Two Bros. Distributing Inc. v. Valero Marketing & Supply Co.
270 F. Supp. 3d 1112
| D. Ariz. | 2017Background
- Two Brothers Distributing and ten affiliated station plaintiffs sued Valero alleging Valero’s fuel pricing (set under multi-year Distributor Marketing Agreements with an open price term) breached contract, violated U.C.C. good-faith price-setting (A.R.S. § 47-2305), breached the implied covenant of good faith and fair dealing, tortiously interfered with economic advantage, and violated the Robinson-Patman Act.
- Valero’s DMAs expressly authorized Valero to specify the price “from time to time,” contained an integration clause disavowing prior representations, and were repeatedly executed (2007, 2010, 2013, 2016) with the same language.
- Two Brothers alleges pre-contract oral promises by Valero to set prices competitive with Valero-owned stores and CST so Two Brothers could be profitable; Two Brothers also claims it was charged higher prices than CST and Valero-owned stores.
- Expert evidence on pricing conflicts; for summary-judgment purposes the court assumed a factual dispute that Two Brothers paid higher prices but found Two Brothers charged a publicly posted and commercially reasonable rack price minus discounts.
- CST’s Master Agreement (post-2013) was a long-term, nationwide purchasing commitment that materially differs from Two Brothers’ short-term, local DMAs; Valero-owned stores were internal operations/transfers, not arm’s-length purchasers.
- The court granted Valero summary judgment on all claims and directed entry of judgment for Defendant.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract — whether oral pre-contract statements can alter DMA pricing term | Two Brothers: oral promises limited Valero’s pricing discretion and are part of parties’ agreement | Valero: DMAs are integrated, disavow prior representations, and expressly delegated price-setting to Valero | Held for Valero — integration clause and open-price provisions bar parol evidence; DMAs are final and complete expression |
| UCC § 2-305 / A.R.S. § 47-2305 — whether Valero violated good-faith duty in setting price fixed by seller | Two Brothers: Valero set prices in bad faith or discriminatorily to favor CST/Valero stores and drive Two Brothers out | Valero: Posted rack pricing is commercially reasonable; CST and Valero stores are not similarly situated; safe-harbor presumption applies | Held for Valero — posted, commercially reasonable prices satisfy good faith; plaintiff failed to show subjective bad faith or discriminatory treatment of similarly situated buyers |
| Implied covenant of good faith and fair dealing | Two Brothers: Valero’s pricing frustrated reasonable expectations created by oral promises | Valero: Contract defines expectations; integration clause and no supporting course of dealing preclude implied-term claim | Held for Valero — no reasonable contractual expectation beyond written DMAs; oral statements disavowed |
| Tortious interference & Robinson-Patman Act | Two Brothers/Stations: Valero’s pricing interfered with business expectancies and discriminated versus CST causing competitive injury | Valero: No valid prospective expectancy; prices were commercially reasonable and purchasers not similarly situated; RPA requires comparable transactions | Held for Valero — interference claim fails (no concrete expectancy or improper means); RPA claim fails because transactions materially differ (CST and Two Brothers not comparable) |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden and standard)
- Shell Oil Co. v. HRN, Inc., 144 S.W.3d 429 (Tex. 2004) (open-price contracts and posted-price safe harbor under § 2-305)
- Mathis v. Exxon Corp., 302 F.3d 448 (5th Cir. 2002) (need for evidence beyond motive to prove subjective bad faith in pricing)
- Marcoux v. Shell Oil Prod. Co., 524 F.3d 33 (1st Cir. 2008) (subjective bad-faith standard and insufficiency of mere allegations)
- Nanakuli Paving & Rock Co. v. Shell Oil Co., 664 F.2d 772 (9th Cir. 1981) (focus on manner of price change notice under § 2-305)
- Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (RPA categories of competitive injury)
- Tex. Gulf Sulphur Co. v. J. R. Simplot Co., 418 F.2d 793 (9th Cir.) (RPA requires comparable transactions and materially similar contract terms)