NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS APR 18 2019 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
TWO BROTHERS DISTRIBUTING No. 17-17095 INCORPORATED, an Arizona corporation; et al., D.C. No. 2:15-cv-01509-DGC
Plaintiffs-Appellants, MEMORANDUM* v.
VALERO MARKETING AND SUPPLY COMPANY, a foreign company,
Defendant-Appellee.
Appeal from the United States District Court for the District of Arizona David G. Campbell, District Judge, Presiding
Submitted April 17, 2019** San Francisco, California
Before: THOMAS, Chief Judge, M. SMITH, Circuit Judge, and VRATIL,*** District Judge.
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). *** The Honorable Kathryn H. Vratil, United States District Judge for the District of Kansas, sitting by designation. Two Brothers Distributing, Inc. (“Two Brothers”) and ten associated gasoline
retailers (the “Station Plaintiffs,” together with Two Brothers, “Plaintiffs”) filed suit
against Valero Marketing and Supply Company (“Valero”). Two Brothers
purchases fuel from Valero, and distributes gasoline to third-party retailers in the
Phoenix, Arizona market. The Station Plaintiffs purchase gasoline from Two
Brothers for sale at retail pumps. This matter concerns Valero’s pricing of fuel to
Two Brothers under a series of contracts with an open price term. The district court
dismissed the Station Plaintiffs’ contract-based claims for lack of standing. Later, it
granted summary judgment in favor of Valero on all remaining claims. We have
jurisdiction under 28 U.S.C. § 1291 and affirm.
We review de novo a district court’s decision to grant summary judgment.
Evanston Ins. Co. v. OEA, Inc., 566 F.3d 915, 918–19 (9th Cir. 2009). Viewing the
evidence in the light most favorable to the non-moving party, we determine whether
any genuine issues of material fact exist and whether the district court correctly
applied the substantive law. Id.
Plaintiffs’ claims are based in part on Distribution Marketing Agreements
(“DMAs”) which provide that Two Brothers “shall pay to [Valero] that price
specified by [Valero] from time to time[.]” The DMAs themselves do not explain
or limit how Valero will set fuel prices. Two Brothers contends that before the
parties entered into the first DMA in 2007, Valero orally promised that it would
2 17-17095 charge Two Brothers a fuel price in line with discount brands and Valero-owned
stations so that Two Brothers stations would remain competitive and profitable.
Two Brothers also asserts that based on these representations, Valero should have
charged Two Brothers the same price that Valero charged its related company, CST
Marketing and Supply Co. (“CST”).
1. The district court did not err in granting summary judgment to Valero
on Two Brothers’ breach of contract claim based on alleged oral representations as
to price. The Uniform Commercial Code (“U.C.C.”) applies because the DMAs
involve the sale of petroleum. Under Arizona’s version of U.C.C. § 2-202, Valero’s
alleged oral representations cannot be used to explain or supplement the DMAs,
which are fully integrated agreements, because they do not constitute “course of
performance, course of dealing or usage of trade.” Ariz. Rev. Stat. Ann. § 47-2202
(2006). Even under Arizona’s traditional parol evidence rule, Valero’s alleged oral
statements about price cannot be considered because the DMAs are not “reasonably
susceptible” to an interpretation that adopts prior representations about price. Taylor
v. State Farm Mut. Auto. Ins. Co., 854 P.2d 1134, 1140 (Ariz. 1993).
2. The district court did not err in granting summary judgment to Valero
on Two Brothers’ breach of contract claim under the U.C.C. based on Valero’s
alleged failure to set the price in good faith. Arizona has adopted Section 2-305 of
the U.C.C., which provides that when a contract contains an open price term, the
3 17-17095 seller must set the price in good faith. See Ariz. Rev. Stat. Ann. § 47-2305(B).
Under Official Comment 3 to U.C.C. Section 2-305, evidence that a seller charged
the regularly “posted price” or “market price” normally satisfies the requirement of
good faith. See id., cmt. 3. Here, the district court correctly found that Two Brothers
had not presented sufficient evidence to overcome the presumption of good faith,
under either an objective or subjective test. As a purchaser, Two Brothers was in a
vastly different position from either the Valero-owned stations or CST. No
reasonable jury could infer that Valero acted in bad faith by charging Two Brothers
a publicly posted and commercially reasonable price, although it was higher than the
price Valero charged its own stations or CST (which is required to annually purchase
approximately 100 times more fuel than Two Brothers). Finally, Valero’s failure to
abide by the alleged oral representations could not establish bad faith because the
DMAs include an integration clause which expressly disavows any such
representations.
3. Two Brothers alleged that Valero breached the implied covenant of
good faith and fair dealing because it did not price fuel consistently with its alleged
oral representations. Based on the integration clause, the fact that Valero charged
Two Brothers a posted and commercially reasonable price and the lack of other
evidence to justify Two Brothers’ expectation that Valero would set its prices at
levels comparable to those charged CST or that would ensure that Two Brothers
4 17-17095 made a profit, the district court correctly granted summary judgment to Valero on
this claim. See Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons
Local No. 395 Pension Trust Fund, 38 P.3d 12, 28 (Ariz. 2002) (en banc) (“The
implied covenant of good faith and fair dealing prohibits a party from doing anything
to prevent other parties to the contract from receiving the benefits and entitlements
of the agreement.”); Kuehn v. Stanley, 91 P.3d 346, 354 (Ariz. Ct. App. 2004) (“As
a general rule, an implied covenant of good faith and fair dealing cannot directly
contradict an express contract term.”).
4. Two Brothers and the Station Plaintiffs alleged that Valero interfered
with their business relationship by intentionally engaging in “unfair pricing
activities” that disrupted the relationships between them and their respective abilities
to profit from the sale of fuel. The district court correctly granted summary judgment
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NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS APR 18 2019 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
TWO BROTHERS DISTRIBUTING No. 17-17095 INCORPORATED, an Arizona corporation; et al., D.C. No. 2:15-cv-01509-DGC
Plaintiffs-Appellants, MEMORANDUM* v.
VALERO MARKETING AND SUPPLY COMPANY, a foreign company,
Defendant-Appellee.
Appeal from the United States District Court for the District of Arizona David G. Campbell, District Judge, Presiding
Submitted April 17, 2019** San Francisco, California
Before: THOMAS, Chief Judge, M. SMITH, Circuit Judge, and VRATIL,*** District Judge.
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The panel unanimously concludes this case is suitable for decision without oral argument. See Fed. R. App. P. 34(a)(2). *** The Honorable Kathryn H. Vratil, United States District Judge for the District of Kansas, sitting by designation. Two Brothers Distributing, Inc. (“Two Brothers”) and ten associated gasoline
retailers (the “Station Plaintiffs,” together with Two Brothers, “Plaintiffs”) filed suit
against Valero Marketing and Supply Company (“Valero”). Two Brothers
purchases fuel from Valero, and distributes gasoline to third-party retailers in the
Phoenix, Arizona market. The Station Plaintiffs purchase gasoline from Two
Brothers for sale at retail pumps. This matter concerns Valero’s pricing of fuel to
Two Brothers under a series of contracts with an open price term. The district court
dismissed the Station Plaintiffs’ contract-based claims for lack of standing. Later, it
granted summary judgment in favor of Valero on all remaining claims. We have
jurisdiction under 28 U.S.C. § 1291 and affirm.
We review de novo a district court’s decision to grant summary judgment.
Evanston Ins. Co. v. OEA, Inc., 566 F.3d 915, 918–19 (9th Cir. 2009). Viewing the
evidence in the light most favorable to the non-moving party, we determine whether
any genuine issues of material fact exist and whether the district court correctly
applied the substantive law. Id.
Plaintiffs’ claims are based in part on Distribution Marketing Agreements
(“DMAs”) which provide that Two Brothers “shall pay to [Valero] that price
specified by [Valero] from time to time[.]” The DMAs themselves do not explain
or limit how Valero will set fuel prices. Two Brothers contends that before the
parties entered into the first DMA in 2007, Valero orally promised that it would
2 17-17095 charge Two Brothers a fuel price in line with discount brands and Valero-owned
stations so that Two Brothers stations would remain competitive and profitable.
Two Brothers also asserts that based on these representations, Valero should have
charged Two Brothers the same price that Valero charged its related company, CST
Marketing and Supply Co. (“CST”).
1. The district court did not err in granting summary judgment to Valero
on Two Brothers’ breach of contract claim based on alleged oral representations as
to price. The Uniform Commercial Code (“U.C.C.”) applies because the DMAs
involve the sale of petroleum. Under Arizona’s version of U.C.C. § 2-202, Valero’s
alleged oral representations cannot be used to explain or supplement the DMAs,
which are fully integrated agreements, because they do not constitute “course of
performance, course of dealing or usage of trade.” Ariz. Rev. Stat. Ann. § 47-2202
(2006). Even under Arizona’s traditional parol evidence rule, Valero’s alleged oral
statements about price cannot be considered because the DMAs are not “reasonably
susceptible” to an interpretation that adopts prior representations about price. Taylor
v. State Farm Mut. Auto. Ins. Co., 854 P.2d 1134, 1140 (Ariz. 1993).
2. The district court did not err in granting summary judgment to Valero
on Two Brothers’ breach of contract claim under the U.C.C. based on Valero’s
alleged failure to set the price in good faith. Arizona has adopted Section 2-305 of
the U.C.C., which provides that when a contract contains an open price term, the
3 17-17095 seller must set the price in good faith. See Ariz. Rev. Stat. Ann. § 47-2305(B).
Under Official Comment 3 to U.C.C. Section 2-305, evidence that a seller charged
the regularly “posted price” or “market price” normally satisfies the requirement of
good faith. See id., cmt. 3. Here, the district court correctly found that Two Brothers
had not presented sufficient evidence to overcome the presumption of good faith,
under either an objective or subjective test. As a purchaser, Two Brothers was in a
vastly different position from either the Valero-owned stations or CST. No
reasonable jury could infer that Valero acted in bad faith by charging Two Brothers
a publicly posted and commercially reasonable price, although it was higher than the
price Valero charged its own stations or CST (which is required to annually purchase
approximately 100 times more fuel than Two Brothers). Finally, Valero’s failure to
abide by the alleged oral representations could not establish bad faith because the
DMAs include an integration clause which expressly disavows any such
representations.
3. Two Brothers alleged that Valero breached the implied covenant of
good faith and fair dealing because it did not price fuel consistently with its alleged
oral representations. Based on the integration clause, the fact that Valero charged
Two Brothers a posted and commercially reasonable price and the lack of other
evidence to justify Two Brothers’ expectation that Valero would set its prices at
levels comparable to those charged CST or that would ensure that Two Brothers
4 17-17095 made a profit, the district court correctly granted summary judgment to Valero on
this claim. See Wells Fargo Bank v. Ariz. Laborers, Teamsters & Cement Masons
Local No. 395 Pension Trust Fund, 38 P.3d 12, 28 (Ariz. 2002) (en banc) (“The
implied covenant of good faith and fair dealing prohibits a party from doing anything
to prevent other parties to the contract from receiving the benefits and entitlements
of the agreement.”); Kuehn v. Stanley, 91 P.3d 346, 354 (Ariz. Ct. App. 2004) (“As
a general rule, an implied covenant of good faith and fair dealing cannot directly
contradict an express contract term.”).
4. Two Brothers and the Station Plaintiffs alleged that Valero interfered
with their business relationship by intentionally engaging in “unfair pricing
activities” that disrupted the relationships between them and their respective abilities
to profit from the sale of fuel. The district court correctly granted summary judgment
to Valero on this claim because plaintiffs presented no evidence that (1) Valero
interfered with a prospective business relationship, (2) plaintiffs had a reasonable
business expectancy of high profits, Bar J Bar Cattle Co. v. Pace, 763 P.2d 545, 548
(Ariz. Ct. App. 1988) (tortious interference claims are intended to protect only the
“reasonable expectations” of parties), or (3) Valero acted improperly, Miller v.
Hehlen, 104 P.3d 193, 202 (Ariz. Ct. App. 2005) (“[A] competitor does not act
improperly if his purpose at least in part is to advance his own economic interests.”)
(citation omitted).
5 17-17095 5. Two Brothers alleged that Valero violated the Robinson-Patman Act,
15 U.S.C. § 13(a), because it charged Two Brothers a higher price than it charged
CST. As the district court noted, however, the CST Master Agreement (1) has a
duration five times longer than the duration of the DMAs, (2) requires CST to
purchase approximately 100 times more fuel than Two Brothers for sales in
100 times more stores, and (3) involves markets nationwide—far beyond Two
Brothers’ operation in the Phoenix market. Based on these material differences, the
district court correctly granted summary judgment to Valero because Two Brothers
failed to show price discrimination. See Aerotec Int’l, Inc. v. Honeywell Int’l, Inc.,
836 F.3d 1171, 1188 (9th Cir. 2016) (plaintiff must show that “the differentially
priced product or commodity is sold in a ‘reasonably comparable’ transaction”)
(quoting Tex. Gulf Sulphur Co. v. J.R. Simplot Co., 418 F.2d 793, 807 (9th Cir.
1969)); see also id. (“Quite sensibly, courts have held that a seller is not obligated to
charge the same prices for a commodity if its sales contracts with different buyers
contain materially different terms.”) (citation and internal quotation marks omitted).
6. The Station Plaintiffs appeal the district court’s ruling which dismissed
their contract-based claims for lack of standing. Because the district court properly
granted summary judgment to Valero on the merits of the contract-based claims, this
issue is moot.
7. Because we affirm, Valero is entitled to court costs. See Fed. R. App.
6 17-17095 P. 39(a)(2). Valero also requests that we award attorneys’ fees and costs incurred
on appeal against Two Brothers under the terms of the DMAs and against the Station
Plaintiffs under Ariz. Rev. Stat. Ann. § 12-341.01. We remand for the district court
to address whether Valero is entitled to appellate fees and further costs under the
terms of the DMAs and the relevant statutory provision.
AFFIRMED. Remanded to the district court for consideration of
Valero’s request for fees and non-court costs.
7 17-17095