Zahn v. N. Am. Power & Gas, LLC

• Decision Date: 04 March 2016
• Docket Number: No. 15–2332.,15–2332.
• Citation: 815 F.3d 1082
• Parties: Peggy ZAHN, Plaintiff–Appellant, v. NORTH AMERICAN POWER & GAS, LLC, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

815 F.3d 1082

Peggy ZAHN, Plaintiff–Appellant,

v.NORTH AMERICAN POWER & GAS, LLC, Defendant–Appellee.

No. 15–2332.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 2, 2015.

Decided March 4, 2016.

Douglas Gregory Blankinship, Attorney, Finkelstein, Blankinship, Frei–Pearson & Garber, LLP, White Plains, NY, for Plaintiff–Appellant.

Angelo J. Kappas, Attorney, Stephanie F. Jones, Attorney, Gordon & Rees LLP, Chicago, IL, for Defendant–Appellee.

Before KANNE and SYKES, Circuit Judges, and GILBERT, District Judge.^*

KANNE

, Circuit Judge.

Prior to 1997, Illinois did not have a competitive electricity market. Residents could only purchase power from the local public utility, whose rates were regulated by the Illinois Commerce Commission ("ICC"). If a resident had a dispute regarding rates or charges and wanted to recover damages, then the resident had to file a claim against the public utility with the ICC because it had exclusive jurisdiction to hear such claims under the Public Utilities Act. Sheffler v. Commonwealth Edison Co., 353 Ill.Dec. 299, 955 N.E.2d 1110, 1122–23 (Ill.2011)

. The Illinois Supreme Court's historical justification for holding that the ICC has exclusive jurisdiction is the role it plays in reviewing and approving public utilities' rates. Id.

In 1997, the Illinois General Assembly decided to create a competitive electricity supply market. After the passage and implementation of the Electric Service Customer Choice and Rate Relief Law of 1997 ("Rate Relief Law"), residents could choose to buy electricity from their local public utility, an electric utility other than their local public utility, or an Alternative Retail Electric Supplier ("ARES"). Because the Rate Relief Law's intended effect was to partially deregulate Illinois's electricity market,¹ the ICC was not given ratemaking authority over ARESs. The law did, however, explicitly grant the ICC certain oversight responsibilities over ARESs. See 220 ILCS 5/16–115A

–115B. What the Rate Relief Law did not do though was explicitly provide a mechanism by which residents could file a claim to recover damages from an ARES related to the rates it charged.

Plaintiff Peggy Zahn contends this omission was no accident. According to Zahn, Illinois lawmakers did not intend to give the ICC exclusive jurisdiction over claims like hers, i.e., statutory fraud, breach of contract, and unjust enrichment claims due to overcharging by an ARES. Defendant North American Power & Gas, LLC ("NAPG"), an ARES, argues that the Rate Relief Law does provide Zahn her cause of action and remedy, and, therefore, the ICC has exclusive jurisdiction to hear her claims. The district court below agreed with NAPG and granted its motion to dismiss for lack of subject-matter jurisdiction, as well as for failure to state a claim.

The question of whether the ICC has exclusive jurisdiction to hear Zahn's claims presents an important question of Illinois state law on which the Illinois appellate courts appear in conflict. It is a question that most certainly will occur in future lawsuits unless resolved. Rather than decide it in the absence of controlling Illinois Supreme Court precedent and in the face of conflicting case law, we conclude the question before us is a candidate for certification to the Illinois Supreme Court.

Under Circuit Rule 52, we may sua sponte certify a question to a state court if "the rules of the highest court of a state provide for certification to that court by a federal court of questions arising under the laws of that state which will control the outcome of a case pending in the federal court."² Illinois Supreme Court Rule 20

provides in relevant part that certification to it is proper when "there are involved in any proceeding before [the Seventh Circuit] questions as to the law of this State, which may be determinative of the said cause, and there are no controlling precedents in the decisions of this court...." Additionally, in evaluating whether a case is appropriate for certification, we have looked at whether the case "concerns a matter of vital public concern," involves an issue "likely [to] recur in other cases," and whether "the state supreme court has yet to have an opportunity [to] illuminate a clear path on the issue." Plastics Eng'g Co. v. Liberty Mut. Ins. Co., 514 F.3d 651, 659 (7th Cir.2008) (citation and quotation marks omitted). That is why questions tied to specific facts from a case are generally "not suitable for certification to a state's highest court." State Farm Mut. Auto. Ins. Co. v. Pate, 275 F.3d 666, 672 (7th Cir.2001) (citation and quotation marks omitted).

All the requirements for certification are present here. First, should the Illinois Supreme Court determine that the ICC has exclusive jurisdiction over Zahn's claims, then Zahn has failed to state a claim in federal court. In other words, a decision from the Illinois Supreme Court could be outcome determinative. Second, the question at issue here requires application and interpretation of state utility law, as well as a determination on whether Illinois residents can bring claims against an ARES in state court. Such questions are undoubtedly of vital public concern. Third, this issue—unless resolved by the Illinois Supreme Court—will likely be raised by other ARESs who are sued by Illinois residents in state and federal court. Finally, as we discuss below, the Illinois Supreme Court has not "illuminate[d] a clear path on the issue." Plastics Eng'g Co., 514 F.3d at 659

.

In reaching our decision to utilize certification, we initially examined the issue presented as set forth below.

I. BACKGROUND

When reviewing a motion to dismiss, we must accept all facts in Zahn's complaint as true. Crenshaw v. Baynerd, 180 F.3d 866, 868 (7th Cir.1999)

. In August 2012, Zahn decided to purchase her electricity from NAPG, after receiving an offer promising lower electricity rates. NAPG then sent Zahn a letter in which it stated Zahn would receive its "New Customer Rate" of $.0499 per kilowatt hour in her first month of service. Thereafter, NAPG promised Zahn in the letter that she would receive a "market based variable rate."

NAPG also sent Zahn an "Electricity Sales Agreement Customer Disclosure Statement." NAPG stated that "[o]ther than fixed and/or introductory/promotional rates, all rates shall be calculated in response to market pricing, transportation, profit and other market price factors." Also in the statement, NAPG disclosed under the heading "Open Price" that its prices were "variable" based on "market prices for commodity, transportation, balancing fees, storage charges, [NAPG] fees, profit, [and] line losses.... Your price may be higher or lower than Your [local public utility]...." The agreement's term was month-to-month.

Zahn never received NAPG's "New Customer Rate" of $.0499 per kilowatt hour. Instead, NAPG charged her $.0599 per kilowatt hour in September and October 2012. And after those first two months of service, NAPG charged a rate higher than Zahn's local public utility, Commonwealth Edison Company ("ComEd"), during the period from November 2012 through June 2014. At times, NAPG charged nearly triple what ComEd would have charged Zahn.

Zahn filed a class-action complaint against NAPG in October 2014 in which she alleged violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, breach of contract, and unjust enrichment. According to Zahn, NAPG engaged in a "classic bait-and-switch deceptive marketing scheme," luring customers with low teaser rates and promises of "market pricing." Those promises, Zahn contended, are misleading because NAPG's electricity rates are "substantially higher than market rates."

NAPG moved to dismiss Zahn's complaint for lack of subject-matter jurisdiction and failure to state a claim upon which relief can be granted pursuant to Federal Rules of Civil Procedure 12(b)(1)

and (b)(6), respectively. The district court granted NAPG's motion to dismiss for lack of subject-matter jurisdiction, and in the alternative, for failure to state a claim. Zahn appealed.

II. ANALYSIS

The district court, Zahn, and NAPG have characterized the question of whether the ICC enjoys exclusive jurisdiction over Zahn's claims as one of subject-matter jurisdiction. It is not. States do not have the power "to enlarge or contract federal jurisdiction." Beach v. Owens–Corning Fiberglas Corp., 728 F.2d 407, 409 (7th Cir.1984)

.³ Only Congress has the constitutional authority to limit the district court's jurisdiction, which, in this case, would require the altering of 28 U.S.C. § 1332. See Begay v. Kerr–McGee Corp., 682 F.2d 1311, 1316 (9th Cir.1982) ; Markham v. City of Newport News, 292 F.2d 711, 713 (4th Cir.1961).

States do, however, "have the power to prevent the federal court from granting relief in a diversity case by denying the substantive right of action asserted." Begay, 682 F.2d at 1315

. That is because diversity actions "involve rights created by a state, rights which are subject to definition, limitation and, frequently, negation by the state." Markham, 292 F.2d at 713.

NAPG's argument that the district court lacked subject-matter jurisdiction is miscast. Zahn properly invoked the district court's diversity jurisdiction pursuant to 28 U.S.C. § 1332(d)

. NAPG's challenge is in fact one to the subject-matter jurisdiction of an Illinois state court. If an Illinois state court does not have jurisdiction to hear Zahn's claim, then Zahn has failed to state a claim upon which relief may be granted in a federal court sitting in diversity. See Tacket v. Gen. Motors Corp., Delco Remy Div., 93 F.3d 332, 334 (7th Cir.1996) ; Beach, 728 F.2d at 409.

We review de novo a district court's decision to dismiss for failure to state a claim upon which relief may be granted. Jackson v. Bank of Am. Corp., 711 F.3d 788, 791 (7th Cir.2013)

. In determining a complaint's sufficiency, "we construe it in the light most favorable to the nonmoving party, accept...