Seventh Circuit Rules Franchisee Need Not Adopt New Pricing Policy for Now

The Seventh Circuit Court of Appeals has determined that a Steak ‘n Shake franchisee in Illinois was entitled to a preliminary injunction to stop the implementation of a new Steak ‘n Shake policy for menu pricing and promotions. Stuller, Inc. v. Steak N Shake Enters., Inc., No. 11-2656 (7th Cir., decided August 24, 2012). The franchisee, in operation for more than 70 years, owns five restaurants and is the oldest Steak ‘n Shake franchisee in the country. While Steak ‘n Shake controls many aspects of restaurant management, some aspects are left to individual franchisees. Plaintiff Stuller, Inc. has had the ability to set menu prices throughout its history, but in June 2010, Steak ‘n Shake demanded that all franchisees follow its menu pricing and promotions.

Stuller brought a declaratory judgment action against Steak ‘n Shake after
the franchisor threatened to terminate Stuller’s franchises for refusing to
implement the new policy. The district court, concluding that “the termination
of the franchises that would occur if Stuller did not implement the policy
was not a self-inflicted injury and that the loss of the franchises constituted
irreparable harm,” entered the injunction barring Steak ‘n Shake from taking
adverse action during the pendency of the litigation.

On appeal, finding sufficient evidence in the record to show that Steak ‘n
Shake’s policy would harm the franchisee’s business, the Seventh Circuit
affirmed. In a footnote, the court found further support for the likelihood that
Stuller would prevail on the merits, as the district court had, while the appeal
was pending, denied Steak’n Shake’s motion for summary judgment on all claims, granted Stuller’s motion for summary judgment on its first claim and
set a trial date to address the issue of damages.