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Steak ’n Shake loses appeal over franchisee’s independent pricing

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A longtime Steak ’n Shake franchisee who sued the chain after it insisted on setting prices for menu items prevailed again Friday as the 7th Circuit Court of Appeals affirmed an Illinois federal court’s ruling in the franchisee’s favor.

The U.S. District Court for the Central District of Illinois granted franchisee Stuller Inc. a preliminary injunction to stop implementation of a policy Steak ’n Shake announced in 2010 in which the company set prices for all menu items at its company-owned and franchise stores.

“The record contains sufficient evidence to find, as a threshold matter, that Stuller would suffer irreparable harm if it was forced to implement Steak N Shake’s pricing policy. Specifically, Stuller has presented evidence that the policy would be a significant change to its business model and that it would negatively affect its revenue, possibly even to a considerable extent,” 7th Circuit Judge Daniel Manion wrote for the unanimous panel.

Springfield, Ill.-based Stuller operate five Illinois Steak ’n Shake restaurants under franchise agreements with predecessors that date back to 1939, making it the oldest franchise in the country, according to Manion’s opinion. “In all that time, Stuller has had the ability to set menu prices,” he wrote.

Stuller sued when Steak ’n Shake said it would terminate the franchises if Stuller refused to adopt a new policy of uniform prices and promotions. It won the injunction while the court considers Stuller’s request for a declaratory judgment that it wasn’t required to comply with the policy. Stuller also accused Steak ’n Shake of breach of contract and violation of the Illinois Franchise Disclosure Act.  

In its interlocutory appeal, Indianapolis-based Steak ’n Shake argued that the injunction should not have been granted, citing the court’s ruling in Second City Music, Inc. v. City of Chicago, 333 F.3d 846, 850 (7th Cir. 2003) that stated “Injury caused by failure to secure a readily available license is self-inflicted, and self-inflicted wounds are not irreparable injury.”

“Steak N Shake misreads our decision in Second City,” Manion wrote.

“We acknowledge that Steak N Shake contests the validity and strength of the evidence presented by Stuller, but that argument goes to the ‘sliding scale analysis’ conducted by a court in deciding to grant or deny a preliminary injunction, and not to Stuller’s threshold requirements. In addition, if Stuller implemented Steak N Shake’s policy and subsequently prevailed on the merits of its case, it would be difficult to reestablish its previous business model without a loss of goodwill and reputation. Because this is harm that cannot be ‘fully rectified by the final judgment after trial,’ it is irreparable,” the court ruled.

In a footnote, the court said, “We also note that a review of the district court’s docket sheet indicates that the district court issued an opinion on July 12, 2012 denying Steak N Shake’s motion for summary judgment on all the claims, granting Stuller’s motion for summary judgment (for a declaratory judgment), and denying Stuller’s motion for summary judgment on (breach claims) and setting a trial date in September on the issue of damages. Because Stuller’s case now has a greater likelihood of success, the balance of harms when granting an injunction weighs even more in Stuller’s favor.”


 

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  1. I grew up on a farm and live in the county and it's interesting that the big industrial farmers like Jeff Shoaf don't live next to their industrial operations...

  2. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  3. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  4. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  5. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

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