The California sandwich franchisor wants $15 million from its former CEO and ex-franchisees who rebranded stores as Cali Rays Sourdough Deli, a rival now reported at about 22 units.
"Changing the color [of a company's website] doesn't make it a different company." That is Damon Bhatia, co-founder and CFO of West Coast Sourdough, describing Cali Rays Sourdough Deli to Nation's Restaurant News.
Now he is putting a number on it. WCSD Inc. and SFB Holdings Inc. sued in Sacramento County Superior Court on Oct. 12, seeking $15 million from former CEO Karndeep "Kay" Uppal and five other defendants. The complaint says they used West Coast Sourdough's recipes, supplier information, business systems and brand identity to build Cali Rays, and tried to pull other operators out of the system. The damages claim includes more than $5 million in lost royalty and marketing fund revenue.
The system has about 54 units, mostly in California, with roughly 80 in development, according to NRN.
This fight started at the top. Uppal sued in February, alleging wrongful termination and saying his partners breached fiduciary duties and diverted corporate assets. His suit also claims the franchisor stopped policing quality. Bhatia says the company denies all of it and that the board fired Uppal for misconduct, without giving specifics.
Then the franchisees moved. Five Central Valley stores, in Fresno, Clovis, Lodi, Visalia and Galt, switched to Cali Rays in April, and six Bakersfield locations had switched weeks earlier, Franchise Herald reported, citing the Sacramento Business Journal and the Fresno Bee. The owners pointed to rising food costs, slowing sales and an absent corporate office. Bhatia's version is shorter: "They broke their agreements without notice."
We wrote yesterday about Orangetheory owners walking away at renewal. That is the polite exit. This is the other kind: owners leave mid-contract, keep the address and the menu, and bet that what they walked out with was never really the franchisor's to protect.
That bet is the case. Under California's trade secret law, recipes and supplier lists can be protected only if they carry value because they are not generally known and the owner took reasonable steps to keep them secret. So the franchisor has to show it guarded the playbook, through its agreements and its own conduct, while the defectors argue a sourdough sandwich is a sourdough sandwich.
Cali Rays did not respond to requests for comment from NRN. The next tell is whether West Coast Sourdough asks for a preliminary injunction, which would force a judge to weigh the trade secret claims long before any trial.
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