Kealey Pharmacy & Home Care Services, Inc. v. Walgreen Co.

• Decision Date: 03 June 1985
• Docket Number: No. 84-1865,84-1865
• Citation: 761 F.2d 345
• Parties: KEALEY PHARMACY & HOME CARE SERVICES, INC., et al., Plaintiffs- Counterdefendants-Appellees, v. WALGREEN COMPANY, Defendant-Counterplaintiff-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 345

761 F.2d 345

KEALEY PHARMACY & HOME CARE SERVICES, INC., et al., Plaintiffs- Counterdefendants-Appellees, v. WALGREEN COMPANY, Defendant-Counterplaintiff-Appellant.

No. 84-1865.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 7, 1984.

Decided April 19, 1985.

Rehearing and Rehearing En Banc Denied June 3, 1985.

Stanley M. Lipnick, Arnstein, Gluck, Lehr, Barron & Milligan, Chicago, Ill., for defendant-counterplaintiff-appellant.

Richard E. Rosenberg, Nowlan & Mouat, Janesville, Wis., for plaintiffs-counterdefendants-appellees.

Before CUMMINGS, Chief Judge, ESCHBACH, Circuit Judge, and GRANT, Senior District Judge. ^*

CUMMINGS, Chief Judge.

In September 1980, thirteen independently owned drugstores located in various southern Wisconsin towns sued defendant Walgreen Company, an Illinois corporation which operates company-owned drugstores throughout the United States. Prior to October 1, 1980, it also sold its and others' drug, beauty aid and household commodity products nationwide through fourteen hundred independently owned drugstores pursuant to a standard "Dealership Agreement." Plaintiffs sued for injunctive and monetary relief under the Wisconsin Fair Dealership Law (WFDL), WIS.STATS. Sec. 135.01 et seq., in state court, but the suit was removed by defendant to the Western District of Wisconsin by virtue of diversity jurisdiction (28 U.S.C. Sec. 1332). Paragraph "Fourth. (d)" of the Dealership Agreement with plaintiff Willis Drug provided that "[i]n the event Walgreen determines at any time to discontinue all similar Dealer's agreements, it may, at its option, terminate all agreements * * * upon a thirty days' written notice to the Dealer" (App. A5). Similar language appeared in paragraph "Fourth. (c)" of the defendant's Dealership Agreements with the other plaintiffs (App. A40).

On April 14, 1980, defendant decided to terminate all its Dealership Agreements effective October 1, 1980, on the ground that the dealers were producing an inadequate rate of return. Defendant so notified its fourteen hundred dealers by letter of April 17th. This action prompted the thirteen plaintiffs to sue. Because two of the pharmacies, Bernie's Walgreen Agency and Genoa City Pharmacy, had executed Dealership Agreements with defendant before the April 1974 effective date of the WFDL, the district court dismissed them from the suit and granted defendant summary judgment with respect to their claims on June 1, 1982. 539 F.Supp. at 1362-1363. This appeal by defendant involves the prevailing remaining eleven drugstores.

In her June 1982 opinion (Kealey Pharmacy & Home Care Service, Inc. v. Walgreen Co. (Kealey I ), 539 F.Supp. 1357 (W.D.Wis.1982)), Judge Crabb ruled that the WFDL applied to the parties and permitted Walgreen to terminate dealerships only for good cause, which was defined in Section 135.02 of the statute as:

(a) Failure by a dealer to comply substantially with essential and reasonable requirements imposed upon him by the grantor, or sought to be imposed by the grantor, which requirements are not discriminatory as compared with requirements imposed on other similarly situated dealers either by their terms or in the manner of their enforcement; or

(b) Bad faith by the dealer in carrying out the terms of the dealership.

The court rejected defendant's argument that the Wisconsin Act permitted these nondiscriminatory, evenhanded and impartial terminations whose adverse impact upon the suing dealers would be much the same. Instead the court ruled that "a Wisconsin court would conclude that the [WFDL] law was intended to, and does, cover nondiscriminatory, across-the-board terminations of dealerships even if those terminations are undertaken because the grantor decides to withdraw from an entire geographic area, or to cease production of the products sold by its dealers, or to change its marketing structure, or for any other business reason." 539 F.Supp. at 1368.

The defendant's attack on the constitutionality of the WFDL was also rejected, but the court concluded that since the plaintiffs could be compensated adequately by an award of damages, no injunctive relief would be granted. Plaintiffs were awarded partial summary judgment on the issue of defendant's liability for damages. 539 F.Supp. at 1371.

The district court handed down its second opinion, Kealey II, in April 1984 after trial to the court on the issue of damages. ¹ The eleven drugstore plaintiffs were awarded $431,182 pursuant to the WFDL. Included in this amount were their attorney's fees of $75,407 and costs of $15,428 which are reimbursable under Section 135.06 of the statute. ²

Except for a dispute between the parties about preverdict interest, the district court's judgment is affirmed.

I. Applicability of the Wisconsin Fair Dealership Law

On appeal, Walgreen's first argument is that its agreements with plaintiffs were not within the scope of the WFDL, which provides that "No grantor * * * may terminate * * * a dealership agreement without good cause" (Section 135.03). Even though each recent agreement in question was drafted by defendant and entitled "Dealership Agreement" ³ (App. AA-3), Walgreen nevertheless contends that the agreements were not "dealership agreements" within the meaning of the WFDL. Formerly Walgreen had admitted that the plaintiffs were dealers within the meaning of the Act (539 F.Supp. at 1361-1362) and raised this issue for the first time at the trial on damages. In its about-face, Walgreen relies particularly on Kania v. Airborne Freight Corp., 99 Wis.2d 746, 300 N.W.2d 63 (1981); Foerster, Inc. v. Atlas Metal Parts Co., 105 Wis.2d 17, 313 N.W.2d 60 (1981), and Wilburn v. Jack Cartwright, Inc., 719 F.2d 262 (7th Cir.1983). The Foerster and Wilburn cases, however, merely determined that the WFDL does not apply to manufacturer's representatives whereas here, as the district court held, the plaintiffs met all the statutory elements for dealerships (App. A20), ⁴ with the court noting that "community of interest" as defined in Section 135.02(4) only requires "a continuing financial interest by the grantor and the grantee in either the operation of the dealership business or the marketing of such goods or services" and that "plaintiffs and defendant had a community of interest in the business of selling defendant's goods at retail" (App. A23 n. 5 and A24). Since the Wisconsin legislature defined "dealer" in Section 135.02(5) as a person "who is a grantee of a dealership situated in this state" and the term "dealership" was also broadly defined (supra n. 4), Walgreen's construction of the statute must be rejected. ⁵ As the Fifth Circuit pointed out referring to another grantor in C.A. May Marine Supply Co. v. Brunswick Corp., 557 F.2d 1163 (5th Cir.1977), there is no merit in Walgreen's assertion that there was no "dealership" within the meaning of the WFDL because "The contract refers to the plaintiff as a 'dealer' and the ongoing duties of advertising, repair, warranty work and financial solvency establish the 'community of interest' required by the statute." 557 F.2d at 1164. Similarly here, as observed in the opinion in Kealey II, plaintiffs shared defendant's interest in the promotion of its name and reputation and made substantial financial investments in their stores and fixtures, in their Walgreen signs and Walgreen inventory. They displayed the Walgreen trademark prominently outside their stores and on the labels of their prescription drug containers. In addition, they spent their own money for advertising, sold directly from their Walgreen inventory to customers, extended credit and assumed all risks of late payment or nonpayment. They depended on their affiliation with Walgreen for their image, thus advising the public that their drugstores furnished the quality service and low prices associated with Walgreen. In sum, they shared Walgreen's interest in the promotion of its name and reputation for service, integrity and value. (App. A19-21.) Therefore these pharmacies were dealers just as much as the dealer involved in the C.A. May Marine Supply Co. case.

Walgreen also relies upon Foerster in contending that the WFDL only applies to dealers where 50% to 60% of the dealer's products come from one primary source. But the Act makes no such limitation; instead the legislation was intended "to protect the thousands of small businessmen in Wisconsin who are franchisees." Foerster, 105 Wis.2d at 24. To this end the Wisconsin legislature provided that the WFDL was to "be liberally construed and applied to promote its underlying remedial purposes and policies" (Section 135.025(1)), two of which are:

(b) To protect dealers against unfair treatment by grantors, who inherently have superior economic power and superior bargaining power in the negotiation of dealerships; [and]

(c) To provide dealers with rights and remedies in addition to those existing by contract or common law;

Section 135.025(2)(b) and (c). Indeed the Wisconsin Supreme Court has pointed out that the statute was enacted to protect the interests of the dealer "whatever its size." Rossow Oil Co. v. Heiman, 72 Wis.2d 696, 242 N.W.2d 176, 202 (1976). Consequently we have applied the statute to a plaintiff dealer whose purchases from the defendant amounted to no more than four percent of its total sales in any year. ⁶ Reinders Bros. v. Rain Bird Eastern Sales Corp., 627 F.2d 44 (7th Cir.1980).

Defendant's counsel argues that the Wisconsin statute does not apply to blanket terminations of dealerships such as occurred here. But the statute prohibits a grantor such as Walgreen from terminating "a dealership agreement without good cause" (Section 135.03). The good cause definition in Section 135.02, supra p. 348, does not permit blanket terminations of dealerships such as those effected by Walgreen. Under Section 135.03, "the burden of proving good cause is on the grantor" with respect to the termination of every dealership. Even though d...