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The Franchise Memorandum

Court Grants Franchisee Summary Judgment in Dispute Over Franchisor’s Attempt to Enforce Pricing and Promotions Policy
Posted in Contracts

Last month, the United States District Court for the Central District of Illinois granted summary judgment to a franchisee of five Steak N Shake restaurants in a contract dispute over the franchisor’s policy requiring all franchisees to “follow set menu and pricing (with the exception of breakfast items), and to offer all company promotions published.” Stuller, Inc. v. Steak N Shake Enterprises, Inc., 2012 U.S. Dist. LEXIS 97414 (C.D. Ill. July 12, 2012). According to the plaintiff, the policy was “contrary to longstanding custom, practice, policy, agreement, and representation, that franchisees could set their own prices for menu items and choose whether to follow promotions.” When the franchisor threatened to terminate the plaintiff’s franchise agreement for failure to comply, the plaintiff filed suit seeking a declaratory judgment that it was not required to comply, for damages for breach of contract, and, in the alternative, for damages based on the alleged violation of the Illinois Franchise Disclosure Act.

In ruling on the parties’ cross-motions for summary judgment, the district court noted that the case turned primarily on the language of the franchise agreements. The court found the agreements ambiguous but, after turning to extrinsic evidence, determined that as a matter of law the franchisor could not modify the system to require the plaintiff to follow the franchisor’s pricing and promotion decisions. Accordingly, the court granted summary judgment in favor of the franchisee on its request for a declaratory judgment. The court further held that fact questions regarding damages precluded summary judgment on the plaintiff’s breach of contract claim.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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