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Schiller v. Duthie

United States District Court, S.D. New York

August 28, 2017


          Richard S. Pakola New City, New York Counsel for Plaintiffs

          Joseph J. Ranni Ranni Law Firm Florida, New York Counsel for Daniel Duthie

          Scott A. Levinson Diep Nguyen New York, New York Counsel for Consolidated Edison Solutions, Inc., Stephen Wemple, and Patrick O'Gara

          Jonathan Wood Ithaca, New York Counsel for Municipal Electric and Gas Alliance, Inc.

          James S. Cox Snyder, Kiley, Toohey, Corbett & Cox, LLP Saratoga Springs, New York Counsel for EnergyNext, Inc. and Gordon Boyd

          Ralph L. Puglielle, Jr. Drake Loeb PLLC New Windsor, New York Counsel for M&R Energy Resource Corp. and Melissa A. Cobuzzi

          Erick M. Sandler Jennifer L. Shukla Day Pitney LLP Hartford, Connecticut Counsel for Constellation New Energy, Inc., Jody Spaeth, and Jeffrey S. Hills


          CATHY SEIBEL, U.S.D.J.

         Before the Court are the motions to dismiss Plaintiffs' Third Amended Complaint, (“TAC”), (Doc. 154), of Defendant Daniel Duthie, (Doc. 201), Municipal Electric and Gas Alliance, Inc. (“MEGA”), (Doc. 216), Melissa A. Cobuzzi and M&R Energy Resource Corp. (“M&R”), (Doc. 217), Jeffrey S. Hills, Jody Spaeth, and Constellation New Energy, Inc. (“Constellation”), [1] (Doc. 221), Gordon Boyd and EnergyNext, Inc. (“EnergyNext”), (Doc. 228), and Patrick O'Gara, Stephen Wemple, and Consolidated Edison Solutions, Inc. (“ConEd”), (Doc. 231).

         I. Background

         A. Facts

         For purposes of these motions, the Court accepts as true the facts, but not the conclusions, alleged by Plaintiffs in the TAC. The Court distills the lengthy (109 page, 401 paragraph, 14 exhibit) TAC as follows.

         The electricity and natural gas markets in New York are broken into areas within which a public utility is responsible for the delivery of energy in the form of electricity and/or natural gas. (TAC ¶ 28.) While the public utility delivers the energy, the consumer may choose to buy electricity or natural gas from either the utility or from an Energy Service Company (“ESCO”) that can sell directly to retail consumers, including municipalities. (Id. ¶¶ 26-27.) For purposes of this suit, which primarily alleges antitrust violations, Plaintiffs allege that the market is limited to the municipal supply of electricity and natural gas. (Id. ¶ 36.) Municipalities purchasing energy must abide by public bidding statutes such as New York General Municipal Law § 103 and other New York laws and regulations. (Id.) In the alternative, instead of going through the mandated bidding process, municipalities can “piggyback” off of other municipal contracts that have been publicly bid. (Id. ¶ 51.)

         Energy consultants assist in matching commercial and municipal clients with the most cost-effective ESCO suppliers who place bids for potential energy supply contracts. (Id. ¶¶ 30, 35.) Consultants assist municipalities by formulating specifications and procedures for bids, interfacing with prospective bidders, making recommendations to the municipality as to the lowest qualified bidder, and negotiating a change in rates when needed. (See Id. ¶¶ 30, 52-53, 57, 81.) There is no allegation that a municipality is obligated to accept a consultant's recommendation or to contract with the lowest bidder. Rather, if it is unhappy with the outcome of a bidding process, it remains free to re-bid, on its own or with the same or another consultant, or to piggyback on another municipality's contract. (See Id. ¶¶ 36, 84-87, 106, 109-110.) Consultants enter into agreements with the relevant municipality as well as the ESCOs bidding for the energy contracts, and are paid by the ESCO that is awarded the contract based on a fraction of the energy actually used by the purchasing municipality. (Id. ¶ 35.)

         Plaintiffs are Resolution Consulting Group, Inc. (d/b/a Resolution Energy Group) (“REG”) and its president Christopher Schiller. (Id. ¶¶ 6-7.) Plaintiff REG and Defendants MEGA, EnergyNext and Daniel Duthie are energy consultants. (Id. ¶¶ 8, 30.)[2] MEGA is a not-for-profit corporation that hires EnergyNext (a for-profit entity) and its principal, Defendant Gordon Boyd, as its energy procurement consultant. (Id. ¶¶ 12-13, 50, 56.) In that role, Boyd reviews the relevant bids and makes recommendations to municipal governments. (Id. ¶ 57.) Defendant M&R is a consultant and an ESCO, (id. ¶ 30), and Defendants ConEd, (see Id. ¶ 199), and Constellation, (see Id. ¶¶ 56, 60), are ESCOs.

         Plaintiffs allege that there is an anti-competitive scheme in place that begins with a county “authorizing MEGA to issue a public [i]nvitation to [b]id (“ITB”) or [r]equest for [b]ids (“RFB”), ” followed by “MEGA and its co-conspirators . . . tak[ing] over all aspects” of the bidding process including: “(1) drafting the bidding documents, (2) having all questions directed to EnergyNext, rather than the [municipality], (3) EnergyNext answering all questions relating to the bid, rather than referring the questions to the [municipality], (4) requiring all bids to be submitted directly to MEGA . . . rather than the [municipality], and (5) reserving for itself the discretion to decide who ultimately is the lowest responsible bidder.” (Id. ¶ 52.) The TAC does not allege that there is anything illegal about the municipality giving MEGA this authority, or that MEGA can require the municipality to do so or to accept the bidder MEGA recommends.

         Plaintiffs allege, however, that MEGA or EnergyNext drafts the bidding requirements in such a way that co-conspirator ESCOs are the only bidders that can meet them. (Id. ¶ 53.) In essence, Plaintiffs assert that the bidding processes MEGA and EnergyNext facilitate are “not truly competitive” because the original bids are “‘rigged' to ensure that only co-conspirators will win.” (Id. ¶ 55.) Plaintiffs further allege that the Defendant ESCOs agreed “directly with each other and indirectly through MEGA, not to compete against one another in certain municipal electric and gas bids. In return, each [ESCO] was given the ‘exclusive rights' to their assigned energy product and utility territory for all municipal consumers purchasing electric or natural gas through MEGA.” (Id. ¶ 71.) Thus, municipalities that chose to enter into contracts recommended by MEGA paid supracompetitive prices. (See, e.g., id. ¶¶ 84, 130, 136.)

         MEGA's bid documents allow any municipality in the relevant utility area to piggyback off of the resulting county energy contracts, which is permitted under New York General Municipal Law § 103, but Plaintiffs allege that

MEGA's piggy backs are illegal [because]: (1) . . . the original bids are “rigged” to ensure that only co-conspirators win; (2) the subsequent “piggy back” contracts with municipalities are not based upon the original sponsor County contract, as they are required to be [under GML § 103(3), [3] but rather are different contracts with varying prices, products and terms, drafted in such a way that MEGA and the conspirators benefit, but the municipality overpays; (3) MEGA includes illegal “extension” provisions . . . that allow[] . . . MEGA to invoke two one-year extensions for every contract; [and] (4) energy supply is utility specific, so a County bid in one utility area may not be transferable to another utility . . . .

(Id. ¶¶ 53, 55.)

         As a result of the scheme, Plaintiffs allege, since at least 2009 Direct Energy Business Marketing, LLC (“Direct Energy”)[4] has won every MEGA-run municipal natural gas bid in the Nat Grid, [5] NYSEG, [6] and RG&E[7] utility territories[8] and every MEGA-run municipal natural gas and electricity bid in the Central Hudson utility territory. (Id. ¶¶ 162, 184, 189.) Plaintiffs also allege that, from at least 2003, Constellation has won every MEGA-run municipal electricity bid in the Nat Grid, NYSEG, and RG&E utility territories. (Id. ¶¶ 168, 184). The TAC also asserts that the scheme involved Constellation winning the bids for electricity in the ConEd and O&R[9]utility areas and M&R winning the bids for natural gas in the O&R utility area. (Id. ¶ 183.) Plaintiffs allege that the municipalities dealing with MEGA are unaware of the scheme and if they knew about it, they would do business with REG instead, earning Plaintiffs fees from contracts and piggybacks. (See, e.g., id. ¶¶ 90, 103, 373(f).)

         Plaintiffs allege that the following events evidence the scheme, which is alleged to have originated in 2007 when MEGA, under the auspices of Tompkins County, issued an ITB for municipal electricity supply on behalf of twelve upstate counties and one hundred other municipalities. (Id. ¶¶ 69-72.) The bid documents “included many improprieties, ” in that they included commercial and residential customers, required questions to be submitted to EnergyNext, required bids to be delivered to a MEGA-affiliated entity, and gave MEGA final authority to determine which ESCO submitted the lowest qualified bid. (Id. ¶ 69.) The TAC does not explain why these provisions are improper or why a municipality could choose not to proceed with an ITB in such a manner. Nor does it state the results of the 2007 Tompkins County ITB. But it does allege that between the Tompkins County bid in 2007 and 2011, MEGA's portfolio doubled. (Id. ¶ 72.) Around 2011, the energy market changed due to market prices dropping for the first time in a decade, consumers being more informed, and greater competition. (Id. ¶¶ 80-81.) Around this time some municipalities began seeking alternatives to working with MEGA and allegedly questioned whether MEGA's scheme was “competitive or legal.” (Id. ¶ 83.)[10]

         On September 15, 2011, under the auspices of Genesee County - the legislative chair of which sat on MEGA's board - MEGA issued a public solicitation for municipal electricity and natural gas bids containing similar specifications as those used for the Tompkins County bidding process. (Id. ¶¶ 74-75, 77.) Bids were due October 7, 2011, but were not completely reviewed by EnergyNext until October 14, 2011. (Id. ¶ 79.) Plaintiffs allege that “[d]uring this seven-day time period, the Antitrust Defendants[11] could have ‘adjusted' bids accordingly to determine the lowest responsible bidder in their own personal interest.” (Id.) At EnergyNext's recommendation, MEGA identified Direct Energy as the lowest responsible bidder for gas and Constellation as the lowest responsible bidder for electricity, and Genesee County accepted those recommendations. (Id. ¶¶ 77-78.) Direct Energy allegedly submitted electricity bids that were “complimentary” or “courtesy” bids that were almost double Constellation's and the highest bid in nearly every pricing category. (Id. ¶ 186.) Constellation did not bid on natural gas. (Id.)

         On September 27, 2011, the Town of Ramapo (the “Town”) hired REG as an energy consultant. (Id. ¶ 194.2.)[12] On October 4, 2011, the Town and REG entered into a Consulting Services Agreement (the “REG CSA”) under which REG would be the Town's exclusive energy consultant of record. (Id. ¶¶ 195.2-96; id. Ex. F.)[13] The REG CSA provided that, “unless terminated earlier as provided in th[e a]greement, ” it would be in force “for the duration of the initial energy supply term contracted through R[E]G, ” (id. ¶ Ex. F at 2), (which turned out to be two years), (id. ¶ 197)), and that “[e]ither party [could] terminate th[e a]greement, with or without cause, upon three days prior written notice, ” (id. Ex. F at 2). On October 28, 2011, with Plaintiffs' assistance, the Town entered into two-year fixed-rate contracts with Direct Energy for electricity and with Gateway Energy Services (“Gateway”) for natural gas. (Id. ¶ 197.) At the end of two years, these contracts would convert to at-will contracts with variable rates. (Id. ¶ 197; see Id. ¶ 238.) Soon after Schiller was retained, Town Purchasing Director Mona Montal asked him whether he could help the Town in getting municipal rates for various residences. (Id. ¶¶ 21, 198.) Montal was allegedly “displeased” with Schiller's “lack of cooperation.” (Id. ¶ 198.)

         Also around 2011, the Town hired Defendant Duthie to assist in a matter unrelated to Plaintiffs' work for the Town. (Id. ¶ 199.) Duthie allegedly advised various Town personnel that Schiller's services were inadequate, that the electricity supply rates for the Town's streetlights were “very high, ” and that he had friends at ConEd who could offer better rates, including municipal rates to private individuals within the Town. (Id.)

         In November 2011, MEGA and Constellation entered into a written agreement whereby, among other things, MEGA would recommend Constellation to MEGA electricity participants in the Nat Grid, NYSEG and RG&E utility areas and Constellation would pay MEGA a royalty based on energy sold; Constellation agreed to allow participants to convert to a fixed price even if they had previously elected variable pricing; and both parties agreed to develop a marketing plan. (Id. ¶ 62; id. Ex. B.)

         In July 2012, Rockland County decided to stop using MEGA as its consultant and instead sought bids for electricity through Plaintiffs, resulting in more supplier bids than MEGA typically received and better pricing than MEGA's renewal quote. (See Id. ¶ 86.) Through Plaintiffs, Rockland County awarded a twenty-four month contract to Direct Energy. (Id.) Various former clients of MEGA complained to Schiller about the lack of competition in MEGA bids. (Id. ¶ 88.) In October 2012, Putnam County conducted an electricity bid through Plaintiffs and awarded the contracts to GDF Suez. (Id. ¶ 87.) Putnam County's electricity award allowed for other subdivisions in the NYSEG utility area to piggyback off of Putnam County's contract, but many municipalities that worked with MEGA were locked into long term agreements with Constellation or Direct Energy. (Id. ¶ 89.) Plaintiffs allege that had this not been the case, these municipalities would have piggybacked on REG's Putnam County contract. (Id. ¶ 90.) This allegation appears to rest on the assumption that because these municipalities had chosen to piggyback with MEGA, their only other choice would have been to piggyback with REG, rather than to work with a different consultant or on their own to solicit bids. (See id.)

         On October 10, 2012, the Town retained Duthie to procure electric supply for streetlights for a period of 120 days. (Id. ¶ 200.) On October 25, 2012, Duthie called Schiller and falsely claimed to be an attorney from the Ramapo Town Attorney's Office. (Id. ¶ 203.) Duthie allegedly did this to obtain confidential information to use to fabricate a justification for the Town to terminate REG and allow Duthie to take over REG's contract with the Town. (Id.) Plaintiffs do not allege that they provided any such information. On October 26, 2012, Schiller called Town Attorney Michael Klein to complain about Duthie's phone call and was told that although Klein would tell Duthie to stop working on streetlight electricity procurement, Duthie had a close relationship with members of the Town Board and it was in Schiller's best interest to assist Duthie. (Id. ¶¶ 206-07.)

         In mid-November 2012, Duthie again attempted to obtain confidential and proprietary information from Schiller. (Id. ¶¶ 208-09.) Duthie falsely told Schiller that the Town Board was investigating Schiller for not complying with procurement procedures and that Duthie had been asked to review all of the energy contracts, (id. ¶ 209), but Plaintiffs allege that the Town Board had not authorized any such investigation, (id. ¶ 217). On November 30, 2012, Beth Finkelstein, an Assistant Town Attorney, sent Schiller a letter (on Town letterhead but allegedly drafted by Duthie) informing Schiller that she had been asked by the Town Attorney “to investigate the circumstances surrounding the bidding and contract awards of all the Town's electricity and gas accounts to Direct [Energy] and Gateway.” (Id. ¶¶ 21, 210.) Schiller spoke with Finkelstein and understood several of her comments to be threats to, among other things, slander him to the Town Board and his other municipal clients if he spoke at a Town Board meeting. (See, e.g., id. ¶¶ 212-15.) Schiller accordingly did not attend a Town Board meeting for approximately a year. (Id. ¶ 216.)

         On December 12, 2012, Genesee County authorized MEGA to issue an ITB for natural gas, electricity and renewable energy credits. (Id. ¶¶ 92, 94.) It authorized the inclusion of all political subdivisions in the state. (Id. ¶ 92.) As in the previous MEGA bids, MEGA controlled all aspects of the bidding process and ultimately decided who was awarded the contracts. (Id. ¶ 93.) MEGA sought, among other things, bids for electric supply in the Central Hudson utility area, even though that area is nowhere near Genesee County. (Id. ¶ 95.) Genesee County awarded the electricity and natural gas contracts to Direct Energy. (Id. ¶ 96.)

         On January 23, 2013, Schiller called Klein to complain about Duthie and the Town's actions. (Id. ¶ 218.) Klein told Schiller not to make any complaints or file a grievance as doing so “would only make matters worse, ” which Schiller interpreted as a threat. (Id. ¶ 220.)

         In early February 2013, the City of Poughkeepsie (“Poughkeepsie”), which had previously worked with MEGA, engaged Plaintiffs to assist in the bidding of its electricity and natural gas awards. (Id. ¶ 97.) Poughkeepsie awarded a thirty-six month electricity contract to Liberty Power and a thirty-six month natural gas contract to Hudson Energy Services. (Id. ¶ 100.) Poughkeepsie's electricity and natural gas awards allowed for all political subdivisions in the Central Hudson utility area to piggyback off of the contract secured through Plaintiffs, but many were already enrolled in or were in the process of piggybacking off of the Genesee County agreements with Direct Energy from the recent December 2012 bid. (Id. ¶ 102.) Plaintiffs again assert that MEGA's piggybacks were illegal and that if they had somehow been invalidated, all municipalities that had chosen to piggyback with MEGA would necessarily have piggybacked on Plaintiffs' Poughkeepsie contract. (See Id. ¶¶ 55, 103.) Plaintiffs do not explain what stopped the municipalities that were in process with MEGA from switching to REG.

         By late 2013, Rockland County, Putnam County and Poughkeepsie had all, within a period of eight months, stopped working with MEGA and engaged Plaintiffs instead. (See Id. ¶ 105.) Plaintiffs allege that the Antitrust Defendants began to “target[]” them, “agreeing to take certain actions in order to protect [the Antitrust Defendants'] turf and . . . push Plaintiffs out of the relevant markets.” (Id. ¶ 106) (internal quotation marks omitted).

         On March 11, 2013, Schiller made a $500 political contribution to Town Councilman Daniel Friedman, a sitting member of the Town Board who was speaking out about corruption in the Town. (Id. ¶ 223.) Plaintiffs allege that the Former Town Defendants[14] and Duthie were aware of Schiller's contribution to Friedman and had a motive to silence Schiller and Friedman and to retaliate against Schiller. (Id.)

         Because he had been informed by Town officials that he was still the Town's energy consultant, in September 2013, Schiller worked to obtain new energy contracts for the Town. (Id. ¶ 225.) Unbeknownst to Schiller, Duthie met with Defendant Patrick O'Gara, a ConEd employee until approximately March 2014, and Defendant Stephen Wemple, the Vice President of Regulatory Affairs for ConEd. (Id. ¶¶ 10, 11, 225.) Duthie sent out a Request for Qualifications (“RFQ”) relating to energy supply which had not been authorized by the Town Board, and conferred with ConEd both before and after. (Id. ¶¶ 225-26.)

         In late October 2013, Klein and Michael Reilly, the Town Coordinator of Intergovernmental Relations, falsely informed Schiller that the Town Board had terminated REG's contract and authorized Duthie to proceed with executing the bidding process for the rates that were set to expire. (Id. ¶¶ 21, 227.) On October 25, 2013, Schiller spoke with Montal, who told him to proceed with procuring the renewal energy contracts and that she would address Duthie's unauthorized RFQ with Klein. (Id. ¶¶ 228-29.) That same day Schiller emailed O'Gara to notify him about the upcoming Town bid and invite ConEd to participate. (Id. ¶ 285.)

         On November 13, 2013, Schiller attended a Town Board meeting. (Id. ¶ 233.) Plaintiffs allege that the Town Board asked Schiller not to speak publicly but rather only in the executive session, and that Reilly accused Schiller of threatening to call the Federal Bureau of Investigation (“FBI”) on him. (Id. ¶¶ 233-34.) Plaintiffs allege that Klein said in the executive session that he had a proposal from ConEd that contained hidden and undisclosed fees for Schiller. (Id. ¶ 235.) The proposal was the email that Schiller had sent O'Gara at ConEd on October 25, 2013, which O'Gara had forwarded to Duthie and Duthie had then given to Klein. (Id. ¶¶ 235, 285.) Schiller complained to the Town Board that Duthie had issued an RFQ without authorization from the Town Board, that Duthie was trying to take over Plaintiffs' contract, and that ConEd should not have been speaking with Duthie or Town personnel before the bid. (Id. ¶¶ 234, 236.) On or about December 1, 2013, the Town's fixed energy rates (obtained in 2011 through Plaintiff REG) lapsed. (Id. ¶¶ 197, 238.) The contracts continued on a month to month basis, which triggered variable rates and substantial increases in cost. (Id. ¶ 238.) The Town wanted to renew the previous rates but wanted Duthie to handle the matter instead of Plaintiffs. (Id. ¶ 239.)

         On February 10, 2014, Schiller publicly stated at a Town Board meeting that the Town was paying extremely high rates because of the lapsed contract, and was told that the Town would not use REG or Duthie to negotiate new energy contracts. (Id. ¶¶ 242-43.) When Town Supervisor Christopher St. Lawrence said that he would be handling the rebidding of the contracts himself, Schiller responded that he would be hiring an attorney to sue the Town and that he had reported the Town's earlier actions to the FBI. (Id. ¶¶ 21, 243.)

         On February 20, 2014, Schiller again publicly addressed the Town Board about Klein's and Finkelstein's dishonesty, cronyism in the Town, and the impact the lapsed energy rates were having on taxpayers. (Id. ¶ 244.) On March 10, 2014, at a Town Board workshop, Councilman Friedman echoed these concerns. (Id. ¶ 245.) On March 13, 2014, an article entitled “Wasting Energy” appeared in the Rockland County Times detailing Schiller's interactions with the Town Board and the Town Attorney's Office. (Id. ΒΆ 246.) That day, Montal informed Schiller that St. Lawrence directed her to exclude Schiller from the process of renewing the energy rates because St. Lawrence was furious at Schiller for bringing the lapsed rates to the public's attention, providing documentation to Friedman to use in his March 10, 2014 speech, cooperating with the FBI, and giving negative comments to ...

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