Petri v. Gatlin

• Decision Date: 30 December 1997
• Docket Number: No. 97 C 2393.,97 C 2393.
• Citation: 997 F.Supp. 956
• Parties: Irena K. PETRI and John Todd, on behalf of themselves and all others similarly situated, Plaintiffs, v. T. Wayne GATLIN, Jesse D. Smith, Jerry Pajares, and Santanna Natural Gas Corporation, a Texas corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

997 F.Supp. 956

Irena K. PETRI and John Todd, on behalf of themselves and all others similarly situated, Plaintiffs, v. T. Wayne GATLIN, Jesse D. Smith, Jerry Pajares, and Santanna Natural Gas Corporation, a Texas corporation, Defendants.

No. 97 C 2393.

United States District Court, N.D. Illinois, Eastern Division.

December 30, 1997.

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Cathleen M. Combs, Daniel A. Edelman, James O. Latturner, Rick D. Young, Edelman & Combs, Chicago, IL, for Plaintiffs.

Charles William Siragusa, Wade R. Joyner, Jeffrey Scott Burns, Paul F. Markoff, Crowley, Barrett & Karaba, Ltd., Chicago, IL, for Defendants.

MEMORANDUM OPINION

GRADY, District Judge.

Before the court are Santanna Natural Gas Corporation's and the individual defendants' motions to dismiss the complaint. For the reasons stated in this opinion, the motions to dismiss are granted in part and denied in part.

BACKGROUND

Viewed in the plaintiffs' favor, the relevant facts are as follows. Under a policy known as the Transportation Gas Program, local gas distribution companies ("LDCs") such as Peoples' Gas Light & Coke Company, Illinois Power, and Northern Illinois Gas permit "commercial rate" customers—multi-unit apartment buildings, hospitals, factories, schools, government entities and the like—to purchase gas at discount prices from independent third party suppliers. These customers purchase the gas from the independent suppliers instead of obtaining it directly from the LDC. Amended Complaint ¶¶ 12, 14, 16. Independent suppliers deliver the purchased gas to the LDCs, and the LDCs in turn deliver the gas to the customers' commercial sites via LDC pipelines. The LDC charges customers for the use of the pipelines, while the independent suppliers charge for the amount of gas actually used by the customers. Id.

Santanna Natural Gas Corporation ("Santanna"), an independent third party supplier, participates in the Program and thus sells natural gas to "commercial end users" throughout the state of Illinois. Id. ¶ 11. On Santanna's corporate roster (and hereafter referred to as "the individual defendants") are T. Wayne Gatlin, the president, chief executive officer, chairman of the board of directors, and controlling shareholder; Jesse D. Smith, the executive vice president; and Jerry Pajares, the secretary and treasurer. The plaintiffs, Irena K. Petri and John R. Todd, each own one or more multi-unit apartment buildings. Id. ¶ 5. On or about July 20, 1993, Todd agreed to purchase natural gas from Santanna. Pursuant to the agreement, the parties entered into a "Gas Sales Contract" and an "Agency Agreement." Id. ¶¶ 31-32. The parties agreed in the Contract and the Agreement to be bound by Texas law. Id. ¶ 32 (referring to § 16.4 of the Contract and § 6.4 of the Agreement). On or about November 11, 1995, Petri reached a similar agreement with Santanna, and likewise entered into a "Gas Sales Contract" and an "Agency Agreement." Id. ¶ 38. The parties agreed in the Contract and the Agreement to be bound by Illinois law. Id. ¶ 38 (referring to § 10.4 of the Contract and § 4.4 of the Agreement). Todd terminated his relationship with Santanna in January 1997, while Petri terminated her relationship with Santanna in December 1996. Id. ¶¶ 37, 39.

The problem, according to the plaintiffs, is that Santanna induced them (and thousands of other consumers) into signing sales contracts by making a series of misrepresentations. Santanna promotional brochures state that by purchasing natural gas from Santanna instead of an LDC, a customer "can save 15-35%. on [his] annual heating or processing bill with no investments and no risk!" Id. ¶ 20 (quoting the brochure). The plaintiffs claim that the most a customer can realistically expect to save is 8 to 15 percent per year, and that this fact was well known to the defendants when they disseminated the brochures. Id. ¶¶ 21-22. The brochures also state that Santanna "guarantees that our price per therm will never be greater than the utility company [sic]." Id. ¶ 23 (quoting the brochure).¹ The Agency Agreements signed by the plaintiffs contain similar language. Id. ¶¶ 33, 41. Again, however, the plaintiffs contend that the truth of the matter is that Santanna's prices often exceed those of the LDC. This disparity was also known to the defendants when they disseminated the brochures and signed the Agreements. Id. ¶¶ 24-25, 34-36, 42-44. In addition, the standardized Gas Sales Contracts used by Santanna state that "[t]he price per Therm shall be based on the monthly market price then in effect for natural gas delivered to the various natural gas Sales Point(s) into the interstate pipelines." Id. ¶ 40 (quoting § 3.1 of Petri's Gas Sales Contract). The plaintiffs maintain that because gas prices fluctuate on a daily basis, the "monthly market price" as described in the Contracts simply does not exist. Id. ¶ 46. Santanna allegedly exploited this contractual ambiguity by charging higher prices without full disclosure. Id. ¶¶ 47-48.

In April 1997, the plaintiffs filed a multicount complaint naming Santanna, Gatlin, Smith, and Pajares as defendants. As amended on May 28, 1997, the complaint includes the following six claims. Count I alleges that Santanna breached the plaintiffs' contracts by charging prices "other than the lowest monthly market price" and greater than those charged by The LDC. Id. ¶ 61. Counts II and III allege that Santanna and the individual defendants violated the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA" or "Act") and the Texas Deceptive Trade Practices-Consumer Protection Act ("DTPA" or "Act") by (1) deliberately using ambiguous price terms in standardized contracts and charging prices other than the lowest monthly market rate; (2) guaranteeing that the prices charged would be lower than those charged by the LDC; (3) assuring customers that they could save between 15 and 35 percent per year on their gas bills; (4) acting as agents for customers but failing to disclose that the prices charged were higher than the lowest monthly market price; and (5) acting as agents for customers but failing to disclose that the prices charged were often higher than those charged by the LDC. Id. ¶¶ 67, 73. Count IV alleges that Santanna breached a fiduciary duty owed to the plaintiffs by committing the same five acts described in Counts II and III. Id. ¶ 79. Counts V and VI allege that Santanna and the individual defendants² violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") by engaging in a scheme to defraud consumers. Santanna and the individual defendants purportedly engaged in such a scheme by committing the same five acts described in Counts II, III, and IV. Id. ¶¶ 85, 97. Counts V and VI also allege that Santanna and the individual defendants repeatedly used "[t]he mails, interstate carriers, and interstate wire transmissions" in furtherance of their scheme to defraud. Id. ¶¶ 86, 98.

In June 1997, both Santanna and the individual defendants filed motions to dismiss the complaint.³ The motions challenge the sufficiency of the complaint under Federal Rules of Civil Procedure 12(b)(6) and 9(b). As we explain in greater detail in the pages that follow, we hold that (1) the plaintiffs' allegations in Count I that the defendants violated the terms of the Agency Agreements are sufficient to state a claim for breach of contract; (2) the plaintiffs' allegations in Counts II and III that the defendants misrepresented material facts in their promotional brochures are sufficient to state a claim under the Illinois Consumer Fraud Act and the Texas Deceptive Trade Practices Act; (3) the plaintiffs' allegations in Count IV that the defendants failed to disclose facts relating to Santanna's and the LDC's prices are sufficient to state a claim for breach of fiduciary duty; (4) the plaintiffs' allegations in Counts V and VI that the defendants violated the Racketeer Influenced and Corrupt Organizations Act by using the mails in furtherance of a purportedly fraudulent scheme are insufficient when viewed through the lens of Federal Rule of Civil Procedure 9(b); and (5) the plaintiffs' allegations in Count VI that the defendants acted illegally by exercising control over the plaintiffs' "enterprises" are independently insufficient to state a claim under RICO.

DISCUSSION

The defendants' arguments revolve around two provisions of the Federal Rules of Civil Procedure: Rule 9(b) and Rule 12(b)(6). The defendants contend that Count I fails to state a claim under Rule 12(b)(6), and that Counts II, III, IV, V, and VI fail to state claims under both 12(b)(6) and 9(b). For the sake of clarity, we will separately analyze the last five counts of the complaint under the rubric of Rule 12(b)(6), and then under the rubric of Rule 9(b) See General Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1078 (7th Cir.1997) (performing a similar analysis). We begin by discussing the standard of review under each of the relevant rules.

The standard of review under Rule 12(b)(6) is well known. The purpose of a 12(b)(6) motion to dismiss is to test the sufficiency of the complaint, not to resolve the case on the merits. 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1356, at 294 (2d ed.1990). When evaluating such a motion, the court must accept as true all factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. Jang v. A.M. Miller & Associates, 122 F.3d 480, 483 (7th Cir.1997); Travel All Over The World, Inc. v. Kingdom of Saudi Arabia, 73 F.3d 1423, 1429 (7th Cir.1996). Dismissal is appropriate only if "`it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Ledford v. Sullivan, 105 F.3d 354, 356, (7th Cir.1997) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104...