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Court rules Steak n Shake broke pact with ad agency

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A District Court in Indiana this week ruled that Steak n Shake breached its contract with its former advertising agency, Georgia-based The Varnson Group.

Steak n Shake signed a $4.36 million, 26-month contract with Varnson in November 2008, but fired the firm less than three months later for undisclosed reasons. 

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 restaurant chain claiming the now-defunct ad agency refused to return proprietary materials.

Steak n Shake signed a contract with Varnson on Nov. 1, 2008, 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 Indianapolis-based restaurant chain gave termination notice to Varnson officials.

Attorneys for Varnson contended that the contract stipulated that the ad firm would be paid through the entirety of that 90-day period and that Steak n Shake failed to render that payment after it terminated the deal in February 2009.

“We find entirely unconvincing Steak n Shake’s attempt to argue that Varnson earned only that portion of the monthly Scope of Service fee that corresponded with the services performed during that particular month,” the court ruling stated.

The summary judgment issued this week did not stipulate the amount of damages that would be awarded to Varnson. That amount must be determined by a trial unless the two sides settle.

If the court ruling finds Varnson must be paid the full amount for the entire 90-day period, Steak n Shake could have to cough up more than $500,000 for damages and legal fees.

However, if the case does go to trial, Varnson could be found liable for not returning Steak n Shake marketing materials in a timely manner after the contract was terminated. But damages for that offense are likely to be no more than $7,750.

Money paid to Varnson isn't likely to go into the pockets of principals of the agency, which declared bankruptcy and went out of business in the year after Steak n Shake pulled its business. Most or all of the damages, said Varnson representatives, would go to settle its outstanding debt.

If the case goes to trial, that wouldn’t likely be until the first half of next year, said Peter S. Kovacs, an attorney in the Indianapolis office of Stewart & Irwin, who was appointed by a bankruptcy court in Georgia to represent the Varnson Group trust.

Attorneys representing Steak n Shake could not be reached for comment Wednesday morning.

“It’s impossible to say if this case will be settled, but most cases like this do get settled,” Kovacs said. “So, I wouldn’t be surprised if the court directed the two sides to get together and try to hammer out a settlement.

Steak n Shake signed an $18 million advertising contract with New York-based Kirshenbaum Bond Senecal & Partners early last year.

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  1. to mention the rest of Molly's experience- she served as Communications Director for the Indianapolis Department of Public Works and also did communications for the state. She's incredibly qualified for this role and has a real love for Indianapolis and Indiana. Best of luck to her!

  2. Shall we not demand the same scrutiny for law schools, med schools, heaven forbid, business schools, etc.? How many law school grads are servers? How many business start ups fail and how many business grads get low paying jobs because there are so few high paying positions available? Why does our legislature continue to demean public schools and give taxpayer dollars to charters and private schools, ($171 million last year), rather than investing in our community schools? We are on a course of disaster regarding our public school attitudes unless we change our thinking in a short time.

  3. I agree with the other reader's comment about the chunky tomato soup. I found myself wanting a breadstick to dip into it. It tasted more like a marinara sauce; I couldn't eat it as a soup. In general, I liked the place... but doubt that I'll frequent it once the novelty wears off.

  4. The Indiana toll road used to have some of the cleanest bathrooms you could find on the road. After the lease they went downhill quickly. While not the grossest you'll see, they hover a bit below average. Am not sure if this is indicative of the entire deal or merely a portion of it. But the goals of anyone taking over the lease will always be at odds. The fewer repairs they make, the more money they earn since they have a virtual monopoly on travel from Cleveland to Chicago. So they only comply to satisfy the rules. It's hard to hand public works over to private enterprise. The incentives are misaligned. In true competition, you'd have multiple roads, each build by different companies motivated to make theirs more attractive. Working to attract customers is very different than working to maximize profit on people who have no choice but to choose your road. Of course, we all know two roads would be even more ridiculous.

  5. The State is in a perfect position. The consortium overpaid for leasing the toll road. Good for the State. The money they paid is being used across the State to upgrade roads and bridges and employ people at at time most of the country is scrambling to fund basic repairs. Good for the State. Indiana taxpayers are no longer subsidizing the toll roads to the tune of millions a year as we had for the last 20 years because the legislature did not have the guts to raise tolls. Good for the State. If the consortium fails, they either find another operator, acceptable to the State, to buy them out or the road gets turned back over to the State and we keep the Billions. Good for the State. Pat Bauer is no longer the Majority or Minority Leader of the House. Good for the State. Anyway you look at this, the State received billions of dollars for an assett the taxpayers were subsidizing, the State does not have to pay to maintain the road for 70 years. I am having trouble seeing the downside.

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