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Sweet Street Desserts, Inc. v. Better Bakery, LLC

United States District Court, E.D. Pennsylvania

July 23, 2015

SWEET STREET DESSERTS, INC., Plaintiff,
v.
BETTER BAKERY, LLC, Defendant.

MEMORANDUM

LAWRENCE F. STENGEL, District Judge.

I. INTRODUCTION

Plaintiff Sweet Street Desserts, Inc. ("SSD") brought this action against Defendant Better Bakery, LLC ("BB") alleging claims of breach of a November 2, 2001 confidential non-disclosure agreement ("NDA") (Count I), a "passing off" violation of the Lanham Act, 15 U.S.C. § 1125(a) (Count II), a false advertising violation of the Lanham Act (Count III), common law unfair competition (Count IV), unjust enrichment (Count V), and common law misappropriation of trade secrets (Count VI). In an opinion dated January 7, 2013 ("the January 2013 Opinion"), I granted BB's Motion to Dismiss Counts II, III, and IV of the Complaint. (See Docket Entry No. 24, Sweet St. Desserts, Inc. v. Better Bakery, LLC, Civ. A. No. 12-6115, 2013 WL 81385 (E.D. Pa. Jan. 7, 2013).) Thereafter, BB answered the Complaint and brought Counterclaims alleging "reverse passing off" under the Lanham Act, 15 U.S.C. § 1125(a) (Counterclaim I), breach of the NDA (Counterclaim II), tortious interference with contract (Counterclaim III), misappropriation of BB's trade secrets (Counterclaim IV), and common law unfair competition (Counterclaim V). (See Docket Entry No. 26.)

Presently pending are the parties' cross motions for summary judgment based upon separate statements of allegedly undisputed facts. BB seeks judgment on SSD's remaining claims, namely breach of contract, unjust enrichment, and misappropriation of trade secrets. SSD's Motion seeks judgment on its own breach of contract claim, as well as on BB's Counterclaim I for reverse passing off under the Lanham Act. For the following reasons, I grant BB's Motion and deny SSD's Motion.

II. SUMMARY JUDGMENT RECORD

Having reviewed the parties' statements of allegedly undisputed facts, and the responses thereto, I find that the following facts are undisputed.[1] SSD began in the fall of 2011 to discuss the potential for BB to work with SSD in connection with SSD's effort to design a pretzel sandwich product ("the SSD Pretzel Sandwich"[2]) in exchange for the opportunity to manufacture the product on behalf of SSD. (App. 19.) To protect the sharing of confidential information between SSD and BB during the product development process, on September 28, 2011 the parties executed a preliminary Mutual Confidentiality Agreement. (App. 398-99, Ex. P-35.) Thereafter, as the collaboration between the parties continued, SSD and BB entered into the superseding NDA on November 2, 2011. (App. 400-02, P-38.) The NDA protected the sharing of, among other things, the confidential knowledge, designs, recipes, processes, formulae and other confidential information revealed by SSD during the product development process. (App. 400-02, P-38.) SSD asserts, and BB denies that, after the execution of the NDA and prior to January 24, 2012, SSD and BB entered into an oral exclusive requirements contract related to the SSD Pretzel Sandwich. (App. 78-79, Sandy Solmon Dep. 140:7-24, 141:1-16.) SSD asserts that the oral contract provided that BB would exclusively supply SSD with the amount of the SSD Pretzel Sandwiches it required for a period of two years and, in return, SSD would provide design and engineering expertise with respect to product development, as well as compensate BB for research and development and eventual manufacture of the product. (App. 139, Ex. P-41; 140-42, Ex. P-42.) It is undisputed that the parties did not agree on a specific price for the product because they had not yet determined the cost of all materials and SSD had not yet decided which type or brand of proteins it was going to use in each variation of the product. (App. 139, Ex. P-41; 140-42, Ex. P-42.)

On January 24, 2012, Bryan Freeman sent Sandy Solmon an email stating: "Below is what I have as next steps." Freeman then listed steps to complete the parties' agreement, including the establishment of pricing and the sending of a written agreement, and concluded "If the above can be achieved quickly, and the pricing works within everyone's margin demands, Rick believes he can rapidly fill up BB's current capacity." (App. 139, Ex. P-41.) In that same January 24, 2012 email, Freeman also lists "Sandy's improvements, " i.e., certain modifications to product samples to be incorporated into the SSD Pretzel Sandwich, including length, "Wide Slits, " "Medium Crumbs. No boulders and no shake." (Id.) He also stated "The look of the product as it relates to the large openings will be exclusive to SS." (Id.) On February 2, 2012, Solmon emailed Freeman: "I am hoping that we are making progress in getting samples to the specification we discussed last week. Can you let me know how it is going... All of us are excited an continue to dive into sourcing of protein." Freeman responded: "Before proceeding with additional development, I want to check and make sure we are aligned on an important point for me. Assuming we can hit the right price for you and meet your quality spec, are you OK with making us an exclusive supplier for 2 years? This is important because I would like some certainty that the effort you and I put into this will result in (at least) a 24 month relationship. Is this going to work for you?" Solmon then replied: "Yes we accept that criteria." (App. 141.) During the ensuing months, the parties exchanged photographs with notes by Solmon addressing defects in test samples, approving other attempted test samples, and emails communicating the progress of the product development. (App. 143-46, Ex. P-17; 156-64, Ex. P-18; 283, Ex. P-19; 257-82, Ex. P-20; 287-88, Ex. P-21; 294-95, Ex. P-23; 139, Ex. P-41; 149-52, Ex. P-44; 153-55, Ex. P-46; 289-91, Ex. P-59.)

The SSD Pretzel Sandwich includes open ends and precision slits on the top of the product, which bloom open during baking to reveal the contents inside. (App. 143-46, Ex. P-17; 156-64, Ex. P-18; 283, Ex. P-19; 287-88, Ex. P-21; 294-95, Ex. P-23.) BB contends that the only specifications of the SSD Pretzel Sandwiches that SSD asserts as proprietary and the subject of its Complaint are: open ends, length of 6 to 7 inches, slits, and crumbs. (DSOF Ex. C, Solmon Dep. 85:7-13; 89:7-18; 97:8-24; 98:3-7; 86:8-22.) SSD denies that the four items listed by BB are the only items related to the SSD Pretzel Sandwich that are proprietary to SSD, adding that it also deems proprietary the overall look of the product, the bloom, the color, and the manufacturing process related to the proteins. (SA 10-15, Solmon Dep. 85:7-24, 86, 87:1-13, 89:7-24-90:17, 97:9-24.[3])

The NDA provides an exception to Confidential Information which "... (c) was in the recipient's possession prior to disclosure, as evidenced by the recipient's written records, and was not the subject of an earlier confidential relationship with the party that disclosed such Confidential Information..." (DSOF Ex. A ¶ 7.) The NDA provides another exception to Confidential Information which "... (b) became publicly available after disclosure without breach of this Agreement..." (Id.) In her deposition, SSD's Solmon conceded that the length of the SSD Pretzel Sandwiches would be measured by the public by using a ruler. (DSOF Ex. C, Solmon Dep. 96:24-97:7). It is undisputed that SSD showed the SSD Pretzel Sandwich to potential customers other than to the primary customer it disclosed to BB, i.e., Seattle's Best, including for example, 7-Eleven and the AMC movie theater company.

Throughout the spring of 2012, emails and notes between SSD personnel discussed the placement of proteins, presentation of the product, and options for achieving improvements. (App. 257-82, Ex. P-20; 287-88, Ex. P-21; 294-95, Ex. P-23; 149-52, Ex. P-44; 153-55, Ex. P-46; 289-91, Ex. P-59.) During this time, BB sent prototypes of the SSD Pretzel Sandwiches to SSD so that SSD could inspect the samples and use them for test-marketing and research purposes. (App. 20, January 2013 Opinion at p.3; 47, Counterclaim at ¶47.) When SSD received the product from BB, it removed them from the BB shipping boxes, inspected them, and decided which individual prototypes to send to Seattle's Best. (App. 83, 85-102, Sept.11, 2013 Dep. of Carol Shocket ("Shocket Dep.") 77:8-24, 136:1-153:24.) SSD packaged the product in flat packs with dry ice, affixed a SSD label to each of the flat packs, and put each flat pack in its own SSD shipping box before sending them to Seattle's Best. (App. 84, Shocket Dep. 117:3-19.) The parties dispute whether the product sent to Seattle's Best were test prototypes or whether they were intended for sale to Seattle's Best's customers.

It is undisputed that, at one point in the Fall of 2011, there was a discussion of SSD purchasing a majority ownership stake in BB, but the parties did not reach an agreement. It is also undisputed that the emails exchanged by the parties do not mention the concept of a non-compete agreement nor contain any indication that BB could not make filled pretzel products for third parties. BB later sent a proposed Memorandum of Understanding ("MOU") to SSD on January 6, 2012. The MOU provided that BB owned all intellectual property associated with the SSD Pretzel Sandwich, but it would agree to limit sales to certain customers identified by SSD; i.e., BB could sell the product to potential customers, except for customer or marketing channels identified by SSD. In response to the proposed MOU, on January 16, 2012 SSD's Executive Manager Carol Shocket wrote an email to Rick Kirkpatrick, SSD's Vice President of Sale and Marketing, and Sandy Solmon stating that "[w]e will need to give [Freeman] a list of customers we plan on selling [related to the MOU]. Obviously we want to make the list as large as possible." SSD never agreed to the MOU and it was never executed.

Freeman sent an email to SSD on January 24, 2012 discussing a potential co-packer agreement if the parties entered into an agreement and if certain sales were made at a certain price point. SSD admits this assertion, but adds that the email was a confirmatory writing evidencing the parties' intent to formalize the terms of their already existing exclusive requirements contract in a formal written co-packer agreement. A written co-packer agreement was never executed.

It is undisputed that SSD sent BB a proposed written contract entitled "Supply Agreement" on July 30, 2012. In that agreement, SSD claimed that it owned the intellectual property for the SSD Pretzel Sandwich and BB could only sell a product that appeared similar to the original version to customers listed in Exhibit "A" to the proposed agreement. SSD did not produce in discovery any of the exhibits referenced in the proposed Supply Agreement. SSD asserts that the exhibits referenced by the Supply Agreement were never prepared as attachments to the Supply Agreement because BB failed to comply with its obligations and otherwise breached the agreement between the parties. It is undisputed that the parties did not sign the proposed Supply Agreement.

SSD approached another manufacturer in August 2012, Pellegrino Food Products Co. Inc. ("Pellegrino"), to make the SSD Pretzel Sandwich for Seattle's Best. (DSOF Ex. B, Solmon Dep. 302:20-24; 303:3.) SSD did not tell BB about Pellegrino and SSD continued to request SSD Pretzel Sandwich from BB. SSD admits that it requested BB to manufacture and send SSD Pretzel Sandwiches to SSD after it first contacted Pellegrino in August 2012. By way of further response, SSD asserts it contacted Pellegrino only after it learned that BB either had or planned to breach the agreement between the parties by manufacturing and selling a knock-off version of the SSD Pretzel Sandwich to a third party in violation of the parties' NDA and alleged exclusive requirements contract. After SSD learned about BB's sale of its own pretzel sandwich, it contacted Pellegrino as a precautionary measure because it needed to ensure that there was a manufacturer able to manufacture the product in the event that BB was in fact intending to continue to market its own product. (SA 25-26, Solmon Dep. 264:18-24, 265:1-11.)

SSD asserts that it notified Seattle's Best, prior to the first sale by SSD to Seattle's Best of the SSD Pretzel Sandwich, that the SSD Pretzel Sandwiches were manufactured at BB's bakery, by BB. (App. 165-256, Bates Stamp SS-019242-019333.) The cited exhibit is an email dated March 6, 2012, from SSD to Seattle's Best reading "[a]ttached is a SQF audit of our partner Bakery producing the Pretzel Sandwiches."[4] (App. 165, Bates Stamp SS-019242.) The attached audit states on the top of the first page that it is an audit of BB. (App. 166-256, Bates Stamp SS-019243-019333.) That first page is the only instance where the name "Better Bakery" appears in the document, and the audit does not mention the SSD Pretzel Sandwich product.

SSD asserts that during the period of the parties' collaboration BB developed a secret scheme to steal the distinctive and proprietary design and product development qualities of the SSD Pretzel Sandwich and use them to create its own pretzel sandwich to sell to third-parties. (App. 8, Complaint at ¶ 29.) BB denies these allegations. The first documented sale of a pretzel sandwich by BB to a third-party occurred in August 2012. (App. 239-45, Ex. P-25; 309-28, Ex. P-12; 346-47, Ex. P-26.) BB sold pretzel sandwich products to Costco, Sam's Club, BJ's, and Wal-Mart stores through its sales representative, Next Phase Enterprises. (App. 63-66, 73-74, Freeman Dep. 191:17-25, 192:1-25, 193:1-25, 194:1-2, 238:18-25, 239: 1-5; 309-28, Ex. P-12.) BB also sold pretzel sandwich products to McClane, Core-Mark, Reliant, and U.S. Foodservice. (App. 309-28, Ex. P-12.) SSD asserts that the pretzel sandwich produced and sold by BB to other purchasers used wide top slits and numerous other design elements of the product that was developed expressly by SSD, and acknowledged in writing by BB to be SSD's design features. (App. 296-308, Ex. P-1; 139, Ex. P-41.) BB denies these assertions.

III. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A dispute is "genuine" when "a reasonable jury could return a verdict for the nonmoving party" based on the evidence in the record. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is "material" when it "might affect the outcome of the suit under the governing law." Id.

A party seeking summary judgment initially bears responsibility for informing the court of the basis for its motion and identifying those portions of the record that "it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the non-moving party bears the burden of proof on a particular issue at trial, the moving party's initial Celotex burden can be met simply by demonstrating to the district court that "there is an absence of evidence to support the non-moving party's case." Id. at 325. After the moving party has met its initial burden, the adverse party's response must cite "particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials." Fed.R.Civ.P. 56(c)(1)(A). Summary judgment is therefore appropriate when the non-moving party fails to rebut by making a factual showing that is "sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322.

Under Rule 56 of the Federal Rules of Civil Procedure, the court must draw "all justifiable inferences" in favor of the non-moving party. Anderson, 477 U.S. at 255. The court must decide "not whether... the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented." Id. at 252. If the non-moving party has produced more than a "mere scintilla of evidence" demonstrating a genuine issue of material fact, then the court may not credit the moving party's "version of events against the opponent, even if the quantity of the [moving party's] evidence far outweighs that of its opponent." Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992).

IV. DISCUSSION

SSD's Motion seeks summary judgment on Count I of its own Complaint, asserting that the undisputed material facts show that an enforceable exclusive requirements contract was formed by the parties, and that BB breached both (1) that contract and (2) the NDA by selling its competing product. SSD also argues it is entitled to summary judgment on BB's Counterclaim I, asserting a Lanham Act violation for reverse passing off. In its Motion, BB argues that SSD cannot maintain a claim for breach of the supposed oral exclusive requirements contract related to the SSD Pretzel Sandwich because Count I of the Complaint fails to raise the existence and breach of any oral agreement and SSD has never sought to amend its Complaint to include such a claim. Since Count I alleges only a breach of the parties' written NDA, BB argues that SSD is barred from asserting that Count I incorporates an additional oral agreement. Regarding the NDA, the agreement actually pled in Count I, BB argues that ...


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