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Best Effort First Time, LLC v. Southside Oil, LLC

United States District Court, D. Maryland

March 30, 2018

BEST EFFORT FIRST TIME, LLC, et al., Plaintiffs,



         THIS MATTER is before the Court on Defendant Southside Oil, LLC's (“Southside”) Motion to Dismiss (ECF No. 20) and Motion to Compel Arbitration (ECF No. 24). This action arises from a contract dispute between Southside, a wholesale distributor of ExxonMobil fuels, and Plaintiffs, who are ten Maryland retail gasoline stations.[1] The Motions are ripe for disposition, and no hearing is necessary. See Local Rule 105.6 (D.Md. 2016). For the reasons outlined below, the Court will grant in part and deny in part both Motions.[2]

         I. BACKGROUND[3]

         In 2009, Exxon sold its marketing assets, including some gas stations. (Am. Compl. ¶ 6, ECF No. 14). Southside bought Exxon-branded motor fuels for resale directly from ExxonMobil under a dealer agreement. (Id. ¶ 5). The Plaintiffs' stations were some of those sold from ExxonMobil to Southside. (Id. ¶ 6). Under the dealer agreement, Southside would step into the shoes of ExxonMobil as Plaintiffs' landlord and supplier of motor fuels. (Id.). Prior to closing the deal, Plaintiffs in this case, along with others, instituted lawsuits against ExxonMobil and proposed purchasers, including Southside. (Id. ¶ 7). The lawsuits were settled on the basis of individualized agreements between Southside and each Plaintiff (the “Settlement Agreements”). (Id. ¶ 8).

         Included in the Settlement Agreements were terms permitting Plaintiffs to purchase the service stations they had previously leased from Exxon. (Id. ¶ 9). Each Plaintiff's right to purchase was conditioned on the Plaintiffs each entering into twenty-year motor fuel supply contracts with Southside (the “Supply Contracts”). (Id.). Settlement Agreements required each Plaintiff to purchase all of its motor fuel from Southside for the twenty-year term of the Supply Contracts, and purchase a minimum number of gallons every year. (Id.).

         Negotiations of the Settlement Agreements focused on the per gallon price for each grade of gasoline and diesel fuel in the Supply Contracts. (Id. ¶ 10). Plaintiffs sought a price that would enable their business to be profitable and meet the minimum volume requirement. (Id.). Plaintiffs also wanted to limit the amount Southside could increase the prices of gasoline and fuel, so they did not want an “open-price term” contract with Southside. (Id. ¶¶ 10-11). An open-price term contract does not place a limit on the per gallon profit the seller can earn; the seller can increase the price of the product over its cost with no ceiling. (Id. ¶ 12).

         Instead, Plaintiffs and Southside agreed on a “Rack Plus” pricing formula. The “Rack Plus” pricing formula includes two numbers: (1) the rack price and (2) the markup price. A rack price is the per gallon price charged by the refiners (like ExxonMobil) to distributors (like Southside) when distributors purchase gasoline in full transport loads. The rack price is the distributor's cost of the product. (Id. ¶¶ 13-15). The mark-up price is the amount Southside can mark-up the products sold to Plaintiffs over and above the rack price. Put differently, the mark-up price is the amount Southside would add to the rack price as a profit margin. (Id. ¶ 16-17). For example, a rack plus two means Plaintiffs are charged a price that is two cents per gallon above the rack price. Southside and Plaintiffs agreed that Southside would add a cents-per-gallon mark up between 1.5 and 6.5 cents, depending on the particular Supply Contract between Southside and each Plaintiff. (Id. ¶ 17). An additional two cents is added for federal and state taxes, environmental fees, and freight charges. (Id. ¶ 18). Each Plaintiff signed a separate Supply Contract and agreed upon a particular cents-per-gallon amount (between 1.5 and 6.5 cents per gallon) to govern the purchases under the applicable Supply Contract. (Id. ¶ 26).

         The Supply Contracts also contained identical arbitration provisions (the “Arbitration Provisions”). (Id. ¶ 30). The Arbitration Provisions provide: “Any monetary claim arising out of or relating to this agreement, or any breach thereof, shall be submitted to arbitration . . . in accordance with the rules of the American Arbitration Association . . . .” (Def.'s Mot. Dismiss Ex. 3 [“Supply Contract”] ¶ 34, ECF No. 20-4) (emphasis added). Additionally, the Arbitration Provisions permit Southside to “bring[] any action in any court of competent jurisdiction for injunctive or other provisional relief . . . necessary or appropriate to compel [Plaintiffs] to comply with its obligations” or “to protect [Southside's] trademark rights or obligations or other property rights . . . .” (Id.). The Arbitration Provisions also permits Southside to “join[] with any action for injunctive or provisional relief all monetary claims . . . which arise out of the acts or omissions . . . giving rise to the action for injunctive or provisional relief.” (Id.). Finally, the Arbitration Provisions provides that either party may “seek and obtain temporary injunctive relief from a court of competent jurisdiction in accordance with applicable law against threatened conduct that will cause loss or damage, pending completion of the arbitration.” (Id.).

         In 2015, Southside began charging Plaintiffs a per gallon price for Exxon branded fuel that was considerably more than the rack price plus the cents per gallon amount. (Id. ¶ 38). Southside charged Plaintiffs a mark-up price as high as twelve or thirteen cents, which resulted in a 400% increase in Southside's profits. (Id.). This price difference occured because ExxonMobil and Southside reached an agreement where ExxonMobil would provide its motor fuels at a per gallon price that was lower than the price charged to other distributors. Southside, therefore, treated the prices charged by ExxonMobil to other distributors as the rack price, but thought the discounted price they personally received was “something different.” (Id. ¶ 39).

         At this time, Plaintiffs learned that the prices charged by Southside to other Maryland Exxon dealers with open-price term contracts were “considerably lower than the prices charged by Southside to plaintiffs for the very same products, at the very same time.” (Id. ¶ 40). Plaintiffs requested Southside provide ExxonMobil's rack prices for the products so they could determine if Southside was charging them more than the permitted cents-per-gallon amounts. (Id.). Southside provided Plaintiffs with price information that showed Southside's prices to Plaintiffs were considerably higher than the applicable cents-per-gallon amount above the rack prices, despite Southside's claim that they were not. (Id. ¶¶ 41, 43).

         Southside told Plaintiffs that the prices Southside actually paid to ExxonMobil were not the rack prices within the meaning of the contractual agreement. (Id. ¶ 42). Rather, the “rack prices” were the prices ExxonMobil charged other distributors who did not have a special discounted agreement. (Id. ¶ 43). Southside stated the per gallon prices they charged Plaintiffs were no more than the cents-per-gallon amounts plus the prices ExxonMobil charged other distributors, even though Plaintiffs' prices were around twelve cents or more above the amount Southside actually paid to ExxonMobil. (Id. ¶ 43).

         Based on the differences in prices, Plaintiffs had to compete with lower-priced retailers in the same market area who also purchased fuel from Southside. In order to earn a profit, Plaintiffs had to raise their retail prices above a competitive level. (Id. ¶ 45). As a result, Plaintiffs lost business to their lower-priced competitors, including the other Maryland Exxon dealers who purchased from Southside at lower prices. (Id.).

         Plaintiffs filed the present action on March 27, 2017 against Southside. (ECF No. 1). In their five-count Complaint, they allege: Beach of Contract-Pricing (Count I); Beach of Contract-Rebates (Count II); violation of 15 U.S.C. § 13-Price Discrimination (Count III); Lack of Consideration for the Arbitration Provision (Count IV); and Arbitration Provision-Unlawful Waiver of Rights. (Id. ¶¶ 48-81). Plaintiffs seek declaratory judgments and a permanent injunction. (Id.).

         Southside now moves to dismiss each count for failure to state a claim upon which relief may be granted under Federal Rule of Civil Procedure 12(b)(6), filing their Motion on May 12, 2017. (ECF No. 20). Southside contemporaneously filed a Motion to Compel Arbitration, seeking to compel arbitration for each count. (ECF No. 24). Plaintiffs filed an opposition to each Motion on June 9, 2017. (ECF Nos. 31, 32). Defendants filed a reply supporting each Motion on June 23, 2017. (ECF Nos. 33, 34).


         A. Standard of Review

         1. Motion to Compel Arbitration

         The standard of review on a Motion to Compel Arbitration pursuant to the Federal Arbitration Act is “akin to the burden on summary judgment.” Novic v. Midland Funding, LLC, 271 F.Supp.3d 778, 778 (D.Md. 2017) (quoting Galloway v. Santander Consumer USA, Inc., 819 F.3d 79, 85 (4th Cir. 2016) (internal quotation omitted)).

         In reviewing a motion for summary judgment, the Court views the facts in a light most favorable to the nonmovant, drawing all justifiable inferences in that party's favor. Ricci v. DeStefano, 557 U.S. 557, 586 (2009); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 (1970)). Summary judgment is proper when the movant demonstrates, through “particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations . . . admissions, interrogatory answers, or other materials, ” 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), (c)(1)(A). Significantly, a party must be able to present the materials it cites in “a form that would be admissible in evidence, ” Fed.R.Civ.P. 56(c)(2), and supporting affidavits and declarations “must be made on personal knowledge” and “set out facts that would be admissible in evidence, ” Fed.R.Civ.P. 56(c)(4).

         2. Motion to Dismiss for Failure to State a Claim

         “The purpose of a Rule 12(b)(6) motion is to test the sufficiency of a complaint, ” not to “resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” King v. Rubenstein, 825 F.3d 206, 214 (4th Cir. 2016) (quoting Edwards v. City of Goldsboro, 178 F.3d 231, 243-44 (4th Cir. 1999)). A complaint fails to state a claim if it does not contain “a short and plain statement of the claim showing that the pleader is entitled to relief, ” Fed.R.Civ.P. 8(a)(2), or does not “state a claim to relief that is plausible on its face, ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555). Though the plaintiff is not required to forecast evidence to prove the elements of the claim, the complaint must allege sufficient facts to establish each element. Goss v. Bank of Am., N.A., 917 F.Supp.2d 445, 449 (D.Md. 2013) (quoting Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012)), aff'd sub nom., Goss v. Bank of Am., NA, 546 F.App'x 165 (4th Cir. 2013).

         In considering a Rule 12(b)(6) motion, a court must examine the complaint as a whole, consider the factual allegations in the complaint as true, and construe the factual allegations in the light most favorable to the plaintiff. Albright v. Oliver, 510 U.S. 266, 268 (1994); Lambeth v. Bd. of Comm'rs of Davidson Cty., 407 F.3d 266, 268 (4th Cir. 2005) (citing Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). But, the court need not accept unsupported or conclusory factual allegations devoid of any reference to actual events, United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979), or legal conclusions couched as factual allegations, Iqbal, 556 U.S. at 678.

         B. Analysis

         1. Motion to Compel Arbitration

         A court resolving an arbitrability dispute must engage in a two-step inquiry. Peabody Holding Co., LLC v. United Mine Workers of Am., 665 F.3d 96, 101 (4th Cir. 2012). First, the court must determine who decides whether a particular dispute is arbitrable-the arbitrator or the court. Id. Second, if the court determines that it is the proper forum to adjudicate arbitrability, then the court must decide whether the dispute is in fact arbitrable. Id. (alteration in original).

         i. The Proper Forum to Determine Arbitrability

         At bottom, the Court concludes that it is the proper forum to determine the arbitrability of Plaintiffs' claims.

         Arbitrability is an issue for judicial determination unless the agreement “‘clearly and unmistakably' provide[s] that the arbitrator shall determine what disputes the parties agreed to arbitrate.” Id. at 102 (citations omitted). Although this is an exacting standard, “[v]irtually every circuit to have considered the issue has determined that incorporation of the American Arbitration Association's (AAA) arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.” Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069, 1074 (9th Cir. 2013).

         The United States Court of Appeals for the Fourth Circuit has yet to rule on this precise issue as it relates to incorporation of the AAA rules. However, the Fourth Circuit has recently adopted the reasoning of the majority of its sister circuits with respect to another category of arbitration rules, holding that “the explicit incorporation of JAMS [Comprehensive Rules & Procedures] serves as ‘clear and unmistakable' evidence of the ...

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