Case Name: Prakash H. PATEL and Shobha P. Patel, h/w, Appellants, v. SUN COMPANY, INC. and Lancaster Associates
Court: United States Court of Appeals for the Third Circuit
Jurisdiction: United States
Decision Date: 1995-08-21
Citations: 63 F.3d 248
Docket Number: No. 94-2092
Parties: Prakash H. PATEL and Shobha P. Patel, h/w, Appellants, v. SUN COMPANY, INC. and Lancaster Associates.
Judges: 
Reporter: Federal Reporter 3d Series
Volume: 63
Pages: 248–262

Head Matter:
Prakash H. PATEL and Shobha P. Patel, h/w, Appellants, v. SUN COMPANY, INC. and Lancaster Associates.
No. 94-2092.
United States Court of Appeals, Third Circuit.
Argued Feb. 3, 1995.
Decided Aug. 21, 1995.
Dimitri G. Daskal (argued), The Daskal Law Group, Washington, DC, Edward T. Rostick, Williams & Scheetz, Richboro, PA, for appellants.
James M. Brogan (argued), Christopher W. Wasson, Piper & Marbury, Philadelphia, PA, for appellee Sun Co., Inc.
John F. Fox, Jr. (argued), Law Offices of John F. Fox, Jr., Philadelphia, PA, for appel-lee Lancaster Associates.
Before: SCIRICA, ROTH, and SAROKIN, Circuit Judges.

Opinion:
OPINION OF THE COURT
ROTH, Circuit Judge:
This appeal represents the latest chapter in plaintiffs' ongoing effort to obtain injunc-tive relief under the Petroleum Marketing Practices Act ("PMPA"), 15 U.S.C. § 2801 et seq. Specifically, plaintiffs, operators of a service station, have sought a preliminary injunction to prevent defendants from refusing to renew plaintiffs' franchise and from evicting them from the franchise location, which plaintiffs have occupied since 1978. Plaintiffs' initial request for injunctive relief was denied on the ground that the event required to trigger the enforcement provisions of the PMPA, termination or nonrenewal of a franchise, had not yet occurred. Now that the required nonrenewal has clearly occurred, the question presented by this appeal is whether injunctive relief is still an available remedy for these plaintiffs against these defendants..
I.
Defendant Sun Company, Inc., ("Sun") is a refiner and marketer of motor fuels. In 1978, plaintiffs Prakash and Shobha Patel, husband and wife, entered into a lease and franchise relationship with Sun for the operation of a Sunoco service station. At the time of this original agreement, Sun owned the real estate on which the service station was located. This parcel also contained an office building with a parking lot.
In December 1987, Sun sold the entire parcel of land to defendant Lancaster Associates ("Lancaster"). Lancaster leased the service station back to Sun through September 30, 1994, and granted Sun the right to sublease it. Sun then offered to sublease the service station to the Patels for a period of three years. The sublease agreement specifically stated that Sun's right to grant possession of the premises would be subject to an underlying lease which would expire on September 30, 1994. The sublease agreement also clearly stated that the underlying lease "might expire or nonrenew at the expiration of the initial term or any renewal option thereof."
On May 17, 1988, before the sublease agreement had been signed, the Patels filed suit in the Eastern District of Pennsylvania, alleging that Sun and Lancaster had violated the PMPA. The Patels claimed that the PMPA entitled them to a right of first refusal before the franchise location could be sold and that Sun had failed to grant them this right or to offer to sell the property to them. Accordingly, the Patels asserted that they were entitled to injunctive relief and money damages under the PMPA. On May 20, 1988, the Patels signed the sublease with Sun.
In October 1988, the district court denied the Patels' motion for a preliminary injunc tion, holding that the statutory precondition for injunctive relief, nonrenewal of the franchise, had not yet occurred. Patel v. Sun Ref. & Mktg. Co., No. 88-3958, slip op. at 1-2 (E.D.Pa. Oct. 14, 1988) ("Patel I "). On motion for reconsideration, the court affirmed its holding but invited the Patels to recast their complaint as one for declaratory judgment. Patel v. Sun Ref. & Mktg. Co., 710 F.Supp. 1023, 1024 (E.D.Pa.1989) ("Patel II").
Although the Patels amended their complaint, the district court again denied their request for relief under the PMPA on the ground that the triggering act required under the statute, nonrenewal of the franchise, had not yet occurred. Patel v. Sun Ref. & Mktg. Co., 1992 WL 25737, at *2 (E.D.Pa.1992) ("Patel III "). The Patels did not appeal this order.
Meanwhile, in December 1991, the Patels and Sun executed another sublease extending the term to August 20, 1994. This new sublease, like its predecessor, explicitly stated that Sun's right to grant possession of the premises was subject to its underlying lease with Lancaster, which would expire on September 30, 1994.
On April 28, 1994, 120 days before the expiration of the sublease, Sun notified the Patels that their franchise and sublease would not be renewed due to the expiration of Sun's underlying lease with Lancaster. The underlying lease between Sun and Lancaster expired on September 30, 1994.
After receiving notice from Sun that their franchise would not be renewed, the Patels in July 1994 commenced the instant action in district court, again alleging that the nonre-newal of their franchise was improper under the PMPA because Sun had not offered the Patels a right of first refusal before the sale to Lancaster, nor had it offered to sell the property to the Patels. In deciding the Pa-tels' motion for a preliminary injunction, the district court found that, because Sun's sale of the premises to Lancaster did not constitute a termination or nonrenewal of the franchise, the Patels' rights under the PMPA were not triggered at that time. Patel v. Sun Co., 866 F.Supp. 871, 873 (E.D.Pa.1994) ("Patel IV"). The court further held that Sun's loss of the right to grant possession of the premises due to the expiration of its underlying lease with Lancaster was a valid reason for nonrenewal under the PMPA and that, therefore, no serious question existed regarding the merits of the Patels' PMPA claim. Id. at 873-74. Accordingly, the Pa-tels' motion for a preliminary injunction was denied. The Patels appealed, and we granted a stay pending appeal.
II.
The PMPA regulates the relationship between motor fuel distributors, principally oil refiners, and their franchisees, principally retail gas station operators. Prior to the passage of the PMPA, evidence suggested that "distributors had been using the threat of termination or nonrenewal to compel franchisees to comply with the distributor's marketing policies . [and] to gain an unfair advantage in contract disputes." Slatky v. Amoco Oil Co., 830 F.2d 476, 478 (3d Cir.1987) (in banc) (citing S.Rep. No. 731, 95th Cong., 2d Sess. 17-19, 1978 U.S.C.C.A.N. 873, 875-77) ("Senate Report"). Accordingly, in passing the PMPA, Congress sought to "protect a franchisee's 'reasonable expectation' of continuing the franchise relationship while at the same time insuring that distributors have 'adequate flexibility . to respond to changing market conditions and consumer preferences.' " Id. (quoting Senate Report at 19, 1978 U.S.C.C.A.N. at 877).
In order to effectuate these purposes, the PMPA prohibits distributors from terminating or nonrenewing franchises, unless the termination or nonrenewal is based upon one of the enumerated grounds set forth in the statute. 15 U.S.C. § 2802. Most of the enumerated exceptions involve franchisee misconduct, which is not alleged in this ease. See, e.g., § 2802(b)(2)(C) (termination based upon franchisee's failure to pay sums due under the franchise agreement); § 2802(b)(3)(B) (nonrenewal based upon "bona fide customer complaints" about franchisee's operations); § 2802(b)(3)(C) (nonre-newal based upon franchisee's failure to operate property "in a clean, safe, and healthful manner").
In addition to the exceptions for franchisee misconduct, the PMPA also authorizes non-renewal for a limited set of business reasons, two of which are involved in the instant appeal. First, a distributor may fail to renew a franchise agreement if the distributor decides to sell the premises "in good faith and in the normal course of business." § 2802(b)(3)(D)(i)(III). In such a case, however, the distributor must either have offered to sell the premises to the franchisee, § 2802(b)(3)(D)(iii)(I), or have offered the franchisee a right of first refusal of the purchaser's offer, § 2802(b)(3)(D)(iii)(II). Second, a distributor may fail to renew a franchise agreement upon the "occurrence of an event which is relevant to the franchise relationship and as a result of which . nonre-newal of the franchise is reasonable." § 2802(b)(2)(C). One "relevant event" recognized in the statute is the franchisor's loss of its "right to grant possession of the leased marketing premises through expiration of an underlying lease." § 2802(c)(4).
Section 2805(a) of the statute creates a civil cause of action for franchisees against franchisors for violations of the statute. In these civil actions, courts are free to exercise "such equitable relief . necessary to remedy the effects" of the PMPA violation. § 2805(b)(1). This equitable relief includes, but is not limited to, preliminary injunctions. Id. Section 2805(d) also provides for an award of actual and exemplary damages and of attorney and expert witness fees to a franchisee who prevails in a civil action against a franchisor. Section 2805(e) then provides an exception to an award of injunc-tive relief in that the court may not compel a continuation or renewal of a franchise if the franchisor has demonstrated to the court that the nonrenewal of the franchise was caused by the decision of the franchisor, made in good faith and in the normal course of business, to convert, alter, or sell the premises or to withdraw from marketing fuel oil in that geographic market area.
III.
We review the district court's conclusions of law in a plenary fashion, its findings of fact under a clearly erroneous standard, and its decision to grant or deny an injunction for abuse of discretion. Johnson & Johnson-Merck Consumer Pharmaceuticals Co. v. Rhone-Poulenc Rorer Pharmaceuticals, 19 F.3d 125 (3d Cir.1994).
A.
We begin our analysis of the instant appeal with plaintiffs' request for an injunction against Lancaster. Plaintiffs' cause of action against both defendants arises out of § 2805(a) of the PMPA which reads, in relevant part:
If a franchisor fails to comply with the requirements of section 2802 or 2803 of this title, the franchisee may maintain a civil action against such franchisor.
§ 2805(a) (emphasis added). In the PMPA, "franchisor" is defined as:
a refiner or distributor . who authorizes or permits, under a franchise, a retailer or distributor to use a trademark in connection with the sale, consignment, or distribution of motor fuel.
§ 2801(3). Thus, the application of the PMPA is limited to causes of action arising between franchisees and franchisors engaged in the petroleum marketing field. It is clear from the facts presented in this case, however, that Lancaster is not a refiner or distributor of motor fuel, and therefore falls outside the literal scope of the statute. For this reason, the Patels cannot obtain relief against Lancaster under the PMPA.
Plaintiffs maintain, however, that Lancaster, as the purchaser of the property, should be "charged with notice of Sun's obligations under [the] PMPA" and should hold "title subject to those obligations." Complaint, ¶24. We find this argument unpersuasive. Plaintiffs fail to indicate any evidence, either in the text of the PMPA or in its legislative history, that the PMPA was meant to apply beyond the franchisee-franchisor relationship. Cf. Barnes v. Gulf Oil Corp. 824 F.2d 300, 303-04 (4th Cir.1987) (permitting individuals or small companies to qualify as "franchisors" would permit large refiners and distributors to terminate their relationship with a franchisee by assigning the remainder of the franchise term to small enterprises with limited resources). Moreover, it would seem beyond any legal or practical ability of Lancaster to license the Patels to use the Sun trademarks or to provide the Patels with petroleum products for retail sale. Therefore, because the language of the statute is unambiguous, we find no reason to apply the PMPA to Lancaster.
B.
Our analysis turns next to the Patels' request for an injunction against Sun. The criteria that courts are to consider in determining whether to grant a preliminary injunction under the PMPA are set out in § 2805(b)(2) of the act, which reads in relevant part:
[T]he court shall grant a preliminary injunction if—
(A) the franchisee shows—
(i) the franchise of which he is a party has been terminated or the franchise relationship of which he is a party has not been renewed, and
(ii) there exist sufficiently serious questions going to the merits to make such questions a fair ground for litigation; and
(B) the court determines that, on balance, the hardships imposed upon the franchisor by the issuance of such preliminary injunc-tive relief will be less than the hardship which would be imposed upon such franchisee if such preliminary injunctive relief were not granted.
§ 2805(b)(2).
In denying the Patels' motion for a preliminary injunction, the district court determined that no sufficiently serious questions regarding the merits existed to warrant a balancing of the hardships. In reaching this conclusion, the district court relied in part on the judgment that "[w]hen Sun sold the station to Lancaster it did not terminate or fail to renew the Patels' franchise relationship." Patel TV, 866 F.Supp. at 873.
Our determination to deny the Patels' motion for a preliminary injunction against Sun is not, however, based upon this conclusion. It is based on § 2805(e) which bars an injunction that would require a franchisor to continue a franchise in a location which the franchisor, in good faith and in the normal course of business, has decided to sell. In other words, if a franchisor does not want to take over a franchise itself or to transfer it to another dealer, but simply for business reasons wants to close down its retail operations in a certain location, the PMPA will not enjoin a franchisor from doing so provided the decision is made in good faith and in accordance with the requirements of.§ 2804.
If the franchisor does attempt to close down the franchise location without meeting the requirements of § 2802, however, it may be hable in damages to the franchisee. Al though § 2805(e) does not permit a permanent injunction maintaining the franchise under these circumstances, it does provide for the franchisee to recover actual damages and reasonable attorney and expert witness fees if, for instance, the franchisor has failed to offer to sell the premises to the franchisee prior to a sale to a third party.
Because the record here demonstrates that Sun did not take over the franchise in order to operate it for its own account or to lease it to a new tenant, see § 2802(b)(2)(E), we conclude that the district court could not enter a permanent injunction requiring Sun to continue the Patels' franchise at its present location. In view of the provisions of § 2805(e), we find that the denial of the injunction by the district court was not erroneous.
Clearly, one cannot help but feel some sympathy for the Patels. At the time of their initial attempt to obtain injunctive relief, they were sent away and told to seek such relief when their franchise was not renewed. Now, having returned to court after the occurrence of the nonrenewal, they are told that they are not eligible for injunctive relief. The Patels still have, however, the opportunity to present to the district court their contention that the nonrenewal of their franchise violates § 2802 because the reason given for nonrenewal, the expiration of the underlying lease, was a condition created by the franchisor when it 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 provide for awards of damages and fees to a franchisee who is successful in a civil action against a franchisor. 15 U.S.C. § 2805(d) and (e).
Additionally, we note that the language of the statute may have complicated the Patels' situation. If there is a gap in the provisions of the PMPA, it should be corrected by Congress if Congress decides that this gap could undermine its intent in passing the PMPA. This decision, however, belongs with Congress and not with the courts.
IV.
In conclusion, we will affirm the district court's denial of the Patels' request for a preliminary injunction against Sun and Lancaster. The Patels, however, still have the opportunity to seek damages under the PMPA. Accordingly, we will remand this matter to the district court for further proceedings consistent with this opinion.
. Lancaster is neither a refiner nor a distributor of motor fuels. Additionally, Lancaster is not a subsidiary of, nor does it have any other relationship with, Sun beyond the purchase of the real estate here in question.
. The parties dispute whether Sun offered to sell the service station premises to the Patels before selling to Lancaster. The district court did note during the 1988 proceedings that: "The franchisor has sold the premises without first offering plaintiff-franchisees a chance to purchase." Patel v. Sun Ref. & Mktg. 710 F.Supp. 1023 (E.D.Pa. 1989) ("Patel II").
.The Patels assert that they signed this renewal, with its notice of the lease expiration, because they had no choice. Supplemental Appendix at 132.
. In 1994, Congress amended the "loss of underlying lease" exception by requiring a franchisor to offer to assign to the franchisee "any option to extend the underlying lease or option to purchase the marketing premises that is held by the franchisor." Pub.L. No. 103-371, 103d Cong., 2d Sess., 108 Stat. 3484-85. That amendment is not applicable to the present case.
- The dissent argues in Part V that Lancaster took title to the real property, knowing of Sun's obligations as a franchisor under the PMPA and thereby is subject to the same responsibilities with respect to the property as was Sun. For the reasons stated by the court in Barnes, however, we cannot agree that a petroleum refiner/distributor should be able to pass on all or part of its obligations under the PMPA to a third parly who does not qualify as a franchisor under the PMPA.
. This conclusion echoes the conclusion reached earlier in Patel I, Patel II, and Patel III. In those cases, the determination that the sale of the property did not constitute a termination or nonre-newal of the Patels' franchise led the court to fmd that the Patels' rights under the PMPA had not yet been triggered.
Unlike the court in these earlier decisions, we are not confident that Sun's sale of the station to Lancaster did not constitute an action sufficient to trigger the Patels' rights under the statute. It is important to note, however, that the Patels could have appealed the decisions in Patel II and Patel III, but chose not to. Accordingly, this Court must decide the instant appeal in light of the parties' current positions.
. The dissent, citing the legislative history, argues that § 2805(e) applies only to permanent, not to preliminary, injunctions. The language of the statute does not, however, make that distinction.
. The dissent states that "[t]he majority holds that the franchisor's obligation to offer to sell to the franchisee can be avoided simply by postponing the nonrenewal or termination of the franchise to a time subsequent to the title closing." Dissent op. at 253; see also id. at 258 ("The majority opinion, however, holding that a sale-without-offer followed by expiration of an underlying lease makes nonrenewal reasonable, allows franchisors to completely dispense with the bona fide offer requirement."). We do not so hold. Instead, we hold that a franchisor that fails to offer the property to its franchisee before selling to another is liable to the franchisee for damages, but may not be enjoined from the sale, provided the transaction is made in good faith and in the normal course of business, with the requisite notice.