Md. high court rules SmartEnergy deceived consumers, affirms refund order

A New York-based electric utility company violated Maryland’s consumer protection laws through its marketing and sales practices and must pay refunds to customers, the Maryland Supreme Court ruled.

In a 6-1 opinion with Justice Brynja M. Booth writing for the majority, the state’s highest court ruled last week that SmartEnergy violated Maryland consumer protection laws, including the Maryland Telephone Solicitations Act, by sending “deceptive and misleading” marketing materials to prospective customers, enrolling these individuals for the company’s services without written contracts and failing to provide pricing information.

The high court affirmed the appellate court’s judgment and the findings of the Public Service Commission detailing SmartEnergy’s alleged use of a misleading telephone sales script and the company’s use of misleading and deceptive mailing materials soliciting customers.

In its 94-page opinion, the court also determined that SmartEnergy violated the Electric Customer Choice and Competition Act — intended to provide Marylanders a choice of electricity supply and create a competitive market — by failing to include its’ Maryland license number on the mailing materials.

From February 2017 through May 2019, SmartEnergy mailed six million postcards to Marylanders, informing customers they were eligible for a “free month of electricity” and a six-month guaranteed rate protection plan. According to the opinion, the postcards provided a toll-free number, inviting prospective customers to call to learn more about the “time-sensitive” offer.

Of the approximately 104,000 calls from prospective customers during this period, approximately 32,000 callers enrolled as customers with SmartEnergy. The company did not provide written contracts or contract summaries to these customers, according to the opinion.

The Public Service Commission received complaints from SmartEnergy customers that their electricity supply was switched without their authorization and that SmartEnergy portrayed itself as being affiliated with the customer’s then-current electricity provider. Customers also complained that their bills were excessive and that they were unable to cancel their service.

SmartEnergy argued the record did not contain substantial evidence to support the Public Service Commission’s findings that the postcards and sales script were misleading, among other claims.

The Maryland Supreme Court rejected the company’s argument, finding substantial evidence in the record to support the finding that SmartEnergy’s postcards were misleading, noting “the postcard should identify who the real ‘merchant’ is, and not mislead the customer that the merchant is someone else.”

“In addition to obscuring the lack of affiliation with the customer’s utility company, SmartEnergy failed to affirmatively disclose that the customer would be leaving their current utility company,” the high court wrote.

The high court similarly found SmartEnergy’s telephone script “had the capacity, tendency, or effect of deceiving or misleading customers.”

Douglas Gansler, counsel for SmartEnergy, said the court’s ruling hurts underserved communities.

“For older folks who still call companies for food deliveries, or people who have less income and don’t have iPhones and apps, whenever they now call a company for a service or for an item, they’re going to have to literally sign a wet contract,” Gansler said.

Gansler said the court’s ruling that the Maryland Telephone Solicitations Act applies to sales made via telephone where the consumer calls the merchant in response to a merchant’s marketing materials is “unique and novel.”

“What happens here is the court’s majority opinion is completely void of any mention of the public policy and the draconian impact that this ruling would have on Maryland’s consumer retail energy companies, and also its effect on commerce from most small businesses to even large companies,” Gansler said.

Gansler said SmartEnergy plans to file a motion for reconsideration.

Justice Steven B. Gould, in his dissenting opinion, argued the court’s interpretation of “telephone solicitation” under the Maryland Telephone Solicitations Act should not include calls made by consumers to merchants if the mail that prompted the call was part of the merchant’s attempt to sell its services.

Gould argued that SmartEnergy should not be found to be liable under the act because the company’s mailing of postcards to sell its services meant that its attempts to sell were not entirely by telephone.

William Fields, deputy people’s counsel for the Maryland Office of People’s Counsel, said the office is pleased that the court upheld the Public Service Commission’s findings “of a pattern of deceptive marketing practices that were quite well documented.”

“There’s a lot of contractual provisions that the companies want to impose on customers, and it’s really only fair that customers get to see all that in writing before they agree to anything and before they’re enrolled in the service,” Fields said.

Fields said commodities and services such as electricity and gas are critical, and contracts for these services are typically indefinite until one party halts the contract.

“It’s really a good thing that in Maryland, customers need to actually see the contract and sign it before they get enrolled in something like this,” Fields said.

A spokesperson for the Maryland Public Service Commission said the high court’s finding that SmartEnergy’s marketing materials and sales scripts were false, misleading and deceptive “will help safeguard Maryland consumers against such practices.”

In addition to directing SmartEnergy to refund former and existing customers the price difference between the company’s electricity rate and the utility’s standard offer service during the customer’s enrollment period, the commission also imposed a moratorium prohibiting SmartEnergy from enrolling or soliciting additional customers in Maryland.

SmartEnergy previously estimated that refunds disbursed to impacted customers will total more than $6 million.