Eastern District Of New York Allows Trade Secret Claims By Franchisor To Proceed Against Former Franchisee

Applying trade secrets analysis in the context of a franchisor’s Confidential Operations manual and related information, on April 29, 2026, the United States District Court for the Eastern District of New York issued its decision in Sadkhin Franchising Company LLC v. Zamora, 2026 WL 1162497 (E.D.N.Y. Apr. 29, 2026), largely denying a former franchisee’s motion to dismiss and permitting federal and state trade secret claims to proceed.

PROCEEDINGS AND RULINGS

Background: Sadkhin Franchising Company LLC (“Sadkhin”), a franchisor of weight-loss centers utilizing the proprietary “Sadkhin Method,” brought suit against former franchisee Stephanie Zamora and her entity, SAZ Management, LLC, alleging misappropriation of confidential and proprietary system information following termination of the franchise relationship.

Sadkhin alleged that its “Sadkhin System” included protectable trade secrets such as operations manuals, training materials, databases, and client lists, all of which were subject to contractual confidentiality protections and post-termination return obligations.

Following termination of the franchise relationship in 2024, Sadkhin asserted that Zamora retained and failed to return key system materials, including a printed client database and operations manual, and continued to utilize this information in violation of federal and state trade secret laws.

District Court’s Ruling:

Trade Secret Claims Survive Pleading Challenge

The court denied dismissal of Sadkhin’s DTSA and common law trade secret claims, concluding that the complaint adequately alleged each element required at the pleading stage. The court found sufficient allegations that Sadkhin possessed protectable trade secrets, took reasonable measures to maintain secrecy, and that Zamora misappropriated and retained those materials without authorization.

The court reaffirmed that both customer lists and franchise operations manuals are paradigmatic examples of protectable trade secrets when subject to confidentiality protections.

Rejection of Common Trade Secret Defenses at Pleading Stage

The court rejected several arguments advanced by the defendant, including that patent disclosure defeats trade secret status, that the materials must be scientifically verified, and that factual disputes can be resolved on a motion to dismiss. The court emphasized that trade secrets extend beyond publicly disclosed information and that factual disputes must be resolved at later stages of litigation.

Related Claims

The court dismissed the unfair competition claim as duplicative of the trade secret and contract claims but allowed conversion and contract-based claims to proceed as alternative theories of liability.

KEY TRADE SECRETS TAKEAWAYS

• Franchise system materials such as operations manuals and customer lists remain strong candidates for trade secret protection.
   
• Trade secret protection extends beyond patented or publicly disclosed information.
   
• The DTSA’s definition of trade secrets is broad and includes business and commercial information.
   
• Duplicative claims may be dismissed, underscoring the importance of careful pleading.
   
• This decision reinforces that trade secret protections remain a powerful tool for franchisors in disputes involving former franchisees.

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