Kantor v. Hiko Energy, LLC.

• Decision Date: 14 April 2015
• Docket Number: Civil Action No. 14–5585.
• Citation: 100 F.Supp.3d 421
• Parties: Michael KANTOR, On Behalf of Himself and All Others Similarly Situated v. HIKO ENERGY, LLC.
• Court: U.S. District Court — Eastern District of Pennsylvania

100 F.Supp.3d 421

Michael KANTOR, On Behalf of Himself and All Others Similarly Situated

v.HIKO ENERGY, LLC.

Civil Action No. 14–5585.

United States District Court, E.D. Pennsylvania.

Signed April 14, 2015.

Kenneth J. Grunfeld, Richard M. Golomb, Steven D. Resnick, Golomb & Honik PC, Philadelphia, PA, for Michael Kantor.

Andrew Dressel, William D. Marsillo, Boies, Schiller & Flexner LLP, Armonk, NY, Ginene A. Lewis, Drinker Biddle & Reath, Philadelphia, PA, Vincent E. Gentile, Drinker Biddle & Reath LLP, Princeton, NJ, for Hiko Energy, LLC.

MEMORANDUM OPINION

SAVAGE, District Judge.

In this putative class action complaining of the tactics used to lure customers by competitors in the deregulated electricity supply market, the significant issue presented is whether claims under the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) are barred by the Pennsylvania economic loss doctrine. Stated differently, are we bound by the Third Circuit's predictive holding in Werwinski v. Ford Motor Co., 286 F.3d 661 (3d Cir.2002), that statutory fraud claims may not be brought with a contract action? We conclude that because the Pennsylvania courts have since ruled to the contrary, Werwinski no longer has precedential effect. Therefore, we hold that fraud claims brought under the UTPCPL are not barred by the economic loss doctrine.

The plaintiff Michael Kantor (“Kantor”) claims that the defendant Hiko Energy, LLC (“Hiko”), an electricity supply company, deceived him and other consumers. According to Kantor, Hiko enticed electricity customers to switch from their providers to Hiko by promising them competitive market-based rates and savings on their energy bills. The customers initially paid lower rates for a short time; but, despite Hiko's promise, they later paid higher rates than they would have if they had stayed with their original providers.

Background¹

Pennsylvania deregulated the supply of energy to its citizens in 1996. As a result, consumers may now purchase energy, such as gas and electricity, from an energy service company of their choice. Consumers are no longer required to purchase energy from local energy providers.²

Hiko, a New York limited liability company, is an electricity supplier licensed to do business in Pennsylvania.³ Hiko solicits customers directly. In 2012 and 2013, Kantor received several solicitations from Hiko. The mailings represented that customers would save money on their electricity bills by switching from their local utility companies to Hiko. Kantor later visited Hiko's website, which similarly represented that its customers would save on their energy bills.⁴

Hiko salespersons also advised potential customers that they would save money by switching to Hiko. These representatives promised potential customers that they would save a certain percentage on their monthly bills.⁵

In February of 2013, Kantor submitted an application to switch to Hiko from PECO, his local energy provider. He became a Hiko customer in March of 2013.⁶ Until February of 2014, Kantor's Hiko rate was competitive with the PECO rate. In February of 2014, the Hiko rate nearly tripled, going from 0.096723 per kilowatt hour in January of 2014 to 0.289000.⁷

From March 2013 to April 2014, Hiko charged Kantor substantially more than he would have paid had he stayed with PECO. Kantor switched to Hiko in reliance on the promise that he would be charged less for electricity. Kantor alleges that he would not have switched to Hiko had he known that he would be charged “substantially higher” rates. After paying the higher than promised rates for months, Kantor cancelled his Hiko service and switched back to PECO.⁸

In June 2014, the Pennsylvania Attorney General, via the Bureau of Consumer Protection and the Office of the Consumer Advocate, filed a joint complaint with the Pennsylvania Public Utility Commission (“PUC”) against Hiko.⁹ The PUC complaint alleges that Hiko lured customers with false promises of guaranteed savings.¹⁰ Specifically, the PUC complaint alleges that Hiko made deceptive and misleading promises of savings to potential customers in violation of the UTPCPL (Count I); switched customers to Hiko without their consent, known as slamming (Count II); handled customer complaints improperly and in bad faith (Count III); failed to provide rate information (Count IV); failed to provide accurate price information (Count V); charged prices that were unrelated to the variable rate outlined in the Customer Disclosure Statement (Count VI); violated state law by basing service decisions on potential customers' credit scores (Count VII); and failed to comply with the Telemarketer Registration Act (Count VIII).¹¹

The PUC complaint seeks revocation of Hiko's license to do business in the state and imposition of civil penalties. It also asks the PUC to order Hiko to pay restitution to its customers, stop making deceptive price guarantees, cease switching customers to Hiko without consent, implement appropriate customer dispute procedures, and otherwise comply with state law.¹²

On September 29, 2014, Kantor, on behalf of himself and a class of similarly situated plaintiffs, filed his class action complaint. The complaint asserts three causes of action. Kantor avers that Hiko violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”)¹³ by misrepresenting that its energy rates would be based on market factors and result in savings to customers (Count I); breached its contract and the implied covenant of good faith and fair dealing by failing to charge a reasonable rate as promised (Count II); and, alternatively, that Hiko was unjustly enriched by charging “exorbitant rates” (Count III). The complaint seeks compensatory damages, treble damages, attorney's fees and prospective injunctive relief.¹⁴

Hiko has moved to dismiss the complaint in its entirety. First, it contends that the economic loss doctrine bars Kantor's UTPCPL claim. Second, it argues that the claim for breach of the covenant of good faith and fair dealing must be dismissed in light of the express contract between the parties. Third, Hiko argues that Kantor cannot maintain an unjust enrichment claim simultaneously with a breach of contract claim. Lastly, claiming that the pending administrative proceedings before the PUC are superior to the proposed class action, Hiko moves to strike the class allegations. Alternatively, it requests a stay or dismissal of this action pending the outcome of the administrative proceeding.

Economic Loss Doctrine

The economic loss doctrine provides that “no cause of action exists for negligence that results solely in economic damages unaccompanied by physical injury or property damage.” Excavation Technologies, Inc. v. Columbia Gas Company of Pennsylvania, 604 Pa. 50, 985 A.2d 840, 841 n. 3 (2009) (citing Adams v. Copper Beach Townhome Communities, L.P., 816 A.2d 301, 305 (Pa.Super.2003) ). The doctrine prevents a plaintiff from recovering under a tort theory when the plaintiff's only loss is purely economic. Bohler–Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79, 104 (3d Cir.2001) (citing Duquesne Light Co. v. Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir.1995) ).

Hiko contends that the economic loss doctrine bars Kantor's UTPCPL claim. It argues that Kantor, by invoking the UTPCPL,¹⁵ improperly attempts to convert his breach of contract claim into a fraud claim. Kantor counters that the breach of contract and the UTPCPL claims are independent causes of action and that the economic loss doctrine does not apply to fraud claims brought under the UTPCPL.

Hiko relies upon Werwinski v. Ford Motor Co., 286 F.3d 661 (3d Cir.2002). In that case, predicting how the Pennsylvania Supreme Court would rule, the Third Circuit held that the economic loss doctrine bars common law intentional and statutory fraud claims, including those brought under the UTPCPL. Id. at 678, 681. It reasoned that the fraudulent misrepresentation claims were barred by the economic loss doctrine because they arose out of the parties' contract and were intertwined with the contract claims. Id. at 680.

The Werwinski court followed the typical analysis in predicting what the highest state court would hold. Id. at 675 (quoting Hughes v. Long, 242 F.3d 121, 128 (3d Cir.2001) ). It engaged in a four-step process, examining “(1) what the Pennsylvania Supreme Court has said in related areas; (2) the decisional law of the Pennsylvania intermediate courts; (3) federal appeals and district court cases interpreting state law; and (4) decisions from other jurisdictions that have discussed the issues we face here.” Id. Because there were no Pennsylvania Supreme Court or intermediate appellate court decisions addressing the issue, the court looked to decisions in other jurisdictions.

Werwinski no longer has any vitality. When it was decided, there was no guidance from Pennsylvania courts, leading the Third Circuit to predict how Pennsylvania's highest court would rule. Werwinski, 286 F.3d at 675. The Pennsylvania courts, the highest court and the intermediate appellate courts, had not yet addressed the issue. Since Werwinski issued, the Pennsylvania courts have spoken. They have held that the economic loss doctrine does not apply to UTPCPL claims.

A predictive ruling by the Third Circuit is generally binding on the district court. However, when the Pennsylvania intermediate appellate courts have ruled to the contrary and their decisions have not been overruled by the state's highest court, we are no longer compelled to follow the Third Circuit's prediction. See Aceto v. Zurich Ins. Co., 440 F.2d 1320, 1322 (3d Cir.1971) (“No one may properly rely upon what we have held as more than persuasive on a question of Pennsylvania law so long as the Pennsylvania Supreme Court has not ruled upon that legal question.”). It is state law, not federal law, we must follow.

The Pennsylvania Supreme Court has not expressly held that the economic loss doctrine...