‘Good Faith’ Pricing Under Open Contract Not Subject to Inquiry Into Seller’s Subjective Intent
2007-1408. Casserlie v. Shell Oil Co., Slip Opinion No. 2009-Ohio-3.
Cuyahoga App. No. 88361, 2007-Ohio-2633. Judgment affirmed.
Moyer, C.J., and Lundberg Stratton, O'Connor, O'Donnell, and Cupp, JJ., concur.
Lanzinger, J., concurs in judgment only.
Pfeifer, J., dissents.
Opinion: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2009/2009-Ohio-3.pdf 
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(Jan. 6, 2009) The Supreme Court of Ohio ruled today that when a price that has been left open in a contract is fixed at a price posted by a seller or buyer, and the posted price is both commercially reasonable and nondiscriminatory, the price setter is presumed to have acted “in good faith” as required by the Uniform Commercial Code and a subjective inquiry into the motives of the price setter is not permitted. The Court’s 6-1 decision was authored by Chief Justice Thomas J. Moyer.
The case involved claims filed against the Shell Oil Company in 2000 by Donald Casserlie and more than 40 other current and former independent operators of Shell gas stations in the Cleveland area. The dealers’ complaint alleged that that Shell had breached its contracts with them and violated a provision of the Ohio Uniform Commercial Code (UCC). Specifically, the dealers claimed that by deliberately setting the wholesale price it charged them for gasoline so high that they could not competitively resell the product to consumers at a profit, Shell had illegally engaged in “bad faith” pricing with the intent of driving the dealers out of business to enable the company to take over their stations and thereby obtain additional profits from non-fuel sales at those locations.
Following extensive pretrial proceedings, in April 2005 the Cuyahoga County Court of Common Pleas granted summary judgment to Shell dismissing the dealers’ claims. The trial court based its judgment on findings that: 1) the plaintiffs had not met their burden of showing that the wholesale prices they were charged by Shell were outside of an objective “commercially reasonable”price range for that geographic area and time period; and 2) absent objective proof of excessive pricing, evidence of Shell’s subjective intent in setting its prices was legally irrelevant. The dealers appealed. The 8th District Court of Appeals affirmed the action of the trial court. The Supreme Court agreed to review the lower courts’ rulings.
Writing for the Court in today’s decision, Chief Justice Moyer noted that there was no dispute that the dealer agreements between Shell and the plaintiffs gave Shell the right to set the price it would charge dealers for gasoline at the time of delivery, subject to the UCC requirements that the price be “reasonable” and that it be set “in good faith,” defined as with “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.”
Citing among other cases the U.S. Sixth Circuit Court of Appeals’ 2003 decision in Tom-Lin Ents. v. Sunoco Inc. and the Texas Supreme Court’s 2004 holding in Shell Oil Co. v. HRN, the Chief Justice wrote that a majority of courts considering similar disputes have held that the “good faith” pricing requirement in the UCC is met where the price setter has established a “posted” or “given” price that is reasonable under then-current local market conditions, and the price setter does not discriminate between similarly
situated buyers.
He wrote: “The facts of this case demonstrate that the prices set by Shell were both commercially reasonable and nondiscriminatory. Aside from claiming that Shell’s goal in setting prices was to drive the dealers out of business, the only evidence of bad faith was that the prices set were too high for dealers to remain profitable and compete with jobbers in the Cleveland area. However, Shell is not required to sell gasoline at a price that is profitable for buyers. ... As noted by the court of appeals: ‘The trial court ... found that Shell submitted expert testimony which established that the ... prices set by the company were within the range set by its competitors.’ ... The dealers failed to rebut this evidence.”
Chief Justice Moyer concluded: “When a price that has been left open in a contract is fixed at a price posted by a seller or buyer, and the posted price is both commercially reasonable and nondiscriminatory, the price setter has acted in good faith as required by R.C. 1302.18(B), and a subjective inquiry into the motives of the price setter is not permitted. In this case, the dealers have not provided any evidence that the prices set by Shell were commercially unreasonable or discriminatory. The posted-price safe harbor therefore applies and we affirm the judgment of the court of appeals.”
The Chief Justice’s opinion was joined by Justices Evelyn Lundberg Stratton, Maureen O’Connor, Terrence O’Donnell and Robert R. Cupp. Justice Judith Ann Lanzinger concurred in judgment only.
Justice Paul E. Pfeifer entered a dissenting opinion, stating that in his view a determination of “good faith” open pricing under the Ohio UCC should examine both objective factors such as whether a posted price is commercially reasonable and nondiscriminatory and subjective factors including whether the price setter is acting with an honest intent within the context of its contractual relationship with the buyer.
In this case, he wrote: “(I)t is alleged that Shell charged all of its similarly situated franchisees the same price, and it is alleged that that price was set too high for them to profitably operate a gas station. In that situation, even though the pricing was nondiscriminatory, it was designed to drive a contractual partner out of business. So much for the concept of a partnership. I believe that ‘good faith’ as defined in R.C. 1302.01 requires parties to act both honestly in fact and according to reasonable commercial standards. A court’s analysis of a merchant’s good faith, then, should be both subjective and objective.”
Contacts
Sean S. Kelly, 216.696.0606, for Donald Casserlie and other current and former Shell dealers.
Thomas R. Lucchesi, 216.621.0200, for Shell Oil Company.