I Heart Mac & Cheese misrepresented its startup and operational costs, labor requirements and other aspects of the business in violation of the Indiana Franchise Act, the state’s securities division alleged in a complaint filed against the Florida-based franchise.
The Indiana Securities Division accused Mac and Cheese Franchise Operations, the parent company of I Heart Mac & Cheese, and several executives of violating franchise regulations as it sold a “lossmaking business model” to investors across the state. MACFO, the state said, sold 16 restaurant franchises to at least seven Indiana investors. All those stores either closed or failed to open, and “many franchisees lost significant amounts of money trying to keep their locations operating,” the state said.
The administrative complaint, filed January 26 and announced April 9, comes after Indiana last year banned I Heart Mac & Cheese from selling franchises in the state. In that cease-and-desist order in May 2023, the state noted significant deficiencies in the company’s franchise disclosure document, including failure to disclose CEO Stephen Giordanella’s involvement with “failed chain” Cabo Flats and that he was named as a respondent in a handful of lawsuits related to that chain. Overall, the state listed 44 deficiencies in the documents dating from 2018 to 2022.
MACFO claimed the I Heart Mac & Cheese model was a restaurant business with “low startup costs that required little prior business experience and a handful of employees to sell pre-made, frozen food,” the state said in its recent action. Franchisees, however, faced ongoing problems related to misrepresented costs and “a general lack of support.”
MACFO also threatened to sue struggling franchisees, the state said, and because of failure to disclose other information such as prior lawsuits, it didn’t properly detail risks associated with the franchise. And in an effort to sell more locations in Indiana, the company “misrepresented the profitability of the franchise and demand for locations.”
I Heart Mac & Cheese sells customizable macaroni and cheese bowls, along with grilled cheese sandwiches and other items. It lists 36 restaurants open in 17 states.
I Heart Mac & Cheese sells customizable macaroni and cheese bowls and opened its first location in Florida in 2016; it began franchising in 2017. Kevin Ayers, MACFO’s vice president and general counsel, said in an email the Indiana Securities Division’s allegations involve “technical reporting violations.”
“MACFO denies any intentional wrongdoing and intends to vigorously defend its rights,” Ayers wrote.
In its complaint, the state described the sale of I Heart Mac and Cheese franchises to investors “M.G.” and “E.G.,” who signed an agreement in July 2019 for three locations and in 2020 signed agreements for five additional units. The agreements for the additional stores followed misrepresentations by Vice President of Franchise Development Joseph Amodio, who the state alleges told M.G. a proposed location in downtown Indianapolis would be a “million-dollar store.”
Construction costs, meanwhile, which were estimated at the high end in the 2019 FDD at $248,500, came in at more than $359,200 for M.G.’s restaurant in Westfield, according to the complaint. That unit opened in June 2020 and closed in August 2022. The downtown Indianapolis location opened in January 2021 and closed in June 2022.
“Given the operational demands and limited income from their IHMC locations, M.G. and E.G. could only afford to open two of their eight franchised IHMC locations,” the complaint stated. It further details higher than expected food and labor costs, similar misrepresentations made to six other investors, and poor product quality, including a proprietary cheese sauce that generated complaints from customers.
The state is requesting that MACFO and several executives named—including Giordanella, Amodio, Director of Finance Delia Valles and Director of Operations Max Gonzalez—pay restitution to investors, return franchise fees and be permanently barred from registering I Heart Mac & Cheese or any other franchise in Indiana.
California in March also cited I Heart Mac & Cheese for a variety of similar violations. The state’s Department of Financial Protection and Innovation fined the company $43,000 for disclosure violations in its franchise documents and, through a consent order, will require the monitoring of its franchise sales activity for three years. Among the violations noted were failure to disclose litigation and lawsuit settlements.
Franchise Times first reported on mounting complaints from I Heart Mac & Cheese franchisees in 2020. Many operators failed to open their restaurants, while those who did often struggled. The brand’s website lists 36 open locations spread across 17 states.
Josh Brown, a partner at Indianapolis law firm Taft Stettinius & Hollister, represents two of the Indiana investors, M.G. and E.G. They are “hardworking people,” he said. “My clients, these are their retirement funds and they put everything they had into this system.”
Brown said it is “very uncommon” for the state to file such an action against a franchise. “I think that speaks to the seriousness of this situation,” he said. Brown is also in discussions with additional former franchisees with the aim of obtaining restitution through a final order from the Indiana Securities Commissioner.