Casserlie v. Shell Oil Company

902 N.E.2d 1 (2009)

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Nature of the Case

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Facts

Ps are a group of independent D lessee-dealers. Ps leased gas stations, including equipment and land, from D and operated them as franchisees. The contracts obligated Ps to buy gasoline only from D at a wholesale price set by D at the time of delivery. This type of term in a contract is known as an open-price term. D charged Ps a dealer-tank-wagon (DTW) price that was based on market factors including the prices offered by its major competitor, and the street price within areas of Cleveland. Eventually, D's agreements with service stations in Cleveland were assigned to Equilon who entered into a joint venture called True North. True North became the distributor of D-branded gasoline in the Cleveland area, including to the stations operated by Ps. True North set the DTW price as the wholesale price it had paid Equilon plus six or seven cents per gallon. Ps sued D claiming it had set prices in bad faith. The rack price (the prices at the terminal) was often substantially lower than the delivered price. Just about everyone could beat Ps' prices for the same gasoline. Ps contend that this pricing is unreasonable and designed to drive Ps out of business. D's “secret” goal” being to take over the operation of the gas stations. Ps sued D for breach of contract. The court found that D did not violate 2-305 which requires a price to be fixed in good faith because Ps had not proven that the price had been set in a commercially unreasonable manner. D got a summary judgment. Ps appealed contending that bad faith may be shown either by a subjective standard or by evidence of its commercial unreasonableness, which is an objective standard. The court of appeals affirmed adopting the objective standard wherein Ps failed to show that D’s prices were commercially unreasonable. Ps appealed.