SALT LAKE CITY — In the latest front in Utah's ongoing cookie wars, a federal judge has refused to issue a preliminary injunction that one side claimed would have effectively put them out of business.
U.S. District Court Judge Howard Nielson Jr. rejected Crumbl's demand for a preliminary injunction which sought to block rival Dirty Dough from any opening new stores pending the litigation. Dirty Dough claimed it would have spelled financial doom for them.
But the judge also signaled that "it appears that Crumbl probably has shown a likelihood of success on the merits of its claims for misappropriation of trade secrets."
Crumbl sued rival cookie companies Dirty Dough and Crave, accusing them of copying some of their business models. Earlier this year, Crumbl and Crave agreed to dismiss the litigation. But the lawsuit between Crumbl and Dirty Dough is as sticky as some of their gourmet cookies.
Crumbl has accused Dirty Dough of stealing some of its company secrets, including cookie recipes and internal documents that they improperly obtained through a former Crumbl employee, who is also the brother of one of Dirty Dough's founders. In a court hearing FOX 13 News attended in May, Dirty Dough denied wrongdoing and accused Crumbl of trying to run them out of business. Crumbl and Dirty Dough's CEOs took the stand in sometimes tense questioning.
At that hearing, Judge Nielson brokered an agreement between the two sides where Dirty Dough would return documents to Crumbl. That's what the judge used to justify rejecting Crumbl's request for a preliminary injunction.
"The stipulated forensic examination and the stipulated order mooted much of the relief Crumbl had initially requested in its motion for a preliminary injunction," he wrote.
Crumbl wanted Dirty Dough to make a public statement about the alleged theft of trade secrets and delay any opening of new stores. The judge rejected both requests, finding that the move could indeed force Dirty Dough out of business and noted that its CEO Bennett Maxwell has a First Amendment right against compelled speech.
"Crumbl has not come close to showing that it still faces irreparable injury that could justify an economic death sentence for its nascent rival," the judge wrote.
But Judge Nielson waded into the alleged theft of trade secrets, declaring that Crumbl is likely to succeed on the merits of its case and casting doubt about the testimony of Dirty Dough founder Bennett Maxwell and his brother, Bradley, who was the former Crumbl employee accused of taking internal company documents.
"The evidence certainly suggests, however, that Bennett Maxwell knew or had reason to know that the Crumbl information uploaded to Dirty Dough’s Google Drive or shared directly with Dirty Dough employees 'was acquired through improper means'— which, again, include 'breach of a duty to maintain secrecy'—or 'from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret,'" Judge Nielson wrote.
"To be sure, Bennett Maxwell testified that he asked his brother whether he had signed a non-disclosure agreement with Crumbl and his brother answered 'no.' But Bennett Maxwell does not dispute that he 'reviewed' the information to see what it was. And the notion that any ethical or prudent businessperson would have sanguinely accepted Bradley Maxwell’s representation and ignored the obvious crimson flags upon being provided a direct competitor’s recipes, sales statistics, 'build-out' plans, and blueprints for franchise stores beggars belief."
In a statement to FOX 13 News on Tuesday, Crumbl said it was pleased with the judge's ruling.
"Crumbl is pleased and strengthened by the recent court order reinforcing our effort to safeguard our intellectual property. We have achieved a significant legal victory and secured a stipulated order in which Dirty Dough has agreed to return Crumbl’s trade secret information," the company said. "Although the court did not grant our additional request to halt Dirty Dough’s franchising activities at this time, we are thrilled that the decision includes a conclusion that 'Crumbl has probably established a substantial likelihood of success on the merits' of its claims as well as other powerful findings in Crumbl’s favor on key issues."
Dirty Dough founder Bennett Maxwell also said he was pleased with the ruling in a statement to FOX 13 News.
"I am very happy the Judge denied Crumbl’s motion for a preliminary injunction. This lawsuit has always been about a greedy billion dollar company suing multiple start ups for making cookies in attempt to stifle competition," he wrote. "After 2 days in court, even more evidence has came to light proving the anticompetitive attempts Crumbl made by filing this lawsuit. I am looking forward to winning this lawsuit to hopefully stop Crumbl from suing even more cookie companies due to the shape of their box or use of sprinkles on cookies."
The judge's ruling does not necessarily mean Crumbl will ultimately prevail, said Eric Maxfield, a commercial litigator for the law firm Holland & Hart, which is not connected to the case.
"When the judge is faced with basically a motion like that? One of the aspects that the judge has to analyze is, 'Well, if I’m going to give them this relief do I think they’re going to win at the end?' There’s a long ways to go before that end comes," Maxfield told FOX 13 News. "The judge looks at the evidence, he looks at the legal principles that apply, in this case he was looking at the trade secrets statute. He looked at some of the evidence that the parties presented. He determined — at least at this stage — he thought there’s a good chance Crumbl would win at the end of the day, but that’s not a final determination."
Read the judge's ruling here:
