PR in Trade Secrets Lawsuits

In my last few posts, I’ve been discussing issues in the noncompete lawsuit filed by 50 Eggs, a Miami restaurant group, against one of its former executive chefs. This case not only has a lot of interesting legal issues, but it shows some of the out-of-court risks accompanying this type of lawsuit. In particular, 50 Eggs and its founder, John Kunkel, have opened themselves up to some bad PR.

This lawsuit has received a good amount of press coverage locally. The initial stories focused on 50 Eggs’ accusations against Chef Bee. Now, Chef Bee’s attorneys have fired back with a PR campaign of their own, including apparently circulating their colorful motion to dismiss (linked below) to the press. They take aim at both 50 Eggs and Kunkel, including the following passage, which has appeared in the Miami Herald and other local publications:

“To Kunkel” is acquiring a hire – liar – fire cache in the Miami restaurant business, as that appears to be 50 Eggs’ pattern with its executive chefs: to hire them, accuse them of lying, and then fire them (or cause them to quit) . . . None of the original chefs or original equity partners in the 50 Eggs organization has survived; thus, if it is true that “the executive chef is designated as the ‘face’ of the restaurant” . . . , 50 Eggs has de-faced all of its restaurants. Now, Chef Bee too has been Kunkeled.

This is just one example of how the defendant is now using PR to build public support and attack 50 Eggs/Kunkel.

While there are certainly circumstances when a lawsuit is necessary to protect critical proprietary information, there are many others where the decision to file a lawsuit is a closer call. In these situations, it is worth considering whether there are out-of-court risks that tilt the scale one way or another.

PR issues can be one such consideration. Trade-secrets and noncompete lawsuits can attract media attention, particularly if one party seeks it out. Even if 50 Eggs’ claims are successful (and it faces significant legal hurdles, including an unsigned noncompete), it has suffered some damage to its reputation. At a minimum, companies considering whether to file a noncompete or trade-secrets lawsuit should consider whether the opposing party has ammunition to use in a PR fight.

Chef Bee’s Motion to Dismiss

Restaurant Noncompete Lawsuit, Part 2

Previously, I gave some background on the lawsuit filed by 50 Eggs Restaurant Company against its former chef, Chef Bee. I also discussed a hurdle 50 Eggs will have to overcome, namely that Chef Bee never electronically signed the noncompete agreement. Now, let’s take a closer look at 50 Eggs’ employment agreement.

Attached to the complaint (linked below) is 50 Eggs’ Nondisclosure and Noninterference Agreement. This contains strict nondisclosure obligations that broadly describe the types of information that must be kept confidential. While this agreement does a good job giving general examples of confidential information, there are no restaurant-specific examples. Nondisclousre agreements should include categories of information that are important in the relevant industry. So here, 50 Eggs could have included, for example, proprietary recipes in the definition of confidential information.

The agreement also contains a two-year nonsolicitation clause. In the restaurant industry, it is important to keep a departing chef from bringing other employees with her. This is particularly true in the case of a celebrity chef, who may have significant sway over more junior chefs.

50 Eggs also had Chef Bee sign a “nondisparagement and brand protection” covenant. While this contains typical nondisparagement obligations, it also addresses the critical role social media plays in the restaurant business. This agreement prohibits the chef from directly or indirectly referring to the restaurant on any social media, unless authorized by 50 Eggs.

As social media has evolved, companies have used varying strategies to address employees’ social-media use. 50 Eggs takes a very restrictive approach. While this may prevent employees from saying negative or damaging things about the restaurant on twitter, etc., it also stifles social media “buzz.” When employees are enthusiastic about the restaurant, they are likely to share this enthusiasm on their personal social media accounts, which can be forwarded by their friends, and so on. By prohibiting social-media use, 50 Eggs is losing potentially valuable word of mouth.

The agreement also contains several riders, including the noncompete agreement. I’ll examine these in a future post.

Complaint – 50 Eggs Restaurant (01330302)

Restaurant Noncompete Lawsuit, Part I

In a recent post, I talked about how a Miami restaurant group, 50 Eggs Restaurant Company, dealt with the departure of a “celebrity chef,” known as Chef Bee, from its restaurant Khong River House. Now, 50 Eggs has filed a lawsuit against Chef Bee. A copy of the complaint is linked below.

This lawsuit pulls back the curtain on the development and opening of a high-profile restaurant. And it offers insights into and lessons about protecting proprietary information in the restaurant industry. This is the first in a series of posts discussing the lawsuit. I’m going to start by giving some background on the dispute (as alleged in the complaint) and then discussing one major hurdle 50 Eggs will need to overcome.

50 Eggs is a restaurant group based in South Florida. The complaint describes its marketing philosophy when opening a new restaurant: “the restaurant’s executive chef is designated as the ‘face,’ that is, the spokesperson, for the restaurant.” This is done because “diners generally know of the position ‘chef’ and thus equate everything about a restaurant with whoever is the chef.”

But 50 Eggs says that “the concept for a restaurant may come from a person who is not the executive chef.” Here, 50 Eggs’ CEO John Kunkel’s experience living in Thailand inspired the Khong River House concept.

While Kunkel was originally in negotiations with a New York chef to serve as Khong’s executive chef, he changed course when a local Miami chef he had befriended, Chef Bee, told Kunkel that Bee’s Thai restaurant was having financial difficulties and needed to close. Kunkel ended up hiring Chef Bee.

Chef Bee signed an offer of employment, which referenced the requirement that he sign 50 Eggs’ “standard non-compete agreements.”

50 Eggs uses a system that allows employees to electronically sign documents. Here’s where 50 Eggs may have a problem. The restrictive covenant agreement has several riders, including the noncompete provision. When Chef Bee electronically signed, he did not check the boxes to sign the riders, and thus his electronic signature was not included on those riders. I’ll discuss this in a moment.

After hiring Chef Bee, 50 Eggs “made substantial investments in public relations for the restaurant and making Chef Bee the ‘face’ of the restaurant.” But in the lead up to the restaurant’s opening, bizarre issues started to arise with Chef Bee. He was not contributing to the creation of recipes. He disappeared, only to be found working at his old Thai restaurant. Chef Bee said “he would get sick and break out in hives if he had to cook.” 50 Eggs also discovered that Chef Bee could not cook Thai dishes or run a professional kitchen, so it spent significant time training him by rotating him through Khong River House’s food stations. (It seems strange to me that a restaurant group like 50 Eggs would hire a chef without knowing that he could actually cook and operate a sophisticated kitchen. Perhaps we will learn more about this as the litigation progresses.)

Shortly after the training completed, Chef Bee resigned to open a restaurant in nearby Coral Gables. 50 Eggs now accuses him of taking 50 Eggs’ proprietary information and breaching the noncompete and nonsolicitation covenants. It alleges a number of contractual, tort, and statutory claims. It seeks damages and an injunction.

Back to the electronic signature. In Florida, the restrictive covenant statute provides that “A court shall not enforce a restrictive covenant unless it is set forth in a writing signed by the person against whom enforcement is sought.” Sec. 542.335(1)(a), Fla. Stat. Per the complaint’s own allegations, Chef Bee never signed the noncompete provision. This could present a significant obstacle. 50 Eggs is using several strategies to get around this problem, such as seeking to have the contract reformed based on either mutual or unilateral mistake. Time will tell whether the court will enforce the noncompete.

Using electronic signatures is becoming more and more common. But if companies are going to use this type of technology, it is critical to make sure that employees actually sign all necessary documents. If not, the company will likely face legal hurdles if it becomes necessary to enforce the contracts.

In future posts, I’ll discuss other interesting legal and factual issues in this case.

Complaint – 50 Eggs Restaurant (01330302)

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