Edward J. Sweeney & Sons, Inc. v. Texaco, Inc.
| Decision Date | 04 September 1979 |
| Docket Number | Civ. A. No. 74-3299. |
| Citation | 478 F. Supp. 243 |
| Parties | EDWARD J. SWEENEY & SONS, INC., Mission Gas Oil Company, Inc., and Petroleum Products Company v. TEXACO, INC. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
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Mitchell A. Kramer, Steven Kapustin, Philadelphia, Pa., for plaintiffs.
Randall B. Robinson, Texaco, Inc., White Plains, N. Y., Duane, Morris & Heckscher, Jane D. Elliott, Philadelphia, Pa., Kay, Scholer, Fierman, Hays & Handler, Ira S. Sacks, New York City, for defendant.
On the eighth day of trial in this labyrinthine antitrust case I directed a verdict in favor of the defendant. (N.T. 1860). The directed verdict did not dispose of all of the issues in the case, however, and the parties agreed to resolve one of these issues amicably and to submit the others to this court for a decision based on their written briefs.1 (N.T. 1889-91). Now that I have received those briefs and had an opportunity to carefully review the record, I will explain why I decided to grant the defendant's motion for a directed verdict. I will also rule on one of the two issues which remain in this case. Before undertaking that task, however, I wish to set forth the facts and procedural history of this litigation.2
The plaintiff, Edward J. Sweeney & Sons, Inc. (Sweeney), is a wholesaler and distributor of Texaco gasoline in the Eastern Pennsylvania and Southern New Jersey markets.3 In addition to its wholesale business Sweeney owns several retail gasoline stations.4 The defendant, Texaco, Inc. (Texaco), is a refiner of gasoline and other petroleum products. Sweeney has been in the wholesale gasoline business since 1944.5 (N.T. 90). After several years as a consignee and wholesaler for other companies it first became a Texaco wholesaler and distributor in 1958. (N.T. 90-94). It has remained a Texaco wholesaler and distributor up to the present time. (N.T. 94). In 1963 Sweeney and Texaco entered into a distributor agreement which ultimately led to this litigation. (1963 Distribution Agreement; Plaintiffs' Exhibit 4; N.T. 100).
Prior to 1965 Sweeney marketed gasoline through full-service gasoline stations. (N.T. 102). These stations provided services such as greasing, lubrication, and tuneups in addition to the selling of gasoline. (N.T. 101). Sometime in 1965 or 1966 Sweeney's stations began to sell gasoline at a discount. (N.T. 102). Although other discount gasoline stations sold only unbranded gasoline, the Sweeney stations sold Texaco branded gasoline at a price of between one and three cents per gallon less than the price of other branded gasoline sold in the area.6 (N.T. 132, 145, 156-163). After the adoption of the discount concept, Sweeney's gallonage increased steadily until in 1968 it won a wholesaler's gasoline sales contest for having shown the highest gallonage increase of all the Texaco distributors in the area. (Plaintiffs' Exhibit 6).
As Mr. Richard V. Sweeney, president of the plaintiff corporation testified, the Sweeney stations were able to offer a discount primarily because of two factors:
It is the second factor that forms the basis of the claims made in this case.
When Texaco sells gasoline to its distributors it charges a price which includes the cost of delivering the product to the distributor's bulk plant—a delivered price. (See, e. g. Plaintiffs' Exhibit 4). (N.T. 1251-56). However, if the distributor picks up the gasoline himself and thereby saves Texaco the cost of delivery, Texaco gives him a discount or hauling allowance. Although there are several methods by which Texaco could compute the amount of the hauling allowance (N.T. 34-37, 1251-56), in its dealings with Sweeney Texaco based the hauling allowance on the lowest common carrier rate applicable between a designated Texaco distribution point and the Sweeney bulk plant. (See, e. g., Plaintiffs' Exhibit 5).7 Since Sweeney had and continues to have its bulk plant in Pottstown, Pennsylvania, under this arrangement it could receive an allowance for the cost of hauling the product from the Texaco distribution point to Pottstown. (N.T. 109). From 1961 until 1970, the distribution point which Texaco designated as Sweeney's pick up point was the Texaco bulk plant in Westville, New Jersey. (N.T. 172). Sweeney thus received a hauling allowance based on the lowest common carrier rate applicable between Westville and Pottstown. (N.T. 174).
Between 1965 and 1970 Sweeney acquired numerous retail gasoline stations within approximately twenty miles of Texaco's Westville, New Jersey, terminal. (N.T. 120-46, 177). Although most of these stations had been selling unbranded gasoline at a discount, upon acquisition by the Sweeney interests these stations became branded Texaco stations. (N.T. 120-46).8 Unlike other branded stations, however, the Sweeney stations sold branded gasoline at a discount; they generally tried to price their product above unbranded but below branded gasoline. (N.T. 128-133). It was the hauling allowance that subsidized this practice. (N.T. 118).
Due to the proximity between these newly acquired Sweeney stations and Texaco's Westville bulk plant, Sweeney could pick up the product in Westville and transport it a short distance to its New Jersey and Philadelphia area stations. (N.T. 176-7). Sweeney did not transport all of the product it picked up at Westville to its bulk plant in Pottstown. This practice enabled Sweeney to receive an allowance for hauling product from Westville to Pottstown (roughly fifty miles), when in reality it was hauling product from Westville to points ten to twenty miles away.9 (N.T. 177-179). (See Defendant's Exhibit 1). Receipt of this allowance permitted Sweeney to cut its costs and sell gasoline at a discount. (Id. 178-9). In effect the hauling allowance underwrote the discount.
After adopting the concept of selling branded gasoline at a discount through "gas & go" stations Sweeney prospered. Its prosperity did not augur well with its competitor Texaco retailers, however, and some of these retailers complained to Texaco that Sweeney's discount pricing was hurting them. (N.T. 418). Sweeney contends that Texaco conspired with these retailers to raise the cost of Texaco gasoline to Sweeney and thus force Sweeney to raise its prices. It cites the actions of Texaco in 1970 and 1971 as evidence of this alleged conspiracy.
In the winter of 1970, Texaco personnel informed Sweeney that Texaco wished to change the Sweeney pick up point from Westville, New Jersey, to Macungie, Pennsylvania, where Texaco had a pipeline terminal. (N.T. 197). Macungie, Pennsylvania, is much closer to Pottstown (approximately twenty miles) than Westville, New Jersey (approximately fifty miles), and this change would have had the effect of reducing Sweeney's hauling allowance by about fifty percent (N.T. 180). (See Defendant's Exhibit 1). Given the importance of the hauling allowance to Sweeney's competitive position, Sweeney strenuously objected to this change. (N.T. 180).10 Texaco then notified Sweeney that it was exercising its right to cancel the 1963 distributor agreement.11 (N.T. 180-81; Plaintiffs' Exhibit 8). As a result of negotiations between Texaco and Sweeney, however, Texaco agreed to continue to give Sweeney the Westville to Pottstown hauling allowance for an additional ninety days. (N.T. 187-188; Plaintiffs' Exhibit 10). This was designed to allow Sweeney to either adjust its operation to the new pick up point or seek an alternative source of supply.
Notwithstanding its efforts to that end Sweeney was unable to secure another supplier. (N.T. 188-190; Plaintiffs' Exhibits 19a-19u). In March of 1971, after further negotiations the parties arrived at a compromise: Sweeney would receive the Macungie to Pottstown hauling allowance effective June 1, 1971, but it would be permitted to pick up product at either the Westville or Macungie terminals. (March 1 letter agreement; Plaintiffs' Exhibit 10). This enabled Sweeney to continue to supply its southern New Jersey stations from the Westville terminal and mitigated the effect of the change in the hauling allowance.12
In December of 1971, however, Texaco notified Sweeney that effective February 29, 1972, it would terminate both the 1963 distributor agreement and the March 1 letter agreement. (N.T. 193-194; Plaintiffs' Exhibit 16). Although Sweeney again tried to obtain an alternate source of supply, it was again unsuccessful. (N.T. 197-199). After various negotiations, during which Sweeney threatened to seek injunctive relief, Texaco agreed to continue supplying Sweeney until such a time as it gave Sweeney ten days notice of its intention to discontinue its supply. (Defendant's Exhibit 68A).13 Sweeney does not contest the fact that Texaco never gave it such notice; indeed, Texaco has continued to supply Sweeney up to and including the present time.14
In 1974, wary of the tolling of the statute of limitations, Sweeney brought the instant suit. Sweeney alleged that the 1970 change in Sweeney's hauling allowance resulted from a conspiracy between Texaco and other Texaco retailers. According to Sweeney the object of this alleged conspiracy was to fix the resale price of Texaco gasoline. (N.T. 1802). Furthermore, Sweeney alleged that the 1971 termination of its distributor agreement also resulted from a price fixing conspiracy. According to Sweeney these alleged conspiracies are violative of § 1 of the Sherman Act, 15 U.S.C. § 1, and entitle it to treble damages as well as injunctive relief.15
In addition Sweeney...
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