NANCY TORRESEN, Chief District Judge.
Before me are the Defendant's motion to dismiss and the Plaintiffs' motion for leave to file a second amended complaint ("
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
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).
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 ("
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 ("
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:
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:
With respect to fraudulent actions committed by the Enterprise after Spark's purchase of Electricity Maine, the Plaintiffs allege that Rocky Coast "was renewed by Electricity Maine during summer 2016" at a rate exceeding the standard offer. SAC ¶ 35. This was "part of the reenrollment scheme directed by Spark." SAC ¶ 101. In addition, Veilleux received a renewal notice by email on June 28, 2017, offering a year of service at a rate exceeding the standard offer. SAC ¶ 35; Renewal Notice 1 (ECF No. 37-2).
The injury to the Plaintiffs and putative class members was the cost of remaining an Electricity Maine customer instead of returning to standard-offer service from a regulated electricity provider. SAC ¶ 100. Once enrolled, or reenrolled, customers must pay a $100 early termination fee. SAC ¶ 38. Absent the Defendants' conduct, "Plaintiffs and Class Members would have either left Electricity Maine for standard offer services or would have paid a lower rate for Electricity Maine services." SAC ¶ 102. Aggregated "through 2015," Electricity Maine increased customers' bills by $35 million. SAC ¶ 38.
The Plaintiffs brought this action on November 18, 2016, and filed a First Amended Complaint on December 20, 2016. On February 6, 2017, Spark brought a 12(b)(6) motion to dismiss, arguing that all the alleged fraudulent conduct occurred before its 2016 purchase of Electricity Maine and so the Plaintiffs could not establish proximate causation.
On July 7, 2017, the Plaintiffs filed a motion for leave to file a second amended complaint, seeking to provide allegations about the renewal of two Electricity Maine customers after the 2016 Spark purchase. Oral argument was held on September 11, 2017,
In Count I, the Plaintiffs allege a substantive violation of RICO against Clavet, Dean, and Spark. 18 U.S.C. §§ 1962(c), 1964(c). Section 1962(c) makes it:
18 U.S.C. § 1962(c). RICO defines an enterprise as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). To establish an enterprise, a plaintiff "may prove either the existence of a legal entity, such as a corporation, or that a group of individuals were associated-in-fact." Aetna Cas. Sur. Co. v. P & B Autobody, 43 F.3d 1546, 1557 (1st Cir. 1994). Here, the Plaintiffs allege that the Enterprise comprises the limited liability corporations Electricity Maine and Provider Power. SAC ¶ 51.
A "pattern of racketeering activity" denotes at least two predicate acts within a ten-year period. § 1961(5). RICO's definition of "racketeering activity" includes a laundry list of qualifying predicate acts, including any act which is indictable under 18 U.S.C. § 1341 (mail fraud) or 18 U.S.C. § 1343 (wire fraud). 18 U.S.C. § 1961(1)(B). Mail and wire fraud are the predicate acts herein alleged. In pertinent part, the mail fraud statute provides criminal penalties for anyone who:
18 U.S.C. § 1341. In addition, a "plaintiff does not need to prove that each defendant personally used the mails but only that the defendant acted `with knowledge that the use of the mails will follow in the ordinary course of business, or [acted in circumstances] where such use can be reasonably foreseen.'" P & B Autobody, 43 F.3d at 1560 (quoting United States v. Maze, 414 U.S. 395, 399 (1974)). Similarly, the wire fraud statute makes it a crime to transmit or cause to be transmitted "by means of wire, radio, or television communication in interstate commerce, any writings, signs, signals, pictures, or sounds" for the purpose of executing any scheme to defraud. 18 U.S.C. § 1343.
RICO provides a private, civil cause of action to "any person injured in his business or property by reason of a violation of section 1962." 18 U.S.C. § 1964(c). To establish civil liability for violation of § 1962(c), a plaintiff therefore must prove not only the necessary elements of RICO and the predicate acts, but also an injury to business or property by reason of the defendant's conduct. To meet this standard, a plaintiff must show that defendant's violation "not only was a `but for' cause of his injury, but was the proximate cause as well." Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 (1992). "When a court evaluates a RICO claim for proximate causation, the central question it must ask is whether the alleged violation led directly to the plaintiff's injuries." Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 461 (2006). A "plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985).
Finally, because the Plaintiffs assert a substantive violation of RICO based on predicate acts involving fraud, Plaintiffs must state the circumstances constituting fraud with particularity. Fed. R. Civ. P. 9(b); New England Data Servs., Inc. v. Becher, 829 F.2d 286, 290 (1st Cir. 1987).
The Plaintiffs claim that the Defendants enroll Electricity Maine customers through a two-part fraudulent scheme. In essence, the Plaintiffs allege that first the Defendants enroll customers in Electricity Maine through the false promise of price savings compared to the standard offer, and then they automatically renew customers at rates higher than the standard offer, without providing the notification that customers expect. SAC ¶¶ 72-73. The Plaintiffs allege that the Defendants deliberately failed to provide notice or provided defective notice in the following ways: (1) by sending renewal notices via email rather than a "Confirmation Letter" as explicitly promised, SAC ¶¶ 72-75; (2) by failing to include the renewal notice in or with the customer's bill between 30 and 60 days in advance of automatic renewal as required by Maine PUC regulations, SAC ¶¶ 29-30; and (3) by sending renewal emails from unrecognizable email addresses that went directly to customers' spam folders. SAC ¶¶ 31, 34.
Spark argues that all the alleged injurious conduct occurred before it purchased Electricity Maine and that the Plaintiffs therefore fail to assert a claim that Spark proximately caused their injuries. Def.'s Mot. to Dismiss 3. Spark supports this argument by citing to allegations that Electricity Maine (1) enrolled 200,000 customers "between 2011 and 2014," (2) auto-renewed customers "between Electricity Maine's inception in 2011 and December 9, 2014," and (3) caused customers to overpay for their electricity "through 2015." Def.'s Mot. to Dismiss 4. The Plaintiffs contend that Spark engaged in a pattern of fraudulent conduct that caused harm to them and to putative class members.
I start with the enrollment part of the alleged two-part scheme. Because the putative class includes only those customers who enrolled before December of 2014, and because Spark was unaffiliated with the Enterprise before May of 2016, Spark's conduct cannot be found to have caused the fraudulent enrollment of anyone in the class.
The 138-paragraph SAC makes a number of broad allegations specific to Spark.
With regard to specific conduct that harmed the Plaintiffs after Spark's purchase of Electricity Maine, the SAC alleges that:
SAC ¶ 101.
But the Plaintiffs' allegation that Spark kept up the previously existing fraudulent scheme breaks down when one examines the allegations pertaining to the Veilleux and Rocky Coast reenrollment. First, it is clear that Veilleux actually received notice from Electricity Maine. The allegation that Electricity Maine confused customers by sending renewal notices from "unrecognizable email addresses" and email addresses unaffiliated with Electricity Maine, is belied by the Veilleux renewal notice, which was sent from a recognizable, affiliated email address (@electricityme.com), with the subject line "Contract Renewal Notice — Electricity Maine," and which contained unambiguous language about how to terminate the contract. See SAC ¶¶ 31-32, Renewal Notice 1. There is no allegation that Rocky Coast did not receive notice, nor are there any specific allegations which shed any light on whether Rocky Coast's notice was defective. These are the types of facts that would be within the purview of Rocky Coast, yet the SAC merely asserts that Rocky Coast was renewed in the summer of 2016 at rates higher than the standard offer. SAC ¶ 35.
Second, the SAC asserts that the regulation requiring renewal notices to be sent with a bill between 30-60 days ahead of the end of the contract was in effect until January of 2015. SAC ¶ 29. So, according to the allegations of the SAC, at the time Spark acquired Electricity Maine in May of 2016, it was no longer required to follow that regulation.
Finally, Plaintiffs are left with the allegation that Electricity Maine, under Spark's control, sent the renewal notices via email rather than United States mail.
The allegations that Spark engaged in a pattern of mail or wire fraud that caused Chon, Veilleux, and Rocky Coast harm do not meet Rule 9(b)'s heightened pleading standard and thus the SAC fails to state a RICO § 1962(c) claim against Spark. Count One will be dismissed against Spark.
The RICO conspiracy provision states that "[i]t shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section." 18 U.S.C. § 1962(d). In Salinas v. United States, the Supreme Court interpreted the RICO term "to conspire" in its conventional sense. 522 U.S. 52, 63 (1997). Holding that it was unnecessary for each defendant to have committed two predicate acts in a § 1962(d) conspiracy to violate § 1962(c), the Salinas Court explained:
Id. at 65. To establish a civil RICO conspiracy, a plaintiff therefore must demonstrate that "(1) two or more people agreed to commit a subsection (c) offense, and (2) a defendant agreed to further that endeavor." RSM Prod. Corp. v. Freshfields Bruckhaus Deringer U.S. LLP, 682 F.3d 1043, 1048 (D.C. Cir. 2012). "[I]t is not necessary for the conspiratorial agreement to be express, so long as its existence can plausibly be inferred from words, actions, and the interdependence of activities and persons involved." P & B Autobody, 43 F.3d at 1562.
In addition, to have a private cause of action, a plaintiff asserting a civil RICO conspiracy claim must show "injur[y] in his business or property by reason of a violation of Section 1962." 18 U.S.C. § 1964(c). Returning to the basic principles of civil conspiracy, Justice Thomas explained that at the time of RICO's enactment in 1970, "a plaintiff could bring suit for civil conspiracy only if he had been injured by an act that was itself tortious." Beck v. Prupis, 529 U.S. 494, 501 (2000). "Consistent with this principle, it was sometimes said that a conspiracy claim was not an independent cause of action but was only the mechanism for subjecting coconspirators to liability when one of their member committed a tortious act." Id. at 503. Based on these principles, the Supreme Court concluded that "injury caused by an overt act that is not an act of racketeering or otherwise wrongful under RICO is not sufficient to give rise to a cause of action under § 1964(c) for a violation of § 1962(d)." Id. at 505 (internal citation omitted). A conspirator does not have to be the one to commit the predicate acts or agree to be the one to commit the predicate acts, but no civil claim can lie unless the plaintiff has suffered injury to business or property "by reason of" a predicate violation of § 1962. See RSM Prod. Corp., 682 F.3d at 1048.
Spark's challenges to the RICO conspiracy count boil down to three arguments.
Spark claims that the Plaintiffs have not stated a plausible claim of Spark's agreement to enter the conspiracy. Def.'s Reply to Pls.' Opp'n to Def.'s Mot. to Dismiss 4-5 ("
The assertion that Spark "entered into an agreement" with Clavet and Dean and "embraced Dean and Clavet's objective" is conclusory. See SAC ¶¶ 97-98. Additional factual allegations include that Spark "was aware of the essential nature and scope of the Enterprise's predicate acts" because of unspecified "due diligence" and "long-time participa[tion] in CEP operations." See SAC ¶ 99. The alleged manifestation of the agreement to violate § 1962(c) was that Spark gave Provider Power "$2 million in working capital to acquire and retain customers and a $9 million incentive . . . to retain and enroll as many customers as possible." SAC ¶ 63. The alleged purpose of this financing was "for Clavet and Dean to intensify the number of predicate acts," but the SAC does not support this assertion with factual allegations. See SAC ¶ 98. And although the Plaintiffs hint at a shady side-deal when they allege that the financial incentives were provided outside the corporate structure, SAC ¶¶ 61, 64, they neither explain how the structuring of the payments facilitated the fraud nor seek to pierce the corporate veil. See supra, n.4. Finally, the Plaintiffs' examples of Spark's predicate acts consist of Rocky Coast's renewal and Veilleux's renewal email. See SAC ¶ 101. As discussed in the prior section, the SAC does not allege that the Rocky Coast and Veilleux renewals suffered from the same alleged deficiencies as Chon's renewal. In fact, the email sent to Veilleux suggests that Electricity Maine reformed its practices under Spark.
Setting aside the conclusory allegations, the remaining allegations of the SAC do not support a reasonable inference that Spark agreed to join and further the conspiracy to defraud customers. See RSM Prod. Corp., 682 F.3d at 1051-52. Because the Plaintiffs "have not nudged their claim[] across the line from conceivable to plausible," Count II is also dismissed as to Spark. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007).
The Plaintiffs concede and stipulate that their claims of negligence, negligent misrepresentation, fraudulent misrepresentation, and breach of contract (Counts Four, Five, Six, and Eight) are not adequately plead against Spark. Pls.' Supp. Mem. 15 (ECF No. 44). The remaining claims against Spark are violations of UTPA and unjust enrichment (Counts Three and Seven).
With regard to the UTPA claim, the Plaintiffs alleged that the renewal contracts were obtained through fraud and that the refusal to allow Electricity Maine customers to terminate auto-enrolled contracts without paying an early termination fee continued to cause them harm. See SAC ¶¶ 105(j)-06; 110. In addition, the Plaintiffs alleged that the Defendants were unjustly enriched by knowingly accepting payments for electricity services at rates that were inflated and wrongfully secured. See SAC ¶¶ 130-31.
Spark has not addressed the state law claims in any detail. It is well established that courts "deem waived claims not made or claims adverted to in a cursory fashion, unaccompanied by developed argument." Diaz-Colon v. Fuentes-Agostini, 786 F.3d 144, 149 (1st Cir. 2015) (quoting Rodríguez v. Municipality of San Juan, 659 F.3d 168, 175 (1st Cir.2011)); see also See Higgins v. New Balance Athletic Shoe, Inc., 194 F.3d 252, 260 (1st Cir. 1999) ("The district court is free to disregard arguments that are not adequately developed.").
Here, Spark relegated its discussion of the state law claims to a footnote that simply states there is a requirement of proximate causation for each claim.
For the reasons stated above, the I
SO ORDERED.
SAC ¶ 35.
The SAC also alleges that until at least December of 2016, fraudulent statements that Electricity Maine afforded "no catch and no gimmicks," "there's just a better rate" remained on Electricity Maine's website. SAC ¶ 66(c); Pls.' Supp. Mem. 10. While this occurred after Spark's purchase, there is no perceptible link to the Plaintiffs' injuries.
Because the Plaintiffs, by proposing a second amended complaint, have themselves been a moving target, and because I gave the last word to the Plaintiffs by allowing them to file a response to the Defendant's supplemental memorandum, I am considering all of the Defendant's arguments, even though I have the discretion to reject an argument that is raised late in the game.
