Mathis, et al v. Exxon Corporation

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
m 01-40693
_______________
JAMES MATHIS,
Plaintiffs,
JAMES MATHIS, MOHAMMED ABOU-HARB, GEORGE ACOSTA,
MUSA ADI, MAZEN ALLAHAM, ET AL.,
Plaintiffs-Appellees,
VERSUS
EXXON CORPORATION,
Defendant-Appellant.
_________________________
Appeals from the United States District Court
for the Southern District of Texas
_________________________
August 15, 2002
Before REAVLEY, SMITH, and DENNIS,
Circuit Judges,
JERRY E. SMITH, Circuit Judge:
This is a breach of contract suit brought by
fifty-four gasoline station franchisees against
Exxon Corporation (“Exxon”) for violating the
Texas analogue of the Uniform Commercial
Code’s open price provision. We affirm.
I.
Exxon markets its commercial gas bound
for retailers primarily through three arrange-
ments: franchisee contracts, jobber contracts,
and company operated retail stores (“CORS”).
A franchisee rents Exxon-branded gas stations
and enters into a sales contract for the pur-
chase of Exxon-brand gas. The contract sets
the monthly quantity of gas the franchisee
must purchase and allows Exxon to set the
price he must pay. The franchisee pays the

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2
dealer tank wagon price (“DTW”) and takes
delivery of the gas at his station.
A jobber contract requires the purchaser to
pay the “rack price,” which usually is lower
than the price charged to franchisees. There is
no sale of gas to CORS by Exxon, because the
stores are owned by Exxon and staffed by its
employees. Instead, an intra-company ac-
counting is recorded that is equivalent to the
price charged franchisees in the same price
zone.
All the plaintiff franchisees operate stations
in the greater Houston, Texas, and Corpus
Christi, Texas, areas. The genesis of the dis-
pute is the allegation that Exxon has violated
the law and its contracts with these franchisees
for the purpose of converting their stores to
CORS by driving the franchisees out of busi-
ness.
Since 1994, franchisees have been barred
from purchasing their gas from jobbers, so all
their purchases have been governed by the
terms of the Retail Motor Fuel Store Sales
Agreement, under which the “DEALER agrees
to buy and receive directly from EXXON all of
the EXXON-branded gasoline bought by
DEALER, and at least seventy-five percent
(75%) of the volume shown in [a specified
schedule]. . . . DEALER will pay EXXON for
delivered products at EXXON’s price in effect
at the time of the loading of the delivery vehi-
cle.”
This “price in effect,” also know as the
dealer tank wagon price (“DTW”), forms the
heart of the present dispute. Exxon claims this
arrangement is the industry standard and that
almost all franchisor-franchisee sales of gaso-
line are governed by a similar price term.
Plaintiffs respond that the DTW price charged
under this clause is “consistently higher” than
the rack price paid by jobbers plus transporta-
tion costs.1
1 Neither side disputes that the price term in
the sales agreement is an “open price term”
under Texas law, because it is a “price to be
fixed by the seller.” TEX. BUS. & COM. CODE
ANN. § 2.305 (Vernon 2002). In full, this pro-
vision reads:
(a) The parties if they so intend can con-
clude a contract for sale even though the
price is not settled. In such a case the price
is a reasonable price at the time for delivery
if
(1) nothing is said as to price; or
(2) the price is left to be agreed by
the parties and they fail to agree;
or
(3) the price is to be fixed in
terms of some agreed market or
other standard as set or recorded
by a third person or agency and it
is not so set or recorded.
(b) A price to be fixed by the seller or by the
buyer means a price for him to fix in good
faith.
(c) When a price left to be fixed otherwise
than by agreement of the parties fails to be
fixed through fault of one party the other
may at his option treat the contract as can-
celled or himself fix a reasonable price.
(d) Where, however, the parties intend not to
be bound unless the price be fixed or agreed
and it is not fixed or agreed there is no
contract. In such a case the buyer must
return any goods already received or if un-
(continued...)

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3
The franchisees originally filed Sherman
Act, Clayton, Act, and Petroleum Marketing
Practices Act (“PMPA”) claims against Exxon
in addition to the breach of contract claim.
The antitrust claims were abandoned, and the
district court granted Exxon a judgment as a
matter of law (“j.m.l.”) on the PMPA claims.
The court retained jurisdiction over the purely
state law causes of action that had been sup-
plemental to the federal claims.2
Trial proceeded solely on the Texas breach
of contract action, with only six plaintiffs tes-
tifying. The thrust of their testimony was that
Exxon had set the DTW price at an uncompet-
itive level to drive them out of business (so as
to replace their stores with CORS). Some of
the plaintiffs testified that their franchises were
unprofitable; they presented documents and
witnesses to show that Exxon intended that
result to drive them out of business.
The franchisees also submitted a market
study showing that 62% of the franchisees in
Corpus Christi were selling gas below the
DTW price. The franchisees supported their
theory of the case by calling Barry Pulliam as
an expert witness on the economics of the gas-
oline market in Houston and Corpus Christi.
Pulliam concluded that Exxon’s DTW price
was not commercially reasonable from an eco-
nomic perspective because it was a price that,
over time, put the purchaser at a competitive
disadvantage. Pulliam noted that “commercial
reasonableness” is a legal term, and he was not
there to define it for the jury.
Pulliam’s conclusion rested on two main
facts. First, he showed that 75% of the franchi-
see’s competitors were able to purchase gaso-
line at a lower price. Second, he calculated a
commercially reasonable DTW price by adding
normal distribution charges to the average rack
price of gasoline charged by Exxon and its
competitors. He concluded that Exxon’s
DTW price exceeded the sum of these other
prices by four or more cents per gallon.
Exxon countered with Michael Keeley, who
testified that Exxon’s DTW price was com-
mercially reasonable because it reflected the
company’s investment in land, the store, trans-
portation, and managers. Keeley explained
that Exxon recovers these costs through rent
and the sale of gas.
The jury awarded $5,723,657SSexactly
60% of the overcharge calculated by Pulliam.
Plaintiffs moved for attorney’s fees, as autho-
rized by TEX. CIV. PRAC. & REM. CODE ANN.
§ 38.001 (Vernon 2002), supported by a five-
paragraph affidavit of lead counsel and an ex-
pert’s affidavit opining that the fees were rea-
sonable. The court granted fees of $2,289,462
SS40% of the damages. Exxon raises three
issues on appeal: (1) The court should have
granted Exxon’s motion for j.m.l. on the con-
tract claim; (2) the court erred in permitting
Pulliam to testify; and (3) the fee award was
erroneous.
II.
Exxon contends that because it charged its
franchisees a DTW price comparable to that
1(...continued)
able so to do must pay their reasonable val-
ue at the time of delivery and the seller must
return any portion of the price paid on ac-
count.
TEX. BUS. & COM. CODE ANN. § 2.305 (Vernon
2002).
2 This is proper under 28 U.S.C. § 1367(c)(3).
See also Bass v. Parkwood Hosp., 180 F.3d 234,
246 (5th Cir. 1999).

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4
charged by its competitors, the breach of con-
tract claim is precluded as a matter of law. We
review the denial of j.m.l. using the same
standards employed by the district court.
Coffel v. Stryker Corp, 284 F.3d 625, 630 (5th
Cir. 2002). Although this is a state-law issue,
the standard for granting j.m.l. is a question of
federal law. Ellis v. Weasler Eng’g Inc., 258
F.3d 326, 336 (5th Cir. 2001).
A j.m.l. is appropriate where “a party has
been fully heard on an issue and there is no le-
gally sufficient evidentiary basis for a reason-
able jury to find for that party on that issue.”
FED. R. CIV. P. 50(a). We review the denial of
j.m.l. de novo. Green v. Adm’rs of the Tulane
Educ. Fund, 284 F.3d 642, 653 (5th Cir.
2002). We also review de novo a district
court’s application of state law. Salve Regina
College v. Russell, 499 U.S. 225, 231 (1991).
Finally, we uphold a jury verdict if it is sup-
ported by evidence of the type and quality that
fairly supports the verdict, even if the evidence
would support other outcomes. Gann v.
Fruehauf Corp, 52 F.3d 1320, 1326 (5th Cir.
1995). The question is whether there was evi-
dence permitting the jury to conclude that
Exxon breached a term of the franchise agree-
ment.
III.
Texas law, which tracks the Uniform Com-
mercial Code, implies a good faith component
in any contract with an open price term. Spe-
cifically,
[t]he parties if they so intend can con-
clude a contract for sale even though the
price is not settled. In such a case the
price is a reasonable price at the time of
delivery . . . A price to be fixed by the
seller or by the buyer means a price for
him to fix in good faith.
TEX. COM. & BUS. CODE ANN. § 2.305 (Ver-
non 2002). The parties agree that the fran-
chise agreement term governing the purchase
of gasoline is an open price term.
The meaning of “good faith” is further de-
fined in several other sections of the code.
The definitions section explains good faith as
“honesty in fact in the conduct or transaction
concerned.” TEX. COM. & BUS. CODE ANN.
§ 1.201(19) (Vernon 2002). Wherever the
term “good faith” is used throughout the code,
it means “as least what is here stated.” TEX.
COM. & BUS. CODE ANN. § 1.201(19) cmt. 19
(Vernon 2002).
Additional meaning to the term may be add-
ed within a given article. Id. Section 2.103,
regarding merchants, further explains the term:
“Good faith” in the case of a merchant means
honesty in fact and the observance of reason-
able commercial standards of fair dealing in the
trade.” TEX. COM. & BUS. CODE ANN. §
2.103 (Vernon 2002).3 Finally, “[g]ood faith
includes the observance of reasonable
commercial standards of fair dealing in the
3 Exxon meets the definition of a merchant.
“Merchant” means a person who deals in
goods of the kind or otherwise by his occu-
pation holds himself out as having knowl-
edge or skill peculiar to the practices or
goods involved in the transaction or to
whom such knowledge or skill may be at-
tributed by his employment of an agent or
broker or other intermediary who by his oc-
cupation holds himself out as having such
knowledge or skill.
TEX. COM. & BUS. CODE ANN. § 2.104(a) (Vernon
2002).

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5
trade if the party is a merchant. (Section
2.103). But, in the normal case a ‘posted
price,’ ‘price in effect,’ ‘market price,’ or the
like satisfies the good faith requirement.”
TEX. COM. & BUS. CODE ANN. § 2.305 cmt. 3
(Vernon 2002).
The key disagreement is over what consti-
tutes a breach of the duty of good faith.
Exxon contends it has satisfied that duty
because it has charged the plaintiffs a DTW
price within the range of its competitors’ DTW
prices, thereby satisfying the “commercial
reasonableness” meaning of good faith. Plain-
tiffs respond that good faith encompasses both
objective and subjective duties. Even if Exxon
is right, and its prices are within the range of
its competitors’, the argument runs, a subjec-
tive intent to drive the franchisees out of busi-
ness would abridge the good faith duty of the
open price term.
The pivotal provision is comment 3 to
§ 2.305. Some of the language of comment 3
and § 2.103 leaves the meaning of good faith
for open price terms in doubt. Comment 3
mentions that good faith “includes” commer-
cial reasonableness, but notes that certain es-
tablished prices satisfy the good faith require-
ment. Section 2.103 defines good faith with
the subjective “honesty in fact” test. Thus,
plaintiffs argue that an open price set accord-
ing to a fixed schedule is set in good faith only
if there is no improper motive animating the
price-setter. Exxon replies that comment 3
speaks directly to prices set by a fixed sched-
ule and consecrates them as in good faith
per se.
In the absence of comment 3, there is no
doubt Exxon would be subject to both the sub-
jective “honesty in fact” good faith of
§ 1.201(19) and the objective “commercial
reasonableness” good faith of § 2.103.4 The
difficult question is whether comment 3 cre-
ates an exception to the normal principles of
good faith governing the sale of goods.
No court in this circuit, and no Texas state
court, has squarely addressed this question.5
4 See TEX. COM. & BUS. CODE ANN.
§ 1.201(19) cmt. 19 (Vernon 2002) (“Good faith”,
whenever it is used in the Code, means at least
what is here stated. In certain Articles . . . addi-
tional requirements are made applicable.); Lenape
Resources Corp. v. Tenn. Gas Pipeline Co., 925
S.W.2d 565, 571 (Tex. 1996) (recognizing that du-
ty of good faith is a background principle); see
also 2 RONALD A. ANDERSON, UNIFORM COM-
MERCIAL CODE § 1-203:1 (1996):
The Code employs two standards of good
faith. Section 1-201(19) states the generally
applicable “subjective” (“white heart and
empty head”) standard which concentrates
on the actual state of mind of the party rath-
er than on the state of mind a reasonable
man would have had under the same circum-
stances. Thus, the section defines good faith
as “honest in fact in the conduct or transac-
tion concerned.” In the case of merchants,
however, or at least those merchants gov-
erned by Article 2 on Sales, an objective
element is added to their good faith duties.
Section 2-103(1)(b) provides that “‘[g]ood
faith’ in the case of a merchant means hon-
est in fact and the observance of reasonable
commercial standards of fair dealing in the
trade.” This definition imposes a duty on
merchants to meet good faith requirements
that are measured both subjectively and
objectively.
5 In ISP Mineral Prods., Inc. v. GS Roofing
Prods. Co., 1999 WL 102818 (N.D. Tex. Feb. 22,
1999), the court denied a motion to dismiss be-
(continued...)

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6
Fortunately, because the Texas open price pro-
vision replicates that of the UCC, we can seek
guidance from other courts.6
To decide whether comment 3 creates an
exception, we turn first to the text of the com-
ment and the related sections of the Texas ver-
sion of the UCC.7 In full, comment 3 reads,
Subsection (2), dealing with the situa-
tion where the price is to be fixed by one
party rejects the uncommercial idea that
an agreement that the seller may fix the
price means that he may fix any price he
may wish by the express qualification
that the price so fixed must be fixed in
good faith. Good faith includes obser-
vance of reasonable commercial stan-
dards of fair dealing in the trade if the
party is a merchant. (Section 2-103).
But in the normal case a “posted price”
or a future seller’s or buyer’s “given
price,” “price in effect,” “market price,”
or the like satisfies the good faith re-
quirement.
TEX. COM. & BUS. CODE ANN. § 2.305 cmt. 3
(Vernon 2002).
The bare text offers little to resolve the
question. First, the comment notes that good
faith “includes” reasonable commercial stan-
dards. This implies that the good faith re-
quired of a merchant setting an open price
term encompasses both objective and subjec-
tive elements. The comment also creates a
good faith safe harbor for such merchants
when they use various sorts of fixed prices.
But this safe harbor is applicable only in the
“normal case.” This suggests the safe harbor
is not absolute, but it does nothing to define
what takes a case out of the safe harbor.
As we will explain, we conclude that the
“normal case” of comment 3 is coextensive
with a merchant’s residual “honesty in fact”
duty embodied in §§ 1.201(19) and 2.103.
Thus, the comment embraces both the objec-
tive (commercial reasonableness) and subjec-
tive (honesty in fact) senses of good faith; ob-
jective good faith is satisfied by a “price in
effect” as long as there is honesty in fact (a
“normal case”). This conclusion finds support
in three sources: the structure of the UCC, its
legislative history, and the caselaw.
Reading comment 3 to embody two differ-
ent meanings of “good faith” tracks the gen-
eral structure of the UCC. Courts and com-
mentators have recognized that the meaning of
“good faith” is not uniform throughout the
code.8 The cases and commentary treat the
5(...continued)
cause the intent of the parties regarding the price to
be set in good faith, in accordance with industry
practice, may have been breached. This analysis
does not aid us in resolving the central question this
caseSSwhether the good faith clause of § 2.305
includes a duty to act without an improper motive
in setting the price.
6 See Pennzoil Co. v. FERC, 789 F.2d 1128,
1142 (5th Cir. 1986) (recognizing that because all
states except Louisiana have adopted the UCC,
“variations between state law and general princi-
ples are likely to be few”).
7 Comm’rs of Court Titus County v. Agan, 940
S.W.2d 77, 80 (Tex. 1997) (holding that Texas fol-
lows plain meaning rule where text is unambigu-
ous).
8 See Watseka First Nat’l Bank v. Ruda, 552
N.E.2d 775, 778 (Ill. 1990) (explaining that mean-
ing of “good faith” varies by article); Dennis M.
(continued...)

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7
“good faith” found in article 1 as subjective
and the good faith found only in article 2 as
objective.9 Thus, there is nothing inconsistent
in comment 3’s using “good faith” in both the
objective and the subjective senses.
The history of comment 3 bolsters this
conclusion.10 Some drafters of the UCC wor-
ried that for the “great many industries where
sales are not made at fixed prices,” such as the
steel industry, where “practically every con-
tract” is made at “the seller’s price in effect,”
if § 2-305 “is to apply . . . it means that in
every case the seller is going to be in a lawsuit
. . . or he could be, because there isn’t any
outside standard at all.” PROCEEDINGS OF
ENLARGED EDITORIAL BD. OF AM. LAW INST.
(Sunday Morning Session, Jan. 28, 1951)
(statement of Bernard Broeker). The drafters
considered wholly exempting such contracts
from § 2-305, or stating that for a price in
effect, the only test is whether the merchant
engaged in price discrimination. One drafter
explained that the steel industry wanted to
make “clear that we do not have to establish
that we are fixing reasonable prices, because
that gets you into the rate of return of profit,
whether you are using borrowed money, and
all those questions.” Id.
The committee responded to these worries
with the current comment 3: “[I]n the normal
case a ‘posted price’ or a future seller’s or
buyer’s ‘given price,’ ‘price in effect,’ ‘market
price,’ or the like satisfies the good faith re-
quirement.” The drafter’s solution was to
avoid objective good faith challenges to prices
set by reference to some “price in effect,”
while preserving challenges to discriminatory
pricing. See Hearing Before the Enlarged
Editorial Board January 27-29, 1951,
VI BUSINESS LAWYER 164, 186 (1951) (ex-
plaining this intent). Nothing in the proceed-
ings leading to the addition of comment 3 sug-
gests that the overall subjective good faith du-
ty of §§ 1-201 and 2-103 was to be supplant-
ed; the evidence is quite to the contrary.
The drafters ultimately rejected two sug-
gested addendums to § 2-305:
An agreement to the effect that the price
shall be or be adjusted to, or be based
upon, or determined by reference to the
seller’s going price, price in effect, reg-
ular price, market price, established
price, or the like, at the time of the
agreement or at any earlier or later time,
is not an agreement to which this sub-
section is applicable.
. . .
An agreement such as this is an agree-
ment under which the seller or the buyer
does not have any burden of showing
8(...continued)
Patterson, Wittgenstein and the Code: A Theory of
Good Faith Performance and Enforcement Under
Article Nine, 137 U. PA. L. REV. 335, 380-87
(1988) (tracing history of meaning of “good faith”
and noting differences in meaning between articles
1 and 2).
9 First Nat’l Bank v. Lewco Sec. Co., 860 F.2d
1407 (7th Cir. 1988) (stating that good faith as
used in article 1 is a subjective standard); Martin
Marietta Corp v. N.J. Nat’l Bank, 612 F.2d 745,
751 (3d Cir. 1979) (noting that definition in article
1 is subjective, but that in article 2 is objective);
Patterson, supra, at 381 (same).
10 See Bridgestone/Firestone, Inc. v. Glyn-
Jones, 878 S.W.2d 132, 133-34 (Tex. 1994) (au-
thorizing use of legislative history where text is
ambiguous).

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8
anything other than that he has not sin-
gled out the particular other party for
discrimination.
PROCEEDINGS OF ENLARGED EDITORIAL BD.
(statement of Bernard Broeker). Both of these
recommendations are more sweeping than is
the language ultimately adopted. The first
would have omitted any mention of the good
faith duty for open price provisions; the sec-
ond would have limited the duty of the price-
setter to that of avoiding discrimination.
The existing comment, however, avoids
challenges to prices set according to an open
price term unless that challenge is outside the
normal type of case. Although price discrimi-
nation was the type of aberrant case on the
minds of the drafters, price discrimination is
merely a subset of what constitutes such an
aberrant case. Any lack of subjective, hon-
esty-in-fact good faith is abnormal; price dis-
crimination is only the most obvious way a
price-setter acts in bad faithSSby treating
similarly-situated buyers differently.
The caselaw supports this interpretation of
comment 3. Courts that have addressed the
normalcy question have consistently held that
a lack of subjective good faith takes a chal-
lenge outside the bounds of what is normal.11
Like the plaintiffs in Nanakuli, Allapattah,
and Wayman, the franchisees here are alleging
a breach of good faith grounded not in Ex-
xon’s failure to price in accord with an estab-
lished schedule, but in its failure to set the
price in good faith. Suits recognizing such a
cause of action are rare, and with good reason:
We would be ill-advised to consider a case to
be outside the norm based only on an allega-
tion of improper motive by the party setting
the price.12
Plaintiffs produced enough evidence to es-
cape comment 3’s “normal case” limitation.
They showed, for example, that Exxon
planned to replace a number of its franchises
with CORS, that the DTW price was higher
than the sum of the rack price and transporta-
tion, that Exxon prevented the franchisees
from purchasing gas from jobbers after 1994,
and that a number of franchisees were unprof-
11 See, e.g., Nanakuli Paving & Rock Co. v.
Shell Oil Co., 664 F.2d 772, 806 (9th Cir. 1981)
(stating that “the dispute here was not over the
amount of the increaseSSthat is, the price that the
seller fixedSSbut over the manner in which that
increase was put into effect”); Allapattah v. Exxon
Corp., 61 F. Supp. 2d 1308, 1322 (S.D. Fla.
1999); (“Because the parties’ dispute is not over
the actual amount of the purchase price Exxon
charged for its wholesale gasoline to its dealers, but
rather over the manner in which the wholesale price
(continued...)
11(...continued)
was calculated without considering the double
charge for credit card processing, the instant action
is not the ‘normal’ case.”); cf. Wayman v. Amoco
Oil Co., 923 F. Supp 1322, 1349 (D. Kan. 1996),
aff’d, 145 F.3d 1347 (10th Cir. 1998) (“[T]his
court believes the present case is a normal case. If
there was evidence that Amoco had, for example,
engaged in discriminatory pricing or tried to run
plaintiffs out of business, then the court’s decision
might be different.”).
12 See Richard Short Oil Co. v. Texaco, Inc.,
799 F.2d 415, 422 (8th Cir. 1986) (recognizing
that “mere conclusory allegation of bad faith would
be insufficient to defeat a directed verdict.”); cf.
Wayman, 923 F. Supp. at 1349 (acknowledging
that result “may have been different” if there were
evidence of an improper motive).

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9
itable or non-competitive.13
For example, one Exxon document stated
that the company’s “Marketing Strategy for
1992-1997 is to reduce Dealer stores (est.
30%).” Another document set forth Exxon’s
plans to reduce dealer stations in Houston
from 95 to 45, and to increase CORS from 83
to 150, between 1997 and 2003. James Car-
ter, the Regional Director of the Exxon/Mobil
Fuels Marketing Company, testified that Ex-
xon made more of a profit from a CORS than
from an independent lessee store. These plans
and observations were validated by the fact
that the number of dealer stations steadily
declined.
An exhibit called the “Houston Screening
Study” evaluated the strategy of “surplusing”
(i.e., eliminating) 21 of 37 locations inside the
Highway 610 loop. Of the 93 lessee-dealer
stations, 69 would be done away with, but 73
of the 91 CORS would be kept.
Further indication of plans to shift from
dealer-lessees to CORS is shown by Exxon’s
dissatisfaction with outlets featuring service
bays. Exxon documents showed that service
baysSSgenerally associated with lessee-dealer
locationsSSwere becoming less profitable,
while stations with convenience storesSSgen-
erally associated with CORSSSwere the wave
of the future. A document entitled “Retail
Store Chain Outlook” revealed Exxon’s plan
to reduce stations with service bays from
2,506 to 190 from 1991 to 2005. That docu-
ment included a plan to “[e]xpand CORS to
improve profitability and to compete efficiently
with private brands/distributors” and
“[e]mphasize CORS operations in markets
with high level of rack to retail competition.
Exxon’s answer on appeal is that these doc-
uments “say nothing about using pricing to
accomplish a ‘plan’ to eliminate dealers.” Al-
though that is so, there was sufficient evidence
on this issue to go to the jury, which was free
to, and apparently did, draw the inference con-
necting pricing to the elimination of dealer-
lessees. The consequence of the jury’s
decision is that this case exceeds the “normal
case” limit of § 2.305 comment 3.
We still, however, must examine the
content of the duty of subjective good faith.
Although no Texas or Fifth Circuit case has
squarely addressed the meaning of the good
faith clause of § 2.305, Texas courts
repeatedly have held that the “honesty in fact”
definition of good faith found in § 1.201(19) is
tied to the actual belief of the participant in the
transaction.14 Thus, the same version of the
facts accepted by the jurySSthat Exxon
intended to drive the franchisees out of
13 This case is distinguishable from Meyer v.
Amerada Hess, 541 F. Supp. 321 (D.N.J. 1982),
in which the court found “no evidence” of dishon-
esty in the setting of a DTW price. In Meyer,
though, the only evidence tending to show bad faith
was the retailer’s unprofitability. Id. at 331.
Significantly, other retailers were profiting, and the
plaintiff retailer was being charged rent below the
economic value of the property. Id. at 332.
14 La Sara Grain Co. v. First Nat’l Bank, 673
S.W.2d 558, 563 (Tex. 1984); Holeman v.
Landmark Chevrolet Corp., 989 S.W.2d 395, 399
(Tex. App.SSHouston [14th Dist.] 1999, review
denied); British Caledonian Airways Ltd. v. First
State Bank, 819 F.2d 593, 596 (5th Cir. 1987); see
also Lenape Resources Corp. v. Tenn. Gas
Pipeline Co., 925 S.W.2d 565, 571 (Tex. 1996)
(noting in dictum that duty of good faith includes
duty to avoid making decisions that, while
legitimate under the terms of the contract, have
improper motive).

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10
businessSSthat takes this case out of the
“normal” set of cases for purposes of comment
3 also satisfies the criteria for bad faith.15
Exxon’s bad faith, in this regard, is shown
by the record. Facing the competition of self-
service stations that were either selling food
and other goods or had bare pumps with no
overhead costs incurred in servicing vehicles,
Exxon decided years ago that retail marketing
through franchise dealers was becoming eco-
nomically unsound. Although Exxon decided
to move to CORS in Houston and jobbers in
Corpus Christi, this decision was not com-
municated to its franchisees. Because of profit
from their other sales, CORS could, and did,
sell gas for less than the franchise dealers paid
to Exxon for their gas. And the jobbers
delivered Exxon gas to their dealers for less
than Exxon franchisees were required to pay
for their delivered gas, but Exxon prohibited
its franchisees from buying at this lower price
from the jobbers.
The loss of competitive position and profit
to plaintiff franchisees was inevitable and fore-
seeable to Exxon. Although Exxon witnesses
denied receiving complaints, its dealers
testified that they had complained often and
for years, without success, until the very eve
of trial.
Accordingly, the jury’s finding that Exxon
breached its duty of good faith in setting the
DTW price it charged the plaintiffs is not with-
out foundation in the law or the evidence. As
we have recounted, plaintiffs offered ample
evidence tending to prove their version of
price-setting. Accordingly, there is no error in
the refusal to grant Exxon j.m.l. on the breach
of contract claim.
IV.
Exxon challenges the admission of the tes-
timony of plaintiffs’ expert, Barry Pulliam. Al-
though Exxon filed a motion in limine op-
posing Pulliam’s testimony, it did not object at
trial. The pre-trial objection is sufficient to
preserve the error for appellate review. FED.
R. EVID. 103(a). Our review is thus for abuse
of discretion. Gen. Elec. Co. v. Joiner, 522
U.S. 136, 141 (1997); Moore v. Ashland
Chem. Inc., 151 F.3d 269, 274 (5th Cir. 1998)
(en banc).16
Although the substantive aspects of this
case are governed by Texas law, the Federal
Rules of Evidence control the admission of ex-
pert testimony. Doddy v. Oxy USA, Inc., 101
F.3d 448, 459 (5th Cir. 1996). All expert
testimony is filtered through FED. R. EVID. 702
and 104(a). FED. R. EVID. 702 advisory
committee’s note (2000 amendments); Kumho
Tire Co. v. Carmichael, 526 U.S. 137, 147
15 See also Allapattah, 61 F. Supp. 2d at 1322
(explaining that “a merchant [who] acts in a man-
ner intended to drive a franchisee out of business”
violates the duty of good faith found in the UCC).
Similarly, one court has recognized that a
“predatory intent” to “set the prices with the intent
to drive [franchisees] out of business and take over
the stations” is a claim cognizable under the good
faith provisions of the UCC. E.S. Bills, Inc. v.
Tzucanow, 700 P.2d 1280, 1283-84 (Cal. 1985).
16 The 2000 amendment to rule 103(a) changed
the law that had prevailed in this circuit. FED. R.
EVID. 103(a); See also United States v. McGauley,
279 F.3d 62, 72 n.7 (1st Cir. 2002) (noting the
change effected by the 2000 amendments). Before
the amendment, we required an objection at trial to
preserve the error. See Rushing v. Kan. City S.
Ry., 185 F.3d 496, 506 (5th Cir. 1999); Tanner v.
Westbrook, 174 F.3d 542, 545 (5th Cir. 1999);
Marceaux v. Conoco, Inc., 124 F.3d 730, 734 (5th
Cir. 1997); Collins v. Wayne Corp., 621 F.2d 777,
784 (5th Cir. 1980).

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(1999).
Pulliam’s testimony, as an economist, satis-
fies the definition of expert testimony. Marcel
v. Placid Oil Co., 11 F.3d 563, 567 (5th Cir.
1994). Whether he is qualified to testify as an
expert is a question of law. FED. R. EVID.
104(a). The party offering the expert must
prove by a preponderance of the evidence that
the proffered testimony satisfies the rule 702
test. Bourjaily v. United States, 483 U.S. 171,
175 (1987).
The district court did not offer any reasons
in support of admitting Pulliam’s testimony.
Although a court “must articulate its basis for
admitting expert testimony,” Rodriguez v. Rid-
dell Sports, Inc., 242 F.3d 567, 581 (5th Cir.
2001), we will not invariably require remand
for this reason alone. Because admissibility is
a legal questionSSone ill-suited to remand and
further explication by the district courtSSwe
will decide the question in this case without
remanding.
Rule 702 lays out the test for admissibility
of expert testimony:
If scientific, technical, or other spe-
cialized knowledge will assist the trier of
fact to understand the evidence or to de-
termine a fact in issue, a witness qual-
ified as an expert by knowledge, skill,
experience, training, or education, may
testify thereto in the form of an opinion
or otherwise, if (1) the testimony is
based upon sufficient facts or data,
(2) the testimony is the product of
reliable principles and methods, and (3)
the witness has applied the principles
and methods reliably to the facts of the
case.
FED. R. EVID. 702. The requirement that the
testimony “assist the trier of fact” means the
evidence must be relevant. Daubert v. Merrell
Dow Pharms., Inc., 509 U.S. 579, 591 (1993).
Rule 401 defines relevant evidence as that
which has “any tendency to make any fact that
is of consequence to the determination of the
action more probable or less probable than it
would be without the evidence.” FED. R.
EVID. 401.
Pulliam’s testimony centered on his
calculation that Exxon’s DTW price was at
least four cents higher per gallon than what
could be considered “commercially
reasonable” by adding the rack price to
transportation costs. This fact obviously
makes more plausible plaintiffs’ theory that
Exxon set the DTW price with an intent to
drive them out of business. There is no real
contention regarding Pulliam’s qualifications,
as he has a master’s degree in economics.
The final rule 702 hurdle is reliability, which
is not a question that can be answered by
some generic test. The variability of type and
purpose of the particular testimony at issue re-
quires flexibility in answering the reliability
inquiry.17 Daubert, of course, provides an il-
lustrative list of factors that may aid a court in
evaluating reliability: “(1) whether the expert’s
theory can be or has been tested; (2) whether
the theory has been subject to peer review and
publication; (3) the known or potential rate of
error of a technique or theory when applied;
(4) the existence and maintenance of standards
and controls; and (5) the degree to which the
17 Kumho Tire, 526 U.S. at 150 (emphasizing
that Daubert analysis is “flexible” and must take
account of “the nature of the issue, the expert’s
particular expertise, and the subject of his testi-
mony”).

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technique or theory has been generally
accepted in the scientific community.” Moore
v. Ashland Chem. Inc., 151 F.3d 269, 275 (5th
Cir. 1998) (en banc).
Pulliam’s testimony primarily drew on gen-
eral business and economic principles that sat-
isfy the Daubert factors. Exxon argues,
however, that Pulliam should have conducted
a “competitive impact analysis” for each
station to show that Exxon’s price caused it to
lose business. This, Exxon argues, would
separate other factors from Exxon’s pricing
decision that may have depressed plaintiffs’
business.
Although Pulliam may not have isolated the
precise effect Exxon’s pricing had on each
station, that was not the purpose of his
testimony. The “subject of his testimony,” as
listed by plaintiffs, was whether Exxon had set
a commercially reasonable price in an econom-
ic sense. This, the plaintiffs thought, would
lend credibility to their theory that Exxon had
set the DTW price with the intent to drive
them out of business. Thus, to be both reliable
and relevant for the purpose it was presented
to serve, Pulliam’s testimony need not isolate
the precise impact Exxon’s pricing had on
each station.
Exxon also attacks Pulliam’s method of de-
fining the relevant geographic market for each
station. As Exxon rightly points out, Pulliam’s
method of drawing a three-mile radius around
each station is not especially sophisticated and
may ignore local traffic patterns.18 Although
Pulliam’s method may be rough-and-ready, it
no doubt captures many of a station’s
competitors. At worst, it is marginally under-
or over-inclusive.
Again, we must bear in mind the purpose of
Pulliam’s testimony when addressing its re-
liability. Pulliam main pointSSthat the price
Exxon charged its franchisees exceeded the
rack price plus transportationSSis unaffected
by any error in defining the competitive market
for each station. Also, the part of Pulliam’s
testimony as to which this objection may carry
some weightSSthat seventy-five percent of
plaintiff’s competitors enjoyed a lower pur-
chase price for gasolineSSis not completely un-
dercut by an under- or over-inclusive definition
of the relevant competitive market. Finally,
this objectionSSthat certain proximate stations
do not really compete with each otherSSis
precisely the type of objection a juror can
evaluate.
The Daubert analysis should not supplant
trial on the merits. Pipitone v. Biomatrix, Inc.,
288 F.3d 239, 250 (5th Cir. 2002). “[V]igor-
ous cross-examinati on, presentation of
contrary evidence, and careful instruction on
the burden of proof are the traditional and
appropriate means of attacking shaky but
admissible evidence.” Id. (quoting Daubert
509 U.S. at 596). We find no abuse of
discretion in the decision to admit Pulliam’s
testimony.
V.
Exxon challenges the attorney’s fee award
of $2,289,462, arguing that the district court
erred in finding this amount reasonable. A fee
award is governed by the same law that serves
18 As counsel for Exxon noted at oral argument,
this method lumps stations in River Oaks and the
Third Ward (locations in Houston) into the same
market, and few drivers use stations in both
18(...continued)
markets.

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as the rule of decision for the substantive is-
sues in the case. Kona Tech. Corp. v. S. Pac.
Transp. Co., 225 F.3d 595, 614 (5th Cir.
2000). Until recently, we had reserved the
question whether Texas or federal law
governed review of an award’s reasonableness.
See, e.g., Mid-Continent Cas. Co. v. Chevron
Pipe Line Co., 205 F.3d 222, 232 (5th Cir.
2000). Very recently, however, we applied
Texas law to this question without noting any
reservation of the question. Northwinds
Abatement, Inc. v. Employers Ins., 258 F.3d
345, 353-54 (5th Cir. 2001). We now make
explicit what was implicit in Northwinds:
State law controls both the award of and the
reasonableness of fees awarded where state
law supplies the rule of decision. We review
attorney’s fees for abuse of discretion,
although factual determinations for each of the
factors are reviewed only for clear error.
Coffel v. Stryker Corp., 284 F.3d 625, 640
(5th Cir. 2002).
Under Texas law, when a prevailing party
in a breach of contract suit seeks fees, an
award of reasonable fees is mandatory, as long
as there is proof of reasonable fees. TEX. CIV.
PRAC. & REM. CODE ANN. § 38.001(8) (Ver-
non 2002); World Help v. Leisure Lifestyles,
977 S.W.2d 662, 683 (Tex.App.SSFort Worth,
1998, review denied 1999), and the plaintiff
has been awarded damages. Green Int’l Inc.
v. Solis, 951 S.W.2d 384, 389 (Tex. 1997).
There is no question that plaintiffs prevailed on
a breach of contract claim under Texas law
and were awarded damages. There is,
however, discretion to determine the amount
of the fee. World Help, 977 S.W.2d at 683.
This discretion is guided by two presumptions.
First, there is a rebuttable presumption of
reasonableness for fees that are “usual” or
“customary.” TEX. CIV. PRAC. & REM. CODE
§ 38.003 (Vernon 2002). Second, where the
fees are tried to the court, as they were in this
case, the statute authorizes the judge to take
judicial notice of the “usual and customary
fees” and the cont ents of the case file. Id. at
§ 38.004. Texas courts have upheld fee
awards using these presumptions where the at-
torneys had a contingent fee arrangement. La-
redo Indep. Sch. Dist. v. Trevino, 25 S.W.3d
263 (Tex. App.SSSan Antonio 2000, review
denied) (40% contingency fee); European
Crossroads’ Shopping Ctr., Ltd. v. Criswell,
910 S.W.2d 45, 58-59 (Tex. App.SSDallas
1995, writ denied) (upholding jury award of
35% based only on attorney’s own
testimony).19
Plaintiffs’ attorneys supported their fees by
submitting an affidavit drafted by lead counsel
and an affidavit of an attorneys’ fees expert.
Exxon countered by challenging the
reasonableness of the total award. Under
Texas law, the two affidavits, combined with
the presumption of reasonableness and the
court’s ability to use judicial notice to guide
the reasonableness finding is enough for us to
conclude that the district court did not abuse
its discretion in awarding fees as contemplated
by plaintiffs’ contingency fee contract.
AFFIRMED.
19 See also Gill Sav. Ass’n v. Chair King, Inc.,
797 S.W.2d 31 (Tex. 1990) (using § 38.004 to
reverse appeals court ruling that there was no
evidence to support appellate fees) (no contingency
fee).

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