Two Brothers Distributing Incorporated et al v. Valero Marketing and Supply Company

Filing 155

ORDER granting 113 and 114 Valero's Motions for Summary Judgment; Denying as moot all other pending motions. The Clerk is directed to enter judgment in favor of Defendant and terminate this case. Signed by Judge David G Campbell on 9/19/17.(DXD)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Two Brothers Distributing Incorporated, et al., 10 Plaintiffs, 11 12 13 No. CV-15-01509-PHX-DGC ORDER v. Valero Marketing and Supply Company, Defendant. 14 15 16 Plaintiffs Two Brothers Distributing, Inc. (“Two Brothers”) and ten associated 17 gasoline retailers (the “Station Plaintiffs”) sued Defendant Valero Marketing and Supply 18 Company (“Valero”) asserting various claims. Doc. 29.1 Valero has filed motions for 19 summary judgment against Two Brothers and the Station Plaintiffs. Docs. 113, 114. The 20 motions are fully briefed, and the Court heard oral argument on September 14, 2017. For 21 the reasons that follow, the Court will grant Valero’s motions. 22 I. Background. 23 Most of the facts in this case are undisputed. Indeed, Two Brothers does not 24 dispute 78 of the 93 paragraphs in Valero’s Statement of Facts. See Docs. 115, 136. To 25 ensure that the Court views the evidence in the light most favorable to Plaintiffs when 26 27 1 28 The ten Station Plaintiffs are Two Brothers (“TB”) II, TB III, TB IV, TB VI, TB VII, TB IX, TB X, TB XVI, One Brother 1, and Springwells & I-75 Inc. 1 ruling on Valero’s motions for summary judgment, this background section is taken from 2 Two Brothers’ Statement of Facts. Doc. 136. 3 Valero Energy Corporation (“VEC”) is a multinational public company that 4 refines fuel and supplies branded and unbranded fuel to the Maricopa County market. Id. 5 at 3, ¶ 4. Valero is a VEC subsidiary that sells fuel to distributors. Id. at 3, ¶ 5. Before 6 May 1, 2013, VEC had several wholly-owned subsidiaries that sold fuel using either the 7 name “Valero” or “Diamond Shamrock” at approximately 45 retail service stations in 8 Maricopa County. Id. at 3, ¶ 6. Effective May 1, 2013, VEC spun off the wholly-owned 9 stores to an entirely separate company, CST Brands Inc. Id. at 3, ¶ 7. VEC retained 20% 10 of CST Brands’ stock, but sold this 20% interest on November 14, 2015. Id. Valero and 11 a subsidiary of CST Brands, CST Marketing and Supply Co. (“CST”), entered into a 12 Master Agreement that became effective on May 1, 2013. Id. at 4, ¶ 8. The Master 13 Agreement required CST to purchase annual minimum amounts of fuel from Valero in 14 excess of one billion gallons. Id. at 4, ¶ 9. This fuel was to be sold at more than 1,000 15 CST stations across the country over the 15-year life of the Agreement. Id. Prices under 16 the Master Agreement would be set in relation to daily changes in the U.S. commodities 17 market, with several pricing exceptions that require the use of alternative pricing 18 formulas if certain triggering events occurred. Id. at 5, ¶ 11. 19 Before 2007, brothers Saad Saad and Ali Saad had operated fuel stations in 20 Maricopa County, including Arco and Mobil branded stations and several unbranded 21 stations. Id. at 6, ¶ 13. Mobil decided to leave the Phoenix market in 2005, around the 22 time the Saads learned that Valero intended to increase its share of the market. Id. at 30, 23 ¶ 100. The Saads began talks with Valero in 2005 about selling Valero-branded fuel at 24 their existing stations and opening several additional Valero stations. Id. at 31, ¶ 101. 25 When Valero required the Saads to create a company to distribute Valero-branded fuels, 26 the Saads created Two Brothers Distributing, Inc. Id. at 31, ¶¶ 103-04. In 2007, Two 27 Brothers and Valero executed the first Branded Distributor Marketing Agreement 28 (“DMA”), which was effective until 2010. Id. at 7, ¶ 15. The DMA contained an open -2- 1 price term which stated that Two Brothers “shall pay to [Valero] that price specified by 2 [Valero] from time to time.” Id. The DMA allowed Two Brothers to use the Valero 3 trademark and required Two Brothers to purchase certain minimum amounts of fuel. Id. 4 at 8, ¶ 16. The DMA contained an integration clause stating that the DMA superseded 5 any other agreements, representations, or promises not contained in the agreement, and 6 required a signed writing to modify its terms. Id. 7 In 2007, Two Brothers and Valero also executed “Brand Conversion Incentive 8 Agreements” that had a duration of ten years. Id. at 11, ¶ 25. These Conversion 9 Agreements provided that Valero would pay upfront costs to brand six of the Station 10 Plaintiffs; that Valero would pay Two Brothers incentive payments of two to four cents 11 per gallon for four years to reward Two Brothers for purchasing 85% of the contracted 12 fuel amount; and a repayment schedule for some of the branding costs and incentive 13 payments. Id. at 12, ¶ 26. Valero eventually reduced the amount of fuel Two Brothers 14 had to purchase to receive the incentive payments and provided Two Brothers with funds 15 for station improvements. Id. at 12, ¶¶ 27, 29. 16 Two Brothers first purchased fuel from Valero in June 2007, and almost 17 immediately began complaining that Valero’s prices were too high in relation to other 18 suppliers such as Arco and Shell. 19 explaining that it intended to set its prices so that, on average, Valero’s rack price would 20 be competitive with other brands in the market. Id. at 18-19, ¶ 51. Throughout the 21 duration of the DMAs, Valero charged Two Brothers its daily posted rack price minus 22 discounts. Id. at 8, ¶ 39. Two Brothers continued to complain about Valero’s prices in 23 2008, 2009, and 2010, and yet executed three new Conversion Agreements for three 24 additional stations in 2008. Id. at 19-20, ¶¶ 52, 54. In 2010, Two Brothers and Valero 25 entered into another DMA that was identical to the 2007 DMA in all material respects, 26 including the pricing provision and integration clause. Id. at 20, ¶ 58. Two Brothers 27 sought changes to a 2013 DMA, those changes were rejected by Valero, and Two Id. at 18, ¶ 50. 28 -3- Valero responded with letters 1 Brothers and Valero ultimately signed materially identical DMAs in 2013 and 2016. Id. 2 at 22-24, ¶¶ 64-66, 69. Two Brothers continues to operate under the 2016 DMA. 3 Starting in 2010, all but two of the Station Plaintiffs filed for bankruptcy. Id. at 4 24, ¶ 70. Several subsequently closed and were sold, but five continue to sell Valero fuel. 5 Id. at 24-25, ¶¶ 71-75. 6 The Saad brothers act as officers and directors for Two Brothers and the Station 7 Plaintiffs. 8 Plaintiffs. Id. at 13, ¶¶ 31-32.2 In 2011, the Saad brothers transferred their shares of the 9 Station Plaintiffs to family members. Id. They own Two Brothers and, until mid-2011, owned all of the Station 10 Plaintiffs and Valero have presented contradicting expert opinions concerning the 11 fuel prices Valero charged Two Brothers, CST, and the Valero-owned stores.3 Valero’s 12 expert found that Two Brothers was charged less for fuel than both CST and the Valero- 13 owned stores over the life of the DMAs. Plaintiffs’ expert found that Valero charged 14 Two Brothers more for fuel than CST and the Valero-owned stores. The experts criticize 15 each other’s methodologies, and Valero has filed a Daubert motion asking the Court to 16 exclude the opinion of Plaintiffs’ expert. See Docs. 112, 124, 124-2, 131. For purposes 17 of this order, the Court will assume there is a factual dispute as to whether Two Brothers 18 was charged more for fuel than CST and the Valero-owned stores. 19 assumption, the Court need not decide Valero’s Daubert motion in order to resolve the 20 motions for summary judgment. 21 II. Given that Legal Standard. 22 A party seeking summary judgment “bears the initial responsibility of informing 23 the district court of the basis for its motion, and identifying those portions of [the record] 24 which it believes demonstrate the absence of a genuine issue of material fact.” Celotex 25 Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment is appropriate if the 26 evidence, viewed in the light most favorable to the nonmoving party, shows “that there is 27 2 28 3 TB XVI also had two minority owners from 1998 through 2013. Id. at 13, ¶ 31. Valero asserts that it did not “sell” fuel to its own stores, but transferred fuel to those stores at certain internal transfer prices. See Doc. 113 at 18 n.14. -4- 1 no genuine dispute as to any material fact and the movant is entitled to judgment as a 2 matter of law.” Fed. R. Civ. P. 56(a). Summary judgment is also appropriate against a 3 party who “fails to make a showing sufficient to establish the existence of an element 4 essential to that party’s case, and on which that party will bear the burden of proof at 5 trial.” Celotex, 477 U.S. at 322. 6 III. Two Brothers’ Claims. 7 Two Brothers brings several claims based on Valero’s pricing of its fuel in 8 Maricopa County. Two Brothers alleges that Valero induced it to enter into a business 9 relationship by making oral representations about how it would price its fuel, but 10 ultimately did not price its fuel in accordance with those representations. Doc. 136 at 25, 11 31-33, ¶¶ 76, 108-11. Two Brothers also contends that Valero charged it higher prices 12 than CST in order to favor CST and drive Two Brothers out of the market. Id. at 26, 13 ¶ 78. These higher prices, according to Two Brothers, prevented it from competing with 14 Valero-owned stores, CST stores, or even other similarly-situated brands. Id. at 36, 15 ¶ 132. If Valero had priced its fuel as represented, Two Brothers asserts, Two Brothers 16 would have sold a larger volume of fuel and made higher profits. Id. at 37, ¶¶ 142-43. 17 Two Brothers also alleges that Valero’s discriminatory pricing of its fuel violated the 18 Robinson-Patman Act (“RPA”). Doc. 29 at 23, ¶ 107. 19 A. 20 The DMAs provide that Two Brothers “shall pay to [Valero] that price specified 21 by [Valero] from time to time[.]” Doc. 115-2 at 114, ¶ 4(A). They do not otherwise 22 explain or impose limitations on how Valero will set fuel prices. Because the express 23 language of the DMAs does not require Valero to set its daily rack price in any particular 24 manner, Valero argues, Two Brothers’ breach of contract claim must fail. Id. at 11-12; 25 see also Doc. 115-2 at 114, ¶ 4(A). Count I – Breach of Contract. 26 Two Brothers does not dispute that the language of the DMAs grants Valero the 27 discretion to set the daily prices Two Brothers pays for fuel, or that the DMAs include no 28 guarantees as to how Valero will set this price. Doc. 134 at 14; Doc. 136 at 7, ¶ 15. -5- 1 Instead, Two Brothers alleges that in 2007 Valero made several oral representations 2 regarding fuel prices under the DMAs. Doc. 29 at 7, ¶ 23; Doc. 136 at 31-33, ¶¶ 108-11. 3 Two Brothers contends that Valero promised, among other things, that it would charge 4 Two Brothers a fuel price in line with discount brand stations and Valero-owned stations 5 so that Two Brothers stations would remain competitive and profitable. Doc. 136 at 31, 6 ¶ 108. Valero denies making such representations, and argues that extrinsic evidence of 7 oral representations is inadmissible to alter the terms of the DMAs. Doc. 113 at 12. 8 Because the parties have contracted for the sale of goods (petroleum), the Uniform 9 Commercial Code (“U.C.C.”) applies to their agreement. A.R.S. § 47-2102. Arizona’s 10 11 12 13 14 15 16 17 18 version of U.C.C. § 2-202 provides: Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented: 1. By course of performance, course of dealing or usage of trade (§ 471303); and 2. By evidence of consistent additional terms unless the court finds the writing to have been intended also as a complete and exclusive statement of the terms of the agreement. 19 20 A.R.S. § 47-2202 (emphasis added).4 21 This statute requires two inquiries. First, did the parties intend the DMAs to be “a 22 final expression of their agreement with respect to such terms as are included therein”? 23 Id. If yes, then the DMAs cannot be contradicted by any prior oral agreements, but may 24 be “explained or supplemented” by “course of performance,” “course of dealing,” “usage 25 of trade,” or evidence of “consistent additional terms.” Id. Second, were the DMAs 26 intended also to be “a complete and exclusive statement of the terms of the agreement”? 27 28 4 Throughout the remainder of this order, the Court will cite solely to the Arizona version of the U.C.C. rather than to the corresponding U.C.C. section number. -6- 1 If yes, then evidence of “consistent additional terms” cannot be considered, and Two 2 Brothers is limited to “course of performance, course of dealing or usage of trade.” Id. 3 Two Brothers argues that because the DMAs do not contain any pricing terms 4 beyond designating Valero as the price-setter, the DMAs are “not fully integrated with 5 respect to the[] pricing terms.” Doc. 134 at 12. In language of the Arizona statute, the 6 Court understands Two Brothers to be arguing that the DMAs are not “a final expression” 7 of the parties’ agreement with respect to terms included in the DMAs, such as price, and 8 are not “a complete and exclusive statement of the terms of the agreement.” A.R.S. § 47- 9 2202. Thus, Two Brothers contends, evidence of additional non-conflicting price terms 10 must be considered – specifically, the oral representations allegedly made by Valero. 11 The Court concludes that the DMAs are “a final expression” of the parties’ 12 agreement with respect to terms included in the DMAs, including price terms. Id. Two 13 Brothers argues that the DMAs cannot be final because they include no final price term, 14 but a contract for the sale of goods may have an open price term. In a statutory section 15 titled “[o]pen price term,” Arizona’s U.C.C provides that “[t]he parties if they so intend 16 can conclude a contract for sale even though the price is not settled.” A.R.S. § 47- 17 2305(A). The statute recognizes that such contracts can provide that the sale price will be 18 set by the seller, and states that, in such cases, the seller must set the price in good faith. 19 § 47-2305(B). Thus, the fact that the DMAs provide for fuel prices to be set by Valero 20 does not indicate that the DMAs are not a final expression of the parties’ agreement. See 21 T.A.M., Inc. v. Gulf Oil Corp., 553 F. Supp. 499, 509 (E.D. Pa. 1982). 22 Indeed, open price terms are a common contract feature in the petroleum industry. 23 As one court has noted, “[o]pen-price-term contracts are commonly used in the gasoline 24 refining and marketing industry due to price volatility.” Shell Oil Co. v. HRN, Inc., 144 25 S.W.3d 429, 431 (Tex. 2004); see also T.A.M, Inc., 553 F. Supp. at 509 (“Considering the 26 nature of the petroleum market, and the length of time for which the contracts were to 27 run, it appears quite clear that the parties had no options but to operate on an open price 28 basis.”). A respected U.C.C. commentary agrees: -7- 1 2 3 4 5 6 For reasons that are partly historical and partly driven by the modern market for gasoline, sellers of oil and of oil derivatives such as gasoline have traditionally agreed to sell at a “posted price.” In the earliest days of oil production, this was apparently a price on a note nailed to a post in an oil field. More recently, it is the price, disclosed on a Web site, which a gasoline wholesaler offers to retail gas stations. Of course, this is a price to be fixed by the seller under 2-305(2) and so must be fixed in “good faith.” 1 White, Summers, & Hillman, Uniform Commercial Code § 4:15 (6th ed.). 7 The parties agree that such posted prices are used in the Phoenix market. Valero 8 explains that petroleum suppliers such as ExxonMobil, Shell, Chevron, and Valero set 9 daily rack prices with the Oil Price Information Service that are then charged to 10 distributors. Doc. 115 at 2, ¶¶ 1-3. Two Brothers agrees. Doc. 136 at 2, ¶¶ 1-3. Given 11 this well-established practice, the fact that the DMAs contain an open price term does not 12 support a finding that the agreements are incomplete. Rather, this practice explains why 13 a contract for the purchase of petroleum is complete despite an open price term. 14 The only other evidence cited by Two Brothers to show that the DMAs are 15 incomplete are the oral representations allegedly made by Valero employees before the 16 first DMA was signed in 2007. But even if the Court assumes for purposes of this order 17 that these alleged oral representations were actually made, paragraph 23 of the DMAs 18 makes clear that they did not become part of the parties’ contract: 19 20 21 22 23 24 25 26 27 28 This Agreement, including the exhibits hereto, constitutes the entire agreement and understanding between [Two Brothers] and [Valero] with respect to the matters covered hereby. There are no representations, stipulations, warranties, agreements or understandings with respect to the subject matter of this Agreement which are not fully expressed herein and which are not superseded hereby. The provisions of this Agreement shall not be reformed, altered, or modified in any way by any practice or course of dealing prior to or during the term of this Agreement, and can only be reformed, altered, or modified by a writing signed by [Two Brothers] and an officer of [Valero] (except as otherwise expressly provided herein). [Two Brothers] specifically acknowledges that [Two Brothers] has not been induced to enter into this Agreement by any representation, stipulation, warranty, agreement, or understanding of any kind other than as expressed herein. -8- 1 Doc. 115-2 at 126, ¶ 23. 2 This language is clear – the DMAs constitute the entire agreement between the 3 parties. Paragraph 23, which Two Brothers signed on four separate occasions from 2007 4 to 2016, including after Valero made clear that its price-setting discretion was not limited 5 by any alleged oral representations, states expressly that any other representations, 6 agreements, or understandings are not part of the DMAs. 7 nothing in the DMAs which suggests that Valero’s discretion to set prices is limited by 8 terms outside the written agreements. Nor is there anything in the DMAs to suggest that 9 further negotiations were anticipated. Because paragraph 23 makes clear that all terms 10 are fully expressed in the DMAs, the Court concludes that the DMAs are a final 11 expression of the parties’ agreement within the meaning of § 47-2202.5 Two Brothers identifies 12 Two Brothers argues that Valero’s alleged oral representations may be used to 13 interpret the DMAs even if the DMAs are fully integrated. Doc. 134 at 13. As noted 14 above, § 47-2202 provides that a contract that includes a “final expression” of the parties’ 15 agreement may be “explained or supplemented” by course of performance, course of 16 dealing, usage of trade, or evidence of consistent additional terms. But the last category – 17 evidence of consistent additional terms – is not available if the agreement is “a complete 18 and exclusive statement of the terms of the agreement.” A.R.S. § 47-2202(2). 19 Given the clear terms of paragraph 23 and the fact that all four of the parties’ 20 DMAs include the same language, the Court concludes that the DMAs constitute “a 21 complete and exclusive statement of the terms of the agreement.” Id.; see Shore Line 22 Props., Inc. v. Deer-O-Paints & Chems., Ltd., 538 P.2d 760, 763 (Ariz. 1975) (“whether 23 24 25 26 27 28 5 Two Brothers argues that the alleged representations as to how Valero would fix petroleum prices were made before the 2007 DMA was finalized. Even if Two Brothers also contended that representations were made after the 2007 DMA, any amendment to the agreement had to be in writing. Doc. 115-2 at 126, ¶ 23; A.R.S. § 47-2209 (“A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party.”). -9- 1 a writing was intended as a complete and exclusive statement of the terms of a contract is 2 for the court to decide”) (applying earlier version of A.R.S. § 47-2202). As a result, the 3 DMAs may be “explained or supplemented” only by “course of performance, course of 4 dealing or usage of trade.” A.R.S. § 47-2202(1). 5 Valero’s alleged oral representations do not constitute a course of performance, 6 course of dealing, or usage of trade. “A ‘course of performance’ is a sequence of conduct 7 between the parties to a particular transaction that exists if: 1. The agreement of the 8 parties with respect to the transaction involves repeated occasions for performance by a 9 party; and 2. The other party, with knowledge of the nature of the performance and the 10 opportunity for objection to it, accepts the performance or acquiesces in it without 11 objection.” A.R.S. § 47-1303(A). “A ‘course of dealing’ is a sequence of conduct 12 concerning previous transactions between the parties to a particular transaction that is 13 fairly to be regarded as establishing a common basis of understanding for interpreting 14 their expressions and other conduct.” § 47-1303(B). “A ‘usage of trade’ is any practice 15 or method of dealing having such regularity of observance in a place, vocation or trade as 16 to justify an expectation that it will be observed with respect to the transaction in 17 question.” § 47-1303(C). Two Brothers does not rely on any of these; it does not 18 contend that limitations were placed on Valero’s price-setting discretion by a course of 19 performance in a particular transaction, a course of dealing in previous transactions, or a 20 usage of trade in the industry. Rather, Two Brothers relies on oral statements allegedly 21 made by Valero before the parties engaged in any transaction. Under the statute, those 22 oral representations cannot be used to explain or supplement the DMAs. § 47-2202(2). 23 What is more, even if the Court disregards § 47-2202(2) and looks to Arizona’s 24 traditional parol evidence rule, Two Brothers cannot prevail. Arizona applies a liberal 25 version of the parol evidence rule; it does not require that a court find an agreement 26 ambiguous before considering parol evidence. Instead, “the judge first considers the 27 offered evidence and, if he or she finds that the contract language is ‘reasonably 28 susceptible’ to the interpretation asserted by its proponent, the evidence is admissible to - 10 - 1 determine the meaning intended by the parties.” Taylor v. State Farm Mut. Auto. Ins. 2 Co., 854 P.2d 1134, 1140 (Ariz. 1993). If the contract language is not reasonably 3 susceptible to the proffered interpretation, the court should disregard the evidence. 4 Arizona v. Tohono O’odham Nation, 944 F. Supp. 2d 748, 761 (D. Ariz. 2013), aff’d, 818 5 F.3d 549 (9th Cir. 2016). “A proffered interpretation that is highly improbable would 6 necessarily require very convincing evidence. In such a case, the judge might quickly 7 decide that the contract language is not reasonably susceptible to the asserted meaning, 8 stop listening to evidence supporting it, and rule that its admission would violate the 9 parol evidence rule.” Taylor, 854 P.2d at 1141. 10 Two Brothers asserts, without explanation, that Valero’s alleged oral statements 11 about price setting “do not contradict or vary the terms of the [DMAs]. Instead, they 12 explain the parties’ intentions and the meaning of the agreements’ price term.” Doc. 134 13 at 14. Two Brothers contends that although Valero has discretion to set petroleum prices 14 under the DMAs, that discretion is limited by Valero’s own representations that it would 15 set prices (1) below or consistent with other suppliers, (2) consistent with the prices it 16 charges its own and other stores, and (3) in a way that allows Two Brothers to remain 17 competitive and profitable. Id. 18 Although “Arizona has adopted a permissive approach to the parol evidence rule, 19 ‘a proponent of parol evidence cannot completely escape the confines of the actual 20 writing.’” Valento v. Valento, 240 P.3d 1239, 1245 (Ariz. Ct. App. 2010). The DMAs 21 state that Valero will set the fuel prices to be charged to Two Brothers. Doc. 115-2 22 at 114, ¶ 4(A). As noted above, such an open price term is permitted by A.R.S. § 47- 23 2305(A) and consistent with practices in the petroleum marketing industry. The DMAs 24 provide no other explanation, representation, or equivocation as to the price term, and 25 they expressly disavow and supersede any prior representations regarding the subject 26 matter of the DMAs. Doc. 115-2 at 126, ¶ 23. The Court cannot conclude that an 27 agreement which expressly authorizes the seller to set prices, as is permitted by Arizona 28 statute, and which expressly disavows any prior representations between the parties, is - 11 - 1 reasonably susceptible to an interpretation that adopts prior representations. Such an 2 interpretation is directly contrary to the language of the DMAs. 3 Moreover, a commitment to set prices consistent with competitor suppliers and at 4 levels that would ensure that Two Brothers would remain competitive and profitable 5 would bind Valero to significant and unknown future burdens that depend on factors 6 beyond Valero’s control. Such a significant obligation seems “highly improbable” and 7 therefore calls for even more convincing evidence. Taylor, 854 P.2d at 1141. One would 8 expect such a commitment to be explicitly contained in the language of the DMAs if the 9 parties intended to include it. This is particularly true in light of the history of the parties’ 10 dealings on this issue: Two Brothers repeatedly complained that the oral representations 11 were not being followed, Valero consistently replied that there were no such 12 representations in the parties’ contract, and the parties nonetheless proceeded to execute 13 exactly the same DMAs with exactly the same disclaimer of prior representations in 14 2010, 2013, and 2016. 15 The Court concludes that the DMAs are not reasonably susceptible to the 16 interpretation suggested by Two Brothers’ proposed parol evidence, and therefore will 17 disregard that evidence. Tohono O’odham Nation, 944 F. Supp. 2d at 761; see also 18 Taylor v. Graham Cty. Chamber of Commerce, 33 P.3d 518, 530 (Ariz. Ct. App. 2001) 19 (“parol evidence is not admissible to supply a missing term or to vary or contradict” 20 express terms). Two Brothers has not otherwise provided evidence that Valero violated 21 any express term of the DMAs. The Court will grant summary judgment to Valero on 22 Count I. 23 B. 24 As already noted, when a contract provides for a price to be fixed by the seller, the 25 seller must set the price in good faith. A.R.S. § 47-2305(B). Two Brothers contends that 26 Valero violated this requirement when it set the price of fuel under the DMAs. Doc. 134 27 at 14-17. Count II – Open Price Term and Good Faith. 28 - 12 - 1 Courts have recognized that the treatment of “good faith” is not uniform 2 throughout the various provisions of the U.C.C., see Mathis v. Exxon Corp., 302 F.3d 3 448, 456 (5th Cir. 2002), Casserlie v. Shell Oil Co., 902 N.E.2d 1, 4 (Ohio 2009), and 4 neither the Ninth Circuit nor any Arizona federal or state court has addressed the proper 5 interpretation of good faith in the context of price setting pursuant to open price terms. 6 As a result, the Court will look to other sources for guidance.6 7 A.R.S. § 47-2305 adopts the corresponding U.C.C. provision (§ 2-305) verbatim. 8 Official Comment 3 to that provision affords a starting point for the meaning of good 9 faith in the context of open price terms: 10 11 12 13 14 15 [The UCC provision] dealing with the situation where the price is to be fixed by one party rejects the uncommercial idea that an agreement that the seller may fix the price means that he may fix any price he may wish by the express qualification that the price so fixed must be fixed in good faith. Good faith includes observance of reasonable commercial standards of fair dealing in the trade if the party is a merchant. (Section 2-103). But in 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. 16 17 U.C.C. § 2-305 cmt. n.3 (2016). 18 As will be discussed in more detail below, courts agree that the last sentence of 19 this comment creates a safe harbor. In the “normal case,” evidence that a seller charged 20 the regularly posted price will place the seller in the safe harbor and satisfy the 21 requirement of good faith. 22 overcome the presumption of good faith created by the safe harbor. 23 24 25 26 27 28 Id. Courts are split, however, on what is required to 6 The Ninth Circuit considered good faith price setting in Nanakuli Paving & Rock Co. v. Shell Oil Co., 664 F.2d 772 (9th Cir. 1981). Nanakuli found that the price was not set in good faith because the buyer was not given adequate notice of price changes in accordance with commercially reasonable standards in the industry. Id. at 805. The dispute “was not over the amount of the increase – that is, the price that the seller fixed – but over the manner in which that increase was put into effect.” Id. Because Two Brothers challenges the amount rather than the manner of price setting in this case, Nanakuli does not provide useful guidance. - 13 - 1 On the majority side of the split, a claimant may push a case out of the safe harbor 2 only by showing that a posted price was set with objective bad faith – that the price was 3 either discriminatory or not commercially reasonable. See HRN, Inc., 144 S.W.3d at 434 4 (“the majority of decisions suggest that a commercially reasonable [fuel] price, that is, 5 one within the range of [fuel] prices charged by other refiners in the market, is a good 6 faith price under section 2.305 absent some evidence that the refiner used pricing to 7 discriminate among its purchasers.”) (citing cases). A minority of courts holds that a case 8 falls outside the safe harbor if a claimant shows the posted price was set with subjective 9 bad faith in the form of improper motive. See Marcoux v. Shell Oil Prod. Co. LLC, 524 10 F.3d 33 (1st Cir. 2008), aff’d in part, rev’d in part and remanded sub nom. Mac’s Shell 11 Serv., Inc. v. Shell Oil Prod. Co. LLC, 559 U.S. 175 (2010) (applying Massachusetts 12 law); Allapattah Servs., Inc. v. Exxon Corp., 61 F. Supp. 2d 1308 (S.D. Fla. 1999) 13 (Allapattah II) (applying Florida law). 14 The Court need not decide which approach Arizona would follow because Two 15 Brothers’ argument fails under both approaches. In arguing that Valero engaged in bad 16 faith under § 47-2305, Two Brothers presents no evidence that Valero’s rack price was 17 commercially unreasonable. 18 agreed that Valero pricing “fell into a range that could be considered competitive.” 19 Doc. 93-2 at 18, ¶ 39. And Two Brothers’ response to the summary judgment motion 20 made clear that it does not contend that Valero’s prices were commercially unreasonable. 21 See Doc. 134 at 15 (“Contrary to [Valero’s] argument, commercial reasonableness is not 22 the only test for good faith under § 47-2305. That statute can also be violated by 23 subjective bad faith.”) (emphasis in original). Because the commercial reasonableness of 24 Valero’s fuel prices is not disputed in this case, Two Brothers can show that Valero’s 25 pricing falls outside the safe harbor of § 47-2305 only if it was discriminatory or 26 exercised in subjective bad faith. To the contrary, Two Brothers’ expert, Ron Santicola, 27 Two Brothers contends that Valero sold fuel to Two Brothers at a higher price 28 than it charged its own stores and CST, with the purpose of pricing Two Brothers and the - 14 - 1 Station Plaintiffs out of the market. Doc. 134 at 16-17. Although it appears that Two 2 Brothers intends this only as a showing of subjective bad faith, it could also be construed 3 as discriminatory pricing. The Court accordingly will address both possibilities. 4 Discriminatory pricing requires similarly situated buyers. See Mathis, 302 F.3d at 5 457 (“price discrimination is [] the most obvious way a price-setter acts in bad faith – by 6 treating similarly-situated buyers differently”); Wayman v. Amoco Oil Co., 923 F. Supp. 7 1322, 1346-47 (D. Kan. 1996), aff’d, 145 F.3d 1347 (10th Cir. 1998) (“It is abundantly 8 clear from these statements that the chief concern of the UCC Drafting Committee in 9 adopting § 2-305(2) was to prevent discriminatory pricing – i.e., to prevent suppliers 10 from charging two buyers with identical pricing provisions in their respective contracts 11 different prices for arbitrary or discriminatory reasons.”) (emphasis in original); 12 Casserlie, 902 N.E.2d at 6 (good faith is satisfied by a price that is “nondiscriminatory 13 among similarly situated buyers”); HRN, Inc., 144 S.W.3d at 433-36 (a price is non- 14 discriminatory when it is applied uniformly to similarly-situated purchasers). 15 Charging different prices to differently situated buyers does not constitute bad 16 faith under § 47-2305. Id. at 437-38 (branded and unbranded jobbers who pick up their 17 gasoline at terminals, open dealers who own their own premises, and company-owned 18 stores operated by other refiners are not similarly situated); see also Ajir v. Exxon Corp., 19 No. C 93-20830 RMW, 1995 WL 261412, at *4 (N.D. Cal. May 2, 1995), aff’d, 185 F.3d 20 865 (9th Cir. 1999) (The “existence of different prices for different classes of trade is not 21 sufficient to demonstrate that Exxon is overcharging plaintiffs for gasoline.”); Casserlie, 22 902 N.E.2d at 7 (“The disparate pricing between jobbers and dealers is not evidence of 23 discrimination.”); Tom-Lin Enters., Inc. v. Sunoco, Inc. (R&M), 349 F.3d 277, 285 (6th 24 Cir. 2003) (same). 25 Two Brothers does not argue that it is similarly situated to the Valero-owned 26 stations that acquired fuel from Valero before May 1, 2013 (Doc. 134 at 17), and for 27 good reason. Those stations did not, like Two Brothers, lease the Valero brand name 28 (they already were part of the business that owned the name), did not sign contracts with - 15 - 1 Valero, did not receive discounts from Valero, and did not buy branded fuel from Valero 2 in an arm’s length transaction. Courts have treated such integrated businesses as different 3 from distributors like Two Brothers. See HRN, Inc., 144 S.W.3d at 437-38 (branded 4 distributors who pick up fuel at the terminal to supply their stations are in different class 5 of trade from supplier-operated stations); accord Ajir, 1995 WL 261412 (distributors and 6 retailers are in different classes of trade). 7 Nor is Two Brothers similarly situated to CST. CST came into existence on 8 May 1, 2013. Doc. 136 at 3, ¶ 7. The relationship between Valero and CST is governed 9 by a Master Agreement that has a life of 15 years. Id. at 4, ¶ 8. Each year during that 15- 10 year period, CST is required to purchase a minimum amount of fuel from Valero. Id. at 11 4, ¶ 9. This minimum amount exceeds one billion gallons annually, and the Master 12 Agreement provides for penalties if it is not met. Id. The fuel is to be sold in over 1,000 13 CST-owned stores across the country. Id. If CST decides to convert any stores to the 14 Valero brand, it must – unlike Two Brothers – pay the costs of conversion unless a 15 separate written agreement provides otherwise. Id. at 4, ¶ 10. The Master Agreement 16 establishes a formula to set fuel prices in relation to daily changes in the U.S. 17 commodities market, but provides exceptions for certain regional markets including 18 Phoenix. Id. at 5, ¶ 11. The recitals to the Master Agreement explain that Valero agreed 19 to certain terms as consideration for CST’s commitment to purchase the volume of fuel 20 required by the contract. Id. at 5, ¶ 12. 21 In contrast, the DMAs between Valero and Two Brothers each lasts three years. 22 At its highest volume, Two Brothers was purchasing fuel and distributing it to ten 23 stations, all located in Maricopa County. Valero provided funding for station conversion 24 and station upgrades. Two Brothers was required to purchase substantially less fuel than 25 CST. The 2010 DMA, for example, required Two Brothers to purchase not less than 26 85% and not more than 115% of the amount of fuel shown on Exhibit A – 9,730,050 27 gallons. Doc. 115-2 at 113, 218-19. 28 - 16 - 1 Two Brothers acknowledges the cases holding that discriminatory pricing requires 2 similarly-situated purchasers (Doc. 134 at 170), but does not argue that it is similarly 3 situated to either the Valero-owned stores or the CST stores for purposes of § 47-2305. 4 Instead, Two Brothers argues that Valero acted with subjective bad faith, making this 5 something other than the “normal case” referred to in Comment 3 to § 47-2305 and 6 taking this case out of the safe harbor. Doc. 134 at 15-17.7 7 Two Brothers’ subjective bad faith claim, however, is premised entirely on 8 Valero’s failure to abide by the alleged oral representations that are not part of the 9 DMAs. Two Brothers presents no other evidence. This is its argument: 10 11 12 13 14 15 16 17 18 There is evidence from which a rational jury could conclude that [Valero] acted in subjective bad faith under § 47-2305 in the manner in which it priced fuel to [Two Brothers]. Specifically, a rational jury could conclude that [Valero] sold fuel to [Two Brothers] at a higher price than it sold fuel to its own stores and to CST, contrary to its promises. And a rational jury could conclude that [Valero] priced fuel to [Two Brothers] at rates that did not allow [Two Brothers] to compete with the Valero-owned stores and later the CST stores, or even other similarly-situated brands, contrary to its promises. Thus a rational jury could conclude that [Valero] used [Two Brothers] to introduce the Valero brand into the Phoenix market, and once it did, engaged in a campaign to drive [Two Brothers] out of the market. Doc. 134 at 15-16 (emphasis added; record citations omitted). 19 Because the alleged oral representations are not part of the parties’ DMAs, and in 20 fact were expressly disavowed by those agreements, the Court cannot conclude that 21 Valero’s failure to abide by them constitutes subjective bad faith. A party permitted by a 22 contract to set prices does not act in subjective bad faith simply by failing to comply with 23 limitations that are not part of the agreement between the parties. In the execution of four 24 successive DMAs – 2007, 2010, 2013, and 2016 – Two Brothers agreed that the alleged 25 oral representations were not part of the fuel-purchase contracts between the parties. 26 27 28 7 Two Brothers later argues that it and CST are similarly situated for purposes of the RPA. Doc. 134 at 17. The Court will address that argument below. - 17 - 1 Although Two Brothers alleges that a jury could conclude that Valero intended to 2 use Two Brothers to introduce the Valero brand into the Phoenix market and then to drive 3 Two Brothers out of business, Two Brothers presents no evidence of this fact other than 4 the alleged oral representations. 5 subjective bad faith as sufficient to defeat the safe harbor of § 47-2305 requires more 6 than a simple allegation of improper motive. See Mathis, 302 F.3d at 457 (subjective bad 7 faith cannot be established “only on an allegation of improper motive by the party setting 8 the price”); Marcoux, 524 F.3d at 51 (“Mere allegations of bad faith will never be enough 9 to survive summary judgment.”); Flagler Auto., Inc. v. Exxon Mobil Corp., 582 F. Supp. 10 2d 367, 380-81 (E.D. N.Y. 2008) (supplier did not breach its good-faith duty in setting 11 open-price terms by recouping rebate costs through pricing where plaintiffs produced no 12 evidence of dishonesty or commercial unreasonableness); Wayman, 923 F. Supp. at 1349 13 (declining to find bad faith but noting that “[i]f there was evidence that Amoco had . . . 14 tried to run plaintiffs out of business, then the court’s decision might be different”). And even the minority of courts that recognizes 15 In Mathis, plaintiffs provided evidence that Exxon had charged them more than 16 the sum of the rack price and transportation costs for gas delivered to their stations, that a 17 number of franchisees were unprofitable or non-competitive, and that Exxon prevented 18 the franchisees from purchasing gas from jobbers. 302 F.3d at 457-58. But this was not 19 all. The plaintiffs also provided evidence that Exxon planned to replace a number of its 20 franchisees with company-operated retail stores. 21 presented several Exxon documents showing Exxon’s marketing strategy to reduce 22 franchisee stores and replace them with company stores. Id. at 458. These documents 23 constituted sufficient evidence from which the jury could draw the inference that Exxon 24 used pricing to eliminate the franchisees. Id. Id. For example, the plaintiffs 25 Two Brothers presents no such evidence. Two Brothers provides no evidence that 26 Valero or CST attempted to acquire any of Two Brothers’ closed stations or otherwise 27 sought to occupy their territory. Two Brothers does provide a declaration from Saad 28 Saad stating that he and his brother “were able to observe that [Valero] routinely sold fuel - 18 - 1 to the Valero-owned stations and later to CST at prices that allowed those stations to 2 retail price lower than [Two Brothers] was paying for wholesale fuel.” Doc. 136-1 at 6, 3 ¶ 21. But the declaration provides no explanation of how Mr. Saad and his brother made 4 this observation or what evidence they had of different pricing for Valero-owned stations 5 and CST. Id. As the Ninth Circuit has noted repeatedly, “[a] conclusory, self-serving 6 affidavit, lacking detailed facts and any supporting evidence, is insufficient to create a 7 genuine issue of material fact.” F.T.C. v. Publ’g Clearing House, Inc., 104 F.3d 1168, 8 1171 (9th Cir. 1997). “When the nonmoving party relies only on its own affidavits to 9 oppose summary judgment, it cannot rely on conclusory allegations unsupported by 10 factual data to create an issue of material fact.” Hansen v. United States, 7 F.3d 137, 138 11 (9th Cir. 1993); accord Am. Fed’n of State v. Nevada ex rel. Dep’t of Corr., 460 F. App’x 12 688, 690 (9th Cir. 2011). 13 In addition, Mr. Saad’s declaration simply restates the allegation of price 14 discrimination that is rejected above because CST and Valero-owned stores were not 15 similarly situated. CST is a national operator that entered a 15-year contract to purchase 16 and sell more than a billion gallons annually in 1,000 stations across the country. See 17 Doc. 113 at 18; Doc. 136 at 4, ¶ 9. And Valero-owned stores had no contract with their 18 parent and therefore were not similarly situated to Two Brothers and its DMAs. 19 At bottom, Two Brothers is forced to argue that Valero’s subjective bad faith is 20 shown by the fact that it charged Two Brothers more than it charged differently situated 21 stores, even though the price charged Two Brothers was publicly posted and 22 commercially reasonable. That position simply is not tenable. As the Supreme Court of 23 Texas reasoned with respect to § 47-2305: 24 25 26 27 28 Beyond prohibiting discriminatory pricing, the drafters wished to minimize judicial intrusion into the setting of prices under open-price-term contracts. They understood that requiring sellers in open-price industries, such as the oil and gas industry, to justify the reasonableness of their prices in order to satisfy section 2.305 would “mean[ ] that in every case the seller is going to be in a lawsuit” and that every sales contract would become “a public utility rate case.” Walter D. Malcolm, The Proposed Commercial Code: A - 19 - 1 2 3 4 Report on Developments from May 1950 through February 1951, 6 Bus. Law. 113, 186 (1951). The drafters reasonably foresaw that almost any price could be attacked unless it benefitted from a strong presumption. Thus, they adopted a safe harbor, Comment 3’s posted price presumption, to preserve the practice of using “sellers’ standard prices” while seeking “to avoid discriminatory prices.” Id. 5 6 HRN, Inc., 144 S.W.3d at 435. 7 To allow Two Brothers’ claim under § 47-2305 to continue to trial without any 8 evidence of subjective bad faith other than Valero’s charging a posted and commercially 9 reasonable price that was higher than it charged differently situated stores would clearly 10 undermine the U.C.C.’s attempt to establish objective standards by which to judge an 11 open price contract. As one commentator aptly observed, “[t]he obligation of good faith 12 in price setting does not impose an obligation on sellers to ensure the profitability of their 13 buyers[.]” 1 White, Summers, & Hillman, Uniform Commercial Code § 4:15 (6th ed.). 14 Two Brothers relies most heavily on the decisions in Allapattah Servs., Inc. v. 15 Exxon Corp., 61 F. Supp. 2d 1300 (S.D. Fla. 1999) (Allapattah I), aff’d, 333 F.3d 1248 16 (11th Cir. 2003), aff’d sub nom. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 17 546 (2005), and Allapattah II, 61 F. Supp. 2d 1308. Those decisions, which arose out of 18 the same case, are plainly distinguishable. 19 The case concerned allegations that Exxon was double charging its dealers for 20 credit card processing fees. 61 F. Supp. 2d at 1322. After entering into a contract to sell 21 fuel to the plaintiffs with an open price term, Exxon decided to implement a Discount for 22 Cash program. Under this program, Exxon instituted a three percent processing fee on 23 credit card tickets submitted by dealers, but simultaneously said it would reduce the 24 wholesale price of the fuel to offset the increase. Id. at 1313. Evidence in the record 25 supported the plaintiffs’ assertion that Exxon actually double-charged dealers for credit 26 card processing fees. Id. at 1322, 1324-35. Furthermore, Exxon concealed this double 27 charge from the dealers, who lowered their prices in reliance on Exxon’s representation. 28 The court found that the plaintiffs had shown a breach of Exxon’s obligation to set its - 20 - 1 price in good faith, emphasizing that “[b]ecause the parties’ dispute is not over the actual 2 amount of the price Exxon charged for its wholesale gasoline to its dealers, but rather 3 over the manner in which the wholesale price was calculated without considering the 4 doubled charge for credit card processing, the instant action is not the ‘normal’ case 5 [under § 2-305].” Id. at 1322; see also HRN, Inc., 144 S.W.3d at 436. 6 Two Brothers does not allege that Valero acted dishonestly during the course of 7 their relationship. The alleged oral representations about how Valero would price its fuel 8 occurred before Two Brothers entered into the DMAs. Doc. 134 at 3. Once the DMA 9 relationship began, Two Brothers began complaining that Valero’s prices were too high. 10 Doc. 136 at 18-19, ¶¶ 47-53. Two Brothers does not allege that Valero responded with 11 any false statements about how it was establishing its prices. Id. at 18-19, ¶¶ 47-53. 12 Rather, Valero responded by stating that it would price “competitive[ly] with other brand 13 posters in the market.” Id. As already noted, Two Brothers’ expert concedes that Valero 14 did so. See Doc. 93-2 at 18, ¶ 39 (conceding that Valero pricing “fell into a range that 15 could be considered competitive”). A mere allegation of an unexpectedly high price, 16 without more, does not establish bad faith. See Allapattah II, 61 F. Supp. 2d at 1321.8 17 Two Brothers has failed to present evidence that Valero set its prices in bad faith. 18 The Court therefore will grant summary judgment on its claim of bad faith under § 47- 19 2305. Celotex, 477 U.S. at 322. 20 C. 21 “Arizona law implies a covenant of good faith and fair dealing in every contract.” 22 Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Count III – Implied Covenant of Good Faith and Fair Dealing. 23 24 25 26 27 28 8 Two Brothers quotes Allapattah I: “Since compliance with the obligation to act in good faith requires that the party’s actions be consistent with the agreed common purpose and justified expectations of the other party, the purpose, intentions and expectations of the parties may be determined by considering the language of the contract as well as the course of dealings between and conduct of the parties.” 61 F. Supp. 2d at 1304. Even if this were viewed as an accurate summary of § 47-2202, Two Brothers has provided no evidence of any “course of dealings” or “conduct” that would justify its expectations about how Valero would set its prices. - 21 - 1 Pension Tr. Fund, 38 P.3d 12, 28 (Ariz. 2002). The implied covenant “prohibits a party 2 from doing anything to prevent other parties to the contract from receiving the benefits 3 and entitlements of the agreement.” Id. The implied terms of the covenant are as much a 4 part of the contract as the express terms, but they cannot directly contradict those express 5 terms. Kuehn v. Stanley, 91 P.3d 346, 354 (Ariz. Ct. App. 2004); Bike Fashion Corp. v. 6 Kramer, 46 P.3d 431, 434 (Ariz. Ct. App. 2002). “Thus, Arizona law recognizes that a 7 party can breach the implied covenant of good faith and fair dealing both by exercising 8 express discretion in a way inconsistent with a party’s reasonable expectations and by 9 acting in ways not expressly excluded by the contract’s terms but which nevertheless bear 10 adversely on the party’s reasonably expected benefits of the bargain.” Bike Fashion 11 Corp., 46 P.3d at 435; accord Wells Fargo Bank, 38 P.3d at 30 (“[i]nstances inevitably 12 arise where one party exercises discretion retained or unforeclosed under a contract in 13 such a way as to deny the other a reasonably expected benefit of the bargain.”) (citation 14 omitted). To determine the parties’ reasonable expectations, “the relevant inquiry always 15 will focus on the contract itself, to determine what the parties did agree to.” Rawlings v. 16 Apodaca, 726 P.2d 565, 570 (Ariz. 1986) (quotation marks and citation omitted); Bike 17 Fashion Corp., 46 P.3d at 435 (“the express terms are presumed to be the best indicator 18 of the parties’ reasonable expectations”). 19 Two Brothers’ claim for violation of the implied covenant rests upon the same 20 alleged oral representations that underlie its breach of contract claim. Two Brothers 21 asserts that Valero violated the implied covenant by not fulfilling those oral 22 representations and by charging Two Brothers more than it charged CST and the Valero- 23 owned stores. Because the Court has already concluded that the oral representations are 24 not part of the DMAs between the parties, Two Brothers cannot show that Valero 25 violated the implied covenant by violating the terms of the DMAs. 26 Brothers prove violation of the covenant by Valero’s charging a posted and commercially 27 reasonable price to Two Brothers while charging a more favorable price to customers that 28 were not similarly situated. Two Brothers therefore must rely on a claim that Valero - 22 - Nor can Two 1 exercised its price-setting discretion under the DMAs in a way inconsistent with Two 2 Brother’s reasonable expectations. Bike Fashion Corp., 46 P.3d at 435. 3 But Two Brothers cannot claim that the alleged oral representations established its 4 reasonable expectations. The DMAs expressly stated that any previous representations 5 were not part of the final contract. Doc. 115-2 at 126, ¶ 23. While an integration clause 6 cannot remove a party’s obligations under the implied covenant of good faith and fair 7 dealing, Allapattah II, 61 F. Supp. 2d at 1317, it is relevant to determining a party’s 8 reasonable expectations under the contract. And other than the oral representations that 9 the DMAs disavowed, Two Brothers has not identified anything in the contract or trade 10 usage justifying a reasonable expectation that Valero would set its prices at levels 11 comparable to those charged CST or its company-owned stores. Nor does Two Brothers 12 cite any support in the DMAs, or any other evidence besides the oral representations, for 13 a reasonable expectation that Valero would ensure that Two Brothers made a profit. 14 Perhaps sensing the weakness of Count III, Two Brothers provides only a one- 15 sentence response to Valero’s summary judgment argument on that count: “a party 16 cannot hide behind an integration clause to avoid the consequences of a breach of the 17 covenant of good faith and fair dealing.” Doc. 134 at 13. True, but Two Brothers bears 18 the obligation of coming forward with evidence showing that Valero acted in a way that 19 defeated Two Brothers’ reasonable expectations under the DMAs. 20 Brothers has not done so, the Court will enter summary judgment on this claim. Because Two 21 D. 22 Two Brothers argues that Valero committed tortious interference with economic 23 advantage by intentionally “engaging in the unfair pricing activities alleged” in the 24 complaint and “thereby disrupting the relationships between Two Brothers and the 25 [Station Plaintiffs] and their respective abilities to realize a profit [from] the sale of fuel.” 26 Doc. 29 at 21-22, ¶ 98. Two Brothers further alleges that Valero’s actions were taken 27 with the purpose of promoting its company-owned stations and favored purchaser, CST, Count IV – Tortious Interference with Economic Advantage. 28 - 23 - 1 as well as to drive Two Brothers out of the market so Valero could acquire Two Brothers’ 2 share of the Phoenix market. Id. at 22, ¶ 99; Doc. 134 at 21. 3 A plaintiff making this claim must establish: “(1) the existence of a valid business 4 expectancy; (2) the interferer’s knowledge of the business expectancy; (3) the interferer 5 intentionally induced or caused termination of the business expectancy; and (4) damage 6 suffered as a result of termination of the business expectancy.” Dube v. Likins, 167 P.3d 7 93, 99 (Ariz. Ct. App. 2007). 8 committing a wrong, his liability must be based on more than the act of interference 9 alone. Thus, there is ordinarily no liability absent a showing that defendant’s actions 10 were improper as to motive or means.” Wagenseller v. Scottsdale Mem’l Hosp., 710 P.2d 11 1025, 1043 (Ariz. 1985) (superseded by statute as to an unrelated portion of the opinion); 12 accord Miller v. Hehlen, 104 P.3d 193, 202 (Ariz. Ct. App. 2005) (interference must be 13 improper). Valero argues that this claim fails because Two Brothers cannot present 14 evidence showing the existence of a business expectancy or that Valero’s conduct was 15 improper. Doc. 113 at 21; Doc. 144 at 13.9 Further, “[i]f the interferer is to be held liable for 16 Two Brothers alleges the following business expectancy: Valero would sell fuel to 17 Two Brothers at prices that would allow Two Brothers to sell the fuel to the Station 18 Plaintiffs at prices that would allow the Station Plaintiffs to set retail prices that would 19 maximize their volume and thus increase Two Brothers’ profits. Doc. 134 at 21. For 20 several reasons, the Court does not find this to be a valid business expectancy. 21 First, the interference must be with a prospective relationship between the plaintiff 22 and another party. 23 Restatement (Second) of Torts § 766B. “Before recovery can be had for interference 24 with prospective business relations or for preventing a contract, it must appear that a 25 relationship or contract would otherwise have been entered into.” Marmis v. Solot Co., 26 573 P.2d 899, 902 (Ariz. Ct. App. 1977); Dube, 167 P.3d at 101 (“[T]here must be a 27 28 See Wagenseller, 710 P.2d at 1041; Dube, 167 P.3d at 99; 9 Valero also argues that Two Brothers has not shown proof of damages, and that Two Brothers and the Station Plaintiffs are essentially a single entity and cannot show that Valero interfered in any contractual relationship between them. Doc. 113 at 19. The Court need not reach these arguments. - 24 - 1 colorable economic relationship between the plaintiff and a third party with the potential 2 to develop into a full contractual relationship.”) (citations omitted). Two Brothers has 3 not alleged any prospective relationship that it was unable to form because of Valero’s 4 pricing. It argues that it hoped to sell fuel to a hypothetical Valero-branded station 5 opened by one of the Station Plaintiffs, Springwells & I-75, but this station was never 6 opened or branded. Doc. 136 at 38, ¶ 155. It provides no other evidence of a prospective 7 business relationship.10 8 Second, tortious interference claims are intended to protect only the “reasonable 9 expectations” of parties. Bar J Bar Cattle Co. v. Pace, 763 P.2d 545, 548 (Ariz. Ct. App. 10 1988). A plaintiff must allege “facts showing the expectancy constitutes more than a 11 mere ‘hope.’” Dube, 167 P.3d at 99. A desire for prices that would “increase profits” is 12 not a concrete business expectancy. The parties do not dispute that the prices set by 13 Valero were commercially reasonable. Two Brothers does not cite any case showing that 14 an expectation of profit, let alone a certain level of profit, is a reasonable business 15 expectancy. 16 independent of the price set by Valero. Moreover, as discussed above, nothing in the 17 DMAs or the parties’ course of performance or course of dealing supports an expectation 18 that Valero would set its prices at the same level as the prices charged CST or its own 19 company-owned stores.11 It is also noteworthy that Two Brothers’ own experts have Whether a company makes a profit depends on a variety of factors 20 21 22 23 24 25 26 27 28 10 Arizona recognizes a separate but related cause of action for intentional interference with contract. Safeway Ins. Co. v. Guerrero, 106 P.3d 1020, 1025 (Ariz. 2005). That cause of action contains the same elements as intentional interference with business expectancy, except that instead of showing the existence of a valid business expectancy, the plaintiff must show the existence of a valid contractual relationship. Id. Interference can be shown if the “defendant causes a party’s performance under the subject contract to be more expensive or burdensome.” ABCDW LLC v. Banning, 388 P.3d 821, 831 (Ariz. Ct. App. 2016). But even if Two Brothers’ claim is construed to mean that Valero made the performance of Two Brothers’ contracts with the Station Plaintiffs’ more expensive and burdensome, Two Brothers has failed to make that showing. Rather, it has shown only that it did not obtain the profits it expected. 11 To show that it had more than a mere hope of profit, Two Brothers cites to conclusions in the statement of facts that are unsupported by anything but Saad’s similarly conclusory statements in his declaration. See Doc. 134 at 21 (citing Doc. 136 at 37, ¶¶ 142-44). - 25 - 1 indicated that Two Brothers would act as a “pass-through entity” and thus would not 2 profit from the Station Plaintiffs. See Doc. 113 at 21; Doc. 133 at 13-14. Thus, Two 3 Brothers has not presented evidence to support a valid business expectancy that Valero 4 would set prices in a way that would allow Two Brothers to make an increased but 5 unspecified profit. 6 Nor has Two Brothers alleged facts to show that Valero’s price setting was 7 improper. The Restatement (Second) of Torts § 767 identifies several factors for courts 8 to consider when determining if an act of interference is improper: 9 10 11 12 13 (a) the nature of the actor’s conduct, (b) the actor’s motive, (c) the interests of the other with which the actor’s conduct interferes, (d) the interest sought to be advanced by the actor, (e) the social interests in protecting the freedom of action of the actor and the contractual interests of the other, (f) the proximity or remoteness of the actor’s conduct to the interference, and (g) the relations between the parties. 14 Wagenseller, 710 P.2d at 1042 (quoting the Restatement § 767). “Factors deserving the 15 most weight are the nature of the actor’s conduct and the actor’s motive.” Wells Fargo 16 Bank, 38 P.3d at 32; accord Safeway Ins. Co. v. Guerrero, 106 P.3d 1020, 1027 (Ariz. 17 2005). The plaintiff bears the burden of showing that the defendant’s conduct was 18 improper and that the defendant had the necessary intent to interfere with the business 19 expectancy. See Wagenseller, 710 P.2d at 1043 (“If the plaintiff is unable to show the 20 impropriety of the defendant’s conduct . . . the conduct is not tortious.”). Importantly, 21 Arizona courts have noted that whether conduct is improper is an “amorphous standard,” 22 and that it should be applied with caution, especially “where the conduct in question 23 takes place in the context of competitive business activities.” See Bar J Bar Cattle Co., 24 763 P.2d at 547. 25 With respect to the first factor, Two Brothers has not provided any evidence that 26 Valero engaged in discriminatory pricing. The fact that Valero may have made different 27 deals with CST stores or transferred fuel to its company-owned stores at different rates 28 does not show that Valero’s conduct was improper. As the Court has found, Valero - 26 - 1 charged Two Brothers the listed rack price, minus discounts – a price that Two Brothers 2 concedes was commercially reasonable – and CST and the company-owned stores were 3 not similarly situated. 4 As to the second factor, Two Brothers provides only a bare allegation of improper 5 motive without any supporting evidence. Two Brothers has not shown that Valero or 6 CST attempted to take over the closed Two Brothers stations or that Valero-owned or 7 CST stores expanded to take over Two Brothers’ market share. What is more, although 8 Two Brothers asserts that CST is Valero’s “favored customer,” it provides no explanation 9 or support for this assertion. It does not show that selling fuel to CST was more 10 profitable for Valero than selling to Two Brothers. And to the extent that Valero may 11 have been trying to promote its company-owned stores, Arizona courts have made clear 12 that “a competitor does not act improperly if his purpose at least in part is to advance his 13 own economic interests.” Miller v. Hehlen, 104 P.3d 193, 202 (Ariz. Ct. App. 2005) 14 (citation omitted); accord Neonatology Assocs., Ltd. v. Phoenix Perinatal Assocs. Inc., 15 164 P.3d 691, 695 (Ariz. Ct. App. 2007) (“A business-driven motive, in and of itself, is 16 not an improper motive.”). 17 The third factor also favors Valero. Valero’s price setting did not deprive Two 18 Brothers of interests that were protected by the DMAs or reasonable business 19 expectations. Arizona law and the DMAs guaranteed Two Brothers a commercially 20 reasonable and non-discriminatory price, set by Valero in good faith. Two Brothers has 21 not provided evidence to show that it did not receive such a price. 22 The fourth factor weighs in favor of Valero. As the cases cited above observe, 23 actors in industries that commonly utilize open price terms should be able to set those 24 prices in a commercially reasonable range without exposing themselves to litigation. 25 E.g., HRN, Inc., 144 S.W.3d at 435. To find otherwise would impose a significant 26 burden on those industries. 27 28 - 27 - 1 With respect to the fifth factor, Valero set a price that directly impacted the profit 2 experienced by Two Brothers and the Station Plaintiffs, but that price was undoubtedly 3 not the only factor affecting profits. It was also a commercially reasonable price. 4 With respect to the sixth factor, Valero and Two Brothers are contracting parties, 5 and Valero has a duty to set prices for Two Brothers in good faith. While Valero owned 6 its own stores, it also acted as a competitor of Two Brothers. Valero did not have any 7 fiduciary duties with respect to Two Brothers. 8 Balancing these factors, with special emphasis on the first two, the Court 9 concludes that Two Brothers has not met its burden of presenting evidence that Valero’s 10 price setting was improper. The Court will grant summary judgment on this claim. 11 E. 12 Two Brothers claims that Valero violated the RPA by charging Two Brothers a 13 higher price than CST. Doc. 29 at 23, ¶ 107. Section 2 of the Clayton Act, as amended 14 by the RPA, provides: 15 16 17 18 19 20 Count V – Robinson-Patman Act. It shall be unlawful for any person engaged in commerce . . . to discriminate in price between different purchasers of commodities of like grade and quality, . . . and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them. 15 U.S.C. § 13(a). 21 The Supreme Court has identified three categories of competitive injury that may 22 give rise to a claim under the RPA. Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, 23 Inc., 546 U.S. 164, 176 (2006). 24 discrimination that injures competition among the discriminating seller’s customers.”12 25 Id. To establish such a second-category claim, a plaintiff must show “(1) sales in Only the second category applies here – “price 26 12 27 28 The first category – the “primary line” cases – entails conduct “that injures competition at the level of the discriminating seller and its direct competitors.” Volvo Trucks N. Am., Inc., 546 U.S. at 176. The third category or “[t]ertiary-line cases involve injury to competition at the level of the purchaser’s customers.” Id. - 28 - 1 interstate commerce; (2) products of the same grade and quality; (3) discrimination in 2 price between two buyers; and (4) injury.” Aerotec Int’l, Inc. v. Honeywell Int’l, Inc., 3 836 F.3d 1171, 1187 (9th Cir. 2016) (citing Volvo Trucks, 546 U.S. at 176-77); Texaco 4 Inc. v. Hasbrouck, 496 U.S. 543, 556 (1990) (noting that it is the plaintiff’s burden to 5 establish the elements for a violation of the RPA). 6 The third element – price discrimination – generally refers to a difference in price 7 for the same goods. F.T.C. v. Anheuser-Busch, Inc., 363 U.S. 536, 549 (1960). The 8 Ninth Circuit has made clear, however, that a price difference will constitute price 9 discrimination “only to the extent that the differentially priced product or commodity is 10 sold in a ‘reasonably comparable’ transaction.” Aerotec Int’l, Inc., 836 F.3d at 1188; 11 accord Tex. Gulf Sulphur Co. v. J. R. Simplot Co., 418 F.2d 793, 806 (9th Cir. 1969) (the 12 RPA “proscribes unequal treatment of different customers in comparable transactions”). 13 More specifically, “a seller is not obligated to charge the same prices for a commodity if 14 its sales contracts with different buyers contain materially different terms[.]” Aerotec 15 Int’l, Inc., 836 F.3d at 1188. Materially different terms may be found if there are 16 significant differences in the length of the contract or the obligations it imposes. See id. 17 (finding a material difference between sales made according to stable, long-term 18 contracts and sales made in a “spot market”); id. at 1189 (finding a material difference in 19 terms when one contract imposed “substantial obligations” in the form of payment of 20 license and royalty fees, maintenance of insurance, and exclusivity, while such 21 compliance requirements were not found in the competitor’s contract). 22 As discussed above, material differences exist between Valero’s contract with 23 CST and its contract with Two Brothers. CST’s Master Agreement is five times longer 24 than the DMAs, required CST to purchase approximately 100 times more fuel than Two 25 Brothers for sales in 100 times more stores, and involved markets far larger and far 26 beyond Two Brothers’ operation in Maricopa County. Two Brothers has not shown price 27 discrimination. See Tex. Gulf Sulphur, 418 F.2d at 806 (“A discrimination under the 28 Robinson-Patman Act does not come about where differences in price terms or conditions - 29 - 1 between several transactions result from diverse market conditions rather than from an 2 intent to discriminate. The trial court found that no discriminations occurred or were 3 likely to occur because the differences between the various contracts were not the product 4 of an intent to discriminate but resulted from diverse market conditions in the absence of 5 a prohibited competitive effect.”). The Court will grant summary judgment on the RPA 6 claim. 7 F. 8 The gravamen of Two Brothers’ complaint is that Valero did not honor oral 9 representations made before the 2007 DMA was signed, but for all of the reasons 10 explained above, those alleged oral representations are not part of the parties’ agreements 11 or reasonable expectations. Nor can Two Brother prevail on its argument that Valero 12 wrongly charged it more than CST and the company owned stores. Two Brothers does 13 not dispute that it was charged a publicly posted and commercially reasonable price, and 14 CST and the Valero stores were not similarly situated. In light of this conclusion, the 15 Court need not address Valero’s other arguments. 16 IV. Conclusion. The Station Plaintiffs’ Claims. 17 The Station Plaintiffs never entered into any contract with Valero. As a result, 18 they do not assert claims for breach of contract, bad faith under A.R.S. § 47-2305, or 19 breach of the covenant of good faith and fair dealing. Their complaint does, however, 20 assert claims of tortious interference and violation of the RPA. 21 The Station Plaintiffs now concede that they do not have standing to bring the 22 RPA claim because they did not purchase fuel from Valero. Doc. 135 at 2. Station 23 Plaintiff TB IV additionally concedes that its tortious interference claim is barred by the 24 statute of limitations because it stopped operating in December 2011 and the complaint 25 was not filed until May 20, 2015. Id. 26 The remaining Station Plaintiffs make the same arguments as Two Brothers in 27 support of their tortious interference claim. For the reasons set forth above, the Court 28 will grant summary judgment on that claim. - 30 - 1 IT IS ORDERED: 2 1. Valero’s motions for summary judgment (Docs. 113, 114) are granted. 3 2. All other pending motions are denied as moot. 4 3. The Clerk is directed to enter judgment in favor of Defendant and terminate 5 6 this case. Dated this 19th day of September, 2017. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 31 -

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