United States District Court, E.D. Pennsylvania
May 19, 2004.
TIM CALLAHAN d/b/a TIM'S SUNOCO, et al.
SUNOCO, INC., et al
The opinion of the court was delivered by: STEWART DALZELL, District Judge
Several individuals and business entities that have leased service
stations from Sunoco, Inc. and Sunoco, Inc. (R&M) (together,
"Sunoco") bring this diversity action against Sunoco for breach of
contract. Plaintiffs' motion for class certification is now before
Sunoco distributes and markets gasoline in twenty states and in the
District of Columbia through three kinds of service stations. First, it
transports gasoline to its company-operated stations ("co-ops"). Second,
Sunoco sells gasoline to distributors ("jobbers") at the "rack" price
then in effect at the terminal*fn2 where the jobber takes delivery of
the gasoline. From the terminal, jobbers transport the gasoline to their own stations, where they resell it to the public.
Finally, Sunoco enters into Dealer Franchise Agreements (DFAs) with
individuals and entities like the plaintiffs ("dealers"). Among other
things, a typical DFA will include a lease of a Sunoco-owned service
station to a dealer and a provision obligating Sunoco to provide gasoline
to the station at the "dealer price in effect."*fn3 Every business
day,*fn4 Sunoco's Pricing Department sets the DTW price for each of the
448 price zones in which the 1, 271 dealers operate.*fn5
Because the DFAs include an open price term for the gasoline that
Sunoco supplies, Sunoco must at least in jurisdictions that have
adopted the Uniform Commercial Code set a DTW price in "good
faith," with "honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade." See generally U.C.C.
§§ 2-103(1)(b), 2-305(2) (1998). Plaintiffs contend that Sunoco has
breached their DFAs because it has not set the DTW price in good faith.
Specifically, they allege Sunoco has set the DTW price with "an apparent
goal of . . . eliminat[ing] Dealers . . . from their marketing
operations throughout the United States, so as to take over and operate,
or eliminate the Dealers' service stations." Compl. ¶ 20.
Although plaintiffs initially attempted to bring suit on behalf of all
dealers who purchased Sunoco-branded gasoline pursuant to an open-price
term during the period from August 1, 1999 through the present,
see Compl. ¶ 22, they now "seek to certify a class . . .
consisting of the 249 Franchise Dealers" identified in Dr. Keith B.
Leffler's Declaration.*fn6 Pls.' Mem. Supp. Class Cert. at 2 & Ex.
6. Dr. Leffler selected these 249 dealers because they operated in the 77
price zones where (1) the average DTW price was more than 0.5 cents
higher than the average benchmark price*fn7; and (2) dealers'
competitors supply more than fifty percent of the gasoline. We turn now
to the merits of plaintiffs' motion to certify this 249-dealer class.
Before deciding whether plaintiffs come within one of the provisions of
Rule 23(b), we must consider whether they have satisfied the
prerequisites listed in Rule 23(a). Georgine v. Amchem Prods.,
Inc., 83 F.3d 610, 624 (3d Cir. 1996), aff'd sub nom. Amchem
Prods., Inc. v. Windsor, 521 U.S. 591 (1997). The four prerequisites
to a class action are:
(1) the class is so numerous that joinder of all
members is impracticable, (2) there are questions
of law or fact common to the class, (3) the claims or defenses of
the representative parties are typical of the
claims or defenses of the class, and (4) the
representative parties will fairly and adequately
protect the interests of the class.
Fed.R.Civ.P. 23(a) (2004). As a shorthand, courts regularly
refer to the prerequisites as numerosity, commonality, typicality, and
adequacy of representation. See Amchem, 83 F.3d at 624. Because
Sunoco does not challenge that a 249-member class is so numerous as to
make joinder impracticable, see Defs.' Mem. Opp'n Class Cert.
at 28-29, we conclude that plaintiffs have satisfied the numerosity
requirement and shall proceed to the other prerequisites to class
The commonality threshold is relatively low because the named
plaintiffs need only "share at least one question of fact or law with the
grievances of the prospective class." Baby Neal v. Casey,
43 F.3d 48, 56 (3d Cir. 1994). While plaintiffs claim that this case raises
the common question of whether Sunoco's DTW pricing procedures breached
its contractual obligation to set those prices in good faith,*fn8 Sunoco insists that plaintiffs have not demonstrated commonality.
Sunoco points out that Texas has developed an inquiry into whether a
merchant acted in "good faith," within the meaning of U.C.C. §
2-103(1)(b), that differs from the approach that other states, including
Ohio, use. Compare Tom-Lin Enters., Inc. v. Sunoco, Inc.,
349 F.3d 277 (6th Cir. 2003) (interpreting Ohio law) with Mathis v.
Exxon Corp., 302 F.3d 448 (5th Cir. 2002) (construing Texas law).
The differences that Sunoco cites, however, are not relevant to this case
because none of the members of the proposed class do business in Texas.
To be sure, there may be state-to-state variation about how to evaluate
a merchant's good faith in the states where Sunoco dealers do operate,
but the parties' briefs have not yet persuaded us that such variations
are significant enough to preclude a finding of commonality.
Sunoco also suggests that it could not have set DTW prices in bad faith
out of a desire to take over plaintiffs' businesses because divorcement
laws in several of those states prohibit it from operating service
stations. See, e.g., Conn. Gen. Stat. § 14-344a (2003).
While divorcement laws cast doubt on whether Sunoco hoped to take over
the plaintiffs' stations in certain states, they do not resolve the question of whether Sunoco set DTW prices in bad faith in those
states. It is possible and not inconsistent with the complaint
that Sunoco acted in bad faith to extract as much money as
possible from dealers, hoping to take over stations only where the law
would not prohibit it.
In another attempt to avoid a finding of commonality, Sunoco alleges
that two of the named plaintiffs (and many other members of the proposed
class) have released it from any claims arising out of their DFAs. This
defense, if established, could prevent dealers from recovering damages,
even if Sunoco acted in bad faith. The existence of a possible
affirmative defense, however, does not negate the common question about
whether Sunoco would have been liable but for that defense. Moreover, if
Sunoco established its defense, we could amend a certification order to
exclude class members who waived their rights to recover for breaches of
the DFAs. See Fed.R.Civ.P. 23(c)(1)(C).
Finally, Sunoco argues that there are no common questions because it
made each of its thousands of DTW pricing decisions independently of all
of the other decisions. Sunoco concludes, therefore, that plaintiffs must
show that it acted in bad faith when it made each DTW pricing decision
that they claim breached a DFA. In other words, Sunoco maintains that
plaintiffs share no common questions of fact because each plaintiff's
claims depend on separate inquiries into Sunoco's good faith. Plaintiffs contend that Sunoco's argument is not appropriate at this
stage of the litigation because it goes to the "merits" of the case, but
they seem to misunderstand the argument. We agree that the issue of
whether Sunoco actually acted in bad faith must await another day, but we
cannot put off the question of whether to analyze Sunoco's pricing
decisions individually or collectively.
Plaintiffs also argue that Dr. "Leffler has developed the proper
method for addressing" the complex issues of whether Sunoco made its
pricing decisions in bad faith. See Pls.' Reply at 20-21. We
disagree. Dr. Leffler has developed a methodology for identifying
dealers who have incurred the largest damages, assuming that Sunoco set
DTW prices in bad faith. Indeed, Dr. Leffler admits that he was asked
only "to examine . . . how Sunoco dealers are impacted" by Sunoco's
pricing practices. Leffler Decl. ¶ 4. No matter how persuasive we
may regard Dr. Leffler's damages analysis, it simply offers no insight
into whether Sunoco acted in bad faith, the central liability issue in
Plaintiffs might have claimed that Sunoco's individual pricing
decisions were motivated by a common cause, such as a desire to drive the
dealers out of business, and that this common motive tainted each of the
individual pricing decisions. For this argument to succeed, however,
plaintiffs would have had to come forward with some evidence that Sunoco
harbored such impure motives. Plaintiffs do point to the testimony of two dealers who said that it "seem[ed]"
like Sunoco was trying to put them out of business, see Pls.'
Reply at 13-14 & n.10, but such uncorroborated statements cannot
support a finding that there is indeed a common question of whether
Sunoco's individual pricing decisions were motivated by a common aim.
Although the complaint appears to raise the common question of whether
Sunoco made DTW pricing decisions in bad faith, Sunoco has shown that it
made separate pricing decisions for each price zone after considering the
zone's local competitive conditions, historical sales volumes, market
trends, and other factors. See Schwab Dep. at 18-49. Even
after setting a DTW price for each zone, Sunoco reconsidered its
decision every day as it received updated data. See Schwab Dep.
at 55. Because plaintiffs have not come forward with any evidence that
all of these thousands of individual pricing decisions were part of a
common plan, we cannot find that there are questions of law or fact
common to the class.
Having failed to show commonality, plaintiffs' motion for class
certification must fail. Nevertheless, we shall consider the other
prerequisites to a class action to round out the record. See
Typicality requires "the court to assess whether the class
representatives themselves present those common issues of law and fact that justify class treatment, thereby
tending to assure that the absent class members will be adequately
represented." Eisenberg v. Gagnon, 766 F.2d 770, 786 (3d Cir.
1985). Though eight of the twelve named plaintiffs are no longer part of
the proposed class, the claims of the other four named plaintiffs*fn9
"have incentives that align with those of absent class members so as to
assure that the absentees' interests will be fairly represented."
Baby Neal, 43 F.3d at 57. Still, the same concerns that we
raised in our discussion of commonality demonstrate that "this class is a
hodgepodge of factually . . . different plaintiffs" of which "no set
of representatives [could] be `typical.'" Amchem, 83 F.3d at
C. Adequacy of Representation
The final prerequisite to class certification is that "the
representative parties will fairly and adequately protect the interests
of the class." Fed.R.Civ.P. 23(a)(4) (2004). To assess this factor,
our Court of Appeals has explained that we should inquire into whether
(1) the named plaintiffs have conflicts of interest with other members of
the proposed class; and (2) counsel is qualified to represent that entire
class. See Amchem, 83 F.3d at 630. Sunoco asserts that eight of the named plaintiffs have conflicts
with class members because they are not part of the proposed class, but
this point is not particularly relevant because the other four named
plaintiffs have no conflicts of interest.*fn10 Similarly, Sunoco's
criticism of plaintiffs' counsel appears unfounded in view of counsel's
affidavit. Thus, we find that four of the named plaintiffs will fairly
and adequately protect the interests of the class.
Although plaintiffs have shown numerosity and adequacy of
representation, they have failed to establish commonality and typicality.
We shall, therefore, deny their motion to certify a class consisting of
the 249 dealers that Dr. Leffler identified.
An appropriate Order follows.
AND NOW, this 19th day of May, 2004, upon consideration of plaintiffs'
motion for class certification (docket entry # 18), defendants' response
thereto, plaintiffs' reply, and defendants' surreply, and in accordance
with the accompanying Memorandum, it is hereby ORDERED that:
1. Plaintiffs' motion for class certification is DENIED; and
2. The parties shall APPEAR in our Chambers on May 26, 2004 at 4:30
p.m. for a pretrial conference.