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Hamlen v. Gateway Energy Services Corp.

United States District Court, S.D. New York

December 8, 2017



          Judith C. McCarthy United States Magistrate Judge

         Plaintiff Robert Hamlen ("Hamlen") commenced this putative class action against Defendant Gateway Energy Services Corporation ("Gateway"), alleging that Gateway overcharged thousands of New Jersey customers for natural gas. In his original complaint, Hamlen asserted claims against Gateway for (1) violations of the New Jersey Consumer Fraud Act ("NJCFA"), N.J. Stat. Ann. §§ 56:8-1 to -20; (2) breach of contract; (3) breach of the implied covenant of good faith and fair dealing; and (4) unjust enrichment. (Docket No. 1). Gateway moved to dismiss the complaint in its entirety pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Docket No. 14). United States District Judge Vincent L. Briccetti granted Gateway's motion in part, dismissing all of Hamlen's claims, except for his claim for breach of the implied covenant of good faith and fair dealing. (Docket No. 28). Presently before the Court is Hamlen's motion for leave to file an amended complaint.[1] (Docket No. 56). Hamlen seeks to amend his complaint in two ways: first, by re-pleading his previously-dismissed claims for breach of contract and violations of the NJCFA; and, second, by adding Direct Energy Services, LLC ("Direct Energy") as a defendant. For the reasons set forth below, Hamlen's motion is granted in part and denied in part.

         I. BACKGROUND

         A. The Original Complaint

         On May 11, 2016, Hamlen filed his original complaint (the "Complaint" or "Compl.") on behalf of a putative class of New Jersey natural gas customers. (Docket No. 1). The following summary is based on the facts alleged in the Complaint.[2]

         Hamlen is a New Jersey citizen who purchased natural gas from Gateway between November 2010 and January 2016. (Compl. ¶¶ 5, 19). Gateway is a New York corporation that sells natural gas to commercial and residential customers in New Jersey and other areas. (Compl. ¶¶ 6-7). Gateway has thousands of customers in New Jersey and "tens of millions of dollars in combined revenues." (Compl. ¶ 6). The natural gas offered by Gateway is a commodity that has the exact same qualities as natural gas supplied by other independent energy companies or local utilities. (Compl. ¶ 30).

         In September 2010, Hamlen was a customer of New Jersey Natural Gas ("NJNG"), a different retailer, when he spoke with Gateway's representative via telephone. (Compl. ¶¶ 15, 19). The representative recited Gateway's standard sales pitch for its variable-rate natural gas plan, stating "your price of. .. natural gas will be a variable rate set by Gateway Energy based on market conditions and will fluctuate monthly." (Compl. ¶ 15). Subsequent to this conversation, Gateway provided Hamlen with a copy of its "New Jersey Residential Terms & Conditions" (the "Contract"), which is attached to the Complaint as Exhibit A. (Compl. ¶ 16).

         Three clauses in the Contract are particularly relevant to this case. First, the "Variable-Rate Plan" clause provides:

The price for all electricity or natural gas sold under our Variable-Rate Plan is a rate set by us each month based on our evaluation of a number of factors that affect the total price of electricity or natural gas to a customer. The following description is not exhaustive of all factors that may influence our pricing decision each month, but it does describe the major components that influence our analysis in a typical month. Each month our management uses the information described below, along with numerous other considerations, to determine how low a price we can charge in the upcoming month.
• We determine the cost of all electricity or natural gas (including, where applicable, transmission costs, storage costs, transportation costs and line losses) that we have already obtained for delivery to customers in your utility territory for the upcoming month. Because we often acquire supply over time in preparation for future delivery needs (in an effort to mitigate the volatility in price) and do not acquire all of our required electricity or natural gas from the spot market, our supply costs may not directly follow spot market prices.
• If additional supplies of electricity or natural gas will be required for the upcoming month, we will determine the anticipated cost to acquire such additional supplies from the spot market.
• If we expect to have surplus supply for the upcoming month, we evaluate the expected income we may receive from selling the surplus. Additionally, with electricity, we may expect to have surplus or shortfall in any given hour of the upcoming month. In this case, we evaluate the expected income or costs that may be incurred by eliminating the surplus or shortfall.
• We evaluate, if known, the prices that your utility and other competitors in your area plan to charge in the upcoming month.
• We evaluate the amount of profit we hope to earn from the sale of electricity or natural gas in your utility territory.
• We evaluate any taxes that must be included in the rate we charge for electricity or natural gas in your jurisdiction.
• From time to time, and as a direct result of sudden or drastic increases in price, we may experience a higher level of cost to supply our customers than we wish to bill our customers in a single period. In these circumstances, we may amortize this expense to our customers over multiple billing cycles.

(Compl. Ex. A). For convenience, this Opinion and Order refers to the seven bullet-pointed items in the Variable-Rate Plan clause as the "Listed Factors."

         Second, the "No Warranties" clause provides:

We provide no warranties, express or implied, and we specifically disclaim any warranty of merchantability or fitness for a particular purpose. Additionally, unless expressly stated otherwise on your Enrollment Consent, we specifically disclaim any warranty or guaranty that the price charged by us for the energy supplied pursuant to the Agreement will be lower than the price that you would have been charged by the utility or another third-party supplier.


         Third, the "Governing Law" clause provides that the Contract "is made and shall be construed in accordance with the laws of the State of New Jersey." (Id.).

         Hoping to lower his natural gas bill, Hamlen switched from NJNG to Gateway in November 2010. (Compl. ¶¶ 19, 30). However, Gateway charged rates that were substantially higher than other independent energy retailers or local utilities. (Compl. ¶ 14). Gateway's rates were higher than NJNG's rates every month for a four-and-a-half year period while Hamlen was Gateway's customer. (Compl. ¶ 20). Some months, Gateway's rates were more than double NJNG's rates. (Id.). Gateway often increased its rates during periods when wholesale and NJNG's rates decreased. (Compl. ¶¶ 23-24).

         B. Gateway's Prior Motion to Dismiss

         On July 6, 2016, Gateway filed a motion to dismiss. (Docket Nos. 9-10). The next day, Judge Briccetti issued an Order, sua sponte, granting Hamlen leave to file an amended complaint and stating that, "[i]f plaintiff elects not to file an amended complaint, the motion to dismiss will proceed in the regular course and, absent special circumstances, no further opportunities to amend will be granted." (Docket No. 12), On July 15, 2016, Hamlen declined the opportunity to file an amended complaint. (Docket No. 13).

         On March 6, 2017, Judge Briccetti issued an Opinion and Order (the "MTD Decision") granting in part and denying in part Gateway's motion to dismiss. (Docket No. 28). Familiarity with the MTD Decision is assumed. In short, the court found that the Complaint provides only conclusory allegations that Gateway failed to base its rates on its cost for natural gas or market conditions. (Id. at 6). Regarding Hamlen's breach of contract claim, the court held that the Contract expressly grants Gateway discretion to set rates based on other factors and that allegations regarding those factors are not present in the Complaint. (Id. at 7). Regarding Hamlen's NJCFA claim, the court found that Hamlen agreed to allow Gateway discretion in setting the rate for natural gas without a promise of a rate lower than competitors' rates. (Id. at 5-6). The court concluded that Gateway's decision to exercise its discretion to set rates higher than other providers is not a sufficiently "substantial aggravating" circumstance to state a valid NJCFA claim. (Id. at 6).

         C. The Proposed Amended Complaint

         On May 24, 2017, after the MTD Decision was issued, Hamlen deposed Gateway's corporate representative, Mr. Cullen Hay, pursuant to Rule 30(b)(6) of the Federal Rules of Civil Procedure. (See Docket Nos. 64-1 ¶ 6; 67-1 ¶ 2).[3] On August 16, 2017, Hamlen moved for leave to file an amended complaint, (Docket No. 56), attaching to his motion a copy of the proposed amended complaint (the "Amended Complaint" or "Am. Compl.") as Exhibit 1, (Docket No. 56-1). The ...

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