The Franchise Memorandum

The Seventh Circuit Court of Appeals recently affirmed the dismissal of a retailer’s complaint that a manufacturer violated the Wisconsin Fair Dealership Law by terminating it as an authorized retailer without cause or sufficient notice. Watch Co., Inc. v. Citizen Watch Co. of Am., Inc., 2022 WL 1535262 (7th Cir. May 16, 2022). Citizen implemented certain requirements for its retailers, like plaintiff WatchCo, before the retailer could sell its watches on third-party websites. When WatchCo continued to sell Citizen watches on third-party websites without meeting those requirements, Citizen terminated WatchCo as an authorized retailer. WatchCo sued Citizen, alleging under the Wisconsin Fair Dealership Law that the termination lacked the required good cause and notice. The district court dismissed the complaint, holding that WatchCo had failed to plausibly allege that the parties’ agreement was a “dealership” within the meaning of the statute. WatchCo appealed.

The Seventh Circuit affirmed the lower court’s ruling, focusing on WatchCo’s failure to sufficiently allege that there was a community of interest between the parties, a requirement to meet the definition of dealership under the statute. To properly allege a community of interest, a putative dealer must plead a continuing financial interest between the manufacturer and the dealer in either the operation of the dealership business or the marketing of the relevant goods or services. The court held that the 10.7% of WatchCo’s revenue that derived from selling Citizen watches was insufficient to establish a community of interest. Further, WatchCo failed to plead that it made substantial, unrecoverable investments to become a Citizen dealer – at the time of termination, WatchCo had some $186,000 of Citizen watches, but remained free to sell that inventory to recoup what it spent to acquire the inventory and to advertise Citizen watches.