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Wilson v. Amerada Hess Corp.

June 14, 2001


The opinion of the court was delivered by: LaVECCHIA, J.

ON CERTIFICATION TO Appellate Division, Superior Court

Chief Justice Poritz PRESIDING

OPINION BY Justice LaVecchia

Argued October 24, 2000

On certification to the Superior Court, Appellate Division.

Plaintiffs, three independent franchise dealers of Hess gasoline, maintain that defendant, Amerada Hess Corporation, violated the implied covenant of good faith and fair dealing in setting gasoline prices notwithstanding a provision in the contract giving defendant unilateral authority to set and change dealer tank wagon (DTW) prices. The trial court granted defendant summary judgment. The Appellate Division affirmed because giving plaintiffs every favorable inference, the record was devoid of evidence to suggest that Hess's "DTW prices were established with any bad faith motive to deprive plaintiffs of any profit," or that "the terms offered to other stations interfere with plaintiffs' right to earn a profit."

Plaintiffs contend that they were denied the opportunity to produce circumstantial evidence of bad faith in Hess's setting of gas prices because certain discovery was denied to them and that therefore summary judgment was premature. We granted certification, 165 N.J. 525 (2000), limiting our review solely to plaintiffs' claim of breach of the implied covenant of good faith and fair dealing. We now reverse and remand for additional discovery and further proceedings.


We emphasize at the outset that the allegation against defendant Hess is simply that: an unproven allegation. Because this case was disposed of on a motion for summary judgment, our review is based on consideration of the evidence in the light most favorable to plaintiffs. Brill v. Guardian Life Ins. Co., 142 N.J. 520, 523 (1995). Further, we recite only those facts germane to plaintiffs' claim of breach of the implied covenant.

Hess is an integrated oil company that produces, refines, and distributes gasoline and other petroleum products. The company sells gasoline and other fuel products to the public at retail under its Hess brand, both through independent franchise dealers and through gasoline stations owned and operated directly by Hess. Plaintiffs Meyer, Wilson, and Loeber have been Hess independent franchise dealers since 1968, 1972, and 1977, respectively. At all times relevant to this lawsuit, each of the plaintiffs has operated his respective station under a Dealership Agreement with Hess. The Dealership Agreements serve both as franchise agreements and as station leases.

Hess's use of independent franchise dealers has changed over time. In the early 1970s, approximately 95% of all Hess gasoline stations were owned and operated by independents. The record submissions inform us that as of March 1998 the number of Hess gasoline stations had grown to 541, of which approximately 82% were Hess operated (co-op stations) and the remaining 18% were operated by independent franchise dealers.

The Hess approach to its independent franchise dealers' profitability initially was to promote high-volume gasoline sales based on low prices. Hess would sell the gasoline to its dealers, setting the retail price significantly below the price charged by major national brands and allowing a reasonable profit margin to its dealers. Its marketing emphasized clean gasoline stations and friendly servers who sold primarily gasoline and few peripheral items. The Hess dealers did not service automobiles. In the early 1980s, Hess abandoned its practice of setting the retail price charged by its dealers. Instead, Hess sold gasoline to its dealers at a wholesale cost based on the DTW prices in the marketing area of the dealer's stations as determined by Hess. Hess sets and adjusts its DTW prices by reference to the current retail gasoline prices charged by certain other retailers selected by Hess in each dealer's local area, including retailers of major brands. The DTW prices provided to the dealers are set at a rate based on the subtraction of a certain amount per gallon from the current retail gasoline prices in each dealer's local area. Thus, Hess allows its dealers a mark-up of an amount equal to that differential. The precise amount of the differential will not be disclosed here because it is protected by a confidentiality agreement.

A provision of the Dealership Agreement concerning price of gasoline reads:

Prices to the Dealer will be: (a) for motor fuel and kerosene, Hess's dealer tank wagon [DTW] prices in the marketing area of the Station, as determined by Hess, for the grades and quantities delivered, in effect at the time of delivery. . . . All prices are subject to change at any time without notice . . . .

Further, the Dealership Agreement provides the following disclaimer on the part of Hess:

Dealer acknowledged that Hess had made no representations and provided no estimates as to the following:

a. Potential income to the Dealer from the Station's business.

b. Prospects for success of the Station's business.

c. Possible training and management assistance by ...

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