In a shocking decision that will increase the cost of local governance and limit the ability of local governments to control their own affairs, the Wisconsin Supreme Court held last week that the Wisconsin Fair Dealership Law (“WFDL”) applies to municipalities. Benson v. City of Madison, 2017 WI 65. The remainder of this post discusses the municipal law implications of the decision; a companion post addresses additional aspects of the decision of interest to those who rely upon or follow the evolution of the WFDL.
The City of Madison owns four municipal golf courses. Beginning in 1977, the City contracted with golf pros, to operate, manage and provide services at the City-owned courses. Under the contracts, the golf pros were each responsible for one course, at which they collected green fees, hired and managed attendants, supervised golfing, operated the clubhouse and pro shop, sold concessions, and gave lessons; City employees handled all physical maintenance of the golf courses. On October 8, 2012 (less than 90 days before the most recent contracts’ expiration date of December 31, 2012), the City informed the golf pros that it would not be renewing their contracts.
The golf pros filed a lawsuit against the City. The lawsuit alleged that the City failed to comply with the WFDL in ending its contractual relationships with them and sought damages. Briefly, the WFDL, adopted in 1974, governs “dealerships,” which are specially defined contracts entered into between “grantors” and “dealers.” Wis. Stat. §§ 135.02-135.025. The WFDL prohibits grantors from terminating dealership contracts without good cause, Wis. Stat. § 135.03, and requires 90 days’ notice prior to termination, Wis. Stat. § 135.04. If a grantor violates the WFDL, a dealer may bring an action against such grantor for damages. Wis. Stat. § 135.06.
The circuit court dismissed the golf pros’ lawsuit on summary judgment, concluding that the relationships between the golf pros and the City did not constitute “dealerships” protected by the WFDL, Wis. Stat. § 135.02(3). When the golf pros appealed, the court of appeals affirmed. The golf pros appealed again, and the Wisconsin Supreme Court agreed to review the case.
The Wisconsin Supreme Court reversed, answering two principal questions in the affirmative: first, whether the WFDL applies to the City at all; and second, whether the relationships between the golf pros and the City are “dealerships” under the WFDL.
First, the Court determined that the WFDL applies to the City. To determine this issue, the Court started with the defined terms of the statute. The WFDL defines “dealer” as “a person who is a grantee of a dealership situated in this state,” Wis. Stat. § 135.02(2), and “dealership” as “[a] contract… between 2 or more persons, by which a person is granted the right to sell or distribute goods or services, or use a trade name, trademark, service mark, logotype, advertising or other commercial symbol, in which there is a community of interest in the business of offering, selling or distributing goods or services at wholesale, retail, by [contract],” Wis. Stat. § 135.02(3)(a). Because the terms dealer and dealership require a “person” to be a party to the contract, the Court then turned to the first issue—whether the City is a “person” under the WFDL. Again, the Court looked to the definitions in the WFDL and found that the WFDL’s definition of “person” included “corporation or other entity.” Wis. Stat. § 135.02(6). The Court concluded that because the City is a municipal corporation, it falls within the category of “corporation” and therefore qualifies as a person subject to the WFDL.
Second, the Court held that the contractual relationships between the golf pros and the City are “dealerships” under the WFDL. The Court found that all three statutory elements for a dealership were satisfied: (1) a contract between two or more persons existed; (2) the contract granted the golf pros the right to sell or distribute a City service (here, access to the golf courses); and (3) the golf pros’ business of selling the City’s services created a “community of interest.”
In dissent, Justices Shirley Abrahamson and Ann Walsh Bradley argued that the Fair Dealership Law should not apply because the City is not a “person” under the WFDL. Notably, the dissent emphasized that the majority’s analysis “neglects to address the relationship of the Dealership Law, municipal constitutional and statutory home rule, and other statutes governing governmental entities.” 2017 WI 65, ¶136.
The majority’s analysis failed to consider the City’s home-rule authority at all. This case continues the trend in Wisconsin cases of ignoring entirely, or limiting the extent of, municipal home rule. As the dissent notes, this decision has far-reaching consequences.
Contracts municipalities thought were terminable at will or on a specific date now may not be terminable without giving 90 days notice and having good cause. Lacking the funds to continue a contractual relationship does not fall within the WFDL’s definition of good cause. Thus, if a municipality does not have sufficient funds to renew a contract, it may face the choice of either cutting essential services or getting sued by its golf pros or other contractors for violation of the WFDL.
In considering future contracts, municipalities will need to assess whether their contractual relationships might be considered dealerships and if there is a way to avoid that status. The municipality may decide not to provide certain services rather than take the chance of being bound under the WFDL.
Until or unless the law is changed in light of this decision, the Benson case will certainly give municipalities pause when considering privatizing municipal functions.