Could Your Nonprofit’s Chapters Be Considered “Franchises”

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Related Topic Area(s): Antitrust and Trade Regulation

A recent U.S. Court of Appeals for the Seventh Circuit decision held that the national Girl Scouts organization violated a Wisconsin franchise law when it attempted to take away territory from a local chapter as a part of the national organization’s broader plan to reorganize local council boundaries. In this case, Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the United States of America, Inc., the Manitou council sought to enjoin the national organization from transferring all of its territory in Wisconsin, arguing that the local Manitou chapter (called a “council”) was a “dealer” under Wisconsin law and that such action would be violating the Wisconsin Fair Dealership Law without good cause. While the transfer of all of the Manitou council’s territory would not have served to dissolve the Manitou council as an entity, it would have prevented it from representing itself as a Girl Scouts organization and from otherwise using Girl Scouts trademarks, which the Court characterized as a “constructive termination.”

Background

The Girl Scouts of the United States of America, Inc. is a nonprofit organization that was founded in 1912 and incorporated in 1950 by an Act of Congress. In 2004, a time when there were over 300 local Girl Scout councils across the country, the national organization determined it would cut back drastically the number of local councils and expand the surviving councils’ boundaries. Each council is party to a charter agreement. According to the Court’s decision, the agreement with the Manitou council did not permit the national organization to change its territory at the time the national organization attempted to take away the council’s territory, though the council had agreed to be subject to a rule that allowed the national organization to have the final say over “all matters concerning jurisdictional lines.”

The Court noted that the Manitou council and the national Girl Scouts organization relied heavily on the sale of cookies and other merchandise for fundraising.

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Published In: Antitrust & Trade Regulation Updates, Franchise Updates, Nonprofits Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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