Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—D. Conn.: Consumer electricity supply contract may be unfair or deceptive under CUTPA, (Aug 7, 2015)

By Edward L. Puzzo, J.D.

A consumer’s claim that an electricity supplier’s contract was unfair and deceptive under Connecticut’s unfair trade practices law was a question of fact not dependent on the occurrence of a breach of contract, the federal district court in Bridgeport, Connecticut has ruled (Richards v. Direct Energy Services, LLC, August 4, 2015, Bolden, V.).

Defendant Direct Energy Services (DES) acts as a “middleman” in the market for electricity to residential customers, purchasing electricity from power generation companies and reselling it to consumers. Plaintiff Gary Richards alleged that DES marketed its variable rate electricity plan to consumers as based upon the wholesale market price, but in fact it was not, resulting in artificially high electricity prices that were not reasonably related to the market price. Richards, on behalf of himself and a putative class, alleged that DES’ actions were unfair and deceptive trade practices that violated the Connecticut Unfair Trade Practices Act (CUTPA). DES moved to dismiss Richards’ claim.

To state a claim under CUTPA, the court explained, Richards must plead that he (1) suffered an ascertainable loss of money or property, (2) that was caused by (3) an unfair method of competition or an unfair or deceptive act in the conduct of any trade or commerce.

CUTPA claim and breach of contract. DES first argued that its actions were permitted by its contract with Richards, and without a claim of breach of contract, Richards had not sufficiently pleaded a CUTPA claim. The court disagreed, stating that a CUTPA claim need not be predicated upon a breach of contract. While the lack of a breach of contract may be probative of whether the defendant’s practice was unfair, there was no requirement that a contract be breached to sustain a CUTPA claim.

Unfair or deceptive. DES next argued that nothing about its contract was unfair or deceptive, noting that its Terms of Service did not use the term “wholesale market rate” at all, but rather made explicit that DES had the sole discretion to set rates under its variable-rate plan. For conduct to be unfair under CUTPA, the court explained, one element looked at is whether the practice, while not necessarily unlawful, was unfair within the common law or statutory meaning of the term. For an act or practice to be deceptive, there must be a representation, omission or other practice likely to mislead consumers, and consumers must interpret the message reasonably under the circumstances. Deception under CUTPA includes a broader range of conduct than common-law claims of fraud or misrepresentation, and do not require proof of intent.

The court opined that the question of whether DES’ variable-rate plan was an unfair or deceptive business practice was a question of fact not readily susceptible to resolution on a motion to dismiss. On a motion to dismiss, the court need not and should not determine whether DES’ conduct actually violated CUTPA. The proper inquiry is whether plaintiff alleged sufficient facts to raise a reasonable expectation that discovery will reveal evidence supporting the claim.

Richards argued that the contract referenced the prices would be determined by “business and market conditions”, implying that its prices to consumers would reflect whole market prices to some unknown extent. DES argued that its contract made perfectly clear that the prices were determined exclusively at DES’ discretion. The court countered that, while the text of the contract itself does not indicate that DES prices would definitively or precisely be linked with the wholesale market price, it is plausible that a reasonable consumer would infer a link between the two. Otherwise, there would be no reason for a consumer to sign up for DES’s energy plan if he did not believe he would receive a better overall deal on his electricity rates, based on its competitive advantage in obtaining prices in the energy marketplace.

While taking all of Richards’ allegations as true, as required under a motion to dismiss, the fact that the contract did not contain the term “wholesale market price” was not enough to make Richards’ CUTPA claim entirely implausible, the court stated. It was plausible that a consumer could infer that the term “business and market conditions,” used in the contract, was analogous to the term “wholesale market prices”, raising the possibility that DES’ use of the first term was deceptive and unfair.

The court concluded that Richards had pleaded sufficient facts to show that he was entitled to discovery. The court therefore denied DES’ motion to dismiss the CUTPA claim.

The case is Civil Action No. 3:14-cv-1724 (VAB).

Attorneys: Robert A. Izard, Jr. (Izard Nobel, LLP) for Gary W. Richards. Hutson B. Smelley (Edison, McDowell & Hetherington LLP) for Direct Energy Services, LLC.

Companies: Direct Energy Services, LLC

Cases: StateUnfairTradePractices ConnecticutNews