Burger v. Spark Energy Gas, LLC

507 F.Supp.3d 982

Becky BURGER, Plaintiff,

v.SPARK ENERGY GAS, LLC, Defendant.

No. 19 C 8231

United States District Court, N.D. Illinois, Eastern Division.

Signed December 15, 2020

Richard R. Gordon, Gordon Law Offices, Ltd., Chicago, IL, Chantal Khalil, Pro Hac Vice, Todd Seth Garber, D. Gregory Blankinship, Pro Hac Vice, Finkelstein, Blankinship, Frei-Pearson & Garber, LLP, White Plains, NY, for Plaintiff.

Tinos Diamantatos, Morgan, Lewis & Bockius LLP, Chicago, IL, Ezra D. Church, Pro Hac Vice, Morgan, Lewis & Bockius LLP, Philadelphia, PA, Michelle D. Pector, Veronica Jean Lew, Pro Hac Vice, Morgan, Lewis & Bockius LLP, Houston, TX, for Defendant.

OPINION AND ORDER

SARA L. ELLIS, United States District Judge Plaintiff Becky Burger contracted with Defendant Spark Energy Gas, LLC ("Spark Energy") for residential natural gas supply services in the hopes of saving on the cost of natural gas. Finding that Spark Energy actually charged her more than she would have paid if she had remained with her local utility supplier, Burger filed this putative class action against Spark Energy, alleging violations of the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"), 815 Ill. Comp. Stat. 505/1 et seq. She also brings claims for breach of contract and the implied covenant of good faith and fair dealing and unjust enrichment. Spark Energy has filed a motion to dismiss Burger's amended complaint.¹ The Court dismisses Burger's ICFA claims without prejudice because she has failed to allege that Spark Energy's alleged misrepresentations caused her damage. And while Burger has not sufficiently alleged that Spark Energy breached an express contractual promise as to how it would determine the variable rate it charged Burger, she may proceed with a claim for breach with respect to the variable rate based on the implied covenant of good faith and fair dealing, as well as a claim that Spark Energy breached its promise not to charge a monthly administrative fee unless disclosed in the parties’ agreement. Finally, because an unjust enrichment claim may proceed as an alternative to a contractual claim without pleading fraud, the Court does not find it necessary at this time to consider whether Burger can proceed on an unjust enrichment claim even if she has not adequately alleged deceptive conduct.

BACKGROUND²

I. Deregulation of the Natural Gas Supply Market in Illinois

Illinois has deregulated the retail residential natural gas supply market, with the expectation that increased competition in the open market will lead to lower prices for consumers. Many alternative retail natural gas suppliers ("AGSs"), including Spark Energy, offer their services to Illinois residents. Consumers may switch to an AGS or continue to receive their energy supply from the local utility. The local utility delivers gas to consumers’ homes and bills the consumer for both energy supply and delivery costs regardless of the energy supplier. The only difference to the consumer is whether the local utility or the AGS sets the price for the energy supply.

In Illinois, the Illinois Commerce Commission regulates the rates the local utility can charge. The local utility rates reflect market costs of wholesale natural gas and associated costs and do not include any profits. The local utility computes a consumer's monthly natural gas supply cost using the Purchased Gas Adjustment ("PGA") mechanism, which includes the anticipated wholesale cost of gas for the month as well as adjustments from prior periods. The PGA can change monthly. AGSs operate differently and do not have to file or seek approval for the rates they charge or the methods they use to set those rates. AGSs use various purchasing strategies to reduce natural gas costs. For example, AGSs may own natural gas production facilities, buy natural gas from wholesale marketers or brokers, or purchase futures contracts for delivery of natural gas at a predetermined price in the future. These actions theoretically should allow AGSs to offer competitive or substantially lower rates than utilities.

In light of deregulation of the energy supply market, Illinois has adopted consumer protection regulations to protect Illinois consumers from deceptive business practices in the energy industry. Among other things, the regulations provide a consumer with the right to rescind an agreement with an AGS within ten business days after the date on the gas utility notice provided to the customer. 815 Ill. Comp. Stat. 505/2DDD(f). An AGS must also "clearly and conspicuously disclose[ ], in plain language, the prices, terms, and conditions of the products and services being offered and sold to the customer." 220 Ill. Comp. Stat. 5/19-115(g)(2). The Illinois Commerce Commission also posts information provided by AGSs that at a minimum discloses for variable rates "the terms of such variability, including, but not limited to, any index that is used to calculate the price and any additional charges, costs and fees." 220 Ill. Comp. Stat. 5/19-125(c)(5).

II. Spark Energy's Business Model

Spark Energy approached Burger with an initial offer of a fixed energy supply rate below or comparable to that offered by her local utility, Nicor Gas.³ Once the initial fixed rate expired, Spark Energy indicated it would transition her to a variable rate plan. Spark Energy provided Burger with its standard Welcome Letter and Illinois Residential and Small Commercial Customer Disclosure Statement and Terms of Service (collectively, the "Terms of Service"). The Terms of Service provided that, after the expiration of the initial fixed rate, Spark Energy would automatically enroll Burger into its month-to-month variable rate plan, under which the "rate may vary according to market conditions." Doc. 19 ¶ 30. In light of this representation, a reasonable consumer and therefore Burger would expect Spark Energy's variable rates to reflect wholesale natural gas prices and the retail prices its competitors, i.e. local utilities and other AGSs, charged. The Terms of Service further provided that a customer "may also pay a monthly administrative fee, the amount of which, if applicable, is disclosed in [the Terms of Service]." Id. ¶ 61. The Terms of Service provided to Burger did not disclose a monthly administrative fee, but Spark Energy began charging Burger a monthly administrative fee of $6.25 per month once the fixed rate period expired.

Despite there being no material difference between the costs Spark Energy incurs for its fixed and variable rate customers, Spark Energy charges a substantially higher variable than fixed rate. While it offered fixed rates of $0.449, $0.559, and $0.625 per therm in Burger's region in 2018, Spark Energy charged Burger an average variable rate of $1.409 per therm in 2018. Spark Energy's variable rate was also well above the rates offered by the local utility, Nicor Gas, other AGSs in the region, and the wholesale rate. Between August 2017 and May 2018, the last ten billing periods during which Burger paid Spark Energy's variable rate, Spark Energy's variable rates were, on average, 305% higher than Nicor Gas’ rates. The variable rate also did not fluctuate in the same direction as Nicor Gas’ rate. As for other AGS rates, in 2018, Constellation Energy offered a fixed rate of $0.439 per therm, Just Energy a fixed rate of $0.415 per therm, and Direct Energy a fixed rate of $0.389 per therm. That same year, Ambit Energy offered a variable rate of $0.3552 per therm and Illinois Energy offered a variable rate of $0.453 per therm, all well below Spark Energy's 2018 average variable rate. And while the cost of wholesale natural gas is the primary component of Spark Energy's non-overhead costs, its variable rate on average was 280% higher than wholesale natural gas prices between August 2017 and May 2018 and did not necessarily move in the same direction or in the same proportions as the wholesale price.

LEGAL STANDARD

A motion to dismiss under Rule 12(b)(6) challenges the sufficiency of the complaint, not its merits. Fed. R. Civ. P. 12(b)(6) ; Gibson v. City of Chicago , 910 F.2d 1510, 1520 (7th Cir. 1990). In considering a Rule 12(b)(6) motion to dismiss, the Court accepts as true all well-pleaded facts in the plaintiff's complaint and draws all reasonable inferences from those facts in the plaintiff's favor. AnchorBank, FSB v. Hofer , 649 F.3d 610, 614 (7th Cir. 2011). To survive a Rule 12(b)(6) motion, the complaint must not only provide the defendant with fair notice of a claim's basis but must also be facially plausible. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; see also Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937.

Rule 9(b) requires a party alleging fraud to "state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). "This ordinarily requires describing the ‘who, what, when, where, and how’ of the fraud, although the exact level of particularity that is required will necessarily differ based on the facts of the case." AnchorBank , 649 F.3d at 615 (citation omitted). Rule 9(b) applies to "all averments of fraud, not claims of fraud." Borsellino v. Goldman Sachs Grp., Inc. , 477 F.3d 502, 507 (7th Cir. 2007). "A claim that ‘sounds in fraud’— in other words, one that is premised upon a course of fraudulent conduct—can implicate Rule 9(b) ’s heightened pleading requirements." Id.

ANALYSIS

I. ICFA (Counts I and II)

To state an ICFA claim, Burger must allege (1) a deceptive or unfair act or practice by Spark Energy, (2) Spark Energy's intent that Burger rely on the deceptive or unfair practice, (3) the deceptive or unfair practice occurred in the course of conduct involving trade or...