Mathis v. Exxon Corporation

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________

m 01-40693

_______________

JAMES MATHIS,

Plaintiffs,

JAMES MATHIS, MOHAMMED ABOU-HARB, GEORGE ACOSTA,

MUSA ADI, MAZEN ALLAHAM, ET AL.,

Plaintiffs-Appellees,

VERSUS

EXXON CORPORATION,

Defendant-Appellant.

_________________________

Appeals from the United States District Court

for the Southern District of Texas

_________________________

August 15, 2002

Before REAVLEY, SMITH, and DENNIS, I.

Circuit Judges, Exxon markets its commercial gas bound

for retailers primarily through three arrange-

JERRY E. SMITH, Circuit Judge: ments: franchisee contracts, jobber contracts,

and company operated retail stores (“CORS”).

This is a breach of contract suit brought by A franchisee rents Exxon-branded gas stations

fifty-four gasoline station franchisees against and enters into a sales contract for the pur-

Exxon Corporation (“Exxon”) for violating the chase of Exxon-brand gas. The contract sets

Texas analogue of the Uniform Commercial the monthly quantity of gas the franchisee

Code’s open price provision. We affirm. must purchase and allows Exxon to set the

price he must pay. The franchisee pays the

dealer tank wagon price (“DTW”) and takes under this clause is “consistently higher” than

delivery of the gas at his station. the rack price paid by jobbers plus transporta-

tion costs.1

A jobber contract requires the purchaser to

pay the “rack price,” which usually is lower

than the price charged to franchisees. There is 1

Neither side disputes that the price term in

no sale of gas to CORS by Exxon, because the the sales agreement is an “open price term”

stores are owned by Exxon and staffed by its under Texas law, because it is a “price to be

employees. Instead, an intra-company ac- fixed by the seller.” TEX. BUS. & COM. CODE

counting is recorded that is equivalent to the ANN. § 2.305 (Vernon 2002). In full, this pro-

price charged franchisees in the same price vision reads:

zone.

(a) The parties if they so intend can con-

All the plaintiff franchisees operate stations clude a contract for sale even though the

in the greater Houston, Texas, and Corpus price is not settled. In such a case the price

Christi, Texas, areas. The genesis of the dis- is a reasonable price at the time for delivery

pute is the allegation that Exxon has violated if

the law and its contracts with these franchisees

for the purpose of converting their stores to (1) nothing is said as to price; or

CORS by driving the franchisees out of busi-

ness. (2) the price is left to be agreed by

the parties and they fail to agree;

or

Since 1994, franchisees have been barred

from purchasing their gas from jobbers, so all (3) the price is to be fixed in

their purchases have been governed by the terms of some agreed market or

terms of the Retail Motor Fuel Store Sales other standard as set or recorded

Agreement, under which the “DEALER agrees by a third person or agency and it

to buy and receive directly from EXXON all of is not so set or recorded.

the EXXON-branded gasoline bought by

DEALER, and at least seventy-five percent (b) A price to be fixed by the seller or by the

(75%) of the volume shown in [a specified buyer means a price for him to fix in good

schedule]. . . . DEALER will pay EXXON for faith.

delivered products at EXXON’s price in effect

at the time of the loading of the delivery vehi- (c) When a price left to be fixed otherwise

cle.” than by agreement of the parties fails to be

fixed through fault of one party the other

may at his option treat the contract as can-

This “price in effect,” also know as the

celled or himself fix a reasonable price.

dealer tank wagon price (“DTW”), forms the

heart of the present dispute. Exxon claims this (d) Where, however, the parties intend not to

arrangement is the industry standard and that be bound unless the price be fixed or agreed

almost all franchisor-franchisee sales of gaso- and it is not fixed or agreed there is no

line are governed by a similar price term. contract. In such a case the buyer must

Plaintiffs respond that the DTW price charged return any goods already received or if un-

(continued...)

2

The franchisees originally filed Sherman nomic perspective because it was a price that,

Act, Clayton, Act, and Petroleum Marketing over time, put the purchaser at a competitive

Practices Act (“PMPA”) claims against Exxon disadvantage. Pulliam noted that “commercial

in addition to the breach of contract claim. reasonableness” is a legal term, and he was not

The antitrust claims were abandoned, and the there to define it for the jury.

district court granted Exxon a judgment as a

matter of law (“j.m.l.”) on the PMPA claims. Pulliam’s conclusion rested on two main

The court retained jurisdiction over the purely facts. First, he showed that 75% of the franchi-

state law causes of action that had been sup- see’s competitors were able to purchase gaso-

plemental to the federal claims.2 line at a lower price. Second, he calculated a

commercially reasonable DTW price by adding

Trial proceeded solely on the Texas breach normal distribution charges to the average rack

of contract action, with only six plaintiffs tes- price of gasoline charged by Exxon and its

tifying. The thrust of their testimony was that competitors. He concluded that Exxon’s

Exxon had set the DTW price at an uncompet- DTW price exceeded the sum of these other

itive level to drive them out of business (so as prices by four or more cents per gallon.

to replace their stores with CORS). Some of

the plaintiffs testified that their franchises were Exxon countered with Michael Keeley, who

unprofitable; they presented documents and testified that Exxon’s DTW price was com-

witnesses to show that Exxon intended that mercially reasonable because it reflected the

result to drive them out of business. company’s investment in land, the store, trans-

portation, and managers. Keeley explained

The franchisees also submitted a market that Exxon recovers these costs through rent

study showing that 62% of the franchisees in and the sale of gas.

Corpus Christi were selling gas below the

DTW price. The franchisees supported their The jury awarded $5,723,657SSexactly

theory of the case by calling Barry Pulliam as 60% of the overcharge calculated by Pulliam.

an expert witness on the economics of the gas- Plaintiffs moved for attorney’s fees, as autho-

oline market in Houston and Corpus Christi. rized by TEX. CIV. PRAC. & REM. CODE ANN.

Pulliam concluded that Exxon’s DTW price § 38.001 (Vernon 2002), supported by a five-

was not commercially reasonable from an eco- paragraph affidavit of lead counsel and an ex-

pert’s affidavit opining that the fees were rea-

sonable. The court granted fees of $2,289,462

1

(...continued) SS40% of the damages. Exxon raises three

able so to do must pay their reasonable val- issues on appeal: (1) The court should have

ue at the time of delivery and the seller must granted Exxon’s motion for j.m.l. on the con-

return any portion of the price paid on ac- tract claim; (2) the court erred in permitting

count.

Pulliam to testify; and (3) the fee award was

erroneous.

TEX. BUS. & COM. CODE ANN. § 2.305 (Vernon

2002).

II.

2

This is proper under 28 U.S.C. § 1367(c)(3). Exxon contends that because it charged its

See also Bass v. Parkwood Hosp., 180 F.3d 234, franchisees a DTW price comparable to that

246 (5th Cir. 1999).

3

charged by its competitors, the breach of con- him to fix in good faith.

tract claim is precluded as a matter of law. We

review the denial of j.m.l. using the same TEX. COM. & BUS. CODE ANN. § 2.305 (Ver-

standards employed by the district court. non 2002). The parties agree that the fran-

Coffel v. Stryker Corp, 284 F.3d 625, 630 (5th chise agreement term governing the purchase

Cir. 2002). Although this is a state-law issue, of gasoline is an open price term.

the standard for granting j.m.l. is a question of

federal law. Ellis v. Weasler Eng’g Inc., 258 The meaning of “good faith” is further de-

F.3d 326, 336 (5th Cir. 2001). fined in several other sections of the code.

The definitions section explains good faith as

A j.m.l. is appropriate where “a party has “honesty in fact in the conduct or transaction

been fully heard on an issue and there is no le- concerned.” TEX. COM. & BUS. CODE ANN.

gally sufficient evidentiary basis for a reason- § 1.201(19) (Vernon 2002). Wherever the

able jury to find for that party on that issue.” term “good faith” is used throughout the code,

FED. R. CIV. P. 50(a). We review the denial of it means “as least what is here stated.” TEX.

j.m.l. de novo. Green v. Adm’rs of the Tulane COM. & BUS. CODE ANN. § 1.201(19) cmt. 19

Educ. Fund, 284 F.3d 642, 653 (5th Cir. (Vernon 2002).

2002). We also review de novo a district

court’s application of state law. Salve Regina Additional meaning to the term may be add-

College v. Russell, 499 U.S. 225, 231 (1991). ed within a given article. Id. Section 2.103,

regarding merchants, further explains the term:

Finally, we uphold a jury verdict if it is sup- “Good faith” in the case of a merchant means

ported by evidence of the type and quality that honesty in fact and the observance of reason-

fairly supports the verdict, even if the evidence able commercial standards of fair dealing in the

would support other outcomes. Gann v. trade.” TEX. COM. & BUS. CODE ANN. §

Fruehauf Corp, 52 F.3d 1320, 1326 (5th Cir. 2.103 (Vernon 2002).3 Finally, “[g]ood faith

1995). The question is whether there was evi- includes the observance of reasonable

dence permitting the jury to conclude that commercial standards of fair dealing in the

Exxon breached a term of the franchise agree-

ment.

3

Exxon meets the definition of a merchant.

III.

Texas law, which tracks the Uniform Com- “Merchant” means a person who deals in

mercial Code, implies a good faith component goods of the kind or otherwise by his occu-

in any contract with an open price term. Spe- pation holds himself out as having knowl-

cifically, edge or skill peculiar to the practices or

goods involved in the transaction or to

whom such knowledge or skill may be at-

[t]he parties if they so intend can con- tributed by his employment of an agent or

clude a contract for sale even though the broker or other intermediary who by his oc-

price is not settled. In such a case the cupation holds himself out as having such

price is a reasonable price at the time of knowledge or skill.

delivery . . . A price to be fixed by the

seller or by the buyer means a price for TEX. COM. & BUS. CODE ANN. § 2.104(a) (Vernon

2002).

4

trade if the party is a merchant. (Section reasonableness” good faith of § 2.103.4 The

2.103). But, in the normal case a ‘posted difficult question is whether comment 3 cre-

price,’ ‘price in effect,’ ‘market price,’ or the ates an exception to the normal principles of

like satisfies the good faith requirement.” good faith governing the sale of goods.

TEX. COM. & BUS. CODE ANN. § 2.305 cmt. 3

(Vernon 2002). No court in this circuit, and no Texas state

court, has squarely addressed this question.5

The key disagreement is over what consti-

tutes a breach of the duty of good faith.

Exxon contends it has satisfied that duty 4

See TEX. COM. & BUS. CODE ANN.

because it has charged the plaintiffs a DTW

§ 1.201(19) cmt. 19 (Vernon 2002) (“Good faith”,

price within the range of its competitors’ DTW whenever it is used in the Code, means at least

prices, thereby satisfying the “commercial what is here stated. In certain Articles . . . addi-

reasonableness” meaning of good faith. Plain- tional requirements are made applicable.); Lenape

tiffs respond that good faith encompasses both Resources Corp. v. Tenn. Gas Pipeline Co., 925

objective and subjective duties. Even if Exxon S.W.2d 565, 571 (Tex. 1996) (recognizing that du-

is right, and its prices are within the range of ty of good faith is a background principle); see

its competitors’, the argument runs, a subjec- also 2 RONALD A. ANDERSON, UNIFORM COM-

tive intent to drive the franchisees out of busi- MERCIAL CODE § 1-203:1 (1996):

ness would abridge the good faith duty of the

open price term. The Code employs two standards of good

faith. Section 1-201(19) states the generally

The pivotal provision is comment 3 to applicable “subjective” (“white heart and

empty head”) standard which concentrates

§ 2.305. Some of the language of comment 3

on the actual state of mind of the party rath-

and § 2.103 leaves the meaning of good faith

er than on the state of mind a reasonable

for open price terms in doubt. Comment 3 man would have had under the same circum-

mentions that good faith “includes” commer- stances. Thus, the section defines good faith

cial reasonableness, but notes that certain es- as “honest in fact in the conduct or transac-

tablished prices satisfy the good faith require- tion concerned.” In the case of merchants,

ment. Section 2.103 defines good faith with however, or at least those merchants gov-

the subjective “honesty in fact” test. Thus, erned by Article 2 on Sales, an objective

plaintiffs argue that an open price set accord- element is added to their good faith duties.

ing to a fixed schedule is set in good faith only Section 2-103(1)(b) provides that “‘[g]ood

if there is no improper motive animating the faith’ in the case of a merchant means hon-

price-setter. Exxon replies that comment 3 est in fact and the observance of reasonable

speaks directly to prices set by a fixed sched- commercial standards of fair dealing in the

ule and consecrates them as in good faith trade.” This definition imposes a duty on

merchants to meet good faith requirements

per se.

that are measured both subjectively and

objectively.

In the absence of comment 3, there is no

doubt Exxon would be subject to both the sub- 5

In ISP Mineral Prods., Inc. v. GS Roofing

jective “honesty in fact” good faith of Prods. Co., 1999 WL 102818 (N.D. Tex. Feb. 22,

§ 1.201(19) and the objective “commercial 1999), the court denied a motion to dismiss be-

(continued...)

5

Fortunately, because the Texas open price pro- quirement.

vision replicates that of the UCC, we can seek

guidance from other courts.6 TEX. COM. & BUS. CODE ANN. § 2.305 cmt. 3

(Vernon 2002).

To decide whether comment 3 creates an

exception, we turn first to the text of the com- The bare text offers little to resolve the

ment and the related sections of the Texas ver- question. First, the comment notes that good

sion of the UCC.7 In full, comment 3 reads, faith “includes” reasonable commercial stan-

dards. This implies that the good faith re-

Subsection (2), dealing with the situa- quired of a merchant setting an open price

tion where the price is to be fixed by one term encompasses both objective and subjec-

party rejects the uncommercial idea that tive elements. The comment also creates a

an agreement that the seller may fix the good faith safe harbor for such merchants

price means that he may fix any price he when they use various sorts of fixed prices.

may wish by the express qualification But this safe harbor is applicable only in the

that the price so fixed must be fixed in “normal case.” This suggests the safe harbor

good faith. Good faith includes obser- is not absolute, but it does nothing to define

vance of reasonable commercial stan- what takes a case out of the safe harbor.

dards of fair dealing in the trade if the

party is a merchant. (Section 2-103). As we will explain, we conclude that the

But in the normal case a “posted price” “normal case” of comment 3 is coextensive

or a future seller’s or buyer’s “given with a merchant’s residual “honesty in fact”

price,” “price in effect,” “market price,” duty embodied in §§ 1.201(19) and 2.103.

or the like satisfies the good faith re- Thus, the comment embraces both the objec-

tive (commercial reasonableness) and subjec-

tive (honesty in fact) senses of good faith; ob-

5

(...continued) jective good faith is satisfied by a “price in

cause the intent of the parties regarding the price to effect” as long as there is honesty in fact (a

be set in good faith, in accordance with industry “normal case”). This conclusion finds support

practice, may have been breached. This analysis in three sources: the structure of the UCC, its

does not aid us in resolving the central question this legislative history, and the caselaw.

caseSSwhether the good faith clause of § 2.305

includes a duty to act without an improper motive Reading comment 3 to embody two differ-

in setting the price. ent meanings of “good faith” tracks the gen-

6

eral structure of the UCC. Courts and com-

See Pennzoil Co. v. FERC, 789 F.2d 1128, mentators have recognized that the meaning of

1142 (5th Cir. 1986) (recognizing that because all “good faith” is not uniform throughout the

states except Louisiana have adopted the UCC,

code.8 The cases and commentary treat the

“variations between state law and general princi-

ples are likely to be few”).

7 8

Comm’rs of Court Titus County v. Agan, 940 See Watseka First Nat’l Bank v. Ruda, 552

S.W.2d 77, 80 (Tex. 1997) (holding that Texas fol- N.E.2d 775, 778 (Ill. 1990) (explaining that mean-

lows plain meaning rule where text is unambigu- ing of “good faith” varies by article); Dennis M.

ous). (continued...)

6

“good faith” found in article 1 as subjective explained that the steel industry wanted to

and the good faith found only in article 2 as make “clear that we do not have to establish

objective.9 Thus, there is nothing inconsistent that we are fixing reasonable prices, because

in comment 3’s using “good faith” in both the that gets you into the rate of return of profit,

objective and the subjective senses. whether you are using borrowed money, and

all those questions.” Id.

The history of comment 3 bolsters this

conclusion.10 Some drafters of the UCC wor- The committee responded to these worries

ried that for the “great many industries where with the current comment 3: “[I]n the normal

sales are not made at fixed prices,” such as the case a ‘posted price’ or a future seller’s or

steel industry, where “practically every con- buyer’s ‘given price,’ ‘price in effect,’ ‘market

tract” is made at “the seller’s price in effect,” price,’ or the like satisfies the good faith re-

if § 2-305 “is to apply . . . it means that in quirement.” The drafter’s solution was to

every case the seller is going to be in a lawsuit avoid objective good faith challenges to prices

. . . or he could be, because there isn’t any set by reference to some “price in effect,”

outside standard at all.” PROCEEDINGS OF while preserving challenges to discriminatory

ENLARGED EDITORIAL BD. OF AM. LAW INST. pricing. See Hearing Before the Enlarged

(Sunday Morning Session, Jan. 28, 1951) Editorial Board January 27-29, 1951,

(statement of Bernard Broeker). The drafters VI BUSINESS LAWYER 164, 186 (1951) (ex-

considered wholly exempting such contracts plaining this intent). Nothing in the proceed-

from § 2-305, or stating that for a price in ings leading to the addition of comment 3 sug-

effect, the only test is whether the merchant gests that the overall subjective good faith du-

engaged in price discrimination. One drafter ty of §§ 1-201 and 2-103 was to be supplant-

ed; the evidence is quite to the contrary.

8 The drafters ultimately rejected two sug-

(...continued)

Patterson, Wittgenstein and the Code: A Theory of gested addendums to § 2-305:

Good Faith Performance and Enforcement Under

Article Nine, 137 U. PA. L. REV. 335, 380-87 An agreement to the effect that the price

(1988) (tracing history of meaning of “good faith” shall be or be adjusted to, or be based

and noting differences in meaning between articles upon, or determined by reference to the

1 and 2). seller’s going price, price in effect, reg-

ular price, market price, established

9

First Nat’l Bank v. Lewco Sec. Co., 860 F.2d price, or the like, at the time of the

1407 (7th Cir. 1988) (stating that good faith as agreement or at any earlier or later time,

used in article 1 is a subjective standard); Martin is not an agreement to which this sub-

Marietta Corp v. N.J. Nat’l Bank, 612 F.2d 745, section is applicable.

751 (3d Cir. 1979) (noting that definition in article

1 is subjective, but that in article 2 is objective);

...

Patterson, supra, at 381 (same).

10

See Bridgestone/Firestone, Inc. v. Glyn- An agreement such as this is an agree-

Jones, 878 S.W.2d 132, 133-34 (Tex. 1994) (au- ment under which the seller or the buyer

thorizing use of legislative history where text is does not have any burden of showing

ambiguous).

7

anything other than that he has not sin- Like the plaintiffs in Nanakuli, Allapattah,

gled out the particular other party for and Wayman, the franchisees here are alleging

discrimination. a breach of good faith grounded not in Ex-

xon’s failure to price in accord with an estab-

PROCEEDINGS OF ENLARGED EDITORIAL BD. lished schedule, but in its failure to set the

(statement of Bernard Broeker). Both of these price in good faith. Suits recognizing such a

recommendations are more sweeping than is cause of action are rare, and with good reason:

the language ultimately adopted. The first We would be ill-advised to consider a case to

would have omitted any mention of the good be outside the norm based only on an allega-

faith duty for open price provisions; the sec- tion of improper motive by the party setting

ond would have limited the duty of the price- the price.12

setter to that of avoiding discrimination.

Plaintiffs produced enough evidence to es-

The existing comment, however, avoids cape comment 3’s “normal case” limitation.

challenges to prices set according to an open They showed, for example, that Exxon

price term unless that challenge is outside the planned to replace a number of its franchises

normal type of case. Although price discrimi- with CORS, that the DTW price was higher

nation was the type of aberrant case on the than the sum of the rack price and transporta-

minds of the drafters, price discrimination is tion, that Exxon prevented the franchisees

merely a subset of what constitutes such an from purchasing gas from jobbers after 1994,

aberrant case. Any lack of subjective, hon- and that a number of franchisees were unprof-

esty-in-fact good faith is abnormal; price dis-

crimination is only the most obvious way a

price-setter acts in bad faithSSby treating

similarly-situated buyers differently.

The caselaw supports this interpretation of 11

(...continued)

comment 3. Courts that have addressed the was calculated without considering the double

normalcy question have consistently held that charge for credit card processing, the instant action

a lack of subjective good faith takes a chal- is not the ‘normal’ case.”); cf. Wayman v. Amoco

lenge outside the bounds of what is normal.11 Oil Co., 923 F. Supp 1322, 1349 (D. Kan. 1996),

aff’d, 145 F.3d 1347 (10th Cir. 1998) (“[T]his

court believes the present case is a normal case. If

11

See, e.g., Nanakuli Paving & Rock Co. v. there was evidence that Amoco had, for example,

Shell Oil Co., 664 F.2d 772, 806 (9th Cir. 1981) engaged in discriminatory pricing or tried to run

(stating that “the dispute here was not over the plaintiffs out of business, then the court’s decision

amount of the increaseSSthat is, the price that the might be different.”).

seller fixedSSbut over the manner in which that

12

increase was put into effect”); Allapattah v. Exxon See Richard Short Oil Co. v. Texaco, Inc.,

Corp., 61 F. Supp. 2d 1308, 1322 (S.D. Fla. 799 F.2d 415, 422 (8th Cir. 1986) (recognizing

1999); (“Because the parties’ dispute is not over that “mere conclusory allegation of bad faith would

the actual amount of the purchase price Exxon be insufficient to defeat a directed verdict.”); cf.

charged for its wholesale gasoline to its dealers, but Wayman, 923 F. Supp. at 1349 (acknowledging

rather over the manner in which the wholesale price that result “may have been different” if there were

(continued...) evidence of an improper motive).

8

itable or non-competitive.13 Store Chain Outlook” revealed Exxon’s plan

to reduce stations with service bays from

For example, one Exxon document stated 2,506 to 190 from 1991 to 2005. That docu-

that the company’s “Marketing Strategy for ment included a plan to “[e]xpand CORS to

1992-1997 is to reduce Dealer stores (est. improve profitability and to compete efficiently

30%).” Another document set forth Exxon’s with private brands/distributors” and

plans to reduce dealer stations in Houston “[e]mphasize CORS operations in markets

from 95 to 45, and to increase CORS from 83 with high level of rack to retail competition.

to 150, between 1997 and 2003. James Car-

ter, the Regional Director of the Exxon/Mobil Exxon’s answer on appeal is that these doc-

Fuels Marketing Company, testified that Ex- uments “say nothing about using pricing to

xon made more of a profit from a CORS than accomplish a ‘plan’ to eliminate dealers.” Al-

from an independent lessee store. These plans though that is so, there was sufficient evidence

and observations were validated by the fact on this issue to go to the jury, which was free

that the number of dealer stations steadily to, and apparently did, draw the inference con-

declined. necting pricing to the elimination of dealer-

lessees. The consequence of the jury’s

An exhibit called the “Houston Screening decision is that this case exceeds the “normal

Study” evaluated the strategy of “surplusing” case” limit of § 2.305 comment 3.

(i.e., eliminating) 21 of 37 locations inside the

Highway 610 loop. Of the 93 lessee-dealer We still, however, must examine the

stations, 69 would be done away with, but 73 content of the duty of subjective good faith.

of the 91 CORS would be kept. Although no Texas or Fifth Circuit case has

squarely addressed the meaning of the good

Further indication of plans to shift from faith clause of § 2.305, Texas courts

dealer-lessees to CORS is shown by Exxon’s repeatedly have held that the “honesty in fact”

dissatisfaction with outlets featuring service definition of good faith found in § 1.201(19) is

bays. Exxon documents showed that service tied to the actual belief of the participant in the

baysSSgenerally associated with lessee-dealer transaction.14 Thus, the same version of the

locationsSSwere becoming less profitable, facts accepted by the jurySSthat Exxon

while stations with convenience storesSSgen- intended to drive the franchisees out of

erally associated with CORSSSwere the wave

of the future. A document entitled “Retail

14

La Sara Grain Co. v. First Nat’l Bank, 673

S.W.2d 558, 563 (Tex. 1984); Holeman v.

Landmark Chevrolet Corp., 989 S.W.2d 395, 399

13

This case is distinguishable from Meyer v. (Tex. App.SSHouston [14th Dist.] 1999, review

Amerada Hess, 541 F. Supp. 321 (D.N.J. 1982), denied); British Caledonian Airways Ltd. v. First

in which the court found “no evidence” of dishon- State Bank, 819 F.2d 593, 596 (5th Cir. 1987); see

esty in the setting of a DTW price. In Meyer, also Lenape Resources Corp. v. Tenn. Gas

though, the only evidence tending to show bad faith Pipeline Co., 925 S.W.2d 565, 571 (Tex. 1996)

was the retailer’s unprofitability. Id. at 331. (noting in dictum that duty of good faith includes

Significantly, other retailers were profiting, and the duty to avoid making decisions that, while

plaintiff retailer was being charged rent below the legitimate under the terms of the contract, have

economic value of the property. Id. at 332. improper motive).

9

businessSSthat takes this case out of the breached its duty of good faith in setting the

“normal” set of cases for purposes of comment DTW price it charged the plaintiffs is not with-

3 also satisfies the criteria for bad faith.15 out foundation in the law or the evidence. As

Exxon’s bad faith, in this regard, is shown we have recounted, plaintiffs offered ample

by the record. Facing the competition of self- evidence tending to prove their version of

service stations that were either selling food price-setting. Accordingly, there is no error in

and other goods or had bare pumps with no the refusal to grant Exxon j.m.l. on the breach

overhead costs incurred in servicing vehicles, of contract claim.

Exxon decided years ago that retail marketing

through franchise dealers was becoming eco- IV.

nomically unsound. Although Exxon decided Exxon challenges the admission of the tes-

to move to CORS in Houston and jobbers in timony of plaintiffs’ expert, Barry Pulliam. Al-

Corpus Christi, this decision was not com- though Exxon filed a motion in limine op-

municated to its franchisees. Because of profit posing Pulliam’s testimony, it did not object at

from their other sales, CORS could, and did, trial. The pre-trial objection is sufficient to

sell gas for less than the franchise dealers paid preserve the error for appellate review. FED.

to Exxon for their gas. And the jobbers R. EVID. 103(a). Our review is thus for abuse

delivered Exxon gas to their dealers for less of discretion. Gen. Elec. Co. v. Joiner, 522

than Exxon franchisees were required to pay U.S. 136, 141 (1997); Moore v. Ashland

for their delivered gas, but Exxon prohibited Chem. Inc., 151 F.3d 269, 274 (5th Cir. 1998)

its franchisees from buying at this lower price (en banc).16

from the jobbers.

Although the substantive aspects of this

The loss of competitive position and profit case are governed by Texas law, the Federal

to plaintiff franchisees was inevitable and fore- Rules of Evidence control the admission of ex-

seeable to Exxon. Although Exxon witnesses pert testimony. Doddy v. Oxy USA, Inc., 101

denied receiving complaints, its dealers F.3d 448, 459 (5th Cir. 1996). All expert

testified that they had complained often and testimony is filtered through FED. R. EVID. 702

for years, without success, until the very eve and 104(a). FED. R. EVID. 702 advisory

of trial. committee’s note (2000 amendments); Kumho

Tire Co. v. Carmichael, 526 U.S. 137, 147

Accordingly, the jury’s finding that Exxon

16

The 2000 amendment to rule 103(a) changed

the law that had prevailed in this circuit. FED. R.

15

See also Allapattah, 61 F. Supp. 2d at 1322 EVID. 103(a); See also United States v. McGauley,

(explaining that “a merchant [who] acts in a man- 279 F.3d 62, 72 n.7 (1st Cir. 2002) (noting the

ner intended to drive a franchisee out of business” change effected by the 2000 amendments). Before

violates the duty of good faith found in the UCC). the amendment, we required an objection at trial to

Similarly, one court has recognized that a preserve the error. See Rushing v. Kan. City S.

“predatory intent” to “set the prices with the intent Ry., 185 F.3d 496, 506 (5th Cir. 1999); Tanner v.

to drive [franchisees] out of business and take over Westbrook, 174 F.3d 542, 545 (5th Cir. 1999);

the stations” is a claim cognizable under the good Marceaux v. Conoco, Inc., 124 F.3d 730, 734 (5th

faith provisions of the UCC. E.S. Bills, Inc. v. Cir. 1997); Collins v. Wayne Corp., 621 F.2d 777,

Tzucanow, 700 P.2d 1280, 1283-84 (Cal. 1985). 784 (5th Cir. 1980).

10

(1999). FED. R. EVID. 702. The requirement that the

testimony “assist the trier of fact” means the

Pulliam’s testimony, as an economist, satis- evidence must be relevant. Daubert v. Merrell

fies the definition of expert testimony. Marcel Dow Pharms., Inc., 509 U.S. 579, 591 (1993).

v. Placid Oil Co., 11 F.3d 563, 567 (5th Cir. Rule 401 defines relevant evidence as that

1994). Whether he is qualified to testify as an which has “any tendency to make any fact that

expert is a question of law. FED. R. EVID. is of consequence to the determination of the

104(a). The party offering the expert must action more probable or less probable than it

prove by a preponderance of the evidence that would be without the evidence.” FED. R.

the proffered testimony satisfies the rule 702 EVID. 401.

test. Bourjaily v. United States, 483 U.S. 171,

175 (1987). Pulliam’s testimony centered on his

calculation that Exxon’s DTW price was at

The district court did not offer any reasons least four cents higher per gallon than what

in support of admitting Pulliam’s testimony. could be considered “commercially

Although a court “must articulate its basis for reasonable” by adding the rack price to

admitting expert testimony,” Rodriguez v. Rid- transportation costs. This fact obviously

dell Sports, Inc., 242 F.3d 567, 581 (5th Cir. makes more plausible plaintiffs’ theory that

2001), we will not invariably require remand Exxon set the DTW price with an intent to

for this reason alone. Because admissibility is drive them out of business. There is no real

a legal questionSSone ill-suited to remand and contention regarding Pulliam’s qualifications,

further explication by the district courtSSwe as he has a master’s degree in economics.

will decide the question in this case without

remanding. The final rule 702 hurdle is reliability, which

is not a question that can be answered by

Rule 702 lays out the test for admissibility some generic test. The variability of type and

of expert testimony: purpose of the particular testimony at issue re-

quires flexibility in answering the reliability

If scientific, technical, or other spe- inquiry.17 Daubert, of course, provides an il-

cialized knowledge will assist the trier of lustrative list of factors that may aid a court in

fact to understand the evidence or to de- evaluating reliability: “(1) whether the expert’s

termine a fact in issue, a witness qual- theory can be or has been tested; (2) whether

ified as an expert by knowledge, skill, the theory has been subject to peer review and

experience, training, or education, may publication; (3) the known or potential rate of

testify thereto in the form of an opinion error of a technique or theory when applied;

or otherwise, if (1) the testimony is (4) the existence and maintenance of standards

based upon sufficient facts or data, and controls; and (5) the degree to which the

(2) the testimony is the product of

reliable principles and methods, and (3)

the witness has applied the principles 17

Kumho Tire, 526 U.S. at 150 (emphasizing

and methods reliably to the facts of the that Daubert analysis is “flexible” and must take

case. account of “the nature of the issue, the expert’s

particular expertise, and the subject of his testi-

mony”).

11

technique or theory has been generally Pulliam’s method may be rough-and-ready, it

accepted in the scientific community.” Moore no doubt captures many of a station’s

v. Ashland Chem. Inc., 151 F.3d 269, 275 (5th competitors. At worst, it is marginally under-

Cir. 1998) (en banc). or over-inclusive.

Pulliam’s testimony primarily drew on gen- Again, we must bear in mind the purpose of

eral business and economic principles that sat- Pulliam’s testimony when addressing its re-

isfy the Daubert factors. Exxon argues, liability. Pulliam main pointSSthat the price

however, that Pulliam should have conducted Exxon charged its franchisees exceeded the

a “competitive impact analysis” for each rack price plus transportationSSis unaffected

station to show that Exxon’s price caused it to by any error in defining the competitive market

lose business. This, Exxon argues, would for each station. Also, the part of Pulliam’s

separate other factors from Exxon’s pricing testimony as to which this objection may carry

decision that may have depressed plaintiffs’ some weightSSthat seventy-five percent of

business. plaintiff’s competitors enjoyed a lower pur-

chase price for gasolineSSis not completely un-

Although Pulliam may not have isolated the dercut by an under- or over-inclusive definition

precise effect Exxon’s pricing had on each of the relevant competitive market. Finally,

station, that was not the purpose of his this objectionSSthat certain proximate stations

testimony. The “subject of his testimony,” as do not really compete with each otherSSis

listed by plaintiffs, was whether Exxon had set precisely the type of objection a juror can

a commercially reasonable price in an econom- evaluate.

ic sense. This, the plaintiffs thought, would

lend credibility to their theory that Exxon had The Daubert analysis should not supplant

set the DTW price with the intent to drive trial on the merits. Pipitone v. Biomatrix, Inc.,

them out of business. Thus, to be both reliable 288 F.3d 239, 250 (5th Cir. 2002). “[V]igor-

and relevant for the purpose it was presented ous cross-examinati on, presentation of

to serve, Pulliam’s testimony need not isolate contrary evidence, and careful instruction on

the precise impact Exxon’s pricing had on the burden of proof are the traditional and

each station. appropriate means of attacking shaky but

admissible evidence.” Id. (quoting Daubert

Exxon also attacks Pulliam’s method of de- 509 U.S. at 596). We find no abuse of

fining the relevant geographic market for each discretion in the decision to admit Pulliam’s

station. As Exxon rightly points out, Pulliam’s testimony.

method of drawing a three-mile radius around

each station is not especially sophisticated and V.

may ignore local traffic patterns.18 Although Exxon challenges the attorney’s fee award

of $2,289,462, arguing that the district court

erred in finding this amount reasonable. A fee

award is governed by the same law that serves

18

As counsel for Exxon noted at oral argument,

this method lumps stations in River Oaks and the

18

Third Ward (locations in Houston) into the same (...continued)

market, and few drivers use stations in both markets.

12

as the rule of decision for the substantive is- § 38.003 (Vernon 2002). Second, where the

sues in the case. Kona Tech. Corp. v. S. Pac. fees are tried to the court, as they were in this

Transp. Co., 225 F.3d 595, 614 (5th Cir. case, the statute authorizes the judge to take

2000). Until recently, we had reserved the judicial notice of the “usual and customary

question whether Texas or federal law fees” and the cont ents of the case file. Id. at

governed review of an award’s reasonableness. § 38.004. Texas courts have upheld fee

See, e.g., Mid-Continent Cas. Co. v. Chevron awards using these presumptions where the at-

Pipe Line Co., 205 F.3d 222, 232 (5th Cir. torneys had a contingent fee arrangement. La-

2000). Very recently, however, we applied redo Indep. Sch. Dist. v. Trevino, 25 S.W.3d

Texas law to this question without noting any 263 (Tex. App.SSSan Antonio 2000, review

reservation of the question. Northwinds denied) (40% contingency fee); European

Abatement, Inc. v. Employers Ins., 258 F.3d Crossroads’ Shopping Ctr., Ltd. v. Criswell,

345, 353-54 (5th Cir. 2001). We now make 910 S.W.2d 45, 58-59 (Tex. App.SSDallas

explicit what was implicit in Northwinds: 1995, writ denied) (upholding jury award of

State law controls both the award of and the 35% based only on attorney’s own

reasonableness of fees awarded where state testimony).19

law supplies the rule of decision. We review

attorney’s fees for abuse of discretion, Plaintiffs’ attorneys supported their fees by

although factual determinations for each of the submitting an affidavit drafted by lead counsel

factors are reviewed only for clear error. and an affidavit of an attorneys’ fees expert.

Coffel v. Stryker Corp., 284 F.3d 625, 640 Exxon countered by challenging the

(5th Cir. 2002). reasonableness of the total award. Under

Texas law, the two affidavits, combined with

Under Texas law, when a prevailing party the presumption of reasonableness and the

in a breach of contract suit seeks fees, an court’s ability to use judicial notice to guide

award of reasonable fees is mandatory, as long the reasonableness finding is enough for us to

as there is proof of reasonable fees. TEX. CIV. conclude that the district court did not abuse

PRAC. & REM. CODE ANN. § 38.001(8) (Ver- its discretion in awarding fees as contemplated

non 2002); World Help v. Leisure Lifestyles, by plaintiffs’ contingency fee contract.

977 S.W.2d 662, 683 (Tex.App.SSFort Worth,

1998, review denied 1999), and the plaintiff

has been awarded damages. Green Int’l Inc. AFFIRMED.

v. Solis, 951 S.W.2d 384, 389 (Tex. 1997).

There is no question that plaintiffs prevailed on

a breach of contract claim under Texas law

and were awarded damages. There is,

however, discretion to determine the amount

of the fee. World Help, 977 S.W.2d at 683.

This discretion is guided by two presumptions.

19

See also Gill Sav. Ass’n v. Chair King, Inc.,

First, there is a rebuttable presumption of 797 S.W.2d 31 (Tex. 1990) (using § 38.004 to

reasonableness for fees that are “usual” or reverse appeals court ruling that there was no

“customary.” TEX. CIV. PRAC. & REM. CODE evidence to support appellate fees) (no contingency

fee).

13