Two Bros. Distrib. Inc. v. Valero Mktg. & Supply Co.

• Decision Date: 19 September 2017
• Docket Number: No. CV–15–01509–PHX–DGC,CV–15–01509–PHX–DGC
• Citation: 270 F.Supp.3d 1112
• Parties: TWO BROTHERS DISTRIBUTING INCORPORATED, et al., Plaintiffs, v. VALERO MARKETING AND SUPPLY COMPANY, Defendant.
• Court: U.S. District Court — District of Arizona

270 F.Supp.3d 1112

TWO BROTHERS DISTRIBUTING INCORPORATED, et al., Plaintiffs,

v.VALERO MARKETING AND SUPPLY COMPANY, Defendant.

No. CV–15–01509–PHX–DGC

United States District Court, D. Arizona.

Signed September 19, 2017

Kurt Eugene Hammond, Rudolph & Hammond LLC, Scottsdale, AZ, Scott Michael Zerlaut, Thomas J. Shorall, Jr., Shorall McGoldrick Brinkmann PC, Phoenix, AZ, for Plaintiffs.

Brian Alexander Howie, Jeffrey Harris Wolf, Rodney Wayne Ott, Sarah Roshanne Anchors, Quarles & Brady LLP—Phoenix, AZ, Phoenix, AZ, for Defendant.

David G. Campbell, United States District Judge

ORDER

Plaintiffs Two Brothers Distributing, Inc. ("Two Brothers") and ten associated gasoline retailers (the "Station Plaintiffs") sued Defendant Valero Marketing and Supply Company ("Valero") asserting various claims. Doc. 29.¹ Valero has filed motions for summary judgment against Two Brothers and the Station Plaintiffs. Docs. 113, 114. The motions are fully briefed, and the Court heard oral argument on September 14, 2017. For the reasons that follow, the Court will grant Valero's motions.

I. Background.

Most of the facts in this case are undisputed. Indeed, Two Brothers does not dispute 78 of the 93 paragraphs in Valero's Statement of Facts. See Docs. 115, 136. To ensure that the Court views the evidence in the light most favorable to Plaintiffs when ruling on Valero's motions for summary judgment, this background section is taken from Two Brothers' Statement of Facts. Doc. 136.

Valero Energy Corporation ("VEC") is a multinational public company that refines fuel and supplies branded and unbranded fuel to the Maricopa County market. Id. at 3, ¶ 4. Valero is a VEC subsidiary that sells fuel to distributors. Id. at 3, ¶ 5. Before May 1, 2013, VEC had several wholly-owned subsidiaries that sold fuel using either the name "Valero" or "Diamond Shamrock" at approximately 45 retail service stations in Maricopa County. Id. at 3, ¶ 6. Effective May 1, 2013, VEC spun off the wholly-owned stores to an entirely separate company, CST Brands Inc. Id. at 3, ¶ 7. VEC retained 20% of CST Brands' stock, but sold this 20% interest on November 14, 2015. Id. Valero and a subsidiary of CST Brands, CST Marketing and Supply Co. ("CST"), entered into a Master Agreement that became effective on May 1, 2013. Id. at 4, ¶ 8. The Master Agreement required CST to purchase annual minimum amounts of fuel from Valero in excess of one billion gallons. Id. at 4, ¶ 9. This fuel was to be sold at more than 1,000 CST stations across the country over the 15–year life of the Agreement. Id. Prices under the Master Agreement would be set in relation to daily changes in the U.S. commodities market, with several pricing exceptions that require the use of alternative pricing formulas if certain triggering events occurred. Id. at 5, ¶ 11.

Before 2007, brothers Saad Saad and Ali Saad had operated fuel stations in Maricopa County, including Arco and Mobil branded stations and several unbranded stations. Id. at 6, ¶ 13. Mobil decided to leave the Phoenix market in 2005, around the time the Saads learned that Valero intended to increase its share of the market. Id. at 30, ¶ 100. The Saads began talks with Valero in 2005 about selling Valero-branded fuel at their existing stations and opening several additional Valero stations. Id. at 31, ¶ 101. When Valero required the Saads to create a company to distribute Valero-branded fuels, the Saads created Two Brothers Distributing, Inc. Id. at 31, ¶¶ 103–04. In 2007, Two Brothers and Valero executed the first Branded Distributor Marketing Agreement ("DMA"), which was effective until 2010. Id. at 7, ¶ 15. The DMA contained an open price term which stated that Two Brothers "shall pay to [Valero] that price specified by [Valero] from time to time." Id. The DMA allowed Two Brothers to use the Valero trademark and required Two Brothers to purchase certain minimum amounts of fuel. Id. at 8, ¶ 16. The DMA contained an integration clause stating that the DMA superseded any other agreements, representations, or promises not contained in the agreement, and required a signed writing to modify its terms. Id.

In 2007, Two Brothers and Valero also executed "Brand Conversion Incentive Agreements" that had a duration of ten years. Id. at 11, ¶ 25. These Conversion Agreements provided that Valero would pay upfront costs to brand six of the Station Plaintiffs; that Valero would pay Two Brothers incentive payments of two to four cents per gallon for four years to reward Two Brothers for purchasing 85% of the contracted fuel amount; and a repayment schedule for some of the branding costs and incentive payments. Id. at 12, ¶ 26. Valero eventually reduced the amount of fuel Two Brothers had to purchase to receive the incentive payments and provided Two Brothers with funds for station improvements. Id. at 12, ¶¶ 27, 29.

Two Brothers first purchased fuel from Valero in June 2007, and almost immediately began complaining that Valero's prices were too high in relation to other suppliers such as Arco and Shell. Id. at 18, ¶ 50. Valero responded with letters explaining that it intended to set its prices so that, on average, Valero's rack price would be competitive with other brands in the market. Id. at 18–19, ¶ 51. Throughout the duration of the DMAs, Valero charged Two Brothers its daily posted rack price minus discounts. Id. at 8, ¶ 39. Two Brothers continued to complain about Valero's prices in 2008, 2009, and 2010, and yet executed three new Conversion Agreements for three additional stations in 2008. Id. at 19–20, ¶¶ 52, 54. In 2010, Two Brothers and Valero entered into another DMA that was identical to the 2007 DMA in all material respects, including the pricing provision and integration clause. Id. at 20, ¶ 58. Two Brothers sought changes to a 2013 DMA, those changes were rejected by Valero, and Two Brothers and Valero ultimately signed materially identical DMAs in 2013 and 2016. Id. at 22–24, ¶¶ 64–66, 69. Two Brothers continues to operate under the 2016 DMA.

Starting in 2010, all but two of the Station Plaintiffs filed for bankruptcy. Id. at 24, ¶ 70. Several subsequently closed and were sold, but five continue to sell Valero fuel. Id. at 24–25, ¶¶ 71–75.

The Saad brothers act as officers and directors for Two Brothers and the Station Plaintiffs. They own Two Brothers and, until mid–2011, owned all of the Station Plaintiffs. Id. at 13, ¶¶ 31–32.² In 2011, the Saad brothers transferred their shares of the Station Plaintiffs to family members. Id.

Plaintiffs and Valero have presented contradicting expert opinions concerning the fuel prices Valero charged Two Brothers, CST, and the Valero-owned stores.³ Valero's expert found that Two Brothers was charged less for fuel than both CST and the Valero-owned stores over the life of the DMAs. Plaintiffs' expert found that Valero charged Two Brothers more for fuel than CST and the Valero-owned stores. The experts criticize each other's methodologies, and Valero has filed a Daubert motion asking the Court to exclude the opinion of Plaintiffs' expert. See Docs. 112, 124, 124–2, 131. For purposes of this order, the Court will assume there is a factual dispute as to whether Two Brothers was charged more for fuel than CST and the Valero-owned stores. Given that assumption, the Court need not decide Valero's Daubert motion in order to resolve the motions for summary judgment.

II. Legal Standard.

A party seeking summary judgment "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, shows "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Summary judgment is also appropriate against a party who "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex , 477 U.S. at 322, 106 S.Ct. 2548.

III. Two Brothers' Claims.

Two Brothers brings several claims based on Valero's pricing of its fuel in Maricopa County. Two Brothers alleges that Valero induced it to enter into a business relationship by making oral representations about how it would price its fuel, but ultimately did not price its fuel in accordance with those representations. Doc. 136 at 25, 31–33, ¶¶ 76, 108–11. Two Brothers also contends that Valero charged it higher prices than CST in order to favor CST and drive Two Brothers out of the market. Id. at 26, ¶ 78. These higher prices, according to Two Brothers, prevented it from competing with Valero-owned stores, CST stores, or even other similarly-situated brands. Id. at 36, ¶ 132. If Valero had priced its fuel as represented, Two Brothers asserts, Two Brothers would have sold a larger volume of fuel and made higher profits. Id. at 37, ¶¶ 142–43. Two Brothers also alleges that Valero's discriminatory pricing of its fuel violated the Robinson–Patman Act ("RPA"). Doc. 29 at 23, ¶ 107.

A. Count I—Breach of Contract.

The DMAs provide that Two Brothers "shall pay to [Valero] that price specified by [Valero] from time to time[.]" Doc. 115–2 at 114, ¶ 4(A). They do not otherwise explain or impose limitations on how Valero will set fuel prices. Because the express language of the DMAs does not require Valero to set its daily rack price in any particular manner, Valero argues, Two Brothers' breach of contract claim must fail. Id. at 11–12; see also Doc. 115–2 at 114, ¶ 4(A).

Two Brothers does not dispute that the language of the DMAs grants Valero the discretion to set the daily prices Two Brothers pays for fuel, or that the DMAs include no guarantees as to how Valero will set this price....