Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D.N.Y.: Preschool franchisee’s misappropriation of trade secrets claims fail for lack of protectable interests, (Feb 26, 2026)

By Justin Marcus Smith, J.D.

The franchisee sought to protect terminology, concepts, and functionality of a software application, not the algorithm, user interface, or other protectable technical features, and it shared disputed information with other franchisees.

A private preschool franchisee failed to state plausible misappropriation of trade secrets, breach of contract, and other related claims, held the federal district court in New York City on a motion to reconsider dismissal. The franchisee did not allege protectable interests in a software application or that it took reasonable protection measures. As a preliminary matter, the court rejected the defendant franchisor’s contention that a general release applied because. There was not enough to deem the release integral to the complaint (Primula Management, LLC v. Primrose School Franchising Company LLC, No. 1:25-cv-01795-PKC (S.D.N.Y. Feb. 24, 2026)).

Background. Primula Management, LLC (franchisee) was the management company for five early childhood education and childcare services schools, all franchisees of Primrose School Franchising Company LLC (franchisor), a franchise network of private preschools. The franchisee alleged the franchisor misappropriated the franchisee’s trade secrets derived from an enrollment forecasting application developed by a natural person member of the franchisee. The franchisee also alleged the franchisor breached the terms of a “Pilot Agreement” that governed the testing of that application by the franchisor and its franchisees.

In the second amended complaint (SAC), the franchisee brought several claims, including misappropriation of trade secrets under the Defend Trade Secrets Act (DTSA) and New York common law; breach of contract; tortious interference with business relations; unjust enrichment; breach of implied covenant of good faith and fair dealing; and unfair competition. The franchisee also moved for a preliminary injunction to enjoin franchisor disclosure of the franchisee’s trade secrets and confidential information.

The franchisor moved to dismiss the SAC for failure to state a claim and on the basis of a general release contained in a separate agreement between the franchisee’s member and a non-party associated with the franchisor. The judge originally assigned denied dismissal, but the franchisor moved for reconsideration. On reconsideration, the court declined to dismiss the action for the general release, but it granted dismissal of the DTSA claim and the state common law claims.

General release. The court held the general release did not provide a basis for dismissal. The agreement containing the release permitted assignment and transfer of assets of a Primrose school franchise to a new owner and franchisee. The release did not expressly include the instant franchisee, but it did include the member and others. The franchisee argued its member rescinded and canceled the release under the doctrine of unilateral mistake.

The franchisee did not attach the agreement to the SAC or incorporate it by reference. Mere notice or possession of it while the franchisee prepared the complaint was not enough to deem it integral to the SAC. The court found it wholly collateral. Nothing about a case the franchisor cited supported the idea that the general release was integral. The court held it did not have to consider the general release in deciding the franchisor’s motion to dismiss. The court also declined to treat the motion to dismiss as a motion for summary judgment because there was no discovery, and the validity of general releases is subject to ongoing litigation in Georgia courts.

Trade secrets. The court held the SAC failed to state a claim for misappropriation of trade secrets. The court analyzed the franchisee’s claims under the DTSA and New York common law together because the elements of each are fundamentally the same. The franchisor argued the franchisee failed to state a claim for trade secret misappropriation because it did not sufficiently specify the trade secrets; they were allegedly widely known among other franchisees; and the franchisee failed to take reasonable protection measures.

First, the court concluded the franchisee adequately specified its trade secrets at the dismissal stage, but the court agreed with the franchisor there was no plausible allegation they were protectable. The franchisee sought to protect terminology, concepts, and functionality of the application, not the algorithm, user interface, or other protectable technical features. The SAC also made it clear that the franchisee freely shared the information with other franchisees without secrecy protections. The information was also apparent to franchisees engaged in the same business. The court discussed its exact reasoning on each point with great care. At the conclusion of reconsideration, the court granted the franchisor’s motion to dismiss the SAC counts for trade secret misappropriation.

Breach. The court held the SAC failed to allege a plausible breach of the Pilot Agreement. Importantly, a subsection of the Pilot Agreement stated the information protected by the confidentiality provision did not include information which is or becomes generally available to the public. Any information purportedly disclosed was generally available. The SAC alleged the franchisee’s member pitched his application to Denver schools that contained the same information the franchisor allegedly disclosed about terminology, concepts, and functionality. Franchisees were well aware of the value of automating the manual calculation of classroom vacancies. The franchisee failed to allege a plausible breach of the confidentiality provisions.

Even assuming that use restrictions applied to the franchisor, the franchisee failed to show how “use” of the application could have violated them. Live demonstrations of the application meant the franchisor was well aware of the ideas involved without any need to discover them through use. For these reasons, the court dismissed the franchisee’s breach of contract claim.

Tortious interference. The court held the SAC failed to state a claim of tortious interference with business relationships. The franchisee premised the claim on the same conduct as the trade secret misappropriation and breach of contract claims.

Nonetheless, the franchisee could plead tortious interference if the SAC alleged conduct undertaken for the sole purpose of inflicting intentional harm, but conduct undertaken in normal economic self-interest does not apply. The SAC did allege malice or intent, but the SAC only alleged that in conclusory fashion. The SAC otherwise provided factual allegations about competitive purposes that plainly supported the franchisor was at least partly motivated by economic self-interest. The court dismissed the tortious interference claim accordingly.

Unjust enrichment. The court dismissed the unjust enrichment claim as duplicative because it was based on the same conduct underlying the breach of contract claim.

Good faith. The court held the SAC failed to state a claim for breach of the implied covenant of good faith and fair dealing under New York law. The SAC alleged this breach inasmuch as the franchisor developed and did not disclose it was developing a specific competing student age report. This claim failed because it relied on the same conduct as the failed breach of contract claim.

The franchisor also did not appear to have any implied obligation to disclose development of a new student age report or to refrain recommending that tool to other franchisees. Explicit obligations were consistent with the purpose of testing the application and to gain data and feedback from franchisees. No reasonable reading supported the alleged implied obligations. The court therefore dismissed the breach of implied covenant claim.

Unfair competition. The court dismissed the unfair competition claim because the alleged misappropriation of trade secrets and confidential information involved the same conduct underlying the dismissed breach of contract claim. The court held the franchisee failed to state a claim for unfair competition.

No injunction. The court denied the franchisee’s request for a preliminary injunction as moot because the court granted dismissal of the SAC in full. The court did not discuss dismissal with prejudice or any potential for amendment.

The Case is No. 1:25-cv-01795-PKC.

Judge: Castel, P.

Attorneys: Brian Thomas Burns (Clark Smith Villazor LLP) for Primula Management, LLC. Ashley Roze Claire Hall (Clarick Gueron Reisbaum LLP) for Primrose School Franchising Co. LLC.

Companies: Primula Management, LLC; Primrose School Franchising Co. LLC

Cases: FranchisingDistribution NewYorkNews