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Little Caesar Enterprises, Inc., A Michigan Corporation v. Sioux Falls Pizza Company

August 3, 2012

LITTLE CAESAR ENTERPRISES, INC., A MICHIGAN CORPORATION, PLAINTIFF,
v.
SIOUX FALLS PIZZA COMPANY, INC., A SOUTH DAKOTA CORPORATION;
AND JAMES FISCHER, A SOUTH DAKOTA CITIZEN, DEFENDANTS.



The opinion of the court was delivered by: Karen E. Schreier Chief Judge

ORDER DENYING PLAINTIFF'S MOTION FOR A TEMPORARY RESTRAINING ORDER OR PRELIMINARY INJUNCTION

Plaintiff, Little Caesar Enterprises, Inc. (Little Caesars), moves for a temporary restraining order or preliminary injunction enjoining defendants, Sioux Falls Pizza Co., Inc., and James Fischer (collectively SFPC), from offering all day, every day ready-for-pick-up pizzas because plaintiff alleges that defendants' use of its "system" misappropriates Little Caesars' trade secrets. Docket 2. Little Caesars also asks the court to require defendants to modify the interior and exterior of its location to sufficiently distinguish it from Little Caesars' trade dress. Docket 2. SFPC resists that motion and claims that Little Caesars' system is not the type of information that constitutes a trade secret and that it completely altered the appearance of its store to distinguish it from Little Caesars. Docket 19. SFPC asserts that Little Caesars cannot satisfy the Dataphase factors such that a preliminary injunction is appropriate. SFPC also argues that the trade dress claim is moot because SFPC has voluntarily made changes to its location. For the following reasons, the motion for a temporary restraining order or preliminary injunction is denied.

BACKGROUND

The pertinent facts to this order are as follows: Little Caesar Enterprises, Inc., is a corporation organized under the laws of Michigan, and its principal place of business is in Detroit, Michigan. Little Caesar Enterprises, Inc., is the national franchisor of the pizza restaurants that operate under the name Little Caesars. Little Caesars restaurants come in many types, but most Little Caesars locations operate under a carryout only format. This carryout format makes Little Caesars restaurants dependent upon the "Hot-N-Ready" pizza offering that provides a significant portion of Little Caesars' revenue and is the center of this litigation.

Sioux Falls Pizza Co., Inc., is a company incorporated under the laws of South Dakota with its principal place of business in Sioux Falls, South Dakota. James Fischer is the sole shareholder of SFPC. SFPC, then operating under the name Pinnacle Pizza,*fn1 formed in 1991 to purchase three existing Little Caesars restaurants in Sioux Falls. In June of 1991, SFPC executed three separate franchise agreements with Little Caesars. SFPC's license to operate these franchise stores expired on June 4, 2012. Immediately following the expiration of SFPC's franchise agreements on June 4, 2012, Fischer opened a competing pizza restaurant called Pizza Patrol at the location of one of his former Little Caesars' franchises on 10th Street and Cliff Avenue in Sioux Falls. Docket 1 ¶ 32; Docket 20 at 2. There Fischer sells all day, every day ready-for-pick-up pizza*fn2 as well as numerous other items that are not sold by Little Caesars and are not ready-made. It is undisputed that all Pizza Patrol trademarks, recipes, food products, and product specifications are licensed to Fischer by Orion Foods. Docket 20 at 2.

The alleged trade secret at issue in this case is the use of a concept developed within Little Caesars that is now known as the "Hot-N-Ready" system (the system).*fn3 Little Caesars and Fischer have been entangled in legal disputes surrounding the ownership and use of the Hot-N-Ready system and Fischer's franchise agreements since approximately 2004.*fn4

Development of the Hot-N-Ready system began in 1997, when Little Caesars asked its franchisees to share information about successful sales promotions, including ready-for-pick-up pizzas, in preparation for a series of regional franchisee workshops. Docket 4 at 4. Many Little Caesars franchisees, including SFPC, were offering these all day, every day, ready-for-pick-up pizzas at a low price point one day per week as a customer appreciation day promotion. Because numerous franchisees were already developing ready-for-pick-up pizza promotions, Little Caesars began developing a process and system to sell allday, ready-for-pickup pizza every day of the week.

By 2000, many franchisees were offering Hot-N-Ready sales promotions a few days a week and the concept had grown to the point where Little Caesars required its franchisees to report weekly Hot-N-Ready sales. In June of 2000, Little Caesars distributed a Hot-N-Ready Implementation Guide to all of its franchisees, including SFPC, which explained how to effectively conduct the Hot-N-Ready promotion. From 2001 to 2003, Little Caesars began experimenting in some of its company-owned stores by offering ready-for-pickup pizza all day, every day. As a result, Little Caesars had to adjust its recipes, kitchens, equipment, and staffing needs. In 2002, the Hot-N-Ready operating system was introduced to all company-owned stores and in 2003 to franchisees.

According to Little Caesars, the "system" determines what franchisees must prepare on a daily and hourly basis and how to prepare each product.*fn5

Each franchisee must have a system so it is not guessing what will be sold each hour because the waste associated with that operation style would not sustain an all day, every day ready-to-pick-up pizza product. The most important part of the system, according to Little Caesars, is what product it must prepare on an hour-by-hour basis. The system would include, for example, how much pepperoni pizza, cheese pizza, crazy bread, and chicken wings that the franchisee should prepare during the day and when each component of the preparation process should occur. The system has a methodology for calculating specific preparation requirements based on each franchise location. Little Caesars also claims that the preparation, storing, and cooking of products is inherent to the system. Little Caesars believes that without the system and the specifications as to how to let the dough rise, how to apply sauce and toppings, and how to cook and store the pizza, a restaurant simply could not operate profitably in an all day, every day ready-for-pickup pizza market.

Following the opening of Pizza Patrol in June of 2012, Little Caesars personnel visited the store and took photographs of claimed similarities between Pizza Patrol and Little Caesars. Little Caesars personnel stated that day that Fischer had not changed or altered the "distinctive" floor and wall tiles, the location of the ordering counter within the store, the configuration of equipment, and the general layout that encapsulates Little Caesars' signature trade dress. Docket 4 at 3, 8. On June 25, 2012, Little Caesars filed its complaint. Docket 1. That same day, Little Caesars moved for a temporary restraining order or a preliminary injunction to prevent SFPC from misappropriating its trade secrets or violating its trade dress rights. Docket 2.

DISCUSSION

"A preliminary injunction is an extraordinary remedy and the burden of establishing the propriety of an injunction is on the movant." Roudachevski v. All-American Care Ctrs., Inc., 648 F.3d 701, 705 (8th Cir. 2011) (citing Watkins, Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003)). To determine whether a preliminary injunction is appropriate the court considers the following factors:

(1) whether the movant is 'likely to prevail on the merits';

(2) the threat of irreparable harm to the movant;

(3) the state of balance between this harm and the injury that granting the injunction will inflict on the other parties litigant; and

(4) the public interest.

TCF Nat'l Bank v. Bernanke, 643 F.3d 1158, 1162 (8th Cir. 2011) (citing Planned Parenthood Minn., N.D., S.D. v. Rounds, 530 F.3d 724, 733 (8th Cir. 2008); Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981)).

The Dataphase test for preliminary injunctive relief is a flexible analysis. Hubbard Feeds, Inc. v. Animal Feed Supplement, Inc., 182 F.3d 598, 601 (8th Cir. 1999). No single Dataphase factor is dispositive, but the preliminary injunction fails without a showing of the threat of irreparable harm by the plaintiff. Dataphase, 640 F.2d at 114 n.8; United Indus. Corp. v. Clorox Co., 140 F.3d 1175, 1179 (8th Cir. 1998).

I. Likelihood of Success on the Merits "The most important of the Dataphase factors is the . . . likelihood of success on the merits." Shrink Mo. Gov't PAC v. Adams, 151 F.3d 763, 764 (8th Cir. 1998). The litigant bringing the claim need not show that he or she will ultimately win the case, rather, "at the early stage of a preliminary injunction motion, the speculative nature of this particular inquiry militates against any wooden or mathematical application of the test." United Indus. Corp., 140 F.3d at 1179. A court should instead "weigh the case's particular circumstances to determine whether the balance of equities so favors the movant that justice requires the court to intervene to preserve the status quo until the merits are determined." Id. (internal citations and quotations omitted). "Probability of success on the merits" in this context means that the moving party must show it has "a 'fair chance' of success on the merits[.]" Planned Parenthood, 530 F.3d at 731. A "fair chance of prevailing" does not mean a greater than 50 percent ...


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