In August 2014, a putative class action suit was brought against Ambit Energy Holdings LLC, Ambit Texas, LLC, Ambit Northeast LLC, and Ambit New York, LLC (collectively, “Ambit”) in New Jersey federal district court. Class representatives from New York and New Jersey allege violations of those states’ consumer protection and business statutes, and seek class certification to include an unknown number of Ambit customers across its footprint in Connecticut, Delaware, Illinois, Massachusetts, Maryland, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Virginia, Texas, and Washington, D.C.

The crux of the allegations are that Ambit took advantage of deregulation in the retail residential electricity markets in New York, New Jersey, and other locations by luring customers and enticing them into switching energy suppliers with bait-and-switch tactics, and provided inadequate disclosure of factors impacting the pricing of, and the notice of switch to, variable rate products. Specifically, Ambit is accused of falsely promising consistent, low-priced energy at better rates than customers’ former energy providers. The plaintiffs also allege that Ambit failed to notify them of changes to their contracts’ terms. Those modified provisions, they allege, provided for the default to expensive variable rate plans with no disclosure of variable terms—all of which drastically increased energy costs.

The plaintiffs’ specific counts against Ambit include (i) the alleged violation of New Jersey’s Consumer Fraud Act and New York’s General Business Laws related to energy services company consumers’ bill of rights, (ii) a breach of the covenant of good faith and fair dealing, and (iii) unjust enrichment. In seeking class certification, the plaintiffs believe thousands of Ambit customers are affected across its footprint and allege damages could be in the millions of dollars. In its defense to the class action, Ambit had filed a notice of its motion to dismiss before the plaintiffs submitted their first amended complaint last week.

Ambit is not the only retail electric provider dealing with class action allegations. In September 2013, Energy Plus Holdings, LLC (“Energy Plus”) settled a similar class action for $14.3 million resolving allegations related to its marketing activities and promises of consistent and competitive market-based rates. The plaintiffs accused Energy Plus of charging rates that were two to three times the amount charged by Energy Plus’ competitors. The plaintiffs there likewise alleged that Energy Plus used deceptive marketing tactics, such as offering travel rewards and frequent flier miles, to lure customers into high-priced products.

As these cases highlight, increasing scrutiny is being applied to retail contracts by customers and plaintiffs’ attorneys. While the outcome of those cases remains uncertain, retail electric providers should strictly monitor their pricing and marketing programs to try to avoid the cost and reputational consequences of lawsuits such as these.