Green Burrito Parent Sues Carl’s Jr. Chain : Restaurants: Suit alleges misappropriation of trade secrets and breach of contract against dual-product partner.
GB Foods Corp. filed suit Thursday against the parent company of the Carl’s Jr. fast-food chain, alleging misappropriation of trade secrets and breach of contract and seeking more than $100 million in damages.
In the lawsuit, filed in Los Angeles County Superior Court, GB Foods, parent of the Green Burrito restaurant chain, alleges that Anaheim-based CKE Restaurants Inc. copied GB Foods’ concept when it launched Picante Grill, an addition of Mexican-style menu items at a Carl’s Jr. restaurant in Orange.
GB Foods alleges that Picante Grill violates the terms of a dual-product test-marketing agreement in which Green Burrito products are being sold in several Carl’s Jr. outlets.
GB Foods, which operates a chain of Green Burrito restaurants throughout Southern California, states in its lawsuit that CKE used the joint-operation experiment to copy Green Burrito’s ideas and use them to start Picante Grill. Besides damages, GB Foods said, it intends to seek an injunction to halt CKE’s Picante Grill experiment.
“We think they have misappropriated the dual concept that we have introduced,” GB Foods attorney Bruce H. Haglund said in Irvine. “We believe the Picante Grill is a knockoff.”
CKE counsel Richard Celio said he could not comment on the lawsuit because he had not yet seen it.
The suit also alleges intentional interference with prospective economic advantage, conspiracy, breach of good faith and fair dealing, fraudulent misrepresentation and defamation.
Disclosure that CKE is experimenting with its own Mexican-style menu was responsible for a precipitous slide in GB Foods’ stock price this week, the company said. Following a decline of nearly 20% Wednesday, the stock lost another $1.12 a share Thursday to close at $5 in Nasdaq trading.
CKE has said it is testing Mexican-style foods to see if it can attract more customers. The Picante Grill concept is an expansion of CKE’s regular hamburger-and-sandwich menu, which captures lunchtime business but not as many dinner-hour customers as the chain would like.
The lawsuit is the latest development in a two-year debate over the future direction of the Carl’s Jr. chain, which lost market share during the recession to competitors with lower prices.
Founder Carl N. Karcher was forced to resign as chairman of CKE in late 1993 after a dispute with his board about selling Green Burrito products at under-performing Carl’s Jr. restaurants.
When an investment group led by Orange County banker William P. Foley II gained control of CKE, it brought Karcher back as chairman emeritus and agreed to test Green Burrito items at several Carl’s Jr. restaurants.
The first Green Burrito-Carl’s Jr. test restaurant opened in October and the most recent opened Dec. 12, only 10 days before CKE launched the Picante Grill test, according to the lawsuit.