In a trade secrets dispute between two franchisors of cookie stores, a federal judge has denied Crumbl, a Utah-based cookie-bakery chain, an injunction against one of its rivals that would have ordered the rival to open no new stores while the lawsuit remained active. Crumbl LLC v. Dirty Dough LLC, 2023 WL 5180370, at *1 (D. Utah Aug. 11, 2023).
The lawsuit started in 2022, when Crumbl filed a complaint that claimed its rival Dirty Dough took recipes and other proprietary information. Crumbl accused brothers Bennett and Bradley Maxwell of taking that information when each was involved with Crumbl — Bennett had been turned down as a franchise operator, while Bradley worked as a process engineer at the company. As part of the arrangement, Bradley Maxwell signed two non-disclosure agreements.
The brothers invested in Arizona-based Dirty Dough in 2019, each amassing a 15% equity stake in Dirty Dough. Dirty Dough uses a centralized facility to make all of its dough which it then ships frozen to franchised stores for baking. By contrast, each Crumbl franchise store mixes and bakes dough on site.
On June 1, 2019, Bradley Maxwell (“Bradley”) was sacked by Crumbl – but before he left, Bradley downloaded with 640 MB of data including sales statistics, 66 recipes, a rotating cooking menu, individual store specifications, and Crumbl’s build-out specifications.
Upon learning that Dirty Dough had possession of Crumbl trade secrets (without yet knowing that Bradley was involved), Crumbl sued Dirty Dough for trade dress infringement, unfair competition, and false designation of origin under the Lanham Act and deceptive trade practices, unfair competition, and unjust enrichment under Utah law. In September 2021, Bradley uploaded Crumbl’s documents to Dirty Dough’s Google Drive. Crumbl only found out about this after it filed its lawsuit, when a former Dirty Dough employee heard about the case and contacted the company.
Once Crumbl learned of Bradley’s involvement, Crumbl amended its complaint by adding a claim for misappropriation of trade secrets under the Defend Trade Secrets Act and the Utah Uniform Trade Secrets Act and breach of contract (against Bradley personally).
Crumbl moved for a preliminary injunction and the magistrate entered a stipulated order establishing a forensic protocol for examination of Bradley’s personal Google Drive, Dirty Dough’s Google Drive, Dirty Dough’s Slack accounts, Dirty Dough’s company email accounts, and any other related electronic storage devices in the possession of Bradley or Dirty Dough.
After a two-day evidentiary hearing, Crumbl and Dirty Dough stipulated to an order that required that Dirty Dough and Bradley Maxwell return all Crumbl-related information to Crumbl; deliver all notes, memoranda, summaries that might have incorporated any Crumbl information; provide a sworn statement that they have complied with the order.
Despite the ruling, Crumbl pressed ahead with its motion for a preliminary injunction, which asked the court for an order that would compel Dirty Dough to issue a corrective public statement conceding improper acquisition of Crumbl information and prevent Dirty Dough from opening any new franchises until a determination could be made that Dirty Dough was no longer using Crumbl information to support franchisees.
The court concluded that Crumbl had met the first requirement for a preliminary injunction by sufficiently establishing a likelihood of success on its claim for trade secret misappropriation. The court noted the information meets the definition of trade secret and that Bradley Maxwell acquired the Crumbl-information unlawfully.
Because Crumbl got back the information, the court concluded there was no irreparable harm because the harm already occurred, and no evidence existed that Dirty Dough had incorporated Crumbl’s recipes because the recipes differed substantially. Although Dirty Dough has experienced rapid success, there was no evidence that definitively tied that success to possession of Crumbl’s information.
Given that Crumbl has already received its information back from Dirty Dough, the question was whether Crumbl’s request was narrowly tailored to remedy the harm. The court concluded that an injunction to order Dirty Dough to open no new franchises was not narrowly tailored because such a restriction would impose economic death on Dirty Dough. In addition, the request for a corrective public statement was not directed to any threatened injury and the injunction request would constitute a prior restraint of free speech under the 1st Amendment. The court ruled that Crumbl failed to satisfy the requirement that the threatened injury outweigh the harm because economic death far outweighed any threatened injury that Crumbl might face.
As far as the public interest element, the court cited at least two compelling public interests: free competition in the economic marketplace and that restricting Dirty Dough from opening any new franchises would be anti-competitive.
The court, therefore, denied Crumbl’s motion for a preliminary injunction because it failed to meet three of the four requirements for obtaining a preliminary injunction.
Samuel C. Wolf, Esq. of Brown Rudnick, LLP prepared this Case Report. Mr. Wolf’s practice focuses on representing franchisors in closing acquisition and sale transactions and advising franchisors on relational matters in mergers and acquisitions. He may be reached at email@example.com.