United States District Court, D. Arizona
G. Campbell United States District Judge.
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.
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.
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.
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.
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.
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,
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.
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.
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. In 2011, the Saad brothers transferred
their shares of the Station Plaintiffs to family members.
and Valero have presented contradicting expert opinions
concerning the fuel prices Valero charged Two Brothers, CST,
and the Valero-owned stores. 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.
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 (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.
Two Brothers' Claims.
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.
Count I - Breach of Contract.
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).
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. Doc. 134 at
14; Doc. 136 at 7, ¶ 15. Instead, Two Brothers alleges
that in 2007 Valero made several oral representations
regarding fuel prices under the DMAs. Doc. 29 at 7, ¶
23; Doc. 136 at 31-33, ¶¶ 108-11. Two Brothers
contends that Valero promised, among other things, that it
would charge Two Brothers a fuel price in line with discount
brand stations and Valero-owned stations so that Two Brothers
stations would remain competitive and profitable. Doc. 136 at
31, ¶ 108. Valero denies making such representations,
and argues that extrinsic evidence of oral representations is
inadmissible to alter the terms of the DMAs. Doc. 113 at 12.
the parties have contracted for the sale of goods
(petroleum), the Uniform Commercial Code
(“U.C.C.”) applies to their agreement. A.R.S.
§ 47-2102. Arizona's version of U.C.C. § 2-202
Terms with respect to which the confirmatory memoranda of the
parties agree or which are otherwise set forth in a writing
intended by the parties as a final expression of their
agreement with respect to such terms as are included
therein may not be contradicted by evidence of any prior
agreement or of a contemporaneous oral agreement but may be
explained or supplemented:
1. By course of performance, course of dealing or usage of
trade (§ 47-1303); and
2. By evidence of consistent additional terms unless the
court finds the writing to have been intended also as a
complete and exclusive statement of the terms of the
§ 47-2202 (emphasis added).
statute requires two inquiries. First, did the parties intend
the DMAs to be “a final expression of their agreement
with respect to such terms as are included therein”?
Id. If yes, then the DMAs cannot be contradicted by
any prior oral agreements, but may be “explained or
supplemented” by “course of performance, ”
“course of dealing, ” “usage of trade,
” or evidence of “consistent additional
terms.” Id. Second, were the DMAs intended
also to be “a complete and exclusive statement of the
terms of the agreement”? If yes, then evidence of
“consistent additional terms” cannot be
considered, and Two Brothers is limited to “course of
performance, course of dealing or usage of trade.”
Brothers argues that because the DMAs do not contain any
pricing terms beyond designating Valero as the price-setter,
the DMAs are “not fully integrated with respect to
the pricing terms.” Doc. 134 at 12. In language of
the Arizona statute, the Court understands Two Brothers to be
arguing that the DMAs are not “a final
expression” of the parties' agreement with respect
to terms included in the DMAs, such as price, and are not
“a complete and exclusive statement of the terms of the
agreement.” A.R.S. § 47-2202. Thus, Two Brothers
contends, evidence of additional non-conflicting price terms
must be considered - specifically, the oral representations
allegedly made by Valero.
Court concludes that the DMAs are “a final
expression” of the parties' agreement with respect
to terms included in the DMAs, including price terms.
Id. Two Brothers argues that the DMAs cannot be
final because they include no final price term, but a
contract for the sale of goods may have an open price term.
In a statutory section titled “[o]pen price term,
” Arizona's U.C.C provides that “[t]he
parties if they so intend can conclude a contract for sale
even though the price is not settled.” A.R.S. §
47-2305(A). The statute recognizes that such contracts can
provide that the sale price will be set by the seller, and
states that, in such cases, the seller must set the price in
good faith. § 47-2305(B). Thus, the fact that the DMAs
provide for fuel prices to be set by Valero does not indicate
that the DMAs are not a final expression of the parties'
agreement. See T.A.M., Inc. v. Gulf Oil Corp., 553
F.Supp. 499, 509 (E.D. Pa. 1982).
open price terms are a common contract feature in the
petroleum industry. As one court has noted,
“[o]pen-price-term contracts are commonly used in the
gasoline refining and marketing industry due to price
volatility.” Shell Oil Co. v. HRN, Inc., 144
S.W.3d 429, 431 (Tex. 2004); see also T.A.M, Inc.,
553 F.Supp. at 509 (“Considering the nature of the
petroleum market, and the length of time for which the
contracts were to run, it appears quite clear that the
parties had no options but to operate on an open price
basis.”). A respected U.C.C. commentary agrees:
For reasons that are partly historical and partly driven by
the modern market for gasoline, sellers of oil and of oil
derivatives such as gasoline have traditionally agreed to
sell at a “posted price.” In the earliest days of
oil production, this was apparently a price on a note nailed
to a post in an oil field. More recently, it is the price,
disclosed on a Web site, which a gasoline wholesaler offers
to retail gas stations. Of course, this is a price to be
fixed by the seller under 2-305(2) and so must be fixed in
White, Summers, & Hillman, Uniform Commercial Code §
4:15 (6th ed.).
parties agree that such posted prices are used in the Phoenix
market. Valero explains that petroleum suppliers such as
ExxonMobil, Shell, Chevron, and Valero set daily rack prices
with the Oil Price Information Service that are then charged
to distributors. Doc. 115 at 2, ¶¶ 1-3. Two
Brothers agrees. Doc. 136 at 2, ¶¶ 1-3. Given this
well-established practice, the fact that the DMAs contain an
open price term does not support a finding that the
agreements are incomplete. Rather, this practice explains why
a contract for the purchase of petroleum is complete despite
an open price term.
only other evidence cited by Two Brothers to show that the
DMAs are incomplete are the oral representations allegedly
made by Valero employees before the first DMA was signed in
2007. But even if the Court assumes for purposes of this
order that these alleged oral representations were actually
made, paragraph 23 of the DMAs makes clear that they did not
become part of the parties' contract:
This Agreement, including the exhibits hereto, constitutes
the entire agreement and understanding between [Two Brothers]
and [Valero] with respect to the matters covered hereby.
There are no representations, stipulations, warranties,
agreements or understandings with respect to the subject
matter of this Agreement which are not fully expressed herein
and which are not superseded hereby. The provisions of this
Agreement shall not be reformed, altered, or modified in any
way by any practice or course of dealing prior to or during
the term of this Agreement, and can only be reformed,
altered, or modified by a writing signed by [Two Brothers]
and an officer of [Valero] (except as otherwise expressly
provided herein). [Two Brothers] specifically acknowledges
that [Two Brothers] has not been induced to enter into this
Agreement by any representation, stipulation, warranty,
agreement, or understanding of any kind other than as
115-2 at 126, ¶ 23.
language is clear - the DMAs constitute the entire agreement
between the parties. Paragraph 23, which Two Brothers signed
on four separate occasions from 2007 to 2016, including after
Valero made clear that its price-setting discretion was not
limited by any alleged oral representations, states expressly
that any other representations, agreements, or understandings
are not part of the DMAs. Two Brothers identifies nothing in
the DMAs which suggests that Valero's discretion to set
prices is limited by terms outside the written agreements.
Nor is there anything in the DMAs to suggest that further
negotiations were anticipated. Because paragraph 23 makes
clear that all terms are fully expressed in the DMAs, the
Court concludes that the DMAs are a final expression of the
parties' agreement within the meaning of §
Brothers argues that Valero's alleged oral
representations may be used to interpret the DMAs even if the
DMAs are fully integrated. Doc. 134 at 13. As noted above,
§ 47-2202 provides that a contract that includes a
“final expression” of the parties' agreement
may be “explained or supplemented” by course of
performance, course of dealing, usage of trade, or evidence
of consistent additional terms. But the last category -
evidence of consistent additional terms - is not available if
the agreement is “a complete and exclusive statement of
the terms of the agreement.” A.R.S. § 47-2202(2).
the clear terms of paragraph 23 and the fact that all four of
the parties' DMAs include the same language, the Court
concludes that the DMAs constitute “a complete and
exclusive statement of the terms of the agreement.”
Id.; see Shore Line Props., Inc. v.
Deer-O-Paints & Chems., Ltd., 538 P.2d 760, 763
(Ariz. 1975) (“whether a writing was intended as a
complete and exclusive statement of the terms of a contract
is for the court to decide”) (applying earlier version
of A.R.S. § 47-2202). As a result, the DMAs may be
“explained or supplemented” only by “course
of performance, course of dealing or usage of trade.”
A.R.S. § 47-2202(1).
alleged oral representations do not constitute a course of
performance, course of dealing, or usage of trade. “A
‘course of performance' is a sequence of conduct
between the parties to a particular transaction that exists
if: 1. The agreement of the parties with respect to the
transaction involves repeated occasions for performance by a
party; and 2. The other party, with knowledge of the nature
of the performance and the opportunity for objection to it,
accepts the performance or acquiesces in it without
objection.” A.R.S. § 47-1303(A). “A
‘course of dealing' is a sequence of conduct
concerning previous transactions between the parties to a
particular transaction that is fairly to be regarded as
establishing a common basis of understanding for interpreting
their expressions and other conduct.” §
47-1303(B). “A ‘usage of trade' is any
practice or method of dealing having such regularity of
observance in a place, vocation or trade as to justify an
expectation that it will be observed with respect to the
transaction in question.” § 47-1303(C). Two
Brothers does not rely on any of these; it does not contend
that limitations were placed on Valero's price-setting
discretion by a course of performance in a ...