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LLC v. Integrity Brands LLC

United States District Court, D. South Carolina, Columbia Division

March 20, 2019

Theo's Pizza, LLC, Plaintiff,
v.
Integrity Brands, LLC, Defendant.

          ORDER AND OPINION

         Plaintiff Theo's Pizza, LLC filed this action against Defendant Integrity Brands, LLC seeking a declaratory judgment as to the parties' relationship and monetary damages for alleged violations of the Business Opportunity Sales Act (“BOSA”), SC Code Ann. §§ 39-57-10 to -80 (1991), and the South Carolina Unfair Trade Practices Act (“SCUTPA”), SC Code Ann. §§ 39-5-10 to -560 (2014), or, in the alternative, for breach of contract. (ECF No. 1-1 at 4 ¶ 4-9 ¶ 24.)

         This matter is before the court on IBL's Motion for Summary Judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. (ECF No. 33.) Theo's opposes IBL's Motion in its entirety. (ECF No. 40.) For the reasons set forth below, the court GRANTS IN PART AND DENIES IN PART IBL's Motion for Summary Judgment.

         I. RELEVANT FACTUAL AND PROCEDURAL BACKGROUND

         Founded in 2009 and headquartered in Atlanta, Georgia, IBL owns and operates made-to-order pizza restaurants and sells and develops pizza restaurant franchises under the trademark of “Uncle Maddio's Pizza Joint” (“UMPJ”). E.g., Integrity Brands, LLC, https://www.bloomberg. com/research/stocks/private/snapshot.asp?privcapid=291783793 (last visited Mar. 19, 2019); Integrity Brands, LLC, http://www.buzzfile.com/business/Uncle-Maddio!s-Pizza-Joint-404-929-6654 (last visited Mar. 19, 2019).

         In the fall of 2010, Ted and Marcia Contos were looking to open a franchise restaurant. (ECF No. 40-1 at 2.) In early 2012, the Contoses settled on becoming a UMPJ franchisee. (Id.) To further their plans, the Contoses obtained financing in the amount of $400, 000.00. (Id. at 3.)

         On February 10, 2012, the Contoses made a site visit to the UMPJ franchise located at Akers Mill in Atlanta. (ECF Nos. 40-2 at 1, 40-3.) The Contoses met with Roger Wagerman, IBL's vice president of franchise development, Tony Brewer, the chief operating officer, and Alex Cook, the corporate chef and director of franchise training. (Id.) During the site visit, the Contoses were provided documentation showing “that the estimated costs to open an . . . UMPJ similar to Aker's Mill . . . were approximately $350, 000” and were told “that weekly sales for Aker's Mill were $20, 000.” (ECF No. 40-2 at 1; see also ECF No. 40-3 at 4.) As a result of the information received during the site visit, the Contoses moved forward with their plans to open an UMPJ franchise. (E.g., ECF No. 40-11 (“We look forward to continued and a long term relationship with you, we are very impressed with everything so far, . . . .”).) On April 3, 2012, the Contoses organized two limited liability companies: “Thea & Theo, LLC to be the market developer and Theo's . . . to operate the first franchise store.” (ECF No. 40 at 4); Theo's Pizza, LLC, https://businessfilings .sc.gov/BusinessFiling/Entity/Profile/abf79ddd-0102-480e-a990- 8ac8115affc7 (last visited Mar. 18, 2019); Thea & Theo, LLC, https://businessfilings.sc.gov/BusinessFiling/Entity/Profile/1f55f 4aa-c687-4d97-9202- eb760b06d506 (last visited Mar. 18, 2019).

         On April 6, 2012, IBL and Thea & Theo, LLC executed a Market Development Agreement (ECF No. 33-1 at 1-21), which was meant to govern the Contoses' relationship with IBL until the opening of a UMPJ restaurant in the Greater Columbia area. (ECF No. 40-13 at 1:10-15.) Pursuant to the Market Development Agreement, Thea and Theo, LLC agreed that it would sign IBL's Franchise Agreement within ten (10) days after IBL approved the proposed site for the first restaurant and that first restaurant would open by April 6, 2013. (ECF No. 33-1 at 5 ¶ 10, 18.) Without having executed the Franchise Agreement, the Contoses signed an Addendum to the Franchise Agreement on behalf of Thea and Theo, LLC on April 6, 2012, “to set forth certain revisions to the Franchise Agreement [] agreed upon by the parties.” (ECF No. 33-1 at 22.) After they signed the Market Development Agreement on behalf of Thea and Theo, LLC, the Contoses “returned to Atlanta and were told by Roger Wagerman and the franchisee, Shehzad Lutfeali, that Aker's Mill was still having weekly sales of $20, 000.” (ECF No. 40-2 at 1.)

         After the Contoses received official corporate approval to open a franchise on or around February 28, 2012 (see ECF No. 40-12), the parties began the process to select a site for the UMPJ franchise in Columbia. The Market Development Agreement provided the following relevant guidelines for the site selection process:

Developer is responsible for locating proposed sites for the MADDIO'S Restaurants to be established hereunder. Franchisor, in its sole discretion, may counsel and offer advice to Developer with respect to such site selection; provided, however, in no event shall Franchisor be liable to Developer in connection with providing advice or any such assistance. Upon Developer's selection of a proposed site for a Restaurant, Developer shall promptly submit to Franchisor such site, demographic and other data and information about the proposed site as reasonably requested by Franchisor, utilizing such firms as may be required by Franchisor, and a copy of any lease, sublease or purchase agreement to be entered into in connection with the acquisition of such site. Franchisor shall either accept or reject the proposed site utilizing its then-current site selection policies and procedures. . . . Developer acknowledges and agrees that Franchisor may reject any proposed site for any reason in its sole discretion, in which event, Developer may not develop a Restaurant at the rejected site, but must locate another proposed site for the Restaurant . . . .

(ECF No. 33-1 at 3 § 7.1.)

         Thereafter, in the months of May through July of 2012, the parties exchanged communications wherein the Contoses advocated for placing their UMPJ restaurant at sites in the Irmo, Harbison, and Lake Murray Boulevard areas of Columbia and IBL favored the Jasmine site, a space in a building located at 601 Main Street, Columbia, South Carolina 29201.[1] (ECF Nos. 40-17 to 40-24.) The Contoses were concerned that the start-up for the Jasmine site would be “150k higher than any previous estimations, ” but IBL maintained that the total start-up capital needed would be less than $400, 000.00. (See ECF Nos. 40-20, 40-23.) Additionally, the Contoses were told that a restaurant at the Jasmine site could do $1, 000, 000.00 in business. (See ECF Nos. 40-21, 40-22.)

         On September 5, 2012, Theo's signed a lease for the Jasmine site space. (ECF No. 40 at 7.) On April 6, 2013, Theo's had its grand opening. (Id. at 8.) The final cost to open the Jasmine site restaurant was $605, 477.81. (ECF No. 40-4.) During the years that followed, Theo's generated the following amounts of revenue:

Year

Net Income

Gross Profit

Net Profit

2013

$522, 450.72

$322, 982.78

-$92, 364.67

2014

$653, 245.77

$422, 748.23

-$85, 046.44

2015

$597, 933.26

$405, 310.25

-$59, 100.88

2016

$531, 300.59

$359, 808.95

-$58, 063.64

(ECF No. 40-28.)

         As a result of the foregoing operational figures, the Contoses sent IBL a demand letter on November 11, 2016, containing two (2) options in an attempt to avoid protracted litigation: “Option 1: IB[L] makes Theo's Pizza LLC and the Contos' whole with a onetime payment of $660, 000. Option 2: IB[L] takes over the operation of the USC location to include all outstanding debt that is owed, a lease transfer to IB[L] and a onetime payment of $300, 000.” (ECF No. 40-2.) Thereafter, on November 30, 2016, Theo's filed a Complaint against IBL in the Richland County (South Carolina) Court of Common Pleas seeking the aforementioned declaratory judgment and alleging violations of the BOSA and the SCUTPA or, in the alternative, breach of contract. (ECF No. 1-1.) After the court denied its Motion to Dismiss (ECF No. 12), IBL answered the Complaint and filed counterclaims against Theo's for alleged violations of the Lanham Act (“Lanham Act”), 15 U.S.C. §§ ...


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