In its first significant opinion of the new year, the Business Court interpreted the pricing mechanism contained in a contract between convenience store operator The Pantry and CITGO, its supplier of gasoline. The case, which handed a win to CITGO allowing it to charge higher prices than those urged by The Pantry, is The Pantry, Inc. v. CITGO Petroleum Corp.

Per the contract, The Pantry’s price for gasoline was based on the average of the two lowest prices for "the applicable grade of motor fuel" as determined by an industry source. The dispute arose when CITGO started selling E-10 gasoline to The Pantry.  That’s a blend of 90% "clear gasoline" and 10% ethanol, commonly called "gasohol."  E-10 is more expensive than clear gasoline.

The contract didn’t contemplate the sale of E-10. CITGO said the contract price should be determined by the two lowest prices for E-10 gasoline, but The Pantry said it should be determined by the two lowest prices for clear gasoline.  CITGO’s interpretation resulted in The Pantry paying a higher price.

The Pantry’s argument was CITGO had unilaterally determined to substitute E-10 for clear gasoline, and that this meant that E-10 was "interchangeable with and a substitute for clear gasoline."  It also relied on the language of the contract referring to the "grade" of the fuel being purchased, arguing that "grade" referred to grades of clear gasoline.  The convenience store operator also stressed that the purpose of the agreement was to obtain pricing that would allow it to sell gasoline "at prices competitive with other retailers in its markets," and that CITGO’s interpretation would impair that objective.

Thus, The Pantry asserted, CITGO was bound to look to the two lowest prices for clear gasoline in setting the price.  Judge Diaz didn’t agree.  He determined that the "only reasonable interpretation" of the contract was for the parties to look to the "precise motor fuel product purchased by The Pantry (whether clear gasoline or E-10 gasoline)" to determine the proper price. 

As to the argument that CITGO’s interpretation impaired The Pantry’s intention to obtain favorable pricing, Judge Diaz held that The Pantry’s "remedy is not to contort the language of the ‘market pricing’ provisions of the [agreement] beyond their plain meaning but, instead, to renegotiate the contract terms or find an alternate supplier."  Op. Par. 60.

The Court held that the interpretation urged by The Pantry "does violence to the contract terms by ‘mixing apples and oranges’ as to the motor fuels offered by CITGO,"  Op. Par. 56, and granted CITGO’s Motion to Dismiss.

You probably won’t find much of help in this opinion as far as precedent for future North Carolina cases.  That’s because of the narrowness of the issue and the fact that the Court applied Oklahoma law.

CITGO was represented by Brooks Pierce lawyers Jim Williams, Jennifer Van Zant, and D.J. O’Brien, and Scott Solberg and Lisa Meyer of Eimer Stahl Klevorn & Solberg in Chicago.

Brief in Support of Motion to Dismiss

Brief in Opposition to Motion to Dismiss

Reply Brief in Support of Motion to Dismiss