The Franchise Memorandum

In Girls Scouts Manitou Council, Inc. v. Girls Scouts Of The United States Of America, Inc., Bus. Franchise Guide (CCH) ¶ 14,037 (7th Cir. Dec. 15, 2008), the Seventh Circuit held that a local Girl Scout council was entitled to the protections of the Wisconsin Fair Dealership Law as a “dealer” and issued an injunction preventing the Girls Scouts of the United States of America, Inc. from reducing the size of the council’s territory. This case arose out of the GSUSA’s attempt to consolidate its national network of local councils into fewer, larger organizations. Girls Scouts Manitou Council, Inc., a local council whose territory included part of Wisconsin, refused to accept the reorganization plan. In response, GSUSA restricted the size of the council’s territory. The council then filed a motion for a preliminary injunction to prevent this action, arguing that the reduction in its territory violated the WFDL because it was a unilateral “change in competitive circumstances” without “good cause.” After its injunction motion was denied by the district court, the council appealed. 

In overturning the district court’s decision, the Seventh Circuit explained that the WFDL applies to relationships between a grantor and a dealer when there is  an agreement, giving the dealer the right to distribute goods or use the trademarks of the grantor and there is a “community of interest” between the parties. Although the primary purpose of Girl Scout councils is to promote scouting, the court recognized that the councils also earn money to support their activities through the sale of the Girl Scouts’ famous cookies. Thus, the court found the WFDL applied to the relationship between the GSUSA and the council and that the latter was a “dealer” under its provisions. The court noted, for example, that the council’s charter granted it a territory to distribute goods and services and use of GSUSA’s trademarks. Moreover, there was a “community of interest” between the GSUSA and the council because the local entity devoted itself to the promotion of girl scouting and had no ability to seek out other “grantors” of girl scouting—because there were none. (See discussion of Kay Beer Distributing, Inc. v. Energy Brands, Inc., above, for further discussion of “community of interest” test under WFDL.) 

The Seventh Circuit determined that GSUSA likely did not have “good cause” under the WFDL to restrict the council’s territory. It noted that GSUSA had not contended that the council had violated its charter. In addition, although the WFDL provided that there was “good cause” for changing a dealer’s territory if a grantor had substantial operating losses and its reorganization strategy was designed to improve profitability, such was not the case here. The Seventh Circuit found instead that the GSUSA enjoyed healthy and substantial revenues paid by local councils. Moreover, the Seventh Circuit called into question GSUSA’s motives. Although GSUSA had a stated policy to consolidate councils with fewer territories, it had actually reduced the size of the council’s territory. Finding that the council would likely succeed on its claims, the Seventh Circuit granted the injunction preventing the reduction in territory pending a ruling on the merits.