Appeal from the United States District Court for the Western District of Wisconsin. No. 87-C-920-S--John C. Shabaz, Judge.
Cudahy and Kanne, Circuit Judges, and Will, Senior District Judge.*fn*
In the appeal of this diversity action, we are asked to interpret the Wisconsin Fair Dealership Law, Wis.Stat. §§ 135.01 et seq. (WFDL). East Bay Running Store, Inc., a retailer of athletic shoes and associated apparel, commenced an action against NIKE, Inc. alleging a violation of §§ 135.03 and 135.04 of the WFDL. Specifically, East Bay claimed that NIKE's decision to prohibit the sale of NIKE AIR products by mail or telephone altered the terms of East Bay's dealership agreement with NIKE. NIKE moved for summary judgment claiming that the restriction did not substantially change the dealership agreement with East Bay and therefore was not, as a matter of law, within the scope of the WFDL's protection. The district court agreed and granted NIKE's motion for summary judgment. East Bay appeals from that decision. We affirm.
East Bay Running Store, Inc., a Wisconsin corporation with its principal place of business in Wausau, Wisconsin, is engaged in the business of retail sales of athletic shoes and associated athletic apparel. In its store in Wausau, East Bay sells a wide variety of products from various manufacturers of sporting apparel, including NIKE. Three methods of marketing athletic apparel are utilized by East Bay: 1) face-to-face sales to customers that visit the Wausau store; 2) telephone and mail-order sales from East Bay's catalogs; and 3) direct solicitation to schools, sports clinics and other places. East Bay claims that its mail-order sales constitute the majority of its business.
NIKE, Inc., an Oregon corporation with its principal place of business in Beaverton, Oregon, is a supplier of athletic apparel to retailers throughout the United States. In 1983, NIKE introduced a new product line called "NIKE AIR." The distinguishing feature of this new product was the injection of encapsulated, pressurized Freon gas into a sealed thermal plastic liner in the mid-sole of the athletic shoe. NIKE AIR is NIKE's top-of-the-line athletic shoe. As the popularity of NIKE AIR products soared, this new feature was added to more of NIKE's athletic shoes.
In January of 1981, East Bay placed its initial order with NIKE.*fn1 Over the course of the next six years, NIKE was instrumental in the development of East Bay's flourishing mail-order business for NIKE products. Specifically, NIKE helped subsidize the printing costs of the mail-order catalogs. Further, NIKE approved the use of the NIKE trade name, trade marks and advertising personalities in East Bay's catalogs. To further promote its business in this regard, East Bay implemented several policies to ensure that its mail-order customers were pleased with the style and fit of their mail-order athletic shoes. The result of this combined effort is evident from the following figures. Fifty-five percent of East Bay's $7.8 million in total sales is derived from the sales of NIKE products. Moreover, between ninety and ninety-five percent of East Bay's business is associated with its mail-order sales operation. By 1987, sales of NIKE AIR products accounted for twenty-nine percent of East Bay's total sales and fifty-five percent of East Bay's NIKE sales.
On October 1, 1987, NIKE notified all of its dealers in the United States that NIKE AIR products would no longer be available to them for resale by mail, catalog, or electronic means.*fn2 NIKE's purpose in imposing the restriction was to prevent "free-riding" and to insure that the consumers of the NIKE AIR product line receive personal individualized attention.
East Bay commenced suit in the Circuit Court for Marathon County, Wisconsin. That court, on November 15, 1987, entered an ex parte restraining order precluding NIKE from terminating East Bay's supply of NIKE AIR products. NIKE subsequently removed the case to federal court under 28 U.S.C. § 1441(a) with diversity as its jurisdictional base. Once in federal court, East Bay claimed that the provisions of the WFDL prohibit the restriction on mail-order sales of NIKE AIR products. NIKE moved for summary judgment arguing that recovery was not available under § 135.03 of the WFDL in that the "no mail-order" restriction was not a substantial change in the competitive circumstances of their dealership agreement. In granting NIKE's motion for summary judgment, the district court relied on this court's decision in Remus v. Amoco Oil Co., 794 F.2d 1238 (7th Cir.), cert. dismissed, 479 U.S. 925, 107 S. Ct. 333, 93 L. Ed. 2d 345 (1986), and concluded that NIKE's non-discriminatory, system-wide indirect sales limitation did not "substantially change the competitive circumstances" of East Bay and, as such, did not implicate § 135.03 as it has been interpreted by the courts.
Under § 135.03 of the Wisconsin Fair Dealership Law, "no grantor . . . may terminate, cancel, fail to renew or substantially change the competitive circumstances of a dealership agreement without good cause." (emphasis added).*fn3 As a preliminary matter, it is important to note that this appeal is not about the termination, cancellation, or non-renewal of a dealership agreement. Cf. Kealey Pharmacy & Home Care Services, Inc. v. Walgreen Co., 761 F.2d 345 (7th Cir. 1985); Ziegler Co., Inc. v. Rexnord, Inc., 147 Wis. 2d 308, 433 N.W.2d 8 (1988); Bresler's 33 Flavors Franchise Inc. v. Wokosin, 591 F. Supp. 1533 (E.D.Wis. 1984). Rather, the issue we must address is whether NIKE's actions in this case -- instituting the policy that all NIKE dealers sell the NIKE AIR line of athletic apparel in a face-to-face manner -- substantially changed the competitive circumstances of the dealership agreement such that the WFDL is implicated.
East Bay contends that the district court's conclusion that § 135.02 was not implicated in this case is based upon a misreading, and consequently, a misapplication of this circuit's decisions in Kealey Pharmacy & Home Care Services, Inc. v. Walgreen Co. and Remus v. Amoco Oil Co.*fn4 Initially, East Bay maintains that NIKE's actions in this case did amount to a substantial change in the competitive circumstances of their dealership agreement. Based on this premise, East Bay asserts that the statutory framework of the WFDL requires that a grantor's unilateral decision which precipitates substantial changes in the competitive circumstances of a dealer be supported by good cause. East Bay proceeds to argue that good cause can only be established upon the grantor's showing that its action is not only non-discriminatory, but also "essential" and "reasonable." See Ziegler Co., Inc. v. Rexnord, Inc., 147 Wis.2d 308, , 433 N.W.2d 8, 13 (Wis. 1988). Relying on this construction of the WFDL, East Bay argues that the district court incorrectly focused on the "nondiscriminatory" requirement and failed to consider whether NIKE's actions were "essential" and "reasonable."
Under the plain language of § 135.03, the "good cause" requirement is not implicated without an initial finding that NIKE has terminated, cancelled, failed to renew, or substantially changed the competitive circumstances of the dealership agreement. As stated above, the issue in this appeal revolves around the latter concern. In that we agree with the district court that NIKE's actions in this case did not amount to a substantial change in the ...