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

United States District Court, M.D. North Carolina

March 30, 2018

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

          MEMORANDUM OPINION AND ORDER

          N. CARLTON TILLEY, JR. SENIOR UNITED STATES DISTRICT JUDGE

         This matter is before the Court on Plaintiff Creative Snacks, Co., LLC's Motion for Preliminary Injunction [Doc. #6]. Creative Snacks, Co., LLC (“Creative Snacks”) alleges that Defendant Hello Delicious Brands LLC (“Hello Delicious”) violated the Supply Agreement[1] between it and Creative Snacks and that Defendants Peter D. Grumhaus and Douglas M. Weiss violated the Confidentiality Agreements they executed and, in so doing, all Defendants misappropriated trade secrets and committed unfair and deceptive trade practices. (See Compl. [Doc. #1].) Hello Delicious and Grumhaus are also alleged to have committed fraud. (Id.)

         Creative Snacks moves to enjoin Hello Delicious and its affiliates from violating the Supply Agreement and to enjoin Grumhaus and Weiss from violating the Confidentiality Agreements. (See Mot. for Prelim. Inj.; Pl.'s Br. in Supp. of Mot. for Prelim. Inj. [Doc. #7].) After the parties briefed the matter, a hearing was held on September 26, 2017. Defendants were permitted to submit further briefing on the issue of reverse engineering, after which Creative Snacks moved to do the same [Doc. #53], which request is hereby granted, and filed its own supplemental brief on the topic. For the reasons stated below, Creative Snacks's Motion for Preliminary Injunction is granted in part and denied in part.

         I.[2]

         Creative Snacks, founded by Marius Andersen, creates, develops, manufactures, distributes, and sells snack products throughout the United States, Canada, Mexico, South Korea, Japan, China, and the Caribbean. (Marius Andersen Aff. ¶ 3 (Feb. 1, 2017) [Doc. #7-2].) Hello Delicious, co-founded by Grumhaus, is a food and snack innovation company that manufactures, sells, and distributes various food and snack products to major vendors like Costco Wholesale Corporation (“Costco”). (Tr. 7:3-5 [Doc. #47]; Peter D. Grumhaus Decl. ¶ 4 (Mar. 2, 2017) [Doc. #16].) Belmont Foods, LLC (“Belmont Foods”) is a holding company that owns and manages Hello Delicious. (Grumhaus Decl. ¶ 6.) It was founded by Weiss, and Grumhaus became a member several years later. (Id. ¶ 6.) Belmont Partners, Inc. (“Belmont Partners”) is a food and beverage broker and is Hello Delicious's food broker for Costco. (Id. ¶¶ 5, 7.) It was also founded by Weiss, and, although Grumhaus has no official role with the company, he has served as a conduit between it and Creative Snacks. (Id. ¶ 5.)

         In 2015, Creative Snacks developed its organic Toasted Coconut Clusters product (the “Product”) in cooperation with a Canadian company, Park's Bread ‘n Buns Factory, Ltd. (“Park's Bread”). (Andersen Aff. ¶ 13.) In November of that year, Creative Snacks sent samples of the Product to Belmont Partners to discuss having the company develop sales presentations to Costco. (Id. ¶ 14 (averring that samples were sent to Peter Grumhaus); see Grumhaus Decl. ¶ 16; Tr. 7:11-20.) Belmont Partners had served as a food broker for Creative Snacks since 2014 in connection with the sale to Costco of Creative Snacks's Organic Coconut Chips under the Creative Snacks brand. (Andersen Aff. ¶ 12; Grumhaus Decl. ¶ 13.)

         Because Grumhaus and Weiss liked the Product, they traveled to Greensboro, North Carolina on November 24, 2015, to discuss a possible working relationship with Creative Snacks on the Product. (Andersen Aff. ¶¶ 17, 18; Grumhaus Decl. ¶ 16; Tr. 8:11-15, 9:1-3.) Grumhaus and Weiss each executed a Confidentiality Agreement prior to touring Creative Snacks's packaging facility and before holding any discussions with representatives of Creative Snacks. (Andersen Aff. ¶ 19; Grumhaus Decl. ¶ 17; see also Confidentiality Agreements, e.g., Exs. 2 & 3 to Mot. for Prelim. Inj. [Docs. #7-3, 7-4].) 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's 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, even possibly a joint venture. (Andersen Aff. ¶ 20; Grumhaus Decl. ¶ 18.)

         Over the course of the following months, the parties moved towards finalizing their working relationship. (See, e.g., Grumhaus Decl. ¶¶ 19-36.) During the parties' communications, Creative Snacks provided to Grumhaus the country of origin for the Product's ingredients, (Emails among Lindsay Hancock, Marius Andersen, and Peter Grumhaus (Apr. 18-19, 2016) (e.g., Prelim. Inj. Ex. 3) [Doc. #20-3]; Tr. 57:22-58:10), the component percentage breakdown for the Product, (Emails between Peter Grumhaus and Lindsay Hancock (May 5-6, 2016) (e.g., Prelim. Inj. Ex. 4) [Doc. #20-2]), and the profit sharing model which included the cost of ingredients, inbound freight, bags, and overhead (Tr. 28:18-24, 32:20-23, 33:4-12, 70:13-23, 75:2-12; Ex. A to Supply Agreement (e.g., Prelim. Inj. Ex. 5 [Doc. #20-4])).

         On May 16, 2016, Creative Snacks, as Supplier, and Hello Delicious, as Buyer, entered into a Supply Agreement. (Andersen Aff. ¶ 31; Grumhaus Decl. ¶ 41; see also Supply Agreement (e.g., Ex. 5 to Mot. for Prelim. Inj.) [Doc. #7-6].) Pursuant to the Supply Agreement, Creative Snacks agreed to sell its Toasted 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. (Andersen Aff. ¶ 32; Grumhaus Decl. ¶ 42.) The Supply Agreement, among other things, also restricted during the term of the Supply Agreement 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's 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.)

         According to Creative Snacks, its Confidential Information, at least some of which it believes constitutes trade secrets, 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 ...

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