What was the significance of the settlement agreement executed by the parties 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 settlement agreement was executed to resolve a lawsuit involving Cinnaholic's affiliate, The S&Q Shack, LLC. The original lawsuit, filed in 2012, alleged fraudulent transfers and wrongful distributions related to the sale of The S&Q Shack, LLC. The suit claimed that Cinnaholic's officer, Daryl Dollinger, and other defendants improperly distributed proceeds from the sale, leaving no assets to pay the affiliate's creditors. The lawsuit sought to recover transfers from ten defendants, arguing they did not provide value or act in good faith, and aimed to hold Martin Sprock personally liable for any excess distributions he received.
The defendants, including Mr. Dollinger, contested the allegations, citing material inaccuracies and substantial defenses. The adversary proceeding was put on hold until the bankruptcy court determined the allowed claim amount of BV Retail, the remaining creditor in the bankruptcy cases of RBI and S&Q. In November 2016, the parties, excluding Brand and Hollingsworth, reached a global resolution through mediation.
The settlement agreement was finalized in 2017, with Mr. Sprock paying $310,000 and Mr. Seydel paying $90,000 to the debtor through the Trustee. The Bankruptcy Court approved the settlement, and mutual general releases were issued among all parties. This resolution effectively concluded the litigation, providing closure and preventing further legal expenses for Cinnaholic and its affiliates. For a prospective franchisee, this indicates that Cinnaholic has faced and resolved significant legal challenges in the past, which could provide insight into the company's risk management and legal strategies.