Opinion ID: 203251
Heading Depth: 1
Heading Rank: 9

Heading: Unreasonable Gasoline Prices

Text: The Uniform Commercial Code, as adopted in Massachusetts, contemplates the enforcement of contracts in which one party sets the price of goods over time. Mass. Gen. Laws ch. 106, § 2-305(2). But the price must be set in good faith. Id. The jury found that the defendants had failed to set reasonable prices in good faith. The defendants appeal on two grounds. First, they claim that the good faith requirement means only that such a price may not discriminate among similarly situated buyers. [14] And second, the defendants assert that the Dealers' evidence of unreasonable pricing is inadequate as a matter of law, because 1) it was based only on retail pricing charged by competitors to the Dealers, rather than DTW prices charged to those competitors; and 2) the Dealers' expert presented pricing analysis of only one competitor, thereby failing to establish a range of prices outside of which the defendants' wholesale prices fell. We find neither contention persuasive. Section 2-305(2) rejects the uncommercial idea that ... the seller ... may fix any price he may wish by the express qualification that the price so fixed must be in good faith. Good faith includes observance of reasonable commercial standards of fair dealing.... Id. § 2-305(2) cmt. 3; U.C.C. § 2-305(2) cmt. 3. [I]n the normal case a `posted price' or a future seller's or buyer's `given price,' `price in effect,' `market price,' or the like satisfies the good faith requirement. Id. The defendants and amici urge us to read this comment as providing an absolute safe harbor for nondiscriminatory posted prices in open price term contracts. This we will not do. For one thing, the very comment on which the defendants and amici rely expressly invokes the general notion of reasonable commercial standards of fair dealing. If the comment meant that only discriminatory pricing would be disallowed it certainly could have said that. For another, it is clear to us that a situation in which one merchant is raising its prices in order to force a customer out of business is hardly the normal case. The Eleventh Circuit allowed this question to go to a jury in a class action involving another oil company's pricing policies. Allapattah Servs. v. Exxon Corp., 333 F.3d 1248, 1262 n. 16 (11th Cir.2003) (conceding that in a normal case nondiscriminatory pricing is protected, but holding that where the allegation was that an oil company was trying to drive service stations out of business, whether this case constituted a normal case was a factual issue necessary to determine whether Exxon acted in good faith and therefore rightly submitted to the jury). More recently, the Fifth Circuit upheld the denial of a motion for judgment as a matter of law on the basis that setting gasoline prices in bad faith to drive franchisees out of business violated the UCC. Mathis v. Exxon Corp., 302 F.3d 448, 457-59 (5th Cir.2002) ([T]he jury's finding that Exxon breached its duty of good faith in setting the DTW price it charged the plaintiffs is not without foundation in the law or the evidence.); see also Bob's Shell, Inc. v. O'Connell Oil Assocs., 2005 WL 2365324, 2005 U.S. Dist. LEXIS 21318 (D.Mass. Aug. 31, 2005); Wayman v. Amoco Oil Co., 923 F.Supp. 1322, 1349 (D.Kan.1996) (finding that the case before it was a normal case but noting that [i]f there was evidence that Amoco had, for example, engaged in discriminatory pricing or tried to run plaintiffs out of business, then the court's decision might be different). But see Shell Oil v. HRN, Inc., 144 S.W.3d 429, 435-38 (Tex.2004) (holding absence of price discrimination created presumption of good faith notwithstanding allegations that that oil company set prices in bad faith as part of a plan to drive franchisees out of business). Commerce is predicated on the idea that a transaction is good for both buyer and seller. The comment recognizes that allowing one party complete control over the price would be uncommercial. We do not think the only reason for this is the risk of price discrimination. The drafters of the UCC and amici here are rightly concerned about a flood of litigation second-guessing every price set in an open price term contract. Mere allegations of bad faith will never be enough to survive summary judgment. But this case comes to us after a jury verdict finding bad faith and commercial unreasonableness. Nor do the defendants' objections to the sufficiency of the evidence require us to set the jury verdict aside. While perhaps more specific and more comprehensive evidence would be preferable, the jury had enough evidence of the defendants' motives and practices, as well as enough information about competitors' pricing, to come to the conclusion that the DTW prices were commercially unreasonable. Specifically, the use of competing gas stations' retail prices to draw conclusions about what those stations might be paying for gasoline is not ideal, but is adequate to the task at hand. In fact, it is the same benchmark that the defendants used in their street-back pricing model in setting the DTW price in the first place. In the light of this, the defendants cannot be heard to complain that such prices are not a good measure of what other distributors of gasoline are charging. And although the Dealers' expert failed to present a range of such prices, the expert testimony was not the only testimony available. One Dealer testified that the retail prices he observed were equal to or lower than the wholesale prices he paid. Additionally, at least one Dealer had firsthand knowledge of the DTW prices charged in the same area by another franchisor. On appeal, the defendants put forward once again the contentions of their own experts regarding the range of prices set by competitors. But it was up to the jury to choose between these competing characterizations, and the jury did so.