Supremes step in to resolve piping hot pizza dispute

When the Nebraska Bar pushed through creating the Nebraska court of Appeals in 1991, our pocket lining civic leaders said the Supreme Court as the only appellate level court was overburdened with routine appeals that an intermediate appeals court could better handle. Most appeals go through the Court of Appeals but dissatisfied parties may seek discretionary review from the Supreme Court for most types of case. Still the Nebraska Supreme Court retained exclusive jurisdiction of some cases and also retained the discretion to pull pending cases from the Appeals court to the Supreme court in order to "regulate" the dockets of each court. The current Chief Justice employs law clerks to review all pending court of appeals cases that might interest the Supremes. The Supremes must have been hungry this time because they pulled the Douglas county case Magistro v. J. Lou, Inc., 270 Neb. 438 September 30, 2005. No. S-04-138, a dispute between former pizza business partners who spit and accused each other of failing to pay royalties and of stealing trade secrets of pizza production. On February 4, 1994, Magistro and Nolan entered into a contract under which Nolan was to operate a Don Carmelo's Pizzeria at 117th and Blondo Streets in Omaha (the Blondo Street restaurant). In return for $50,000, it was agreed that Nolan could use Magistro's information, methods, trade name, and trade secrets. The trade secrets, which Magistro's petition defined as "an entire array of information starting with the ingredients that go into the Don Carmelo's pizza, strombli [sic], calzone and other Italian dishes," were to be used only in the operation of the Blondo Street restaurant and any subsequent Don Carmelo's Pizzeria licensed by Magistro. Magistro claimed that after licensing the Blondo Street restaurant, he spent months instructing Nolan as to the proper methods to prepare the menu items. Magistro and Nolan entered into a second contract in 1995 for a Don Carmelo's Pizzeria at 76th and Dodge Streets in Omaha (the Dodge Street restaurant). Nolan agreed to pay royalties equal to 5 percent of the gross sales for this restaurant. In April 1996, Nolan changed the name of the Dodge Street restaurant to "Giavonni Santino's Pizzeria" and ceased paying royalties to Magistro. Nolan later began licensing restaurants using the name "Giavonni Santino's Pizzeria." Magistro sued Nolan, alleging that Nolan's failure to pay royalties was a breach of contract. Magistro also claimed that Nolan had entered into a course of advertising to make it appear that Don Carmelo's Pizzeria and Giavonni Santino's Pizzeria were "essentially the same business" and that these deceptive trade practices were intended to confuse customers as to the relationship between the two restaurants. Magistro sought, inter alia, an accounting of royalties due while Nolan operated the Dodge Street restaurant; liquidated damages of $200,000, as called for by the contracts; an injunction against further violation of the Uniform Deceptive Trade Practices Act and the Trade Secrets Act; and attorney fees. The trial court concluded that Magistro had failed to prove his claims and that Nolan's counterclaim had no merit. On November 18, 2003, the court entered an order dismissing Magistro's amended petition and Nolan's counterclaim. Magistro filed a motion for new trial, which was overruled. The definition of a "trade secret" is a question of law. Home Pride Foods v. Johnson, 262 Neb. 701, 634 N.W.2d 774 (2001). When reviewing questions of law, an appellate court has an obligation to resolve the question independently of the conclusion reached by the trial court. Douglas Cty. Sch. Dist. 0001 v. Johanns, 269 Neb. 664, 694 N.W.2d 668 (2005). Magistro testified that the dough recipe used in Don Carmelo's Pizzerias was a recipe that his family created in Sicily before the family moved to the United States. When his father opened a pizza restaurant in New Jersey, only family members were privy to the recipes. Magistro moved to Omaha in 1980 and opened his first pizzeria. Magistro said he protected the family recipes by putting the ingredients into packets that were sealed and refrigerated until needed. An employee would then add water to make the sauce and the dough. Magistro's brother Carman Magistro testified that only members of his family created and prepared the recipes and that no one outside the family knew the recipes. Carman claimed that Don Carmelo's pizza was superior because the dough and sauce recipes were his father's personal recipes. We conclude that the recipes Nolan acquired from Magistro were trade secrets. The recipes derived independent economic value from not being known to other persons, and Magistro and his family made reasonable efforts under the circumstances to maintain their secrecy. The trial court correctly determined that the recipes were trade secrets. The trial court stated, "[T]here's no way to show, in my opinion, that . . . Nolan is still using the same recipes." Although the recipes furnished by Magistro for the dough, sauce, and meatballs were trade secrets, the evidence supported Nolan's contention that he no longer used those recipes. The court stated that it could not find by the greater weight of the evidence that Nolan was using the trade secrets in his business or the restaurants that he had franchised. We agree with the trial court that Magistro failed to show that Nolan was still using Magistro's trade secrets. Magistro testified to his knowledge concerning the operation of a pizza restaurant and the secret family recipes. Magistro was not able to testify that he personally knew Nolan was still using the recipes in his new restaurants, nor did the evidence support that contention. Nolan testified that when he opened the Blondo Street restaurant, Magistro provided him with a dough recipe, a sauce recipe, and a meatball recipe and that no other recipe-related information was given to him. After the Dodge Street restaurant opened in the spring of 1995, Nolan paid royalties to Magistro on that restaurant until April 1996. The restaurant was subsequently relocated to Cass Street, and the names of both restaurants were changed to Giavonni Santino's Pizzeria. Nolan testified that the name change occurred only after Magistro had terminated the contracts by demanding that Nolan cease using the Don Carmelo's Pizzeria trade name, trade secrets, and recipes. Nolan stated that he understood this request to mean that "our contract was over and [Magistro] was going to go ahead and license somebody else in that zone." Nolan also testified that upon attending a pizza convention in early 1996, he discovered that there were recipes for "anything you wanted: [p]izza sauce, pizza dough" and that the convention included demonstrations "to teach you how to do all of this type of thing." He said he then realized that "there were no secrets" because the people at the convention were willing to share information. He stated that he was given a recipe for thin crust New York-style pizza which produced the same type of crust that Magistro claimed was a family secret. Nolan said that when he returned from the convention, he began using the recipe in his restaurants. He testified that he no longer prepared his own meatballs and that they were being purchased commercially, already rolled and precooked. He also changed the sauces by using prepackaged spice mixes to ensure consistency. He stated that these mixtures were different from the recipes provided by Magistro. There was no evidence that Nolan was still using the trade secrets furnished to him by Magistro. Thus, the trial court's finding that Magistro failed to prove that Nolan was using Magistro's trade secrets in violation of the contracts was not clearly wrong. We next address Magistro's claim that Nolan engaged in an advertising campaign with the intent to deceive customers, in violation of the Uniform Deceptive Trade Practices Act. We will not disturb the factual findings of the trial court unless we find them to be clearly wrong. See Par 3, Inc. v. Livingston, 268 Neb. 636, 686 N.W.2d 369 (2004). Magistro claimed that several advertisements could confuse customers or mislead them into believing that Don Carmelo's Pizzeria and Giavonni Santino's Pizzeria were operated by the same parties. Magistro's evidence consisted of photocopies of the yellow pages from a telephone directory. One page listed Don Carmelo's Pizzeria and Giavonni Santino's Pizzeria at the same Blondo Street address and the same telephone number. Magistro claimed that Nolan tried to associate his restaurants with Magistro by calling them "family owned & operated." The Uniform Deceptive Trade Practices Act provides in relevant part: (a) A person likely to be damaged by a deceptive trade practice of another may be granted an injunction against it under the principles of equity and on terms that the court considers reasonable. Proof of monetary damage, loss of profits, or intent to deceive is not required. Relief granted for the copying of an article shall be limited to the prevention of confusion or misunderstanding as to source. § 87-303. A person engages in a deceptive trade practice when, in the course of his business, vocation, or occupation, he: "(2) Causes likelihood of confusion or of misunderstanding as to the source, sponsorship, approval, or certification of goods or services; (3) Causes likelihood of confusion or of misunderstanding as to affiliation, connection, or association with, or certification by, another." § 87-302. The trial court found no basis upon which it could rule in Magistro's favor on the issue of deceptive trade practices. We cannot say that the trial court was clearly wrong.