Chawla v. Shell Oil Co.

75 F.Supp.2d 626

Mary CHAWLA, et al., Plaintiffs, v. SHELL OIL COMPANY, Motiva Enterprises, L.L.C. and Equilon Enterprises, L.L.C., Defendants.

No. Civ.A. H-99-1711.

United States District Court, S.D. Texas, Houston Division.

November 3, 1999.

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George M. Flemming, Fleming & Associates, L.L.P., Houston, TX, Robert L. Steinberg, Paul B. Rosen, Jensen, Rosen & Steinberg, P.C., Houston, TX, Mike O'Brien, Mike O'Brien, P.C., Houston, TX, Jonathan S. Massey, Jonathan S. MAssey, P.C., Washington, DC, for Plaintiffs.

J. Gregory Copeland, J. Michael Baldwin, Baker Botts, L.L.P., Houston, TX, Ann Spiegel, Sr. Litigation Counsel, Equiva Services LLC, Houston, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

ATLAS, District Judge.

Pending before the Court are the Defendants' Motion to Dismiss the Tying, Price Discrimination, and Fraud Counts of Plaintiffs' First Amended Complaint ("Defendants' Motion") [Doc. # 11] and Defendants' Supplemental Motion to Dismiss Plaintiffs' Conspiracy Count [Doc. # 46]. The parties have fully briefed the issues.¹ The Court has considered all the parties' submissions, all matters of record, and the applicable authorities, and concludes that Defendants' Motion should be granted in part and denied in part, and the Defendants' Supplemental Motion should be granted.

I. FACTUAL BACKGROUND

Defendants in this case manufacture and distribute Shell brand gasoline. Defendants distribute this gasoline to consumers through three different channels. First, Defendants directly own and operate retail stations, otherwise known as "companyowned stations" or "Shell-owned stations." Second, Defendants sell their fuel to wholesale "jobbers," who supply it to Shell-brand stations owned either by the jobber ("jobber stations") or other individuals under a contractual relationship with the jobber ("open dealers").² Third, Defendants own or lease certain real estate and then lease or sub-lease the property to independent business persons who become Shell brand "dealers," known as "lessee-dealers," who operate and run "lesseedealer stations."

Plaintiffs in this case consist of seventy-three individuals who, directly or indirectly, are lessee-dealers that now operate or have operated Shell-brand gasoline stations. Each Plaintiff has a contractual relationship contained in a standard "Dealer Agreement," whereby the lessee-dealer agrees to sell exclusively Shell brand gasoline through the gas station.³

Plaintiffs allege that Defendants' actions have violated federal antitrust laws, as well as state fraud, tort, and contract laws. In their First Amended Complaint, Plaintiffs assert ten causes of action. First, Plaintiffs allege an illegal tying arrangement in violation of § 1 of the Sherman Act, 15 U.S.C. § 1 (Count I), and § 3 of the Clayton Act, 15 U.S.C. § 14 (Count II), challenging Defendants' "pay at the pump" program whereby Defendants require Plaintiffs to enable retail consumers to pay for gasoline at the gasoline pump by using equipment and services mandated by Defendants. Plaintiffs also allege that Defendants have engaged in illegal price discrimination between Plaintiffs and the jobbers with whom they compete in violation of the Robinson-Patman Price Discrimination Act amendment to § 2(a) of the Clayton Act, 15 U.S.C. § 13(a) (Count III). Plaintiffs also contend that Defendants' actions concerning the relative price charged to Plaintiffs and their retail competitors constitute a conspiracy affecting interstate commerce in violation of § 1 of the Sherman Act, 15 U.S.C. § 1 (Count IV). Plaintiffs also allege that Defendants fraudulently induced the Plaintiffs to enter into the Dealer Agreements or other agreements with Defendants (Count V). Last, Plaintiffs allege five other state law claims arising from the parties' business relationship.⁴ Defendants do not address Counts VI through X in their Motions. The claims in issue in the pending motions are described below in greater detail.

A. Counts I and II: Alleged Illegal Tying Arrangement in Violation of § 1 of the Sherman Act and § 3 of the Clayton Act

Plaintiffs challenge Defendants' "pay at the pump" program. Plaintiffs claim they are being coerced by Defendants to lease "Island Card Readers" ("ICRs") and to agree to utilize the bank chosen by Defendants to process the associated credit card transactions. See Plaintiffs' First Amended Complaint, at 17, ¶¶ 125, 127. ICRs are the credit card readers placed on the gasoline pumps which allow customers to "pay at the pump." The ICRs are separate from the credit card machines operated by Plaintiffs inside their stations or convenience stores. Id. at 16, ¶ 124. The ICRs are operated in connection with banks selected by Defendants to process the transactions. Id. at 17, ¶ 127. Thus, the ICRs and Defendants' chosen bank operate together as one credit card processing system. In addition, Plaintiffs allege that Defendants' tying scheme was imposed on "most — if not all — Plaintiffs" only after Plaintiffs signed their Dealer Agreements. Id. at 16, ¶ 124.

Plaintiffs complain first about being required to lease ICRs and pay a monthly fee based on the number of ICRs at each station. Id. at 17-18, ¶ 130. Second, Plaintiffs complain that Defendants' fee is higher than the fee allegedly available if Plaintiffs were allowed to obtain the ICRs from another source. Id. at 17, ¶ 127. Third, as to the requirement that they use the bank chosen by Defendants to process ICR-related credit card transactions, Plaintiffs claim they could obtain less expensive financing elsewhere. Id. at 18, ¶ 131.

Plaintiffs allege in Count I that Defendants' "practice of coercing Plaintiffs to agree to lease ICRs and forcing Plaintiffs to agree to utilize only Shell's chosen bank to process [these] credit card transactions" creates an illegal tying arrangement in violation of the Sherman Act, § 1. In this trying arrangement, the tying products are Shell brand gasoline and the Shell trademark, and the tied product is Defendants' selected bank for processing of transactions. Id. at 19, ¶ 138. Plaintiffs alternatively contend that "Shell's practice of coercing Plaintiffs to effectuate gasoline sales through ICRs and forcing [the use of] only Shell's chosen bank to process [these] credit card transactions" is another illegal tying arrangement. Id. at 19, ¶ 139. Plaintiffs generally allege these tying arrangements affect interstate commerce, because all Shell brand lessee-dealers are required to abide by the same arrangements. Id. at 19-20, ¶¶ 139, 140. Plaintiffs allege that this tying arrangement harms both lessee-dealers and consumers. Plaintiffs contend that Shell gasoline has unique additives and there is no alternative for consumers of Defendants' gasoline. See Id. at 19, ¶ 139. Defendants' tying arrangement thus harms consumers who bear the burden when the increased costs of Defendants' ICR policy is passed on to the consumer in higher priced Shell brand gasoline. Id. at 20, ¶¶ 139, 142. Plaintiffs deduce that Defendants thus have leverage power in "its branded gasoline and trademark" over Shell dealers because, from the independent lessee-dealers' perspective, there is no alternative to Shell gasoline. Id. at 20, ¶ 141.

In Count II, Plaintiffs allege that the tying product is "Shell's unique branded gasoline product, in which Shell has market power, and the tied product is ICRs which travel in commerce." Id. at 21, ¶ 147. Plaintiffs claim "Shell makes future sales of its branded gasoline contingent upon Plaintiffs' use of Shell's ICRs." Id. at 21, ¶ 148. Plaintiffs add that Shell has leverage power in its branded gasoline over independent Shell dealers, because from the independent Shell lessee-dealers' perspective, there is no alternative to Shell branded gasoline." Id. at 21, ¶ 149. Plaintiffs add that "this harms the ultimate consumer who must endure higher prices to get unique Shell gasoline product ... because the costs to Plaintiffs are increased." Id. at 21, ¶ 150.

The net effect, Plaintiffs allege in Counts I and II, is that the "tying arrangement is forcing Plaintiffs out of business, as they lose money if they accept the higher lease amount without passing the increase on to their customers, or they lose money by making fewer sales as customers frequent competing Shell gasoline stations which have lower gasoline prices and which are not restrained by Shell's illegal tying arrangements." Id. at 20-21, ¶ 145; at 22, ¶ 153.

B. Count III: Price Discrimination in Violation of the Robinson-Patman Act

Plaintiffs allege that "beginning at least in 1995 and continuing to the present, Shell has engaged in the practice of giving jobbers a substantial and preferential discount on the price of Shell gasoline." Plaintiffs' First Amended Complaint, at 14, ¶ 111. Jobbers purchase Shell brand gasoline from the Shell terminal at a predetermined "rack price." Id. The independent lessee-dealers, on the other hand, purchase Shell gasoline directly from Shell at a "dealer tank wagon" ("DTW") price, which is greater than Shell's rack price. Id. These jobbers, Plaintiffs allege, sell this gasoline to jobber stations at a discounted price, which is lower than the price Shell charges Plaintiffs' stations. Id. at 14, ¶ 112. Plaintiffs allege that the difference constitutes a discriminatory sale within the meaning of the Robinson-Patman Price Discrimination Act amendment to § 2(a) of the Clayton Act, 15 U.S.C. § 13(a). Id. at 23, ¶ 161. Plaintiffs further allege that these discriminatory pricing practices have caused the "substantial lessening of competition" in the retail gasoline market as between Plaintiffs and Defendants' "favored buyers." Plaintiffs' First Amended Complaint, at 23, ¶ 159. Plaintiffs claim impairment of their "ability to compete with Shell jobbers at the retail level ... resulting in lost sales and profits, as well as other damages, including being forced out of the...