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Click here for the full text of this decision FACTS:The court decides whether the price fixed by a refiner for the sale of its gasoline under an open-price-term contract with its dealers was in good faith as required by Texas Business and Commerce Code �2.305(b). The dealers claim that the refiner’s pricing practices are forcing them out of business and therefore are not in good faith. The trial court concluded that the refiner had established its good faith as a matter of law, but the court of appeals reversed the summary judgment, concluding that circumstantial evidence raised a fact issue about the refiner’s good faith. HOLDING:Reversed and rendered. Although the subjective element of good faith may have a place elsewhere in the code, the court does not believe this subjective element was intended to stand alone as a basis for a claim of bad faith under �2.305. The court concludes that allegations of dishonesty under this section must also have some basis in objective fact which at a minimum requires some connection to the commercial realities of the case. The two cases relied on by Mathis appear to make a similar connection. Nanakuli Paving & Rock Co. v. Shell Oil Co., 664 F.2d 772 (9th Cir. 1981), and Allapattah Serv. Inc v. Exxon Corp., 61 F. Supp. 2d 1308 (S.D. Fla. 1999), aff’d, 333 F.3d 1248 (11th Cir. 2003). Both of these cases recognize that a price, commercially reasonable on its face, may nevertheless be applied in a dishonest fashion. But in both of these cases, the allegation of bad faith resulted in a commercial injury distinct from the price increase itself. Here the dealers’ claim of bad faith appears to be inextricably tied to the amount of the price set by Shell. The court agrees with those decisions that have upheld the posted price presumption against similar attacks. Applying that presumption, these courts have generally rendered judgment as a matter of law on similar claims under �2-305 where the refiner used a posted price which it fairly applied to similarly-situated purchasers. The dealers maintain, however, that even though Shell used a posted price it nevertheless violated its duty of good faith by setting its DTW (dealer tank wagon) price too high, with the conscious intention of driving some of its franchisees out of business. And the court of appeals agreed that there was enough circumstantial evidence to raise a fact issue about Shell’s subjective motives and therefore its good faith. According to the court, this evidence generally included: 1. the DTW price itself, which was on the high end of the wholesale pricing spectrum; 2. the “captive” nature of relationship between Shell and its franchisees; and 3. the general decline in the business fortunes of Shell franchisees. The court agrees with Shell that the court of appeals’ list of circumstantial factors are not evidence that Shell lacked good faith when fixing its DTW price. The DTW price, the captive nature of the franchisee relationship, and the business losses suffered by the dealers are variations of the same theme: Shell’s DTW price is too high for the dealers to compete with other gasoline retailers. But good faith under �2.305(b) does not mandate a competitive price for each individual dealer, nor could it. The competitive circumstances of each dealer in the same pricing zone may vary from station to station, and yet Shell must treat them all the same. Each dealer contractually agreed to buy gasoline at the DTW price applicable only to Shell-branded lessee-dealers. The court of appeals’ wholesale cost analysis indiscriminately compares Shell’s DTW price to prices available to other classes of trade, with different contractual buying arrangements. Included in the comparison are branded and unbranded jobbers who pick up their gasoline at terminals, open dealers who own their own premises, and company-owned stores operated by other refiners. Evidence that different prices are available to different classes of trade is not evidence of bad faith under �2.305. The court’s description of the dealers as “�captive buyers’ required to purchase Shell-branded gas at Shell’s price” is not evidence of bad faith or an abnormal case within the meaning of Comment 3 of �2.305. Dealers are only “captive” as a result of their own choice to become Shell-branded lessee dealers, which involved their agreement to buy gasoline from Shell at the DTW price, rather than at rack or some other price. That is the nature of a long-term franchise. Such “captivity” is therefore the “normal” case. OPINION:: Phillips, C.J.; O’Neill, Schneider and Brister, JJ., did not participate.

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