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Sevugan v. Direct Energy Services, LLC

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

May 17, 2018

CHETTY SEVUGAN, individually and on behalf of all others similarly situated, Plaintiff,
v.
DIRECT ENERGY SERVICES, LLC, a Delaware corporation, Defendant.

          MEMORANDUM OPINION AND ORDER

          Hon, Virginia M. Kendall United States District Judge

         Plaintiff Chetty Sevugan, individually and on behalf of all others similarly situated, brings this action against Defendant Direct Energy Services, LLC (“Direct Energy”) alleging a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act[1] (“ICFA”), breach of contract, breach of implied covenant of good faith and fair dealing, and unjust enrichment. (Dkt. No. 9.) Sevugan seeks punitive damages, attorney's fees, and injunctive relief. (Id.) Direct Energy filed a Motion to Dismiss all of Sevugan's claims. (Dkt. No. 21.) For the following reasons, the Motion to Dismiss is granted.

         BACKGROUND

         The following facts are based on the allegations in the Complaint as well as the partial 2011 Direct Energy Electricity Supply Contract and the 2011 Direct Energy Residential Uniform Disclosure Statement for Illinois attached to the Complaint. (Dkt. No. 9, Ex. 1-2); see also Tierney v. Vahle, 304 F.3d 734, 738-39 (7th Cir. 2002) (documents attached to the complaint “indisputably becomes a part of it for all purposes”) (citing Fed.R.Civ.P. 10(c)). The Court accepts all well-pleaded facts in the Complaint as true for purposes of the Motion to Dismiss and draws all reasonable inferences in favor of Sevugan. See Reynolds v. CB Sports Bar, Inc., 623 F.3d 1143, 1146 (7th Cir. 2010). The Court also considers the complete version of the 2011 Direct Energy Supply Contract attached to Direct Energy's Motion to Dismiss. (Dkt. No. 21-3). Generally, matters outside the pleadings may not be considered on a motion to dismiss. See Fed. R. Civ. P. 12(b). However, the Court can examine concededly authentic documents attached to a party's motion to dismiss if the documents are referred to in the plaintiff's complaint and are central to his claim. See Chemetall GMBH v. ZR Energy, Inc., 320 F.3d 714, 718 (7th Cir. 2003); Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 432 (7th Cir. 1993). The 2011 contract is referred to in the Complaint and central to Sevugan's claim and the majority of it is already incorporated into the Complaint by Sevugan.[2]

         Prior to 1997, only local public utility companies were permitted to sell and distribute electricity in Illinois. (Dkt. No. 9 at ¶ 9). In 1997, Illinois deregulated the market for electricity supply, allowing independent, privately-operated alternative retail electric suppliers (“ARES”) to supply electricity without having to disclose the rates they charged or their method for setting those rates to the Illinois Commerce Commission.[3] (Id. at ¶¶ 9-10). The purpose of the deregulation was to increase competition among suppliers thereby reducing wholesale purchasing costs and, in turn, retail residential rates. (Id. at ¶ 9). When a customer switches to an ARES, the ARES supplies the electricity but the local utility continues to deliver the electricity and to bill the customer for both the supply and delivery costs. (Id. at ¶ 11). For an ARES customer, the utility calculates the supply cost as the number of kilowatt hours used multiplied by the supply rate charged by the ARES, instead of the regulated rate charged by the utility. (Id. at ¶¶ 11-12).

         Direct Energy is an ARES that supplies electricity to Illinois consumers. (Id. at ¶ 13). Sevugan alleges that Direct Energy exploited the deregulation of the Illinois electricity supply market by falsely promising to charge variable rates based on market-related factors in order to lure consumers from local utilities and instead charging rates that are not based on market-related factors and are substantially higher than those charged by the utilities. (See, e.g., Id. at ¶¶ 2-3, 13-14).

         Sevugan switched electricity suppliers and entered into a contract with Direct Energy in or around August 2011. (Id. at ¶ 17, Ex. A). Sevugan alleges that a Direct Energy representative “solicited” him to switch from his former supplier, utility company Commonwealth Edison (“ComEd”), by offering him a teaser rate lower than its regular rates and promising he would save money if he switched to Direct Energy. (Id. at ¶¶ 15-16). Sevugan entered into a contractual relationship with Direct Energy governed by the 2011 Energy Supply Contract, which provided in relevant part:

1. Terms of Service. The essential terms of your electric generation service are as follows:
Initial Term. “The Initial Term of your service is 12 monthly billing cycles. (“Initial Term”).
Electric Generation Service Price per kWh During Initial Term. During your Initial Term you will pay Direct Energy a fixed price of $.0689 per kWh. This price includes your electric generation service and transmission charges, and excludes taxes and other utility fees and charges. . . .
Electric Generation Service Price per kWh After Initial Term. Your service will automatically continue on a month-to-month basis, and you will pay a variable price per kWh. This price may be higher or lower each monthly bill cycle. There is no early cancellation fee while taking service on a month-to-month basis. See Section 5 for details. . . .

(Id. at ¶¶ 17-18, Ex. A. at ¶ 1 (emphasis in original)). Sevugan was initially placed on a 12-month fixed rate plan and “subsequently switched to a variable rate plan.” (Id. at ¶¶ 18-19).

         Section 5 of the Electric Supply Contract provided the following with regard to the variable rate to be charged after the Initial Term:

5. Renewal; Notice of a Change to this Agreement. Upon completion of the Initial Term, this Agreement will automatically renew on a month-to-month basis at a variable price per kWh with no early cancellation fee. Direct Energy will charge you at a variable price per kWh based upon generally prevailing market prices for electricity in the PJM market at the Electric Utility load zone for the applicable period, plus an adder, determined solely by Direct Energy in its discretion. . . . You may obtain next month's variable price by calling Direct Energy using the contact information set forth in Section 15 below. Pricing is available on the 20th day (or following business day) of the previous month.

(Id. at Ex. A ¶ 5 (emphasis added)). The 2011 Residential Uniform Disclosure Statement for Illinois stated the same:

After the Initial Term, your service will automatically continue on a month-to-month basis, and you will pay a variable price per kWh. Direct Energy will charge you at a variable price per kWh based upon generally prevailing market prices for electricity . . . plus an adder, determined solely by Direct Energy in its discretion.

(Id. at Ex. B (emphasis added)).

         Sevugan assumed based on these representations that Direct Energy would charge rates “based on market-related factors” and that such rates would reflect changes in wholesale market prices for electricity and be commensurate with the rates offered by the local utility and other ARES. (Id. at ¶¶ 21-22). Direct Energy rates did not reflect wholesale market prices or rates charged by other suppliers. (Id. at ¶ 23). Rather, Direct Energy charged Sevugan variable rates as high as 145% of ComEd rates for 2012, 120% for 2013, 150% for 2014, 240% or 2015, and 350% for 2016. (Id. at ¶ 24). Sevugan contends that rates charged by utilities like ComEd are “an accurate measure of what market-based rates should be” because utilities purchase electricity from the Illinois wholesale electricity market at the same prices per kilowatt that other suppliers, including Direct Energy, can purchase electricity for supply to consumers. (Id. at ¶¶ 25-27). Accordingly, Sevugan argues that Direct Energy rates could not have been based on market-related factors because they were substantially higher than ComEd's and other utilities' and ARES' rates. (Id. at ¶¶ 28-29-27).

         Sevugan alleges that Direct Energy's statements and omissions to consumers with respect to the rates it will charge are materially misleading because it does not charge rates based on market-related factors and fails to disclose that its rates are substantially higher than rates based on market-related factors, knowing that the only reason a reasonable consumer would switch from a local utility to Direct Energy is for the potential to pay market-based rates. (Id. at ΒΆΒΆ 32, 34-35). Sevugan claims that neither he nor any reasonable consumer would have enrolled in Direct Energy's plan had he known the rates would be higher than those charged by ...


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