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Steak n Shake facing new suit over mandatory menu pricing

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Another Steak n Shake franchise owner is suing the company over its controversial practice that prohibits restaurants in the chain from setting their own menu prices, even after a federal appeals court sided with a franchisee.

St. Louis-based Druco Restaurants Inc., which operates two Steak n Shake locations in Missouri, filed suit against the locally based chain April 3 in U.S. District Court in Indianapolis.

Druco is seeking a permanent injunction to bar Steak n Shake from mandating company-wide menu prices and from terminating Druco’s franchise for refusing to comply with the pricing policy.

Druco argues that it has suffered financially because the policy prohibits franchisees from increasing menu prices while, at the same time, they’re forced to pay higher food costs resulting from a Steak n Shake distribution agreement.

Steak n Shake eliminated its own distribution operations in June 2010 and contracted with another company, Sygma, to be the single distributor of products to company-owned and franchised restaurants, significantly increasing food costs, Druco said in the filing.

“By virtue of its mandate that Sygma is the exclusive supplier of all products to franchisees, together with its policy requiring all franchisees to follow set menu pricing on every item on their menu, Steak n Shake effectively controls both the buy and sell prices for every food item sold by franchisees,” Druco argued.

Druco’s federal suit follows a similar complaint brought by fellow franchisee Stuller Inc. in November 2010.

Springfield, Ill.-based Stuller operates five Illinois Steak n Shake restaurants under franchise agreements with predecessors that date back to 1939, making it the oldest Steak n Shake franchise in the country.

A U.S. District Court in Illinois granted Stuller a preliminary injunction, similar to what Druco is seeking, to stop Steak n Shake from forcing menu prices on franchisees.

Steak n Shake appealed. But last August, the 7th Circuit Court of Appeals affirmed the Illinois federal court’s ruling in Stuller’s favor.

In its argument, Stuller said that in 2008, after the franchise adopted Steak n Shake’s pricing policy, it lost $538,446 due to the new policy and higher fuel and food costs.

Yet, even after the Illinois court's judgment "that Steak n Shake has no material evidence to support its contention that its franchise agreements give it the right to enforce the policy, Steak n Shake has held steadfast in its ongoing, and system-wide, breach of those agreements by continuing to force its franchisees to abide by the policy,” Druco said in its complaint.

Steak n Shake is operated by San Antonio-based holding company Biglari Holdings Inc. Calls to the company seeking comment on Druco’s lawsuit were not returned.

Druco is represented locally by lawyers of Cohen & Malad LLP.

Besides asking for the injunction, Druco is suing Steak n Shake for breach of contract and fraud.
 

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  1. This is a terrible idea. I have an enormous amount of respect and appreciation for all the men and women who wear a uniform and serve the Indy Metro area. They don't get paid enough for all the crap they have to take. Low Pay and Benefits. Every thug and crazy taking pot shots at them. The statistics, demographics, and data that we have accumulated for umpteen years DO NOT LIE. Let's focus on making sure that the politicians that are "mandating" this crap are living where THEY are supposed to be living. Let's make sure that the politicians are not corrupt and wasting resources before we start digging into the folks on the front lines trying to do a difficult job. Since we are "hip" to "great ideas" Let's round up all the thugs in the Indy Metro area who are on parole violation as well as those in Marion County Jail that are never going to be rehabilitated and ship them down to Central America or better yet...China. Let's see how they fare in that part of the world.

  2. Once a Marion Co. commuter tax is established, I'm moving my organization out of Indianapolis. Face it, with the advancement in technology, it's getting more cost effective to have people work out of their homes. The clock is running out on the need for much of the office space in Indianapolis. Establishing a commuter tax will only advance the hands of the clock and the residents of Indianapolis will be left to clean up the mess they created on their own, with much less resources.

  3. The 2013 YE financial indicates the City of Indianapolis has over $2 B in assets and net position of $362.7 M. All of these assets have been created and funded by taxpayers. In 2013 they took in $806 M in revenues. Again, all from tax payers. Think about this, Indianapolis takes in $800 M per year and they do not have enough money? The premise that government needs more money for services is false.

  4. As I understand it, the idea is to offer police to live in high risk areas in exchange for a housing benefit/subsidy of some kind. This fact means there is a choice for the officer(s) to take the offer and receive the benefit. In terms of mandating living in a community, it is entirely reasonable for employers to mandate public safety officials live in their community. Again, the public safety official has a choice, to live in the area or to take another job.

  5. The free market will seek its own level. If Employers cannot hire a retain good employees in Marion Co they will leave and set up shop in adjacent county. Marion Co already suffers from businesses leaving I would think this would encourage more of the same.

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