Court Watch

In a decision that demonstrates the ability of franchisors to enforce mandatory pricing promotions to maintain system-wide uniformity, two Denver Steak 'n Shake franchisees and affiliates were ordered to immediately cease operations after they failed to comply with national pricing and marketing policies. In Steak N. Shake Enterprises Inc. v. Globex Company, LLC, No. 13-cv-01751-RM-CBS (D. Colo. Sept. 3, 2013), the U.S. District Court for the District of Colorado granted franchisor Steak 'n Shake's motion for a preliminary injunction against franchisees who continued to operate after Steak 'n Shake terminated their franchises for failing to comply with system-wide uniform pricing for its meals and menu items.

In 2012, the defendants opened two franchised Steak 'n Shake restaurants in Colorado with the obligation to open a third franchise by June 2, 2013. In the summer of 2013, Steak 'n Shake rolled out several new promotions, including a new $4 meal that was promoted on a special menu insert. The franchisor also provided its franchisees with new menus and marketing materials, which franchisees were required to institute. Shortly thereafter, Steak 'n Shake learned that the defendants had not implemented the $4 menu. Indeed, instead of charging customers the discounted meal price, the defendants charged customers ' la carte prices for each individual item, which totaled more than the meal price. In addition, the defendants altered the official menus provided by Steak 'n Shake to increase prices. After Steak 'n Shake remotely disabled the a la carte functionality in the franchisees' point-of-sale (POS) systems, defendants began using the official menus but still did not provide customers with the $4 meal menu inserts unless specifically requested by a customer. The defendants later claimed that they were forced to charge higher prices since the uniform pricing was unprofitable in certain areas, including Colorado. Although the franchisor gave the defendants an opportunity to cure the breach, they did not do so, and also failed to open the third restaurant in violation of the development agreement.