United Energy Trading, LLC v. Pacific Gas & Elec. Co.

177 F.Supp.3d 1183

United Energy Trading, LLC, Plaintiff,

v.Pacific Gas & Electric Co., et al., Defendants.

Case No. 15-cv-02383-RS

United States District Court, N.D. California.

Signed April 13, 2016

Charles Lagrange Coleman, III, David Ilan Holtzman, Tara Kaushik, Holland & Knight LLP, San Francisco, CA, Leah E. Capritta, Thomas Drew Leland, Holland & Knight LLP, Denver, CO, for Plaintiff.

Arnold Barba, Dennis S. Ellis, Adam Michael Reich, Nicholas James Begakis, Paul Hastings LLP, Los Angeles, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS

RICHARD SEEBORG, United States District Judge

I. INTRODUCTION

This dispute centers on allegations that defendant Pacific Gas & Electric Company (“PG & E”) engages in fraudulent activity as the billing and collections agent for plaintiff United Energy Trading, LLC (“UET”). Following an earlier ruling in which PG & E knocked out a quartet of putative claims, UET amended its complaint to reassert three theories of liability: (1) a RICO-based respondeat superior claim; (2) a Sherman Act “attempt to monopolize” claim, 15 U.S.C. § 2, and (3) a claim for conversion under California state law. PG & E now moves to dismiss these claims with prejudice for a second time. For the reasons set forth below, the motion to dismiss is denied as to the respondeat superior claim, and granted with leave to amend as to the Sherman Act and conversion claims. Pursuant to Civil Local Rule 7-1(b), the motion set for April 21, 2016, is suitable for disposition without oral argument, and the hearing will be vacated.

II. FACTUAL BACKGROUND¹

PG & E and UET compete to provide natural gas to residential and small commercial end-users in California. The gas both supply is completely fungible in composition and function. If UET cancels a customer, they revert to PG & E as the default natural gas provider.

UET is a Core Transportation Agent (“CTA”), meaning it buys gas on the open market and sells it to customers using PG & E's distribution system. Proposed CTAs must fulfill exacting standards to operate in California, among them, completing an application, submitting executives' fingerprints, establishing creditworthiness, and posting a bond.

PG & E is required to offer CTAs the opportunity to consolidate their bills with those of PG & E. Under a program called “Optional Consolidated PG & E Billing,” both the CTA's charges and PG & E's charges appear on a consolidated statement, and the customer pays both sets of charges with a single check to PG & E. Under Consolidated Billing, PG & E also acts as the CTA's collections agent. In that capacity, PG & E sends notices to the CTA's customers informing them of unpaid balances, collects from the CTA's customers the balance of unpaid charges, and takes other actions to help recover from customers any unpaid amounts owed to the CTA. After PG & E receives money from a customer, it is required to pay the CTA the amounts paid to PG & E for the CTA's charges. In 2012, UET elected to participate in the Optional Consolidated PG & E Billing program.

The instant dispute centers on allegations that PG & E engages in unlawful activity as UET's billing and collections agent. Specifically, UET avers three separate schemes in which three individual PG & E employees defraud UET and its customers. In the “Payment Withholding Scheme,” UET avers PG & E receives payments from UET customers and “holds” that money in a PG & E account instead of paying it to UET. In the “Energy Credit Scheme,” PG & E applies credits from its own services and programs to UET's charges, effectively misappropriating them to offset the money PG & E owes to its own customers. In the “Reversal Scheme,” PG & E inappropriately “reverses” UET customer charges. A reversal is a signal to UET that PG & E cannot collect on UET's unpaid balance. PG & E apparently reverses UET accounts from which payment affirmatively has been received.

UET submits the individual defendants—Albert Torres (PG & E's Vice President of Customer Operations), William Chen (PG & E's ESP Service Manager), and Tanisha Robinson (PG & E's Supervisor for EDI Operations and ESP Billing)—committed the racketeering while working in PG & E's offices and using PG & E's systems. UET believes these defendants commit racketeering in part to benefit PG & E, and argues the activities are of a kind the defendants were hired to perform for PG & E legitimately.

UET insists the schemes diminish competition within the gas commodity market. For instance, between 2012 and 2014—prior to implementation of the schemes—the firm pipeline capacity (or “load”) for all CTAs grew from approximately 12 percent to 19 percent. Since implementation of the alleged schemes, however, the load steadily has decreased to 15.4 percent.

UET also maintains the schemes have increased consumer prices despite an ample supply of natural gas and decreasing wholesale prices. Between 2014 and the present, for instance, the monthly California price of natural gas delivered to residential consumers has increased from $10 to $12 per thousand cubic feet. During that same period, the Citygate price for natural gas in California has decreased from roughly $6.00 to $3.00 per thousand cubic feet. By UET's calculation, since the schemes were implemented, consumers are paying 20 percent more for natural gas even though the Citygate price of the commodity is 50 percent less than it was in 2014.

UET contends PG & E—the corporation—does not acknowledge any of the schemes, and has done little or nothing to curtail the unlawful acts of its employees, even though some speak openly about the schemes. This is unsurprising, says UET, because PG & E profits from the three schemes by: (1) charging UET transportation and storage fees; (2) increasing the bad debt of its competitors; (3) reducing its own liability for mandatory credits; and (4) gaining the ability to charge consumers higher prices.

On August 31, 2015, PG & E moved to dismiss the complaint on various jurisdictional grounds and for failure adequately to plead claims for relief. The motion was granted as to the breach of contract claim, and granted with leave to amend as to the respondeat superior , Sherman Act, and conversion claims. Dkt. No. 74. UET filed the First Amended Complaint (“FAC”) on December 18, 2015, and PG & E moved to dismiss the FAC about six weeks later.

III. LEGAL STANDARD

A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). While “detailed factual allegations are not required,” a complaint must have sufficient factual allegations to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is facially plausible “when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. This standard asks for “more than a sheer possibility that a defendant acted unlawfully.” Id. The determination is a context-specific task requiring the court “to draw on its judicial experience and common sense.” Id . at 679, 129 S.Ct. 1937.

Additionally, Rule 9(b) of the Federal Rules of Civil Procedure requires that “[i]n allegations of fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” To satisfy the rule, a plaintiff must allege the “who, what, where, when, and how” of the charged misconduct. Cooper v. Pickett , 137 F.3d 616, 627 (9th Cir.1997). In other words, “the circumstances constituting the alleged fraud must be specific enough to give defendants notice of the particular misconduct so that they can defend against the charge and not just deny that they have done anything wrong.” Vess v. Ciba–Geigy Corp. U.S.A. , 317 F.3d 1097, 1106 (9th Cir.2003).

A motion to dismiss a complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims alleged in the complaint. See Parks Sch. of Bus., Inc. v. Symington , 51 F.3d 1480, 1484 (9th Cir.1995). Dismissal under Rule 12(b)(6) may be based on either the “lack of a cognizable legal theory” or on “the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep't , 901 F.2d 696, 699 (9th Cir.1990). When evaluating such a motion, the court must accept all material allegations in the complaint as true, even if doubtful, and construe them in the light most favorable to the non-moving party. Twombly , 550 U.S. at 570, 127 S.Ct. 1955. “[C]onclusory allegations of law and unwarranted inferences,” however, “are insufficient to defeat a motion to dismiss for failure to state a claim.” Epstein v. Wash. Energy Co. , 83 F.3d 1136, 1140 (9th Cir.1996) ; see also Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (“threadbare recitals of the elements of the claim for relief, supported by mere conclusory statements,” are not taken as true).

IV. DISCUSSION

The motion to dismiss takes aim at three claims: (1) UET's RICO-based respondeat superior claim; (2) the Sherman Act “attempt to monopolize” claim, 15 U.S.C. § 2, and (3) the state law claim for conversion. UET's amended pleading states adequately a claim showing PG & E's respondeat superior liability for an alleged violation of 18 U.S.C. § 1962(c) ; it does not allege satisfactorily either of the two remaining claims.

A. Respondeat Superior

UET seeks to hold PG & E vicariously liable for the racketeering activities allegedly committed by the individual defendants. The “second cause of action” is somewhat confusingly styled “Respondeat Superior/Agency,”² and does not identify whether the claim giving rise to vicarious liability arises under 18 U.S.C. § 1962(c) or (d). Dkt. No. 76 at 22. The allegations, however, are pitched only at showing PG & E's respondeat superior liability...