What was the name of the company to which The S&Q Shack, LLC, an affiliate of Cinnaholic, was sold?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
In 2012, the United States Bankruptcy Trustee sued certain of our affiliates, officers, and directors as well as other defendants. The lawsuit claims there were fraudulent transfers, constructively fraudulent transfers, and wrongful distributions made in connection with the sale of one of our affiliates, The S&Q Shack, LLC ("S&Q"), to Edmonds Capital Fund I, LLC. The lawsuit further alleged that S&Q forgave the debts some of our "affiliates" may have owed S&Q. Specifically, the Complaint alleged our officer, Daryl Dollinger and the other defendants caused or benefitted from the distribution of the entire proceeds from the sale of the S&Q assets, thereby leaving no assets available to pay S&Q's creditors nor receivables that could be collected to pay S&Q's creditors. The lawsuit further claimed Martin Sprock authorized Daryl Dollinger to make wrongful distributions of the proceeds from the S&Q sale to RBI, Mr. Sprock, and other defendants. The lawsuit sought to recover the transfers made to ten defendants, on the grounds that the defendants did not take such amounts for value or in good faith. The lawsuit also sought to make Mr. Sprock personally liable for the amount of any "excess" in the distribution made to him. The Complaint further demanded that property be turned over to the bankruptcy estate by companies with which Mr. Dollinger was formerly affiliated and the other defendants.
Source: Item 3 — LITIGATION (FDD pages 9–11)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, The S&Q Shack, LLC, an affiliate, was sold to Edmonds Capital Fund I, LLC. This information comes from a description of litigation in 2012 involving fraudulent transfers related to the sale. The lawsuit claimed that the sale of The S&Q Shack, LLC, resulted in insufficient assets to pay the company's creditors.
The litigation also alleged that certain officers, including Daryl Dollinger, and directors benefited from the distribution of the sale proceeds, leaving no assets to pay creditors. The lawsuit sought to recover transfers from ten defendants, alleging they did not provide value or act in good faith. Additionally, Martin Sprock was alleged to have authorized wrongful distributions of the sale proceeds.
For a prospective Cinnaholic franchisee, this information highlights the importance of understanding the franchisor's past business dealings and any associated legal issues. While the litigation was settled in 2017, it demonstrates the potential risks involved in franchise operations and the importance of due diligence when evaluating a franchise opportunity. It is essential to review the litigation history in the FDD and seek clarification from the franchisor regarding any potential impact on the franchise system.