Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.J.: Price discrimination charges by ExxonMobil franchisees proceed, (Mar 1, 2016)

By Edward L. Puzzo, J.D.

Allegations by gasoline franchisees that ExxonMobil engaged in price discrimination against them and imposed unreasonable performance standards in order to favor other franchisees, in violation of the Robinson-Patman Act and the New Jersey Franchise Practices Act, were allowed to go forward by the federal district court in Newark, New Jersey (South Gas, Inc. v. ExxonMobil Oil Corporation, February 29, 2016, McNulty, K.).

Plaintiffs were 53 gasoline dealers in New Jersey that are franchisees of Exxon, the multinational wholesaler of gasoline and other petroleum products. Plaintiffs allege that, despite provisions the franchise agreements with Exxon giving the retailers control over the management and operations of their businesses, the franchisor exercised control over both to its advantage and the detriment of the franchisees. For instance, it was alleged that Exxon manipulated delivery load times to benefit from price fluctuations by delivering gas to franchisees—whether needed or not—immediately prior to price drops. Exxon allegedly provided rent waivers to favored franchisees who competed with plaintiffs, thereby lowering favored franchisees' operating costs, enabling them to lower their retail prices.

The franchisees challenged Exxon's practice of dividing New Jersey into approximately one hundred zones and charging retailers different wholesale prices depending on zone placement, which allegedly worked to the advantage of favored retailers and to the disadvantage of plaintiffs. Based on these factual allegations, plaintiffs brought claims against Exxon under the Robinson-Patman Act and the New Jersey Franchise Practices Act. Exxon moved to dismiss.

Price Discrimination. Plaintiffs brought claims under the Robinson-Patman Act (RPA), which prohibits price discrimination between purchasers of commodities of like grade and quality where the discrimination has the effect of substantially lessening competition. They alleged a secondary-line claim, involving price discrimination that injures competition among the discriminating seller's customers. To obtain a rebuttable presumption of competitive injury, plaintiffs need only prove that they competed with favored dealers to sell gas and that Exxon charged those dealers lower prices over an extended time.

Exxon argued that the plaintiffs failed to allege specific, sustained disparities between the prices they paid and the prices paid by allegedly favored competitors. But the plaintiffs noted Exxon's use of retail price control mechanisms that effectively mooted the provision in the franchise agreement, granting the franchisees the right to set their own retail prices. This included methods such as raising its wholesale prices if plaintiffs raised retail prices, and not lowering wholesale prices until plaintiffs' lowered their retail prices. Exxon also controlled other costs that would be factored into retail prices, such as rent and technology costs. Under these circumstances, a showing of extended disparities in retail prices among dealers made an inference of price discrimination plausible.

Exxon also argued that plaintiffs had not properly alleged competitive injury because they failed to claim that sales had actually been diverted away from any specific plaintiff to any specific favored competitor. This misstates plaintiffs' burden, the court stated. To prove competitive injury, plaintiffs need only provide evidence that a favored competitor received a significant price reduction over a substantial period of time. Plaintiffs' allegations in this regard were sufficiently specific to survive a motion to dismiss, the court ruled.

New Jersey Franchise Practices Act. Plaintiffs also alleged that Exxon violated the New Jersey Franchise Practices Act (NJFPA) by imposing "unreasonable standards of performance" on franchisees, with the intent of driving plaintiffs out of business. While the term “unreasonable standards of performance” is not defined in the statute, other courts have recognized that not all improper conduct of franchisors necessarily violate this section of the NJFPA, and the prior judge in this case dismissed the NJFPA claim for a lack of specificity. However, the second amended complaint alleged that inventory standards and volume requirements were unreasonable, giving examples specific to particular plaintiffs. Without suggesting that the claims were proven, the court found that the allegations were sufficient to permit the claim to go forward as to whether Exxon imposed unreasonable standards of performance.

The case is Civil Action No. 2:09-cv-06236-KM-MAH.

Attorneys: Marc J. Gross (Greenbaum, Rowe, Smith & Davis, LLP) for 36 Middle Rd. Inc., Ame Management, Inc., Abuhadba, Inc., Aery Petro Corporation and Archan, Inc. Paul G. McCusker (McCusker, Anselmi, Rosen & Carvelli, PC) for ExxonMobil Oil Corporation.

Companies: 36 And Middle Rd. Inc.; Ame Management, Inc.; Abuhadba, Inc.; Aery Petro Corporation; Archan, Inc.; ExxonMobil Oil Corporation

Cases: Antitrust FranchisingDistribution NewJerseyNews