The Seventh Circuit held that the Girl Scouts violated the Wisconsin Fair Dealership Law by dissolving a local Wisconsin chapter of the organization (‘Manitou’) ‘without good cause.’ In this case, the Girl Scouts attempted to dissolve its affiliate, the Manitou council, as a part of its nationwide reorganization. Manitou refused to participate in the reorganization and filed suit in U.S. District Court for the Eastern District of Wisconsin seeking to enjoin the Girl Scouts from taking its territory.
Manitou alleged, among other things, that the Girl Scouts had violated the Wisconsin Fair Dealership Law’s requirement that a grantor of a dealership may not ‘terminate, cancel, fail to renew or substantially change the competitive circumstances of a dealership agreement without good cause.’ The District Court granted summary judgment in the Girl Scouts favor, finding that applying the Wisconsin Fair Dealership Law to the Girl Scouts would violate the organization’s freedom of expression guaranteed by the First Amendment to the U.S. Constitution.
On appeal, the Seventh Circuit rejected the District Court’s analysis, finding that the Wisconsin Fair Dealership Law prevented the Girl Scouts from altering the Manitou council’s boundaries without showing ‘good cause.’ The Seventh Circuit rejected the Girl Scout’s argument that the organization’s nonprofit status insulated it from the Wisconsin Fair Dealership Law, finding the law applied to both nonprofit and for-profit entities. The Seventh Circuit also rejected the Girl Scout’s argument that its decision to dissolve the Manitou council was protected by the First Amendment.
The structure used by the Girls Scouts is a common one for trade associations and charitable organizations which have state or local affiliates. The decision should be a reminder to all companies which use or plan to use independent affiliates within the U.S. to review the franchise laws in the states where they plan to have affiliates and determine the possible impact of those laws on the structure of their agreements with their affiliates.
Carl Zwisler, IDI franchising Country Expert for U.S.A. and Katherine L. Wallman, Gray Plant Mooty, Washington, D.C.