Stuller, Inc. v. Steak N Shake Enterprises, Inc. , 695 F.3d 676 ( 2012 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 11-2656
S TULLER, INC.,
Plaintiff-Appellee,
v.
S TEAK N S HAKE E NTERPRISES, INC. AND
S TEAK N S HAKE O PERATIONS, INC.,
Defendants-Appellants.
Appeal from the United States District Court
for the Central District of Illinois.
No. 10 CV 3303—Sue E. Myerscough, Judge.
A RGUED M AY 23, 2012—D ECIDED A UGUST 24, 2012
Before M ANION, R OVNER, and H AMILTON, Circuit Judges.
M ANION, 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 imple-
mentation of the new policy. The district court found
2 No. 11-2656
that in the absence of an injunction, the franchisee
would have its franchises terminated and would there-
fore suffer irreparable harm. The district court thus
granted the franchisee’s motion for a preliminary injunc-
tion. 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 busi-
ness 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 restau-
rants 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,
No. 11-2656 3
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. Conse-
quently, 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 Rec-
ommendation, concluding that although Stuller’s case
had some prospects of success, Stuller had not shown
that it would suffer irreparable harm without an injunc-
4 No. 11-2656
tion. 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 recom-
mended that Stuller’s motion for a preliminary injunc-
tion be denied.
Both parties filed objections to the Report and Recom-
mendation and the district court issued an opinion dis-
agreeing 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. Ac-
cordingly, 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
No. 11-2656 5
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 consider-
ations 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 defer-
ence’ to the district court’s weighing of the relevant
factors.” Ty, Inc., 237 F3d. at 896 (quoting Abbott Labs.,
971 F.2d at 13).
6 No. 11-2656
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 termi-
nated 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 ter-
mination 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 in-
flicting on itself the harm of the franchises’ termination.
Steak N Shake then argues that, as matter of law, a
self-inflicted injury cannot be the basis for irreparable
harm and, thus, Stuller has not met its threshold require-
ments for a preliminary injunction. Steak N Shake rests
its argument on the following provision from our
decision in Second City Music, Inc. v. City of Chicago, 333
F.3d 846, 850 (7th Cir. 2003): “Injury caused by failure
to secure a readily available license is self-inflicted, and
self-inflicted wounds are not irreparable injury. Only
the injury inflicted by one’s adversary counts for this
purpose.”
Steak N Shake misreads our decision in Second City.
In Second City, a used audio and video recordings dealer
No. 11-2656 7
objected to a city ordinance that required it to obtain
a license to sell audio and video equipment. Id. at
847. We ruled that the dealer’s refusal to apply for
a license—without which the dealer would be out
of business—was a self-inflicted injury because the
dealer “would incur no detriment by the act of apply-
ing” for the license. Id. at 849. The above passage quoted
by Steak N Shake does not give a categorical legal rule
that a self-inflicted injury cannot be irreparable harm.
Instead, it is a statement in the context of the particular
circumstances of the case, where we held that there
was “no strong justification for immediate [injunctive]
relief to this plaintiff.” Id. (emphasis in original). And
then we specifically noted that if the Second City
plaintiff had, say, a religious objection to licensing, an
injunction would be justified. Id. (citing Watchtower Bible
& Tract Soc’y v. Village of Stratton, 536 U.S. 150 (2002)).
Therefore, it was only in the unique context of Second
City that we stated that the plaintiff’s failure to secure
a readily available license was a self-inflicted injury
and thus not irreparable harm.
The better understanding of Second City is that the
question of whether an injury is readily avoidable
and truly self-inflicted if not avoided—and thus not
irreparable harm—depends on the particular circum-
stances of the case. A hypothetical that was discussed
at oral argument illustrates this point. Suppose
Steak N Shake’s pricing policy required that all
franchisees cut their prices by 50% or else face the ter-
mination of their franchise agreements. Under those
circumstances, Stuller could not readily avoid harm to
8 No. 11-2656
its business by choosing to implement the 50% pricing
policy, because under that policy it would be impossible
to viably operate. In that case, Stuller’s choice not to
implement the policy, leading to the termination of the
franchises, would not be a true choice and could not
be fairly categorized as a self-inflicted injury.
In response, Steak N Shake argues that its current
pricing policy is not like that of the hypothetical because
its current pricing policy would not harm Stuller’s
business and might actually be a more successful
business model. Stuller strongly disagrees, and pre-
sents evidentiary support for the position that
Steak N Shake’s policy would harm its business. The
district court did not analyze these competing claims,
and it did not address whether the implementation of
Steak N Shake’s policy would harm Stuller’s business.1
The district court should have engaged in this analysis, but
regardless, we can consider the record ourselves. See, e.g.,
Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the United
States of America, Inc., 549 F.3d 1079, 1087 (7th Cir. 2008)
(completing the preliminary injunction analysis if the
record contains sufficient evidence); Meridian Mut. Ins. Co.
v. Meridian Ins. Group, Inc., 128 F.3d 1111, 1120 (7th Cir.
1997) (same); see also Kidwell v. Eisenhauer, 679 F.3d 957,
1
The magistrate judge did weigh the competing claims and
believed that Stuller would not suffer an irreversible financial
impact if it implemented Steak N Shake’s policy, while acknowl-
edging the possibility of some negative impact. But the
district court never adopted this portion of the magistrate
judge’s Report and Recommendation.
No. 11-2656 9
965 n.1 (7th Cir. 2012) (“[W]e may affirm on any basis
that appears in the record.”). Here, the record contains
sufficient evidence to find, as a threshold matter, that
Stuller would suffer irreparable harm if it was forced
to implement Steak N Shake’s pricing policy. Specifi-
cally, Stuller has presented evidence that the policy
would be a significant change to its business model
and that it would negatively affect its revenue,
possibly even to a considerable extent. We acknowledge
that Steak N Shake contests the validity and strength of
the evidence presented by Stuller, but that argument
goes to the “sliding scale analysis” conducted by a court
in deciding to grant or deny a preliminary injunction,
and not to Stuller’s threshold requirements. In addition,
if Stuller implemented Steak N Shake’s policy and sub-
sequently prevailed on the merits of its case, it would
be difficult to reestablish its previous business model
without a loss of goodwill and reputation. Because this
is harm that cannot be “fully rectified by the final
judgment after trial,” it is irreparable. Roland Mach. Co. v.
Dresser Indus., Inc., 749 F.2d 380, 386 (7th Cir. 1984).
In sum, we hold that Stuller has established its
threshold requirement of showing it would suffer irrep-
arable harm without a preliminary injunction. The
district court then conducted a balance of the harms
when granting the preliminary injunction, and we have
no reason to conclude that the district court abused its
10 No. 11-2656
discretion in so doing. 2 Because the district court did
not abuse its discretion in granting Stuller’s motion
for a preliminary injunction, the opinion of the district
court is A FFIRMED.
2
We also note that a review of the district court’s docket
sheet indicates that the district court issued an opinion on
July 12, 2012 denying Steak N Shake’s motion for summary
judgment on all the claims, granting Stuller’s motion for
summary judgment on Count I, and denying Stuller’s motion
for summary judgment on Count II and setting a trial date
in September on the issue of damages. Because Stuller’s case
now has a greater likelihood of success, the balance of harms
when granting an injunction weighs even more in Stuller’s
favor. See Girl Scouts of Manitou Council, Inc., 549 F.3d at 1086
(“ ‘[T]he more likely the plaintiff is to win, the less heavily need
the balance of harms weigh in his favor; the less likely he is
to win, the more need it weigh in his favor.’ ”) (quoting
Roland Mach. Co., 749 F.2d 380, 387 (7th Cir. 1984))).
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