A federal judge has ordered Steak ‘n Shake to restore operational systems to the Aurora, Colo.-based franchisees with whom the franchisor is in a legal dispute.
In court filings, Steak ‘n Shake franchisees Larry and Kathryn Baerns and their son, Christopher Baerns, said that on Aug. 8 the franchisor turned off its access to POS systems and labor-scheduling software, as well as other computer systems and access to proprietary foodservice delivery.
On Aug. 14, U.S. District Judge Raymond P. Moore issued a temporary restraining order sought by the franchisees that requires Indianapolis, Ind.-based Steak ‘N Shake Enterprises Inc. and Steak ‘N Shake LLC to restore disabled systems at the two units in Colorado after the franchisees posted a $1,000 surety bond.
In early July, Steak ‘n Shake had sued the Baernses and affiliated operating companies, seeking to terminate franchise and licensing rights. The franchisor, a subsidiary of San Antonio, Texas-based Biglari Holdings Inc., claims the operators breached franchise agreements by declining to offer $4 menus, marketing materials and charging higher prices than specified by the corporate parent.
The Baernses and their affiliated companies countered that they were misled on business profitability and that the state of Colorado has higher labor and product costs.
A further hearing on the lawsuits is scheduled for Friday, Aug. 23.
In their filings for the temporary restraining order, the franchisees said the shutdown of the POS system prevented them “from conducting the basic and fundamental operations of the restaurants,” such as taking and executing orders and processing credit card transactions. The loss of computer access, the franchisees said, had prevented them from “accessing critical information concerning their businesses,” including sales and inventory data, and payroll and labor information.
The result, the franchisees claimed, led to “angry and upset customers,” as well as “labor problems such as loss of employees,” and contributed to a loss of about 1,171 guests per each of the two stores from Aug. 8 to Aug. 10.
Steak 'n Shake attorneys could not be reached for comment.
Earlier this year, three individual franchise groups filed suit against Steak ‘n Shake in U.S. District Court in Indiana. Druco Restaurants Inc. in Missouri, People Sales & Profit Co. in Georgia and Scott's S&S Inc. in Pennsylvania separately filed complaints that allege price fixing, breach of contract and fraud.
Those franchisees claim their contract documents allow them to set some prices and the franchisor does not have the right to set prices on every menu item. Those cases are pending a judge’s ruling on Steak ‘n Shake’s request for a mandatory non-binding arbitration policy that has been opposed by the franchisees.