Bambu Franchising, LLC v. Nguyen

• Decision Date: 07 May 2021
• Docket Number: Case No. 5:21-cv-00512-EJD
• Citation: 537 F.Supp.3d 1066
• Parties: BAMBU FRANCHISING, LLC, Plaintiff, v. Jenny NGUYEN, et al., Defendants.
• Court: U.S. District Court — Northern District of California

537 F.Supp.3d 1066

BAMBU FRANCHISING, LLC, Plaintiff,

v.Jenny NGUYEN, et al., Defendants.

Case No. 5:21-cv-00512-EJD

United States District Court, N.D. California, San Jose Division.

Signed May 7, 2021

Arturo Esteban Sandoval, Foley & Mansfield, PLLP, Oakland, CA, Louis Charles Klein, Foley Mansfield, Los Angeles, CA, Dustin J. Priebe, Foley Mansfield, PLLP, Englewood, CO, for Plaintiff.

Devin A. Donohue, Cozen O'Connor, Los Angeles, CA, Andrew M. Hutchison, Cozen O'Connor, San Francisco, CA, for Defendants Jenny Nguyen, Bambu Delight Hostetter, Inc., Katerina Nguyen.

Ann Anh Phuong Nguyen, Messner Reeves LLP, San Jose, CA, for Defendants Lyche, Inc., James Vu.

ORDER GRANTING IN PART MOTION FOR PRELIMINARY INJUNCTION

Re: Dkt. No. 20

EDWARD J. DAVILA, United States District Judge

This is an action for trade secret misappropriation, breach of contract, and unfair competition relating to proprietary recipes for a Vietnamese beverage business. Plaintiff Bambu Franchising, LLC ("Plaintiff" or "Bambu Franchising") seeks a preliminary injunction against all Defendants. Dkt. No. 20. Defendants have filed oppositions (Dkt. Nos. 23, 48), and Plaintiff filed reply briefs (Dkt. No. 29, 52). The matter was heard on May 6, 2021. For the reasons stated below, the motion for preliminary injunction is GRANTED in part.

I. BACKGROUND

A. The Complaint

Defendant Jenny Nguyen ("Jenny"), a California resident, is one of four sisters who founded Bambu Desserts and Drinks Restaurants, a chain of Vietnamese fast casual restaurants that sell proprietary Vietnamese dessert beverages, teas, and coffee to the public utilizing exclusive systems and confidential recipes for unique ingredients (the "Bambu Business"). The founders operated the Bambu Business through Bambu Desserts and Drinks Franchise, Inc., Bambu Desserts and Drinks, Inc., and Bambu IP, LLC. (collectively referred to as the "Selling Parties"). The Nguyen Family¹ sold licenses to operate Bambu franchise stores to various third parties. Bambu franchise stores are referred to collectively as the "Bambu Franchise Shoppes," and individually as a "Bambu Franchise Shoppe."

Central to the Bambu Business is its exclusive ingredients and methods for making authentic, unique Vietnamese dessert drinks (known as Chè), along with boba teas and Vietnamese coffee. The ingredients for these Bambu beverages were made in-house pursuant to confidential and highly-proprietary recipes and preparation methods (the "Recipes"). These Recipes concern, among other things, the Bambu Business’ unique coconut-based Chè dessert drinks and the defined ingredients for those drinks. Each Bambu Franchise Shoppe was permitted to use the Recipes, subject to strict requirements.

The Nguyen Family created four Bambu Franchise Shoppes for themselves. The original and first established Bambu Franchise Shoppe, the "Hostetter Shoppe" located at 1688 Hostetter Rd., Suite D, San Jose, California 95131, is at issue in this case. On or about September 30, 2014, Bambu Desserts and Drinks Franchise, Inc. entered into a Franchise Agreement ("FA") with Defendant Bambu Delight Hostetter, Inc. ("Bambu Hostetter"), a California corporation with its principal place of business in Santa Clara County. Jenny's daughter, Defendant Katerina Nguyen ("Katerina"), was the owner of Bambu Hostetter,² but Jenny ran the Hostetter Shoppe.

The FA defines the Recipes as trade secrets and restricts the disclosure and use of the Recipes. Section 10A of the FA sets forth a non-compete provision which prevents the operation of any drink or dessert store within 10 miles of the former franchise store for two years after the termination or expiration of the FA. The term of the FA is three (3) years.

In 2015, Jenny sold the Bambu Business to Plaintiff, a Colorado limited liability company. Pursuant to the terms of the parties’ Asset Purchase Agreement ("APA"), Plaintiff acquired the assets of the Bambu Business, including, inter alia, the Recipes, trademarks, trade dress, intellectual property, proprietary products, and goodwill associated with the Bambu Business. The APA assigned to Plaintiff existing franchise agreements, including the FA with Bambu Hostetter. In exchange, the Nguyen Family and the Selling Parties received from Plaintiff $500,000 cash, a 25% membership interest in Plaintiff, and the right to operate their existing Shoppes with no franchise fee or royalty. There are now over 40 operating stores in Plaintiff's Bambu Franchise in over 20 states and Canada.

From the date of execution of the APA to the present, Plaintiff took steps to maintain the secrecy of the Recipes and other trade secrets. Among other things, Plaintiff kept the Recipes and other secrets in only a confidential "Recipe Guide." Franchisees are given a copy of Plaintiff's Recipe Guide only after signing a confidentiality and non-disclosure agreement. Only one physical copy of the Recipe Guide is provided to each Bambu Franchise Shoppe, and access to this copy is allowed only on a need-to-know basis at each Shoppe.

In July 2020, Bambu Hostetter refused to implement a required point-of-sale ("POS") system and associated applications, required menu signage, and required customer loyalty programs. Plaintiff also learned that public records identified the CEO for Bambu Hostetter as an individual named Phu Tien Vu—a person Plaintiff did not know and had not authorized to act as a franchisee. When Plaintiff questioned Jenny about the change in public records, Jenny informed Plaintiff that Phu Tien Vu was the husband of her friend, Chloe Vu ("Chloe"), and that Jenny was offering the Vus a trial run to see if they would purchase the Hostetter Shoppe. The Vus’ son, Defendant James Vu ("Vu"), was also helping to run the Hostetter Shoppe. Jenny told Plaintiff that the Vus decided not to purchase the store.

The Complaint does not indicate when the trial run began. According to Jenny, the Vus paid a $100,000 "deposit" to Bambu Hostetter in June 2019. Secretary of State filings indicate that as of March 15, 2020, Vu's father was added as CEO and Secretary of Bambu Hostetter. On June 9, 2020, Vu took over both roles from his father.

In September 2020, Plaintiff provided notice to Bambu Hostetter that its FA would not renew and would terminate as of September 30, 2020. On or around October 1, 2020, Defendant Lyche, Inc. ("Lyche Corporation") began operating the Hostetter Shoppe as a non-franchise store, without Plaintiff's permission, under the name "LyChè." Lyche Corporation is a California corporation and identifies its principal place of business as the Hostetter Shoppe's address (1688 Hostetter Rd., Suite D, San Jose, California 95131).

LyChè is currently occupying the space the Hostetter Shoppe used to occupy, with the same employees, selling the same products, using protected trade secrets, and in violation of a contractual non-compete provision. Vu, a resident of Santa Clara County, California, is listed as the sole owner and sole director of Lyche Corporation. Vu is also the current CEO of Bambu Hostetter.

Plaintiff asserts six claims: (1) violation of the Defend Trade Secrets Act; (2) violation of the California Uniform Trade Secret Act; (3) breach of contract; (4) violation of Cal. Bus. & Prof. Code section 17200 ; (5) conspiracy; and (6) intentional misrepresentation.

B. Motion for Preliminary Injunction

Plaintiff seeks the following forms of injunctive relief against all Defendants:

1. An order prohibiting Defendants from disclosing or utilizing Bambu Franchising's confidential recipes and related trade secret information;

2. An order prohibiting Defendants from selling any products containing any of the following ingredients, which are the subject of the confidential recipes and are prepared using protected trade secret information: pandan jelly, coconut milk, grass jelly, red tapioca, red, white and mung beans, taro paste, and agar jellos;

3. An order prohibiting Defendants from selling any drinks or desserts within ten (10) miles of 1688 Hostetter Rd., Suite D, San Jose, California 95131, in violation of a contractual non-compete provision; 4. An order prohibiting Defendants from copying, photographing, duplicating, or disclosing in any way, Bambu Franchising's confidential recipes and related trade secret information to any third-party;

5. An order directing the Defendants to identify all persons or entities to whom any of them have disclosed Bambu Franchising's confidential recipes and related trade secret information;

6. An order directing the Defendants to produce all documentation regarding the transfer of operation of the store located 1688 Hostetter Rd., Suite D, San Jose, California 95131 from Defendant Bambu Delight Hostetter, Inc., to Defendant Lyche, Inc.; and

7. An order directing the Defendants to produce the recipes for the ingredients of all beverages sold under the name "LyChè" at the store located at 1688 Hostetter Rd., Suite D, San Jose, California 95131.

Plaintiff also requests expedited discovery from all Defendants pursuant to Federal Rule of Civil Procedure 26(d)(1). Vu and Lyche Corporation (collectively, "Vu Defendants") have already agreed to Plaintiff's request for expedited discovery, so Plaintiff's request for expedited discovery is moot as to the Vu Defendants.

II. STANDARDS

The Supreme Court has emphasized that preliminary injunctions are an "extraordinary remedy never awarded as of right." Garcia v. Google, Inc. , 786 F.3d 733, 740 (9th Cir. 2015) (quoting Winter v. Nat. Res. Def. Council, Inc. , 555 U.S. 7, 24, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008) ). To secure a preliminary injunction, Plaintiff must make a clear showing that (1) it is likely to succeed on the merits, (2) it is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in its favor, and (4) an injunction is in the public interest. Winter , 555 U.S. at 20-22, 129 S.Ct. 365. In the Ninth Circuit, the first element may also be met where there are " ...