Home Oil Co., Inc. v. Sam's East, Inc.
| Decision Date | 26 April 2002 |
| Docket Number | No. CIV.A.01-T-1251-S.,CIV.A.01-T-1251-S. |
| Parties | HOME OIL COMPANY, INC. Plaintiff, v. SAM'S EAST, INC. Defendant. |
| Court | U.S. District Court — Middle District of Alabama |
H. Dean Mooty, Jr., Mooty & Associates, PC, Montgomery, AL, for Home Oil Co., Inc.
Steven A. Benefield, Clark A. Cooper, Greer B. Mallette, A. Melissa Boles, Christian & Small, LLP, Birmingham, AL, Jon Comstock, Bentonville, AR, for Wal-Mart Stores, Inc., Sam's East Inc.
Plaintiff Home Oil Company, Inc., owns twelve retail gasoline/convenience stores in Houston County, Alabama, including one in Dothan located a quarter-mile from a Sam's Club owned and operated by defendant Sam's East, Inc. The plaintiff brings this lawsuit against the defendant based on alleged below-cost gasoline sales by defendant in violation of the Alabama Motor Fuel Marketing Act (AMFMA), 1975 Ala. Code §§ 8-22-1 to 8-22-18. Jurisdiction over the plaintiff's claims exists on the basis of diversity, 28 U.S.C.A. § 1332. This case is currently before the court on United States Magistrate Judge Delores R. Boyd's recommendation that the plaintiff's motion for a preliminary injunction be granted. The defendant has objected to the recommendation. For the reasons stated below, a preliminary injunction will issue.
Generally, a preliminary injunction should be granted if the movant clearly establishes that (1) there is a substantial likelihood of success on the merits, (2) irreparable injury will be suffered unless the injunction issues, (3) the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party, and (4) the injunction, if issued, would not be adverse to the public interest. McDonald's Corp. v. Robertson, 147 F.3d 1301, 1307 (11th Cir.1998).
The plaintiff has argued, and the magistrate judge agreed, that, contrary to this general framework for issuing a preliminary injunction, injunctive relief under the AMFMA does not require an explicit showing of irreparable injury. Rather, because, among other things, the AMFMA provides that "Marketing of motor fuel is affected with the public interest," 1975 Ala. Code § 8-22-2, the nature of the statute is such that a violation itself presumes irreparable injury.1 The court agrees with the analysis of the magistrate judge on this issue. In fact, the court agrees with the magistrate judge's recommendation as to the final three requirements for preliminary injunctive relief: a level of injury, the balancing of harms, and public interest. Only the first requirement, likelihood of success on the merits, deserves some reconsideration.
Sam's Club is a wholesale club that requires its customers to purchase memberships in exchange for the privilege of shopping at the club and receiving the bargains offered by it. These memberships, renewed yearly, cost between $30 and $200. The club, as part of its business, sells gasoline both to members and nonmembers. Ninety percent of gasoline sales are made to club members at a 5 per-gallon discount; the remaining 10 % is sold to nonmembers at the higher price.
The plaintiff points to a period of weeks in October 2001 to demonstrate that Sam's Club has sold gasoline below cost at its Dothan store. For many of these days, the 5 per-gallon discount to members resulted in a price at the pump for gasoline that was substantially below the club's cost, as calculated by the plaintiff. In addition, on several days during this period, the price at which gasoline was sold to non-members was also below the club's cost.
The plaintiff reports a significant overall decrease, ranging from 4,000 to 11,000 gallons per month, in the volume of gasoline it sold to customers at its Dothan Home Oil gas station following Sam's Club's entry into the gasoline market. Only after the plaintiff lowered its prices to meet the club's member price did it experience any month where its gasoline sales were not lower than sales in the same month of the previous year. The plaintiff also presents evidence that its customers specifically asked why they should pay more for gas at Home Oil when they could go to Sam's Club.
To determine whether there is a substantial likelihood of success on the merits, the court must analyze the legality of Sam's Club's conduct under the AMFMA. However, it must be remembered that, at the preliminary-injunction stage, the question is not whether the plaintiff will prevail in the litigation — rather, the question is whether it is substantially likely that the plaintiff will prevail. In addition, the court should point out that the findings of fact and conclusions of law made in deciding this motion for preliminary injunction are not binding at a trial on the merits; the discussion herein is in no way a disposition of the underlying claim. University of Texas v. Camenisch, 451 U.S. 390, 395, 101 S.Ct. 1830, 1834, 68 L.Ed.2d 175 (1981).
The AMFMA provides:
"It shall be unlawful for any person engaged in commerce in this state to sell or offer to sell motor fuel below cost or to sell or offer to sell it at a price lower than the seller charges other persons on the same day and on the same level of distribution, within the same market area, where the effect is to injure competition."
1975 Ala.Code § 8-22-6. In order to establish a prima-facie case of a violation of the AMFMA, the plaintiff must show (1) a sale of gasoline below cost, and (2) an injurious effect on competition. State ex rel. Galanos v. Mapco Petroleum, Inc., 519 So.2d 1275, 1286 (Ala.1987).
Generally, if the price at which motor fuel is sold to the consumer (Pmf) is less than the cost to the business of providing that motor fuel to the consumer (cost of motor fuel (Cmf) plus cost of doing business (Cdb)2), then the sale is "below cost" within the meaning of the AMFMA:
{Pmf The defendant argues that the major failing of the magistrate judge's recommendation is that it did not properly consider the applicability of the "combined sale" statute of AMFMA, and, in particular, did not consider the required membership sold in conjunction with the sale of gasoline to members in making the determination as to whether a sale occurred below cost. The combined-sale statute, 1975 Ala.Code § 8-22-10, states:
"In all advertisements, offers for sale or sales involving two or more items, at least one of which items is motor fuel, at a combined price, and in all advertisements, offers of sale, or sales, involving the giving of any gift or concession of any kind whatsoever (whether it be coupons or otherwise), the wholesaler's or retailer's combined selling price shall not be below the cost to the wholesaler or the cost to the retailer, respectively, of the total of all articles, products, commodities, gifts, and concessions included in such transactions, except that if any such articles, products, commodities, gifts, or concessions, shall not be motor fuel, the basic cost thereof shall be determined in like manner as provided in subdivision (14) of Section 8-22-4."
Section 8-22-4(14), which is cited above, sets forth how the "basic cost of motor fuel" is to be calculated under the AMFMA.3
The defendant argues that, as membership is an requirement for anyone to receive the discounted member price for motor fuel, the price of the membership to
the customer (Pm) and cost of the membership to the club (Cm) must also be taken into account. According to the defendant, the formula should look like this:
{Cmf + Cm + Cdb > Pmf + Pm} = Violation of AMFMA
{Cmf + Cm + Cdb ≤ Pmf + Pm} = No violation of AMFMA
The problem, of course, is in assigning values to Pm, the price of the membership to the customer, and Cm, the cost of the membership to the club. The defendant contends that the proper way to analyze its compliance with the AMFMA is to take an aggregate approach, to look at Sam's Club's overall business and the overall prices and costs of the memberships across its spectrum of customers. Using this approach, the defendant argues that the club's cost in providing the membership is zero. Its logic is as follows: The club sells the membership to a customer, entitling that customer to purchase club goods. The club would incur a cost for providing that right only if it lost money as a result of the customer's purchase of club goods. Therefore, if you look to the business in the aggregate, the cost of the membership to the club is basically the club's bottom-line; if the business makes a profit, then selling memberships does not have a cost. The defendant says that, because it makes a profit on the sale of all goods, the membership has no cost to the club, and the cost of membership (Cm) can be dropped from the equation:
{Pmf + Pm And because, according to the defendant, the price of the motor fuel sold to the members plus the price paid by all members for the membership exceeds the cost of all the motor fuel to the club plus its cost of doing business, it has not violated the AMFMA.4
The basic problem with the defendant's argument is that the combined-sale statute does not even apply to this sort of transaction. It is difficult to square the purchase of a membership by the consumer and a later purchase of goods with the "combined price" language in the combined-sale statute, 1975 Ala.Code § 8-22-10. One transaction entitles the consumer to make the second transaction. And while that entitlement, apparently, is the major argument for combining the two transactions for purposes of the statute, they are two still different and separate transactions. There is simply no combined price.
Moreover, it is clear form the AMFMA's codified "legislative findings" that the intent of the statute is not to bless this sort of transaction, where the below-cost sale of gasoline is insulated from illegality by wide-scale aggregate...
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