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August 8, 2011
Summer Court Update: 7th Circuit Applies Franchise Law to Girl Scouts; Pastor Housing Allowance Suit Dropped
There were two notable federal court developments recently.
In Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the United States of America, Inc., the U.S. Court of Appeals for the Seventh Circuit concluded the Wisconsin Fair Dealership Law applied with equal force to nonprofit organizations as well as for-profit organizations. Writing for a unanimous panel, Judge Posner rejected a First Amendment challenge to the application of the law and then stated, in concluding that the dissolution of the local chapter by the national Girl Scouts organization violated the law, the following:
"No gulf separates the profit from the nonprofit sectors of the American economy. There are nonprofit hospitals and for-profit hospitals, nonprofit colleges and for-profit colleges, and, as we have just noted, nonprofit sellers of food and for-profit sellers of food. When profit and nonprofit entities compete, they are driven by competition to become similar to each other. The commercial activity of nonprofits has grown substantially in recent decades, fueled by an increasing focus on revenue maximizing by the boards of these organizations, and this growth has stimulated increased competition both among nonprofit enterprises and with for-profit ones." He then reasoned: "Dealer protection laws are aimed at such abuses, though they also and perhaps predominantly reflect the political influence of local businessmen seeking advantages over franchisors likely to be located in other states. . . . . Either way the concerns that motivate the laws seem applicable to nonprofit enterprises that enter into dealership agreements as defined in the laws, and so, as in our previous opinion, we decline to read an exception for nonprofit enterprises into the Wisconsin law." (citations omitted) For a detailed commentary on this decision, see this Charity Governance blog post by Jack Siegel.
As for the other case, the Evangelical Council for Financial Accountability reported that the Freedom from Religion Foundation and other plaintiffs had voluntarily agreed with the defendant federal and state government officials to dismiss (without prejudice) their lawsuit challenging the constitutionality under the Establishment Clause and the California Constitution of the ministerial housing allowance exemptions found in Internal Revenue Code section 107 and a parallel state tax provision. The ECFA press release provided a link to the stipulation of dismissal. We previously blogged about the case, and about the Supreme Court's recent decision in Arizona Christian School Tuition Organization v. Winn that we predicated likely would lead to dismissal of this case because the Court sharply limited standing to bring Establishment Clause challenges to tax provisions. The Freedom from Religion Foundation has not yet updated its public listing of information regarding this lawsuit, however, so it is not clear if they will try to overcome this standing issue at some point in the future.
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