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

United States District Court, D. Maryland

March 29, 2019

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



         THIS MATTER is before the Court on Defendant Southside Oil, LLC's (“Southside”) Motion for Judgment on the Pleadings (the “Motion for Judgment”) (ECF No. 43) and Plaintiffs' Motion for Leave to File a Second Amended Complaint (the “Motion to Amend”) (ECF No. 47). This action arises from a contract dispute between Southside, a wholesale distributor of ExxonMobil motor 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. 2018). For the reasons outlined below, the Court will grant Southside's Motion and deny Plaintiffs' Motion.

         I. BACKGROUND[2]

         In 2009, ExxonMobil sold its marketing assets, including some gas stations. (Am. Compl. ¶ 6, ECF No. 14). Plaintiffs' stations were some of those sold from ExxonMobil to Southside. (Id.). Southside bought Exxon-branded fuel for resale directly from ExxonMobil under a dealer agreement wherein Southside “step[ped] into the shoes of” ExxonMobil as Plaintiffs' landlord and supplier of fuels. (Id. ¶¶ 5-6). Prior to closing the deal, Plaintiffs, along with others, instituted lawsuits against ExxonMobil and the proposed purchasers, including Southside. (Id. ¶ 7). Those lawsuits 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 ExxonMobil. (Id. ¶ 9). Each Plaintiff's right to purchase was conditioned upon entering into twenty-year fuel supply contracts with Southside (the “Supply Contracts”). (Id.). The Settlement Agreements required each Plaintiff to purchase all of its fuel from Southside for the twenty-year term of the Supply Contracts and to purchase a minimum number of gallons every year. (Id.).

         The Settlement Agreement negotiations 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 while meeting the minimum volume requirement. (Id.). Plaintiffs also did not want an “open-price term” contract because they wanted to limit the amount Southside could increase the fuel prices. (Id. ¶¶ 10-11). An open-price term contract permits the seller to increase the price to whatever the market will bear. (Id. ¶ 12).

         Plaintiffs and Southside ultimately agreed on a “rack plus” pricing formula. (Id. ¶ 13). The “rack plus” pricing formula involves two numbers: the rack price and the mark-up. (Id. ¶ 13). The rack price is the per-gallon price refiners, like ExxonMobil, charge to distributors, like Southside, when distributors purchase fuel in full transport loads. (Id. ¶ 14). The rack price is essentially the distributor's cost for the product. (Id. ¶¶ 13-15). The mark-up is the distributor's built-in profit margin, which when added to the rack price yields the mark-up price. (Id. ¶¶ 16-17).

         The Settlement Agreements provided that Southside would add a cents-per-gallon mark-up of between 1.5¢ and 6.5¢, and each Plaintiff negotiated its particular rack-plus price in their individual Supply Contracts with Southside. (Id. ¶¶ 17, 26). The parties also agreed that Plaintiffs would pay federal and state taxes, environmental fees, and freight charges on top of the rack-plus per-gallon price. (Id. ¶ 18). The Supply Contracts contained identical arbitration provisions (the “Arbitration Provisions”), which provided that, “[a]ny monetary claim arising out of or relating to this agreement, or any breach thereof, shall be submitted to arbitration . . .” (Id. ¶ 30).

         In 2015, Southside began charging Plaintiffs a per-gallon price that was considerably more than the rack price plus the agreed-upon cents-per-gallon mark-up. (Id. ¶ 38). Southside charged Plaintiffs a mark-up of as much as 12¢ or 13¢. (Id.). Southside had negotiated an agreement with ExxonMobil wherein ExxonMobil would sell its fuels to Southside at a per gallon price that was “considerably lower” than the price it charged to other distributors. (Id. ¶ 39). Southside then calculated the rack price based on the non-discounted prices ExxonMobil charged other distributors instead of its own discounted price, which it regarded as “something different.” (Id.).

         When Plaintiffs realized that the prices Southside charged other Maryland ExxonMobil stations with open-price term contracts were “considerably lower than the prices” Southside charged Plaintiffs “for the very same products, at the very same time, ” they asked Southside to provide ExxonMobil's rack prices so they could determine if Southside was charging them more than the permitted cents-per-gallon amounts. (Id. ¶ 40). Southside provided Plaintiffs with price information, which showed that 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 “rack prices” within the meaning of their contracts were not what Southside paid to ExxonMobil but rather the prices ExxonMobil charged other distributors who did not have a special discounted agreement. (Id. ¶¶ 42-43).

         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 other Maryland Exxon dealers who purchased from Southside at lower prices. (Id.).

         On March 27, 2017, Plaintiffs sued Southside. (ECF No. 1). In their five-count Amended Complaint, they allege: Breach of Contract - Pricing (Count I); Breach of Contract - Rebates (Count II); violation of 15 U.S.C. § 13 (2018) - Price Discrimination (Count III); Lack of Consideration for the Arbitration Provision (Count IV); and Arbitration Provision - Unlawful Waiver of Rights (Count V). (Am. Compl. ¶¶ 48-81).

         On March 30, 2018, the Court dismissed Counts IV and V, and compelled Plaintiffs to arbitrate Counts I and II. (Mar. 30, 2018 Mem. Op. at 27, ECF No. 38). The only remaining claim before this Court, therefore, is Count III, for which Plaintiffs request declaratory and injunctive relief. (Am. Compl. at 23).

         On April 30, 2018, Southside filed its Motion for Judgment on the Pleadings. (ECF No. 43). On May 14, 2018, Plaintiffs filed an Opposition. (ECF No. 46). Plaintiffs contemporaneously filed their Motion for Leave to File a Second Amended Complaint, seeking to address the deficiencies in Count III of its Amended Complaint. (ECF No. 47). On May 29, 2018, Southside filed its Reply, (ECF No. 48), and its Opposition to Plaintiffs' Motion (ECF No. 49). To date, the Court has no record the Plaintiffs filed a Reply.


         A. Southside's Motion for Judgment ...

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