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CALLAHAN v. SUNOCO

May 19, 2004.

TIM CALLAHAN d/b/a TIM'S SUNOCO, et al.
v.
SUNOCO, INC., et al



The opinion of the court was delivered by: STEWART DALZELL, District Judge

MEMORANDUM

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 us.*fn1

Factual Background

  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.

 Analysis

  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 certification.

  A. Commonality

  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 ...


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