Stockade Companies, LLC et al v. Kelly Restaurant Group, LLC
ORDER DENYING 44 Motion for Preliminary Injunction. Signed by Judge Robert Pitman. (jf)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
STOCKADE COMPANIES, LLC and
STOCKADE FRANCHISING, LP,
KELLY RESTAURANT GROUP, LLC,
Before the Court in the above-entitled matter is Plaintiffs’ Motion for Preliminary
Injunction, (Dkt. 44), on which the Court held two hearings, (Dkts. 76, 83). Having
considered the parties’ arguments, the case file, and relevant law, the Court concludes that
Plaintiffs’ motion is DENIED.
I. BACKGROUND AND OVERVIEW
Plaintiffs Stockade Companies, LLC and Stockade Franchising, LP (collectively,
“Plaintiffs” or “Stockade”) own and license the trademarks for the Sirloin Stockade, Coyote
Canyon, and Montana Mike’s restaurants. (Compl., Dkt. 1, ¶ 1). Plaintiffs filed suit against
Defendant Kelly Restaurant Group (“KRG” or “Defendant”) on February 24, 2017. (Dkt.
1). They subsequently filed a Motion for Preliminary Injunction, which the Court granted in
part on May 31, 2017. (Dkt. 26). In that order, the Court directed KRG to de-brand its
Sirloin Stockade, Coyote Canyon, and Montana Mike’s franchise restaurants within 21 days.
(Id. at 7). Defendant then rebranded the restaurants in question as “Kansas Buffets.”
Plaintiffs filed the instant Motion for Preliminary Injunction on July 28, 2017. (Dkt.
44). They seek an order enjoining Defendant from operating “family-style buffets” at former
Stockade restaurants. (Id. at 6). Specifically, Plaintiffs ask the Court to enjoin Defendant
from “using Stockade’s confidential information in violation of the parties’ [f]ranchise
[a]greements,” “misappropriating Stockade’s trade secrets in violation of the Texas Uniform
Trade Secrets Act,” and “infringing on Stockade’s trade dress in violation of the Lanham
II. LEGAL STANDARD
A preliminary injunction is an extraordinary remedy, and the decision to grant such
relief is to be treated as the exception rather than the rule. Valley v. Rapides Parish Sch. Bd., 118
F.3d 1047, 1050 (5th Cir. 1997). “A plaintiff seeking a preliminary injunction must establish
that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the
absence of preliminary relief, that the balance of equities tips in his favor, and that an
injunction is in the public interest.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008).
The party seeking injunctive relief must “carr[y] the burden of persuasion on all four
requirements.” PCI Transp. Inc. v. W. R.R. Co., 418 F.3d 535, 545 (5th Cir. 2005).
Stockade requests three separate types of injunctive relief. It asks the Court to enjoin
KRG from (1) using Stockade’s confidential information in violation of the parties’ franchise
agreements, (2) misappropriating Stockade’s trade secrets in violation of the Texas Uniform
Trade Secrets Act, and (3) infringing on Stockade’s trade dress in violation of the Lanham
Act. (Mot. Prelim. Inj., Dkt. 44, at 6). The Court will apply the four-part rubric detailed
above to each of these requests.
A. KRG’s Alleged Use of Stockade’s Confidential Information
Stockade contends KRG is now “us[ing] Stockade’s confidential Buffet System to
operate its restaurants” in violation of the franchise agreements signed by both parties. (Mot.
Prelim. Inj., Dkt. 44, at 26). In making this breach-of-contract argument, Stockade relies on a
section of the franchise agreements that prohibits franchisees—in this case, KRG—from
using Stockade’s confidential information “in the operation of any other family-style buffet
restaurant or family-style steakhouse, or other business which, in [Stockade’s] sole discretion,
would constitute an unfair method of competition.” (Franchise Agreement, Dkt. 27-2, at 18).
For the reasons stated below, the Court concludes that Stockade has not demonstrated it is
entitled to a preliminary injunction on this claim.
The franchise agreements define “confidential information” as information
including, but not limited to,
menu items and new test menu items, ingredients, recipes, formulas, and
methods of preparation and presentation of food products sold at
Franchised Restaurants, as well as the methods, techniques, formats,
specifications, procedures, information, systems, computer software, and
knowledge of and experience in the operation and franchising of Franchised
restaurants, and further including, without limitation, any and all of the
foregoing that may arise by reason of Franchisor’s franchise of, and
Franchisee’s operation of, the Franchised Restaurant during the term of this
(E.g., id.). 1 However, Section 7.03 of the franchise agreements excludes from the definition
of “confidential information” information that is “generally known and used in the familystyle buffet restaurant or family-style restaurant, other than through disclosure (whether
deliberate or inadvertent) by Franchisee.” (Id. at 18–19).
The parties provided several Stockade–KRG franchise agreements to the Court. (Dkts. 27-1–27-16). Though
the language of these agreements varies slightly, the parties have treated the agreements as functionally
identical. The Court does the same.
As noted above, Stockade maintains that its entire “buffet system” is confidential
information for purposes of the franchise agreements. Stockade defines the “buffet system”
broadly and amorphously, describing it as an “operational guide” covering questions
How much of each core product should be ordered? How can the number of core
products be optimized to produce the 100-plus varieties of food that Sirloin
Stockade and Coyote Canyon serve, including specialty nights? How often should
each core product be ordered? How do seasonal changes affect ordering? What
should be on shelves, refrigerated, or frozen? What kind of freezers, refrigerators,
and shelving is optimal? How long can items remain on the shelf, refrigerated or
frozen? How is inventory done, and how often? What does Stockade’s wholesale
food purveyor prepare, and what is prepared in each restaurant? What kitchen
equipment is necessary, and how is it maximally arranged for efficiency? How are
steaks butchered in-restaurant? What steps are taken to minimize waste or spoilage?
What security systems are used to minimize theft? Which specialty items are chosen
for each of the specialty nights? When is food disposed of? What are the health
regulations for each item of the food? How many wait staffs are appropriate for each
. . . party of each work day and each weekend? What are wait staff’s duties and what
is the optimal level of service? And how are each of these questions so as to lead to a
ration of cost-of-goods and labor expenses to revenue that allows for a reasonable
return on investment?
(Mot. Prelim. Inj., Dkt. 44, at 30–31). Indeed, when pressed by the Court to describe the
“buffet system” and what would qualify as a family-style buffet, Stockade counsel said
merely: “You know it when you see it.” (Tr., Dkt. 84, at 21).
KRG asserts that Stockade is not entitled to a preliminary injunction with respect to
its breach-of-contract claim because it has not demonstrated a breach. The Court, given the
evidence now before it, agrees.
It is axiomatic that a party seeking to prevail on a breach-of-contract claim must
prove, at a minimum, that the defendant breached a valid contract. Smith Int’l, Inc. v. Egle
Grp., LLC, 490 F.3d 380, 387 (5th Cir. 2007) (identifying the “essential elements” of a
breach-of-contract action as (1) the existence of a valid contract, (2) performance or
tendered performance by the plaintiff, (3) breach of the contract by the defendant, and (4)
damages sustained by the plaintiff as a result of the breach). Here, no parties contest that the
contract in question was valid. The issue, rather, is whether KRG breached the contract at
all. KRG maintains that it did not, as (1) the franchise agreements expressly exempt
information that is “generally known and used in the family-style buffet restaurant or familystyle restaurant,” and (2) Stockade has not shown that KRG has used any information that
does not fall within the general-knowledge exemption.
Stockade, which does not dispute that the general-knowledge exemption applies,
seeks to prove the breach by focusing instead on alleged similarities between the “food,
layout, design, décor, and other operations” at Stockade-branded restaurants and the
restaurants now operated by Defendant as Kansas Buffets. (Mot. Prelim. Inj., Dkt. 44, at
28). 2 Stockade admits, however, that is has no direct evidence of KRG’s use of confidential
information. (Tr., Dkt. 84, at 56, 63). In the absence of such evidence, Stockade points to
circumstantial evidence of the alleged breach.
Stockade highlights, for example, the fact that both its restaurants and the Kansas
Buffets operated by Defendant have “specialty nights.” (Mot. Prelim. Inj., Dkt. 44, at 20).
However, Stockade Chief Operations Officer Rick Pastorek admitted that “a lot of”
restaurants have specialty nights, that “anyone that walks off the street can see specialty
nights at any restaurant,” and that knowledge regarding specialty nights is “something that
could be gained in personal knowledge in the industry.” (Tr., Dkt. 84, at 61). Mr. Pastorek
also testified about his experience visiting KRG’s Kansas Buffets. (Id. at 39). While he stated
Stockade also points to KRG’s use of calorie-count identifiers supplied to the former franchises before they
were rebranded. (Mot. Prelim. Inj., Dkt. 44, at 18–19). Those identifiers have been removed. (Tr., Dkt. 84, at
that the restaurants were “operating the same as they did before they de-identified,” (id. at
40), he agreed that he had no “personal knowledge or direct evidence that [KRG] is using
every single one” of the elements comprising its “buffet system,” (id. at 56). Although Mr.
Pastorek claimed that the food at the Kansas Buffet restaurants “looked the same and tasted
the same” as the food served at the restaurants when they were Stockade franchises, he
admitted that he was basing his observations “just . . . on the way [the food was] laid out in
the buffet.” (Id. at 63). Mr. Pastorek also admitted that KRG no longer has access to
Stockade’s research library, the franchise agreements, or disclosure documents; that the
point-of-sale system used by Stockade and KRG is used by many restaurants in the industry;
and that none of Stockade’s recipe developers are working at KRG. (Id. at 56–58).
Stockade’s final argument regarding KRG’s alleged use of Stockade’s confidential
information involves similarities between the recipes used at the two companies’ restaurants.
(See, e.g., Dkt. 44-5 at 168–236; Pls.’ Exs., Dkt. 85-1, at 93–186). The Kansas Buffet
Company recipe book contains 63 recipes. (Transcript, Dkt. 84, at 41). Of those, Stockade
considers 12 substantially similar to its own. (Pls.’ Exs., Dkt. 85-1, at 162–186). Those
recipes—covering standard, widely available fare such as lasagna, beef and noodles, liver and
onions, and meatloaf, among other items—are indeed similar. However, changes have been
made: KRG’s lasagna recipe contains more garlic and sugar; its beef noodles recipe contains
less “beef base”; its liver and onions recipe contains more garlic; and its pot roast contains
more onion strips. (Pls.’ Exs., Dkt. 85-1, at 162–186). While some recipes—like those for a
prime beef rub—appear identical, those recipes are exceedingly simple. Both companies’
prime beef rub, for example, includes only four ingredients: salt, pepper, garlic, and cumin.
(Pls.’ Exs., Dkt. 85-1, at 170–71). While the Court is unfamiliar with the beef rub recipe used
at other family-style buffet restaurants, it stands to reason that such simple recipes may
appear in many competitors’ recipe books.
Evidence regarding Stockade’s allegation that KRG’s restaurants are serving food
made from Stockade recipes boils down to assertions by Stockade employees that food
served at Kansas Buffets tastes the same as food served at Stockade-branded eateries. (See,
e.g., Tr., Dkt. 84, at 40 (“Most of the things we tried tasted exactly like they did.”)). This
subjective speculation, when unaccompanied by any direct evidence that KRG is using
“confidential information” as defined in the franchise agreements, is insufficient to convince
the Court that there is a high likelihood KRG breached its contract with Stockade. 3
Stockade is therefore unable to demonstrate its entitlement to injunctive relief on
this claim. See PCI Transp., 418 F.3d at 54 (explaining that the party seeking injunctive relief
must “carr[y] the burden of persuasion on all four requirements”). Stockade’s request that
the Court enjoin KRG from using Stockade’s confidential information in violation of the
parties’ franchise agreements is DENIED.
3 In an effort to convince the Court otherwise, Stockade makes frequent reference to CiCi Enterprises, a recent
case in which a district court in the Middle District of Florida, applying Texas law, granted a preliminary
injunction against a former franchisee that was “continu[ing] to operate a pizza restaurant that [was] nearly
identical to the licensed Cicis restaurant they operated previously.” CiCi Enters., LP v. Four Word Motion, LLC,
No. 6:16-CV-1679, 2016 WL 9244626, at *9 (M.D. Fla. Oct. 17, 2016). An opinion from the Middle District of
Florida is not binding authority. More importantly, CiCi Enterprises is easily distinguishable from the case at
hand. In that case, the court was able to conclude that it was “obvious” the defendants were operating their
restaurant using proprietary and confidential information because, among other reasons, the plaintiff provided
evidence that its “proprietary recipes were posted on the kitchen wall and still being used.” Id. at *2, *9. Here,
Stockade offers only a selection of similar recipes and speculation that the food being served at Kansas Buffets
tastes the same as food served at Stockade franchises.
B. KRG’s Alleged Misappropriation of Stockade’s Trade Secrets
Stockade also seeks an injunction enjoining KRG from misappropriating Stockade’s
trade secrets in violation of the Texas Uniform Trade Secrets Act. For the reasons detailed
below, the Court DENIES that request.
Under Texas law, trade secret misappropriation is established by showing that (1) a
trade secret existed, (2) the defendant acquired the trade secret through a breach of a
confidential relationship or discovered it by otherwise improper means, and (3) the
defendant used the trade secret without authorization from the plaintiff. Wellogix, Inc. v.
Accenture, L.L.P., 716 F.3d 867, 874 (5th Cir. 2013) (quoting Phillips v. Frey, 20 F.3d 623, 627
(5th Cir. 1994)); 360 Mortg. Grp., LLC v. Homebridge Fin. Servs., Inc., No. 1:14-CA-847, 2016
WL 900577, at *3 (W.D. Tex. Mar. 2, 2016). Trade secrets are defined as
information, including a formula, pattern, compilation, program, device,
method, technique, process, financial data, or list of actual or potential
customers or suppliers, that: (A) derives independent economic value, actual
or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use; and (B) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
Tex. Civ. Prac. & Rem. Code § 134A.002(6)(A).
Stockade alleges that its “buffet system” constitutes “protectable trade secrets under
Texas law.” (Mot. Prelim. Inj., Dkt. 44, at 30; Tr., Dkt. 84, at 54). As noted above, Stockade
defines the “buffet system” broadly. See supra Part III.A.1. For example, Mr. Pastorek
testified that the system was “the recipes, the manuals, the training materials, our staff . . . all
of our vice president[s], directors that help operate the franchises and develop systems and
process[es] to help us operate our restaurants.” (Tr., Dkt. 84, at 31; id. at 54 (defining
Stockade’s trade secret as “being comprised of certain elements,” including recipes, the
training system, trade dress, trademarks, the resource library, the marketing program, the
purchasing system, the point-of-sale system, the gift-card system, and research and
development)). When pressed to more precisely define the buffet system, Mr. Pastorek said:
“It’s everything.” (Id. at 31).
Even assuming that this indeterminate laundry list of elements comprises a “trade
secret,” Stockade must still show that KRG acquired the trade secret through a breach of a
confidential relationship or discovered it by otherwise improper means. It has not met that
burden. Stockade concedes that KRG no longer has access to its resource library and that
KRG’s franchises returned Stockade’s manuals. (Id. at 131). Indeed, Mr. Pastorek admitted
during his testimony that KRG is not using Stockade’s buffet system “in its entirety.” (Id. at
70). Stockade’s assertion that KRG acquired its trade secret through a breach of a
confidential relationship is further undercut by KRG’s evidence that Stockade disposed of
this allegedly secret information by throwing the documents—including recipes—into a
public, unlocked dumpster. (Id. at 170–72). 4 As such, the Court cannot conclude that there is
a high likelihood Stockade will demonstrate KRG acquired the trade secret through a breach
of a confidential relationship or discovered it by otherwise improper means. Because doing
so is necessary to establish a claim for misappropriation of trade secrets, Stockade’s request
that the Court enjoin KRG from misappropriating Stockade’s trade secrets in violation of
the Texas Uniform Trade Secrets is DENIED.
Moreover, despite a provision in the franchise agreements allowing it to do so, Stockade did not require the
franchises in question to require employees to sign confidentiality and noncompete agreements. (Tr., Dkt. 84,
at 88–91). As KRG notes, that means any employee who has left those franchises could have put knowledge of
the “buffet system” to work for a competitor.
C. KRG’s Alleged Infringement of Stockade’s Trade Dress
Stockade finally argues that it is entitled to an order enjoining KRG from infringing
on Stockade’s trade dress in violation of the Lanham Act. For the reasons detailed below,
the Court disagrees.
“Trade dress” refers to the “total image and overall appearance of a product” and
“may include features such as the size, shape, color, color combinations, textures, graphics,
and even sales techniques that characterize a particular product.” Amazing Shapes, Inc. v. Metro
Mini Storage, 608 F.3d 225, 250–51 (5th Cir. 2010) (citing Pebble Beach Co. v. Tour 18 I Ltd., 155
F.3d 526, 536 (5th Cir. 1998)). The Lanham Act, 15 U.S.C. §§ 1051 et seq., protects trade
dress from infringement by competitors. To succeed on an infringement or unfair
competition claim under the Lanham Act, a plaintiff must establish two elements. First, the
plaintiff must establish “that the mark or trade dress, as the case may be, qualifies for
protection.” Pebble Beach, 155 F.3d at 536. To qualify for legal protection, the trade dress
must be inherently distinctive or have achieved secondary meaning in the public’s mind; that
is, it must have “come through use to be uniquely associated with a specific source.” Id.
(internal quotation marks and citations omitted). Second, the plaintiff must show that the
defendant’s use of the trade dress creates “a likelihood of confusion in the minds of
potential customers as to the source, affiliation, or sponsorship” of the defendant’s product
or service. Bd. of Supervisors for La. State Univ. Agric. & Mech. Coll. v. Smack Apparel Co., 550
F.3d 465, 478 (5th Cir. 2008) (internal quotation marks and citations omitted).
Given the evidence now before it, the Court concludes that Stockade has not
established a high likelihood of success on either of the elements described above. Stockade
alleges that it “uses distinctive designs, décor, artifacts, and signage for its restaurants, all of
which KRG continues to use in the Kansas Buffets.” (Mot. Prelim. Inj., Dkt. 44, at 33).
However, it offered as evidence only pictures of KRG’s current restaurants, (Pls.’ Exs., Dkt.
85-3, at 1–9), making it impossible for the Court to compare those sites to Stockade
franchises. Stockade representatives also admitted that there is no uniform color palate
among its franchises, whether with respect to color palette, furniture, exterior décor, or the
ratio of hot bars to cold bars. 5 (Tr., Dkt. 84, at 133–34). It therefore cannot be said that
Stockade’s trade dress, as currently presented to the Court, is inherently distinctive. Cf. CiCi
Enters., 2016 WL 9244626, at *5 (granting a preliminary injunction with respect to trade dress
infringement because the plaintiff “employ[ed] a specific color palette and décor” and
consistently used a “specific decorative scheme . . . throughout all of its franchises”).
Stockade also has not shown that KRG’s use of its trade dress creates a likelihood of
confusion in the minds of potential customers. Stockade offered some evidence of
confusion, primarily in the form of social media posts or customer complaints about KRGowned restaurants that were directed to Stockade’s website. (Mot. Prelim. Inj., Dkt. 44, at 7;
Tr., Dkt. 84, at 136). However, it is not readily apparent that the customer confusion in
question was caused by KRG. KRG elicited testimony that (1) Stockade was responsible for
closing Facebook and Twitter accounts listing the former franchises as Stockade restaurants,
and (2) Stockade failed to take that action. (Id. at 139–40). Indeed, it appears Stockade itself
sent marketing emails to customers that listed the KRG-owned locations as Stockade-owned
restaurants. (Id. at 141–43).
Stockade also alleged that its buffet layout was “a big part of its method,” but admitted that the layout is
functional. (Tr., Dkt. 84, at 63–64). Trade dress is only entitled to legal protection if it is non-functional. Pebble
Beach, 155 F.3d at 536.
The Court concludes that Stockade has not established a high likelihood of success
with respect to either of the elements required to succeed on an infringement or unfair
competition claim. Stockade’s request for an order enjoining KRG from infringing on
Stockade’s trade dress in violation of the Lanham Act is therefore DENIED.
Stockade has not demonstrated a high likelihood of success on any of its three
claims. Plaintiffs’ Motion for Preliminary Injunction, (Dkt. 44), is DENIED in full.
SIGNED on October 16, 2017.
UNITED STATES DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?