Stuller, Inc. v. Steak N Shake Enters., Inc.

• Decision Date: 24 August 2012
• Docket Number: No. 11–2656.,11–2656.
• Citation: 695 F.3d 676
• Parties: STULLER, INC., Plaintiff–Appellee, v. STEAK N SHAKE ENTERPRISES, INC. and Steak N Shake Operations, Inc., Defendants–Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

695 F.3d 676

STULLER, INC., Plaintiff–Appellee,

v.STEAK N SHAKE ENTERPRISES, INC. and Steak N Shake Operations, Inc., Defendants–Appellants.

No. 11–2656.

United States Court of Appeals, Seventh Circuit.

Argued May 23, 2012.

Decided Aug. 24, 2012.

Jason L. Ross, Kirsten Moder Ahmad, Joshua A. Stevens (argued), Attorneys, Greensfelder, Hemker & Gale, P.C., St. Louis, MO, Timothy J. Rigby, Attorney, Hart Southworth & Witsman, Springfield, IL, for Plaintiff–Appellee.

Craig L. Unrath, Attorney, Heyl, Royster, Voelker & Allen, Peoria, IL, William Barry Blum (argued), Attorney, Genovese Joblove & Battista, P.A., Miami, FL, for Defendants–Appellants.

Before MANION, ROVNER, and HAMILTON, Circuit Judges.

MANION, Circuit Judge.

After the corporate office of Steak N Shake restaurants tried to require one of its franchisees to adopt a new policy for menu pricing and promotions, the franchisee sued Steak N Shake in a declaratory judgment action and later filed a motion for a preliminary injunction in order to stop the implementation of the new policy. The district court found that in the absence of an injunction, the franchisee would have its franchises terminated and would therefore suffer irreparable harm. The district court thus granted the franchisee's motion for a preliminary injunction. Steak N Shake then filed this interlocutory appeal, arguing that the franchisee's harm was self-inflicted, and, accordingly, that there was no basis for a preliminary injunction. We affirm the district court.

I.

The plaintiff, Stuller, Inc. (“Stuller”), is an Illinois business that owns and operates five Steak N Shake franchises in Illinois. Stuller and its predecessors have operated the franchises since 1939. The defendants, Steak N Shake Enterprises, Inc. and Steak N Shake Operations, Inc. (collectively “Steak N Shake”), are the franchisor. Steak N Shake operates 413 other company-owned restaurants across the country and oversees 80 Steak N Shake franchises, including Stuller's franchises.

As the franchisor, Steak N Shake controls many aspects of its franchisees' businesses, including the style, decor, and menu offerings of its restaurants. But some aspects of the franchise are left to the control of the individual franchises. In this case, Stuller and its predecessors have operated its franchises for more than 70 years; in fact, it is the oldest franchisee in the country. In all that time, Stuller has had the ability to set menu prices. In June 2010, Steak N Shake adopted a new policy requiring all franchisees to follow the company's menu pricing and promotions. Stuller refused to implement the new policy, believing that it was still authorized to set menu prices under its existing franchise agreements with Steak N Shake. Eventually, Steak N Shake notified Stuller that if Stuller did not implement the policy, Steak N Shake would terminate Stuller's franchises.

In November 2010, Stuller filed suit against Steak N Shake in federal district court based on diversity jurisdiction. In Count I of its suit, Stuller sought a declaratory judgment that it was not required to comply with Steak N Shake's new pricing policy and requested injunctive relief to prevent Steak N Shake from enforcing the new policy and finding Stuller in default (and subsequently terminating Stuller's franchises) if Stuller refused to adopt the policy. Count II alleged a breach of contract, and Count III alleged violations of the Illinois Franchise Disclosure Act, 815 ILCS 705/1.

Initially, Steak N Shake agreed not to enforce its pricing policy during the pendency of the lawsuit, but it soon changed its mind and again notified Stuller that it was required to implement the pricing policy or be subject to default and have its franchises terminated. Consequently, in January 2011, Stuller filed a motion for a preliminary injunction requesting that the district court prevent Steak N Shake from terminating the franchises during the pendency of the case. The motion was referred to the magistrate judge, who held an evidentiary hearing. The magistrate judge issued a Report and Recommendation, concluding that although Stuller's case had some prospects of success, Stuller had not shown that it would suffer irreparable harm without an injunction. In particular, the magistrate judge observed that Stuller could comply with the pricing policy during litigation without dramatically hurting its business, and that if it refused to accept the pricing policy and had its franchises terminated, this loss would be self-inflicted. The magistrate judge thus recommended that Stuller's motion for a preliminary injunction be denied.

Both parties filed objections to the Report and Recommendation and the district court issued an opinion disagreeing with the magistrate judge's recommendation. The district court concluded that the termination of the franchises that would occur if Stuller did not implement the policy was not a self-inflicted injury and that the loss of the franchises constituted irreparable harm. Accordingly, the district court granted Stuller's motion and entered an injunction barring Steak N Shake from taking any adverse action against Stuller for its refusal to implement the policy during the pendency of the case. Steak N Shake now appeals the grant of the preliminary injunction.

II.

To obtain a preliminary injunction, the moving party must show that its case has “some likelihood of success on the merits” and that it has “no adequate remedy at law and will suffer irreparable harm if a preliminary injunction is denied.” Ezell v. City of Chicago, 651 F.3d 684, 694 (7th Cir.2011). If the moving party meets these threshold requirements, the district court “must consider the irreparable harm that the nonmoving party will suffer if preliminary relief is granted, balancing such harm against the irreparable harm the moving party will suffer if relief is denied.” Ty, Inc. v. Jones Group, Inc., 237 F.3d 891, 895 (7th Cir.2001). The district court must also consider the public interest in granting or denying an injunction. Id. In this balancing of harms conducted by the district court, the court weighs these factors against one another “in a sliding scale analysis.” Christian Legal Soc'y v. Walker, 453 F.3d 853, 859 (7th Cir.2006). “The sliding scale approach is not mathematical in nature, rather ‘it is more properly characterized as subjective and intuitive, one which permits district courts to weigh the competing considerations and mold appropriate relief.’ ” Ty, Inc., 237 F.3d at 895–96 (quoting Abbott Labs. v. Mead Johnson & Co., 971 F.2d 6, 12 (7th Cir.1992)). Stated another way, the district court “sit[s] as would a chancellor in equity” and weighs all the factors, “seeking at all times to ‘minimize the costs of being mistaken.’ ” Abbott Labs., 971 F.2d at 12 (quoting Am. Hosp. Supply Corp. v. Hosp. Prods. Ltd., 780 F.2d 589, 593 (7th Cir.1986)).

When reviewing a district court's grant or denial of a preliminary injunction, “[w]e review the court's legal conclusions de novo, its findings of fact for clear error, and its balancing of the injunction factors for an abuse of discretion.” Ezell, 651 F.3d at 694. “We accord, absent any clear error of fact or an error of law, ‘great deference’ to the district court's weighing of the relevant factors.” Ty, Inc., 237 F.3d at 896 (quoting Abbott Labs., 971 F.2d at 13).

In this case, the district court found that Stuller had a likelihood of success on the merits and that the public interest weighed in Stuller's favor; these findings are not contested on appeal. The district court also found that because Stuller's franchises would be terminated by Steak N Shake if Stuller did not implement Steak N Shake's pricing policy, Stuller had demonstrated that it had no adequate legal remedy and would suffer irreparable harm in the absence of an injunction.

Steak N Shake appeals this latter finding, arguing that the district court committed a legal error in coming to this conclusion. Steak N Shake contends that the termination of Stuller's franchises is a “self-inflicted” injury that Stuller can avoid entirely. In Steak N Shake's view, Stuller can easily avoid the termination of its franchises by simply complying with the pricing policy; if Stuller chooses non-compliance with the policy, it is inflicting on itself the harm of the franchises' termination. Steak N Shake then argues that, as matter of law, a...