## Facts

- Fifty-four Exxon-branded gasoline station franchisees in the Houston and Corpus Christi, Texas areas operated under Retail Motor Fuel Store Sales Agreements requiring them to buy Exxon gasoline at Exxon's dealer tank wagon (DTW) price.
- The contracts used an open price term: franchisees would pay “EXXON’s price in effect” at the time of loading, with Exxon unilaterally setting the DTW price.
- Exxon also sold to jobbers at a rack price that was usually lower than DTW, and supplied company-operated retail stores (CORS) using internal transfer pricing tied to DTW in the same price zone.
- Franchisees alleged Exxon set DTW prices consistently higher than the rack price plus transportation costs, making franchisees uncompetitive.
- Franchisees introduced evidence that even after delivery costs, DTW remained substantially higher than rack, and that Exxon had internal plans to convert franchise locations to CORS by making franchise outlets unprofitable.
- Exxon argued DTW pricing was an industry-standard arrangement and that DTW reflected legitimate delivery and franchise-related costs.

## Issues

1. Whether sufficient evidence supported the jury’s finding that Exxon breached Texas’s good-faith requirement for seller-set open price terms by setting DTW prices that were commercially unreasonable and driven by an improper purpose.
2. Whether the district court abused its discretion under Federal Rule of Evidence 702 and Daubert by admitting plaintiffs’ expert testimony on the commercial reasonableness of Exxon’s pricing.
3. Whether the district court’s attorney’s fee award to the prevailing franchisees was excessive or otherwise improper.

## Decision

- The Fifth Circuit affirmed the judgment for the franchisees.
- The evidence permitted a reasonable jury to find Exxon breached its good-faith duty in setting DTW prices under an open price term.
- The district court did not abuse its discretion in admitting the franchisees’ pricing expert testimony under Rule 702/Daubert.
- The attorney’s fee award was upheld as reasonable on the record and within the district court’s discretion.

## Legal Principles

- Under Tex. Bus. & Com. Code § 2.305, when a contract leaves price to be fixed by the seller, the seller must set the price in good faith.
- Texas “good faith” in this setting includes both: (a) subjective honesty in fact, and (b) objective conformity with reasonable commercial standards of fair dealing in the trade.
- A seller’s discretion under an open price term may be breached by evidence of commercially unreasonable pricing and improper motive, including using pricing to force the buyer out of business to achieve a separate business objective.
- Under Rule 702 and Daubert, expert testimony is admissible when it is relevant and rests on a sufficiently reliable methodology; disputes over assumptions generally go to weight rather than admissibility.
- Prevailing parties may recover reasonable attorney’s fees under applicable Texas law, and appellate review is deferential to the trial court’s fee determination supported by the record.

## Conclusion

The Fifth Circuit sustained a jury finding that Exxon violated Texas’s good-faith constraint on seller-set open price terms by setting DTW gasoline prices that a jury could deem commercially unreasonable and intended to push franchisees out in favor of company-operated stations, and it affirmed the admission of expert pricing testimony and the attorney’s fee award.


Mathis v. Exxon Corp., 302 F.3d 448 (5th Cir. 2002)