GLOSSARY
FDD Item 3 (Litigation)
Item 3 is the FDD section where a franchisor must disclose material litigation — including lawsuits brought by its own franchisees and actions by regulators.
Item 3 lists pending and recent material legal actions involving the franchisor, its predecessors, and key officers: fraud claims, franchise-law violations, and — most tellingly — suits between the franchisor and its franchisees. A pattern of franchisee-initiated litigation is one of the strongest red flags a filing can contain, because it means the people who bought the system concluded that courts were their best remaining option.
Read it in both directions: franchisors also sue franchisees (usually over fees or termination), and heavy franchisor-initiated litigation can signal an enforcement-first culture you would be signing into.
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