Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Tex. App.: Jury verdict that gasoline retailer breached supply contract upheld, (May 11, 2016)

By Linda O’Brien, J.D., LL.M.

A retail convenience store’s switch to a competing gasoline supplier after entering into a dealer franchise agreement with a gasoline distributor was sufficient to support a jury’s finding that the retailer breached the supply agreement, a Texas appellate court in Houston has held. Thus, the trial court’s judgment entered in favor of the distributor was affirmed (Colorado County Oil Company, Inc. v. Star Tex Distributors, Inc., May 10, 2016, Boyce, W.).

Colorado County Oil Company and Star Tex Distributors are competing petroleum marketers or “jobbers” that purchase gasoline directly from refining companies for sale to gas stations and convenience stores. The retailers resell the gasoline to motorists under various brand names. In November 2000, Star Tex entered into a franchise agreement to supply Citgo brand gasoline to a convenience store location owned by Day & Night, Inc. After an initial 10-year term, the contract was to automatically renew on a yearly basis unless terminated. Shortly after the agreement was executed, Day & Night requested that Star Tex switch to Phillips brand gasoline.

Although Day & Night never signed a written amendment agreeing to the brand change, it accepted Star Tex gasoline deliveries under the agreement for 10 years without complaint about the Phillip brand designation. Upon completion of the 10-year term, Day & Night ceased purchasing gasoline from Star Tex and entered into a 10-year supply contract with Colorado County to deliver Valero brand gasoline.

In 2012, Star Tex filed suit against Day & Night and Colorado County for breach of contract and tortious interference with contractual relations, alleging that the franchise agreement automatically renewed for another year and continued in effect until April 2012. A jury found in favor of Star Tex, awarding damages and attorney fees. The trial court entered a final judgment in conformity with the jury verdict and Day & Night, and Colorado County appealed.

Contractual liability. The court found that there was sufficient evidence to support the jury’s finding that Day & Night violated the franchise agreement. It was undisputed that, if the agreement was in effect when the initial 10-year term ended in 2011, then it automatically renewed for another year. Day & Night’s contention that the jury finding was immaterial because it was released from its obligations under the agreement after Star Tex previously materially breached the agreement by delivering Phillips brand gasoline instead of Citgo brand gasoline was rejected. The court noted that Day & Night’s excusal due to prior material breach was not conclusively established because a fact issue existed as to whether Star Tex’s delivery of Phillips brand gasoline was a material breach of the franchise agreement. The parties disputed the materiality of the brand designation, and there was substantial evidence that the Citgo versus Phillips brand designation was not material. Therefore, the evidence supported a fact finding in conformity with the jury’s verdict.

Tortious interference. Colorado County’s argument that there was no evidence of intent, interfering acts, or proximate cause to interfere with the dealer franchise agreement—since it had been informed that there was no gas supply contract at the convenience store location and Day & Night decided to change suppliers—also was rejected. The court noted that the jury reasonably could have determined that the requisite intent, interference, and causal link were established based on evidence that Colorado County (1) paid a signing bonus to switch the already Phillips brand convenience store to Valero and (2) moved forward with the supply change after receiving a copy of Star Tex’s unterminated dealer franchise agreement. It was reasonable to conclude that Colorado County intended to cause the cessation of a dealer franchise agreement that had governed gasoline supplies to the convenience store since 2001.

The case is No. 14-14-00905-CV.

Attorneys: Abel Karim Manji (The O'Quinn Law Firm) for Day & Night, Inc. and SNP Business, Inc. Donald H. Grissom for Colorado County Oil Co., Inc. Gus E. Pappas (Dabney & Pappas) for Star Tex Distributors, Inc.

Companies: Colorado County Oil Company, Inc.; Day & Night, Inc.; SNP Business, Inc.; Star Tex Distributors, Inc.

Cases: FranchisingDistribution TexasNews