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

• Citation: 877 F.Supp.2d 674
• Decision Date: 12 July 2012
• Docket Number: No. 10–CV–3303.,10–CV–3303.
• Parties: STULLER, INC., Plaintiff, v. STEAK N SHAKE ENTERPRISES, INC. and Steak N Shake Operations, Inc., Defendants.
• Court: U.S. District Court — Central District of Illinois

877 F.Supp.2d 674

STULLER, INC., Plaintiff,

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

No. 10–CV–3303.

United States District Court, C.D. Illinois.

July 12, 2012.

Jason L. Ross, Joshua A. Stevens, Kirsten M. Ahmad, Greensfelder Hemker & Gale PC, St. Louis, MO, Timothy J. Rigby, Hart, Southworth & Witsman, Springfield, IL, for Plaintiff.

William Barry Blum, Michael D. Joblove, Genovese, Joblove & Battista, Miami, FL, Gregory John Rastatter, Mark D. Hansen, Heyl, Royster, Voelker & Allen, Peoria, IL, for Defendants.

OPINION

SUE E. MYERSCOUGH, District Judge.

This matter is before the Court on Plaintiff Stuller, Inc.'s Motion for Summary Judgment (d/e 92) and the Motion for Summary Judgment (d/e 93) filed by Defendants Steak N Shake Enterprises, Inc. and Steak N Shake Operations, Inc. (hereinafter SNS) ¹. The Motions are fully briefed, and, on June 1, 2012, the Court heard oral argument.

For the reasons that follow, Plaintiff's Motion for Summary Judgment, seeking summary judgment on Count I or, in the alternative, Count III, is GRANTED IN PART and DENIED IN PART. Defendants' Motion for Summary Judgment on all counts is DENIED. Plaintiff is entitled to judgment in its favor on Count I. Questions of fact remain regarding Count II. Finally, because Count III was pled in the alternative to Counts I and II, Count III is dismissed.

I. OVERVIEW

SNS operates and grants franchises to operate Steak N Shake restaurants nationwide. Plaintiff is the franchisee of five Steak N Shake restaurants, four in Springfield, Illinois (Wabash, North Dirksen, South Dirksen, and Prairie Crossing) and one in Jacksonville, Illinois. Plaintiff, through its predecessors, has operated Steak N Shake restaurant franchises in central Illinois since 1939, making it the longest-standing Steak N Shake franchise in the country.

In November 2010, Plaintiff filed suit against SNS. In December 2010, Plaintiff filed the First Amended Complaint. In the First Amended Complaint, Plaintiff alleges that in June 2010, SNS adopted a policy (the “Policy”) requiring all franchisees to “follow set menu and pricing (with the exception of breakfast items), and to offer all company promotions as published.” Am. Compl. ¶ 12 (d/e 10). According to Plaintiff, this Policy is contrary to “long-standing custom, practice, policy, agreement, and representation,” that franchisees could set their own prices for menu items, maintain “custom menus,” and choose whether to follow promotions. Am. Compl. ¶ 1. Plaintiff further alleges that, when Plaintiff refused to implement the Policy, SNS sent default notices threatening to terminate Plaintiff's franchises. Am. Compl. ¶ 17.

In Count I, Plaintiff seeks a declaratory judgment that Plaintiff was not required to comply with the Policy under the terms of the franchise agreements (Agreements) and applicable law. Plaintiff also asked for injunctive relief to stop SNS from enforcing the Policy. In Count II, Plaintiff alleged SNS breached the implied covenant of good faith and fair dealing by attempting to force Plaintiff to adopt the Policy.

In Count III, pled in the alternative to Counts I and II, Plaintiff alleges that, if SNS can impose the Policy on Plaintiff, then SNS violated the Illinois Franchise Disclosure Act (IFDA) (815 ILCS 705/1 et seq.) because the disclosure statements provided to Plaintiff by SNS prior to entering into and renewing the franchises (1) did not provide that SNS was entitled to set maximum or minimum prices or require Plaintiff to participate in all promotions and (2) provided that franchisees could set their own prices. Am. Compl. ¶¶ 62, 63.

On June 22, 2011, 2011 WL 2473330, this Court granted Plaintiff's Renewed Motion for Preliminary Injunction. See d/e 69. The Court enjoined SNS from forcing Plaintiff to implement the Policy and from taking any adverse action against Plaintiff for refusing to adopt the Policy. In its Opinion, this Court found the Agreements ambiguous with respect to whether price was part of the “System” as that term is defined in the Agreements. This Court also found Plaintiff had shown a likelihood of success on the merits and met the other factors for a preliminary injunction.

SNS has now moved for summary judgment on all three counts. Plaintiff has moved for summary judgment on only Counts I and, in the alternative, Count III.

SNS asserts that, even if the Court finds the Agreements ambiguous, all of the admissible extrinsic evidence shows that Plaintiff is obligated to implement maximum prices and promotions as part of the franchise system. SNS points to (1) the use of the term “System” in the franchise industry; (2) the removal of Plaintiff's right to set prices from the 1972 and 1978 License Agreements; and (3) the fact that, in the 1990s, Plaintiff's right to set prices was discussed by the parties and was not specifically included in the 1995 or subsequent Agreements. (The parties focus on the 1995 negotiations because pricing was not addressed by the parties in connection with the Agreements signed in 2000, 2005, and 2006. See Defendant's Response, p. 39, n. 11 (d/e 96); Tonya Sallee Dep. p. 116 (d/e 92–1) (noting that pricing was not discussed when Sallee personally handled the Jacksonville, North Dirksen, and Wabash Agreements executed in 2005 and 2006)).

Plaintiff asserts that the undisputed extrinsic evidence demonstrates SNS does not have the right to enforce the Policy under the Agreements. Plaintiff points to: (1) the disclosure documents provided to Plaintiff before entering the Agreements; (2) the negotiation of the 1995 Agreements; (3) the parties' course of performance; (4) the parties' course of dealing; and (5) trade usage.

II. LEGAL STANDARD ON SUMMARY JUDGMENT

Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see alsoFed.R.Civ.P. 56(c). A moving party must show that no reasonable fact-finder could return a verdict for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Gleason v. Mesirow Fin., Inc., 118 F.3d 1134, 1139 (7th Cir.1997).

The movant bears the burden of establishing that there is no genuine issue of material fact. Celotex Corp., 477 U.S. at 323, 106 S.Ct. 2548. If the movant meets this burden, the non-movant must set forth specific facts demonstrating that there is a genuine issue for trial. Fed.R.Civ.P. 56(e); Anderson, 477 U.S. at 252, 106 S.Ct. 2505. The evidence is viewed in the light most favorable to the non-movant and “all justifiable inferences are to be drawn in his favor.” Anderson, 477 U.S. at 255, 106 S.Ct. 2505.

Here, the parties have filed cross-motions for summary judgment. “[Co]ntract interpretation is often a question of law well suited for disposition on summary judgment.” Zemco Mfg., Inc. v. Navistar Intern. Transp. Corp., 270 F.3d 1117, 1129 (7th Cir.2001). “However, when a contract contains ambiguities that the parties must explain through extrinsic evidence, the trier of fact ... must resolve the conflicting interpretations of the agreement.” Id. “If there is a dispute as to the interpretation of the extrinsic evidence, this becomes a genuine issue of material fact for a jury and is thus inappropriate for summary judgment.” Markin v. Chebemma Inc., 526 F.Supp.2d 890, 895 (N.D.Ill.2007). If, however, the extrinsic evidence is uncontroverted, the court decides the issue as a matter of law. Marusiak v. Adjustable Clamp Co., 2005 WL 2420370, at *7 (N.D.Ill.2005).

III. FACTS

Currently, five franchise agreements (Agreements) govern the relationship between the parties, including (1) the July 18, 2006 Wabash Agreement ² (d/e 92–6); (2) the July 18, 2006 Jacksonville Agreement ³ (d/e 92–5); (3) the January 27, 2000 Prairie Crossing Agreement ⁴ (d/e 92–3); (4) the January 26, 2005 North Dirksen Agreement ⁵ (d/e 92–4); and (5) the February 1, 1995 South Dirksen Agreement ⁶ (d/e 92–2). To a large extent, this case turns on the language in the Agreements that gives SNS the right to revise “the System” from time to time and the agreement by Plaintiff that it will comply with the entire System, as revised from time to time. SNS construes the System as including price and promotions while Plaintiff does not.

The following is a chronological recitation of the facts, starting with the 1972 and 1978 License Agreements and ending with the implementation of the Policy at issue in this lawsuit. Thereafter, evidence submitted regarding SNS's current standard unit franchise agreement and custom and practice in the industry is set forth.

A. The 1972 and 1978 License Agreements for the Wabash, Jacksonville, and Seventh & South Grand Locations

Prior to February 1, 1995, Plaintiff or its

predecessor-in-interest ⁷ was the franchisee of three Steak N Shake restaurants. The three License Agreements that existed prior to February 1, 1995 included (1) the 1972 Wabash License Agreement; (2) the 1972 Seventh and South Grand License Agreement; and (3) the 1978 Jacksonville License Agreement.

The 1972 and 1978 License Agreements provided, in part, that:

LICENSEE shall diligently operate the licensed business during the term of this agreement, and in such operation shall comply with the terms of this agreement and such rules and procedures as LICENSOR may from time to time prescribe, including but not limited to the rules and procedures set forth in the Steak n Shake Manager's Guide (a copy of which will be delivered to the LICENSEE within 10 days of the execution of this agreement), together with all amendments and supplements thereto. * * * In no event however may such amendments or supplements act or modify or amend any...