Motion for Preliminary Injunction to Prevent Opening of Cannabis Dispensary Denied For Lack of Irreparable Harm

On May 31, 2024, Justice Margaret A. Chan of the New York County Commercial Division issued a decision in NAP IV LLC v. Qube USA LLC, Index No. 651937/2024, denying plaintiff's motion for a preliminary injunction preventing defendants from opening a cannabis dispensary in alleged violation of an NDA with plaintiff, which included a non-circumvention clause allegedly preventing defendants from going around plaintiff to open the dispensary at the Times Square location presented by plaintiffs, explaining:

Plaintiff argues that the Location and the identity of the Landlord constituted a trade secret. More specifically, plaintiff implies in its reply affirmation that the trade secret is "a location that had a site lock preventing others from opening a dispensary within 1000 feet of the location," and "direct access" to the Landlord (NYSCEF # 39 at fn 2).

This information is not a secret. Under the first factor, "the extent to which the information was known outside the business," both the Location's address and the identity of the Landlord are well· known outside the business. Besides plaintiff and defendants, others, such as the landlord representative Charles Aini, Royal Leaf, and StubHub's broker, knew the Location and the Landlord at the time (NYSCEF # 1 ,r,r 11, 12, 19, 34). And the "Retail Space for Lease" sign on the door of the Location is public so that those interested can contact the three brokers listed on that sign (NYSCEF #s 32 & 33). This was not an exclusive trade secret.

Moreover, plaintiff also fails to show any real "measures taken ... to guard the secrecy of the information" (Restatement§ 757, comment b, factor [4]). Plaintiffs only clear step was to require defendants to sign an NDA (see NYSCEF # 6). But plaintiff does not explain whether it took other obvious steps to protect the information, including asking Royal Leaf to sign an NDA; inspecting the Location to verify that it was not publicly listed or advertised as for rent; after inspecting the Location, asking the Landlord or the landlord representative how many others knew that the Location was available to cannabis dispensaries; or trying to obtain some kind of exclusivity agreement regarding use of the information. Plaintiff took no basic steps to keep this a secret or even verify that it was a secret. Hence, there is no trade secret.

Finally, even if this were a trade secret, there is no connection between the requested injunction and the secret's protection. An injunction against defendants' opening would do nothing to keep other people from knowing the address or identities of the landlords. Plaintiffs only other argument is that allowing defendants to open would make plaintiffs request for permanent injunctive relief "ineffectual" (NYSCEF # 23 at 14). Plaintiff does not explain why its 49% equity cannot be awarded after opening or why it cannot be reimbursed in money damages for use of the information. In short, there is no irreparable harm, and therefore no reason to enjoin.

That said, while plaintiff does not address the NDA's terms, the NDA also specifies that breach "may" result in irreparable injury and that plaintiff may seek an injunction for specific performance. While it is enough to show that parties explicitly agreed that a breach creates irreparable injury (see e.g. Reed Found., Inc. v Franklin D. Roosevelt Four Freedoms Park, LLC, 108 AD3d 1, 7 [1st Dept 2013]; Seitzman v Hudson Riv. Assoc., 126 AD2d 211,214 [1st Dept 1987]), this case presents a different situation. Outside of disclosure of a non-existent trade secret, plaintiffs only other alleged irreparable harm is the loss of the chance to "secur[e] this Times Square location for another dispensary" (NYSCEF # 39111). But plaintiff has shown it has a right to control the rental of the Location, and even if it had some such right, that opportunity vanished the moment the Landlord and defendants signed the February Lease. An order preventing defendants from opening does not prevent the irreparable harm from occurring; it would merely trade one irreparable harm (plaintiffs loss of control over the location) for another (failure of defendants' business and personal bankruptcy for the defendants). This is not the purpose of a preliminary injunction.

Misappropriation of a trade secret presumptively gives rise to irreparable harm. But as this case shows, a "secret" that is publicly available is typically not a trade secret. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning misappropriation of trade secrets of motions for a preliminary injunction.