## Facts

- Independent Shell lessee-dealers operated Shell-branded gasoline stations in the Cleveland area under franchise agreements.
- The contracts required dealers to purchase all gasoline exclusively from Shell at a wholesale price set by Shell at the time of delivery (an open-price term).
- The dealer wholesale price was the dealer-tank-wagon (DTW) price, a delivered price that included delivery costs.
- Shell set DTW prices by reference to market factors, including competitor pricing and local “street” prices, and charged a uniform DTW price to dealers within defined price administration districts.
- Shell also sold gasoline to jobbers at a terminal “rack” price that did not include delivery; jobbers bore transportation costs and performed additional distribution-related functions.
- Through restructuring, Shell’s Cleveland-area station agreements were assigned to Equilon Enterprises, and later distribution was handled through True North Energy, which set DTW prices based on its acquisition cost plus a per-gallon markup.
- Dealers claimed Shell set DTW prices in bad faith to force them out of business, asserting the prices were commercially unreasonable, including as compared to lower jobber pricing.

## Issues

1. What standard governs “good faith” under Ohio’s UCC for a merchant seller setting an open-price term under UCC § 2-305.
2. Whether the statutory “honesty in fact” element requires a purely subjective inquiry, or whether merchants are also held to an objective “reasonable commercial standards of fair dealing” requirement.
3. Whether the evidence created a genuine issue of material fact that Shell breached the UCC good-faith requirement in setting DTW prices.

## Decision

- The Supreme Court of Ohio affirmed summary judgment for Shell.
- The court held that, for merchants, UCC “good faith” includes both subjective honesty in fact and an objective requirement of observing reasonable commercial standards of fair dealing in the trade.
- The court rejected the dealers’ argument that good faith in this context is evaluated only by a subjective inquiry into Shell’s intent.
- Applying the mixed standard, the court concluded the dealers failed to produce evidence that Shell’s DTW pricing method departed from reasonable commercial practice or was commercially unreasonable.
- A DTW–rack price differential, without evidence accounting for different roles, costs, and services in the distribution chain, did not establish bad faith.

## Legal Principles

- Under Ohio’s UCC, a merchant’s “good faith” obligation includes: (1) honesty in fact and (2) observance of reasonable commercial standards of fair dealing in the trade.
- When a sales contract contains an open-price term under UCC § 2-305, the party empowered to set the price must do so in good faith, measured by both subjective and objective components for merchants.
- Evidence that pricing tracks market conditions and competitor prices, and is applied uniformly within relevant market groupings, tends to support commercial reasonableness.
- Price comparisons between differently situated buyers (e.g., delivered dealer pricing versus terminal rack pricing for jobbers) do not, standing alone, prove bad faith.
- To defeat summary judgment on an open-price good-faith claim, a plaintiff must point to evidence from which a reasonable factfinder could conclude the merchant’s pricing violated reasonable commercial standards or was otherwise commercially unreasonable.

## Conclusion

The court held that Ohio’s UCC imposes a mixed subjective-and-objective good-faith standard on merchant sellers setting open-price terms and that the dealers’ record did not show commercially unreasonable pricing or a breach of reasonable commercial standards; summary judgment for Shell was properly affirmed.


Casserlie v. Shell Oil Co., 121 Ohio St. 3d 55, 902 N.E.2d 1 (Ohio 2009)