The Franchise Memorandum

A federal district court in Illinois granted a franchisee’s motion for a preliminary injunction preventing a quick service restaurant franchisor from requiring the franchisee to comply with pricing and promotional policies. Stuller, Inc. v. Steak N Shake Enterprises, Inc., 2011 U.S. Dist. LEXIS 66455 (C.D. Ill. June 22, 2011). As reported in the June 10, 2011, edition of The GPMemorandum, the franchisee is challenging Steak N Shake’s new policy that requires franchisees to follow set menu and pricing on some items, and to participate in system promotions. The franchisee sought to prevent enforcement or termination for failure to comply. Although a magistrate judge recommended denial of the preliminary injunction, the district court now granted the motion.

The district court found the franchisee had shown it was likely to succeed on the merits, in part because the language of the franchise agreements was ambiguous as to whether the franchisor could require franchisees to follow set menu pricing. Further, the court found that the franchisee demonstrated it would suffer irreparable harm if the preliminary injunction was not granted, even though the magistrate had found the franchisee could avoid any harm by complying with the franchisor’s policies.