Good Faith Pricing in Fuel Wholesaling
A major fuel wholesaler was accused in Federal Court of engaging in anti-competitive behavior and violating the "good faith" price provisions of the Uniform Commercial Code (UCC), Section 2-305, on open price contracts. Open price contracts are common in the fuel industry. Under such a contract, retailers commit to purchase its fuel needs from a wholesaler, and the wholesalers, who generally has the right to set and change wholesale prices over time, is required by 2-305 to set those prices in good faith. The plaintiff, an operator a sizable group of retail gasoline stations in the Southern U.S., claimed that the fuel wholesaler violated its good faith obligation by charging it more than it charged at least one of its other wholesale customers. An expert report commissioned by the plaintiff purported to show damages of millions of dollars from the difference in prices charged to the two.
Dr. Noel was retained by the wholesaler to opine on whether the two customers in question were similarly-situated and whether the prices charged by the wholesaler to the plaintiff were consistent with the good faith provisions of the UCC. Dr. Noel performed a series of empirical analyses that showed the two customers were not similarly-situated and that the wholesaler's pricing to the plaintiff was competitive and consistent with good faith pricing.
Dr. Noel was also asked to review the calculations of the opposing expert and comment on any errors or problems he might find. Dr. Noel uncovered numerous mathematical errors in the opposing expert's report, most notably that the report selectively ignored one-third of all the price data - selectively discarding the data that showed relatively higher prices being charged to other customers, and thus grossly exaggerating the price differences between the two. Dr. Noel's corrected calculations showed a substantially lower difference in prices and, on the eve of trial, with the errors in the opposing expert's calculations exposed, the matter was settled out of court at favorable terms to the defendant.