1851

When it comes to determining which business ownership opportunity is the right one for you, there are no shortage of factors designed to help you make the best possible choice. But the Franchise Disclosure Document&mdash;or FDD&mdash;is one of the most valuable tools at your disposal.

Every brand&rsquo;s FDD contains 23 categories that are designed to break down their franchise concepts. And Item 3, the section highlighting a brand&rsquo;s litigation history, is not one that prospective candidates want to ignore. By highlighting the current legal battles that a brand is currently facing, aspiring local owners have the opportunity to see any potential problems that could arise with a concept down the road. However, it&rsquo;s important for potential franchisees to take context into consideration when examining a brand&rsquo;s legal history.

&ldquo;The litigation history of a brand can be very telling about a franchise system. But it&rsquo;s not always a bad thing. That&rsquo;s why it&rsquo;s important for prospective franchisees to have a full understanding of the type of litigation that a brand has been engaged in,&rdquo; said Amy Cheng, founding partner of <a href="http://www.chengcohen.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=understanding-item-3-of-the-franchise-disclosure-document-litigation-history-2703061" target="_blank" rel="nofollow" target="_blank">Cheng Cohen LLC</a>. &ldquo;Some systems are willing to spend money on litigation to ensure that their franchisees are complying with their system&rsquo;s standards. Others have been sued by their franchisees. Those are two different scenarios, and it&rsquo;s important to be able to separate the two from one another to determine what they could mean for the brand down the line.&rdquo;

For example, it&rsquo;s possible for franchisors to be facing baseless allegations from their existing or former franchisees. That&rsquo;s not something that should block a candidate from moving forward with a brand, highlighting why it&rsquo;s essential for prospective owners to do their research on the surrounding factors of a specific legal case.

&ldquo;Baseless allegations are made against franchisors all the time. That&rsquo;s not to say that all allegations are without merit, but it does mean that candidates need to do their due diligence to figure out what&rsquo;s real versus what&rsquo;s an anomaly,&rdquo; said Cohen. &ldquo;For example, if a franchisor was sued by one of their franchisees for not providing an adequate amount of support, a candidate should talk to other owners in the system to see if there are other franchisees who feel the same way.&rdquo;

Ardag Tachian, director of franchise recruitment at Hungry Howie&rsquo;s Pizza, agrees. He notes that it&rsquo;s critical for candidates to thoroughly review a brand&rsquo;s Item 3 to see if there are any legal patterns that would possibly be a red flag.

&ldquo;Item 3 of the FDD is extremely important because it highlights any litigation that may be current with a franchisor. Sometimes litigation is just the cost of doing business and may be unavoidable. But it would behoove a would-be franchisee to look into a brand&rsquo;s history to see if there is any sort of pattern that they can draw from,&rdquo; said Tachian.

Ultimately, Item 3 of FDDs are designed to provide an overview of a brand&rsquo;s litigation history&mdash;they don&rsquo;t serve as a comprehensive list detailing every case that&rsquo;s ever been made by or against a concept. That&rsquo;s why when going through the due diligence process, you should use Item 3 as a starting point to dig deeper into a brand&rsquo;s full legal presence.

&ldquo;At the end of the day, Item 3 of the FDD provides prospective franchisees with an overview of a brand&rsquo;s specific litigation history. But it isn&rsquo;t enough for candidates to limit their knowledge on the topic to what&rsquo;s disclosed,&rdquo; said Cohen. &ldquo;Item 3 is meant to give franchisees a heads up about the type of litigation involved with a specific brand. It&rsquo;s then up to prospective owners to use that information to do their own homework.&rdquo;

Understanding Item 3 of the Franchise Disclosure Document: Litigation History

1851 Franchise

While Item 3 allows prospective franchisees to dig into a brand’s legal past, it’s up to them to take the disclosed information and do their homework to differentiate baseless allegations from possible patterns.

understanding-item-3-of-the-franchise-disclosure-document-litigation-history

Keke's Breakfast Cafe

Inside Keke’s Breakfast Cafe’s Hands-On Training System: How the Brand Sets Franchisees Up for Success from Day One

inside-kekes-breakfast-cafes-hands-on-training-system-how-the-brand-sets-franchisees-up-for-success-from-day-one

Caring Transitions

Caring Transitions Ranks No. 358 on the Franchise Times Top 400 List for 2025

caring-transitions-ranks-no-358-on-the-franchise-times-top-400-list-for-2025

TWO MEN AND A TRUCK

TWO MEN AND A TRUCK® Proudly Serves Those Who Serve: Supporting Veterans on the Move and in Business

two-men-and-a-truck-proudly-serves-those-who-serve-supporting-veterans-on-the-move-and-in-business

Building a Caring Transitions Business as a First-Time Entrepreneur

building-a-caring-transitions-business-as-a-first-time-entrepreneur

Local Siblings Launch Caring Transitions of Somerset County to Build Legacy and Serve Seniors with Compassion

local-siblings-launch-caring-transitions-of-somerset-county-to-build-legacy-and-serve-seniors-with-compassion

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Development Website Builder

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

1851 Login

GROWTH CLUB LOGIN

facebook

instagram

twitter

linkedin

youtube

Amazon outage, AWS outage, Amazon AWS logo

The Day the Cloud Stalled: How Amazon's Outage Impacted Franchise Economy

amazon-aws-outage-franchise-impact-travel-dining-failure

Thursday 1851 Franchise Agg - NASAA’s Noncompete Push

NASAA’s Noncompete Push Puts Franchise Growth on Uncertain Ground

franchise-noncompete-nasaa-advisory-reasonableness-standard

How a Steady Economy Could Help Franchisors Plan Their Next Move

how-a-steady-economy-could-help-franchisors-plan-their-next-move

Bed Bath & Beyond - Franchise Expansion - Retail Strategy - 1851 Franchise

Bed Bath & Beyond Launches Franchise Model as Part of Comeback Strategy

bed-bath-beyond-franchise-expansion-retail-strategy

Senior Entrepreneurship - Franchising - 1851 Franchise

Senior Entrepreneurship Is Rising — And Franchising Is a Key Outlet

senior-entrepreneurship-franchising-silver-startups

NJCAR v. Ford - New Jersey Supreme Court Limits Standing Under Franchise Practices Act

New Jersey Supreme Court Limits Standing Under Franchise Practices Act

new-jersey-franchise-practices-act-njcar-v-ford

McDonald’s Is the Latest Franchise To Bet Big on Beverages with 500-Store Premium Drink Test

mcdonalds-is-the-latest-franchise-to-bet-big-on-beverages-with-500-store-premium-drink-test

Health Care Hiring Slowdown Highlights In-Home Care Franchise Opportunities - 1851 Franchise Agg

Health Care Hiring Slowdown Highlights In-Home Care Franchise Opportunities 

health-care-hiring-slowdown-in-home-care-franchise-opportunities

Power Eats: Smoothie King Rolls Out Food Nationwide To Fuel Franchise Growth

smoothie-king-food-menu-power-eats

A Practical Playbook: Who To Call First When Franchising Your Business

franchising-your-business-who-to-call-first

image of jerome hanway from right at home Las Cruces, New Mexico 1851 franchise franchisee spotlight

Jerome Hanway Is Building His Right at Home Franchise Around His Mission To Serve

right-at-home-franchise-las-cruces-jerome-hanway

graphic image of an 1851 franchisee spotlight brayden and johnny steven of teriyaki madness

Father-and-Daughter Team Bring Teriyaki Madness to Wichita, Kansas, With Big Expansion Plans

johnny-brayden-steven-teriyaki-madness-wichita

image of franchise deep dive from 1851 franchise on doody calls franchise authority brands

DoodyCalls Franchise Costs, Fees, Profit and Data for 2025

doodycalls-franchise-deep-dive

photo-of-laynes-chicken-fingers-dalton-dennis-southern-oregon

23-Year-Old Entrepreneur Brings Soon to Be Famous Chicken™ to Southern Oregon With 3-Unit Layne’s Chicken Fingers Franchise Signing

laynes-chicken-fingers-dalton-dennis-southern-oregon

Understanding Item 3 of the Franchise Disclosure Document: Litigation History

MORE STORIES LIKE THIS