Steak n Shake Enterprises, Inc. v. Globex Company, LLC et al.

Filing 32

ORDER granting in part and denying in part 29 Motion for TRO, by Judge Raymond P. Moore on 8/14/2013.(rmcd)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Raymond P. Moore
Civil Action No. 13-cv-01751-RM-CBS
STEAK N SHAKE ENTERPRISES, INC., and
STEAK N SHAKE, LLC,
Plaintiffs,
v.
GLOBEX COMPANY, LLC,
SPRINGFIELD DOWNS, INC.,
CHRISTOPHER BAERNS,
LARRY BAERNS,
KATHRYN BAERNS, and
CONTROL, LLC,
Defendants.
______________________________________________________________________________
ORDER RE
DEFENDANTS' MOTION FOR A TEMPORARY RESTRAINING ORDER
(ECF NO. 29)
______________________________________________________________________________
THIS MATTER comes before the Court on Defendants' second Motion for a Temporary
Restraining Order ("Motion") (ECF No. 29) filed August 13, 2013. A prior motion for a
temporary restraining order ("TRO") was denied by the Court on August 9, 2013 after notice to
the parties and a hearing. A telephonic hearing was held on the second Motion on August 14,
2013 where the Court heard arguments of counsel. Based on the Motion, the arguments made at
the August 9 and 14, 2013 hearings, and the following reasons, the Court grants the Motion in
part and denies the remainder as set forth below.
I. PROCEDURAL BACKGROUND
As relevant to the Motion, Plaintiffs' lawsuit arises from Defendants Globex Company,

LLC's and Springfield Downs, LLC's (collectively, "Defendants") alleged breaches of certain
written franchise and license agreements ("Agreements") which allowed Defendants to operate as
Steak n Shake restaurants. Plaintiffs assert that, after providing Defendants notice of defaults and
an opportunity to cure, they terminated these Agreements for cause, but Defendants continued to
use Plaintiffs' name and marks and hold their restaurants out to the public as Steak n Shake
restaurants.
Defendants' alleged breaches consisted of: (1) failing to use a $4 menu specified by
Plaintiffs; (2) failing to display the required $4 menu marketing materials; (3) using different
menus than those provided by Plaintiffs; and (4) charging customers prices that were far higher
than the prices specified by Plaintiffs. (Amended Complaint [AC], ¶ 27.) Defendants could cure
such breaches by offering the $4 menu to all customers and displaying all required marketing
materials for the $4 menu. (AC, ¶ 28.)
Plaintiffs' lawsuit is premised on lawful terminations of the Agreements and seeks
preliminary and injunctive relief and damages in reliance on that premise. Defendants deny any
alleged breaches and the failure to cure any alleged breaches, and assert that Plaintiffs'
terminations were unlawful and in breach of the Agreements. Defendants counterclaimed
alleging the absence of breach and wrongful termination of the Agreements. Defendants further
allege that Plaintiffs fraudulently induced Defendants to enter into the Agreements and breached
such Agreements, and that Defendants are entitled to declaratory and injunctive relief.
After the filing of their lawsuit, Plaintiffs filed a motion for preliminary injunction which
this Court has set for a hearing on August 23, 2013. Plaintiffs also took the following actions: (1)
they shut down Defendants' point-of-sale ("POS") systems; (2) they instructed Defendants' sole

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foodservice provider Sysco to refuse to ship proprietary Steak n Shake products to Defendants'
restaurants and to refuse to offer Defendants a contract discount on nonproprietary products; and
(3) they cut off Defendants' ability to access key internet, intranet, and office portals, namely, the
Labor Scheduling Software, E Restaurant systems, Scoop Intranet database, and Insight
(collectively, "Other Systems"). In response, Defendants filed the instant Motion.
II. FACTUAL BACKGROUND
By letter dated June 18, 2013, Plaintiffs provided notice of default to Defendants, alleging
they failed to adhere to the $4 menu, printed menus without Plaintiffs' consent, altered marketing
materials, and charged prices higher that Plaintiffs' published menu prices. (Motion, Exhibit [Ex.]
D.) By e-mail dated June 18, 2013, Defendants denied such allegations. (Motion, Ex. B-1.) By
letter dated July 3, 2013, Plaintiffs notified Defendants that the Agreements were terminated
effectively immediately. (Motion, Ex. E.)
Defendants presented evidence in the form of affidavits stating that the alleged violations
were not occurring and that, in fact, Defendants could not charge prices higher than Plaintiffs'
published menu prices because it was impossible to do so under Plaintiffs' POS systems. Further,
by May 23, 2013, Plaintiffs had removed the POS systems' function which would have allowed
Defendants to sell items a la carte to customers. (Motion, Ex. B and Ex. B-1 & B-3.)
Defendants also presented evidence that:
(1) the shutdown of Defendants' POS systems prevents Defendants from conducting the
basic and fundamental operations of the restaurants, such as entering and communicating
customer orders, ringing up correct prices, processing credit card transactions, and
utilizing order confirmation screens. Among other things, Defendants are unable to timely

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provide customer service, have angry and upset customers, and are experiencing labor
problems such as loss of employees;
(2) the instruction to Sysco, Defendants' sole foodservice provider, to refuse to ship
proprietary Steak n Shake products to Defendants' restaurants and to refuse to offer
Defendants a contract discount on nonproprietary products prevents Defendants from
offering Steak n Shake products, increases Defendants' cost of goods sold, and potentially
requires Defendants to be subject to COD deliveries; and
(3) the cutoff of Defendants' ability to use the Other Systems detrimentally impacts
Defendants' ability to operate their restaurants. Defendants are being prevented from
accessing critical information concerning their businesses, such sales data, credit card and
cash transaction details, payroll records and other labor information, and food cost and
inventory data.
The net effect of Plaintiffs' actions is the removal of the systems, goods and labor
Defendants need to operate their restaurants. Defendants estimate they have lost roughly 1,171
guests per store from August 8, 2013 through August 10, 2013. Defendants are now out of
proprietary products. Under the current situation, it would be difficult if not impossible for
Defendants to continue their business operations, much less as Steak n Shake restaurants.
(Motion, see Affidavits of Mark Clark and Christopher Baerns.)
III. ANALYSIS
The requirements for the issuance of a TRO are similar to those for the issuance of a
preliminary injunction. See, e.g., 13 J. Moore, Moore's Federal Practice 65.36(1), at 65-88 (3rd
ed. 2013). The movant must establish: (1) it will suffer irreparable injury unless the injunction

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issues; (2) the threatened injury outweighs any damage the proposed injunction may cause the
opposing party; (3) if issued, the injunction would not be adverse to the public interest; and (4) it
has a substantial likelihood of success on the merits. E.g., Oklahoma, ex rel., OK Tax Com'n v.
International Registration Plan, Inc., 455 F.3d 1107, 1112-1113 (10th Cir. 2006). Defendants
have sufficiently done so in this instance.
First, Defendants have shown that unless this TRO is entered they will suffer irreparable
injury, as it is certain and great that their restaurants will have to close or, to the extent they can
be operational, be operated as something other than Steak n Shake restaurants. For example,
Defendants are - or shortly will be - out of proprietary food items for sale, are losing customers,
have suffered and will likely continue to suffer loss of employees, and are suffering diminishment
of their competitive positions in the marketplace. See Dominion Video Satellite, Inc. v. Echostar
Satellite Corp., 356 F.3d 1256, 1263-1264 (10th Cir. 2004).
Next, the threatened injury to Defendants significantly outweighs any damage the
proposed injunction may cause Plaintiffs. Here, as previously stated, in light of Plaintiffs' actions,
the potential closure of Defendants' restaurants is certain and great. Plaintiffs' damage, if any,
will be less. Until Plaintiffs undertook the actions complained of, Defendants were operating as
Steak n Shake restaurants. Plaintiffs' allegations against Defendants are limited to pricing issues;
for example, there are no allegations that Defendants are operating unsanitary restaurants or
offering poor food products that would tarnish the image of Steak n Shake. On the contrary, in
that Defendants' restaurants remain operating under the Steak n Shake name, the Court finds that
preventing Defendants from operating their restaurants smoothly, offering the use of credit cards,
and offering Steak n Shake products causes not only damage to Defendants but also more damage

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to Plaintiffs than if Defendants were allowed to continue to operate as before.
Third, the injunction would not be adverse to the public interest. Defendants employ
approximately 160 individuals and generate in excess of $4,000,000 in annual gross revenue.
(Motion, Ex. B, ¶ 22.) Allowing Defendants to temporarily operate their restaurants as they have
been would be in the public interest.
Finally, the evidence that is currently before this Court is sufficient to establish a
substantial likelihood of success on the merits. Plaintiffs' actions, and lawsuit, are premised on
the lawful termination of the Agreements based on Defendants' alleged failure to following
pricing and marketing policies. Defendants' affidavits present sufficient evidence, based on
matters before the Court in the TRO papers, that the lawfulness of the termination is in dispute
and, for the purposes of a TRO, to establish a substantial likelihood of success on the merits. By
this determination, this Court is preserving the status quo existing between the parties prior to the
controversy between them and not resolving the merits of the action between the parties.1
Accordingly, it is
ORDERED that Plaintiffs shall take all steps to and shall immediately restore Defendants
Globex Company, LLC's and Springfield Downs, LLC's access to the following computer
systems: POS Systems; Labor Scheduling Software; E Restaurant systems; Scoop Intranet
database; and Insight (collectively, "Computer Systems"); it is

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The Court has not conducted an evidentiary hearing with respect to the Motion and
confines itself to the matters submitted with such Motion. To do otherwise would convert this
Motion to a preliminary injunction which Defendants have not requested. Accordingly, the
written declarations submitted by Plaintiffs following the hearing of this date do not change the
Court’s views. There remains sufficient evidence to establish a likelihood of success on the
merits at the TRO stage.
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FURTHER ORDERED Plaintiffs are prohibited from disabling any or all of the
Computer Systems; it is
FURTHER ORDERED Plaintiffs shall take all steps to and shall immediately restore
Defendants' access to the proprietary foodservice delivery from Sysco Systems and to offer
Defendants a contract discount on nonproprietary products which were in effect prior to August 7,
2013; it is
FURTHER ORDERED Defendants shall be required to post a surety bond with the
Clerk of the Court in the amount of $1,000.00 in order to secure the payment of any costs and
damages that may be sustained by any party found to have been wrongfully restrained or
enjoined; it is
FURTHER ORDERED the Motion is granted to the extent stated above and denied as to
the remaining request for relief. This Order will be effective when Defendants post their surety
bond; and it is
FURTHER ORDERED this Order will dissolve the earlier of: (1) 14 days from the date
in which this Order becomes effective, unless extended by the Court for good cause; or (2) a
future order by this Court.
DATED this 14th day of August, 2013.
BY THE COURT:

_______________________________________
RAYMOND P. MOORE
United States District Judge

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