUTPA deceptive, per se and unfair practices, unjust enrichment, and sought class certification for Connecticut and Massachusetts customers.
- The district court dismissed some claims and granted summary judgment for Direct Energy on the rest; the Second Circuit affirmed, holding the Evergreen clause unambiguous and that Direct Energy lawfully exercised discretion in setting variable rates absent evidence of bad faith.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of implied covenant of good faith (contract interpretation) | "Business and market conditions" should be read to require variable rates to track Direct Energy's procurement costs; deviation shows bad faith | Clause plainly grants discretion to set rates based on business/market conditions (profit margin, competitors, hedging, risk); no evidence of bad faith | Court: Clause unambiguous; discretion broad and encompassed defendant's practices; no genuine bad-faith evidence → summary judgment for Direct Energy |
| CUTPA — deceptive practice | Reasonable consumer would think variable rate tied to procurement costs; omission/misleading term is likely to deceive | Contract language is clear; PURA approved the disclosure; no duty to disclose every pricing factor | Court: No deception as a matter of law given clear contract and regulatory approval |
| CUTPA — per se violation under Conn. Gen. Stat. §16-245o(j) (failure to disclose rates/circumstances) | Evergreen clause misrepresented the basis of rate-setting so statutory disclosure requirement violated | PURA approved the clause as meeting statutory disclosure requirements; clause adequately explains circumstances of change | Court: No per se violation — PURA approved language and clause satisfied statutory standards |
| CUTPA — unfair practice (substantial injury) & unjust enrichment; Mass. consumer claims | Practices (teaser fixed rates then high variable rates exploiting consumer inertia) cause aggregate substantial, unavoidable injury; unjust enrichment because contract illusory | Ordinary competitive pricing and common business practices; consumers could avoid injury by cancelling; express contract bars unjust enrichment; plaintiff injured in CT not MA | Court: Pricing decisions alone not unfair absent particularly abusive conduct; individual plaintiff's minimal harm did not support CUTPA unfairness or unjust enrichment; Mass. claims properly dismissed on merits (12(b)(6)) despite standing error |
Key Cases Cited
- Renaissance Mgmt. Co. v. Connecticut Hous. Fin. Auth., 281 Conn. 227 (Conn. 2007) (implied covenant requires parties not to impair each other's contract benefits)
- De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424 (Conn. 2004) (bad faith standard for implied covenant)
- A-G Foods, Inc. v. Pepperidge Farm, Inc., 216 Conn. 200 (Conn. 1990) (tests for substantial injury under CUTPA and FTC guidance adoption)
- Fink v. Time Warner Cable, 714 F.3d 739 (2d Cir. 2013) (court may decide as a matter of law what a reasonable consumer would or would not find misleading)
- Lexmark Int'l, Inc. v. Static Control Components, Inc., 572 U.S. 118 (U.S. 2014) (Article III standing distinct from merits regarding statutory cause of action)
- Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511 (U.S. 1935) (Dormant Commerce Clause limits one state from regulating prices for other states)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (pleading standard for plausible claims)