Monogram Snacks Martinsville, LLC v. Wilde Brands, Inc.

• Decision Date: 20 January 2022
• Docket Number: Civil Action 4:20-cv-00030
• Parties: MONOGRAM SNACKS MARTINSVILLE, LLC, Plaintiff, v. WILDE BRANDS, INC., Defendant.
• Court: U.S. District Court — Western District of Virginia

MONOGRAM SNACKS MARTINSVILLE, LLC, Plaintiff,
v.
WILDE BRANDS, INC., Defendant.

Civil Action No. 4:20-cv-00030

United States District Court, W.D. Virginia, Danville Division

January 20, 2022

MEMORANDUM OPINION

HON. THOMAS T. CULLEN UNITED STATES DISTRICT JUDGE

Defendant Wilde Brands, Inc. (“Wilde”), a snack-food manufacturer that produces “chicken chips, ” entered into a business relationship with Plaintiff Monogram Snacks Martinsville, LLC (“Monogram”), one of the largest snack-food manufacturing companies in the country. Wilde sought Monogram's assistance to scale up its production and, under this arrangement, Wilde's chicken chips were mass-produced in Monogram's facility in Martinsville, Virginia (“the Martinsville facility”). Several other snack-food manufacturers also operated within the Martinsville facility. To protect Wilde's processes from those potential competitors, Wilde and Monogram entered into a non-disclosure agreement (“the NDA”) on May 9, 2017. (See ECF No. 85-2.) The parties did not sign any other written contract with respect to their business arrangement.

But the parties' relationship soon began to sour. Monogram charged Wilde for various “true up” costs-additional expenses for, among other things, labor and maintenance that were outside of the normal cost per case of chicken chips-that Wilde had not anticipated and thought were “exorbitant.” (Def.'s Br. Supp. Mot. Summ. J. at 5 [ECF No. 85].) Once

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these expenses were added to the cost per case, Wilde's chicken chips were no longer profitable. At the same time, Wilde started to suspect that Monogram was not protecting its production process from its competitors, and was instead discussing its processes with and running its chip fryer in front of those competitors, in violation of the parties' NDA.

In late 2019, Wilde refused to pay several invoices from Monogram. As a result, Monogram refused to release numerous pallets of chicken chips to Wilde until the invoices were paid. On October 31, 2019, Wilde informed Monogram that it was terminating their relationship and moving its chicken chip production to another facility.

On March 2, 2020, Monogram filed a complaint against Wilde in the Circuit Court of Henry County, asserting claims for breach of contract and unjust enrichment and seeking damages to compensate for Wilde's unpaid invoices and other materials Monogram acquired for their business relationship. Wilde removed the action to this court and asserted four counterclaims: conversion, unjust enrichment, breach of contract, and misappropriation of trade secrets. This matter is now before the court on Wilde's motion for summary judgment and Monogram's motion for partial summary judgment on Wilde's counterclaim for misappropriation of trade secrets. For the reasons that follow, the court will grant in part and deny in part Wilde's motion for summary judgment and grant Monogram's motion for partial summary judgment.

I. Background

Jason Wright, the founder and president of Wilde, aspired to create a protein chip made from chicken that was packaged like and resembled a potato chip. (See Dep. of Jason Wright 14:23-15:1, Oct. 18, 2021 [ECF No. 85-1].) In 2018 he succeeded, and Wilde launched the

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“chicken chip.” (See id.) Before the launch, Wright had started communicating with Wes Jackson, President and co-founder of Monogram, to discuss a “co-packing” relationship in which Monogram would mass-produce Wilde's chicken chips and Wilde would supply certain machinery and materials and sell and distribute the product. (Id. at 26:21-27:5; 24:16-24.) The parties began working together and, for over two years, Wilde paid Monogram for the production of its chicken chips and picked up its product to distribute to its customers. (Wilde Ans. ¶ 9.) Despite creating draft contracts and having discussions about memorializing their arrangement in writing, the parties never signed a written contract covering their co-manufacturing relationship. (See Wright Dep. at 48:5-51:16; 95:15-24.)

Throughout their relationship, which lasted approximately two years, Monogram charged Wilde “true-up costs”-flat fees for supplies, labor, and machinery-in addition to its standard cost per case for the production of chicken chips. For example, Monogram charged Wilde $100, 000 to install a small test fryer in the Martinsville facility. (Id. at 80:4-8.) Later, when Wilde replaced the small fryer with a larger industrial fryer it had custom made, Monogram charged it $450, 000 for the installation. (Id. at 80:16-20.) Wilde also spent $74, 000 upgrading Monogram's existing bagging machine so that it would properly bag its chicken chips. (Id. at 88:21-89:3.) Monogram later limited Wilde's use of that machine to Fridays. (Id. at 88:16-23.) In response, and out of concerns that a delay in bagging would make its chicken chips stale, Wilde purchased a separate bagger for $174, 000, so that it could have access to the technology whenever it needed to. (Id. at 88:21-89:3.)

In total, Monogram charged Wilde over $1, 100, 000 in true-ups including the above-mentioned expenses. (Id. at 53:7-12.) According to Wilde, it did not anticipate such high true-

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ups. These costs drove up the cost of its chicken chips from the expected $25 per case to $38 per case. (Id. at 82:23-83:13.) Wilde sold its cases to customers for $33 per case, which meant the true-ups created an unsustainable situation for the company. (Id. at 53:11-12.)

Simultaneously, Wilde apparently began to suspect that Monogram was sharing its proprietary information with competitors or, at least, not protecting its information. Most of Wilde's production took place in a large, shared space in the Martinsville facility. (See Dep. of Philippe Barnoud 16:19-17:6, Oct. 19, 2021 [ECF No. 88-4]; Wright Dep. at 118:8-119:17.) Across the room from Wilde, Tyson Foods, Inc. (“Tyson”) (a leading international meat-processing corporation) produced a jerky product. No. physical barriers separated these operations, although each company had a distinct, separate area of the large warehouse room to run its production line. (See Wright Dep. at 119:11-17.) To protect Wilde's production process from competitors that used the Martinsville facility, such as Tyson and Conagra Brands, Inc. (“Conagra”) (another major food processing company), Wilde drafted an NDA that Monogram signed on May 9, 2017. (See ECF No. 85-2.) Wilde also submitted a patent application for the top belt of its industrial fryer on May 31, 2018, to protect its custom-made design. (See ECF No. 88-3.) That patent application is still pending, but became public on December 5, 2019. (Id.)

About a year into their co-manufacturing arrangement, Wes Jackson began encouraging Wright to partner with Tyson because the company was in the process of developing its own chicken chip. (Wright Dep. at 122:9-21.) Wright declined. (Id.) On May 31, 2018, Tyson announced that its new chicken chip would be sold in stores that upcoming October. In July, Monogram attempted to arrange a meeting between Wright and Tyson again

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to discuss “leveraging equipment to produc[e] chicken chips.” (ECF No. 94-7.) Again, Wright declined. Wilde alleges that, at some point thereafter, Tyson representatives walked into its production area at the Martinsville facility late in the evening accompanied by Ches Jackson, President of Supply Chain at Monogram (and twin brother of Wes Jackson). (Wright Dep. at 117:14-118:7.) Ordinarily at that time of night no one from Wilde would have been present on the production line, but, on that occasion, Wright and Phillippe Barnoud, Vice President of Operations for Wilde, happened to be there. (See Id. at 117:19-24; Barnoud Dep. at 17:7- 23.) According to Wright, “They were as surprised to see us as . . . we were surprised to see them.” (Wright Dep. at 117:21-23.) Wright alleges the Tyson representatives were trying to see inside of Wilde's fryer, but they were not successful because “[t]here was a hood on that fryer that was down and you couldn't see inside.” (Id. at 118:14-15.)

Wilde also points to another incident when Conagra personnel allegedly entered the meat slicing room, accompanied by a Monogram employee, when Wilde personnel were slicing meat logs. (Id. at 115:10-116:14.) According to Wilde, Conagra could have learned proprietary information about the temperature at which it slices its meat logs by entering that room. (Id.) And, in what was apparently the final straw for Wilde, Monogram ran its fryer during a corporate tour of its facilities. (See ECF No. 94-8.) Wilde had apparently told Monogram to shut down Wilde's production line for the remainder of that week because they did not have enough meat logs to run the production line for a full day. (See id.) Despite this, e-mail correspondence indicates that Monogram employees ran Wilde's production line for a corporate tour without Wilde's consent. (See id.) These circumstances raised Wilde's suspicions that Monogram was not abiding by the NDA. (Wright Dep. at 119:18-121:13.)

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In the fall of 2019, after more than two years of following this co-manufacturing arrangement, Wilde stopped paying Monogram's invoices before coming to collect the cases of chicken chips from the Martinsville facility. (Id. at 60:11-18; 64:7-65:11; 68:10-21.) In turn, Monogram refused to give Wilde the unpaid-for cases. (Id. at 96:14-98:3.) On October 31, 2019, Wilde announced that it was ending its co-manufacturing relationship with Monogram and moving its chicken chip operation to another facility in Kentucky. (ECF No. 94-9.) Since that date Monogram has held 176 pallets of Wilde's completed product and several pieces of Wilde's equipment.^[1] And Wilde has not paid its outstanding invoices to Monogram.

Monogram filed a complaint against Wilde on March 2, 2020, in the Circuit Court of Henry County, asserting two counts: breach of contract (Count I) and unjust enrichment (Count II)...