Franchisor 101: The Secret is Not in the Dough

Lewitt Hackman

A Utah federal judge denied cookie franchisor Crumbl an injunction preventing its competitor, Dirty Dozen, from opening new locations while litigation between the two franchisors was pending.

Crumbl alleged two brothers, Bradley and Bennett Maxwell, who are partial owners in Dirty Dozen, stole proprietary information from their previous affiliations with Crumbl. Bradley was a process engineer for Crumbl, and Bennett a potential Crumbl franchisee that was denied. Bradley was subject to two non-disclosure agreements and when his employment was terminated, he downloaded 640 MB of data including sales statistics, 66 recipes, a rotating cookie menu, individual store specifications, and Crumbl’s build-out specifications.

When Crumbl discovered Bradley had taken this information, they sued Dirty Dozen and Bradley, individually and later sought a preliminary injunction against Dirty Dozen for misappropriating Crumbl’s trade secrets. After a court ordered a forensic examination of Dirty Dozen’s and Bradley’s electronic data and held an evidentiary hearing, both parties stipulated to an order that required Dirty Dozen and Bradley to return all Crumbl related data accompanied with a sworn statement that all data related to Crumbl was returned.

Despite the stipulated order, Crumbl proceeded with its preliminary injunction claim that sought to prevent Dirty Dozen from opening new franchises pending a resolution of the other claims.

The court held that Crumbl established the first factor necessary for a preliminary injunction, likelihood of success on the merits, because the information Bradley unlawfully took qualifies as a trade secret.

However, the court did not find the second factor, irreparable harm, because the harm already occurred and there was no evidence Dirty Dozen incorporated Crumbl’s recipes into its recipes (including the fact that Crumbl has each franchise location make its dough in-house, whereas Dirty Dozen uses one facility to make its dough and ships it to franchise locations).

Regarding the third factor, balancing of harms, the court concluded Crumbl’s request to stop Dirty Dozen from opening new stores would severely impact its business and was not a narrowly tailored remedy because Crumbl’s proprietary information had already been returned. In consideration of the fourth factor, public interest, the court held the injunction is against the public interest as it would limit competition in the marketplace.

Ultimately, the court denied Crumbl’s motion as it only satisfied one of four factors necessary for granting a preliminary injunction.

Franchisors can face unexpected competition from those that have access to the franchise system’s trade secrets and should consult with counsel to ensure proper agreements are in place with employees, franchisees and third parties to permit seeking and obtaining equitable relief if secrets are misappropriated.

Crumbl LLC v. Dirty Dough LLC, 2023 U.S. Dist. LEXIS 142009 (D. Utah Aug. 11, 2023).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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