EXXON CORP. V. GOVERNOR OF MARYLAND

• Decision Date: 14 June 1978
• Court: U.S. Supreme Court

Exxon Corp. v. Governor of Maryland

No. 77-10

Argued February 28, 1978

Decided June 14, 1978*

437 U.S. 117

APPEAL FROM THE COURT OF APPEALS OF MARYLAND

Syllabus

Responding to evidence that, during the 1973 petroleum shortage, oil producers or refiners were favoring company-operated gasoline stations, Maryland enacted a statute prohibiting producers or refiners from operating retail service stations within the State, and requiring them to extend all "voluntary allowances" (temporary price reductions granted to independent dealers injured by local competitive price reductions) uniformly to all stations they supply. In actions by several oil companies challenging the validity of the statute on various grounds, the Maryland trial court held the statute invalid primarily on substantive due process grounds, but the Maryland Court of Appeals reversed, upholding the validity of the statute against contentions, inter alia, that it violated the Commerce and Due Process Clauses and conflicted with § 2(b) of the Clayton Act, as amended by the Robinson-Patman Act, which prohibits price discrimination, with the proviso that a seller can price in good faith to meet a competitor's equally low price.

Held:

1. The Maryland statute does not violate the Due Process Clause, since, regardless of the ultimate efficacy of the statute, it bears a reasonable relation to the State's legitimate purpose in controlling the gasoline retail market. Pp. 124-125.

2. The divestiture provisions of the statute do not violate the Commerce Clause. P P. 125-129.

(a) That the burden of such provisions falls solely on interstate companies does not, by itself, establish a claim of discrimination against interstate commerce. The statute creates no barrier against interstate independent dealers, nor does it prohibit the flow of interstate goods, place added costs upon them, or distinguish between in-state and out-of-state companies in the retail market. Hunt v. Washington Apple

Page 437 U. S. 118

Advertising Comm'n, 432 U. S. 333; and Dean Milk Co. v. Madison, 340 U. S. 349, distinguished. P P. 125-126.

(b) Nor does the fact that the burden of state regulation falls on interstate companies show that the statute impermissibly burdens interstate commerce, even if some refiners were to stop selling in the State because of the divestiture requirement and even if the elimination of company-operated stations were to deprive consumers of certain special services. Interstate commerce is not subjected to an impermissible burden simply because an otherwise valid regulation causes some business to shift from one interstate supplier to another. The Commerce Clause protects the interstate market, not particular interstate firms, from prohibitive or burdensome regulations. P P. 127-128.

(c) The Commerce Clause does not, by its own force, preempt the field of retail gasoline marketing, but, absent a relevant congressional declaration of policy, or a showing of a specific discrimination against, or burdening of, interstate commerce, the States have the power to regulate in this area. P P. 128-129.

3. The "voluntary allowances" requirement of the Maryland statute is not preempted by § 2(b) of the Clayton Act, as amended by the Robinson-Patman Act, or the Sherman Act. P P. 129-134.

(a) Any hypothetical "conflict" arising from the possibility that the Maryland statute may require uniformity in some situations in which the Robinson-Patman Act would permit localized price discrimination is not sufficient to warrant preemption. P P. 130-131.

(b) Neither § 2(b) nor the federal policy favoring competition establishes a federal right to engage in discriminatory pricing in certain situations. Section 2(b)'s proviso is merely an exception to that statute's broad prohibition against discriminatory pricing, and does not create any new federal right, but rather defines a specific, limited defense. P P. 131-133.

(c) While, in the sense that the Maryland statute might have an anticompetitive effect, there is a conflict between that statute and the Sherman Act's central policy of "economic liberty," nevertheless this sort of conflict cannot, by itself, constitute a sufficient reason for invalidating the Maryland statute, for if an adverse effect on competition were, in and of itself, enough to invalidate a state statute, the States' power to engage in economic regulation would be effectively destroyed. P P. 133-134.

279 Md. 410, 370 A.2d 1102 and 372 A.2d 237, affirmed.

STEVENS, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, STEWART, WHITE, MARSHALL, and REHNQUIST, JJ.,

Page 437 U. S. 119

joined. BLACKMUN, J., filed an opinion concurring in part and dissenting in part, post, P. 134. POWELL, J., took no part in the consideration or decision of the cases.

MR. JUSTICE STEVENS delivered the opinion of the Court.

A Maryland statute provides that a producer or refiner of petroleum products (1) may not operate any retail service station within the State, and (2) must extend all "voluntary

Page 437 U. S. 120

allowances" uniformly to all service stations it supplies. [^{Footnote 1}] The questions presented are whether the statute violates either the Commerce or the Due Process Clause of the Constitution of the United States, or is directly or indirectly preempted by the congressional expression of policy favoring vigorous competition found in § 2(b) of the Clayton Act, 38 Stat. 730, as amended by the Robinson-Patman Act, 49 Stat. 1526. [^{Footnote 2}] The Court of Appeals of Maryland answered these questions in

Page 437 U. S. 121

favor of the validity of the statute. 279 Md. 410, 370 A.2d 1102 and 372 A.2d 237 (1977). We affirm.

I

The Maryland statute is an outgrowth of the 1973 shortage of petroleum. In response to complaints about inequitable distribution of gasoline among retail stations, the Governor of Maryland directed the State Comptroller to conduct a market survey. The results of that survey indicated that gasoline stations operated by producers or refiners had received preferential treatment during the period of short supply. The Comptroller therefore proposed legislation which, according to the Court of Appeals, was "designed to correct the inequities in the distribution and pricing of gasoline reflected by the survey." Id. at 421, 370 A.2d at 1109. After legislative hearings and a "special veto hearing" before the Governor, the bill was enacted and signed into law.

Shortly before the effective date of the Act, Exxon Corp. filed a declaratory judgment action challenging the statute in the Circuit Court of Anne Arundel County, Md. The essential facts alleged in the complaint are not in dispute. All of the gasoline sold by Exxon in Maryland is transported into the State from refineries located elsewhere. Although Exxon sells the bulk of this gas to wholesalers and independent retailers, it also sells directly to the consuming public through 36 company-operated stations. [^{Footnote 3}] Exxon uses these stations to test innovative marketing concepts or products. [^{Footnote 4}] Focusing primarily on the Act's requirement that it discontinue its operation of these 36 retail stations, Exxon's complaint challenged the

Page 437 U. S. 122

validity of the statute on both constitutional and federal statutory grounds. [^{Footnote 5}]

During the ensuing nine months, six other oil companies instituted comparable actions. Three of these plaintiffs, or their subsidiaries, sell their gasoline in Maryland exclusively through company-operated stations. [^{Footnote 6}] These refiners, using trade names such as "Red Head" and "Scot," concentrate largely on high-volume sales with prices consistently lower than those offered by independent dealer-operated major brand stations. Testimony presented by these refiners indicated that company ownership is essential to their method of private brand, low-priced competition. They therefore joined Exxon in its attack on the divestiture provisions of the Maryland statute.

The three other plaintiffs, like Exxon, sell major brands primarily through dealer-operated stations, although they also operate at least one retail station each. [^{Footnote 7}] They, too, challenged the statute's divestiture provisions, but, in addition, they specially challenged the requirement that "voluntary allowances" be extended uniformly to all retail service stations supplied in the State. Although not defined in the statute, the term "voluntary allowances" refers to temporary price reductions granted by the oil companies to independent dealers who

Page 437 U. S. 123

are injured by local competitive price reductions of competing retailers. [^{Footnote 8}] The oil companies regard these temporary allowances as legitimate price reductions protected by § 2(b). In advance of trial, Exxon, Shell, and Gulf moved for a partial summary judgment declaring this portion of the Act invalid as in conflict with § 2(b).

The Circuit Court granted the motion, and the trial then focused on the validity of the divestiture provisions. As brought out during the trial, the salient characteristics of the Maryland retail gasoline market are as follows: approximately 3,800 retail service stations in Maryland sell over 20 different brands of gasoline. However, no petroleum products are produced or refined in Maryland, and the number of stations actually operated by a refiner or an affiliate is relatively small, representing about 6 of the total number of Maryland retailers.

The refiners introduced evidence indicating that their ownership of retail service stations has produced significant benefits for the consuming public. [^{Footnote 9}] Moreover, the three refiners that now market solely through company-operated stations may elect to withdraw from the Maryland market altogether if the statute is enforced. There was, however, no evidence that the total quantity of petroleum products shipped into Maryland would be affected by the statute. [^{Footnote 10}] After trial, the Circuit Court held the entire statute...