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Veilleux v. Electricity Maine, LLC

United States District Court, D. Maine

November 15, 2017

KATHERINE VEILLEUX and JENNIFER CHON, individually and on behalf of all others similarly situated, Plaintiffs,
v.
ELECTRICITY MAINE, LLC, PROVIDER POWER, LLC, SPARK HOLDCO, LLC, KEVIN DEAN, and EMILE CLAVET, Defendants.

          ORDER ON DEFENDANT'S MOTION TO DISMISS AND PLAINTIFFS' MOTION TO AMEND

          NANCY TORRESEN UNITED STATES CHIEF DISTRICT JUDGE.

         Before me are the Defendant's motion to dismiss and the Plaintiffs' motion for leave to file a second amended complaint (“SAC”). (ECF Nos. 30, 37.) The SAC asserts eight counts: Count One claims that Defendants Kevin Dean, Emile Clavet, and Spark HoldCo, LLC (“Spark”) violated § 1962(c) of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). SAC ¶¶ 49-94 (ECF No. 37-1). Count Two alleges that Dean, Clavet, and Spark conspired to violate RICO § 1962(c) in violation of § 1962(d). SAC ¶¶ 95-103. Counts Three through Eight are brought against Dean, Clavet, and Spark, as well as Electricity Maine, LLC (“Electricity Maine”), and Provider Power, LLC (“Provider Power”). These counts include, respectively, a violation of the Maine Unfair Trade Practices Act, 5 M.R.S.A. § 207 (“UTPA”), SAC ¶¶ 104-10; negligence, SAC ¶¶ 111-15; negligent misrepresentation, SAC ¶¶ 116-21; fraudulent misrepresentation, SAC ¶¶ 122-27; unjust enrichment, SAC ¶¶ 128-32; and breach of contract, SAC ¶¶ 133-37.

         Spark moves to dismiss all eight counts against it. Spark argues that the alleged injurious conduct occurred before it became involved and that the Plaintiffs therefore fail to adequately plead injury caused by Spark's conduct. The Plaintiffs move for leave to amend to add allegations of conduct subsequent to Spark's involvement, including by joining a third named plaintiff. Spark resists the Plaintiffs' motion to amend on the grounds that even with the additional allegations, the SAC fails to state a plausible claim against Spark. For the following reasons, the Plaintiffs' motion for leave file a second amended complaint is GRANTED and the Defendant's motion to dismiss is GRANTED IN PART and DENIED IN PART.

         LEGAL STANDARD

         A motion to dismiss a claim under Rule 12(b)(6) presents the question of whether the complaint sufficiently states a claim for which relief may be granted. Carrero-Ojeda v. Autoridad de Energia Electrica, 755 F.3d 711, 717 (1st Cir. 2014).

         Generally, Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” To make this determination, courts in the First Circuit follow a two-step analysis. First, the court must “isolate and ignore statements in the complaint that simply offer legal labels and conclusions or merely rehash cause-of-action elements.” Carrero-Ojeda, 755 F.3d at 717. Then, taking all well-plead facts as true and “drawing all reasonable inferences in [the plaintiffs'] favor, ” the court must determine whether the complaint “plausibly narrate[s] a claim for relief.” Id. “Plausible” means “more than merely possible” but does not require all facts necessary to establish a prima facie case. Id.

         Beyond plausibility, Rule 9(b) requires “particularity” in pleading claims for which “fraud lies at the core of the action.” Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir. 1985). The particularity requirement means the complaint must state the “time, place, and content” of the fraud. Id. at 444. The defendant's intent or knowledge, however, may be alleged generally. Fed.R.Civ.P. 9(b).

         Finally, Rule 15(a) provides that leave to amend a complaint should be “freely given when justice so requires.” Fed.R.Civ.P. 15(a). Courts therefore generally grant leave to amend unless there is evidence of “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment.” Forman v. Davis, 371 U.S. 178, 182 (1962). The analysis for futility of amendment applies the same standard as that for a Rule 12(b)(6) motion to dismiss. Morgan v. Town of Lexington, 823 F.3d 737, 742 (1st Cir. 2016).

         FACTUAL ALLEGATIONS

         At the motion to dismiss stage, I accept all of the Plaintiffs' well-pled allegations as true. Because the analysis for futility and a Rule 12(b)(6) motion to dismiss is the same, I grant the motion for leave file a second amended complaint and proceed, with the parties' agreement, to consider the sufficiency of the allegations in the SAC.

         The three named Plaintiffs in this dispute are the individuals Kathleen Veilleux and Jennifer Chon and the small business Rocky Coast. The Plaintiffs are customers of Defendant Electricity Maine, a competitive electricity provider (“CEP”) in Maine, and they propose to represent a class of 100, 000 like customers who enrolled in Electricity Maine before December 9, 2014. SAC ¶¶ 40-41. The individual defendants, Kevin Dean and Emile Clavet, founded Electricity Maine in 2011. SAC ¶¶ 8-9, 15. Dean and Clavet are also controlling members of Defendant Provider Power, LLC, a corporation that is separate from Electricity Maine but “operated as a cohesive unit under the name Electricity Maine until May 3, 2016.”[1] SAC ¶ 6.

         CEPs like Electricity Maine are private power supply companies that hedge electricity from wholesale providers and resell it to customers. SAC ¶ 25. CEPs are licensed under Maine law to compete with regulated utility providers. The Maine Public Utilities Commission (“PUC”) sets a “standard offer” rate for electricity sold by regulated utility providers. SAC ¶¶ 13-14. Fluctuation in wholesale electricity prices may disadvantage CEPs when competing on price with utility providers. SAC ¶ 25.

         Historically, CEPs stayed out of the residential and small business market because consumer interaction costs are high and because price is the primary basis of competition between electricity providers. SAC ¶ 14. In 2011, CEPs in Maine held only 0.05% of the residential and small business supply market. SAC ¶ 15.

         Between 2011 and 2013, however, Electricity Maine enrolled nearly 200, 000 residential and small-business customers, approximately one-third of that consumer cohort in Maine. SAC ¶¶ 15-18. Electricity Maine advertised on radio, television, internet, and print that they offered substantial cost savings and low rates. SAC ¶¶ 16-18. The Plaintiffs provide several examples of this advertising, including:

• In August 2011, the Lewiston Sun Journal published Clavet's statement that Electricity Maine's rates “will always beat the standard offer. You'll never, ever pay more than the standard offer” and Electricity Maine's customer service project manager Danielle Beckwith's statement “there is no catch and no gimmicks . . . . [T]here's just a better rate.” SAC ¶¶ 18(a)-(b); 66(a)-(b).
• Following the publication of Clavet and Beckwith's statements in the Lewiston Sun Journal article, Electricity Maine republished the fraudulent statements on their website. The fraudulent statements have remained published on Electricity Maine's website until at least December of 2016. SAC ¶ 66(c).
• In 2012, Clavet and Dean appeared on the television show 207TV and stated Electricity Maine prices were lower than the standard offer and that customers would be notified of any price increase. SAC ¶¶ 18(c); 66(d).
• In August of 2016, Provider Power stated on its website that it “SAVED RESIDENTS MILLIONS OF DOLLARS.” SAC ¶¶ 18(i); 66(j).
• In November of 2016, Provider Power stated on its YouTube channel that “200, 000 customers have switched to Electricity Maine, saving over $14 million in energy costs.” SAC ¶¶ 18(j); 66(k).

         When the Defendants advertised that they would always beat the standard offer, they knew that “recouping Electricity Maine's investment in customer recruitment was not possible without charging more than the standard offer.” SAC ¶ 24; see also SAC ¶¶ 26, 68-69. Indeed, after enrolling 190, 000 customers by mid- 2012, Electricity Maine began to significantly increase its rates in early 2013. SAC ¶ 22. Later, Electricity Maine rates were double the standard offer. SAC ¶ 22.

         Electricity Maine included an automatic reenrollment provision as a term of service. SAC ¶ 29. Until January of 2015, the Maine PUC required CEPs to provide renewal notices between 30 and 60 days in advance of automatic renewal “in the customer's bill or in a separate document issued with the customer's bill.” SAC ¶ 29. Electricity Maine also informed customers that it would send a “Confirmation Letter” before they were automatically reenrolled in another long-term contract under different terms. SAC ¶¶ 29, 72-74.

         When customers' introductory terms expired, the Defendants did not send Confirmation Letters by mail on “at least 200, 000 occasions between 2012 and 2015.” SAC ¶¶ 30, 73. Instead, the “Defendants-if they sent any notice at all-provided notice by email.” SAC ¶ 30. These email notices were not included in customers' bills or a document issued with the bill, in contravention of PUC regulations and customer expectations. SAC ¶ 30. Intending to confuse customers, the Defendants emailed the notices from “unrecognizable email addresses” and email addresses unaffiliated with Electricity Maine. SAC ¶¶ 31-32. The Defendants knew that renewal emails were going to customers' spam folders, and customers were not receiving notice. SAC ¶¶ 31, 34. The Defendants were also aware that customers could not understand the notices they did receive. SAC ¶ 32.

         For example, on October 1, 2014, Electricity Maine sent Chon an email that her contract would be renewed for a 24-month term at a rate of $0.11394/kWh. SAC ¶ 33. In October of 2014, the standard-offer rate was approximately 43 percent lower than Electricity Maine's offered rate. SAC ¶ 34. This email went to Chon's spam folder, where she recovered it in 2016. SAC ¶ 34. Chon was reenrolled under the new terms without her knowledge. SAC ¶ 34.

         On May 3, 2016, Provider Power sold all outstanding membership interest in Electricity Maine to Spark, a Delaware corporation with a principal place of business in Texas. SAC ¶ 7. The Plaintiffs allege the following with respect to Spark:

• Spark had “knowledge of the Enterprise's operations and the manner in which it automatically reenrolls customers without notice.” SAC ¶ 63.
• Spark “seiz[ed] control of the Enterprise” from Clavet and Dean by purchasing Electricity Maine from Provider Power. SAC ¶ 61.
• Spark “shares control of Electricity Maine” with Clavet and Dean, each of whom “remains an Electricity Maine employee or consultant.” SAC ¶¶ 8-9.
• Spark levied “significant financial incentives” with Provider Power “to control the Enterprise outside the corporate structure and enhance the fraudulent scheme previously controlled exclusively” by Clavet and Dean. SAC ¶ 61.
• Spark's “control over the Enterprise's racketeering activities through financial incentives is entirely distinct from its inherent corporate control over Electricity Maine's regular business activities.” SAC ¶ 62. Spark “us[es] financial incentives to control the Enterprise outside the corporate ...

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