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Mirkin v. XOOM Energy, LLC

United States Court of Appeals, Second Circuit

July 26, 2019

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,
v.
XOOM Energy, LLC and XOOM Energy New York, LLC, Defendants-Appellees.

          Argued June 11, 2019

          Appeal from the United States District Court for the Eastern District of New York No. 18-cv-2949, Allyne R. Ross, District Judge, Presiding.

         Plaintiffs 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.

          J. Burkett McInturff (Steven L. Wittels & Tiasha Palikovic, on the brief), Wittels Law, P.C., Armonk, NY, for Plaintiffs-Appellants.

          David 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

         Susanna 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.[1] 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 opinion.

         BACKGROUND

         The 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. ¶ 36.

         The 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 expires." Id.

         The 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.

          In 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 follows:

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 ...

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