Opinion
Civ. No. DKC 99-2167.
October 1999.
MEMORANDUM OPINION
Presently pending before the court is Defendant's motion to dismiss three of four counts, or in the alternative, for summary judgment. The issues have been fully briefed, and no hearing for this motion is deemed necessary. The court now rules pursuant to Local Rule 105.6. For the reasons set forth, the court shall GRANT the motion to dismiss with respect to Count III and DENY the motion to dismiss with respect to Counts II and IV.
I. Background
Plaintiff, Montgomery Mall Service Center, Inc., is a retail service station and automotive repair business. Since 1972, Plaintiff has operated under consecutive three-year lease/supply agreements with Texaco entities, including, most recently, Defendant Motiva Enterprises, LLC. The current agreement, originally between Plaintiff and Star Enterprise, but assigned to Defendant in June 1998, encompasses the period from July 1, 1997 to June 30, 2000. Complaint ¶ 2, 3, 5.
Under the terms of the agreement, Defendant retains the right to set prices. Prior to November 1998, Defendant allegedly fixed the wholesale price for motor fuel, known as the dealer tankwagon price, on a "terminal-wide" basis, with the entirety of Montgomery County in the same terminal. However, after that date, Defendant instituted "zone pricing," which more narrowly tailors the price of motor fuel by geographic location. Under the new system, Plaintiff is the only Texaco purchaser in its zone and allegedly has the highest price in the county. At the same time, Plaintiff has suffered a substantial loss of volume in fuel sales. Complaint ¶ 8-10, 13.
Plaintiff filed this suit in Circuit Court for Montgomery County, consisting of four counts based upon the alleged injuries caused by the change to zone pricing. The four claims are as follows:
(I) Defendant violated the Maryland Antitrust Act, Md. Code Ann. § 11-204(a)(3), which prohibits unlawful price discrimination;
(II) Defendant violated Md. Code Ann. § 2-305, which requires an open price term to be fixed in "good faith";
(III) Defendant set or attempted to set prices in violation of the Gasohol and Gasoline Products Marketing Act, Md. Code Ann. § 11-304(c); and
(IV) Defendant breached his duties under the lease/supply agreement.
Defendant removed this action to federal court based upon diversity of citizenship, 28 U.S.C. § 1332, and now moves to dismiss Counts II, III, and IV, or in the alternative for summary judgment.
II. Discussion A. Standard of Review
Defendant has moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), or in the alternative, for summary judgment pursuant to Fed.R.Civ.P. 56. For those issues raised under Fed.R.Civ.P. 12(b)(6), where the court considers matters presented outside of the pleadings, the standard of review for summary judgment shall apply. See Fed.R.Civ.P. 12(b). However, in this instance, the court finds the two short affidavits provided by the parties in support or opposition of this motion unnecessary for disposition of this motion and instead relies solely upon the pleadings. Therefore, the proper standard of review is that for a motion to dismiss.
Defendant provided one affidavit in support of its motion for summary judgment, the statement of William Spurgeon relating that Defendant has in the past notified Plaintiff of fuel prices by fax. Plaintiff also provided one affidavit, of Erik Brockdorff, Jr., in response to Mr. Spurgeon. These affidavits, which Defendant argues are relevant to Count II, are not considered in the disposition of this motion.
A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) raises the issue of whether the facts alleged in the complaint are sufficient to state a claim. Such a motion ought not be granted unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In so doing, the court must consider all well-pled allegations in a complaint as true. Albright v. Oliver, 510 U.S. 266, 268 (1994). Moreover, the court is to construe all allegations liberally in favor of the plaintiff, Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), and must disregard the contrary allegations of the opposing party. A.S. Abell Co. v. Chell, 412 F.2d 712, 715 (4th Cir. 1969). The Court, however, need not accept unsupported legal allegations, Revene v. Charles County Comm'rs, 882 F.2d 870, 873 (4th Cir. 1989), nor conclusory factual allegations devoid of any reference to actual events. United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979).
B. Count II
The Sales Agreement entered into by Plaintiff and Defendant for the time period July 1, 1997 to June 30, 2000 contained an open price term, allowing Defendant to set the price for fuel:
3. Prices. Prices for Texaco motor fuel sold hereunder, exclusive of all applicable taxes, shall be Seller's applicable retailer price for each product in effect on the date of and for the place and method of delivery. Such prices may be obtained at Seller's Sales office. Seller reserves the right to change its prices without notice to Purchaser.
Complaint ¶ 8. Accordingly, under subsection (2) of Md. Code Ann. § 2-305, Defendant is required to fix the price charged to Plaintiff in good faith: "A price to be fixed by the seller or by the buyer means a price for him to fix in good faith." The third official comment to § 2-305 further explains:
Subsection (2) . . . rejects the uncommercial idea that an agreement that the seller may fix the price means that he may fix any price he may wish by the express qualification that the price so fixed must be fixed in good faith. Good faith includes observance of reasonable commercial standards of fair dealing in the trade if the party is a merchant. . . . But in the normal case a "posted price," or a future seller's or buyer's "given price," "price in effect," "market price," or the like satisfies the good faith requirement.
Maryland's statute is modeled after UCC § 2-305, under which an open price must also be set pursuant to "reasonable commercial standards of fair dealing in the trade." TCP Indus., Inc. v. Uniroyal, Inc., 661 F.2d 542, 548 (6th Cir. 1981). Plaintiff's complaint alleges that Defendant's new zone pricing system violates its duty to fix the price of the open term in good faith.
Defendant puts forth two arguments in opposition to Plaintiff's claim, neither of which is persuasive. First, Defendant's motion to dismiss argues that its alleged actions did not violate § 2-305 because the availability of pricing information to Plaintiff by fax and phone constituted good faith under the statute. Defendant relies upon the blessing of "posted prices" in both the official comment and two cases, Wayman v. Amoco Oil Co., 923 F. Supp. 1322 (D. Kan. 1996) and Richard Short Oil Co., Inc. v. Texaco, Inc., 799 F.2d 415 (8th Cir. 1986).
However, the cases cited by Defendant are inapposite. In Wayman, the district court found a price fixed by the fuel supplier in good faith where plaintiff retailers did "not allege that they were treated differently than other similarly situated dealers." Wayman, 923 F. Supp. at 1347. Looking at the proceedings of the drafting committee of the UCC, the court elaborated:
It is abundantly clear . . . that the chief concern of the UCC Drafting Committee in adopting § 2-305(2) was to prevent discriminatory pricing — i.e., to prevent suppliers from charging two buyers with identical pricing provisions in their respective contracts different prices for arbitrary or discriminatory reasons. No such discriminatory pricing allegations are made in the present case.Id. at 1346-47. Similarly, in Richard Short Oil, the Eighth Circuit held that Texaco had not violated § 2-305 of Arkansas Statutes where Texaco posted a price "offered to all its distributors nationwide." Richard Short Oil, 799 F.2d at 422; see also Havirid Oil Co., Inc. v. Marathon Oil Co., Inc., 149 F.3d 283, 290 (4th Cir. 1998) (holding Defendant's posted price to be in good faith under § 2-305 where it was undisputed at trial that Defendant charged all its customers, including Plaintiff, the same posted price).
In contrast, Plaintiff alleges in this case that Defendant participated in unlawful discriminatory pricing. Count I of this case, not before the court in this motion, alleges that Defendant engaged in price discrimination in violation of the Maryland Antitrust Act, Md. Code Ann. § 11-204(a)(3). Therefore, although Defendant may have "posted" the price charged to Plaintiff for his information, this is not the "normal case" contemplated by the official comment. The presumption of good faith under § 2-305 for posted prices does not extend to claims of price discrimination.
Defendant appears to argue secondarily that zone pricing is per se within the "reasonable commercial standards of fair dealing in the trade," citing several cases that have found zone pricing to be valid under the Uniform Commercial Code. See, e.g., Richard Short Oil, 799 F.2d at 422; Cain v. Chevron USA, Inc., 757 F. Supp. 1120, 1124-25 (D. Or. 1991). However, Defendant fails to acknowledge that while zone pricing may be implemented in a "commercially reasonable manner" in one instance, in another it may violate anti-discrimination laws and constitute a bad faith action. See Antitrust — Legality of "Zone Pricing" by Oil Companies Under the Gasoline Divorcement Law and the Robinson-Patman Act, Op. Off. Md. A.G. 94-008 (Jan. 28, 1994) (listing six factors which the court should examine when analyzing whether a particular zone pricing system violates anti-trust laws).
There is a question of fact to be determined at trial concerning whether Defendant's implementation of its zone pricing system is in good faith or violates § 2-305's mandate of a "commercially reasonable" price. Therefore, the court will DENY Defendant's motion to dismiss Count II, or in the alternative for summary judgment.
C. Count III
Plaintiff also claims that Defendant set prices in violation of the Maryland Gasohol and Gasoline Products Marketing Act:
The distributor may not set or maintain or attempt to set or maintain the price at which the dealer sells any product, and the price of any product may not be subject to enforcement or coercion by the distributor in any way. However, the distributor may counsel with the dealer concerning prices and may suggest prices to him.
Md. Code Ann. § 11-304(c). The Act is intended to prevent oil producers from "forcing an independent retailer, who leases his station, to choose between either submitting to terms imposed by the company or losing his franchise." Jimenez v. BP Oil, Inc., 853 F.2d 268, 270 (4th Cir. 1988).
Plaintiff alleges that Defendant violated § 11-304(c) by its unlawful method of determining wholesale prices for its purchasers. According to Plaintiff, Defendant sets its wholesale prices based on retail street prices in Plaintiff's zone. Therefore, if Plaintiff should increase its prices in order to increase his margin (or profit), then Defendant will raise its wholesale price in response. In essence, Plaintiff argues that Defendant controls Plaintiff's margin, and that course of action constitutes a violation of § 11-304(c).
However, Plaintiff's complaint fails to state a claim under § 11-304(c). According to Plaintiff, this pricing system indirectly "sets the price" for retail fuel because Plaintiff must maintain a certain margin to stay in business. But, the drafters of § 11-304(c) did not prohibit suppliers from maximizing their wholesale price or even from indirectly determining the margin. Instead, § 11-304(c) prohibits a supplier from setting the retail price. Plaintiff still has the authority to set the street price at the level it deems best to maximize its volume of business, even if it has lost the flexibility it formerly had with respect to its margin.
In its complaint, Plaintiff makes cursory reference to Defendant "attempting to set plaintiff's prices through the use of direct and indirect threats." Complaint ¶ 26. However, Plaintiff points to no specific factual allegations which would lead to the conclusion that Defendant threatened Plaintiff. This court is of the opinion that the complaint fails the threshold test in Fed.R.Civ.P. 8(a)(2) of setting forth "a short and plain statement of the claim showing that the pleader is entitled to relief," with respect to this claim. See Gilbane Bldg. Co. v. Federal Reserve Bank, 80 F.3d 895, 900 (4th Cir. 1996) ("The rules do contemplate a statement of circumstances, occurrences, and events in support of the claim being presented." (quoting 5 Charles A. Wright et al., Federal Practice and Procedure § 1215, at 145 (2d ed. 1990))). In order to allow the Defendant to answer or otherwise respond, the complaint must at least set out some of the basic facts behind the allegation of threats — the dates, the persons involved, and the nature of the threats. Therefore, the court will not consider these perfunctory allegations as a part of the claim under Count III.
Because Plaintiff has failed to raise a proper claim that Defendant has attempted to "set the price," this court will GRANT the motion to dismiss with respect to Count III on behalf of Defendant.
D. Count IV
Finally, Plaintiff claims that Defendant breached the contract created in the lease/supply agreement. Although Plaintiff's complaint and opposition are not altogether clear with respect to Count IV, it appears that Plaintiff's claim of breach of contract stems from three theories.
Neither party has submitted in their papers, or in the accompanying exhibits, a copy of the agreement at issue.
The first basis of the breach of contract claim is that Defendant has breached the express term of the agreement requiring Defendant to allow Plaintiff to be an "independent business entity" able to "set its own selling prices." This claim appears to echo Count III, which claims that Defendant somehow set Plaintiff's retail prices by narrowly controlling his wholesale purchase price. However, the court again is not convinced that such behavior, even if true, constitutes the "setting of prices."
Second, Plaintiff claims that Defendant's actions breached an implied duty of good faith and fair dealing. "[T]his duty simply prohibits one party to a contract from acting in such a manner as to prevent the other party from performing his obligations under the contract." Parker v. Columbia Bank, 91 Md. App. 346, 366, 604 A.2d 521, 531 (1992). However, Plaintiff never alleges in the complaint, or the papers, what duty Defendant prevented Plaintiff from performing under the contract. Instead, it appears that Plaintiff has raised the implied duty to echo its claim under the two express contract terms — the "independent business entity" term discussed above and the open price term discussed below. Therefore, this court need not consider the alleged breach of an implied duty on its own.
Finally, Plaintiff appears to claim that Defendant has breached the open price term by setting Plaintiff's wholesale price by narrow zones, rather than county-wide. It is undisputed that the written agreement contained an unqualified open price term. Plaintiff argues, however, that the prior course of dealing and performance had established a meaning to the contract's terms that the price of gasoline would be the same for all Montgomery County Texaco lessees. Therefore, Plaintiff argues that the change to zone pricing constitutes a breach of contract with respect to pricing terms. Meanwhile, Defendant counters that the clear provisions of the contract allow Defendant to set the price of gasoline.
Section 1-205 of Md. Ann. Code allows for the use of prior course of dealing in the interpretation of contracts:
(3) A course of dealing between parties and any usage of trade in the vocation or trade in which they are engaged or of which they are or should be aware give particular meaning to and supplement or qualify terms of an agreement.
Furthermore, such course of dealing shall be construed as consistent with the agreement where possible:
(4) The express terms of an agreement and an applicable course of dealing or usage of trade shall be construed wherever reasonable as consistent with each other; but when such construction is unreasonable express terms control both course of dealing and usage of trade and course of dealing controls usage of trade.See also Brunswick Box Co., Inc., v. Coutinho, Caro Co., Inc., 617 F.2d 355, 359 (4th Cir. 1980) ("[A] finding of ambiguity is not necessary for the admission of extrinsic evidence about the usage of the trade and the parties' course of dealing."); Maryland Supreme Corp. v. Blake Co., 279 Md. 531, 544, 369 A.2d 1017, 1026 (1977) ("[E]ven a final written expression of the agreement may be explained or supplemented by course of dealing or by course of performance.").
Here, the consideration of course of dealing is appropriate. Plaintiff alleges that, although the terms of contract allow Defendant to set the price of fuel, prior course of dealing indicates an agreement that Defendant would set the price of fuel at the same price for all of Montgomery County. Whether or not such an understanding existed is an issue of fact appropriate for trial. Therefore, this court will DENY the motion to dismiss Count IV.
III. Conclusion
For the foregoing reasons, Defendant's motion to dismiss shall be GRANTED with respect to Count III and DENIED with respect to Counts II and IV. A separate order will be entered.
ORDER
For the reasons stated in the foregoing Memorandum Opinion, it is this ___ day of October, 1999, by the United States District Court for the District of Maryland, ORDERED that:
1. Defendant's Motion to Dismiss BE, and the same hereby IS, GRANTED with respect to Count III, and the Motion to Dismiss or, in the alternative, for Summary Judgment BE, and the same hereby IS, DENIED with respect to Counts II and IV; and
2. The clerk is directed to mail a copy of this Order and the accompanying Memorandum Opinion to counsel for the parties.