Susanna Mirkin, individually and on behalf of all others similarly situated and Boris Mirkin, individually and on behalf of all others similarly situated, Plaintiffs-Appellants,
XOOM Energy, LLC and XOOM Energy New York, LLC, Defendants-Appellees.
June 11, 2019
from the United States District Court for the Eastern
District of New York No. 18-cv-2949, Allyne R. Ross, District
brought a purported class action against defendants alleging
that they had breached a customer agreement by failing to set
their electricity rates according to their actual or
estimated supply costs. The complaint included calculations
showing that defendants' rates substantially exceeded the
market supply cost of wholesale energy. The United States
District Court for the Eastern District of New York (Ross,
J.) dismissed the complaint under Rule 12(b)(6),
reasoning that customers had no way of determining
defendants' supply costs, as rate-setting was a purely
internal company activity. By post-judgment motion pursuant
to Rules 59(e) and 60(b), plaintiffs sought leave to amend.
The District Court denied plaintiffs leave to amend their
complaint, reasoning that it would be futile. We
AFFIRM in part, REVERSE in
part, and REMAND.
Burkett McInturff (Steven L. Wittels & Tiasha Palikovic,
on the brief), Wittels Law, P.C., Armonk, NY, for
R. Kott (Christopher A. Rojao, on the brief), McCarter &
English, LLP, Newark, NJ, for Defendants-Appellees.
Before: NEWMAN, POOLER, and PARKER, Circuit Judges.
BARRINGTON D. PARKER, Circuit Judge
and Boris Mirkin (the "Mirkins") sued XOOM Energy,
LLC and XOOM Energy New York, LLC (collectively,
"XOOM") in New York state court for breach of
contract, breach of the implied covenant of good faith and
fair dealing, and unjust enrichment. XOOM then removed the action
to federal court. The United States District Court for the
Eastern District of New York (Ross, J.) dismissed
the Mirkins' complaint (the "Complaint") under
Federal Rule of Civil Procedure 12(b)(6) and denied the
Mirkins' post-judgment request, made pursuant to Rules
59(e) and 60(b), for leave to amend. Because we conclude that
the Mirkins should have been allowed to amend their
Complaint, and their Complaint and proposed amended complaint
(the "PAC") stated plausible claims for breach of
contract, we reverse the judgment of the District Court in
part and remand for further proceedings consistent with this
Complaint alleges a number of facts related to the New York
energy market. Specifically, in 1996, the market was
deregulated, and in the wake of the deregulation, third-party
energy services companies ("ESCOs") began competing
with traditional utilities. These ESCOs operate as commodity
brokers or middlemen. They do not generate or deliver
electricity; they simply buy electricity from utility
companies that generate it and resell it to consumers.
Utility companies then ultimately deliver the electricity to
consumers. The Mirkins allege that the business practices of
ESCOs have come under intense scrutiny from regulators as a
consequence of questionable business practices. According to
the Complaint, in December 2016, following a flood of
consumer complaints and negative media reports, the New York
State Public Service Commission ("PSC") permanently
prohibited ESCOs from serving low-income customers. Compl.
Complaint cites to the PSC's March 2018 conclusions that
"ESCO customers have become the victims of a failed
market structure that results in customers being fooled by
advertising and marketing tricks into paying substantially
more for commodity service than [if] they had remained full
utility customers, yet thinking they are getting a better
deal." Id. ¶ 37. The PSC explained that
the primary problem with ESCOs is "the overcharging of
customers for [a] commodity due to the lack of transparency .
. . on ESCO prices and products," which "allows
ESCOs to charge customers practically whatever they
want." Id. The PSC also concluded that
"ESCOs take advantage of the mass market customers'
lack of knowledge and understanding of, among other issues,
the electric and gas commodity markets, commodity pricing, .
. . contract terms . . . and in particular, the ESCOs'
use of teaser rates and 'market based rate'
mechanisms that customers are charged after the teaser rate
parties do not dispute that XOOM, which supplies residential
electricity to thousands of New York households, operates
like a typical ESCO and markets itself as such. Oral Arg. R.
at 13:59-14:10 (conceding that XOOM operates essentially as a
commodity broker or middleman); see also PAC
¶¶ 48-49 (quoting What is Energy
Deregulation?, XOOM Energy, https://xoomenergy.com/e
n/what-is-deregulation (last visited July 23, 2019)
(explaining XOOM's middleman role and confirming that it
does not generate or deliver electricity) [hereinafter
"XOOM Website"]; Frequently Asked
Questions, XOOM Energy, https://xoomenergy.com/en/faq
(last visited July 23, 2019) ("A variable rate plan
allows you to purchase gas at market-based prices
that change from month to month." (emphasis added))).
The Mirkins allege that, like other ESCOs, XOOM attracts
customers with low introductory rates. Upon the expiration of
these rates, customers are then charged variable rates.
March 2013, the Mirkins entered into a customer agreement
(the "Agreement") with XOOM. The Agreement set
forth the basis upon which rates would be determined as
Your rate for energy purchases will be a variable rate, per
kWh, that may change on a monthly basis, plus taxes and fees,
if applicable. Your monthly variable rate is based on
XOOM's actual and estimated supply costs which
may include but not be ...