Shell Oil Co. v. HRN, Inc. - 144 S.W.3d 429 (Tex. 2004)

Rule:

The majority of decisions suggest that a commercially reasonable dealer tank wagon (DTW) price, that is, one within the range of DTW prices charged by other refiners in the market, is a good faith price under Tex. Bus. Com. Code Ann. § 2.305 absent some evidence that the refiner used pricing to discriminate among its purchasers.

Facts:

Plaintiffs are several hundred lessee dealers in seventeen different states who lease service stations and buy gasoline from Shell, operating those stations as independent businesses. Each dealer and Shell enter into two agreements: a Lease and a Dealer Agreement. Shell's relationship with its lessee dealers is also governed by the federal Petroleum Marketing Practices Act ("PMPA"), which regulates the grounds for termination and nonrenewal of petroleum franchise relationships. The dealers claim that Shell’s pricing practices are forcing them out of business and therefore are not in good faith. The trial court concluded that Shell had established its good faith as a matter of law, but the court of appeals reversed the summary judgment, concluding that circumstantial evidence raised a fact issue about Shell’s good faith.

Issue:

Was the price fixed by Shell for the sale of its gasoline under an open-price-term contract with its dealers in good faith as required by section 2.305(b) of the Texas Business and Commerce Code?

Answer:

Yes.

Conclusion:

The Texas Supreme Court concluded that Shell established as a matter of law that its price was fixed in good faith as defined in the code. The code imposed on Shell the obligation of good faith when fixing its dealer tank wagon (DTW) price under the dealer agreement, providing that a price to be fixed by the seller or by the buyer meant a price for him to fix in good faith (Tex. Bus. Com. Code Ann. § 2.305(b)). The summary judgment evidence established that Shell’s posted price was both commercially reasonable and fairly applied to the dealers.