GARY W. RICHARDS, on behalf of himself and all others similarly situated v. DIRECT ENERGY SERVICES, LLC
No. 17-1003-cv
United States Court of Appeals, Second Circuit
February 4, 2019
August Term 2017
Argued: April 11, 2018
Before: POOLER, PARKER, and LIVINGSTON, Circuit Judges.
Plaintiff-Appellant Gary Richards (“Richards“) entered into a consumer electricity contract with Defendant-Appellee Direct Energy Services, LLC (“Direct Energy“). Richards stayed on this contract for fifteen months. The contract initially guaranteed Richards a fixed electricity rate that was 10% lower than the state-approved electricity rate. Consistent with the terms of the contract, Richards‘s fixed-rate plan was converted into a variable rate plan after the first twelve months. Direct Energy then continued supplying electricity to Richards at a new variable rate for three months, at two cents more per kilowatt hour (“kWh“) than the state-approved rate. The contract stated that this variable rate would be calculated to reflect “business and market conditions.” After terminating his contract, Richards sued Direct Energy, alleging breach of contract, deceptive and unfair trade practices, and unjust enrichment. The United States District Court for the District of Connecticut (Bolden, J.) dismissed several of Richards‘s claims, and granted summary judgment to Direct Energy on his remaining claims. The judgment of the district court is AFFIRMED.
JUDGE POOLER concurs in part and dissents in part in a separate opinion.
FOR PLAINTIFF-APPELLANT: ROBERT A. IZARD (Craig A. Raabe, on the brief), Izard, Kindall & Raabe LLP, West Hartford, CT, for Gary W. Richards.
FOR DEFENDANT-APPELLANT: MICHAEL D. MATTHEWS (James M. Chambers, Hutson B. Smelley, Robert P. Debelak III, on the brief), McDowell & Hetherington LLP, Houston, TX, for Direct Energy Services, LLC.
Plaintiff-Appellant Gary W. Richards (“Richards“) entered into an electricity contract with Defendant-Appellee Direct Energy Services, LLC (“Direct Energy“). The contract provided that, for the first twelve months, Direct Energy would guarantee Richards a fixed electricity rate that was 10% below the state-approved rate. But if Richards did not leave the contract at the end of that year, Direct Energy would begin charging him a new variable rate. The variable rate, according to the contract, would be set on a month to month basis according to Direct Energy‘s “discretion” and would reflect “business and market conditions.” J.A. 157. Richards was free to terminate the contract at any time without paying a penalty. After twelve months on the discounted fixed rate plan, Richards began paying the variable rate. During this time, the variable rate was two cents more per kilowatt hour (“kWh“) than the state-approved rate. Richards switched electricity providers after fifteen months with Direct Energy (twelve on the discounted fixed rate, three on the variable rate), complaining that the variable rate was set too high. He then sued Direct Energy for breach of contract, deceptive and unfair trade practices, and unjust enrichment, and also sought to represent a class of all Direct Energy customers who paid the variable rate in Connecticut and Massachusetts. The district court dismissed several of his claims and granted summary judgment to Direсt Energy as to the rest.
This is the latest in a line of class actions challenging consumer gas and electricity rates in the wake of market deregulation.1 Richards‘s principal claim is that Direct Energy breached its contract with Richards and violated state unfair and deceptive trade practices law by not pegging its variable rate to Direct Energy‘s procurement costs. We disagree. By the contract‘s plain terms, Direct Energy promised that the variable rate would be set in its discretion and that it would reflect “business and
BACKGROUND
I. Factual Background2
A
This is a contract dispute set in the context of Connecticut‘s electricity market. ISO New England, Inc. is responsible for administering a market in which local electricity distribution companies bid on electricity supplied by power generators. In Connecticut, two electric distribution companies, Eversource and United Illuminating, maintain monopoly control over electricity distribution systems within set geographic zones and are ultimately responsible for distributing electricity to consumers in those zones. Consumers may enter into electricity contracts with either company directly. All these contracts offer electricity at “Standard Service Rates,” which Connecticut‘s Public Utilities Regulatory Authority (“PURA“) approves in advance. See
In 2000, Connecticut derеgulated its consumer electricity market. Consumers may still purchase electricity from either Eversource or United Illuminating at their PURA-approved Standard Service Rates (effectively a public option), but they may instead choose to contract with one of the forty PURA-licensed retail electricity suppliers (the private market), all of which piggyback on Eversource and United Illuminating‘s electricity distribution systems. These suppliers purchase power that they then sell to consumers at market-based, unregulated rates. Many offer variable prices, promotional rates, guarantees that energy will come from renewables, and incentives like cash rebates and gift cards. Some suppliers also include “guaranteed savings” provisions in their contracts, which ensure that consumers will save money compared to the Standard Service Rates. In general, the Standard Service Rates tend to adjust more slowly in response to changes in the wholesale electricity market than market rates.
Although PURA does not regulate suppliers’ rates, it regulates the suppliers themselves. PURA licenses all private electricity suppliers,
- “all material terms of the agreement“;
- “a clear and conspicuous statement explaining the rates that [ea]ch customer will be paying, including the circumstances under which the rates may change“;
- “a clear and conspicuous statement ... describing any penalty for early termination of such contract“; and
- “a statement that provides specific directions to the customer as to how to compare the price term in the contract to the customer‘s existing ... charge on the electric bill and how long those rates are guaranteed.”
B
Direct Energy is a private electricity supplier that offers several different electricity plans to consumers in the private market. Some of its plans come with add-ons, like an Internet-connected Nest thermostat, a home warranty, or a guarantee that 100% of the energy will come from “green” sources. During the time at issue in this case, all of Direct Energy‘s plans were “Evergreen plans,” meaning that Direct Energy would charge a fixed rate for a set time (between twelve and thirty-six months), and at the end of that period, if the customer took no action, Direct Energy would charge a variable rate that could change each month.
Direct Energy balanced several factors when sеtting the variable rate. In general, Direct Energy targeted a certain profit margin based on its own cost of energy while not setting the rate so high that customers would leave. Competitors’ prices, market-share objectives, supply hedging strategies, legislative and regulatory requirements, and market risk helped inform these factors. Direct Energy‘s variable rate was higher than its fixed rate, so when a customer switched to the variable rate, Direct Energy often reduced the customer‘s variable rate for the first few months to smooth the transition. At one point, more than half of Direct Energy‘s Connecticut customers were paying the variable rate.
In March 2012, Gary Richards signed a two-page electricity contract with Direct Energy guaranteeing him a fixed electricity rate of 7.45 cents per kWh for one year. This was an Evergreen plan, so after the year expired, Richards‘s “service [would] automatically continue each month without additional notice, and [Richards] [would] pay a variable rate per kWh, which [could] be higher or lower each monthly billing cycle.” J.A. 157. The contract further stated:
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.
Id. We refer to this as “the Evergreen clause.” Richards could cancel the contract “at any time without an early cancellation fee.” Id. These terms were all included on the first page of the contract, and PURA had earlier determined that this contract was sufficiently clear and fulfilled all the requirements mandated by
After using the Connecticut government‘s electricity-comparison website mentioned above, Richards chose Direct Energy because it promised “the best fixed rate that [he] could get at the time” and no termination fee. J.A. 121. He did not consider any other factors, nor did he have any expectations about how the variable rate would work. But he still paid attention to his electricity rate during the fixed-rate period and compared rates on the Connecticut electricity website several times. At one point, he tried to switch electricity providers to get a better fixed rate, but the
Richards ultimately stayed on the Direct Energy contract through the full twelve months, did not opt out at the end, and so was rolled over onto the variable rate, which he paid for three months starting in April 2013. For those three months, the variable rate stayed constant at 10.64 cents per kwH, or 2.36 cents per kWh higher than Eversource‘s PURA-approved Standard Service Rate during this time.4 There is no evidence in the record that Direct Energy‘s variable rate was higher than the rates charged by Direct Energy‘s market competitors. Direct Energy‘s procurement costs were also lаrgely constant during this three-month period.
In August 2013, Richards noticed that his electricity bills had risen compared to previous months, so he canceled his contract with Direct Energy and switched electricity providers. Over the course of the fixed-rate period, Richards paid $114 less than he would have under Eversource‘s Standard Service Rate. But his three months on the variable rate eliminated those savings. In total, for the fifteen months he signed with Direct Energy, Richards, a former Vice President for AT&T, paid $25 more than he would have under the Standard Service Rate — or about $1.67 per month extra.
Richards submitted a letter to PURA complaining about Direct Energy in March 2014. Shortly after, Robert Izard, an attorney who has filed lawsuits like this one against other electricity suppliers, see, e.g., Edwards v. N. Am. Power & Gas, LLC, 120 F. Supp. 3d 132 (D. Conn. 2015), contacted Richards and encouraged him to sue. Richards then retained Izard to represent him in this case.
II. Procedural History
In November 2014, Richards sued Direct Energy in the United States District Court for the District of Connecticut (Bolden, J.) alleging breach of contract, unjust enrichment, and unfair and deceptive trade practices under the Connecticut Unfair Trade Practices Act (“CUTPA“),
Most of his allegations concerned Direct Energy‘s variable rate beginning in the winter of 2013–2014 — well after Richards left Direct Energy. Starting in that (unusually cold) winter, the variable rate jumped by about 50% and stayed level through August 2015. Generally, the variable rate was about 75% higher than Direct Energy‘s procurement costs, which fluctuated significantly, but the variable rate was lower than its procurement costs during the 2013–2014 winter. Direct Energy thus kept variable rates steady through 2014 (and into 2015) to recover from its winter losses. Many other electricity companies never recovered from their winter losses and went out of business.
The district court dismissed Richards‘s Massachusetts state law and Connecticut unjust enrichment claims on August 4, 2015. See Richards v. Direct Energy Servs., LLC, 120 F. Supp. 3d 148 (D. Conn. 2015). Because Richards is a Connecticut resident who was injured in Connecticut and not Massachusetts, the court concluded that Richards lacked Article III standing to bring an unfair and deceptive trade practices claim under Massachusetts law. Richards also failed to state a claim for
During discovery, the parties produced dueling expert witness reports. As relevant here, Richards‘s experts, economists who had been retained to produce expert witness reports in prior class actions like this one, opined that Direct Energy‘s variable rate should be “consistent with” Direct Energy‘s procuremеnt costs, “plus an appropriate margin to cover the legitimate costs and risks of supplying Variable Rate customers.” Confidential App. 44. At the same time, the experts made clear that they did not “offer an opinion on” how the Evergreen clause should be interpreted. Id. at 374; see also id. at 164 (“I‘m not the expert on, you know, legal meaning of business and market conditions. But as an economist, you know, I do have an opinion professionally ....“). Their conclusions were purportedly based on, as one put it, “[their] personal economic belief of what is reasonable,” given their knowledge of the electricity market. Id. at 374.
The district court granted summary judgment to Direct Energy on Richards‘s remaining claims on March 31, 2017. See Richards v. Direct Energy Servs., LLC, 246 F. Supp. 3d 538 (D. Conn. 2017). Direct Energy was entitled to summary judgment on Richards‘s contract claim, the district court concluded, because Richards had not “put forth sufficient evidence to create a material factual dispute about Direct Energy‘s bad faith,” as required for his claim based on an alleged breach of the covenant of good faith and fair dealing. Id. at 557.
The district court also granted summary judgment to Direct Energy on Richards‘s unfair and deceptive trade practices claims under Connecticut law. Richards had argued that the Evergreen clause was deceptive because a reasonable consumer would interpret it to mean that Direct Energy would charge consumers its procurement costs, plus a fixed profit margin. The district court disagreed and held that the clause plainly gave Direct Energy “discretion to set a profit margin of its choosing when determining variable rates.” Id. at 552. Next, Richards contended that his contract with Direct Energy failed adequately to explain “the circumstances under which the rates [could] change,” which if true, would be a per se unfair trade practice. Id. at 555 (quoting
Finally, the district court dismissed Richards‘s motion for class certification as moot because it had dismissed or granted summary judgment on all of Richards‘s claims. Final judgment was entered on March 31, 2017.
DISCUSSION
On appeal, Richards challenges the district court‘s March 31, 2017 grant of summary judgment to Direct Energy on his contract and Connecticut unfair and deceptive trade practices claims, and its August 4, 2015 dismissal of his unjust enrichment and Massachusetts unfair trade practices claims. For the reasons that follow, we AFFIRM the judgment of the district court.
I
“We review a grant of summary judgment de novo, examining the evidence
A
Richards argues that Direct Energy breached its contract with him because it violated the implied covenant of good faith and fair dealing. Under Connecticut law, the implied covenant attaches to every contract and “requir[es] that neither party do anything that will injure the right of the other to receive the benefits of the agreement.” Renaissance Mgmt. Co. v. Connecticut Hous. Fin. Auth., 915 A.2d 290, 297–98 (Conn. 2007) (quoting De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 849 A.2d 382, 388 (Conn. 2004)). The covenant is thus “not implicated by conduct that does not impair contractual rights.” Capstone Bldg. Corp. v. Am. Motorists Ins. Co., 67 A.3d 961, 987 (Conn. 2013).
To establish a breach of the implied covenant, the plaintiff must also show that the defendants’ allegedly wrongful acts were “taken in bad faith.” De La Concha, 849 A.2d at 388 (quoting Alexandru v. Strong, 837 A.2d 875, 883 (Conn. App. Ct. 2004)). “Bad faith in general implies both actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one‘s rights or duties, but by some interested or sinister motive.” Id. (quoting Habetz v. Condon, 618 A.2d 501, 504 (Conn. 1992)). Because this is a high bar, “[t]he covenant will be breached only in a narrow range of cases.” Sec. Plans, Inc. v. CUNA Mut. Ins. Soc., 769 F.3d 807, 817 (2d Cir. 2014); see also Restatement (Second) of Contracts § 205 cmt. e (Am. Law Inst. 1981) (listing, as paradigmatic examples of such breaches, “harassing demands for assurances of performance, rejection of performance for unstated reasons, willful failure to mitigate damages, and abuse of a power to determine compliance or to terminate the contract“).
Richards‘s contention that Direct Energy breached the implied covenant of good faith and fair dealing ultimately rests on his interpretation of the Evergreen clause. Again, the clause states:
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.
J.A. 157. In Richards‘s view, “a reasonable consumer would understand [this] contract language to mean that [the] variable rate[] would fluctuate with [Direct Energy‘s] procurement costs.” Pl.-Appellant Br. 54. And because the variable rate stayed constant while procurement costs fluctuated from the winter of 2013–2014 through August 2015, Direct Energy “ignored the language of the contract.” Id. at 55. Richards contends that, at minimum, his two experts attested that a reasonable consumer would interpret the Evergreen clause this way, which raises a plausible question of fact as to the clause‘s appropriate interpretation. He also maintains that Direct Energy acted in bad faith because Direct Energy set its variable rates too high, and “lure[d] new customers into enrolling ... by offеring low fixed teaser rates for a set period
Direct Energy did not “evade[] [the contract‘s] spirit” or frustrate Richards‘s “justified expectations.” Landry v. Spitz, 925 A.2d 334, 345 (Conn. App. Ct. 2007). The Evergreen clause states that Direct Energy had “discretion” to set the variable rate “based upon business and market conditions.” J.A. 157. The record reflects that Direct Energy set the variable rate to achieve a target profit margin, match competitors’ prices, and reduce customer losses, among other objectives. As a matter of plain meaning, these sorts of considerations constitute “business and market conditions.” See, e.g., Black‘s Law Dictionary (10th ed. 2014) (defining “business” as “[a] commercial enterprise carried on for profit” and “market” as “the extent of economic demand” (emphasis added)); see also
Richards‘s experts’ testimony adds nothing to his breach of contract claim. These experts opined only on what factors the variable rate should reflect, in their view, while declining to “offer an opinion on” how the Evergreen clause should be interpreted. Confidential App. 374; see also id. at 164 (“I‘m not the expert on, you know, legal meaning of business and market conditions. But as an economist, you know, I do have an opinion professionally ....“). And the experts’ interpretation of the Evergreen clause would be irrelevant even if they had opined on its legal meaning because “the construction of unambiguous contract terms is strictly a judicial function.” 31A Am. Jur. 2d Expert and Opinion Evidence § 294 (2018) (explaining that, “unless the words or phrases [in a contract] ... are terms of art,” expert testimony “regarding the meanings of contractual provisions [is] irrelevant and hence inadmissible“).5 Courts across the country have thus rightly dismissed arguments like Richards‘s even at the pleadings phase.6
Richards counters that Direct Energy must have abused its discretion because the variable rate was higher than the PURA-approved Standard Service Rate. In his view, the Standard Service Rates, rather than Direct Energy‘s private
competitors’ rates, are the proper comparators because Connecticut‘s private electricity suppliers are all “corrupt.” Reply 17 n.12. But it is worth pausing to consider the implications of Richards‘s argument. If we were to hold private electricity suppliers liable for departing from the Standard Service Rates, we would in effect make those PURA-approved rates binding on private electricity suppliers like Direct Energy. Yet the entire point of electricity deregulation was to allow the market, rather than PURA, to determine rates.7 Richards‘s near-frivolous contract claim provides no basis on which a court is authorizеd to overrule this policy choice.
Richards‘s accusation that Direct Energy violated the implied covenant of good faith by “luring new customers . . . by offering low fixed teaser rates,” Pl.-Appellant Br. 20, is equally unavailing. Richards may find this practice objectionable, but he received exactly what he bargained for: after paying a fixed rate below the PURA-approved Standard Service Rates for a fixed time, Richards would pay a variable rate set at Direct Energy‘s discretion. See
Richards‘s contract claim is thus without merit. But even if this were not the case, Richards still could not prevail. His argument is largely predicated on the theory that Direct Energy unjustifiably unmoored its variable rate from Direct Energy‘s procurement costs. But Richards focuses exclusively on Direct Energy‘s pricing practices in 2014 and 2015, yet Richards left Direct Energy in 2013. For the three months that Richards paid it, the variable rate and Direct Energy‘s costs stayed constant, and the variable rate was only 2.36 cents per kWh higher than Eversource‘s PURA-approved Standard Service Rate. Cf.
B
The Connecticut Unfair Trade Practices Act (“CUTPA“) prohibits “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”
1
“An act or practice is deceptive” under CUTPA if the defendant makes a material representation or omission likely to mislead consumers who “interpret the message reasonably under the circumstances.” Southington Sav. Bank v. Rodgers, 668 A.2d 733, 736 (Conn. App. 1995) (quoting Caldor, Inc. v. Heslin, 577 A.2d 1009, 1013 (Conn. 1990)). “The deception standard is objective in nature,” and a representation is deceptive only if it is “‘likely’ to mislead rather than merely [has] the ‘tendency or capacity’ to do so.”
Richards‘s deception claim is identical to his contract claim. He contends that “reasonable consumers” would likely interpret the Evergreen clause to mean that the variable rate would reflect “the costs of procuring power . . . plus an appropriate margin to cover the legitimate costs and risks of supplying variable rate customers.” Reply Br. 4, 6 (quoting Confidential App. 44). But as explained above, the contract unambiguously allowed Direct Energy to set the variable rate the way it did. See Murphy v. Provident Mut. Life Ins. Co. of Philadelphia, 923 F.2d 923, 929-30 (2d Cir. 1990) (holding, in a case predicated on deceptive advertising, that “[n]o deception can exist where, as here, the parties’ representations are “clear[]“); see also Hinchliffe v. Am. Motors Corp., 471 A.2d 980, 988 (Conn. Super. Ct. 1982) (declining “to speculate that the public will place a patently absurd interpretation” on a representation). Richards is also wrong, for the same reаsons given above, when he claims that his experts’ views about the Evergreen clause raise a question of fact on this issue. Slapping the phrase “reasonable consumer” into his argument does not change our earlier analysis in any way. See Fink v. Time Warner Cable, 714 F.3d 739, 741 (2d Cir. 2013) (“[A] court may determine as a matter of law that an allegedly deceptive [representation] would not have misled a reasonable consumer.“).
Accepting Richards‘s argument to the contrary would mean, in effect, that if Direct Energy wished to retain the discretion in a contract to set its variable rate based on a range of business and market conditions, it was required to disclose every factor influencing that variable rate. But CUTPA imposes no such duty. See, e.g., Kenney v. Healey Ford-Lincoln-Mercury, Inc., 730 A.2d 115, 117 (Conn. App. Ct. 1999) (holding that it is not a deceptive trade practice to fail to make certain disclosures unless the defendant has a preexisting duty to do so). Connecticut, to be sure, requires consumer electricity contracts to explain “the rates that [] customer[s] will be paying, including the circumstances under which the rates may change.”
2
Richards‘s argument that Direct Energy‘s variable rate pricing constituted a per se violation of CUTPA is equally unavailing. As discussed above, Connecticut requires that “[e]ach contract for electric generation services [] contain all material terms of the agreement,” including “a clear and conspicuous statement explaining the rates that [each] consumer will be paying” and “the circumstances under which the rates may change.”
Richards contends that Direct Energy violated
3
Finally, Richards‘s claim that Direct Energy‘s variable rate pricing constituted an unfair trade practice under CUTPA is also without merit. A trade practice is unfair under CUTPA if it (1) falls within “the penumbra of some common law, statutory, or other established concept of unfairness,” (2) is “immoral, unethical, oppressive, or unscrupulous,” or (3) “causes
Richards‘s contentions do not come close to meeting this standard. Run-of-the-mill statutory violations, torts, and contract breaches do not constitute unfair trade practices. See Jacobs v. Healey Ford-Subaru, Inc., 652 A.2d 496, 506 (Conn. 1995) (explaining that “the violation of a consumer statute” is not “an automatic violation of CUTPA” unless a statute “expressly” makes it so); Ventres v. Goodspeed Airport, LLC, 881 A.2d 937, 970 (Conn. 2005) (declining to “convert every trespass claim involving business property into a CUTPA claim“); Metromedia Energy, Inc. v. Mansei, Inc., No. CV136041399S, 2014 WL 7495054, at *4 (Conn. Super. Ct. Nov. 3, 2014) (holding that “an ordinary breach of the contract” was not unfair under CUTPA). CUTPA thus prohibits only certain particularly abusive commercial practices. See, e.g., A-G Foods, 579 A.2d at 77 n.9 (recognizing the core of unfair practices as: “(1) withholding material information; (2) making unsubstantiated advertising claims; (3) using high-pressure sales techniques; and (4) depriving consumers of various post-purchase remedies” (quoting Am. Fin. Servs. Ass‘n v. F.T.C., 767 F.2d 957, 979 (D.C. Cir. 1985))); Votto, 871 A.2d at 985 (holding that charging credit cards without the cardholder‘s authorization is unfair under CUTPA).
The crux of Richards‘s unfairness theory is, once more, his contention that Direct Energy breached the contract by failing to tie its vаriable rate to “business and market conditions,” which he interprets to mean procurement costs. See Pl.-Appellant Br. 28 (“Richards‘[s] claim is that [Direct Energy] acted in an ‘unfair’ manner by setting variable rates that violate the terms of its contract and do not fluctuate with ‘business and market conditions.‘“). But a “simple contract breach is not sufficient to establish a violation of CUTPA, particularly where the count alleging CUTPA simply incorporates by reference the breach of contract claim.” Boulevard Assocs., 72 F.3d at 1039 (quoting Chaspek Mfg. Corp. v. Tandet, No. CV 9309-2714, 1995 WL 447948, at *12 (Conn. Super. Ct. June 16, 1995)). So even if Richards had made out a contract claim — and he has not — this central feature of his CUTPA unfairness theory would be meritless. See Ramirez v. Health Net of Ne., Inc., 938 A.2d 576, 591 (Conn. 2008) (holding that a defendant did not violate CUTPA when it “availed itself of the rights afforded under the plain and unambiguous terms of [an] agreement“).
Richards argues that his unfairness claim extends further and does not turn on his contract claim alone. Specifically, he objects to Direct Energy‘s supposed practice of (1) “lur[ing]” consumers with “teaser-rates,” and later (2) “goug[ing] [them] with variable rates” that (3) “consumers [do] not monitor.” Pl.-Appellant Br. 44. In his view, these practices raise a question of fact as to whether Direct Energy‘s pricing strategy was unfair. We consider each component of his argument in turn.
First, offering a teaser rate is not against public policy, unethical, or substantially injurious on its own, especially when, as here, consumers can cancel the contract
Second, Richards‘s contention that the variable rates were so high that “no rational consumer” would voluntarily sign a variable rate contract, Reply Br. 5, is irrelevant for at least two reasons. First, he did not sign a variable rate contract; he signed a fixed rate contract that rolled over into a variable rate after a set time. As already noted, this at first saved him money, as compared to the Standard Service Rate, and ultimately cost him only about $1.67 per month above the Standard Service Rate during his time with Direct Energy. And regardless, charging high prices does not on its own give rise to a CUTPA violation. See, e.g., Bridgeport & Port Jefferson Steamboat Co. v. Bridgeport Port Auth., 566 F. Supp. 2d 81, 105 (D. Conn. 2008) (Droney, J.) (“[T]he plaintiffs have not shown that the Port Authority‘s imposition of an excessive passenger fee is an unfair trade practice by the preponderance of the evidence.“). Even Richards concedes as much — several times. See, e.g., Pl.-Appellant Br. 43 (“It is truе that pricing practices ‘alone’ may not give rise to a CUTPA unfairness claim.“); id. at 45; Reply Br. 17.
Richards‘s unfair practices claim thus ultimately depends on his assertion that charging a variable rate that “consumers [do] not monitor” is a violation of CUTPA. Pl.-Appellant Br. 44. But he supplies no legal authority for this proposition. Presumably, what bothers Richards is that many Direct Energy consumers pay the variable rate when their initial fixed-rate periods expire, even though leaving their contracts would likely save them money. See id. at 44 (asserting that “no reasonable consumer . . . would remain enrolled in a [Direct Energy] variable rate plan“). But this is just an example of “status quo bias“: a general tendency by people “to stick with their current situation.”
widespread business practices that are consistent with “common business norms” do not violate CUTPA. Landmark Inv. Grp., LLC v. Calco Const. & Dev. Co., 60 A.3d 983, 992 (Conn. App. 2013).10 It is therefore clear to us that Direct Energy‘s pricing strategy during the term of its relationship with Richards was not against public policy, immoral, or substantially injurious.
At bottom, Richards signed a contrаct guaranteeing him a below-market rate, which he paid for twelve months. For three months after that, he paid approximately two cents above the PURA-approved Standard Service Rate. He then left the contract without penalty. Richards now asks us to invalidate a PURA-approved contract that he chose after considering more than forty private options and the PURA-approved Standard Service Rate. And he does so while conceding that Direct Energy‘s pricing practices were akin to those of its competitors. See Reply Br. 17 n.12 (characterizing the private electricity market as a “corrupt industr[y]“). But Connecticut chose to deregulate consumer electricity ratemaking, not transfer that authority from a public utility commission to the after-the-fact judgments of courts interpreting CUTPA. See Mead, 509 A.2d at 19 (holding that CUTPA claims “that build[] upon the public policy embodied in specific statutory provisions . . . must be consistent with the regulatory principles established by the underlying statutes“); see also
II
Richards next challenges the district court‘s dismissal of his unjust enrichment
A
The district court held that Richards failed to state a claim for unjust enrichment because he signed a contract with Direct Energy. See also Meaney v. Connecticut Hosp. Ass‘n, Inc., 735 A.2d 813, 823 (Conn. 1999) (“[A]n express contract between the parties precludes recognition of an implied-in-law contract governing the same subject matter.” (quoting
The contract was not illusory. The implied covenant of good faith and fair dealing obliged Direct Energy to act in good faith when it set the variable rate, and “good faith is enough to avoid the finding of an illusory promise.” Sicaras v. City of Hartford, 692 A.2d 1290, 1297 (Conn. App. Ct. 1997) (quoting
B
Finally, we turn to Richards‘s unfair trade practices claims under Massachusetts law. The district court dismissed these claims for lack of Article III standing because Richards was not injured in Massachusetts. This was error. A plaintiff has Article III standing if he suffered (1) an injury, (2) caused by the defendant that (3) would be redressed by a favorable judicial decision. See, e.g., Mahon v. Ticor Title Ins. Co., 683 F.3d 59, 62 (2d Cir. 2012). There is no question that Richards satisfies this standard: he was (1) charged money, (2) by Direct Energy, and (3) seeks recompense for this charge. To be sure, whether a statute grants a plaintiff a cause of action will often turn on where the tortious conduct occurred. See, e.g., Morrison v. Nat‘l Australia Bank Ltd., 561 U.S. 247, 254 (2010) (“[T]o ask what conduct [a statute] reaches is to ask what conduct [that statute] prohibits, which is a merits question.“). But “the absence of a valid . . . cause of action does not implicate” Article III standing. Lexmark Int‘l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 128 n.4 (2014) (quoting Verizon Md., Inc. v. Pub. Serv. Comm‘n of Md., 535 U.S. 635, 642-43 (2002)).
We still affirm the district court‘s dismissal of Richards‘s Massachusetts claims, however, because dismissal was proper under
Richards does not challenge any of this on appeal but instead argues that he has “‘class standing’ . . . to assert claims on behalf of” Direct Energy‘s Massachusetts customers, even if he cannot personally assert any claims under Massachusetts law. NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145, 158 (2d Cir. 2012). But the district court‘s August 4, 2015 decision was not to the contrary. The court held merely that Richards could not sue on his own behalf under Massachusetts law; it did not opine on whether a plaintiff asserting claims under Connecticut law could represent a class of consumers asserting claims under Massachusetts law. The court never had cause to reach the latter issue because it never addressed the issue of class certification. Instead, it dismissed Richards‘s motion for certification as moot in March 2017 because he no longer had any viable claims under Connecticut law. Richards does not challenge this dismissal on appеal.
Accordingly, we have no occasion to address whether Article III would have prevented Richards from representing a class of plaintiffs with claims under Massachusetts law. But see Langan v. Johnson & Johnson Consumer Companies, Inc., No. 17-1605, 2018 WL 3542624, at *6 (2d Cir. July 24, 2018) (holding that “whether a plaintiff can bring a class action under the state laws of multiple states is a question of predominance under Rule 23(b)(3), not a question of standing under Article III“). We therefore affirm the district court‘s August 4, 2015 partial dismissal as to the Massachusetts claims.
CONCLUSION
We have considered each of Richards‘s remaining arguments and have determined them to be without merit. Accordingly, the judgment of the district court is AFFIRMED.
POOLER, Circuit Judge, concurring in part and dissenting in part:
Direct Energy sucked customers in with an appealing teaser rate only to later jack up the cost when those customers would not notice. The temptation of this siren-like path was no accident. Direct Energy created “glide paths” to ensure customers were lulled into inattentiveness. It ramped up rates for those who were inattentive to begin with. And then it capitalized on its customers’ lack of awareness. I am convinced that a jury could reasonably conclude that this pricing practice is unfair. Accordingly, I dissent from the majority‘s conclusion that Direct Energy did not
Utility deregulation initially promised that introducing competition would make electricity and gas service more reliable at lower prices, perhaps even encouraging green energy alternatives. Those hopes have run up against unforeseen realities. See generally
manipulating their pricing structures to enable them to charge well more than the regulated rate for the same service without their customers’ noticing. Competition cannot deliver its advertised benefits when businesses subvert consumer choice in this way. When the legislature has given courts tools to address such abuses, we should not shy away from using them with the expectation that the market will work itself out. Doing so relies on our hopes for, rather than the reality of, market competition.
A reasonable jury could easily conclude that at least part of Direct Energy‘s business model was to predict, encourage, and profit off of its customers’ inattention. Direct Energy does not dispute that it set its variable rates as high as it possibly could without attracting the attention of its customers. That includes setting higher rates for a subset of customers who would be less likely to notice and creating “glidе paths” to make all of its customers less likely to notice. A reasonable jury could also conclude that the letter and spirit of Direct Energy‘s boilerplate contract language did not allow for those pricing practices.
A. Unfairness under CUTPA
Connecticut courts “have adopted the criteria set out in the cigarette rule by the Federal Trade Commission for determining when a practice is unfair [under CUTPA]: (1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise-in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, competitors, or other businesspersons.” Landmark Inv. Grp., LLC v. Calco Constr. and Dev. Co., 318 Conn. 847, 880 (2015) (brackets omitted).
The majority errs in finding “Connecticut law clear that widespread business practices that are consistent with ‘common business norms’ do not violate CUTPA.” Majority op. at 32 (quoting Landmark Inv. Grp., LLC v. Calco Constr. and Dev. Co., 141 Conn. App. 40, 55 (Conn. App. 2013)). To the contrary: in Connecticut, “[t]he fact that the defendant‘s practice is standard in the industry ... does not excuse it as a violation of CUTPA.” Halloran v. Spillane‘s Servicenter, Inc., 41 Conn. Supp. 484, 500 (Conn. Super. Ct. 1990) (emphasis added). “Common business norms” are to be considered at most as part of a court‘s determination of whether the criterion of unscrupulousness is satisfied, not as dispositive evidence of what is and is not unfair.
That a business practice has “not previously [been] considered unlawful” cannot be considered a defense, as the purpose of unfairness doctrine is “to create a new body of law ... adapted to the diverse and
Here, a reasonable jury could conclude that Direct Energy‘s pricing strategy was an unfair practice. “Whether a practice is unfair and thus violates CUTPA is an issue of fact.” Landmark, 318 Conn. at 881 (brackets and internal quotation marks omitted). Accordingly, our task at this stage is not to determine whether Direct Energy‘s practiсes were unfair or not. Instead, the grant of summary judgment should be affirmed only if it can be concluded that no reasonable jury could find Direct Energy‘s practices were unfair on any of the cigarette rule‘s criteria.
The FTC considers the third prong of the cigarette test-sometimes called “unjustified consumer injury“-as “the primary focus of the FTC Act.” Letter from Federal Trade Commission to Senators Ford and Danforth (Dec. 17, 1980), available at http://www.ftc.gov/bcp/policystmt/ad-unfair.htm (“FTC Policy Statement“). Following the Connecticut legislature‘s directive to be “guided by interpretations given by the Federal Trade Commission and the federal courts to [the FTC Act],”
Connecticut courts have also adopted the FTC‘s guidance that an “injury must satisfy three tests” to be considered unfair: “[1] [i]t must be substantial; [2] it must not be outweighed by any countervailing benefits to consumers or competition that the
Though the majority asserts that we should categorically exclude the possibility that “offering a teaser rate” is “substantially injurious on its own, especially when, as here, consumers can cancel the contract whenever they like without paying any fee,” Majority op. at 30, they offer no good reason why that should be so. As they acknowledge, the mere fact that a customer can opt out of an auto-renewing contract at any time without breaching it does not mean that the customers will do so when it is in their interest. People are inertial. The same people who spend hours comparing electricity prices (or credit card rates or online streaming services or magazine subscriptions or gym memberships) are quite unlikely to maintain that level of vigilance once they have habitually received and paid for electricity (or other goods or services) for months or years on end. Unfairness doctrine is designed to police such circumstances when businesses exploit those consumer vulnerabilities. Cf. Averitt, The Meaning of “Unfair Acts or Practices”, 70 Geo. L.J. at 251-52 (“An unfairness action ... will be appropriate only when the respondent‘s methods have undermined the ability of consumers to proteсt themselves.“). A business that designs its price structure so that those who are not attentive pay significantly more than they would if they were attentive is fairly characterized as causing unjustified consumer injury. Direct Energy does not dispute that it set variable rates as high as it could without attracting the attention of customers whom it knew would be paying little attention or that, if its customers had been paying attention, they would have been better off. A jury should decide if such practice is unfair.
The majority notes that Richards saved money during the teaser/fixed rate period of the contract relative to those who paid the regulated rate-something that seems to be true of many of Direct Energy‘s customers. But that fact is entirely consistent with Richards‘s theory of the case: Direct Energy undercut other suppliers’ prices to lure customers in, knowing that it could overcharge them once they had been customers long enough. In other words, had Richards not saved during the fixed term, Direct Energy would never have been able to overcharge. That it took only three months of inattention after the fixed rate‘s expiration to vitiate a full year‘s
A jury could reasonably find that Direct Energy‘s strategies to avoid alerting customers to their rising rates,4 together with predictable consumer inertia, imply that consumers could not reasonably avoid paying the higher rates. Only those who are most anxious about money or most scrupulous about their affairs are likely to pay close attention to the rate they are charged for energy (rather than the gross amount, which varies seasonally and may be due to one‘s own changes in energy use) and to engage in monthly price comparisons of this rate.
The majority reasons that the fact that “Connecticut chose to deregulate consumer electricity ratemaking” suggests that it did not seek to “transfer that authority from a public utility commission to the after-the-fact judgments of courts interpreting CUTPA.” Maj. op. at 33. But to infer the latter from the former is to overread the meaning of “deregulate.” As it is used in the context of electricity (and other utilities), “deregulation” is shorthand only for a state‘s decision to allow more than one company to sell electricity to its residents. Electricity provision is still highly regulated: public utilities still own and operate the physical infrastructure (i.e. the wires, poles, transformers, etc.) subject to state regulation; only licensed companies can use this infrastructure to provide electricity; those companies are required to make a number of disclosures and to meet several state-promulgated standards; electricity markets largely take place on exchanges created, managed, and regulated by the state; the prices electricity companies charge are affected by the fact that they have to compete with the still-regulated rates of the public utilities; etc. A state that chooses to regulate its electricity provision in part through managed competition does not retreat from any regulation whatsoever.
B. Good Faith and Breach of Contract
I also disagree with my colleagues that “Richards‘s CUTPA claims are almost entirely duplicative of his contract claim.” Maj. op. at 23. Even if Direct Energy reserved itself absolute discretion in the contract, it is reasonable for a jury to conclude that it took advantage of its customers. I now turn to whether Direct Energy‘s contract permitted it to set prices in the way it did. A reasonable jury could conclude that the contract did not enable Direct Energy‘s practices.
First, it is not a foregone conclusion that cross-subsidization, pegging prices to competitors‘, and price smoothing are pricing strategies that are “based upon business and market conditions.” Maj. op. at 18.
Just as reasonable, though, is the interpretation that the phrase “business and market conditions” only includes those conditions that affect Direct Energy‘s costs of providing electricity. On this reading, “business conditions” refers to relatively fixed costs of labor, facilities, legal representation, and the like, while “market conditions” refers to the more variable cost of purchasing electricity and electricity derivatives. Cf. Mirkin v. Viridian Energy, Inc., No. 15-cv-1057, 2016 WL 3661106, at *8 (D. Conn. July 5, 2016) (discussing a contract that included “a variable rate based on wholesale market conditions” as a basis to find a breach when prices were not set based on wholesale prices); Edwards v. N. Am. Power & Gas, LLC, 120 F. Supp. 3d 132, 143 (D. Conn. 2015) (“While the text of the contract itself does not indicate that NAPG prices would definitively or precisely be linked with the wholesale market price, with or without the marketing materials, it is plausible that a reasonable consumer would infer a direct link between the two.“); Claridge v. N. Am. Power & Gas, LLC, No. 15-cv-1261, 2015 WL 5155934, at *4-6 (S.D.N.Y. Sept. 2, 2015) (finding bad faith on a contract that guaranteed “variable market rates” according to an unspecified formula). Direct Energy notified consumers that its variable rates would be calibrated to pass on its costs-i.e. there would be risk-sharing-but did not place customers on notice that it would set prices in whatever matter it calculated to be most profitable.
In Connecticut, “[w]hen the language of a contract is ambiguous, the determination of the parties’ intent is a question of fact” to be submitted to a jury. Gabriel v. Gabriel, 324 Conn. 324, 341 (2016). “In choosing among the reasonable meanings of a promise or agreement or a term thereof, that meaning is generally preferred which operаtes against the party who supplies the words or from whom a writing otherwise proceeds.” Restatement (Second) of Contracts § 206; see also Williston on Contracts § 32:13 (4th ed. 2017). A reasonable juror could find that Direct Energy tied its price-setting discretion to its cost of doing business. Cf. Silvis v. Ambit Energy L.P., 674 F. App‘x 164, 168 (3d Cir. 2017) (finding that a clause that permitted price to “vary dependent upon price fluctuations in the energy and capacity markets” was ambiguous because it was unclear whether the phrase “may vary” afforded the electricity supplier complete discretion in setting rates, or whether that discretion was limited by the clause “dependent upon price fluctuations in the energy and capacity markets“).
Under Connecticut law, when a contract gives one party discretion to determine how to render performance on an open-ended term, “it is axiomatic that the duty of good faith and fair dealing” is read into the contract to cabin that discretion and avoid rendering the obligation illusory. De La Concha of Hartford, Inc. v. Aetna Life Ins. Co., 269 Conn. 424, 432 (2004) (internal punctuation and quotation marks omitted). “The majority of courts have held that subjective bad faith is irrelevant” and that a seller who objectively does not “charge commercially reasonable amounts” or who “discriminate[s] among its purchasers” fails to act in good faith. Marcus Dairy, Inc. v. Rollin Dairy Corp., No. 05-cv-589, 2008 WL 4425954, at *8 (D. Conn. Sept. 24, 2008) (internal quotation marks omitted). In Connecticut, “a neglect
Whether a party has acted in good faith or not is a question of fact for the jury. See Renaissance Mgmt. Co. v. Conn. Housing Fin. Auth., 281 Conn. 227, 240-41 (2007). The facts on this record would allow a jury to conclude that Direct Energy‘s pricing practices undermined the legitimate expectations5 set by the contract. It is uncontested that Direct Energy set monthly variable rate prices for reasons other than passing on the cost of providing electricity for that month. It raised variable-rate prices to recoup anticipated losses among fixed-rate customers, and it smoothed variable-rate prices so that customers would not notice how high they were getting. A jury should determine whether Direct Energy‘s reasons amounted to bad faith or a breach of the contract given the letter and spirit of the contract-a question this Court should not answer in the jury‘s place. Cf. Edwards, 120 F. Supp. 3d at 147 (“While the contract left the price open to be set at NAPG‘s discretion with certain limitations, the covenant of good faith and fair dealing mandates that NAPG exercise that discretion reasonably by charging a commercially reasonable price.“).
C. Dismissal of Massachusetts Claims
Another panel of this Court recently rejected the rationale supporting the district court‘s dismissal of Richards‘s Massachusetts-based claims for lack of standing:
in Richards v. Direct Energy Servs., LLC, the district court concluded that a Connecticut рlaintiff that alleged that the defendant energy company had attracted customers with misleading promises of low rates lacked standing to sue on behalf of Massachusetts consumers who were injured by the same defendant. 120 F. Supp. 3d at 151. The court reasoned that “[w]ithout an allegation that [the named plaintiff] personally was injured in Massachusetts,” the plaintiff‘s claim was essentially that, like the plaintiffs in Massachusetts, he had “suffered in some indefinite way in common with people generally.” Id. at 155 (internal quotation marks and alteration omitted). This reasoning falters upon its premise: the harm the plaintiff alleged was not a general grievance common to people generally; it was a specific grievance based on the defendant‘s falsely advertised rates, suffered by specific people (Connecticut and Massachusetts customers of the defendant), under a specific set of circumstances. See id. We fail to see how the fact that the defendant‘s wrongful conduct impacted customers in two states rendered the injuries of the Massachusetts consumers somehow more indefinite than the identical injuries of the Connecticut consumers.
Langan v. Johnson & Johnson Consumer Cos., Inc., 897 F.3d 88, 96 (2d Cir. 2018). The question of “whether a plaintiff can bring a class action under the state laws of multiple states is a question of predominance
In sum, I would vacate the district court‘s grant of summary judgment with respect to the unfairness and contract claims and remand for consideration of class certification in the first instance.