Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D.N.Y.: Weight-loss franchisor’s claims suffer minimal slim-down on pro se franchisee’s motion to dismiss, (Apr 30, 2026)

By Justin Marcus Smith, J.D.

A plaintiff can have a viable trade secret claim if aspects of the trade secret go beyond what was disclosed in a patent, and the trade secret does not have to be scientifically verifiable.

Trade secret misappropriation and closely-related state law claims of a weight-loss franchisor against a former franchisee largely survived the pro se franchisee’s motion to dismiss, held the federal district court in Brooklyn, New York. All claims against the franchisee’s limited liability company (LLC) entity survived because the natural person LLC member appeared pro se. She could not represent the LLC. Federal and state law both defined trade secret broadly, so there was no reason to dismiss the misappropriation claims if, for example, some aspects of the weight loss system operations manual might have remained confidential after patenting. Allegations of contract breach adequately stated a claim under New York law. Reproduction of the client list, if any, did not appear to be a specific breach of the franchise agreement, but the court said it had to give the franchisor the benefit of all favorable inferences that a breach of the covenant of good faith and fair dealing might have happened. The court dismissed the unfair competition claim because it was recovery-duplicative of the misappropriation and breach of contract claims. However, the court allowed the conversion claim to proceed where it appeared to be an appropriate alternate theory for recovery with respect to the misappropriation claims (Sadkhin Franchising Company LLC v. Zamora, No. 1:25-cv-01657-NRM-CHK (E.D.N.Y. Apr. 29, 2026)).

Background. Weight-loss Franchisor Sadkhin Franchising Company, LLC (Sadkhin) alleged that defendant-franchisee SAZ Management, LLC (SAZ) and its natural person member (LLC member) misappropriated trade secrets in violation of the federal Defend Trade Secrets Act of 2016 (DTSA). Sadkhin said it owns the intellectual property rights to the “Sadkhin System” inclusive of an operations manual, training materials, databases, and client lists, subject to confidentiality terms under the Sadkhin Franchising Agreement (FA). The confidentiality terms were said to include non-solicitation and non-compete provisions. Post-termination terms provided for certain obligations like the return of intellectual property to Sadkhin.

Sadkhin alleged SAZ failed to return a hardcopy print-out of the client database, operations manual, and other items when the LLC member ultimately resigned as a franchisee, a resignation Sadkhin said it recognized as a franchise termination. Sadkhin also said SAZ owed it $13,000 in unpaid royalties. Sadkhin accordingly brought claims against SAZ for (1) violation of the DTSA; (2) New York common law misappropriation of trade secrets; (3) breach of contract; (4) breach of the implied covenant of good faith and fair dealing; (5) common law unfair competition; and (6) common law conversion.

Appearing pro se, the SAZ LLC member moved to dismiss the complaint in its entirety for failure to state a claim. The court denied dismissal with respect to the SAZ limited liability entity because the LLC member could not represent it. That denial of dismissal was without prejudice. From there, the court analyzed each of the claims against the natural person member.

Trade secrets. The court held the DTSA and state common law misappropriation of trade secret claims both survived as adequately pleaded. The LLC member had variously argued she could not be liable for trade secret misappropriation because: (1) elements of the operations manual were publicly disclosed in a patent; (2) she did not breach the franchise agreement; (3) the Sadkhin Method was not scientifically verified and could not be a trade secret; and (4) she never had a hard copy of the client list to have wrongfully retained it.

The court noted that the DTSA and New York common law define “trade secret” broadly. A customer list or operations manual could be a trade secret, and here, the complaint alleged Sadkhin made reasonable efforts to restrict access through FA confidentiality provisions. As a general matter, that was enough to state a claim for trade secret misappropriation under both the DTSA and New York common law.

As for the LLC member’s argument that the operations manual could not be a trade secret because the Sadkhin Method was patented, the court responded that a plaintiff can have a viable trade secret claim if aspects of it go beyond a patent disclosure, and Sadkhin alleged exactly that. Any overlap between the patent and what Sadkhin claimed to be a trade secret presented a question of fact the court could not resolve on a motion to dismiss.

Moreover, the complaint did not mention the patent. In effect, Sadkhin argued the patent was irrelevant because the operations manual went beyond the patent disclosure. The court accordingly declined to take judicial notice of the patent on a motion to dismiss. The court footnoted here that it could consider the FA because it was integral to the complaint even though Sadkhin only submitted the FA in opposition to the LLC member’s motion.

As for whether the operations manual could not comprise a trade secret because the Sadkhin Method is not scientifically verified, the court noted again that the definition of trade secret under federal and New York law is both flexible and broad. There is no requirement that trade secret be scientifically verifiable.

As to the LLC member’s contentions that she did not breach the FA and never had a hardcopy of the client list, these were factual assertions the court could not resolve on a motion to dismiss.

Contract breach. Sadkhin’s allegations of contract breach adequately stated a claim under New York law. Sadkhin alleged the LLC member breached the FA in numerous ways. For example, Sadkhin allegedly suffered $5,000 of liquidated damages for failure to return the Sadkhin operations manual, $13,000 in unpaid royalties, and other details. The LLC member alleged she was an employee, not a franchisee, at the time she resigned, but this presented another question of fact the court could not resolve at the dismissal stage. The court accordingly denied the LLC member’s motion to dismiss the contract breach claim.

Covenant breach. Construing the complaint liberally, Sadkhin adequately alleged that the LLC member impermissibly reproduced the Sadkhin client list. List reproduction, if any, did not appear to be a specific breach of the FA, but the court said it had to give Sadkhin the benefit of all favorable inferences that it amounted to alleged breach of the covenant of good faith and fair dealing. The court agreed with Sadkhin that this claim was not duplicative of the contract breach claim because alleged breach of the implied covenant rested on distinct allegations of bad-faith conduct in connection with the confidentiality and non-compete provisions of the FA.

Unfair competition. The court agreed to dismiss Sadkhin’s unfair competition claim because it rested on allegations identical to those of the federal and state misappropriation claims and the breach of contract claim. The LLC member reiterated that she did not misappropriate anything and that she was merely an employee at the time her relationship with Sadkhin ended.

Conversion. The court noted the conversion claim was functionally redundant with the breach of contract claim with respect to recovery. Retention of the operations manual, client list, and royalty payments, if true, would constitute breach of the FA. However, those allegations also formed the basis for the misappropriation of trade secrets claims. The court ruled that conversion appeared to be an appropriate alternative theory for recovery for the misappropriation claims. The court declined to dismiss the conversion claim so Sadkhin could keep it as an alternative ground for recovery during discovery.

The Case is No. 1:25-cv-01657-NRM-CHK.

Judge: Morrison, N.

Attorneys: Hoda Rifai-Bashjawish (Pierson Ferdinand LLP) for Sadkhin Franchising Co. LLC. Stephanie Zamora, pro se.

Companies: Sadkhin Franchising Co. LLC

Cases: FranchisingDistribution NewYorkNews