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Prodigious Ventures, Inc. v. YBE Hospitality Group, LLC

United States District Court, E.D. North Carolina, Western Division

March 30, 2017

PRODIGIOUS VENTURES, INC., Plaintiff.
v.
YBE HOSPITALITY GROUP, LLC, YBE ENTERPRISE, LLC, YBE OXFORD. LLC, and YBE MILLEDGEVILLE, LLC, Defendants,
v.
TRAVIS E. KELLEY, Counterclaim Defendant,
v.
JAMES BUTLER and JOHN TYE HILL, Counterclaim Plaintiffs.

          ORDER

          JAMES C. FOX, Senior United States District Judge.

         Before the court is the motion for partial summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure tiled by YBE Enterprise, LLC, YBE Hospitality Group. LLC, YBE Milledgeville LLC, YBE Oxford, LLC, James Butler and John Tye Hill ("Movants"). [DE 58]. On February 23, 2017, United States Magistrate Judge Robert B. Jones, Jr. issued a Memorandum and Recommendation ("M&R") recommending the court deny Movants' motion. [DE 86]. On March 9, 2017, Movants objected in part to the M&R and requested an oral argument. [DE 87]. Plaintiff did not file an objection to the M&R nor did it respond to Movants' objection. For the reasons that follow, the court adopts the M&R and denies Movants' motion.

         I. BACKGROUND

         The M&R provides the relevant factual allegations and applicable law. This court presumes the parties' familiarity with the M&R and summarizes here only the background essential to the resolution of the pending motion.

         This matter stems from a financial advisor-client relationship that began in 2005 between Travis Kelley of Providence Group Sports and Entertainment, LLC ("Providence Group")[1] the financial advisor - and Butler and Hill - the clients.[2] In 2007, Butler and Hill expressed to Kelley their interest in investing in a Golden Corral restaurant franchise. Ultimately, Butler and Hill formed YBE Enterprise, LLC, YBE Milledgeville. LLC and YBE Oxford, LLC - managed by YBE Hospitality Group, LLC (collectively, the "YBE Entities") - for the purpose of owning and operating Golden Corral franchises in Georgia and Alabama. The YBE Entities engaged Prodigious Ventures, Inc. ("Prodigious") - of which Kelley is the president, sole shareholder and CEO[3] - to provide business consulting services pursuant to service agreements entered in 2007 and 2010 despite Prodigious' lack of prior restaurant management experience.[4]

         Generally, Prodigious provided the YBE Entities administrative management services in exchange for an initial fee of $8, 500 during a restaurant's developmental period and thereafter 3% of the monthly gross revenues regardless whether a restaurant turned a profit.[5] Each service agreement was for a seven year term. Although the service agreements did not include an express early termination clause, each provided that the seven-year "period may vary according to any changes or modifications requested by" the YBE Entities.[6] The service agreements covered Movants' Golden Corral franchises in Centerville, Georgia (opened in 2009), Oxford, Alabama (opened in 2010) and Milledgeville, Georgia (opened in 2011).

         In March 2012, YBE Hospitality and Prodigious entered into a Management Agreement, which covered the three existing restaurants plus two proposed restaurants.[7] The Management Agreement provided inter alia that it replaced the Centerville. Oxford and Milledgeville service agreements.[8] The material terms remained identical to those provided in the prior service agreements, with two exceptions. First, as for the two proposed restaurants, the Management Agreement was for a five year term only. Second, the Management Agreement is silent as to the modification of the seven or five year terms.

         In May 2013, YBE Hospitality terminated the Management Agreement due to Prodigious' numerous alleged performance deficiencies. See Termination Notice [DE 15-1]. Ultimately, Prodigious made over S800.000 in management fees between 2009 and 2012. During that same time period, while Butler and Hill collectively invested more than $1.7 million into the Golden Corral franchises, the YBE Entities lost money overall.

         In 2014. Prodigious initiated this contract action in state court. The YBE Entities removed the action to this court. Prodigious alleges claims for breach of contract and unfair and deceptive trade practices against the YBE Entities. Movants assert counterclaims for breach of contract against Prodigious, breach of fiduciary duty and constructive fraud against Kelley, and conversion and unfair and deceptive trade practices against Prodigious and Kelley.

         II. APPLICABLE LAW

         The Federal Magistrates Act requires a district court to make a de novo determination of any part of the magistrate judge's recommendation to which objection is made. See 28 U.S.C. § 636(b); Fed.R.Civ.P. 72(bX3); see also Orpiano v. Johnson, 687 F.2d 44, 47 (4th Cir. 1982). Absent a specific and timely objection, the court reviews only for clear error on the face of the record and need not give any explanation for adopting the M&R. Diamond v. Colonial Life & Accident Ins. Co., 416 F.3d 310, 315 (4th Cir. 2005); Camby v. Davis, 718 F.2d 198, 200 (4th Cir. 1983). Upon careful review of the record, "the court may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1).

         III. DISCUSSION

         The court reviewed the M&R, the record and Movants' objections. As for those portions of the M&R to which Movants made no objection, the court is satisfied that there is no clear error on the face of the record.

         Movants raise two objections to the M&R. Movants argue first that Judge Jones erroneously determined a genuine issue of material fact exists as to whether Kelley breached his fiduciary duty to Hill and Butler. Second, Movants disagree with Judge Jones' conclusion that Kelley's admission regarding the modification provision contained in the initial service agreements does not provide an alternative basis for allowing summary judgment on Prodigious' breach of ...


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