Tom-Lin Enterprises, Inc. v. Sunoco, Inc. (R&M)
| Decision Date | 12 November 2003 |
| Docket Number | No. 01-4326.,01-4326. |
| Citation | 349 F.3d 277 |
| Parties | Tom-Lin Enterprises, Inc., et al., Plaintiffs-Appellants, v. Sunoco, Inc. (R&M), Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Brian K. Murphy, MURRAY, MURPHY, MOUL & BASIL, Columbus, Ohio, for Appellants.
A. Christopher Young, PEPPER, HAMILTON, Philadelphia, Pennsylvania, for Appellee.
ON BRIEF:
Brian K. Murphy, MURRAY, MURPHY, MOUL & BASIL, Columbus, Ohio, for Appellants.
A. Christopher Young, PEPPER, HAMILTON, Philadelphia, Pennsylvania, Sandra J. Anderson, VORYS, SATER, SEYMOUR & PEASE, Columbus, Ohio, for Appellee.
Before: CLAY and GIBBONS, Circuit Judges; CLELAND, District Judge.*
Plaintiffs, Tom-Lin Enterprises, Inc., et al., appeal from the district court's order entered on November 9, 2001, granting summary judgment in favor of Defendant, Sunoco, Inc. (R&M) ("Sunoco"), on Plaintiffs' complaint for breach of contract, breach of the implied covenant of good faith and fair dealing and violation of open price term obligations codified in Ohio Rev.Code Ann. § 1302.18. For the reasons set forth below, we AFFIRM the district court's order.
Plaintiffs are twelve individual businesses and business persons who operate gasoline service station facilities which they either own or lease from Sunoco. Each Plaintiff sells Sunoco-branded gasoline to the motoring public in Central Ohio. Plaintiffs allege that, since 1995, Sunoco has violated Ohio Rev.Code Ann. § 1302.18 by charging them excessively high prices for its gasoline. Plaintiffs filed their complaint on March 10, 2000 in the Franklin County Court of Common Pleas in Ohio. Sunoco removed the case to the district court on April 17, 2000, based on diversity jurisdiction. On July 14, 2000, Plaintiffs filed an amended complaint to state Sunoco's proper name.
At the close of extensive discovery, which resulted in the production of thousands of documents and 45 depositions, Sunoco moved for summary judgment on all three counts of Plaintiffs' complaint. Plaintiffs did not contest Sunoco's asserted grounds for summary judgment on the claims for breach of contract and breach of the implied covenant of good faith and fair dealing. By order entered on November 9, 2001, the district court dismissed Plaintiffs' complaint. Plaintiffs timely filed a notice of appeal on December 7, 2001. They take issue only with the district court's dismissal of their claim alleging a violation of Sunoco's open price term obligations codified in Ohio Rev.Code Ann. § 1302.18.
With two exceptions, each Plaintiff operates a single gasoline service station facility in Central Ohio which is either owned or leased from Sunoco; two Plaintiffs operate two Sunoco service stations. Each Plaintiff is a party to a Dealer Franchise Agreement ("DFA"), which sets forth the terms of its relationship with Sunoco. The DFAs are substantially the same in that they contain similar or identical terms regarding the price Sunoco will charge for its gasoline.
Most Plaintiffs own or control the real property on which their service stations are located and, therefore, are able to switch gasoline suppliers upon the expiration of their DFAs. In the Columbus, Ohio area, major refiners like Shell, British Petroleum ("BP"), Marathon and Citgo compete with each other to sign new accounts for the operation of their gasoline service stations with individuals who own or control their real property.
Sunoco provides certain financial incentives to encourage such individuals to maintain the Sunoco "flag" at their stations. First, Sunoco provides a lump-sum cash payment to be used for improvements or enhancements to the property. Ten of twelve Plaintiffs have received between $50,000 and $75,000 for signing their DFAs. In total, Sunoco has committed to pay these Plaintiffs over $1,000,000 in lump-sum payments since 1995. Second, Sunoco provides these Plaintiffs with "running consideration," which are cents-per-gallon credits earned by purchasing negotiated threshold amounts of gasoline from Sunoco; these credits apply to future purchases of gasoline from Sunoco. Third, Sunoco operates a Volume Improvement Program ("VIP"), a rebate program which rewards dealers who purchase a certain amount of gasoline with cents-per-gallon credits against subsequent purchases. The VIP applies to all Plaintiffs, regardless of whether they own or control their real property.
All but one of the plaintiffs who own or control their real property have renewed their DFAs with Sunoco since 1995. During the pendency of this litigation four Plaintiffs have had the opportunity to switch gasoline suppliers, but have signed new DFAs with Sunoco.
Sunoco is a refiner and marketer of petroleum products headquartered in Philadelphia, Pennsylvania. Like its principal competition (BP, Shell and Marathon), Sunoco markets and distributes its gasoline in Central Ohio in three ways: (1) directly at company-operated stations; (2) through use of a jobber — a person or corporation who purchases gasoline directly from Sunoco and/or other refiners at what is called the "rack" price and transports the gasoline to one or more retail outlets, either with its own equipment or through a subcontractor; or (3) through independent retailers known as dealers. All of the plaintiffs fall into the third category. The independent retailers pay a different price for gasoline than the jobber — the "Dealer Tank Wagon" or "DTW" price.
Sunoco is a pricing follower in Central Ohio, whereas BP and Marathon are the pricing leaders. This means that Sunoco's pricing strategy is to follow the lead of BP and Marathon. Sunoco attempts to set its rack and DTW prices in such a way that it is neither the highest-priced nor the least expensive supplier in the market.
Sunoco sets both its rack and DTW prices on a daily basis. Its rack price is based upon a "market basket" of pricing information all of which relates to other major refiners' rack prices. Sunoco subscribes to the Oil Pricing Information Service ("OPIS") in order to determine the jobber rack prices of its competitors. Sunoco sets its rack price somewhere in the middle of the rack prices being charged by its competitors. Sunoco sets its DTW price based on a survey of what other major competitors are charging at their retail stations in each of Sunoco's "pricing zones." Sunoco then reduces that average retail price by a six to nine-cent margin, which is subject to change depending upon changes in prices in the relevant area.1 The rack price charged jobbers is typically lower than the DTW price because Sunoco does not have to transport the gasoline purchased by a jobber. Often, however, Sunoco will lower its profit margin on the DTW price, and hence the DTW price charged to direct-supply dealers, because a particular dealer may be faced with a competitor who sets its price below the average street price in the zone; this lower price takes the form of a rebate that applies to the next load of gasoline purchased from Sunoco.
Company operated stations and jobbers are notified in advance of any proposed price change in the afternoon prior to the change taking effect. In accordance with Section 3.02 of the DFAs, independent retailers such as Plaintiffs are not advised in advance of any proposed price change, and they pay Sunoco whatever DTW price is in effect on the day they receive a scheduled delivery.
Prior to 1995, Sunoco generally sought to maintain a separation between jobber retailers, jobber-supplied retailers and retailers such as Plaintiffs who are supplied directly by Sunoco. In 1995, Sunoco created a MidAmerica Division with a new structure that combined the markets previously segregated for Plaintiffs and jobber retailers. Sunoco's 1995 strategic plan emphasized growing the number of Sunoco-branded stations without investing the significant capital required to purchase new stations. Sunoco sought to grow its brand through jobbers by offering to sell jobbers real property or by assigning supply contracts Sunoco had with direct dealers in exchange for the jobber's agreement to increase the volume of gasoline purchased.
We review a district court's grant of summary judgment de novo. Parker v. Metro. Life Ins. Co., 121 F.3d 1006, 1009 (6th Cir.1997). A moving party is entitled to summary judgment as a matter of law when there are no genuine issues of material fact. Id.; Fed.R.Civ.P. 56(c). All evidence must be viewed in the light most favorable to the nonmoving party. Ellison v. Garbarino, 48 F.3d 192, 194 (6th Cir.1995). However, "[t]he moving party need not support its motion with evidence disproving the nonmoving party's claim, but need only show that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
Ohio law permits parties "if they so intend [to] conclude a contract for sale even though the price is not settled." Ohio Rev.Code Ann. § 1302.18(A) (West 2003). Ohio law imposes two obligations in this context. First, the price must be "a reasonable price at the time for delivery if... nothing is said as to price." Id. § 1302.18(A)(1). Second, if the seller is to fix the price under the contract, the price must be fixed "in good faith." Id. § 1302.18(B). These two requirements essentially track the definition of "good faith" applicable to transactions between merchants2 — "honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade." Id. § 1302.01(A)(2);3 see also id. § 1302.18 cmt. 3 (referencing applicability of definition of ...
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