Steak n Shake dispute with franchisees reaches to Denver

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An ongoing dispute between Indianapolis-based Steak n Shake and some of its franchisees over company pricing policies has stretched to a federal court in Colorado.

The hamburger chain filed suit July 3 to stop a Denver restaurant owner from operating under its logo after the franchisee refused to follow a corporate policy prohibiting restaurants from setting their own menu prices.

The latest salvo from Steak n Shake follows three lawsuits brought by franchise owners in U.S. District Court in Indianapolis earlier this year.

The three suits argue the company continues to force its franchisees to abide by the menu policy even after a federal appeals court sided last year with a fellow franchise owner who challenged the practice.

In the Colorado dispute, the Denver franchisee filed a countersuit Aug. 1 against Steak n Shake, hoping to stop the chain from terminating franchise agreements for its two locations in the Denver area.

Larry and Christopher Baerns of Aurora, Colo., say in their counterclaim that they should be able to set their own prices because food costs are higher in the Denver area than in other parts of the country where Steak n Shake operates. They further claim that the prices they charge and the menu items they offer have been approved by Steak n Shake.

“Steak n Shake’s lawsuit and its attempt to terminate the Denver area franchise agreements is clearly retaliation against the Denver owners for daring to raise questions about the fairness of the corporate policies, and whether what was promised as a measure for success could ever actually be achieved,” attorneys for the franchisee said in a prepared statement.

Steak n Shake policy prohibits commenting on pending litigation. The three other suits are pending in federal court in Indianapolis.

The three franchisees who brought the complaints against Steak n Shake in April are Georgia-based People Sales & Profit Co., Missouri-based Druco Restaurants Inc. and Pennsylvania-based Scott’s S&S Inc. In total, they operate eight Steak n Shake restaurants in the three states.   

They’re seeking a permanent injunction to bar Steak n Shake from mandating company-wide menu prices, and from terminating their franchises for refusing to comply with the pricing policy. They also are suing for breach of contract and fraud.

The dispute over pricing started in 2010, when Springfield, Ill.-based Stuller Inc. brought its complaint against Steak n Shake in a federal court in Illinois. Stuller operates five Illinois Steak n Shake restaurants under franchise agreements with predecessors dating to 1939, making it the oldest Steak n Shake franchise in the country.

The court granted Stuller a preliminary injunction to stop Steak n Shake from forcing menu prices on franchisees.

Steak n Shake appealed. But in August 2012, the 7th Circuit Court of Appeals affirmed the Illinois federal court’s ruling in Stuller’s favor.

Steak n Shake operates 508 restaurants, including 94 franchised locations. The chain is operated by San Antonio-based holding company Biglari Holdings Inc.

In its fiscal first quarter ended April 10, Steak n Shake reported revenue of $219.1 million, an increase of less than 1 percent from the same quarter in 2012.


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