The opinion of the court was delivered by: BRODERICK
Plaintiffs, independent retailers of Texaco gasoline and products, (hereinafter "Texaco dealers") filed this action on October 15, 1981, seeking an injunction preventing defendant Texaco, Inc. (hereinafter "Texaco") from assessing Texaco dealers a three percent credit card invoice processing fee. On October 27, 1981, immediately prior to a scheduled hearing on plaintiffs' motion for a preliminary injunction, counsel in this case agreed, pursuant to Rule 65(a)(2) of the Federal Rules of Civil Procedure, that trial of the action on the merits would be advanced and consolidated with the hearing on plaintiffs' motion for a preliminary injunction. The parties stipulated that this case satisfied the prerequisites to maintenance of a class action required by Federal Rules of Civil Procedure 23(a) and 23(b)(2). The Court certified a plaintiff class comprised of all Texaco service station dealers who have a supply agreement directly with Texaco and who are being supplied with gasoline by Texaco, and who will be charged three percent by Texaco on all credit card invoices submitted to Texaco for processing commencing November 1, 1981. The named plaintiffs were agreed to as class representatives. Trial on the merits was held before the Court on December 16, 17, 18, 21, 22, and 23, 1981.
The Texaco dealers allege that Texaco's action-charging a three percent fee to process the dealers' credit card invoices-constitutes: (1) an unreasonable restraint of trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; (2) an illegal tie-in in violation of 15 U.S.C. § 1; (3) an unconscionable contract in violation of 13 Pa.C.S.A. § 2302 (the state statute adopting Section 2-302 of the Uniform Commercial Code); and (4) an ineffective modification of a contract that is void for failure of consideration and is a contract of adhesion. Plaintiffs have neither alleged nor argued a violation of the Petroleum Marketing Practices Act, 15 U.S.C. § 2801 et seq. Plaintiffs' complaint averred that Texaco's action was barred by promissory estoppel, but this claim was voluntarily withdrawn by the plaintiffs at trial. For the reasons hereinafter set forth, the Court finds for the defendant on all counts in plaintiffs' complaint and will deny the injunctive relief requested by plaintiffs.
Texaco is a Delaware corporation engaged in the production, transportation, refining and marketing of crude oil and its products, more particularly in this case, gasoline. Its gasoline is distributed through approximately 24,000 Texaco branded service stations throughout the United States under the brand names of Fire Chief, Sky Chief, Lead Free and Texaco Gasahol. Texaco, whose sales comprise 5.9 percent of the total retail gasoline sales in the United States, transacts business in the Eastern District of Pennsylvania and is engaged in interstate commerce.
Plaintiff William Melso, trading as Melso Texaco Service, owns and operates a Texaco brand service station located at 6554 Frankford Avenue, Philadelphia, Pennsylvania, and has operated such service station since 1973. Plaintiff Timothy Musser, trading as Musser Texaco, owns and operates a Texaco brand service station located at 2242 Bridge Street, Philadelphia, Pennsylvania, and has operated such service station since 1972. The named plaintiffs advance claims common to the class and have fairly and adequately represented the interests of the class at trial.
In the past, Texaco charged its dealers an annual service fee for participating in Texaco's credit card program, which has existed in various forms since 1914. This fee, prior to November 1, 1981, did not exceed $ 36.00 per year. Immediately prior to November 1, 1981, Texaco had a credit card program in effect under which Texaco agreed to process any Texaco card invoices which were submitted by Texaco retailers to Texaco on authorized credit sales for processing at 100 percent of the face value of the invoices submitted. Before issuing credit cards, Texaco did not consult with dealers regarding the issuance of credit cards and did not consult with dealers on the terms contained in the credit cards. Generally, invitations to members of the public to apply for cards have been mailed out unsolicited, but issued only after a credit check. Texaco currently has issued in excess of 9 million credit cards of which more than 5 million are "active" accounts, that is, the holders of these cards make purchases of Texaco products with them at least once per year.
On August 31, 1981, all Texaco retailers and wholesalers were notified that the Retailer Travel Card Agreement (hereinafter "credit card agreement") between Texaco and its retailers and wholesalers was being amended to take effect as of November 1, 1981 by striking paragraph 8 which provided that:
and substituting in lieu thereof paragraph 9 which provides:
Credit Card Processing Charge. Retailer will submit credit card invoices to Texaco in a manner prescribed by Texaco. In submitting said invoices, Retailer will compute and deduct a processing charge equal to three percent (3%) of the gross total of the invoices. Texaco will, upon receipt of said invoices, credit Retailer ninety-seven percent (97%) of the gross total. Any such credit is subject to verification by the Texaco Credit Card Center. In the event that Retailer violates the preceding instructions, Texaco may require that Retailer forward said invoices to the Credit Card Center or other place designated by Texaco from time to time, whereupon Texaco will reimburse Retailer by check or credit memorandum. Reimbursement arrangements may be changed from time to time by Texaco.
In 1980, approximately 37 percent of total gasoline sales by Texaco retail dealers were made pursuant to Texaco credit cards. As noted above, the Texaco credit card program has existed in modified forms since 1914, interrupted only by a hiatus in the program necessitated by gasoline rationing during World War II. The now-familiar plastic Texaco credit cards with raised lettering first appeared in 1958, the year during which the "modern" Texaco credit card program began operating substantially as it does today.
For a brief period during the 1970's, Texaco processed American Express, Bankamericard (now Visa) and Mastercharge (now Mastercard) credit cards accepted by Texaco dealers for purchases at their stations. In 1971, Texaco ceased accepting American Express. In 1979, Texaco discontinued processing Visa and Mastercard. At that juncture approximately 6 percent of Texaco's total retail gallonage was purchased with Visa or Mastercard cards. Since 1979, some Texaco dealers have arranged with various banks to process credit cards other than the Texaco card and continue to accept these other cards at their stations. Texaco dealers may continue to have separate agreements regarding other credit cards even though Texaco's post-November, 1981 credit program will again accept Visa and Mastercard for processing. Texaco dealers are not required to process credit cards through Texaco; they have the option of processing such other credit cards through any financial institution of their choice. The banks that process other credit cards generally charge a fee ranging from 2.5 percent to 5 percent of the face amount of the invoice. Many dealers continue to accept other credit cards such as Visa and Mastercard, but some Texaco dealers will accept them only for the purchase of parts, accessories, labor, or for gasoline purchases above a minimum amount. Many Texaco dealers found it uneconomical because of the percentage processing fee to accept other than Texaco credit cards for all gasoline purchases.
Prior to the revision of its credit card program, Texaco treated credit card invoices as legal tender. That is, Texaco credited the invoices submitted by one of its dealers at full face value against the dealer's account with Texaco. Texaco would pay the dealer cash for these invoices if requested, but dealers usually applied the invoice total to purchase gasoline or other products from Texaco. As of November 1, 1981, Texaco continued to accept these invoices and apply them to dealers' accounts, but at 97 cents on the dollar. Thus, today, a dealer submitting $ 1,000 of credit card invoices to Texaco receives credit toward the purchase of $ 970 of Texaco products. Texaco uses the $ 30 collected through its 3 percent processing fee to defray the costs of operating its credit card program such as billing the card users, collecting the amounts due, and financing the cost of money during the interim between purchase and payment. Texaco also intends to use the processing fee to expand and improve its credit card program and to provide its dealers with new credit card imprinters. In a letter dated August 31, 1981, advising Texaco dealers of its intention to impose a 3 percent processing fee, Texaco stated in the letter that it believed that clause (7) of the credit card agreement permitted it to change the terms of its agreement as to what, if any, processing fee would be charged its dealers for submitting purchase invoices to Texaco. Clause (7), which has not been changed by Texaco, and remains a part of the standard credit card agreement form used by Texaco, states:
(7) Modification and Termination. Texaco reserves the right to modify this Agreement by written notice to Retailer. Texaco reserves the right to cancel this Agreement at any time and to repossess its travel card imprinter, other travel card equipment, completed and blank invoices and other travel card forms. This Agreement shall terminate automatically upon the termination or cancellation of the Agreement of Sale under which Retailer buys petroleum products from Texaco.
The Texaco Retailer Credit Card Agreement is one of three standard form agreements normally entered into between Texaco and its dealers. The other two agreements are the Supply or Sales Agreement, and the Lease Agreement. As a matter of course, most all Texaco dealers enter into the sales agreement and the credit card agreement. Texaco dealers who lease their station premises from Texaco enter into the lease agreement.
The sales agreement provides that Texaco will sell its gasoline products, including gasoline, diesel fuel, motor lubricants, and antifreeze, to the dealer. The sales agreement grants the dealer the right to purchase these products in the quantities described and to sell those products under the Texaco brand name. The lease agreement sets forth the terms and conditions under which the dealer leases the service station from Texaco.
These three basic agreements (sales, lease, and credit card) are uniformly presented to the existing or potential Texaco dealer as a package. Texaco requires that the sales agreement and, where applicable, the lease agreement, be executed as a condition of dealing with the independent dealer. The Texaco dealers claim that the credit card agreement had to be executed as a part of the package. The evidence presented at trial, however, indicated that although Texaco normally seeks to have all three agreements executed, execution of the credit card agreement is not essential to becoming a Texaco dealer.
The market for petroleum products in the United States has experienced substantial upheaval during the past decade. The average price of a gallon of gasoline has tripled during that time as a result of many factors, including a depletion in the availability of the supply of oil, the pricing activities of the Organization of Petroleum Exporting Countries (OPEC), and inflationary pressures. Except for the periods of short supply, the gasoline market has remained highly competitive. In today's market, sellers of gasoline must price their products close to the level of their competitors or they will lose business. In many regions of the United States, a price difference of one-to-two cents per gallon induces a significant number of consumers to alter their gas purchasing habits. Thus, in today's market, the price to the consumer generally remains close between service stations. If one dealer reduces his price, others in the area must either match this reduction, or a significant number of consumers will turn to the dealer with the lowest price.
Within this highly competitive market for gasoline exist two submarkets-(1) dealers associated with major brands (hereinafter "branded dealers") and (2) dealers not associated with major brands (hereinafter "unbranded dealers"). A major brand gasoline retailer is one affiliated with one of the major brand oil companies (hereinafter "majors"). A major brand oil company, that is, one with a well-recognized brand name, is a company that generally has a substantial refining capacity, a varied line of petroleum products, and a large network for marketing its product line at both the wholesale and retail level throughout a substantial portion of the nation. Major brands conduct their marketing in a more or less uniform fashion and operate credit card programs. Examples of major brand oil companies are Texaco, Mobil, Arco, Sunoco, Exxon, Gulf and Amoco. Non-major oil companies, by contrast, do not usually operate in all facets of the oil business. For example, some may have no refining capacity and obtain gasoline for retail outlets by purchasing the surplus gasoline of the major brand companies or from independent refiners that have no marketing network. Unbranded dealers also tend to operate in a smaller area than do the branded dealers. Unbranded dealers generally offer a limited product line and seldom offer automotive repair services while most branded dealers operate repair services. Unbranded dealers usually have no credit card program of their own, but may accept other credit cards such as Visa and Mastercard. As a result of their lower overhead, limited services and no-frills operation, unbranded dealers generally sell gasoline at a lower price than do the branded dealers. This price differential generally ranges from 2 to 4 cents per gallon.
The Texaco dealers contend that there are two distinct markets for gasoline-branded and unbranded. Texaco contends that all retail gasoline sales in the nation take place in one market. Both positions are overstated. Almost everywhere in the United States, a person wishing to purchase gasoline can find both branded and unbranded dealers available. At all times, the consumer can purchase gas from either type of station. In that sense, there is one market for gasoline. However, many consumers have a strongly ingrained buying preference for major brand gasoline and will only depart from this habitual preference when the price differential between branded and unbranded gasoline becomes much greater. In this sense, branded and unbranded dealers comprise two submarkets for the purchase of gasoline. Most consumers conduct their gasoline buying activities solely within one submarket unless the price differential between the two submarkets becomes so pronounced as to prompt a switch to another submarket. Conceivably, those who usually buy unbranded gasoline could switch to branded gasoline should branded gas become less expensive in relation to unbranded gas. Major brand customers appear willing to pay a few cents per gallon more for the satisfaction of consuming branded gas, for the convenience of making credit card purchases, for the availability of extra services, and their own self-assurance that the product may be of a higher quality.
Thus, price competition is keenest among dealers within the same submarket. However, dealers from different submarkets also compete with one another to a lesser extent because drivers will leave their usual submarket if the price rewards are great enough.
Dealers who have sales agreements with the branded oil companies purchase gasoline from the major brand companies for what is termed in the trade the dealer tankwagon price or retail tankwagon price (hereinafter "tankwagon price"). The tankwagon price is simply the wholesale price of gasoline, the price at which the oil company will sell its gasoline to its dealers. It is generally 20-to-30 cents per gallon below the price at the gas pump.
The tankwagon price is often modified by rebate programs operated by the major brands at various times. The rebate formulas of the major oil companies vary from time to time in response to market conditions. Most rebate programs are linked to the dealer's volume and performance. The rebate functions much like a quantity discount. For example, the rebate program most recently employed by Texaco reduced the tankwagon price by 4 cents for every gallon sold which exceeds 50 percent of the base period total and 6 cents for every gallon sold which exceeds by 80 percent the dealer's total gallonage for the base period. The base period is either the same month of the previous year or the dealer's average per month gallonage of the previous year.
Texaco and other oil companies have in the past employed temporary rebate programs whenever they find themselves with an oversupply of gasoline. It is at these times that inter-brand price competition is most vigorous and the rebates are offered to enable each brand's dealers to compete more effectively with other dealers and to stimulate a high volume of sales. Oil companies prefer to offer quantity discount rebates rather than simply lowering the tankwagon price because it provides an incentive to increase sales and because the net price-reducing effect of rebates is less easily discerned by competing oil companies. The most recent rebate program of Texaco began in April, 1981, and remains in effect but may be withdrawn by Texaco at any time. The current rebate program is acknowledged by both Texaco and Texaco dealers to be one of the most favorable rebate programs in effect in today's market.
A gasoline retailer seeks, of course, to earn a profit in his station's operation. Regarding gasoline sales, a dealer's net profit will equal his earnings from gasoline sales at the pump price, minus the dealer tankwagon price and any other overhead costs such as station rental, wages, insurance, etc. Texaco dealers generally make a gross profit of between 15 and 25 cents per gallon on sales of full service gasoline (gasoline pumped by station employees who also clean the customer's windshield, check his oil, etc.) and 3 to 6 cents per gallon on self-service (gasoline pumped by the customer) sales. The pooled margin of dealers is the overall profit margin of the dealer on all gasoline sales, both self-service and full-service averaged together.
Those familiar with the gasoline market know that consumers will alter their gasoline purchasing behavior in response to changes in the price of gasoline. The Texaco dealers contend that Texaco's current 3 percent processing fee applied to credit card invoices results in an increase in the cost of gasoline to the Texaco dealer. Because it will cost more to sell gasoline on credit, Texaco dealers contend that they will either have to absorb the increase by accepting a reduced profit margin or raise the pump price of their gasoline. They claim that either alternative would be disastrous. The former course would, they assert, make operating a service station either unprofitable or so negligibly profitable that the dealers would soon cease operation. The latter course would result in Texaco retailers losing customers to other branded and unbranded dealers, which would also have an adverse impact on the Texaco dealers' profits. The Texaco dealers' contention would appear to be correct if Texaco did not intend to decrease its tankwagon price to reflect the additional 3 percent processing fee, or if the Texaco dealers were unable to adjust to the imposition of the 3 percent fee. The evidence shows that Texaco's present rebate program is effecting a reduction in the tankwagon price for those dealers who are able to qualify. However, the fact remains that each Texaco dealer must make a decision to either include the 3 percent charge as an overhead item, or to recoup it by adding it to the price charged for all gasoline sales, or to impose it solely on his credit card customers by offering a discount for cash sales. On the other hand, the Texaco dealers contend that although the present rebate program is providing them with a more favorable tankwagon price, they claim that there is nothing that prevents Texaco from terminating the rebate program at any time. Nevertheless, it is certainly reasonable to assume that as long as Texaco desires to market gasoline through the Texaco dealers, it must maintain a tankwagon price which will permit the Texaco dealers to remain competitive with other dealers and earn a profit margin that will enable them to remain in business.
It was shown at trial that Texaco dealers can, if they desire, operate cash-only gas pumps, either self-service or full-service, or both, and other pumps for credit card sales. The Texaco dealers contend, however, that to accomplish this the dealer must operate four separate gas pump islands, each offering Texaco's regular, premium, and lead-free gasolines; a full-service credit card island; a full-service cash only island; a self-service credit card island; and a self-service cash only island. They contend such an operation lies beyond the resources of most Texaco dealers since they generally have only two gasoline sales islands and lack the space, financial resources, or the volume of sales to enable them to expand to four gas islands. The evidence presented at trial, however, shows that most Texaco dealers will be able to operate cash only pumps, giving a discount for cash purchases of gas. Such an operation would be understood and accepted by many consumers. Furthermore, as the Court has found, Texaco dealers are not required to enter into the credit card agreement and may use any financial institution of their choice for processing bank and other credit cards for collection.
The Texaco dealers contend that the gas-buying public is now conditioned to expect that their oil company credit cards will be honored by the service stations carrying that brand of gasoline. The Court finds the evidence presented at trial to support this view. The pervasiveness of this perception cannot be precisely known at this time, but it is likely widespread. More than 20 years of extensive advertising and promotion on behalf of credit cards, coupled with longstanding dealer acceptance of credit cards for gasoline purchases, has given rise to this consumer perception.
The Texaco credit card itself states that it will be honored by participating retailers. Thus, the actual plastic credit card issued by Texaco does not, by its language, dispel the expectation that all Texaco dealers will always accept Texaco credit cards. During the period 1958-74, the language on the back of the Texaco credit card stated that the card would be honored at all Texaco dealers throughout the United States. In 1974, Texaco unilaterally altered this language by inserting the word "participating" before the word "dealers." This change was prompted by the refusal of some dealers to honor Texaco credit cards during the 1973-74 Arab oil embargo gas shortage, when dealers sought to expedite the movement of long gas lines through cash sales. Texaco contends that neither the credit card agreement currently used by Texaco, nor the language of the credit cards currently issued by Texaco, compels Texaco dealers to accept all Texaco credit cards under all circumstances.
The agreement specifically states that
Texaco hereby authorizes Retailer to honor at his place of business unexpired and uncancelled Texaco Travel Cards and any other special credit cards authorized by Texaco, ...