Gluten Free Baking Company LLC et al v. Canyon Bakehouse Holdings, LLC et al
Filing
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OPINION AND ORDER - Defendants' trade secrets withstand each of Plaintiffs' challenges on summary judgment. I DENY Plaintiffs' Motion for Full or Partial Summary Judgment 30 against Defendants' Counterclaim #3 and #4. Signed on 5/7/2018 by Chief Judge Michael W. Mosman. (See attached 9 page Opinion and Order). (pg)
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
PORTLAND DIVISION
THE GLUTEN FREE BAKING
COMPANY LLC, an Oregon limited
liability company, and UNITED STATES
BAKERY, an Oregon corporation,
Civil No. 3:17-cv-00146-MO
OPINION AND ORDER
Plaintiffs/Counterclaim
Defendants,
v.
CANYON BAKEHOUSE HOLDINGS,
LLC, a Missouri limited liability company,
and CANYON BAKEHOUSE, LLC, a
Colorado limited liability company,
Defendants/Counterclaim
Plaintiffs.
MOSMAN,J.,
This matter comes before me on Plaintiffs' Motion for Full or Partial Summary Judgment
[30]. After oral argument, I denied the Motion as to Counterclaim #1 and granted the motion as
to Counterclaim #2. Minutes [44]. I took the Motion under advisement as to Counterclaims #3
and #4 and asked the parties to submit by email supplemental evidence on the circumstances
under which Plaintiffs allegedly acquired the alleged trade secrets at the start of the joint venture.
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Minutes [44]. The Court received those emails. For reasons stated below, I DENY Plaintiffs'
Motion for Summary Judgment on Counterclaims #3 and #4.
BACKGROUND
Plaintiffs Gluten Free Baking Company LLC ("GFBC") and United States Bakery
("USB") and Defendants Canyon Bakehouse Holdings, LLC ("CBH") and Canyon Bakehouse,
LLC ("CB") produce baked goods. In October 2012, USB and CBHjointly formed and owned
Northwest Canyon Bakehouse ("NWCB"). After about a year, the parties decided to unwind the
relationship, but the unwinding process took another year. At the end of that process, USB
acquired NWCB entirely, and renamed it GFBC. The parties signed a License Agreement that
was dated March 25, 2015 but with an effective date of January 1, 2015. Complaint [1] Ex. 1
[hereinafter "License Agreement"] at 1. In that agreement, CBH gave USB a limited license to
produce and distribute gluten-free products made or derived from CBH's gluten-free formulas, in
exchange for quarterly royalty payments for a set period of time. See License Agreement.
Today, USB makes gluten-free baked goods using derivatives from the CBH formulas. It
continues to make royalty payments under the License Agreement. USB makes gluten-free
baked goods for its brand name (Franz) and also for private labels (e.g., Sam's Choice for
Walmart). For private-label customers, USB packages the bread in the customer's label at USB's
baking facility, and then delivers bread to the customer's warehouse. The customer then delivers
the bread from the warehouse to its retail stores.
At issue in this case is the information that USB disclosed to its private-label customers.
CBH alleges that USB violated the License Agreement when it disclosed, at various times and to
various customers, the final weights and/or percentages of some of the ingredients in the bread.
CBH does not dispute that USB may disclose a list of the ingredients, which is required for the
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FDA nutrition panels. CBH also asserts that disclosure of the final weights and percentages of
some ingredients violates state and federal trade secrets laws (Counterclaim #3 & #4). USB
moved for summary judgment against CBH' s trade secret counterclaims.
LEGAL STANDARD
Summary judgment is appropriate if there is no genuine dispute of material fact, viewing
the evidence in the light most favorable to the nonmoving party. Fed. R. Civ. P. 56(a). A genuine
dispute of a material fact is "one that could reasonably be resolved in favor of either party."
Ellison v. Robertson, 357 F.3d 1072, 1075 (9th Cir. 2004).
DISCUSSION
CBH' s third counterclaim alleges that USB violated the federal Defend Trade Secrets
Act, 18 U.S.C. §§ 1836-39. Enacted in May 2016, the Act provides a federal cause of action to
owners of trade secrets that are misappropriated where the trade secrets are related to products
used in interstate commerce. 18 U.S.C. § 1836(b).
CBH' s fourth counterclaim alleges that USB violated the Colorado Uniform Trade
Secrets Act. The federal Defend Trade Secrets Act's misappropriation was modelled in part after
the Uniform Trade Secrets Act; the provisions relevant to this case are quite similar. See H. Rep.
No. 114-529, at 4-5, 12-14 (2016), as reprinted in 2016 U.S.C.C.A.N. 195-211.
Under the federal Act, a trade secret is information that the owner has taken reasonable
measures to keep secret and that derives independent value from not being generally known to
others. § 1839(3). Under the Colorado Act, a trade secret is information which is secret and of
value. Colo. Rev. Stat.§ 7-74-102(4).
Under both Acts, "misappropriation" includes "disclosure ... of a trade secret of another
without express or implied consent by a person who ... at the time of disclosure ... knew ...
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that the knowledge of the trade secret was ... acquired under circumstances giving rise to a duty
to maintain the secrecy."§ 1839(5); Colo. Rev. Stat.§ 7-74-102.
I.
Whether CBH failed to sufficiently identify its trade secrets
First, USB argues that CBH did not sufficiently identify its trade secret. Some courts
have granted summary judgment where the owner of the trade secret failed to identify the trade
secret with specificity. See, e.g., Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161, 1165-67,
1168 (9th Cir. 1998) (interpreting the California Uniform Trade Secrets Act). I disagree. As
CBH states in its Answer and Counterclaim, its "trade secrets include specific formulas for the
manufacture of gluten free baking products." Answer [11].
II.
Whether USB improperly acquired the trade secrets
Second, USB argues that CBH' s trade secrets were not misappropriated because they
were not improperly acquired. USB is only liable if it acquired the secret under circumstances
giving rise to a duty to maintain the secrecy. See§ 1839(5); Colo. Rev. Stat. § 7-74-102. CBH
contends that USB "acquired" the trade secrets through "use of the trade secret when the entities
were in joint venture." Defs' Response to Pls' Mot. for Summ. J. [37] at 36. It was then, CBH
says, that the duty to keep the information secret arose. Id.
Because CBH had not cited evidence on the circumstances surrounding USB 's
acquisition of the trade secrets, I asked the parties to submit any further evidence of those
circumstances. At oral argument, I emphasized that CBH was to submit evidence "without any
new discovery at all." Tr. [45] at 61; see also Tr. [45] at 62 ("I said no new discovery and I
meant it."). I did so because allowing post-argument supplementation by CBH was an act of
leniency. It was within my discretion to require CBH's counterclaims to stand or fall on the
record made at summary judgment.
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CBH' s submission appears not to have followed that instruction. CBH submitted the
declaration of Josh Skow, the owner and CEO of CBH since 2009. See Skow Deel. [submitted to
the court by email] at 2. That declaration attached Exhibits A-I. CBH also submitted a brief in
support. USB pointed out that Exhibits A, B, D, E, and G appeared to be new discovery. See
Email from Christopher Pallanch to the Court (April 19, 2018). USB also noted that I did not
request additional briefing. Id. I agree, and have not considered any new legal arguments raised,
nor have I considered any evidence in Exhibits A, B, D, E, and G.
Nevertheless, the evidence submitted in Exhibits C, H, and I do suggest that USB
acquired the trade secrets under circumstances giving rise to a duty to maintain its secrecy. For
example, Exhibit H is a series of emails between Marc Albers, who was the COO and President
at USB (who became the Director of NWCB) and Josh Skow, the CEO of CBH. In October
2012, Mr. Albers wrote to Mr. Skow and asked him to send the formulas. Mr. Skow responded
and said that "NW Canyon should have an NDA, that is signed by all folks seeing confidential
info, whether they are inside of the company, or outside of the company .... We just don't want
our formula floating around out there without the recipients having an NDA on file." Skow Ex.
Hat 783-84. In response, Mr. Albers "agree[d] we need to keep a tight lid on the formulas." Id.
Exhibit C is a nondisclosure agreement, signed by Mr. Albers, that explicitly prohibits disclosure
of trade secrets and recipes. Exhibit F is a Confidentiality and Intellectual Property Agreement
that Mr. Albers sighed. Exhibit I is further emails between Mr. Skow and Mr. Albers. Mr. Skow
says that "We have every single employee at Canyon Bakehouse sign this NDA," and Mr. Albers
responds "[w]e will implement." Skow Ex. I at 786.
Based on this evidence, I find that there is a question of fact as to whether the trade
secrets were acquired under circumstances giving rise to a duty to maintain its secrecy.
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III.
Whether the contract preempts the misappropriation claims
Even so, the question remains whether the License Agreement entirely forecloses CBH' s
trade secrets claims. USB argues that to the degree there was confidential trade-secret
information, the parties contracted how to handle that information. Therefore, USB says, the
only claims about any misappropriation arise out of the contract. At oral argument, USB agreed
that the fact that a contract governs the parties' relationship does not per se eliminate any
misappropriation claim. Transcript [45] at 58. But USB contends since the contract specifies how
to handle the trade secrets, the parties intended to displace other remedies.
Specifically, USB points to the License Agreement's integration clause, which reads:
This Agreement and the Rescission Agreement constitute the entire
agreement between the Parties and supersedes [sic] all prior or
contemporaneous agreements, understandings, or representations
by or among some or all of the Parties with respect to its subject
matter.
License Agreement at 10. USB also argued that because the Agreement defined trade secrets,
defmed the scope of the license, set limits on disclosure, and provided that it was the only
agreement between the parties, the License Agreement forecloses other statutory rights that one
party might bring for the same conduct that constitutes a breach of the contract.
In response, CBH points to the License Agreement's remedies clause:
Each Party acknowledges and agrees that the CBH Formulas and
the Protected Information are unique and one or more Parties
hereto would be irreparably harmed and damaged if any of the
provisions of this Agreement are not performed .... Accordingly,
in addition to any other right or remedy to which a Party may be
entitled, at law or in equity, each Party shall be entitled to enforce
any provision of this Agreement by a decree of specific
performance .... No remedy conferred upon or reserved to any
Party hereto by this Agreement is intended to be exclusive of any
other remedy and each and every such remedy shall be cumulative
and shall be in addition to any other remedy given to any Party
under this Agreement or now or hereafter existing at law or in
equity or by statute.
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License Agreement at 12. USB responds that remedies clause speaks only to remedies, and not to
statutory rights that the parties may have.
But the paragraph does say that parties may seek specific performance "in addition to any
other right or remedy to which a Party may be entitled." Though the contract language addresses
the trade secrets, and provides remedies for unauthorized disclosures, I find nothing in the
contract to foreclose an independent statutory trade secrets claim.
IV.
Whether CBH owns the trade secrets
USB argues that because CBH does not own the trade secrets, its counterclaims under the
Acts automatically fail. This argument raises two issues, one legal---do the Acts require
ownership?-and one factual---does CBH own the trade secrets?.
A. Do the Acts require ownership?
Here, the statutes diverge. The federal Act grants a cause of action to the "owner of a
trade secret." 18 U.S.C. § 1836. An "owner" is the entity with "rightful legal or equitable title to,
or license in, the trade secret." 18 U.S.C. § 1839(4). CBH concedes that the federal Act requires
ownership.
But CHB argues that the Colorado Act does not require ownership. On the one hand, the
Act does not include ownership as an element. See Colo. Rev. Stat. § 7-74-101. And some case
law refers to the "holder" of the trade secret, rather than the "owner." See Saturn Sys., Inc. v.
Militare, 252 P.3d 516, 521-22 (Colo. App. 2011) (listing the elements and referring to "the
holder of the trade secret"). On the other hand, Colorado courts have not considered whether
there is any important distinction between "holder" and owner." Even Saturn Systems refers to
the "owner of trade secrets." Saturn, 252 P.3d at 522. In addition, the Act defines trade secret
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with reference to the owner's protective measures. § 7-74-102 ("To be a 'trade secret' the owner
thereof must have taken measures to prevent the secret from becoming available .... ").
Even if ownership is not specifically listed as an "element," the Colorado Act and the
case law clearly contemplate that the trade secrets are "owned" by the party with the trade secrets
claim. Thus, I find that the Colorado Act, like the federal Act, requires ownership.
B. Does CBH own the trade secrets?
USB contends that CBH does not own the trade secrets in question-that is, the
ingredient weights and percentages for NWCB Derivative products that USB disclosed to its
private label customers.
On the one hand, the License Agreement specifies that "NWCB will own exclusive right,
title, and interest in and to all confidential and unique derivative works of the CBH Formulas
developed by NWCB." License Agreement at 5. It further notes that "in no event will there be
any obligation by NWCB or USB to pay royalties on any NWCB Derivative beyond the period"
set forth in the Agreement. License Agreement at 5. That language suggests that NWCB (and
therefore USB) owns the ingredient weights and percentages information that USB disclosed,
since the relevant formulas were "derivative works of the CBH Formulas developed by NWCB."
On the other hand, a different section of the Agreement provides that "Confidential
Information is a valuable trade secret of CBH" and that the confidential information is the
property of CBH. License Agreement at 6. The License Agreement defines "Confidential
Information" as "information ... of a proprietary, private, secret, financial or confidential
nature." License Agreement at 1. The definition explicitly includes "all memoranda, summaries,
notes, analyses, compilations, studies or other documents prepared by [USB] that contain, reflect
or are derived from [that confidential] information." License Agreement at 1.
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Thus, by the terms of the License Agreement, USB owns derivative works of the CBH
Formulas, but CBH owns documents prepared by USB that are derived from its confidential
information. This arrangement is odd, but there is at least a genuine dispute about whether CBH
owns the disclosed ingredient information at issue.
CONCLUSION
Defendants' trade secrets claims withstand each of Plaintiffs' challenges on summary
judgment. I DENY Plaintiffs' Motion for Full or Partial Summary Judgment [30] against
Defendants' Counterclaim #3 and #4.
Dated May 7, 2018
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