Who was sought to be held personally liable for any 'excess' in the distribution made to him 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, in a 2012 lawsuit involving Cinnaholic's affiliate, The S&Q Shack, LLC, the lawsuit sought to make Martin Sprock personally liable for the amount of any "excess" in the distribution made to him. The lawsuit alleged wrongful distributions of proceeds from the sale of S&Q assets, leaving no assets to pay S&Q's creditors. The suit claimed Sprock authorized Daryl Dollinger to make these wrongful distributions to RBI, Sprock, and other defendants.
The lawsuit sought to recover transfers made to ten defendants, alleging they did not take the amounts for value or in good faith. The complaint demanded that property be turned over to the bankruptcy estate by companies affiliated with Dollinger and other defendants.
In November 2016, the parties successfully mediated the claims to a global resolution, excluding Brand and Hollingsworth. A settlement agreement was executed, and in 2017, an order approving the settlement and dismissing the proceeding was issued. The case was settled jointly with another case upon payments of $310,000 by Sprock and $90,000 by Seydel. The Bankruptcy Court approved the settlement, and mutual general releases were entered into among all parties.