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From Antitrust Law Daily, December 1, 2015

Gas distributor’s price discrimination claim tanks

By Greg Hammond, J.D.

A gasoline distributor failed to state a valid price discrimination claim under the Robinson Patman Act against a gasoline supplier based on allegations that the supplier charged the distributor higher prices than the supplier charged its own stations. The federal district court in Phoenix noted that the Robinson Patman Act does not apply to intra-corporate transfers or transfers between a parent and a wholly-owned subsidiary and that the Seventh Circuit specifically held that the Act does not apply to transfers of gasoline from a supplier to its own retail station (Two Brothers Distributing Inc. v. Valero Marketing and Supply Co., November 25, 2015, Campbell, D.).

Two Brothers Distributing, Inc. is an Arizona-based gasoline distributor that entered into a distributorship and brand agreements with supplier Valero Marketing and Supply Co. in 2009. Although Two Brothers complained about Valero’s pricing, the parties executed additional distributorship agreements in July 2011 and July 2013. Two Brothers, along with ten associated gas retailers, subsequently filed suit against Valero, alleging a violation of the Robinson Patman Act, as well as breach of contract, fraud, and tortious interference with contract. Valero moved to dismiss for failure to state a claim, arguing that the various claims were time-barred, waived, and foreclosed by the integration clauses included in each of the contracts and by the statute of frauds.

Price discrimination. Two Brothers claimed that Valero violated the Robinson Patman Act by charging Two Brothers a higher price for Valero-branded fuel than Valero charges its own stations. The court concluded that the claim fails as a matter of law because the Robinson Patman Act does not apply to intra-corporate transfers or transfers between a parent and a wholly-owned subsidiary. The Seventh Circuit has also held that the Act does not apply to transfers of gasoline from a supplier to its own retail station. Although the court dismissed this claim, it granted Two Brothers leave to amend with regard to its allegations that Valero violated the Robinson Patman Act by giving price breaks to stations formerly owned by Valero after those stations were spun off to a different brand.

Remaining claims. The court partially denied the motion to dismiss with regard to some of the plaintiffs’ breach of contract and tortious interference claims because: (1) there was a lack of sufficient factual information to determine whether the breach of contract claims were time-barred; (2) waiver of the contract claims was not clear on the face of Two Brothers’ complaint; (3) Two Brothers claimed Valero continues to manipulate prices to the present day, rendering the tortious interference claim not time-barred; (4) the station plaintiffs alleged sufficient injury to support a claim for tortious interference; and (5) allegations that Two Brothers had exclusive contracts with the station plaintiffs to sell fuel to each station, that Valero knew about these contracts, that Valero engaged in price manipulation in bad faith with the intention to drive plaintiffs out of business and lessen competition between gas retailers, that Valero’s conduct made Two Brothers’ performance more expensive, and that the plaintiffs suffered economic harm as a result, were sufficient to establish a prima facie case for tortious interference under Arizona law.

The motion to dismiss was nevertheless granted with prejudice with regard to breach of oral agreements, breach of contract, and fraud claims. Specifically, the court determined that the breach of oral agreement claims are barred by Arizona’s statute of frauds. In addition, the ten station plaintiffs lacked standing to assert claims based on the contracts between Two Brothers and Valero because they failed to show that the contracts were intended to benefit the station plaintiffs. Lastly, the fraud claims were time-barred because the plaintiffs were aware of the facts underlying their fraud claims by August 2009 at the latest, demonstrating the applicable three-year statute of limitations expired in September 2012.

The case is number CV-15-01509-PHX-DGC.

Attorneys: Kurt Eugene Hammond (Rudolph & Hammond LLC) and Scott Michael Zerlaut (Shorall McGoldrick Brinkmann PC) for Two Brothers Distributing Inc., Two Brothers II Inc. and Two Brothers III Inc. Brian Alexander Howie (Quarles & Brady LLP) for Valero Marketing And Supply Co.

Companies: Two Brothers Distributing Inc.; Two Brothers II Inc.; Two Brothers III Inc.; Valero Marketing and Supply Co.

MainStory: TopStory Antitrust FranchisingDistribution ArizonaNews

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