A Former CEO and Five Ex-Franchisees Built a Rival Chain. The USD 15 Million Lawsuit Is a Stress Test for Every Franchise Agreement
On October 12, the franchisor behind West Coast Sourdough filed suit in Sacramento County Superior Court seeking USD 15 million. The defendants are not a faceless competitor. They include the brand's former CEO, Karndeep "Kay" Uppal, and former franchisees who, the franchisor alleges, used its recipes, supplier relationships and operating systems to build a rival sandwich chain called Cali Rays Sourdough Deli.
West Coast Sourdough has about 54 units, with roughly 80 in development, according to Nation's Restaurant News. Cali Rays reportedly has about 22. If those figures hold, the rival is already about 40% of the size of the system it allegedly copied.
None of this has been proven. Uppal has his own lawsuit, filed in February, claiming he was pushed out while on vacation and alleging breaches of fiduciary duty by the board. The company denies his claims. The court will decide who is right. Franchisors should not wait for the verdict to learn the lesson.
What is actually happening here
Strip away the personalities and this is a familiar pattern moving at an unfamiliar speed. Hoodline, citing the filing, reports that several Central Valley locations, including stores in Fresno and Clovis, rebranded to Cali Rays in April 2026 while their franchise agreements were still in effect. The complaint alleges the new chain kept highly similar menus, designs and layouts, and offered reduced or waived fees plus conversion help to pull more operators out early.
Co-founder and CFO Damon Bhatia summed up the franchisor's view to NRN in six words: "They broke their agreements without notice."
There is one more twist. Hoodline reports that West Coast Sourdough itself was founded in 2020 by former licensees of another brand, Sourdough & Co., which later took it to federal court over trade dress. A system that now says its playbook was copied was born in a fight over whether it had copied someone else. That is not a gotcha. It is a reminder that in fast casual, where the product is easy to describe, the line between "inspired by" and "taken from" lives almost entirely in the paperwork.
Why it matters
A franchise system is a bundle of intangibles: recipes, supplier terms, store design, training and brand. Royalties are what franchisees pay to keep using that bundle. When a group of operators can walk out with the bundle and stop paying, the franchisor loses twice. It loses royalty and marketing fund revenue, which the complaint puts in the millions. And it sends a signal to every remaining franchisee that leaving is cheap.
Three structural lessons stand out:
Insider risk is the biggest risk. The person who knows the most about your supplier pricing, your unit economics and your most restless franchisees is often your own senior executive. Executive contracts matter as much as franchise agreements.
Clusters leave together. When several units in one region exit at once, they take local brand awareness with them. Concentrated territories are efficient until they become a single point of failure.
Protection is only as strong as it is enforceable. Restrictive covenants work differently from one state or country to the next. The clauses that usually carry the load are confidentiality, trade secret and de-identification terms, not a non-compete alone.
For brands going global
If you are expanding into Southeast Asia or Vietnam, the same risk shows up in a different form. Within two or three years, a master franchisee or area developer often knows how the brand runs locally better than anyone at headquarters. Without clear ownership of recipes, supplier contracts and the local trademark, a partner exit can turn into a local look-alike almost overnight. The cost of preventing that is small at signing. The cost of fixing it later is a lawsuit in a foreign court.
Five things to do this quarter
Register your trademark in every target market before you sign a partner there, not after.
Map who holds your trade secrets: recipes, supplier terms, operations manuals. Make sure every executive and partner has signed confidentiality terms that survive their exit.
Write de-identification into the agreement in detail: which signage, menu items, layouts and supplier relationships must change, and by when, if a unit leaves.
Watch for concentration. If one operator group controls a whole region, plan now for what happens if it leaves as a block.
Take early signals seriously: late royalty reports, sudden supplier changes, a senior leader in open conflict with the board. Disputes like this rarely begin on the day the lawsuit is filed.
Your brand is not the logo on the door. It is everything an operator would have to rebuild from scratch if they walked away. Make sure your contract says so, in every market you enter.
This article is for general information only and is not legal advice.
Sources:
Comments