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Creative Snacks, Co., LLC v. Hello Delicious Brands LLC

United States District Court, M.D. North Carolina

September 12, 2017

CREATIVE SNACKS, CO., LLC, a North Carolina limited liability company, Plaintiff,
HELLO DELICIOUS BRANDS LLC, a Delaware limited liability company, PETER D. GRUMHAUS, and DOUGLAS M. WEISS, Defendants.


          N. Carlton Tilley, Jr. Senior United States District Judge.

         This matter is before the Court on a Motion to Dismiss [Doc. #23] by Defendants Hello Delicious Brands, LLC (“Hello Delicious”), Peter D. Grumhaus, and Douglas M. Weiss (collectively “Defendants”). For the reasons explained below, the Motion is GRANTED IN PART as to the allegation that Hello Delicious breached the restrictive covenant in Section 2.5 of the Supply Agreement, the allegations that supply chain information and distribution information are trade secrets to the extent that those terms do not incorporate the other alleged trade secrets, and the sixth claim for relief as a freestanding cause of action, but is otherwise DENIED IN PART.


         The facts of this case, stated in the light most favorable to Plaintiff Creative Snacks, Co., LLC (“Creative Snacks”), are as follows. Creative Snacks creates, develops, manufactures, distributes, and sells snack products throughout the United States, Canada, Mexico, South Korea, Japan, China, and the Caribbean. (Compl. ¶ 16 [Doc. #1].) In 2015, Creative Snacks developed its organic Toasted Coconut Clusters product (the “Coconut Clusters Product” or “Product”) in cooperation with a Canadian company, Park's Bread ‘n Buns Factory, Ltd. (“Park's Bread”). (Id. ¶ 18.) In November of that year, Creative Snacks sent samples of the Coconut Clusters Product to Grumhaus, a manager and owner of Belmont Foods, LLC and an officer, director, and shareholder of Belmont Partners, Inc. which had served as a food broker for Creative Snacks since 2014 in connection with the sale to Costco Wholesale Corporation (“Costco”) of Creative Snacks' Organic Coconut Chips under the Creative Snacks brand. (Id. ¶¶ 7, 8, 17, 19.) Grumhaus was so enthusiastic about the Coconut Clusters Product that he and Weiss, also a manager and owner of Belmont Foods, LLC and an officer, director, and shareholder of Belmont Partners, Inc., met with Marius Andersen, President of Creative Snacks, at the Creative Snacks facility in Greensboro, North Carolina on November 24, 2015 to discuss the possibility of a partnership on the Coconut Clusters Product. (Id. ¶¶ 7, 8, 22, 24.)

         At the start of the November 24, 2015 meeting, Andersen made clear that the information shared about the Coconut Clusters Product was highly confidential and required Grumhaus and Weiss each to execute a Confidentiality Agreement before any discussion, which they did. (Id. ¶ 25; Exs. A & B to Compl.) The Confidentiality Agreement required Grumhaus and Weiss to keep business plans, formulas, products, technologies, and processes developed by Creative Snacks (referred to as “Confidential Information”) secret and confidential and prohibited them from disclosing the Confidential Information to anyone without Creative Snacks' written permission. (See Confidentiality Agreement.)

         Subject to those agreements, Andersen discussed the possibility of developing closer working relationships between Creative Snacks and the Belmont Companies, and Grumhaus and Weiss proposed a joint venture but it never came to fruition. (Compl. ¶¶ 26, 27, 32.) However, Andersen, Grumhaus, and Weiss continued discussions about marketing the Coconut Clusters Product, including potential customer conflicts and marketplace confusion if the Product were marketed to retailers other than Costco. (See Id. ¶¶ 29-31, 33-34.)

         In May 2016, Creative Snacks entered into a Supply Agreement with Hello Delicious, an affiliate of Belmont Foods, LLC and Belmont Partners, Inc. (Id. ¶¶ 6, 10, 39; Ex. C to Compl.) Pursuant to the Supply Agreement, Creative Snacks agreed to sell its Coconut Clusters Product to Hello Delicious during the term of the Supply Agreement solely for the purpose of resale to Costco through its United States retail stores. (Compl. ¶ 40.) Creative Snacks does not have product rights in the Product outside of the United States. (Id. ¶ 41.) The Supply Agreement, among other things, also restricted Hello Delicious's manufacture, sale, or distribution of the Product (defined as “the coconut cluster snack food product now manufactured, developed, produced, sold and distributed by” Creative Snacks); prohibited Hello Delicious's use and disclosure of Confidential Information (defined as “any and all trade secrets or other confidential or proprietary information . . . which derives economic value . . . from not being generally known without reverse engineering, decompiling, or disassembly to the public or to other persons who can obtain economic value from its disclosure or use”); and protected Creative Snacks' Product Rights (defined as “all proprietary, intellectual property, or other rights in . . . the Products . . .”). (See, e.g., Supply Agreement §§ 1.2, 1.6, 1.7, 2.5, 3.1, 4.1, 4.2, 4.3.)

         More specifically, Creative Snacks alleges that its Confidential Information, “at least some of which constitutes trade secrets” and “virtually all of” which it provided to Defendants, includes:

a. the specific, detailed recipe for the Coconut Clusters Product;
b. the ingredient specifications for the Coconut Clusters Product;
c. ingredient origin related to the Coconut Clusters Product;
d. the cost breakdown as to the manufacture of the Coconut Clusters Product;
e. access to manufacturing and packaging facilities, methods of manufacture, and packaging of the Coconut Clusters Product;
f. ingredient costs, packaging costs, and other costs as to the Coconut Clusters Product;
g. detailed profit and profit margin information as to the Coconut Clusters Product;
h. lead times as to supply of the Coconut Clusters Product;
i. supply chain information;
j. distribution information; and,
k. pricing information concerning the sale by Creative Snacks of the Coconut Clusters Product under its brand to its customers[.]

         (Compl. ¶¶ 50, 53.) Creative Snacks has taken reasonable efforts to maintain the secrecy and confidentiality of this information, including providing the information to a limited number of employees on a “need to know” basis, limiting access to some information in computer files to certain personnel, maintaining the information mostly within its North Carolina facilities' secured office spaces, and requiring written confidentiality agreements when the need to share information arises, as it did with Grumhaus and Weiss and included in its Supply Agreement with Hello Delicious. (Id. ¶¶ 45, 51.)

         Pursuant to the terms of the Supply Agreement, on October 5, 2016, Creative Snacks gave written notice to Hello Delicious of termination of the Supply Agreement, effective January 3, 2017. (Id. ¶ 55.) On or about January 9, 2017, Hello Delicious “informed and represented to Costco that, going forward, Hello Delicious would continue to supply Costco with a coconut cluster type product identical or similar to the Coconut Clusters Product, but from a different facility and at a lower cost.” (Id. ¶ 59.) According to Creative Snacks, “upon information and belief, ” Hello Delicious has violated various sections of the Supply Agreement, including Section 2.5 by manufacturing a coconut cluster type product and selling or contracting to sell it to Costco and others, Section 4.1 by disclosing to others some or all of the Confidential Information and using the Confidential Information to develop or sell a competing coconut clusters type product, and Section 4.3 by copying, altering, or modifying the Coconut Clusters Product or having another do so on Defendants' behalf. (Id. ¶¶ 60-63; see also Id. ¶¶ 66-74.) In addition, “upon information and belief, ” Grumhaus and Weiss have used, disclosed, or otherwise misappropriated the Confidential Information in violation of the Confidentiality Agreements. (Id. ¶¶ 75, 76.)

         Creative Snacks requested that Hello Delicious provide written assurances that it would comply with the terms of the Supply Agreement, to which Hello Delicious responded expressly refusing to provide such written assurances and stating that Section 2.5 of the Supply Agreement was unenforceable. (Id. ¶¶ 64, 65.)

         On January 20, 2017, Creative Snacks filed the instant action alleging a breach of the Supply Agreement against Hello Delicious (Claim 1), breach of the Confidentiality Agreements against Grumhaus and Weiss (Claim 2), fraud against Hello Delicious and Grumhaus (Claim 3), misappropriation of trade secrets against all Defendants (Claim 4), and unfair competition and unfair and deceptive trade practices against all Defendants (Claim 5). (See generally Compl.) Creative Snacks also styled its “Motion for Preliminary and Permanent Injunctive Relief” as its sixth claim for relief. (See Id. ¶¶ 128-31.) Defendants moved to dismiss each of these claims.



         Defendants present a two-pronged attack of the breach of contract claims - (1) that the complaint fails to allege sufficient facts to support a breach and (2) that, even if the factual allegations were sufficient, the non-compete provision in the Supply Agreement is too broad to be enforceable. (See Defs.' Br. in Supp. of Mot. to Dismiss at 5-11 [Doc. #24].) Because the enforceability of the non- compete provision impacts the analysis of whether Creative Snacks has sufficiently alleged a breach of the agreements, it is addressed first.

         In North Carolina, an enforceable covenant not to compete must, among other things, be reasonable as to terms, time, and territory. See, e.g., Triangle Leasing Co., Inc. v. McMahon, 393 S.E.2d 854, 857 ( N.C. 1990). The party seeking enforcement of the covenant bears the burden of proving that it is reasonable. Hartman v. W.H. Odell & Assocs., Inc., 450 S.E.2d 912, 916 ( N.C. Ct. App. 1994). A reasonable territorial restriction is no greater than necessary to protect the promisee's legitimate business interests. Id. at 917. ÔÇťOrdinarily, a covenant's geographic scope will be found reasonable if it encompasses the area served by the business that the covenant protects, or, more specifically, if the protected ...

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