What was the outcome of the allegations against Daryl Dollinger and other defendants in the lawsuit involving Cinnaholic's affiliate, The S&Q Shack, LLC?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
- Filed August 24, 2012.*
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.
Mr. Dollinger and the other defendants investigated the allegations, and believed there are material inaccuracies in the Complaint and that substantial defenses existed. This adversary proceeding was stayed pending completion of litigation in the underlying bankruptcy cases of RBI and S&Q over the allowed amount of the claim of BV Retail, the sole remaining creditor in those cases. After the amount of the claim was adjudicated by the bankruptcy court, the Bankrupt Estate, the trustee, BV Retail and all of the defendants (except for Brand and Hollingsworth) successfully mediated the claims to a global resolution in November 2016. The parties subsequently executed a settlement agreement and an order approving settlement and dismissing this proceeding followed in 2017. This case and the one described below were settled jointly upon payment to debtor (through the Trustee) of the sums of $310,000 paid by Mr. Sprock and $90,000 paid by Mr. Seydel. This settlement was approved by the Bankruptcy Court and mutual general releases were enter
Source: Item 3 — LITIGATION (FDD pages 9–11)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, a lawsuit was filed in 2012 against Daryl Dollinger and other defendants, including certain affiliates, officers, and directors of Cinnaholic, related to The S&Q Shack, LLC. The lawsuit alleged fraudulent transfers, constructively fraudulent transfers, and wrongful distributions connected to the sale of The S&Q Shack, LLC. It claimed that Dollinger and other defendants benefited from the distribution of proceeds from the sale of S&Q assets, leaving no assets to pay S&Q's creditors. The suit sought to recover transfers from ten defendants, alleging they did not take the amounts in good faith or for value, and sought to make Martin Sprock personally liable for any excess distribution he received. The complaint also demanded the return of property to the bankruptcy estate by companies affiliated with Dollinger and other defendants.
The defendants, including Dollinger, investigated the allegations and believed there were material inaccuracies and substantial defenses. The adversary proceeding was put on hold until litigation in the underlying bankruptcy cases of RBI and S&Q was completed regarding the claim amount of BV Retail, the remaining creditor. In November 2016, the Bankrupt Estate, the trustee, BV Retail, and all defendants except Brand and Hollingsworth successfully mediated the claims to a global resolution.
In 2017, the parties executed a settlement agreement, and an order approving the settlement and dismissing the proceeding followed. The case was settled jointly with another case upon payments of $310,000 by Mr. Sprock and $90,000 by Mr. Seydel to the debtor through the Trustee. The Bankruptcy Court approved this settlement, and mutual general releases were entered into among all parties. This concluded the litigation against Daryl Dollinger and the other defendants related to The S&Q Shack, LLC.