SmartEnergy Holdings, LLC v. Hoover et al

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
SMARTENERGY HOLDINGS, LLC
d/b/a SMARTENERGY,
Plaintiff,
v.
FREDERICK H. HOOVER, in his official
capacity as Chair of the Maryland Public
Service Commission, et al.,
Defendants
Case No. 24-cv-2336-ABA
MEMORANDUM OPINION
SmartEnergy Holdings, LLC (“SmartEnergy”), which operated in Maryland for a
number of years beginning in 2017, was the subject of an enforcement action before the
Maryland Public Service Commission (“PSC” or “Commission”) under the Electric
Customer Choice and Competition Act of 1999, the Maryland Telephone Solicitations
Act (“MTSA”), and regulations promulgated by the PSC. It challenged various PSC
orders in the Maryland courts, and in February 2024, the Supreme Court of Maryland
affirmed the findings that SmartEnergy had violated those consumer protection laws,
and affirmed the remedies that had been imposed, including an order requiring
SmartEnergy to disgorge a portion of its revenues to fund partial refunds for affected
customers. In the Matter of Smart Energy Holdings, LLC, 486 Md. 502 (2024).
SmartEnergy filed this case in August 2024 against the commissioners of the PSC in
their official capacities (“Defendants”), contending that (1) the monetary relief that the
PSC awarded violated the Eighth Amendment of the U.S. Constitution and (2)
SmartEnergy should have been granted a jury trial during the course of the
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administrative and/or state court proceedings. Defendants filed a motion to dismiss,
which this Court granted. ECF No. 21.
SmartEnergy has appealed that dismissal order, and the appeal is pending. In the
meantime, SmartEnergy has filed a motion in this Court arguing that this Court should
reverse its dismissal order for two reasons. First, SmartEnergy has been unable to find
accurate addresses for many of the customers who are the intended beneficiaries of the
PSC’s partial refund order. SmartEnergy contends this development bolsters its Eighth
Amendment claim, rendering dismissal unwarranted. The fact that a substantial portion
of the customers who the PSC found were harmed will not receive any refund,
SmartEnergy contends, confirms that the refund order is an unconstitutional fine. ECF
No. 26-1 at 8. Second, SmartEnergy contends that it should be permitted to assert a new
claim, this one under the Due Process Clause of the Fourteenth Amendment.
SmartEnergy requests an opportunity to amend its complaint to add a claim that the
PSC violated due process by failing to provide SmartEnergy “fair notice . . . how to
accord its conduct to avoid the massive and adverse legal consequences levied by the
Commission.” ECF No. 26-3 ¶ 115 (proposed amended complaint).
Because this Court lacks jurisdiction to reverse its prior ruling given the
pendency of the appeal, SmartEnergy’s request is that this Court issue an “indicative”
ruling as permitted by Federal Rule of Civil Procedure 62.1(a). “If a timely motion is
made for relief that the court lacks authority to grant because of an appeal that has been
docketed and is pending,” a district court may, among other options, “state either that it
would grant the motion if the court of appeals remands for that purpose or that the
motion raises a substantial issue.” Fed. R. Civ. P. 62.1(a)(3). For the following reasons,
the Court concludes that the obstacles to distributing rebates to customers would not
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change this Court’s Eighth Amendment analysis, and the new due process claim is
barred as a matter of claim preclusion.
I. 	The unclaimed check issue
As this Court explained in dismissing SmartEnergy’s complaint, the Eighth
Amendment, in addition to prohibiting cruel and unusual punishment, prohibits
“excessive fines.” U.S. Const. amend. VIII. When the government has imposed a
monetary obligation in a civil (non-criminal) context, a party who contends that the
obligation constitutes an unconstitutional fine must establish that (1) it was imposed “in
part to punish,” Austin v. United States, 509 U.S. 602, 610 (1993), as opposed to for
solely “remedial purposes,” Korangy v. FDA, 498 F.3d 272, 277 (4th Cir. 2007), and (2)
the monetary penalty is “‘grossly disproportional to the gravity of the offense,’” id. at 277
(quoting United States v. Bajakajian, 524 U.D. 321, 334 (1998)). See Browning-Ferris
Indust. of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 265 (1989). In granting
Defendants’ motion to dismiss, this Court concluded that SmartEnergy had not pled
facts that would satisfy either element. ECF No. 21 at 20–27.
As noted above, SmartEnergy reports that in the course of administering the
disbursement of the partial refunds pursuant to the PSC’s remedial order, the PSC has
been unable to find current addresses for a substantial number of the affected
customers, and other customers simply have not cashed the checks that were sent to
them. These issues affect a substantial portion of the funds at issue: “As of October 17,
2025, fewer than one third of the checks mailed to customers have been cashed.” ECF
No. 26-1 at 3; see also ECF No. 26-4 ¶¶ 4–5 (declaration of SmartEnergy’s chief
operating officer). The PSC was planning to disburse the refunds pro rata, with a
proportionate share going to each of the affected customers. The logistical hurdle
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presented by the undeliverable payments has required the PSC to decide what to do with
the funds that SmartEnergy has disgorged but for which the pro rata checks sent to the
pertinent customers were returned undeliverable.
At least according to the aspects of the PSC record that the parties have brought
to this Court’s attention, there are two options for handling the uncashed checks. The
first option is one that SmartEnergy itself originally proposed: to transfer undistributed
funds to the Fuel Fund of Maryland, an energy assistance group that serves households
in some but not all jurisdictions in Maryland. SmartEnergy’s proposal, in August 2025,
was that “recogniz[ing] that not all refund checks will be cashed, and some checks will
be returned to sender,” any “unclaimed refunds would be paid to the Maryland Fuel
Fund if not cashed within 180 days of mailing the checks.” ECF No. 29-2 at 11–12. That
proposal did not concede the propriety of the PSC’s refund order, but rather stated
SmartEnergy’s position for what should happen with refunds that were not claimed by
customers. This approach would be akin to a cy pres distribution that is used in some
class action settlements. See, e.g., In re Microsoft Corp. Antitrust Litigation, 185 F.
Supp. 2d 519, 523 (D. Md. 2002). The second option is for “the unclaimed portion of the
refunds to be re-allocated to those customers who do cash their refund checks.” ECF No.
29 at 29. This is an approach that also is sometimes used in class action settlements
where, for example, the parties are unable to agree on a cy pres mechanism or recipient
or a court is skeptical that cy pres distribution is appropriate in the context of a
particular case. See Cy pres—Generally, 4 Newberg and Rubenstein on Class Actions §
12:32 (6th ed.).
SmartEnergy contends that the sizeable share of the affected customers whose
checks have not been cashed, which SmartEnergy describes as a “newly discovered fact,”
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means that “roughly $3.5 million of a minimum $6.5 million refund order—the
substantial majority—will not go to customers as refunds.” ECF No. 30 at 14. This
development, SmartEnergy contends, means that the entirety of the $6.5 million refund
order constitutes a “fine” for Eighth Amendment purposes because it is “a fixed financial
penalty that SmartEnergy must pay, regardless of whether the funds actually remediate
any specific purported harm to any SmartEnergy customers.” ECF No. 26-1 at 8.
The Court is not persuaded that the unavailability of updated addresses for a
substantial number of customers, or the fact that some customers have received checks
but did not cash them, affects the Eighth Amendment analysis, for four reasons.
First, this argument at most pertains to the first prong of the Excessive Fines
Clause analysis: whether to categorize the refund order as entirely “remedial” or in part
as punishment. But the Court did not just conclude that the rebate order does not
constitute a “fine” subject to the Eighth Amendment, ECF No. 21 at 20–23, but also that
even if the rebate order were considered a “fine,” SmartEnergy does not allege facts that
would render a $6.5 million refund order (plus the $250,000 civil penalty) “grossly
disproportional to the gravity of the offense,” Korangy, 498 F.3d at 277; see ECF No. 21
at 23–25, particularly in light of the factual findings established in the administrative
proceedings and upheld through all three levels of the Maryland courts. SmartEnergy’s
Rule 62.1 motion does not point to any considerations that would affect this second
prong of the analysis.
Second, although the dispute arising from the uncashed checks affects how the
$6.5 million refund order is distributed—specifically, whether unclaimed funds will be
re-allocated to customers who did receive checks or instead will be distributed to the
Fuel Fund—the dispute does not affect the total amount of the refund order, which
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remains the same as when the Court dismissed SmartEnergy’s claim. The focus of both
prongs of the Excessive Fines Clause analysis is on the total monetary obligation;
SmartEnergy does not identify any case or other authority supporting the contention
that sending unclaimed checks to a community energy assistance fund bears on either
prong of the analysis.
Third, as this Court explained, the $6.5 million refund order was significantly less
than the statutorily authorized maximum penalties that the PSC could have levied. See
ECF No. 21 at 25. It is also significantly less than the total amounts that SmartEnergy
collected as revenue from its Maryland customers during the relevant period.1 That
means, as Defendants put it and SmartEnergy does not dispute, “if the unclaimed
portion of the $6.5 million refund amount was to be redirected to customers who had
cashed their refund checks, those customers could be brought closer to being made
whole, with little if any unclaimed portion remaining.” ECF No. 29 at 29. The upshot
would be that some customers would receive a somewhat higher-than-pro-rata share
and others (those whose current addresses cannot be found or who failed to cash their
checks) would receive nothing. It defies logic, in addition to the principles underlying
cases such as Browning-Ferris and Korangy, to suggest that a partial refund that is
unequally allocated for logistical reasons converts the refund to a “punishment” that is
1 In its complaint, SmartEnergy explained that having identified “every bill it had sent to
a Maryland customer” and “the customer’s usage for that billing cycle,” it determined
that “the difference between the rate charged by SmartEnergy and the one charged by a
utility” was “approximately $15.7 million.” ECF No. 1 ¶ 71. Thus, SmartEnergy’s total
revenue from Maryland customers during the relevant period necessarily exceeded
$15.7 million.
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“‘grossly disproportional to the gravity of the offense.” Korangy, 498 F.3d at 277
(quoting Bajakajian, 524 U.S. at 334).
Fourth, as noted above, SmartEnergy itself proposed that unclaimed refunds be
disbursed to the Fuel Fund. Although in doing so it did not concede that it actually owed
any refunds, see ECF No. 30 at 14, the fact that both the concept of such a distribution
and the specific recipient came from SmartEnergy weighs heavily against a conclusion
that using such a mechanism (whether technically qualifying as “cy pres” or not) either
converted the refund order into a “penalty” or rendered it grossly disproportional to the
gravity of SmartEnergy’s regulatory violations.
The Court understands SmartEnergy’s criticisms of the PSC’s handling of some
aspects of the enforcement action. But those criticisms do not make out an Eighth
Amendment violation, for the reasons the Court previously explained. And the fact that
some of the partial refund checks have gone unclaimed does not convert an otherwise
constitutional remedial order into an unconstitutionally excessive fine.2
2 Defendants argue that this Court need not reach the merits of this argument because
(1) SmartEnergy “could have . . . raised” it “before the Commission,” or in the litigation
in the Maryland courts, but failed to do so, and (2) in any event SmartEnergy “never
took an appeal” from the specific Commission order imposing the $6.5 million refund
order. ECF No. 29 at 20–21. Although res judicata clearly precludes SmartEnergy’s
proposed due process claim, see § II, infra, it is less clear whether res judicata applies to
the Eighth Amendment claim, in part because the Commission did not decide the
amount of the total rebate order until after the Maryland Supreme Court’s February
2024 decision. See ECF No. 30 at 7 n.3. But this Court need not reach the question of
whether claim preclusion applies to SmartEnergy’s proposed amended Eighth
Amendment claim because, regardless, it fails on the merits for the reasons discussed
herein.
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II. 	SmartEnergy’s new “fair notice” claim
The other premise of SmartEnergy’s Rule 62.1 motion is that Defendants violated
SmartEnergy’s due process rights by bringing the enforcement action in the first place.
It argues that the enforcement action was premised on “a new interpretation of the
statute” that the Commission applied “retroactively, without sufficient notice or
warning.” ECF No. 30 at 8. SmartEnergy does not contend that any of the state statutes
that formed the basis for the Commission’s enforcement action were unconstitutionally
vague. See id. at 7 (disclaiming that it wishes to assert a “general void-for-vagueness
claim”). Rather, its argument is the following:
Until 	its 	enforcement 	action 	against 	SmartEnergy, 	the
Commission had never before brought an enforcement action
against an electricity supplier stemming from inbound calls
from 	customers. 	(Amend. 	Compl. 	¶ 	46.) 	Moreover,
SmartEnergy received the CAD [Consumer Affairs Division]
Letters specifically stating that the MTSA does not apply to
enrollments 	following 	inbound 	calls 	from 	customers[.]
(Amend. Compl. ¶¶ 41-44.) The second of these was issued
five days before the Commission staff filed its enforcement
action against SmartEnergy. (Amend. Compl. ¶ 43.) But the
Commission is imposing at least $6.5 million—and potentially
as much as $15.97 million—in penalties on SmartEnergy for
allegedly 	not 	abiding 	by 	the 	Commission’s 	novel
interpretation of “telephone solicitation” from February 2017
to May 2019, a period long before the Commission announced
its new interpretation. This retroactive application of a state
agency 	interpretation, 	with 	not 	only 	no 	notice 	but
contradictory 	notice, 	amply 	demonstrates 	a violation 	of
SmartEnergy’s Due Process rights.
ECF No. 30 at 9–10.
This argument is barred as a matter of claim preclusion. SmartEnergy asserted
essentially this same argument throughout the PSC proceedings and in its challenges of
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the PSC proceedings through all levels of the Maryland courts. It framed that argument
in statutory rather than constitutional terms, arguing that the pertinent Maryland
statutes did not prohibit SmartEnergy’s marketing tactics or other conduct. But the
Maryland courts rejected that argument at every stage. In re SmartEnergy Holdings,
LLC, 256 Md. App. 20, 42–50 (2022) (rejecting SmartEnergy’s statutory construction
argument); id. at 50–58 (holding that SmartEnergy in fact violated the MTSA); In re
SmartEnergy Holdings, LLC, 486 Md. at 550–64 (analyzing the statutory language and
concluding that “the MTSA applies to sales made over the telephone where a consumer
places a telephone call to a merchant in response to a merchant’s marketing materials,
unless the transaction falls within one of the statutory exemptions”); id. at 564–73
(concluding that the Commission’s findings were supported by substantial evidence);
see also id. at 544 (noting that the Circuit Court for Montgomery County had also
entered an order affirming the Commission’s decision).
Under the doctrine of res judicata, or claim preclusion, “a prior judgment
between the same parties can preclude subsequent litigation on those matters actually
and necessarily resolved in the first adjudication.” Orca Yachts, L.L.C. v. Mollicam, Inc.,
287 F.3d 316, 318 (4th Cir. 2002). “A federal court, as a matter of full faith and credit,
under 28 U.S.C. § 1738, must give a state court judgment the same preclusive effect ‘as
the courts of such State’ would give.” In re Heckert, 272 F.3d 253, 257 (4th Cir. 2001).
This means that “a federal court must ‘refer to the preclusion law of the State in which
the judgment was rendered.’” Id. (quoting Marrese v. Am. Acad. of Orthopaedic
Surgeons, 470 U.S. 373, 380 (1985)).
Under Maryland law, a claim is precluded by a prior judgment “‘if there is a final
judgment in a previous litigation where the parties, the subject matter and causes of
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action are identical or substantially identical as to issues actually litigated and as to
those which could have or should have been raised in the previous litigation.’” R & D
2001, LLC v. Rice, 402 Md. 648, 663 (2008) (quoting Bd. of Educ. v. Norville, 390 Md.
93, 106 (2005)). In other words, claim preclusion applies if (1) “the parties in the
present litigation are the same or in privity with the parties to the earlier litigation”; (2)
the claims presented in the second case are “identical or substantially identical” to those
that “could have or should have been raised in the previous litigation”; and (3) “there
was a final judgment on the merits in the prior litigation.” Id. The doctrine “‘avoids the
expense and vexation attending multiple lawsuits, conserves the judicial resources, and
fosters reliance on judicial action by minimizing the possibilities of inconsistent
judgments.’” Davis v. Wicomico Cnty. Bureau, 447 Md. 302, 307 (2016) (quoting
Cochran v. Griffith Energy Servs., Inc., 426 Md. 134, 140 (2012)).
Here, there is no dispute that the parties in the state court litigation are the same
parties as in this case, and that the state court litigation resulted in a final judgment. The
dispute related to claim preclusion turns on the second element, which requires
“identical or substantially identical” claims. On that element, “Maryland courts have
adopted the ‘transactional’ approach articulated in § 24 of the Restatement (Second) of
Judgments.” ACAS, LLC v. Charter Oak Fire Ins. Co., 626 F. Supp. 3d 866, 876 (D. Md.
2022) (citing Colandrea v. Wilde Lake Cmty. Ass’n, Inc., 361 Md. 371, 389 (2000)).
Under this approach, “[w]hat constitutes a transaction or series of connected
transactions is ‘determined pragmatically, giving weight to such considerations as
whether the facts are related in time, space, origin, or motivation, whether they form a
convenient trial unit, and whether their treatment as a unit conforms to the parties’
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expectations or business understanding or usage.’” Id. (quoting Kent Cnty. Bd. of Educ.
v. Bilbrough, 309 Md. 487, 498 (1987)).
A “claim” is “coterminous with the transaction regardless of the number of
substantive theories, or variant forms of relief flowing from those theories, that may be
available to the plaintiff; regardless of the number of primary rights that may have been
invaded; and regardless of the variations in the evidence needed to support the theories
or rights.” Bilbrough, 309 Md. at 497–98 (quoting Restatement (Second) of Judgments
§ 24 cmt. a (1982)). The consequence of this rule against “splitting” claims is that
“[w]hen a valid and final judgment rendered in an action extinguishes the plaintiff’s
claim pursuant to the rules of merger or bar (see [Restatement] §§ 18, 19), the claim
extinguished includes all rights of the plaintiff to remedies against the defendant with
respect to all or any part of the transaction, or series of connected transactions, out of
which the action arose.” Id. at 498 (quoting Restatement (Second) of Judgments § 24);
see also Hall v. St. Mary’s Seminary & Univ., 608 F. Supp. 2d 679, 686 (D. Md. 2009),
aff’d, 378 F. App’x 326 (4th Cir. 2010) (“Two suits that rely upon the same facts will
share an identity of claims even if the suits are based upon different legal theories.”)
(applying Maryland law).
Here, the “transaction” that SmartEnergy litigated in the state courts, through its
action seeking judicial review of the PSC’s liability order and at least some aspects of its
remedies order, is the same “transaction” that is the subject of SmartEnergy’s federal
case, namely the validity and propriety of the PSC’s enforcement action arising from
SmartEnergy’s marketing efforts between February 2017 and March 2019. See ECF No.
21 at 5–17 (describing the underlying claims and procedural history). The focus of the
“transaction” test is on the facts, not the legal theories that are asserted. See, e.g.,
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Bilbrough, 309 Md. at 500–04; Restatement (Second) of Judgments § 24(2). Here, the
facts pertinent to the new due process claim SmartEnergy desires to assert were litigated
in the state courts. (As noted above, the Eighth Amendment claim is a bit different,
which is why this Court does not rely on claim preclusion with respect to that claim. See
n.2, supra.) SmartEnergy thoroughly litigated the question of whether its conduct was
prohibited by the MTSA, and the Maryland courts, including the Supreme Court of
Maryland, held that it was, and that the factual findings on which the enforcement
orders were entered were supported by substantial evidence and were not clearly
erroneous. Having litigated that claim to a final judgment, SmartEnergy is precluded
from reclothing those same arguments in constitutional garb and having the federal
courts adjudicate whether its conduct was prohibited by the MTSA with sufficient clarity
to have justified the PSC’s enforcement action. “[I]f the two claims or theories are based
upon the same set of facts and one would expect them to be tried together ordinarily,
then a party must bring them simultaneously.” Anne Arundel Cnty. Bd. of Educ. v.
Norville, 390 Md. 93, 109 (2005). “Legal theories may not be divided and presented in
piecemeal fashion in order to advance them in separate actions.” Id.
The precise question presented by the due process component of SmartEnergy’s
Rule 62.1 motion is this: If the Court of Appeals were to remand this case, would this
Court grant SmartEnergy leave to file an amended complaint to assert a new cause of
action under the due process clause of the Fourteenth Amendment? See ECF No. 26-1 at
3–4 & 7–8 (motion); ECF No. 26-2 at 36–38 (proposed due process cause of action);
ECF No. 26-3 at 38–41 (same, in redlined version of proposed amended complaint);
ECF No. 30 at 7–10 (SmartEnergy’s reply brief, fleshing out its proposed due process
theory). The answer is no, because that proposed claim would be subject to claim
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preclusion, for the reasons explained above. And based on that conclusion, this Court
need not decide whether the due process claim would alternatively be subject to
dismissal based on collateral estoppel, see ECF No. 29 at 19–21 & n.12, or based on the
Rooker-Feldman doctrine, see id. at 16–19.
CONCLUSION
For the foregoing reasons, the Court concludes that the developments regarding
the distribution of the refunds that the PSC ordered SmartEnergy to pay do not alter the
Court’s conclusion that SmartEnergy has not stated an Eighth Amendment excessive
finds claim on which relief could be granted, and SmartEnergy also has not identified a
due process claim on which relief could be granted.
Date: February 6, 2026
Adam B. Abelson
United States District Judge
/s/
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