Shell Oil Company v. Hrn, Inc.

144 S.W.3d 429 (2004)

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Nature of the Case

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Facts

Ps are several hundred lessee dealers in seventeen different states who lease service stations and buy gasoline from D. There is a Lease and a Dealer Agreement for each person. D's relationship with its lessee dealers is also governed by the federal Petroleum Marketing Practices Act (PMPA), which regulates the grounds for termination and nonrenewal of petroleum franchise relationships. Each P agreed to buy Shell-branded gasoline from Shell at the 'dealer prices . . . in effect' at the time of purchase. This pricing provision is an 'open price term' governed by UCC 2.305(b). D also sells Shell-branded gasoline directly to the public through company-operated stations. D also sells branded and unbranded gasoline to jobbers. Some jobbers are wholesale distributors, selling D-branded and unbranded gasoline to stations operated by independent business owners. Other jobbers are also independent retail dealers, selling D-branded and unbranded gasoline directly to the public. Jobbers operate fleets of trucks to pick up and deliver their gasoline. Jobbers pay a 'rack' price that is available for gasoline bought and picked up at D's terminals. Ps' price is typically higher than the rack price. D does not set either price in relation to the other. Agreements between D and its jobbers effectively eliminate the only major alternative source for Shell-branded gasoline to Ps. When a jobber sells gasoline to P, the jobber is retroactively charged the dealer price for that product, not the lower rack price that would otherwise be paid. Ps sued D. Ps claim that D's dealer prices cannot be set in good faith because they are so high that they put Ps at a competitive disadvantage. Ps assert that D's pricing to them is part of a plan to replace them with company-operated outlets which are more profitable for D. D moved for summary judgment. Ps argued that fact issues existed as to whether D had acted in bad faith by setting its price with the subjectively improper motive of running Ps out of business. The trial court granted F's motion for summary judgment. The court of appeals reversed and remanded the case for trial. D appealed.