Warman v. Local Yokels Fudge, LLC

CHRISTOPHER M. WARMAN, et al., Plaintiffs, v. LOCAL YOKELS FUDGE, LLC, et al., Defendants.

Civil Action No. 19-1224

United States District Court, W.D. Pennsylvania

December 27, 2022

MEMORANDUM OPINION

Patricia L. Dodge United States Magistrate Judge

Plaintiffs Christopher M. Warman (“Warman”), the Trust for Family of Christopher Warman (the “Trust”) and Chocolate Moonshine, LLC (“Moonshine LLC”)^[1] have brought this action against Defendants Local Yokels Fudge, LLC (“Local Yokels”), Christine Falvo (“Falvo”) Charles Brian Griffin (“Griffin”), Donald Konieczny (“Konieczny”) and CM Chocolatier, LLC (“Chocolatier”). The Amended Complaint asserts claims of trade secret misappropriation under federal and state law, federal claims of trademark infringement and copyright infringement, and state law claims of tortious interference with contractual relations, breach of contract unjust enrichment, civil conspiracy and defamation. All of these claims arise out of issues related to a fudge recipe.

Defendants deny Plaintiffs' allegations and have asserted counterclaims against them. These counterclaims include breach of contract, conspiracy, tortious interference with contract or prospective beneficial commercial relationship and unfair competition.

Pending before the Court is Defendants' Motion for Summary Judgment (ECF No. 116). For the reasons that follow, their motion will be granted in part and denied in part.^[2]

I. Procedural History

Plaintiffs commenced this action in September 2019 and subsequently filed an Amended Complaint on August 27, 2020 (ECF No. 51). Federal question jurisdiction, 28 U.S.C. §§ 1331, 1338, is invoked based on the trade secret, trademark and copyright claims, and supplemental jurisdiction is asserted over the state law claims, 28 U.S.C. § 1367(a). The Amended Complaint includes thirteen counts: trade secret misappropriation in violation of the Defend Trade Secrets Act, 18 U.S.C. §§ 1831-39 (“DTSA”) (Count I), and the Pennsylvania Uniform Trade Secrets Act, 12 Pa. C.S. §§ 5301-08 (“PUTSA”) (Count II); contributory trademark infringement in violation of the Lanham Act, 15 U.S.C. § 1125 (Count III); tortious interference with contractual relations by Falvo and Local Yokels (Count IV) and by Griffin and Chocolatier (Count VI) trademark infringement (Count V); breach of contract by Chocolatier (Count VII) and Falvo (Count VIII); unjust enrichment (Count IX); civil conspiracy (Count X); defamation (Count XI); contributory copyright infringement by Falvo, Local Yokels and Konieczny (Count XII); and copyright infringement by all Defendants (Count XIII), with the last two claims based on violations of the Copyright Act, 17 U.S.C. § 501.

Defendants responded to the Amended Complaint with an Amended Answer and Counterclaims. Plaintiffs subsequently filed a partial motion to dismiss certain of these counterclaims (ECF No. 56) which was granted in part and denied in part (ECF Nos. 66, 67).

Defendants' motion for summary judgment (ECF No. 116) has been fully briefed (ECF Nos. 119, 132, 155).^[3] II. Relevant Factual Background

According to the Amended Complaint, Plaintiff Warman developed a fudge recipe which is a trade secret owned by the Trust. Warman makes fudge using this recipe and sells it under a “Chocolate Moonshine” trademark. Warman licensed the recipe to his now ex-wife, Falvo, but claims that she refused to pay royalties for the license and wrongfully gave the recipe to Local Yokels and Konieczny, who conspired to interfere with Warman's business relationships and misappropriate the trade secret. According to Plaintiffs, Warman, in his capacity as Trustee, licensed the “Chocolate Moonshine” trademark to Griffin and Chocolatier, a company owned by his son, Christopher Warman Jr. (“Warman Jr.”) and Griffin. However, Plaintiffs claim that Griffin and Chocolatier subsequently infringed the trademark. Finally, Plaintiffs allege that Defendants have improperly used twelve photos depicting fudge to promote their products without authorization from the Trust, which owns the copyright to the photos.

As outlined below, the parties disagree on a significant number of facts that are relevant to the disposition of Defendants' motion for summary judgment.

A. Facts Relating to the Trade Secret Claims^[4]

1. Individual Components, Process and Operation of the Fudge

Defendants assert that all of the individual ingredients of the recipe and the unified process and operation of making the fudge (Defs.' App. Ex. 1)^[5] are in the public domain. They claim that the ingredients and process for making fudge (Defs.' App. Ex. 7 at 46-47; Exs. 26, 29, 30, 32, 33 at 29) have been well-known for some time and are disclosed in a patent issued to another party in 1968, Patent No. 3,370,961 (“the ‘961 patent”). (Defs.' App. Ex. 3.) Two experts proffered by Defendants support this conclusion. (Defs.' App. Exs. 56, 58.) Warman admitted that “anybody making fudge using these ingredients doesn't mean they're using my trade secret recipe.” (Defs.' App. Ex. 7 at 52.)

According to Defendants, the process required by the recipe for making fudge is either in the public domain or is based on employees' experience, knowledge, memory and skill. Thus, Defendants claim, this process does not constitute a trade secret. (Defs.' App. Ex. 1; Ex. 3; Ex. 7 at 108-13, 116-18, 122, 132, 141, 148, 157-58, 166; Ex. 10 at 39, 41-42; Ex. 19; Ex. 27 answer to Interrog. 1; Ex. 31; Ex. 32; Ex. 33 at 29; Ex. 34; Ex. 56 at 4; Ex. 58 at 3-4.)

Defendants further contend that Warman purchased the recipe he uses from another fudge maker, Annette Saucier (“Saucier”), in 1988. However, they assert, Saucier did not sell him the exclusive rights to the recipe. Rather, she taught everyone who worked for her over the years how to make fudge without requiring any of them to sign a non-compete or confidentiality agreement. (Defs.' App. Ex. 10 at 12-13, 17-19, 21, 26, 28-29, 31.) Moreover, the equipment used to make fudge is universally employed in the fudge-making industry. This includes use of a copper kettle, which was used by Saucier, and which is disclosed in the ‘961 patent. (Defs.' App. Ex. 3; Ex. 7 at 82; Ex. 10 at 30; Ex. 33 at 18.)

In essence, Plaintiffs dispute all of these facts. Warman testified that “the technique, the combination of the ingredients.. .you put all those things together, those are proprietary trade secrets.” (Pls.' App. Ex. 6 at 59.) He represents that the ‘961 patent is an entirely different recipe than his trade secret, uses various ingredients not found in the trade secret and produces a product that is not commercially viable, has an oily, slippery texture on the palate and produces an inferior fudge. (Pls.' App. Ex. 1 ¶ 4.)

According to Warman, “no recipe has ever been published that is the same as, or even substantially similar to, the trade secret.” He claims that he made significant changes to the recipe he bought from Saucier, which he has not used since 1989, and that “although the product produced by her recipe was very good, it had many inherent flaws and was not commercially viable for national distribution.” (Id. ¶ 5.)^[6] His recipe provides him with a distinct competitive advantage as it allows him to make a highly regarded product that has achieved extraordinary commercial success. It provides a substantial competitive advantage by overcoming issues presented by variations in water vapor and moisture, atmospheric processes, barometric temperatures, heat and coolness and the effect of humidity on the finished product. (Id. ¶¶ 6-7.)

Moreover, Warman asserts, certain aspects of the fudge making process are part of the trade secret process that he taught to Falvo and Konieczny. (Id. ¶ 8.) See also Pls.' App. Ex. 6 at 106-07, 126-27, 129, 135-36, 141-42, 146-47, 148 and 152-63.

Warman visited the Local Yokels facility on numerous occasions and personally observed Defendants using Warman's process. (Id. at 62-63.) In fact, during one of these visits, Falvo “drew [a] line in the sand” and told him that she was going to continue to use his recipe but would not pay him a royalty. He visited the facility again and watched them make batches of fudge using his recipe. (Id. at 64-65.)

Warman asserts that the trade secret involved in this case was previously adjudicated and upheld by the Court of Common Pleas of Allegheny County in decisions by two different judges, both of which were affirmed on appeal to the Pennsylvania Superior Court. (Pls.' App. Ex. 1 ¶ 2; Exs. 2-5.) After these cases were decided, he claims to have taken reasonable steps to protect the secrecy of the trade secret, including requiring employees to sign confidentiality agreements, restricting access to the production area, keeping ingredients out of sight, removing labels from proprietary ingredients before disposing of their containers and shipping more products to customers rather than allowing them to come to the facility. (Pls.' App. Ex. 1 ¶ 3.)

Defendants dispute the relevance of these prior lawsuits, noting that both were decided in the context of preliminary injunctions and as such, are not final rulings. According to Defendants the evidence submitted in those cases is different from that submitted by Plaintiffs in this case. In the prior injunction actions, the court was not made aware of the existence of the ‘961 patent. Further, Warman has admitted that various ingredients were not unique to his recipe as he had represented in the prior cases. (Defs.' App. Ex. 7 at 49, 70-72, 97; Supp. App. Ex. 61 at 94-98; Ex. 62 at 21-23, 80.) Defendants also note that after the second of the two cases was remanded to the Court of Common Pleas for a hearing on whether Warman was entitled to recover any royalties, the court concluded that he was not. (...