The Relationship History Founded in 2016, I Heart Mac and Cheese was a U.S. "fast-casual restaurant concept specializing in customizable, made to order macaroni and cheese bowls and grilled cheese sandwiches" (4). Stephen Giordanella, CEO of MCFG as well as the Mac and Cheese Franchise Operations (MCFO) stated "It's a very inexpensive franchise to get into. It's created for the family that may have a little equity in their home, where they could take out a second mortgage, and get into their own business and control their own destiny as a family" (6). Entrepreneur Magazine named the concept a "top new franchise" in 2019, and USA Today placed it in the "10 best fast-casual restaurants" in 2020 (6). Each prospective franchisee paid a nonrefundable $35,000 franchise fee and, upon opening, continued to pay the franchisor through a percentage of gross sales comprised of 5% royalty fees, up to 3% brand fund contributions, and at least 1% local advertising fees (4). The franchise agreement was for ten years with a renewal option which could be negated by either party. Prospective franchisees needed to show liquid capital of $75,000, secure a location, and obtain financing to cover a total investment that ranged from $251,000 to $464,500 based on the geographical location (6). The franchisor stated in 2020 that it had signed franchise agreements for 100 units to date (1); however, as of mid-October only 13 locations (five company-owned and eight franchised) were in operation. Many franchisees had yet to secure financing or acceptable storefront locations (6). On April 9, 2019, Torres and Attardo purchased two existing I Heart Mac and Cheese restaurants in New York that were previously owned and operated by MCFG. Torres and Attardo agreed to a purchase price of $463,167 for the Patchague location and $306,088 for the Bayside location. After the initial down payments, they signed two promissory notes (i.e. a type of loan agreement) with MCFG for the remaining purchase price balances of $231,583 and $230,838, respectively. The two locations came fully furnished with existing "furniture, fixtures, cooking, cooling andheating equipment, computer equipment, inventory, televisions, monitors, ooring, wall coverings, decor components, computer hardware, other tangible property... sales and promotional literature, client lists, and other marketing or service-related materials\" (5). Torres and Attando appeared successful with their locations until the I'Covid-lgI pandemic struck the New York City metropolitan area in early March 2020. The state became the U.S. epicenter of the disease, and all indoor dining was shutdown statewide (7). Both locations remained temporarily closed throughout the summer. On April 1, they failed to pay their required monthly promissory payments of $4,585 for Patchague and $2,350 for Bayside, and on May 1, they made a partial payment for Patchague and no payment for Bayside. MCFG then agreed to accept half payments from the Patchague location of $2,292 for April and May, deferring the remaining amount across the last six months of the year; for Bayside, MCFG agreed to defer the two months of missed payments across the next four months (5). However, Torres and Attardo again failed to make the full renegotiated payment amounts for both locations. Payment ceased in August for Bayside, and they permanently closed the location. Closure of Patchague followed in September, and payment stopped. In total, for both stores, $37,413 was past due by October [5). Decision Time for Torres The lawsuit included copies of the purchase agreements, promissory notes, and a chain of six emails (shown in Table 1 below) involving Torres and eight other individuals (most unnamed) about formatting a letter of intent for a franchisee (5). The last email was the focus of MCFG's claims of libel, defamation, and tortious interference in a business relationship. MCFG asserted Torres also made false and defamatory oral statements, but provided no supporting evidence. Table 1: Email Chain - Re: IHeartMac&Cheese - LOI template for California franchisee August 20, 2020 1. At 3:32 p.m. - Whitney Dutton, a real estate advisor based in Florida wrote: "Funny, I just got a draft of mine today for a site we are submitting on. Once I get the final draft back I'll share it with the group." 2. At 3:36 p.m. - Brandi Taylor replied: "Here is my first one before we renegotiated terms. You can use it as a template." 3. At 3:39 p.m. - Whitney Dutton wrote: "Has anyone negotiated any interest or perks for us since COVID? 4. At 5:28 p.m. - Elizabeth Torres replied: "From corporate nothing was granted as relief... my landlords did however offer a reduction in rent and are allowing me time to catch up but not all my locations are surviving this. We are still struggling hard in NY" September 11, 2020 5. At 7:14 a.m. - Whitney Dutton wrote: "We are close to coming to agreement with landlord. Here is the basis of our LOI [Letter of Intent] negotiations. Anyone seeing anything else to creative that I should be asking for?" September 28, 2020 6. At 12:36 p.m. - Elizabeth Torres replied: "If you can get out I would advise you DO NOT move forward. I have to close my two NY locations and there is not a way to make money on these with the franchise fees and food costs rising... this is a scam and lawsuits are pending against corporate" There was a growing number of franchisee disputes (2). Genevieve Prieto closed her Oklahoma location in 2018 within 8 months of opening (1). She accused the franchisor of selling an unprofitable business concept. Her lawsuit included a claim of illegal financial performance representation; she was told sales in the Florida flagship restaurant were $700,000, but documents revealed sales of less than $300,000 (3). Kim Grotz and her husband opened a location in Georgia in 2019, but it closed in 5 months (6). Their lawsuit accused the franchisorMarketing Channel Concepts Chapter 1 1. From the Flows section a. Product b. Negotiation c. Ownership d. Information e. Promotion 2. Distribution tasks of Manufacturers Chapter 2 3. From the Types of Wholesalers section a. Merchant b. Company Owned c. Agent or broker 4. Distribution tasks of Wholesalers 5. Types of retailers (see handout) 6. Power retailers 7. Distribution tasks of Retailers Chapter 3 1. From the Macro-Economic Environment section a. Recession b. Inflation c. Deflation d. Federal budget deficit c. National debt f. Trade deficit g. Interest rates . Value of U.S. dollar 2. From the Competitive Environment section a. Horizontal competition b. Intertype competition c. Vertical competition d. Channel system competition 3. From the Sociocultural Environment section a. Changing consumer behavior Defined as adaptations in the mental, emotional, & physical activities that people engage in when selecting, purchasing, using, and disposing of products & services so as to satisfy needs and desires. b. Globalization c. Mobility and connectedness d. Social networking c. The green movementof using equipment that she leased from a third party in the now reopened company unit. Gordanella expressed some empathy but blamed the franchisees, stating "I feel terrible for people who aren't successful. It's like any business. You have to work it hard" (6) Regardless, dozens of prospective franchisees, such as Vinny Greco in Hauppauge, New York, continued to sign up in 2020, willing to take the risk despite the lawsuits. Greco stated that "We're willing right now to take a one-store gamble" (2). Given the MCFG's accusations of false and defamatory statements, business interference, and loan default against Torres, she joined the legal battles list for the first time. To respond to the lawsuit, should she mount a defense, seek a settlement, or file for dismissal? References (1) Ewen, B. (2020a, October 14). Operators mount complaints against I Heart Mac & Cheese. Franchise Times. https://www.franchisetimes.com/franchise_news/ operators- mount-complaints-against-i-heart-mac-cheese/article_b784fe94-0e35-1leb-8843- 5fe151853dc2.html (2) Ewen, B. (2020b, October 29). I Heart Mac & Cheese sues NY franchisee for slander. Franchise Times. https://www.franchisetimes.com/franchise_news/i-heart-mac-cheese- sues-ny-franchisee-for-slander/article_915c04d4-1a28-1leb-9736-4f76020f83ba.html (3) Ewen, B. (2020c, December 29). I Hear Mac & Cheese 'Full Speed Ahead' Despite Critics, Says CEO. Franchise Times. https://www.franchisetimes.com/franchise insights/i-heart-mac-cheese-full-speed-ahead-despite-critics-says-ceo/article_98ble868- 452d-1 leb-9ffa-3fe7fb78cba2.html (4) I Heart Mac & Cheese. (n.d.). Franchise. https://www.iheartmacandcheese.com/franchise/ (5) Mac and Cheese Franchise Group, LLC v Elizabeth Torres and Cory Attardo (2020, October 8). 9:20-cv-82048-DMM. U.S. District Court Southern District of Florida. https://www.pacer.gov. (6) Maze, J. (2020, October 16). For I Heart Mac & Cheese, growth isn't what it appears. Restaurant Business. https://www.restaurantbusinessonline.com/ financing/i-heart-mac- cheese-growth-isnt-what-it-appears. (7) Sutton, R. (2020, March 16). Cuomo announces tri-state restaurant and bar shutdown starting monday night. Eater New York. https:/y.eater.com/2020/3/15/ 21 180713/restaurant-bar-shutdown-nyc-coronavirus.4. From the Legal Environment section - Legal Issues a. Dual distribution b. Exclusive dealing c. Full-line forcing d. Price discrimination e. Price maintenance f. Refusal to sell to (Deal) g. Resale restrictions h. Tying agreements i. Vertical integration 5. From the Technological Environment section a. Changing product technology Defined as adaptations in the technical skills & equipment that affect the way an economy's resources are converted to output (products & services). b. Digital revolution c. Electronic Data Interchange d. RFID Chapter VMS (Governing Structures) 1. Conventional channel 2. Vertical marketing systems Administered channel b. Contractual channel - Franchising i. Product/Tradename franchising ii. Business Format franchising c. Corporate channel Chapter 4 1. From the Conflict section a. Role incongruit b. Resource scarcities c. Perceptual differences d. Expectation differences e. Decision domain disagreements f. Goal incompatibilityes g. Communication difficulties 3. From the Power section a. Reward b. Coercive C. Legitimate - based on Corporate Ownership d. Legitimate - based on Franchise Contract c. Legitimate - based on a Legal Issue (see Chapter 3) f. Referent g. ExpertQuestions Based on the attached case, please complete the following questions: l. Diagram the marketing channel for I Heart Mac &. Cheese. Identify all types and examples of relevant channel members in your diagram. Identify all external environmental factors that are depicted in this scenario. Give evidence to support your claims. Identify all governing structures that exist in the relationships between the various types of channel members in the case. You must account for all relationships at each level of the channel. Be specic and provide evidence to support your conclusions. Identify and discuss the categories of causes of conict between MCFG and Elizabeth Torres depicted in this scenario. Give evidence to support your claims. Part A. Identify and discuss the bases of power between MCFA and Elizabeth Torres depicted in this scenario. Give evidence to support your claims. Part B. To respond to the lawsuit, should Elizabeth Torres: 3) mount a defense, b) seek a settlement, or c) le for dismissal? What course of action would you recommend for Torres to take and why? No Love for Mac & Cheese Introduction Elizabeth Torres glared at the documents from the Phillips, Cantor and Shalek law rm. She had stated in an email to several individuals that I Heart Mac & Cheese was a scam. The Mac and Cheese Franchise Group (MCFG), owner of the I Heart Mac & Cheese restaurant concept, had sued her for loss of reputation and goodwill and asked for unspecied monetary damages (2). The company also pursued payment from Torres and her partner, Cory Attardo, for loan default involving their two closed I Heart Mac and Cheese franchised locations (5). She had 20 days to respond