The court rejected, in a 6 to 1 opinion, the dealers' claim that Shell had engaged in bad faith when it set the cost for fuel delivered to them for resale to motorists. Dealers involved in the case leased gas stations, [image-nocss] including equipment and land, from Shell and operated them as franchisees. Chief Justice Thomas Moyer, writing for the majority, said the dealers had not provided any evidence that the prices Shell set were commercially unreasonable or discriminatory.
"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 [state law], and a subjective inquiry into the motives of the price setter is not permitted," Moyer said.
Justice Paul Pfeifer, the only member of the court to dissent, said he believed that "good faith" as defined in statute requires parties to act both honestly in fact and according to reasonable commercial standards. He said the majority opinion should prompt all franchisees in Ohio to "watch their wallets very carefully" because their franchisor would no longer be held to subjective good-faith standards. "Instead, the law of the ocean applies: the big fish are free to consume smaller fish at will," he said. "Apparently, not until the waters are exclusively inhabited by a few great white sharks will the majority decide they need a bigger boat or a more robust interpretation of the UCC [Uniform Commercial Code]."
The lawsuit began in 1999 when about 40 current and former dealers in the Cleveland area challenged Shell's practice of selling gasoline at lower prices to independent companies operating non-Shell-owned gas stations. The dealers contended that Shell's goal was to eliminate them, so that the company could take over operation of the gas stations. Such a move would allow Shell to profit from sales of all products, not just from wholesale gasoline sales to, and rental income from, the dealers. The parties agreed to move forward only on the bad-faith claim.
A Cuyahoga County common pleas judge ruled in favor of Shell, and the 8th District Court of Appeals upheld the finding. The Supreme Court on Tuesday affirmed the decision.
Moyer said facts in the case demonstrated that the prices Shell set were 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," he said. "However, Shell is not required to sell gasoline at a price that is profitable for buyers."
Concurring in the opinion were Justices Evelyn Stratton, Maureen O'Connor, Terrence O'Donnell, and Robert Cupp. Justice Judith Lanzinger concurred only in the judgment.
Click hereto view the opinion of the Ohio Supreme Court.
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