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Mirkin v . XO OM Energy , LLC 1 

## I nthe 2 

# U ni t e d S t at e s Cour tofA p pe al s 3 

## For the Secon d Circu it 4 5 6 August Term 2018 7 8 No. 18-3138 9 10 S U S A N N A M I R K I N , I N D I V I D U A L L Y A N D O N B E H A L F O F A L L O T H E R S S I M I L A R L Y 11 S I T U A T E D A N D B O R I S M I R K I N , I N D I V I D U A L L Y A N D O N B E H A L F O F A L L O T H E R S 12 S I M I L A R L Y S I T U A T E D , 13 14 Plaintiffs-Appellants, 15 16 v. 17 18 XOOM E N E R G Y, LLC A N D XOOM E N E R G Y N E W Y O R K, LLC , 19 20 Defendants-Appellees. 21 22 23 Appealfrom the Uni ted States Di stri c tC ourt 24 for the Eastern Di stri ct of New York 25 No. 18-cv-2949, Al l yne R. Ross, Di stri c t Judge, Presi di ng. 26 (Argued June 11, 2019; Deci ded Jul y 26, 2019)

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Mirkin v . XO OM Energy , LLC 1 Before: NEWMAN, POOLER, and PARKER, C ircuit Judges . 2 3 Pl ai nt i ffs brought a purported cl ass a cti on agai nst defendants al l egi ng that 4 they had breached a customer agreement by fai l i ng to set thei r el ectri ci ty rates 5 a c c o rdi ng to thei r actual or esti mated suppl y costs. The compl a i nt i ncl ud e d 6 cal cul ati ons showi ng that defendants’ rate s s ub s tanti al ly exceeded the market 7 suppl y cost o f whol esal e energy. The Uni ted States Di stri c t C o urt for the Eastern 8 Di stri c t of New York ( Ross, J. ) di smi ssed the compl ai nt u n d e r Rul e 12(b)(6), 9 reasoni ng that customers had no way of determi ni ng defendants’ suppl y costs, as 10 rate-setti ng was a purel y i nternal company acti vi ty. By post-judgment moti on 11 pursuant to Rul es 59(e) and 60(b), pl ai nti ffs sought l eave t o amend. The Di stri ct 12 C ourt deni ed pl ai nti ffs l eave t o amend thei r compl ai nt, reasoni ng that i t wo ul d 13 be futi l e. We A FFIRM i n part, RE VE RSE in part, and RE MAND . 14 15

________ 16 17 18 J. B U R K E T T M C I N T U R F F ( Steven L . W i tt el s & Ti asha Pal i kovi c, 19 on the brief ), Wi ttel s L a w , P.C ., Armonk, NY, for Plaintiffs20 Appellants . 21 22 D A V I D R. KO T T (C hri stopher A. Rojao, on the brief ), McC arter & Engl i sh, LLP, Newark, NJ, for Defendants-Appellees . 23 24 25

________

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Mirkin v . XO OM Energy , LLC 1 BARRINGTON D. PARKER, Circuit Judge : 2 Susanna and Bori s Mi rki n (the “Mi rki ns”) sued X OOM Energy, L L C a n d 3 XOOM E nergy New York, LLC ( c ol l ecti vel y, “ XOOM”) i n New York state court 4 for breach of contract, breach of th e i m p l i ed covenant of good fai th and f ai r 5 d e a l i ng, and unjust enri chment. 1 XOOM then removed the a cti on to federal 6 co u rt. The Uni ted States Di stri ct C ourt for the Eastern Di stri ct o f New York 7 (Ross, J. ) di smi ssed the M i rki ns’ compl ai nt (the “C ompl ai nt”) under Federal Rul e 8 of C i vi l Procedure 12(b)(6) and deni ed th e Mi r ki ns’ post-judgment request, made 9 pursuant to Rul es 5 9(e) and 60(b), for l eave to am e n d

. Because w e concl ude that 10 the Mi rkins shoul d have been al l owed to amend thei r C o m p la i n t, a nd thei r 11 C ompl ai nt a nd proposed amended compl ai nt (the “PAC ”) stated pl ausibl e 12 cl a i ms for breach o f co n t r a c t, w e reverse the judgment of the Di stri ct C ourt i n 13 part and remand for further proceedi ngs consi stent wi th thi s opi ni on. 14 BACKGROUND 15 The C ompl ai nt al l eges a number o f f a c t s rel a ted to the New York energy 16 market. Speci fi c al ly, i n 1996, the m a r k e t w a s deregul ated, and in the wake of the 17 deregul ati on, thi rd-party energy servi c es compani es (“ESC O s ” ) began competi ng

1 The di smi ssa l o f the i mpl i ed co v enant and unj ust enri chment cl a i ms i s no t cha l l enged o n a ppea l

. A cco rdi ngl y, we a ffi rm the Di stri ct Co urt’s di smi ssa l o f tho se cl a i ms. 31 8 -3 13 8

Mirkin v . XO OM Energy , LLC 1 wi th tradi ti onal u t i l i ti es. These ESC Os o perate as commodi ty brokers or 2 mi ddl emen. They do no t g e n e r ate or del i ver el ectri ci ty; they si mpl y buy 3 el ectri c i ty from u ti l i ty compani es that generate i t a nd resel l i t to consumers. 4 Uti l i ty c ompani es then ul ti matel y del i v er the el ectri ci ty to c o n s um e rs. The 5 Mi rki ns a l l e g e that the busi ness practi ces of ESC Os have come under i ntense 6 sc r u t i n y from regul a tors a s a consequence of qu esti onabl e busi ness practi ces. 7 Accordi ng to the C ompl ai nt, i n December 2016, fol l owi ng a fl ood of consumer 8 compl a i nts and negati ve medi a reports, the New Y ork State Publ i c Servi ce 9 C ommi ssi on (“PSC ”) permanentl y prohibi ted ESC Os from servi ng l o w-i ncome 10 customers. C ompl . ¶ 36. 11 The C ompl ai nt ci t es to the PSC ’s March 2018 co n c lu s i ons that “ESC O 12 cu stomers have become the vi cti m s of a fai l ed m arket structure that resul ts i n 13 customers bei ng f ool ed by adverti si ng and marketi ng tri cks i nto payi ng 14 substan t i a l l y more for commodi ty servi ce than [i f] they had remained ful l uti l i ty 15 custom e r s , y e t thi nki ng they are getting a better d eal .” I d. ¶ 37. The PSC 16 expl ai ned that the pri m ary probl em w i th ESC Os i s “ the overchargi ng of 17 customers for [a] commodi ty due to the l ack o f transparency . . . o n E SC O pri ces 18 and products,” whi ch “al l o ws ESC Os to charge customer s p r acti cal l y whatever

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Mirkin v . XO OM Energy , LLC 1 they want.” Id. The PSC al so concl u ded that “ESC O s take advantage of the mass 2 market customers’ l ack of knowl edge and understandi ng of, among oth e r i ssues, 3 th e e l e c t ri c and g as c ommodi ty markets, commodi ty pri ci ng, . . . contract 4 terms . . . and i n parti cul ar, the ESC Os’ use of teaser rates and ‘market based rate’ 5 mechani sms that customers are charged after the teaser rate expi res.” I d. 6 The parti es do not di spute that XOOM, whi ch suppl i es resi denti al 7 el ectri c i ty to thousands of New York househol ds, operates l i ke a typi cal ESC O 8 and markets i tsel f as such. Oral Arg. R. at 13 : 5 9

– 1 4 :10 (concedi ng that XOOM 9 operates essenti a l l y as a commodi ty broker or mi ddl eman); s ee also PAC ¶¶ 48–49 10 (quoting What is Energy Deregulation? , XOOM Energy, https://xoomenergy.com/ e 11 n/what-i s-deregul ati o n (l ast vi si t ed Jul y 23, 2019) (expl ai ni ng X OOM’s 12 mi ddl eman rol e and conf i r m ing that i t does not generate or del i ver el ectri ci ty) 13 [herei nafter “XOOM Websi te”]; Frequently Asked Questions , X O O M Energy, 14 https:// x oomenergy.com/ en/ faq (l ast vi si t ed Jul y 23, 2019) (“A v a ri abl e rate pl an 15 al l o w s y ou to purchase g as at market-based prices that change from month to 16 month.” (emphasi s added))). The Mi rki ns al l ege that, l i ke other ESC Os , XOOM 17 attracts customers wi th l ow i ntroductory rates. Upon the e x p irati on of these 18 rates, customers are then charged vari abl e rates.

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Mirkin v . XO OM Energy , LLC 1 In March 2013, the Mi rki ns entered i nto a customer agreement (the 2 “Agreement”) wi th XOOM. The A g r e e m e n t set forth the basi s upon whi ch rates 3 woul d be determi ned as fol l ows: 4 Your r a te for energy purchases wi l l be a vari abl e rate, per kWh, that 5 may change on a monthl y basi s, pl us taxes and fees, i f a ppl i cabl e. 6 Your month ly v a ri abl e rate i s based on XOOM’s actual and estimated 7 sup p l y c o s ts whi ch may i ncl ude but not be l i mi ted to pri or peri od 8 adjustments, inventory and bal anci ng costs. 9 App’x a t 29 (emphasi s added). The M i rki ns remai ned customers of XOOM f or 10 s i x months before di sconti nui ng the arrangement because of thei r d i ssati sfacti o n 11 wi th the rates they were charged after the expi rati on of the teaser rate. 12 The Mi rkins sued X OOM for breachi ng the Agreement, al l egi ng that 13 XOOM di d not base i ts rates on i t s suppl y c o sts. Wi th th e h e l p of an energy 14 expert, the Mi rki ns cal cul ated the market cost for suppl yi ng whol esal e energy 15 (the “Market Suppl y C o s t”) based on publ i cl y avai l abl e data provi ded by the 16 N e w York Independent System Operator (“NYISO”), accounti ng for anci l l a r y 17 servi ces costs, capaci ty costs, renewabl e portfol i o standard costs, and vari ous 18 charges rel ated t o the NYISO. The Mi rki ns’ cal cul a ti ons, set forth i n th ei r 19 C ompl ai nt, are as fol l ows:

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Mirkin v . XO OM Energy , LLC 1 Peri od X OOM Rate M arket Suppl y C ost Di fference i n % 2 5/ 10/2 013 - 6/ 1 1/2013 9 .39 (teaser) 11.03 -14.87% 3 6/ 11/2 013 - 7/ 1 1/2013 12.50 11.89 5.13% 4 7/ 11/2013 - 8/ 9/2013 15.05 12.36 2 1.76% 5 8/ 9/2013 - 9/ 10/2013 15.55 10.1 5 3.96% 6 9/ 10/2 013 - 10/ 8/2013 14.79 10.12 4 6.15% 7 10/ 8/2 013 - 11/ 7/2013 15.57 9.82 5 8.55% 8 C ompl

. ¶ 4 7. The Mi rki ns al l ege tha t, a c c o r d ing to thei r cal cul ati ons, X OOM’s 9 rates substanti a l l y exceeded the Market Suppl y C ost and conti nued to ri se even 10 when the Market Suppl yC ost went down. 11 XOOM moved to di smi ss the C o m p l a i nt for fai l ure t o state a c l ai m under 12 Rul e 12 ( b ) (6). The Di stri ct C ourt granted the moti on, reasoni ng that the 13 Agreement’s reference to actual or esti mated suppl y costs “ makes X OOM’s 14 rate-setti ng d eci si ons an i nternal acti vi ty.” Mirkin v . X OOM Energy, LLC , 342 F. 15 Supp. 3d 320, 328 (E.D.N.Y. 2018). In o ther words, a ccordi ng to the Di stri ct 16 C ourt, the A g r e e m ent al l ows XOOM t o set rates at i ts di screti on because 17 “[c]ustomers—at l ea st those wi thout any background in the el ectri ci ty market or 18 the numerous factors that may d etermi ne the costs of an i ndi v i dual el ectri ci ty 19 provi der—woul d have no basi s for predi cti ng XOOM’s a c tu a l or esti mated 20 costs.” Id. Thi s concl usi on di sregarded pl ausibl e al l egati o ns i n the C ompl ai nt. 71 8 -3 13 8

Mirkin v . XO OM Energy , LLC 1 Addi ti onal l y, the Mi rki ns submi tted the PAC, addi ng a n u mb e r of 2 a l l egati ons ai med at remedyi ng the Di stri ct C o urt’s concerns about th e 3 C ompl ai nt. The Mi rki ns sought l eave to fi l e the P A C , w h i c h was attached to a 4 postjudgment moti o n pursuant t o Rul es 59(e) a n d 6 0 (b). The Di stri ct C ourt 5 deni ed them l eave to a mend, reasoni ng, inter alia , that the amen d m ent woul d be 6 futi l e for the same reasons i t had i ni ti al l y di smi ssed the C ompl ai nt. App’x at 113. 7 We al so di sagree wi th thi s concl usi on concerni ng the PAC

. 8 DISCUSSION 9 T h i s C ourt “revi ew[s] de novo the grant of a moti on to di smi ss under Rul e 10 12(b)(6), accepti ng as true the factual al l egati ons i n the compl a i nt a nd drawi ng a l l 11 i nferences i n the pl ai nti ff’s favor.” Scutti Enters., LLC v . Park Place Entm’t Corp. , 12 322 F .3d 211, 2 14 (2d C i r. 2 003). To survi ve a moti on to di smi ss, a pl ai nti ff must 13 al l ege “enough facts to state a cl ai m to rel i ef that i s pl ausibl e on i ts face.” Bell Atl. 14 Corp. v. T

w o m b ly, 550 U.S. 544, 570 (2007); see also Erickson v. P a rdus , 551 U.S. 89, 15 93 (2007) (“Speci fi c facts a re not necessary; the statement need o nl y gi ve the 16 d e f e ndant fai r noti ce of what the

. . . cl ai m i s a nd the grounds upon whi ch i t 17 rests.” (al terati on i n ori gi nal )).

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Mirkin v . XO OM Energy , LLC 1 The Di stri ct Court di smi ssed the C ompl ai nt because i t concl uded that the 2 A g reement di d “not i ncorporate any references to external rates or market 3 pri ces” and therefore “provi des customers wi th no cl e a r f o rmul a for the 4 cal c u l a t io n o f i t s costs.” XOOM, 342 F. Supp. 3d a t 328. Thus, a ccordi ng to the 5 Di stri c t C ourt, there i s no way the Mi rkins c oul d s u c c essful l y state a cl ai m 6 wi thout detai l ed i nformati on on the i nternal costs and rate-setti ng processes to 7 whi ch onl y XOOM i s pri vy. 8 In hol di ng the C o m p l a i n t i nsuffi c i ent and the moti on to fi l e the PAC futi l e, 9 the Di stri ct Court fai l ed to accept as tru e p l a u s ibl e al l egati ons i n the C ompl ai nt 10 and the PAC . As an i ni ti a l matter, X O O M concedes that i t operates a s a 11 commodi ty broker o r mi ddl eman and d o e s not generate or del i ver el ectri ci ty. 12 O r al Arg. R. at 13:59–14:10. R ather, i t purchases energy “from whol esal e 13 markets” a n d r e s e l l s that energy to i ts customers. PAC ¶ 48 (quoting XOOM 14 Websi t e). C onsi stent wi th th i s concessi o n, the M i rki ns pl ausibl y al l ege that 15 “[t]he c o s t o f whol esal e energy i s the pri mary component of the non-overhead 16 costs X O O M i n c u r s.” C ompl

. ¶ 51. We must therefore draw the reasonabl e 17 i nference f r o m the C ompl ai nt and the PAC that XOOM’s actual or esti mated 18 suppl y costs shoul d track the Market Suppl y C ost.

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Mirkin v . XO OM Energy , LLC 1 The Mi rki ns have al l eged, wi th the support o f the expert cal cul ati ons 2 i ncl uded i n the C ompl a i nt and th e P A C , that XOOM’s rates showed si gni fi cant 3 upward devi ati ons from the M a r k e t S uppl y C ost and conti nued to ri se even 4 when that cost fel l

. These al l egati ons a re suffi ci ent to state a cl ai m for breach of 5 contract, as XOOM promi sed to base i ts rates on i ts s u p p l y costs a nd the Mi rki ns’ 6 al l egati ons and cal cul ati ons pl ausibl y al l ege that thi s d i d n ot occur. Notabl y, 7 XOOM fai l ed, i n i ts bri efs and a t o r a l a r gument, to cast doubt on the pl a usibi l i ty 8 o f these al l egati ons si mpl y by poi nti ng to a si ngl e factor that coul d cause su c h 9 substanti aldevi ati o ns from the Market Suppl y C ost i n just a few months. 10 The Di str i c t C ourt al so suggested that the Mi rkins “fabri c ated” thei r 11 cal cul ati ons. XOOM, 3 42 F. Supp. 3d at 3 29. We see n o s u pport for thi s asserti on 12 i n the C o mpl a i n t o r th e PAC . On the contrary, i n approxi mating the Market 13 Suppl y C o s t, the Mi rki ns rel i ed on publ i c ly avai l abl e NYISO d ata, whi ch i s 14 mandated by state and federal regul ati ons and updated frequentl y to account for 15 changes across ti me and l ocati o n . P A C ¶ 53; A ppel l ant’s Br. a t 30, 34. At the 16 pl eadi ng stage, rel yi ng on thi s sour c e o f i nformati on i s suffi ci ent to set forth a 17 pl ausibl e al l egati on of breach of contract.

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Mirkin v . XO OM Energy , LLC 1 For si mi l ar reasons, the Di stri ct C ourt erred in denyi ng th e M i rki ns l eave 2 to a mend thei r C ompl a i nt. Notwi thstandi ng the fact th a t the Compl a i nt was 3 suffi ci ent to state a cl ai m for breach of contract, the P AC shoul d have a l l a y e d a ny 4 concerns the Di stri ct C ourt had ab o ut the pl ausibi l i ty of the Mi rki ns’ al l egati ons. 5 Fi rst, the M i rki ns speci fi cal l y al l eged i n the P AC that “the who le s a le cost of 6 energy makes u p o ver 90% of [XOOM’s] s uppl y costs.” PAC ¶ 4 . Second, the 7 Mi rki ns al l eged that “XOOM purchases i ts e n e r gy ei ther di rectl y from the 8 [NYISO] or pursuant to an a greement[] that ti es XOOM’s suppl y c osts to pri ces 9 i n th e NYISO whol esal e m arket.” Id. ¶ 47. Indeed, the Mi rki ns al l eged that 10 X O O M w a s l i sted on NYISO’s Annual Report as a “market parti ci pant” duri ng 11 the y ear i n whi ch i t suppl i ed the M i r k i n s wi th el ectri ci ty. Id. Thi rd, the Mi rki ns 12 attached thei r expert’s cal cul ati ons and expl ai ned, i n d etai l, the vari abl e s u s e d to 13 determi ne the Mark e t S up p l y C ost. Id. ¶ 53; App’x at 103. Rel atedl y, they 14 al l eged th at “al l components of the whol esal e cost of el ectri ci ty are objecti vel y 15 d e termi nabl e and mandated by regul ati on.” P AC ¶ 53. Fi nal l y, the Mi rki ns 16 presented a new data tabl e demonstrati ng that XOOM’s rates devi ated fr o m the 17 rates char g ed by C on Edi son, 2 the l eadi ng New York C i ty el ectri c uti l i ty

2 Beca use uti l i ty co mpani es li ke Co n Edi so n pa rti ci pa t e o n the who l esa l e energy ma rket, thei r ra tes a re a n o th er refl ecti o n o f the M a rket S uppl y Co s t. PA C ¶ 6 0 . 111 8 -3 13 8

Mirkin v . XO OM Energy , LLC 1 compa n y, b y u p to si xty percent, and conti nued to ri se even when C on E di son’s 2 rates fel l

. Id. ¶ 61. We c o n c l u d e that, l i ke the C ompl ai nt, the PAC pl ausibl y 3 stated a cl ai m for breach of contract. 3 4 The Mi rki ns sought to present thei r PAC by moving to al ter o r a m e nd the 5 judgment under Rul e 5 9 ( e ) o r al ternati vel y to secure rel i ef from the judgment 6 under Rul e 60(b). In Williams v. Citigroup Inc. , we r e v e r s ed a d i stri ct court’s 7 deni al of Rul e 59(e) and Rul e 60(b) m oti ons made by a pl ai nti ff w h o , l i ke the 8 Mi rki ns, sought t o amend i ts di smi ssed compl ai n t. 6 5 9 F .3d 2 08, 214 (2d C i r. 9 2011). The Di st r i ct C ourt, we concl uded, had “ overemphasi z ed c o nsi derati ons of 10 fi nal i ty at the expense of the l iberal amendment pol i cy embodi ed i n the F ederal 11 Rul es of C i vi l P rocedure.” Id. at 2 10. We noted th a t th e Supreme C ourt’s l eadi ng 12 deci si on al l owi ng amendment of a compl ai nt, Fo m a n v . Davis , 371 U.S. 178 (1962), 13 al so i nvol ved a post-judgment moti o n. S e e W i l l i a m s , 659 F.3d at 214. Here, too,

3 Our deci si o n i n Rich ard s v. Direct Energy Serv ices, LLC , 91 5 F.3 d 8 8 (2 d Ci r. 20 1 9), do es no t co mpel a di fferent resul t. There, we were a sked t o determi ne the i mpo rt o f the fo l l o wi ng co ntra ctua l pro v i si o n i n an a greement be t w e e n an ES CO, D i rect Energy S erv i ces, LLC, and a co nsumer: “ A fter the Ini tia l Term and duri ng th e R enewa l P eri o d, the ra te fo r el ectri ci ty wi ll b e v a ri ab l e ea ch mo nth a t Di rect Energy’s di screti o n. The ra te m a y b e hi gher or l o wer ea ch m o nth b a sed upo n b usi ness and ma rket co ndi ti o n s.” Id . a t 9 4 . The co nsumer s u ed, pri nci pa l l y a l l egi ng “ tha t Di rect Energy b rea ched its co nt ra ct . . . b y no t peggi ng i ts v a ri ab le ra te to Di rect Energy’s pro curement co sts.” Id . a t 9 2 ; see also id . a t 1 0 0 . Our Co urt co ncl u ded tha t the b rea ch o f co ntra ct theo ry co ul d no t stand. Whi l e the co nsumer-pl a i nti ff’s b rea ch o f co ntra ct theo ry in Rich ard s wa s i denti ca l , o r a t lea st nea rl y i denti ca l , to the o ne the M i rki ns no w a dv ance, the rel ev ant co ntra ctua l pro v isi o ns a re cri ti ca l l y di fferent. The A greement requi red XOOM t o b a se i ts v a ri ab l e ra tes o n i ts suppl y co s ts. I n co ntra s t, th e co ntra ct i n Rich ard s , b y i ts pl a i n terms, i mpo sed no s u c h r e qui rement; the rel ev ant pro v i s i o n there ma de no m enti o n o f pro curement co sts. In l i ght o f thi s cruci a l di fference, Rich ard s do es no t co ntro l the o u tco me o f thi s a ppea l

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Mirkin v . XO OM Energy , LLC 1 we concl ude th a t the Di stri ct C o urt shoul d have accepted the PAC, 2 notwi thstandi ng i ts presentati on after judgment was entered. We therefore 3 re verse the judgment to the extent that i t d eni ed the moti ons under Rul es 59(e) 4 and 6 0 ( b ) , di rect that the pl ai nti ffs may fi l e thei r PAC, and affi rm di smi ssal of 5 thei r cl a i ms for breac h o f th e i mpl i ed covenant of g ood f ai th and f ai r deal i ng and 6 for unjust enri chment, whi ch have not been pursued on appeal

. 7 CONCL USION 8 For the reasons set forth, we AFFIRM i n part, R E VE R SE i n p a rt, and 9 RE M AND wi th di recti on to permi t the Mi rki ns to proceed on thei r PAC .

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