Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

GIRL SCOUTS OF MANITOU COUNCIL v. GIRL SCOUTS OF THE UNITED STATES OF AMERICA (May 31, 2011)

The Girl Scouts of the United States of America is the national Girl Scouts organization. It charters local councils, authorizing them to use the "Girl Scout" mark and sell Girl Scout cookies. One of those councils is the Manitou Counsel in eastern Wisconsin. Several years ago, the national organization decided to reduce the number of local councils. Manitou was one of the councils that would disappear under the reorganization. Manitou brought suit under the Wisconsin Fair Dealership Law. It obtained a preliminary injunction stopping the restructuring. However, on the merits, Judge Stadtmueller (E.D. Wis.) granted summary judgment to the national organization, concluding that applying the Wisconsin law to the national organization would violate their First Amendment freedom of expression rights. Manitou appeals.

In their opinion, Judges Posner, Kanne, and Tinder affirmed in part, reversed in part, and remanded. The Court rejected the First Amendment argument. Although the national organization's activities do include protected expression, that does not mean they are exempt from state laws that have a remote, at worst, impact on that expression. The national organization claims that its First of Amendment protection comes from its attempts to reorganize its structure to become more racially and ethnically diverse. The Court noted that there was actually no evidence in the record connecting diversity with the reorganization. Without that connection, the argument fails. The Court turned to the alternative argument, rejected by the district court, that the national organization's activities do not violate the Wisconsin Fair Dealership Law. The Court first refused to recognize a statutory exemption for non-profits. Next, the Court concluded that the statute required "good cause" to eliminate the council entirely, even though the national organization had the right to alter territory boundaries. They Court wrestled with a definition of "good cause" but ultimately found no need to resolve it. It concluded that: a) the national organization abandoned its argument that business reasons provided the good cause, and b) it found its argument that its expressive activity provided good cause unsupported by the record. The Court also affirmed the dismissal of the common law claims and ordered the reinstatement of the injunction.

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GIRL SCOUTS OF MANITOU COUNCIL v. GIRL SCOUTS OF THE UNITED STATES OF AMERICA (December 15, 2008)

Juliette Low founded the Girl Scouts of the United States of America (“GSUSA”) in 1912. GSUSA is run by a national council and its board of directors. In its almost 100 years of existence, GSUSA has developed a large network of local girl scout councils. GSUSA first chartered Girl Scouts of Manitou (“Manitou”) as a council in 1950. As of 2005, there were over 300 local councils. Each council has a charter issued by GSUSA that defines the relationship between the two and grants the council the right to maintain scouting throughout its jurisdiction. In 2005, GSUSA announced a plan to consolidate councils. It planned to reduce the number of councils to just over one hundred. Each council would be larger and, GSUSA hoped, more efficient. The plan would have required Manitou to merge 60% of its territory with six other nearby councils and cede 40% of its territory to two other councils. Manitou decided not to go along. It filed suit in February 2008 against GSUSA. It alleged breach of contract, tortious interference and a violation of the Wisconsin Fair Dealership Law. It sought to permanently enjoin GSUSA from altering its territory. The district court denied Manitou’s request for a preliminary injunction without a hearing. The court held that Manitou had failed to demonstrate that it would suffer irreparable harm in the absence of the injunction. Manitou appeals.

In their opinion, Judges Posner, Kanne and Tinder reversed and entered the requested order enjoining GSUSA. The Court led off with the familiar two-phase test for a preliminary injunction. A movant must demonstrate: a) irreparable harm, b) inadequate legal remedy, and c) a likelihood of success. The movant who succeeds in that first phase enters a second phase in which the court balances the injury to the plaintiff, its likelihood of success, the possible injury to the defendant if the injunction issues, and the public interest. The court uses a balancing test in which the greater the plaintiff’s likelihood of success, the less the balance of harm needs to be in its favor. Applying that test, the Court first addressed irreparable harm, the only of the first-phase factors addressed by the district court. The Court disagreed with the court below. It found that Manitou’s loss of jurisdiction would severely affect its ability to generate revenue and harm its goodwill. That harm would not be rectified if a final judgment were entered in its favor and the loss of jurisdiction reversed. The Court also disagreed with the court below on the application of the Wisconsin Fair Dealership Law, under which a “dealer” in Manitou’s circumstances enjoys a statutory presumption of irreparable harm. The Court found that Manitou fit within the statutory definition of “dealer” in the act.

Having found that Manitou established irreparable harm and also noting that the record contained sufficient information to address the rest of the two-phase analysis without remand, the Court proceeded to do so. The Court found that the timing of and difficulty in calculating a damages award established that Manitou’s legal remedies were inadequate. On the likelihood of success factor, the Court noted that it only had to find a “better than negligible” chance of success to satisfy this prong. The Court evaluated only the Wisconsin Fair Dealership Law claim and found that Manitou satisfied that minimal standard.

In addressing the balancing portion of the test, the Court found a “drastic imbalance” in favor of Manitou. The Court noted that the national GSUSA program to consolidate regions was not even scheduled to be completed for a year. Any delay in the Wisconsin part of that plan would not lead to any harm to GSUSA. In addition, any harm to GSUSA could be rectified later. The Court did not feel the need to conduct a deeper analysis of Manitou’s likelihood to succeed given the imbalance of the harm.

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