Steak n Shake pays settlement to former ad agency

Steak n Shake, which last year lost a breach-of-contract lawsuit brought by its former advertising agency, has settled the case through mediation rather than let the court decide damages.

The Indianapolis-based restaurant chain quietly agreed in mid-February to pay $237,500 to the bankruptcy estate of former Varnson Group CEO Alan Varnson, ending a high-profile legal fight that began in July 2009.

The case was officially dismissed March 29, avoiding a trial that had been scheduled for Monday to determine damages.

Steak n Shake signed a $4.36 million, 26-month contract with the now-defunt Buford, Ga.-based Varnson Group in November 2008.

The signing drew wide notice in advertising circles because it marked the first agency switch for Steak n Shake in nearly two decades. The restaurant chain parted ways with Indianapolis-based Young & Laramore, its ad agency of 18 years, earlier in 2008.

But Steak n Shake’s relationship with Varnson soured almost immediately and it fired the firm less than three months after signing the contract for undisclosed reasons. Industry sources said at the time that the restaurant chain wasn’t happy with the speed in which Varnson was working on a new ad campaign.   

The two firms sued each other after the breakup, with Varnson claiming Steak n Shake failed to live up to the contract agreement and the chain claiming the now-defunct ad agency refused to return proprietary materials.

Steak n Shake signed a contract with Varnson that would pay the ad agency $178,333 per month, court documents said. The contract stipulated that the deal could be cancelled by Steak n Shake at any time, but that the agreement would continue for 90 days after the company gave termination notice to Varnson officials.

Last September, a district court in Indiana ruled that Steak n Shake breached its contract with Varnson. It said damages would be determined at another trial or through settlement.

The settlement won’t go to principals of the agency, which declared Chapter 7 bankruptcy and went out of business later in 2009. The damages, said Varnson trust representatives, would go to settle outstanding debt.

More than a third of the settlement, however, will go to two law firms, with Indianapolis-based Stewart & Irvin collecting $81,316 and Louisville-based Bingham Greenebaum Doll LLP getting $9,025.