Trade Secrets Food Fight Spotlights Importance Of Comprehensive Agreements

A judge in the Northern District of Texas recently declined to dismiss a lawsuit, CiCi Enterprises LP et al. v. Mucho Pizza, LLC et al., alleging a pizza franchisee failed to maintain the confidentiality of Texas pizza chain CiCi Enterprises LP's trade secrets after two affiliates inked a development deal with competitor, Papa John's.This case highlights the importance of comprehensive agreements and the reduction of agreement modifications to writing.

Beginning in 2010, CiCi Enterprises ¹ and Mucho Pizza, LLC ² entered into 17 franchise agreements, which provided Mucho Pizza access to CiCi Enterprises' trade secrets and other confidential information, including confidential financial and store performance information, pricing, supplier contacts, strategic marketing research, and sales techniques.Each agreement required Mucho Pizza commit to not communicating, divulging, or otherwise using for another party's benefit these trade secrets and confidential information.The agreements also required Mucho Pizza not to directly or indirectly hold an interest in a competitive pizza restaurant during or immediately after the agreements' term.These agreements were signed by Mucho Pizza and Mucho Pizza's personal guarantor, Guillermo Perales.CiCi Enterprises asserts both were bound by the agreements' terms.

Mucho Pizza affiliates - Sun Holdings Inc. and Papa Texas LLC - entered into a development deal with Papa John's and began acquiring pizza franchises in early 2021.The Papa Texas affiliate was owned by Mr. Perales, and he began actively promoting his ownership of CiCis and Papa John's franchises shortly thereafter.Mr. Perales claimed his relationship with Papa John's did not violate his commitments to CiCi Enterprises based on an unmemorialized 2018 amendment. ³ The subject litigation followed, with Cici Enterprises claiming Mucho Pizza and Mr. Perales' access to and use of confidential, competitive information to directly compete with its CiCis restaurants violates the federal Defend Trade Secrets Act and the Texas Uniform Trade Secrets Act. ⁴

While this litigation is just heating up, and discovery will provide further flavor, the facts at hand serve as a reminder that careful, inclusive agreement drafting is key to protecting intellectual property rights and a low-cost deterrent to legal action.When drafting agreements, consider not only the parties at hand, but also their subsidiaries, affiliates, successors, agents, and assigns.Likewise, putting pen to paper and memorializing amendments to agreements (or the lack thereof) will remove potential she said, he said spats and crystallize the parties' intent at the time of an agreement's drafting or modification.Clear and comprehensive agreements are often the first line of defense to companies' trade secrets and other intellectual property.

The case is CiCi Enterprises LP et al. v. Mucho Pizza, LLC et al., No. 3:22-cv-00033 (N. D. Tex.)

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