Did Exxon set the prices in bad faith?

Exxon marketed gasoline to retailers in three ways. Franchisees (who owned local gas stations) were required to purchase a minimum number of gallons per month. Exxon set the price each month, known as the dealer tank wagon price (DTW). Jobbers (distributors who could resell to dealers) paid the “rack price,” which was generally lower than the DTW. Company-operated retail stores (CORS) paid nothing, because Exxon owned them.

A group of 54 Texas franchisees sued, claiming that Exxon set their gasoline prices artificially high. The plaintiffs alleged that Exxon wanted to drive them out of business and replace their franchises with more profitable CORS. The evidence indicated that the franchisees’ DTW was consistently higher than the rack price paid by jobbers. Many plaintiffs testified that their franchises had become unprofitable. One study showed that 62 percent of franchisees in Corpus Christi, Texas, were selling gas below the price they paid for it. Plaintiffs’ expert testified that 75 percent of their competitors could buy gasoline at a lower price.

The plaintiffs argued that this evidence demonstrated that Exxon set the prices in bad faith. The jury agreed, awarding the plaintiffs $5.7 million, plus $2.3 million in attorney’s fees. Exxon appealed.