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D ock e t 96-2123

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. e du/thir dc ir c uit_1998/75Filed April 10, 1998

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

NO. 96-2123

PRAKASH H. PATEL; SHOBHA P. PATEL, H/W

APPELLANTS

v.

SUN COMPANY, INC.; LANCASTER ASSOCIATES

On Appeal From the United States District Court For the Eastern District of Pennsylvania (D.C. Civ. No. 94-cv-04318)

Argued: September 15, 1997

Before: BECKER, Chief Judge, SLOVITER and SCIRICA, Circuit Judges.

(Filed April 10, 1998)

DIMITRI G. DASKAL, ESQUIRE (ARGUED) The Daskal Law Group
3 Church Circle
Suite 500 Annapolis, MD 21401

Attorney for AppellantsJAMES M. BROGAN, ESQUIRE

(ARGUED)
CHRISTOPHER W. WASSON,
ESQUIRE Piper & Marbury

18th & Arch Streets 3400 Two Logan Square Philadelphia, PA 19103

VIRGINIA L. ROCKAFELLOW,
ESQUIRE
RICHARD GAINES,
ESQUIRE Sun Company, Inc. (R&M)

Ten Penn Center 1801 Market Street, 17th Floor Philadelphia, PA 19103

Attorneys for Appellee

OPINION OF THE COURT

BECKER,* Chief Circuit Judge.

Plaintiffs Prakash H. Patel and Shobha P. Patel app eal from an order of the district court granting summar y judgment in favor of defendant Sun Company, Inc. (" Sun") in a case brought under the Petroleum Marketing Pra ctices Act, 15 U.S.C. S 2801 et seq. ("PMPA" or "Act"). Th is litigation has been ongoing since 1988, and the cas e has been here before, see Patel v. Sun Co., Inc., 63 F. 3d 248, 252 (3d Cir. 1995) ("Patel V"). The gravamen of the Patels' complaint, then and now, is that Sun has made an "e nd run" around a provision of the PMPA that requires s ervice
station franchisors like Sun to make bona fide offe rs to their franchisees before selling the service statio n premises to a third party. See S 2802(b)(3)(D)(iii)(I).

___________________________________________________ ______________

* Edward R. Becker, United States Circuit Judge for the Third Circuit, assumed Chief Judge status on February 1, 1998.

2In 1987, Sun sold the land upon which the Patels ha d

operated their service station for twenty-two years to an unrelated third party, Lancaster Associates ("Lanca ster"), without first offering it to them. Sun claims that it was not required to make a bona fide offer to the Patels be cause it
did not terminate their franchise when it sold the property. Instead, Sun took a six year leaseback from Lancast er and
did not disturb the Patels' franchise until that le ase expired in 1994. Sun contends that six years later it could rely on the "expiration of an underlying lease" provision o f the PMPA, see S 2802(c)(4), which allows franchisors to
terminate or nonrenew franchises without first maki ng a bona fide offer to their franchisees when the lease s underlying the franchise expire.

The Patels offer four alternative theories under wh ich they claim that Sun should be liable for damages fo r selling the premises to Lancaster without first making a bo na fide offer, despite the leaseback arrangement. First, th ey argue that because the Lancaster-Sun lease was created af ter the inception of the first franchise agreement between Sun and the Patels, it does not qualify as an "underlying l ease" for the purposes of S 2802(c)(4). Therefore, according to the Patels, Sun cannot rely on S 2802(c)(4) to skirt th e bona fide offer requirement in S 2802(b)(3)(D)(iii)(I). Secon d, they contend that, even if the Lancaster-Sun lease techn ically fits the S 2802(c)(4) definition of an underlying l ease, Sun should not be permitted to circumvent the bona fide offer requirements simply by delaying the eventual nonren ewal date through the use of a leaseback. To the extent that the text of the PMPA seems to allow that result, the Pa tels urge us to close that "unintended loophole" by reading a "saleleaseback offer requirement" into the Act. Third, t he Patels submit that we must inquire into the objective
reasonableness of Sun's business decision to avoid the bona fide offer provision by creating the leaseback with Lancaster. Fourth, the Patels assert that, at the v ery least,
Sun's decision to create the leaseback must have be en made subjectively "in good faith and in the normal course of business" and not simply to avoid the bona fide offer requirement.

Unfortunately for the Patels, none of their argumen ts carry the day. Under a plain reading of the unambig uous

3text of the Act, we find that the definition of "un derlying

lease" in S 2802(c)(4) is clear, and that it includ es leases, like the Lancaster-Sun leaseback, created during th e business relationship between the franchisor and franchisee. Additionally, we can find no statutory basis to justify reading into the PMPA new provisions like a "sale leaseback offer requirement" that have no grounding in the Act's text or legislative history. Moreover, our de cision in Lugar v. Texaco, Inc., 755 F.2d 53 (3d Cir. 1985), precludes the imposition of an objective reasonableness inqui ry into
franchisor decisions to terminate or nonrenew franc hises based on the underlying lease exception in S 2802(c )(4). Finally, while we agree with the Patels that under Slatky v. Amoco Oil Co., 830 F.2d 476 (3d Cir. 1987) (en banc ), courts must engage in a subjective "in good faith a nd in the
normal course of business" review of franchisor dec isions to terminate or nonrenew the franchise when an underly ing lease expires, we cannot reverse on this ground. Th is is
because we are bound under the doctrine of law of t he case by the judgment in Patel V, which found that Sun ac ted in good faith when it did not renew the Patels' franch ise. For all these reasons, the judgment of the district cou rt will be
affirmed.

I.

Sun owned a parcel of land in Wayne, Pennsylvania, that contained a commercial office building, a large par king area, and other improvements. Sun leased a small po rtion of this property to the Patels, who operated a Suno co service station there for twenty two years pursuant to a series of franchise agreements with Sun. The first postPMPA agreement between Sun and the Patels began on August 21, 1978.

In December of 1987, Sun sold the entire undivided parcel, which included the Patels' service station on one corner, to Lancaster Associates, an unrelated third party developer. It is not clear from the record whether Sun first offered the property to the Patels, and so for the purposes of summary judgment review we must assume that Sun did not. Lancaster agreed to lease the service station portion of the parcel back to Sun until September 30, 1994. Th e

4Lancaster-Sun leaseback did not, however, contain a ny

specific renewal provisions or options granting Sun the right to re-purchase the property.

Sun, upon entering into the leaseback with Lancaste r, and as part of their 1988 Franchise Agreement, immediately subleased the service station premises to the Patels for a term of three years. The sublease prov ided that Sun's right to grant possession of the premises was now subject to the Lancaster-Sun "underlying" lease tha t would expire on September 30, 1994. The sublease also inf ormed the Patels that the sublease might not be renewed a t the end of the lease period. While at no time during th e Lancaster sale and leaseback did Sun interrupt the Patels' possession of the service station premises, accordi ng to the testimony of Lancaster general partner Bruce Robins on, Lancaster always expected that upon the expiration of the leaseback, the Patels' franchise would not be renew ed because Sun had promised to remove the underground fuel tanks and clean up any environmental problems that existed on the property.

In 1991, upon the expiration of the first three-yea r sublease, Sun and the Patels entered into a second threeyear sublease due to expire on August 21, 1994. Thi s sublease, like the first, provided that Sun's right to grant possession of the premises was subject to the under lying Lancaster-Sun lease which would expire on September 30, 1994, and it also informed the Patels that the subl ease might not be renewed at the end of the lease period . On April 28, 1994, Sun sent written notification to th e Patels
that their lease and franchise would not be renewed at the end of the term due to the upcoming expiration of S un's underlying lease with Lancaster on September 30, 19 94.

Beginning in 1988, the Patels filed a series of law suits claiming that Sun had effected a constructive termi nation
or nonrenewal of their franchise in violation of th e PMPA by not first offering them the right of first refusal on the "leased marketing premises" under the PMPA. See SS 2801(9) and 2802(b)(3)(D). The district court re jected the
Patels' contentions in a series of decisions that u ltimately concluded that their legal action was premature. Th e court
reasoned that even if it were true that Sun had fai led to

5offer the Patels the premises, the other necessary predicate

act (termination or nonrenewal of the lease) had no t yet occurred, and indeed, might never occur. See Patel v. Sun Ref. & Mktg. Co., No. 88-3958, slip op. at 1-2 (E.D . Pa. Oct. 14, 1988) ("Patel I"); Patel v. Sun Ref. & Mktg. Co ., 710 F. Supp. 1023 (E.D. Pa. 1989) ("Patel II"); Patel v. S un Ref. & Mktg. Co., No. 88-3958, 1992 WL 25737, at *2 (E.D. Pa. Feb. 7, 1992) ("Patel III"). The Patels did not app eal these
decisions.

After receiving the notification of nonrenewal from Sun in 1994, the Patels filed another action, again conten ding that
the nonrenewal violated the PMPA because Sun had so ld the property in 1987 without first giving them an o ffer to purchase it or a right of first refusal. The Patels sought injunctive relief to prevent the nonrenewal as well as monetary damages for Sun's alleged violation of the PMPA. The district court denied the request for injunctiv e relief
because it found that the Patels had not satisfied the S 2805(b)(2) preliminary injunction standard, which requires the franchisee to show "sufficiently serio us questions going to the merits to make such question s a fair ground for litigation." Patel v. Sun Co., Inc., 866 F. Supp. 871, 873-74 (E.D. Pa. 1994) ("Patel IV").

In a divided opinion, we affirmed the district cour t's denial of the injunction, although on different gro unds, not reaching the merits determination made by the distr ict court. See Patel V, 63 F.3d at 252. We held that th e injunction was barred under S 2805(e)(1), which pro vides that a court may not compel renewal of a franchise relationship if the basis for the nonrenewal of the relationship was a decision made in good faith and in the normal course of business by the franchisor to sell its interests in the leased marketing premises. See S 2805(e)(1)(A)(iii). We remanded to the district c ourt, however, explaining, "[t]he Patels still have. . . the opportunity to present to the district court their contention
that the nonrenewal of their franchise violatesS 28 02 because the reason given for the nonrenewal, the ex piration of the underlying lease, was a condition created by the franchisor when it sold the property without offeri ng the franchisee an opportunity to purchase it." Patel V, 63 F.3d

at 253.

6On remand, both parties moved for summary judgment,

and the district court granted summary judgment in favor of Sun. See Patel v. Sun Co., Inc., 948 F. Supp. 46 5 (E.D. Pa. 1996) ("Patel VI"). The Patel VI court held tha t Sun
could refuse to renew the Patels' franchise without liability, based upon the underlying lease exception in SS 2802(b)(2)(C) and 2802(c)(4). The district court relied upon our reasoning in Lugar, 755 F.2d at 53, and he ld that the underlying lease exception was not subject to a ny judicial inquiry into the circumstances surrounding Sun's decision to sell and leaseback the premises. See Pa tel VI, 948 F. Supp. at 473 n.3.

The Patels appealed again, and the long-running sag a of
"the Patels versus Sun" returns to this court anew. Section 2805(a) of the PMPA confers jurisdiction on the fed eral courts and creates a civil cause of action against
franchisors for violations of the substantive secti ons of the Act. Section 2805(d) provides for the award of actu al and exemplary damages, as well as reasonable attorney a nd expert witness fees to a franchisee who prevails ag ainst a
franchisor in a civil action under the Act. Because our standard of review is plenary, see Kelly v. Drexel Univ., 94 F.3d 102, 104 (3d Cir. 1996), we apply the same tes t the district court should have applied in the first ins tance. See Olson v. General Elec. Astrospace, 101 F.3d 947, 95 1 (3d Cir. 1996); Helen L. v. DiDario, 46 F.3d 325, 329 ( 3d Cir. 1995). We must determine, therefore, whether the re cord, when viewed in the light most favorable to the Pate ls, shows that there is no genuine issue of material fa ct and that Sun was entitled to summary judgment as a matt er of law. See, e.g., Olson, 101 F.3d at 951; Celotex Cor p. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. L iberty Lobby, Inc., 477 U.S. 242, 249-50 (1986).

II.

A.

The PMPA regulates the relationship between franchi sors, motor fuel refiners and distributors, and their fra nchisees, principally retail gas station operators. Many of t hese

7franchisees (like the Patels) lease their station p remises

from franchisors who (like Sun), own the premises. In 1978, after examining this relationship and determining t hat legislative protection for franchisees was necessar y, Congress enacted the PMPA. Congress passed this legislation in large part because it was concerned that franchisors had been using their superior bargainin g power to compel compliance with certain marketing policie s and to gain an unfair advantage in contract disputes. S ee Slatky, 830 F.2d at 478 (citing S. Rep. No. 731, 95 th Cong., 2d Sess. 17-19, reprinted in 1978 U.S.C.C.A.N. 873, 875- 77) ("Senate Report"); Patel V, 63 F.3d at 250. In addition, Congress wanted to protect franchisees from "arbitr ary or discriminatory terminations and non-renewals." Sena te Report at 18, 1978 U.S.C.C.A.N. 877. As we noted in Slatky, when it passed the PMPA:

Congress determined that franchisees had a "reasonable expectation[]" that "the [franch ise] relationship will be a continuing one." The PMPA's goal is to protect a franchisee's "reasonable exp ectation" of continuing the franchise relationship while at the same time insuring that distributors have "adequa te flexibility . . . to respond to changing mar ket conditions and consumer preferences."

830 F.2d at 478 (citing the Senate Report at 18-19)

.

The PMPA prohibits franchisors from terminating or nonrenewing franchises except under certain prescri bed situations. See S 2802(a). It also enumerates a ser ies of grounds that permit a franchisor to terminate or no nrenew one of its franchisees without PMPA liability. See S 2802(b). These bases can be roughly separated into two categ ories: franchisee misconduct1 and legitimate franchisor bu siness

___________________________________________________ ______________

1. For example, the Act permits the franchisor to t erminate or nonrenew a franchise if the franchisee fails to pay sums due under the franchise agreement, see S 2802(b)(2)(C) (incorporating S 280 2(c)(8)); if the franchisee engages in fraud or criminal misconduct relevant to the operation of the property, see S 2802(b)(2)(C) (inc orporating S 2802(c)(1));
if the franchisor receives "numerous bona fide cust omer complaints" about the franchisee's operation of the property, s ee S 2802(b)(3)(B); or

if the franchisee fails to operate the property in a " clean, safe, and healthful manner," see S 2802(b)(3)(C).

8decisions. In this case, only the latter, which are designed

to ensure that franchisors maintain their ability t o adjust to changing market conditions, are implicated.

Among the acceptable business reasons for franchise e termination or nonrenewal (assuming that certain conditions in the Act are met) are the franchisor's decision to leave the geographic market area, see S 2802(b)( 2)(E); failure of the franchisor and franchisee to agree i n good faith and in the normal course of business to chang es or additions to the franchise agreement, see S 2802(b) (3)(A); conversion of the property to a use other than sale of motor fuel, see S 2802(b)(3)(D)(i)(I); material alteratio n of the property, see S 2802(b)(3)(D)(i)(II); sale of the p remises, see S 2802(b)(3)(D)(i)(III); unprofitability of the fra nchise, see S 2802(b)(3)(D)(i)(IV); loss of an underlying lease , see S 2802(b)(2)(C) (incorporating S 2802(c)(4)); and l oss of franchisor's right to grant the trademark which is the subject of the franchise, see S 2802(b)(2)(C) (inco rporating S 2802(c)(6)). Of these possible "business reason" exceptions, only two -- the sale of the premises an d the loss of an underlying lease -- are the subject of t his appeal. We therefore set out their requirements in greater detail.

First, under S 2802(b)(3)(D)(i)(III), a franchisor may terminate or nonrenew a franchisee if the franchiso r determines "in good faith and in the normal course of business" to sell the property. To qualify for this exception to the general prohibition against terminations or nonrenewals, however, the franchisor's purpose cann ot be to convert the property to direct management by its own employees or agents. See S 2802(b)(3)(D)(ii). Moreo ver, the
franchisor must have made either a bona fide offer to sell the property to the franchisee, or, if applicable, have provided the franchisee a right of first refusal on an offer made to a third party. See S 2802(b)(3)(D)(iii).

Second, a franchisor may terminate or decline to re new a franchise agreement upon the "occurrence of an ev ent which is relevant to the franchise relationship and as a result of which . . . nonrenewal of the franchise i s reasonable." S 2802(b)(2)(C). Section 2802(c) expan ds on the general statement in S 2802(b)(2)(C) by enumerating a nonexclusive list of events that qualify as "relevant" . Included

9in this list is "loss of the franchisor's right to grant

possession of the leased marketing premises through expiration of an underlying lease." S 2802(c)(4). I n 1994, Congress amended this exception by requiring a fran chisor to offer to assign to the franchisee "any option to extend the underlying lease or option to purchase the marketin g premises that is held by the franchisor" when certa in conditions are satisfied. See Petroleum Marketing P ractices Act Amendments of 1994, Pub. L. No. 103-371, sec. 3
, S 102(c)(4), 108 Stat. 3484, 3484 (codified at 15 U .S.C. S 2802(c)(4)(B)). As there were no options in the L ancasterSun lease, that provision is not relevant to our de cision here. We will, however, discuss the import of this amendment on our PMPA jurisprudence infra.

B.

The Patels' overarching argument is that if Sun is allowed to prevail here, it will have made a successful "en d run" around the bona fide offer requirement contained in the sale exception to the PMPA's general rule prohibiti ng franchise nonrenewal. To evaluate this argument, it is necessary to understand the interplay between SS 2802(b)(3)(D) and 2802(c)(4) (as incorporated by S 2802(b)(2)(C)). As we have explained, S 2802(b)(3 )(D) requires that a franchisor make "a bona fide offer to sell, transfer, or assign to the franchisee [his] interes ts" in the leased marketing premises when the franchisor decid es not to renew the franchise relationship before it sells the property to a third party. Thus, the Act contemplat es a twoevent trigger to activate the bona fide offer requi rement -- a sale of the property and a termination or nonrene wal of
the franchise.

In the ordinary case, the sale and the nonrenewal o ccur together, and there is no question that the franchi sor must make a bona fide offer or grant a right of first re fusal to the franchisee before selling to avoid liability under the Act. But the circumstances here are not "ordinary". In 1987, Sun's sale of the premises did not lead immediately to it s failure to renew the Patels' franchise. Rather, Sun took a leaseback
from Lancaster and renewed the Patels' franchise fo r not just one, but for two additional three year terms. Thus,

10when Sun sold the property to Lancaster, there was no

nonrenewal, and the courts in Patel I-III, supra he ld that the right of first refusal and bona fide offer requ irements of S 2802(b)(3)(D)(iii) had not yet been triggered. Th e Patels were told, in effect, to wait and see if their fran chise would be terminated in the future. See Patel III, 1992 WL 25737 at *2 ("At this point in time, they have not been s ubjected
to a termination or non-renewal of their franchise. If such an event occurs, plaintiffs will have the protectio n of the PMPA at their disposal."). The Patels did not appea l these
decisions.

Barring another exception in the PMPA, Sun could no t have avoided liability under the PMPA when it ultim ately decided to nonrenew the Patels just because that nonrenewal was delayed through the use of a leaseba ck (or any other device). This is so, because the default regime of
the Act is that all terminations or nonrenewals are unlawful unless otherwise excepted. See S 2802(a). In this c ase, however, when Sun actually failed to renew the Pate ls' franchise in 1994, it contended that a different pr ovision -- S 2802(c)(4) -- shielded it from PMPA liability, be cause the expiration of the Lancaster-Sun lease now qualified as a relevant event under S 2802(b)(2)(C). Therefore, in Sun's view, the sale exception (with its bona fide offer requirement) no longer was relevant, for it could n ow rely on the underlying lease exception (which had no bon a fide offer requirement). These are the mechanics of the "end run" of which the Patels complain.

The Patels maintain that the district court should not have interpreted the PMPA to permit a franchisor to evade the bona fide offer requirement so easily, and they advance several theories why Sun should be liable for damag es (they no longer seek injunctive relief).

1.

First, the Patels submit that the language of S 280 2(c)(4) itself prohibits franchisors from creating and usin g leasebacks to avoid PMPA liability. They contend th at a lease cannot be an "underlying lease" for the purpo ses of S 2802(c)(4) unless it predates the business relati onship

11between the franchisor and franchisee (in other wor ds, the

lease must predate the creation of the initial fran chise between the parties).2 The Patels argue that a leas e that merely predates the existing franchise, like the La ncasterSun leaseback in this case, should not be treated a s an "underlying lease" because that would permit the subversion of the bona fide offer provision contain ed in the sale exception.

We turn initially to the language of S 2802(c)(4) t o determine what Congress intended by the term "under lying lease". The provision reads:

As used in subsection (b)(2)(C) of this sect ion, the term
"an event which is relevant to the franchise relationship and as a result of which termin ation of the
franchise or nonrenewal of the franchise rel ationship is
reasonable" includes events such as --

* * *

(4) loss of the franchisor's right to grant possession of the leased marketing premises through expira tion of an underlying lease, if the franchisee was noti fied in writing, prior to the commencement of the te rm of the then existing franchise -- (A) of the durati on of the underlying lease, and (B) of the fact that s uch underlying lease might expire and not be ren ewed during the term of such franchise (in the ca se of

___________________________________________________ ______________

2. In the text, we use the words "business relation ship" instead of the perhaps more common-sensical term "franchise relati onship" because we wish to avoid any confusion with that term as it is defined in S 2801(2). Our use of "business relationship" is intended to c onnote the entire relationship between the franchisor and the franchi see, beginning with the inception of the first franchise agreement and ending with the termination or nonrenewal of the final franchise ag reement. "Franchise relationship", in contrast, is defined in S 2801(2) as "the respective

motor fuel marketing or distribution obligations and resp onsibilities of a
franchisor and a franchisee which result from the m arketing of motor fuel under a franchise." Technically, a "franchise relationship", as it is defined in the PMPA, is tied to the franchise agree ment, which the PMPA contemplates will periodically be modified and rene wed. As that is not the idea we are trying to convey here, we have sele cted the term "business relationship".

12termination) or at the end of such term (in the case of

nonrenewal);3

There is no definition in the Act itself of the ter m "underlying lease". See S 2801. But the term "franc hise" is defined, and it helps us determine what Congress me ant by "underlying lease". A franchise is defined as "any contract between a refiner and a distributor, between a refi ner and a retailer, . . . under which a refiner or distribu tor . . . authorizes or permits a retailer or distributor to use, in connection with the sale, consignment, or distribut ion of motor fuel, a trademark which is owned or controlle d by such refiner . . . ." S 2801(1)(A). It includes "an y contract
under which a retailer or distributor . . . is auth orized or permitted to occupy leased marketing premises . . . in connection with the sale, consignment, or distribut ion of
motor fuel under a trademark which is owned or cont rolled by such refiner . . . ." S 2801(1)(B)(i). The statu te contemplates that the franchise will be renewed (an d perhaps modified) many times during the life of the business relationship between the franchisor and th e franchisee. Indeed, other sections of the PMPA anti cipate a series of relatively short franchise terms between the franchisor and franchisee. Section 2802(b)(2)(E), f or example, permits the franchisor to terminate or non renew a franchise based upon a decision in good faith and in the
normal course of business to withdraw from the rele vant geographic market area, so long as the franchise te rm is three years or longer.

Examining the use of the term "franchise" in the co ntext of S 2802(c)(4), particularly the notification prov ision, the Patels' contention that an underlying lease must pr edate the business relationship between the franchisor an d the franchisee must be incorrect. Under S 2802(c)(4), t he expiration of an "underlying lease" qualifies as a relevant

___________________________________________________ ______________

3. This is the pre-October 1994 version of the stat ute. It applies here

because both the 1987 sale and the 1994 nonrenewal occurred prior to the amendments enacted in that year. We note that t he current version of S 2802(c)(4) contains a new subsection (B). The amendment modifies the relevant language quoted above only insofar as Congress moved all of the language in subsection (B) quoted above into the new subsection (A) and added new subheadings. See infra page 21.

13event exception "if the franchisee was notified in writing,

prior to the commencement of the term of the then e xisting franchise." S 2802(c)(4) (emphasis supplied). This language leaves no doubt that Congress anticipated that an underlying lease could arise during the business relationship, thereby requiring the franchisor to n otify the franchisee "prior to the commencement of the then e xisting
franchise" in which the franchisor decides to termi nate (or nonrenew) the franchise. If Congress had intended otherwise, the statute would logically have been wr itten to require the franchisor to notify the franchisee pri or to the "inception of the initial franchise" or the"existen ce of any business relationship between the franchisor and th e franchisee," rather than the "then existing franchi se." The words "then existing" are clear and they indicate t o us that a qualifying underlying lease under S 2802(c)(4) co uld arise during the business relationship, so long as the fr anchisor notifies the franchisee before they enter into the next franchise agreement. Moreover, since the term "fran chise" is used repeatedly throughout the PMPA, and is a de fined term in S 2801, Congress's choice of language in S 2802(c)(4) cannot be ignored by this Court, even given the strong pro-franchisee tenor of the PMPA and its leg islative history. See generally, Slatky, 830 F.2d at 478, 48 3; Patel V, 63 F.3d at 250.

In sum, the plain meaning of the language in S 2802 (c)(4), when read in context, is clear and we are bound by it. See United States v. Ron Pair Enters., Inc., 489 U.S. 2 35, 242 (1989) (" `The plain meaning of legislation should be conclusive, except in rare cases [in which] the lit eral application of a statute will produce a result demo nstrably at odds with the intentions of its drafters.' ") (q uoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 571 (19 82)). The term "underlying lease" refers to leases which unde rlie the franchise term, but not necessarily the entire busi ness relationship between the franchisor and franchisee. Therefore, under the facts of this case, the Lancas ter-Sun leaseback was an underlying lease for the purposes of S 2802(c)(4) and potentially qualified Sun for an e xception to PMPA liability.

142.

The second theory offered by the Patels is that, ev en if
the Lancaster-Sun leaseback falls within the statut ory definition of an "underlying lease" in S 2802(c)(4) , we should simply read a new provision -- a so-called "sale-le aseback bona fide offer requirement" -- into the PMPA, see Patel VI, 948 F. Supp. at 473, even though such a provision d oes not exist anywhere in the text or the legislative h istory of the statute. The Patels argue that, given our inter pretation of Congress's intent to protect the "franchisee's r easonable expectations of continuing the franchise" and to "a ssure the franchisee an opportunity to continue to earn a liv elihood from the property," see Slatky, 830 F.2d at 478, 48 4, Sun's actions are fundamentally at odds with the underlyi ng purpose of the PMPA. In their view, Congress inadve rtently left a "loophole" in the PMPA when it included a bo na fide offer requirement under the sale provision in S 2802(b)(3)(D)(iii)(I), but left one out of the un derlying lease provision in SS 2802(b)(2)(C) and 2802(c)(4). The P atels maintain that we would be justified in closing up t his "loophole" by judicial fiat, because it allegedly p ermits unscrupulous franchisors to evade the bona fide off er requirement that Congress imposed on franchisors wh o wish to sell their leased marketing premises out fr om under
their franchisees.

The Patels carry a heavy burden in trying to convin ce us that the underlying purposes of the PMPA are so cle ar and conclusive that they justify our imposition of an a dditional requirement which, even the Patels admit, does not exist in the plain language of the statute. See Ron Pair, 48 9 U.S. at 242. We have been down this path before and have consistently rejected the requests of the Patels an d others to craft new protections eliminating so-called "gap s" in the PMPA. Most recently, in the course of this very lit igation, we explained that "gap[s] in the provisions of the PMPA . . . should be corrected by Congress if Congress d ecides that [they] undermine its intent in passing the PMP A." Patel V, 63 F.3d at 253 (discussing the interrelationship between the underlying lease and the sale provisions, the s ame sections of the statute at issue here). Moreover, o ur position in Patel V was not novel. In Lugar, for example, we admitted

15that while there may be many strong policy reasons to read

new pro-franchisee provisions into the PMPA, it was Congress's responsibility to weigh the competing in terests and make those determinations. See 755 F.2d at 59 ( "[W]e cannot impose th[e] obligation [requiring franchiso rs to assign purchase options to their franchisees] where Congress did not.").4

Where Congress has "undert[aken] the delicate task of balancing the competing interests of fuel franchiso rs and their dealers," see id., we cannot impose new oblig ations on franchisors without any statutory basis simply beca use we prefer them, or because there are strong policy rea sons for their adoption, or because they are pro franchisee. In the context of a detailed statutory structure such as t he PMPA, we simply need much more evidence to satisfy us tha t "literal application of [the] statute will produce a result demonstrably at odds with the intentions of its dra fters." Griffin, 458 U.S. at 571. The Act clearly says that a franchisor may rely on the expiration of an underly ing lease as a valid exception to liability under the PMPA, s o long as the franchisee is notified "prior to the commenceme nt of the term of the then existing franchise."S 2802(c)(4) ( emphasis supplied); see S II.B.1 supra. For the same reasons that we are convinced that the Lancaster-Sun leaseback qual ifies as an "underlying lease" under S 2802(c)(4), we cannot conclude that Congress inadvertently omitted creati ng a bona fide offer requirement from the underlying lea se exception in (c)(4) when the lease is created durin g the business relationship between the franchisor and th e franchisee.

As discussed above and detailed in Slatky, the PMPA was created to balance the needs of franchisees, who ha ve a

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4. We note in this regard that the oil franchisees have demonstrated their ability to get Congress's attention. See , e. g., S 2802(c)(4) (as amended 1994) (overturning our precedent in Lugar t hat permitted franchisors to rely on the expiration of an underly ing lease defense to avoid PMPA liability even when their expiring lease s contained unexercised options to renew or purchase that had n ever been offered to the franchisee); see also H.R. Rep. No. 737, 103d C ong., 2d Sess. (1994), reprinted in 1994 U.S.C.C.A.N. 2779; S. Rep. No. 38 7, 103d Cong., 2d Sess. (1994), available at 1994 WL 534750.

16" `reasonable expectation' of continuing the franch ise

relationship" if they do not engage in any miscondu ct, with the needs of the franchisors, who need " `adequate flexibility . . . to respond to changing market conditions and consumer preferences.' " 830 F.2d at 478 (quoting S enate Report at 19). Given these competing goals that Con gress attempted to balance, we cannot conclude that the l ack of a sale-leaseback bona fide offer requirement is "demonstrably at odds" with the rest of the PMPA. I n fact, it appears to fit in comfortably with the rest of t he provisions of the Act whose purpose it is to mainta in franchisor flexibility to respond to new competitiv e conditions. Accordingly, we decline the Patels' ent reaties to read new provisions in the PMPA that are plainly ab sent from the text of the statute and its legislative hi story.

3.

Sun contends that once we have defined the term "underlying lease" to include the Lancaster-Sun lea seback and rejected the Patels' suggestions to read new pr ofranchisee provisions into the text of the PMPA, we must affirm the district court's grant of summary judgme nt in its favor. In its submission, all of the events in S 28 02(c), including the "underlying lease" exception, are per se reasonable, obviating the ability of the courts to review the circumstances of the creation and expiration of und erlying leasebacks. To Sun, this per se status means we may conduct neither an objective nor a subjective inqui ry into the events and decisions surrounding the creation o f the

Lancaster-Sun leaseback and the nonrenewal of the P atels' franchise under S 2802(c)(4).5 While we agree with Sun that

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5. An objective inquiry would require us to examine the reasonableness of Sun's decision to sell the leased marketing prem ises to Lancaster and take a six year leaseback, without first offering i t to the Patels, as
viewed from the perspective of a reasonable business perso n charged with making such decisions. Application of this standard would obviously be quite onerous because it would necessitate our revi ewing and secondguessing the substantive merits of Sun's business d ecisions about where and how to best market its product. A subjective in quiry, however, would clearly be less intrusive from Sun's perspective be cause it only would

17a franchisor's reliance on S 2802(c)(4) is not subj ect to an

objective reasonableness test, we nevertheless also conclude that its decision must be subjectively "in good faith and in the normal course of business" to qual ify for the "underlying lease" exception. Here, however, si nce the Patels have produced insufficient evidence to show bad faith on Sun's part in either creating the Lancaste r-Sun leaseback or allowing it to expire, we ultimately c onclude that Sun can avoid PMPA liability for nonrenewing t he Patels' franchise under the "underlying lease" exce ption in S 2802(c)(4).

a.

First, we deal with the question whether S 2802(c)( 4) is subject to an objective reasonableness test. We pre face this discussion with the acknowledgment that Sun's submi ssion that all of the S 2802(c) events are per se reasona ble is meritless. There is no question that at least some of the S 2802(c) relevant event exceptions mandate some fo rm of judicial scrutiny. See Sun Refining & Mktg. Co. v. Rago, 741 F.2d 670, 673 (3d Cir. 1984) ("[I]n light of the Ac t's specific intent to benefit franchisees, we decline to constr ue S 2802(c) as a per se termination rule favoring franchisors."); Lugar, 755 F.2d at 59 (recognizing that a reasonableness inquiry into certain enumerated even ts under S 2802(c) dealing with franchisee misconduct was proper, but refusing to extend that rationale to S 2802(c)(4)); accord Marathon Petroleum v. Pendleton, 889 F.2d 15 09, 1512 (6th Cir. 1989) ("[W]e must scrutinize the
reasonableness of terminations even when an event enumerated in S 2802(c) has occurred.").

Sun's contention that courts are not authorized to second guess franchisors' decisions pursuant to the underl ying lease exception in S 2802(c)(4) is grounded in our holding in

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require us to probe into Sun's state of mind when i t decided to create an underlying leaseback with Lancaster. Under this sta ndard, our focus
would be on whether the franchisor entered into the leaseback for normal business reasons or simply in an effort to a void the sale exception's bona fide offer requirement in S 2802(b )(3)(D)(iii)(I).

18Lugar that there is no statutory basis to inquire i nto the

objective reasonableness of franchisor business dec isions made in conformity with S 2802(c)(4). See 755 F.2d at 58. The Patels challenge the viability of Lugar, arguin g that the decision is in conflict with our earlier opinion in Rago, 741 F.2d at 673 (holding that the enumerated events in S 2802(c) are not per se reasonable), and that the 1994 Amendment to S 2802(c)(4) not only overturned Lugar 's result, but also fatally undermined its reasoning. We disagree.

In Lugar, the franchisor, Texaco, had been leasing its gas station premises from a third party owner. Texaco i n turn entered into a series of subleases with plaintiff H oward Lugar, its franchisee. The underlying lease granted Texaco an option to renew and an option to purchase the pr operty at its expiration. When the underlying lease expire d, Texaco opted neither to renew it nor purchase the premises from the third party owner. Texaco then informed Lugar t hat it was not renewing his franchise based upon the expir ation of the underlying lease. Lugar asked Texaco to assi gn its options to him, so that he could continue his busin ess at the same location, but Texaco refused and claimed protection from PMPA liability under S 2802(c)(4), the underlying lease exception. See Lugar, 755 F.2d at 54.

Lugar sued, alleging that Texaco's reliance on S 28 02(c)(4)

was unreasonable because Texaco should at least hav e assigned its options to him. In effect, Lugar asked the Court to make an objective evaluation of the
reasonableness of Texaco's business decision to ref use to assign him its options to renew the lease and purch ase the property. We held that because Texaco's nonrenewal fit within S 2802(c)(4), an enumerated relevant event, the Act precluded us from evaluating the reasonableness of
Texaco's action. See id. at 58.

In Rago, in contrast, the plaintiff had been operat ing a service station for eight years under a series of f ranchise agreements with the same franchisor. With two years remaining before the expiration of the then existin g franchise agreement, the franchisor sent Rago a let ter informing him that it intended to terminate his fra nchise. The franchisor's stated reasons were that Rago had failed to

19operate the station for a period of ten consecutive days and

also that he had failed to pay rent and other sums due the franchisor in a timely manner. See Rago, 741 F.2d a t 671. The franchisor relied on SS 2802(c)(8) and (9)(A) t o avoid PMPA liability.6 Although the franchisee had commit ted a literal violation of these provisions, we held that S 2802(c) was not a per se termination rule and proceeded to analyze whether the circumstances surrounding the Rago's fa ilures
made it reasonable for the franchisor to terminate his
franchise. See id. at 674.

Contrary to the Patels' reading of Lugar and Rago, we perceive no conflict between the two opinions. As t he panel in Lugar made clear, there is a patent difference b etween S 2802(c)(4), which deals with nonrenewal based upo n a franchisor business judgment, and SS 2802(c)(8) and (9)(A), which concern nonrenewals based upon franchisee misconduct. Specifically, because (c)(8) and (9)(A) deal with "failures" by franchisees to do certain things (e.g ., pay money in a timely manner and operate the service st ation for ten consecutive days), they therefore necessari ly implicate S 2801(13), which defines the term "failu re". See Lugar, 755 F.2d at 58 n.3. Because the term "failur e" under the PMPA does not include "any failure for a cause beyond the reasonable control of the franchisee," S 2801(1 3)(B)

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6. Sections 2802(c)(8) and (9) allow the franchisor to terminate or
nonrenew a franchisee for franchisee misconduct. In the context of S 2802(c), they read:

As used in subsection (b)(2)(C) of this sect ion, the term "an event
which is relevant to the franchise relations hip and as a result of
which termination of the franchise or nonren ewal of the franchise relationship is reasonable" includes events such as --

* * *

(8) failure by the franchisee to pay to the franchisor in a timely
manner when due all sums to which the franch isor is legally entitled; (9) failure by the franchisee to operate the marketing premises for

--

(A) 7 consecutive days, or (B) such lesser period which under the facts and circumstances constitutes an unreasonable period of time;

. . .

20(emphasis supplied), the Rago panel was undoubtedly

correct to question whether there were any reasonab le excuses justifying Rago's failures to keep his stat ion open and pay his rent on time. Similarly, because S 2802 (c)(4) justifies nonrenewal on the basis of the expiration of an underlying lease, not a franchisee "failure", the L ugar panel's refusal to engage in a reasonableness inqui ry is equally understandable.

Nor are we convinced by the Patels' argument that t he 1994 Amendment to S 2802(c)(4), which disturbed our result in Lugar, constitutes a legislative repeal o f its rationale. Under the amendment, franchisors must no w offer to assign to their franchisees all options to extend underlying leases as well as any options to purchas e the marketing premises, when certain conditions are met . See S 2802(c)(4)(B) (as amended 1994).7 While Sun conc edes that the amendment overrules Lugar's result, it sub mits that Lugar's reasoning remains intact. If anything, Sun contends, because the amendment only narrowly revis ed S 2802(c)(4), and did not specifically require cour ts to evaluate the objective reasonableness of franchisor decisions not to renew franchises based upon the expiration of underlying leases, Congress implicitl y approved Lugar's reasoning and simply clarified the circumstances when the expiration of an underlying lease is statutorily reasonable. While this question is diff icult, because we find nothing in the text of the amendmen ts or in the accompanying legislative history to the cont rary, see H.R. Rep. No. 737, 103d Cong., 2d Sess. (1994), rep rinted in 1994 U.S.C.C.A.N. 2779; S. Rep. No. 387, 103d Co ng., 2d Sess. (1994), available at 1994 WL 534750; 140 C ong. Rec. H10,575-76 (daily ed. Oct. 3, 1994); 140 Cong. Rec. H10,735 (daily ed. Oct. 4, 1994); 140 Cong. Rec. S1 4,236- 37 (daily ed. Oct. 5, 1994), we believe Sun's characterization of Congress's intent to be more pl ausible, and we reject the Patels' attempts to graft a reaso nableness test onto S 2802(c)(4) in direct conflict with our existing precedent. Therefore, we find that the 1994 Amendme nt to S 2802(c)(4) did not disturb our holding in Lugar t hat there is no objective reasonableness test under that sect ion.

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7. Because of its length, we do not rescribe that a mendment here.

21b.

Our analysis of S 2802(c)(4) is not yet complete, h owever, because Sun contends that not only can there be no objective reasonableness inquiry into business deci sions made pursuant to this section, but also that there can be no judicial inquiry whatever. The Patels, in contra st, urge that, based upon our decision in Slatky, we must co nsider
whether Sun created the leaseback with Lancaster subjectively "in good faith and in the normal cours e of
business."

In Slatky, the franchisee had leased his gas statio n from Amoco for several years. After Slatky's sales had d eclined, Amoco decided not to renew his franchise on the gro und
that renewal would be uneconomical. To avoid PMPA liability, Amoco based its nonrenewal on S 2802(b)(3)(D)(i)(IV), which allows nonrenewal whe n "renewal of the franchise relationship is likely to be uneconomical to the franchisor despite any reasonab le changes or reasonable additions to the provisions o f the franchise which may be acceptable to the franchisee ." This provision, like the sale of the marketing premises provision, requires the franchisor to make a bona fide offer t o sell the premises to the franchisee. See S 2802(b)(3)(D)(iii )(I).

In an attempt to satisfy this requirement, Amoco of fered to sell the property to Slatky at what Slatky claim ed was an unreasonable price, one significantly higher than t he property's fair market value. See Slatky, 830 F.2d at 480. Amoco contended that to qualify as a "bona fide off er", it need only have made a subjectively sincere offer in good faith. Slatky countered that the offer must have be en objectively reasonable. As the provision had no exp licit standard, we conducted an independent inquiry into the bona fide offer requirement and, utilizing the logi c discussed below, determined that an objective reasonableness standard applied.

We reasoned as follows. Since the PMPA is a remedia l statute, enforcement of its provisions demands at l east a minimal level of judicial involvement. With the ena ctment of the statute, Congress outlawed all franchisee termi nations and nonrenewals generally, but then created certain

22exceptions. Congress bifurcated these exceptions in to two

broad categories: (1) franchisee misconduct, and (2 ) franchisor business judgments. See id. at 481; see also supra S II.A. The Act generally contemplates an obj ective reasonableness inquiry into terminations and nonren ewals based upon franchisee misconduct, and a subjective "in good faith and in the normal course of business" in quiry into franchisor business judgment cases. See id. We examined provisions which, like the bona fide offer requirement, did not contain explicit standards for judicial inquiry and determined that the courts must first categorize them in order to determine the proper in quiry. Ultimately, we concluded that since the determinati on of an offer price pursuant to the bona fide offer require ment was not a business determination, but rather a decision made by the franchisor "only because the statute require s it to do so," it was more akin to a franchise misconduct pro vision. We therefore applied an objective reasonableness st andard.
See id.

In assessing the impact of our analysis in Slatky, it is critical to understand that although we noted (and enforced) the legislative intent to distinguish bet ween franchisee misconduct and franchisor business decis ions, our decision was predicated on the fact that both t ypes of decisions warranted some type of judicial inquiry. Although Slatky concluded by applying an objective standard to the provision it considered, the impact of its analytic al framework here is to mandate the application of a subjective good faith standard to the franchisor's decision to create a leaseback under S 2802(c)(4). As with t he bona fide offer requirement at issue in Slatky, the unde rlying lease provision contains no explicit judicial inqui ry standard. Therefore, we look to the nature of that provision to determine what standard is appropriate, and conc lude that the decision to create an underlying lease (by selling the leased marketing premises and entering into lea seback) is a franchisor marketing decision (not unlike the decisions to sell the premises or withdraw from the relevant geographic market area). In contrast with the bonaf ide offer requirement, it is not based upon "a right cr eated by the PMPA," and it is not analogous to a situation w here a
franchisee is terminated or nonrenewed for miscondu ct. See

23Slatky, 830 F.2d at 481. Therefore, the underlying lease

provision contained in S 2802(c)(4) warrants the mo re lenient "in good faith and in the normal course of business" inquiry, not the objective reasonableness standard that is
reserved for franchisor non-business decisions.

Our conclusion that S 2802(c)(4) requires the franc hisor to act in good faith and in the normal course of bu siness is buttressed by the legislative history. The Senate R eport

states:

Expiration of the underlying lease could occ ur under a variety of circumstances including, for exam ple, a decision by the franchisor not to exercise a n option to renew the underlying lease. However, it is n ot intended that termination or nonrenewal should be per mitted based upon the expiration of a lease which d oes not evidence the existence of an arms length rel ationship between the parties and as a result of the e xpiration of which no substantive change in control of th e premises

results.

Senate Report at 38, 1978 U.S.C.C.A.N. 896 (emphasi s supplied). This passage illustrates several importa nt points. First, Congress could not have meant S 2802(c)(4) t o be a per se termination rule because Congress has specif ically pointed out in the Senate Report at least one insta nce where the expiration of an underlying lease will no t excuse the franchisor from liability for nonrenewing or te rminating a franchise. Sun's argument that the preceding "sni ppet" of legislative history is consistent with a per se ter mination rule under S 2802(c)(4) (because it only says that non-arms length leases are not covered) is unconvincing -- e ither S 2802(c)(4) is a per se rule or it is not, and Con gress has
told us that it is not.

Moreover, this legislative history seems to posit t he kind of nonrenewal that appears to have occurred in Luga r (and, indeed in every other S 2802(c)(4) underlying lease case cited by Sun) -- namely, the expiration of an under lying lease that predates the inception of the business relationship between the franchisor and franchisee. 8 The

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8. The viability of a limited-in-scope good faith t est was not discussed

in Lugar, and application of one here would arguably b e in tension with

24legislative history does not, however, seem to cont emplate

a situation where (as here) the franchisor creates the "underlying lease" by selling the premises out from under the franchisee and taking a leaseback. Therefore, w hile the language of the statute permits these kinds of leas ebacks, see S II.B.1 supra, given the potential for abuse, unfairness, and arbitrariness such practices could engender, we believe that this is exactly the sort of situation in which Congress sought to protect franchisees from franchisor bad f aith. See Slatky, 830 F.2d at 482 (noting that the PMPA requi res a good faith inquiry into franchisor business decisio ns to prevent sham transactions) (citing Senate Report at 37, U.S.C.C.A.N. at 896).

Accordingly, we hold that, in the narrow circumstan ce where a franchisor has created a underlying lease t hrough a sale-leaseback that takes place after the creatio n of the business relationship between the franchisor and franchisee, a subjective "in good faith and the nor mal

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some of our language in that opinion, see, e.g., Lu gar, 755 F.2d at 58 ("It is of some significance that even where Congress di d subject certain franchisor's decisions to judicial scrutiny, it esc hewed a broad `reasonable business judgments' test," and instead adopted a two-fold in good faith and in the normal course of business tes t.). Lugar is distinguishable, however, because the underlying le ase at issue there differed in an important way from the Patels' lease in that it predated

the entire business relationship between Lugar and Texa co, rather than just the then extant franchise term. See Lugar, 755 F.2d at 54. Since Lugar knew that Texaco was leasing the property from a th ird party (and also knew that the lease might expire during his franchi se relationship) when he first decided to contract with Texaco, the Court did not have to consider the possibility that Texaco might have act ed in bad faith in creating the underlying lease. In contrast, since S un created the lease during the franchise relationship here, it is at le ast conceivable that

Sun
could have done so in a bad faith effort to avoid t he bona fide offer requirement of the sale exception. While the Patels ' efforts to show that Sun acted in bad faith or outside of the ordinary c ourse of business fail here, see infra, given the right factual predicate, a future plaintiff might prevail on this theory. Moreover, while the cited l anguage might be read to indicate that the Lugar panel believed that S 28 02(c)(4) was not one of the provisions to which Congress meant to apply the two-fold subjective test, the objective reasonableness issue was the on ly one before the

Court.

25course of business" inquiry should be applied under

S 2802(b)(2)(C) and S 2802(c)(4), before the franch isor will be exempted from liability under the PMPA when its fra nchisor challenges the nonrenewal of its lease. If this inq uiry is to have any effect at all, it must include the circums tances surrounding both the creation of the underlying lea se and its eventual expiration. We can hypothesize several
instances in which franchisor conduct at the time i t created the underlying lease would not satisfy this test an d therefore would not qualify under S 2802(c)(4). Mos t obviously, as specifically contemplated in the legi slative history, a franchisor who failed to make a bona fid e offer to its franchisee would be liable for damages under th e PMPA if it sold the leased marketing premises and create d an underlying lease as part of a sham transaction that was not at arms length. Also, an inference of bad faith cou ld be drawn by the fact finder if the franchisor executed a sale with a very short-term leaseback (on the order of a few months) and then attempted to terminate the franchi see without liability based on that extremely short und erlying lease. Or, a court could find bad faith if the fran chisor used the sale-leaseback gambit to terminate one franchis e, only to enter into a new agreement with a different fran chisee. Finally, an inference of bad faith might properly b e drawn
if the fact finder concluded that the franchisor in tended to terminate the business relationship when it sold th e premises, but that it took a leaseback (of any dura tion) simply to avoid the bona fide offer requirement.

4.

The Patels have alleged neither a sham transaction nor a suspiciously short leaseback, and Sun has not enter ed into a new franchise agreement to market motor fuel at t he
Patels' old franchise location with different franc hisees. In fact, the only evidence the Patels put forth that m ight support a claim of bad faith is Lancaster general p artner Bruce Robinson's testimony that Sun intended to ter minate
their franchise in 1987 at the time of the sale. Th e district court, however, found that this was insufficient ev idence of
bad faith to create a triable issue of fact. See Pa tel VI, 948 F. Supp. at 475-76 & 477 n.6 ("No evidence has been

26shown that Sun acted out of any bad faith desire to defeat

the Patel's rights under the PMPA."). Given that Su n leased the premises to the Patels for over six years after selling it to Lancaster, this slender reed would not seem to b e enough to satisfy the Patels' burden opposing summa ry judgment had we been presented with this issue in t he first instance. See Anderson, 477 U.S. at 248-49 (noting that the non-moving party creates a genuine issue of materia l fact only by providing sufficient evidence to allow a re asonable jury to return a verdict in his favor).

Moreover, as we have already noted, a previous pane l of this Court has already definitively ruled on the qu estion of Sun's bad faith, and we are bound by its decision a s law of the case. In Patel V, the panel denied a motion by the Patels for a preliminary injunction based upon S 28 05(e)(1), which "bars an injunction that would require a fran chisor
to continue a franchise in a location which the fra nchisor, in good faith and in the normal course of business, has decided to sell." 63 F.3d at 252. By grounding its affirmance in S 2805(e)(1), the prior panel a forti ori also concluded that the transaction was made in good fai th and
in the normal course of business. See id. at 253 & n.8. This determination by an earlier panel constitutes the l aw of the case, and we are barred from reconsidering it. See Atlantic Coast Demolition & Recycling, Inc. v. Board of Chos en Freeholders of Atlantic County, 112 F.3d 652, 663 ( 3d Cir. 1997) (citations omitted).9

C.

The Patels make one final argument that merits our analysis. They contend that the prior panel, while rejecting their request for injunctive relief, also decided t he merits of the damage claim in their favor. The Patels base th is contention on the next to the last paragraph in Sec tion

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9. There are three traditional exceptions to this d octrine, including situations in which: (1) new evidence is available; (2) a supervening new law has been announced; or (3) the earlier decision was clearly erroneous and would create manifest injustice. See Public Interest Research Group of New Jersey, Inc. v. Magnesium Ele ktron, Inc., 123 F.3d 111, 116-17 (3d Cir. 1997) (citations omitted) . None of these apply.

27III(B) of Patel V. See 63 F.3d at 253. There, the m ajority

stated:

Clearly, one cannot help but feel some sympa thy for
the Patels. At the time of their initial att empt to obtain injunctive relief, they were sent away and t old to seek
such relief when their franchise was not ren ewed. Now, having returned to court after the occurrenc e of the nonrenewal, they are told that they are not eligible for injunctive relief. The Patels still have, ho wever, the opportunity to present to the district court their
contention that the nonrenewal of their fran chise violates S 2802 because the reason given for nonrenewal, the expiration of the underlying lease, was a condition created by the franchisor when i t sold the property without offering the franchisee an opportunity to purchase it. Even if injunctive relief is no longer available to the Patels, the PMPA does provi de for awards of damages and fees to a franchisee w ho is successful in a civil action against a franc hisor. 15 U.S.C. 2805(d) and (e).

Id. In the footnote following this passage, the Pat el V majority continued:

The dissent states that "[t]he majority hold s that the franchisor's obligation to offer to sell to the franchisee can be avoided simply by postponing the nonr enewal or
termination of the franchise to a time subse quent to the title closing." Dissent op. at 253; see also id. at 258 ("The majority opinion, however, holding tha t a sale- without-offer followed by expiration of an u nderlying lease makes nonrenewal reasonable, allows fr anchisors to completely dispense with the bona fide of fer requirement."). We do not so hold. Instead, we hold that a franchisor that fails to offer the pr operty to its franchisee before selling to another is liab le to the franchisee for damages, but may not be enjoi ned from the sale, provided the transaction is made i n good faith and in the normal course of business, with t he requisite notice.

Id. at 253 n.8 (emphasis supplied). Although the highlighted language in the quoted footnote from Pa tel V

28purports to "hold" that a franchisor that fails to offer its

property to the franchisee before selling "is liabl e" without regard to the franchisor's good faith (or even an i nquiry into the objective reasonableness of the nonrenewal)-- i n other words that there is a "sale-leaseback offer require ment" implicit in the PMPA which nullifies the lease-expi ration defense set forth in S 2802(c)(4) -- we conclude th at that statement is dictum, and we decline to follow it.10

The issue before the Court in Patel V was "whether injunctive relief is still an available remedy for[ the Patels] against [Sun]." 63 F.3d at 249. To that end, the Co urt determined that S 2805(e)(1) barred the preliminary injunction the Patels sought because Sun had acted in good faith and in the ordinary course of business. See id. at 252. Nothing in Patel V's footnote eight was int egral to our holding there; in fact, the footnote itself app ears to have been drafted in response to criticism from the dissent about issues that were not directly before us. A st atement
such as this is dictum. See Sarnoff v. American Hom e Prods. Corp., 798 F.2d 1075, 1084 (7th Cir. 1986) (definin g dictum as "a statement in a judicial opinion that could ha ve been deleted without seriously impairing the analytical foundations of the holding -- that, being periphera l, may
not have received the full and careful attention of the court that uttered it").11 Based upon these circumstances
, combined with our observation that the majority in Patel V engaged in no analysis of the Patels' novel claim f or damages under S 2802 (in contrast with its detailed discussion of the availability of injunctive relief ), we do not regard the highlighted language in footnote eight o f Patel V as controlling.

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10. We note that Judge Scirica, who was a member of that panel, joins in this opinion.

11. As dictum, there are many reasons why we should not give it weight here: (1) it may not have been as fully considered as it would have been if it were essential to the outcome; (2) sloughing it off in a new opinion will not affect the analytic structure of the origi nal opinion; and (3)

the dictum may lack refinement because it was not honed through the fires of an adversary presentation. See United States v. Crawley, 837 F.2d 291, 292-93 (7th Cir. 1988).

29III.

In conclusion, we find that Sun's decision to creat e an underlying lease through a sale-leaseback that took place after the creation of the business relationship was subject to an "in good faith and the normal course of busin ess" inquiry under SS 2802(b)(2)(C) and 2802(c)(4) befor e it could be exempted from liability under the PMPA. We also conclude that Sun has already satisfied that test b ecause the Patels have adduced insufficient evidence of ba d faith. The judgment of the district court will therefore b e affirmed.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

30