Variable Rate Contract with a Price “Based on Business and Market Conditions” Not Actionable
December 9, 2020
On November 19, 2020, a Federal District Court in the Western District of New York issued an opinion (found here) in Nieves v. Just Energy New York Corp, No. 17-CV-561S, 2020 WL 6803056 (W.D.N.Y. Nov. 19, 2020) dismissing a putative class action based on a variable rate electricity contract. Plaintiff filed a Complaint for breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. The contract at issue stated in relevant part: “Changes to the Variable Rate will be determined by Just Energy according to business and market conditions…” Importantly, the contract did not delineate any specific business and market conditions but rather left the phrase undefined.
In analyzing the breach of contract claim, the Court held that Plaintiff’s assertion that “market conditions” meant wholesale prices paid by Defendant and its competitors’ charges was a conclusory allegation. Instead, the Court ruled, “[t]hese conditions may include wholesale electricity costs and what Defendant’s competitors are charging, but these conditions may also include incidental expenses, marketing, and the desired profit margin for Defendant’s investors. Nothing in the text of the provision mandates particular items as business or market conditions.” The Nieves Court relied on Richards v. Direct Energy Servs., LLC, 915 F.3d 88, 97 (2d Cir. 2019). In that case, the Court of Appeals affirmed summary judgment for the Defendant on a variable rate contract that stated “[t]he rate may be higher or lower each month based upon business and market conditions.” The Nieves Court also analyzed other variable rate cases denying motions to dismiss and differentiated them because the contractual language had definitions for business and market conditions (e.g., wholesale costs, transportation, distribution, actual and estimated supply costs that may include but not be limited to prior period adjustments, inventory, and balancing costs).
For more information or to discuss these developing issues, please contact Charles A. Zdebski at 202.659.6655 (czdebski@eckertseamans.com), Deanne M. O’Dell at 717.255.3744 (dodell@eckertseamans.com), or Jeffrey P. Brundage at 202.659.6676 (jbrundage@eckertseamans.com).