Update: A settlement has been reached in the disputes, according to attorney Stephen G. Amato. No details were provided. The agreements dismissing the Tennessee and Kentucky lawsuits are expected to be entered in courts Monday.
The ownership of the hot chicken business started by Tennessee chef Shawn Davis, better known as “Chef Big Shake,” will apparently be decided in court.
Davis, who first came to national attention in a 2011 TV appearance on the ABC entrepreneur showcase “Shark Tank,” started a retail food business and then a restaurant chain in Franklin, Tenn., along with his wife Robin. The two say in their securities fraud lawsuit, filed in October in Nashville, that they entered into an agreement to sell 75 percent of their ownership stake because they were dazzled by promises of immediate expansion and millions of dollars in profits from Lexington businessman Lee White — and by a visit from former Kentucky governor and Kentucky Fried Chicken czar John Y. Brown Jr., who they assumed was working with White.
Their lawsuit includes allegations of securities fraud, fraudulent inducement and breach of fiduciary duty against the Lexington Big Shake company created after the sale agreement.
But there’s another lawsuit, filed by White against the Davises.
That suit, filed in United States District Court in Lexington on Nov. 11, alleges that the Davises and their companies sold “all know-how, trade secrets, confidential information, processes, formulas and copy rights.” It alleges that the Davises’ companies are “unlawfully benefiting from the good will and reputation” of White’s company by violating a non-compete clause in the sale contract.
The suit alleges a raft of offenses against the Davises and their companies, including unlawful deceptive trade practices, trademark infringement, trademark counterfeiting, false advertising and misappropriation of recipes for such dishes as “Hot Chicken - Stop, Drop & Roll” and the “Original Shrimp Burger.” The Davises are also accused of trying to sell franchises when they were not entitled to do so.
White’s attorneys filed a move to dismiss the Nashville suit in January, arguing that the Davises’ interest in Big Shake LLC is not a “security.” They have also asked that the case be transferred to federal court in Lexington.
Attorneys for both sides said in a statement Friday afternoon that the cases may be settled “imminently.” The statement said that settlement negotiations began several weeks ago.
The Davises allege that their prosperity in the hot chicken business came to a full stop after they made a deal with White, according to the Nashville securities fraud suit.
The Davises said that White promised a partnership that would bring their business to a national scale. White showed them an office operation in Lexington that would be used to grow the business, but was later found vacant and for lease, the suit alleges. The Davises also said in the lawsuit that White told them he had brought the British restaurant company “Yo! Sushi” to the United States and sold it for $150 million.
Before they made the deal with White, one of the Davises’ two Tennessee restaurants received a personal visit from former Kentucky Gov. John Y. Brown Jr., who made a fortune while at Kentucky Fried Chicken. The couple thought that Brown was going to be a part of the team that propelled their business to new heights. They later discovered they were wrong, the lawsuit says.
In an interview, Brown said he was perplexed by his inclusion in the lawsuit. He said he was asked by a friend of White’s to stop by the Big Shake operation while visiting Nashville and give Shawn Davis some advice.
Brown said he told Davis, “You’ve done a nice job, but I don’t think it’s anything you should franchise.”
Brown said he told White the same thing, that he didn’t think it was “a concept that would work or had legs.”
The Davises sold a 75 percent stake in their business “because of White’s representations about his ability to make the Davises multi-millionaires through their 25 percent equity stake,” the suit alleges.
“Less than a year later, the Davises have learned that they were defrauded,” according to the lawsuit.
The back-office personnel didn’t exist, for starters, the suit alleges. Bills went unpaid and vendors complained, according to the suit, and the three promised stores in Tennessee did not open.
White was also not the financial rock the Davises thought he would be, according to the suit. They found that he had both federal and state tax liens, a prior bankruptcy, and an active judgment against him for $2.1 million. White had told them he had a fund of $50 million that would be used to support the growth of the business, the Davises’ suit contends.
The only additional store that ever opened was in Lexington, at 867 South Broadway, in June, 2016. That store is still in operation.
“The Davises would have never gone into business with White if they knew then what they know now, nor would any other reasonable person,” the Davises’ suit says.
The Davises are suing White; Big Shake LLC and its registered agent, Greg McDonald; and Blue Horse Capital Partners LLC and McDonald.
They are seeking the return of their business. The Davises are willing to give up the Lexington outlet, which the lawsuit notes draws some hostile online reviews about issues such as lack of ice.
The suit argues that the deal between the Davises and White is a security that was neither properly registered with the U.S. Securities and Exchange Commission, and that the Davises are not “accredited investors.”
The couple want the transaction to be voided, to be repaid the difference between the $175,000 they originally received and the $225,000 they paid in August 2016 to buy back one of their restaurants, as well as damages.
As for the Lexington store, they are willing to allow White, McDonald and their companies to keep it. The suit refers to it as “the only store opened using Defendants’ capital.”