Exposure for Non-Profits Under Dealership Statute

14 January 2009 Publication
Authors: Michael A. Bowen

Legal News Alert: Distribution & Franchise

In Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the United States of America, Inc., decided on December 15, 2008, the United States Court of Appeals for the Seventh Circuit held that the relationship between national non-profit organizations and their Wisconsin affiliates can be governed by the Wisconsin Fair Dealership Law (WFDL), Chapter 135 of the Wisconsin Statutes. This ruling subjects non-profits with autonomous or semi-autonomous organizations in Wisconsin to arguably anomalous regulation under a statute intended to protect local commercial distributors from economic exploitation by their suppliers.

The WFDL forbids grantors of “dealerships” to terminate or “substantially change the competitive circumstances” of their dealers without statutorily defined “good cause.” It further requires written notice of any proposed termination or other adverse treatment of a dealer, including an opportunity to cure deficiencies that the grantor claims justify the change in question. In the event of violation, it provides for both injunctive and monetary relief, and exposes the grantor (but not the dealer) to liability for the other side’s attorney’s fees and litigation expenses. The statute thus significantly constrains the discretion of dealership grantors in managing their relationships with Wisconsin entities that are parties to covered relationships.

“Dealership” is a vaguely defined term of art under the statute. The Wisconsin State Bar Treatise on the WFDL devotes 89 pages to discussion of the case law that has developed in the course of determining what relationships are and are not covered by the statute. Up to now, however, all covered relationships have involved contracts between conventionally commercial, for-profit companies.

In Girl Scouts of Manitou Council, the Seventh Circuit held that the substantial commercial activities engaged in by the organization (e.g., sale of Girl Scout Cookies®) and the significant assets invested in camps and organizational real estate, brought the relationship between the national organization and its Wisconsin affiliates within the WFDL’s ambit. As a result, the national organization was provisionally barred from changing the territorial “jurisdiction” of an objecting Wisconsin affiliate pursuant to a plan reorganizing and consolidating territories on a national basis.

Several states have “copycat” laws based on the WFDL. Because case law under those statutes tends to be less abundant than the voluminous cases interpreting the WFDL, courts in other jurisdictions have looked to decisions construing the WFDL for guidance in interpreting similar laws. For this reason, Girl Scouts of Manitou Council has potential ramifications for national non-profits that go well beyond their relationships with Wisconsin affiliates. 

The experience of practitioners familiar with the WFDL is that the problems created by the statute are eminently manageable as long as they are recognized and planned for before adverse action is taken; but that, conversely, inadvertent violations resulting from actions undertaken in ignorance of the statute’s possible application complicate effective defense of a grantor’s position and can dilute or preclude meritorious defenses that might well otherwise be available under the statute.


Foley & Lardner LLP Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:

Author

Michael A. Bowen
414.297.5538
Milwaukee, Wisconsin
mbown@foley.com

Michael A. Bowen, Partner, is co-author of the Wisconsin State Bar Treatise on the subject. See M. Bowen and B. Butler, The Wisconsin Fair Dealership Law (Third Edition 2006), published by the State Bar of Wisconsin.

Authors

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