Denver's Steak n Shake Operators Told to 'Cease and Desist'
The Baerns family of Colorado was ordered September 3 to “cease and desist” from operating their two Denver area restaurants as Steak ‘n’ Shakes, and to remove all marks, menus, signs and décor identifying them as same.
It was a big blow for Kathryn, Christopher and Larry Baerns and their companies, called Globex Co. and Springfield Downs, who were fighting to continue operating until their case went to trial.
They say they can’t make money under franchisor SNS Enterprises’ promotional menu, which offers meals under $4, and so cannot open their third restaurant as required in their multi-unit development agreement.
The ruling, by Judge Raymond Moore in U.S. District Court for Colorado, found an immediate termination is permitted if “franchisees knowingly sell products for a price in excess of any maximum” established by SNS Enterprises, the franchisor, or “knowingly fail to offer” a mandatory promotion.
The Baerns family did both, according to the ruling. On April 26, 2013, SNS Enterprises delivered to franchisees the 2013 summer promotional guide, along with marketing materials. “Shortly after the promotion began, SNS Enterprises began receiving complaints that franchisees were overcharging customers and not using the $4 menu,” the ruling said.
The franchisees were “manipulating the POS system by ringing in the meal items as a la carte items, thereby generating a higher price” for the meal. On May 23, SNS “remotely disabled the a la carte functionality.” Two visits by a franchise executive “confirmed the restaurants were not offering the promotional prices,” the ruling said.
SNS Enterprises was ordered to post a surety bond for $50,000, in order to secure the payment of any costs and damages “sustained by any party found to have been wrongfully restrained or enjoined.”
Scott Kannady of Scott & Kannady in Denver, the Baerns’ attorney, told Franchise Times last month he thought they’d win this round in the battle, which broke open in July. “They’ll argue the court should close us down pending trial, and we’re going to argue to stay open pending trial. And I think we’re going to win.”