NEWARK, N.J. (CN) - A federal judge ruled Exxon must face claims that it routinely charged over 50 gas stations for more fuel than it delivered and refused to let them alter retail prices, in favor of competitors.
More than 90 Exxon-branded New Jersey gas stations initially sued the Irving, Texas-based ExxonMobil Oil Corp. in Federal Court in 2009.
They say Exxon breached contracts that give the franchisees "responsibility for and control over the management and means of the day-to-day operations," in multiple ways.
For one, Exxon delivered gas to franchisees, whether they needed it or not, just before prices dropped, despite the plaintiffs' objections, according to the lawsuit.
In fact, Exxon reps admitted that the firm routinely charged the franchisees for more fuel than they received, calling it a "cost of doing business," the complaint states.
Though the contracts set the price that franchises must pay for gas while the vehicle is loaded, Exxon can change the price "at any time and without notice," the plaintiffs say.
Plus, whenever the franchisees tried to up retail profit margins, Exxon raised its wholesale prices until the franchisees succumbed to lowering their retail prices, the complaint states.
Exxon also divided New Jersey into about 100 zones and provided rent waivers to the plaintiffs' competitors, lowering their operating costs and enabling them to lower their retail prices to less than some of the plaintiffs' wholesale prices, according to the complaint.
The franchisees say Exxon breached their lease when calculating rents, instead favoring profitability and certain dealers, and broke its promise to offset rent with real estate tax relief.
The contracts also allegedly let Exxon waive any claims for termination or damages.
Despite repeated assurances from April 2007 to May 2008 that it would not sell its agreements with the plaintiffs, Exxon told them in June 2008 that it had been planning since January 2007 to assign all of its New Jersey franchise contracts, according the lawsuit.
The 10-count complaint asserts violations of the Robinson-Patman Act, Uniform Commercial Code, and New Jersey Franchise Practices and Unfair Motor Fuels Practices Acts.
The 53 plaintiffs still remaining in the case also allege claims for breach of contract, bad faith, fraud, negligence, and retaliation-based tort claims, and they seek reformation or declaratory judgment.
In July 2010, Senior U.S. District Judge Stanley Chesler found that the Uniform Commercial Code and bad faith claims were adequately pleaded.
Exxon moved to dismiss the eight remaining counts of the second amended complaint, but U.S. District Judge Kevin McNulty denied the motion Feb. 29, rejecting Exxon's claim that the plaintiffs merely allege that it "favored" competitors' retail prices.
"In a vacuum Exxon might be correct, but plaintiffs allege many other facts which, when viewed together, sufficiently raise a plausible inference of price discrimination," McNulty wrote. "Plaintiffs allege that Exxon controlled their profit margin using the [weighted average margin] calculation, raising wholesale prices if plaintiffs raised retail prices or reduced other costs to increase their margins, and forced plaintiffs to lower their retail prices before Exxon would lower the wholesale prices. They also allege that Exxon controlled other costs that would be factored into retail prices, such as rent and technology costs. Exxon also controls how much gas their dealers must buy and can set the wholesale prices at their whim."
The judge noted that the franchisees cited examples of Exxon's "gerrymandered zone pricing scheme."
"With Exxon exerting this level of control over its dealers, a showing of extended disparities in retail prices among dealers makes an inference of price discrimination more reasonable," he wrote.
McNulty declined to resolve the parties' conflicting views of the contracts.
Exxon did not return emailed requests for comment on Wednesday.