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B56/100FDD 2024

Clozetivity — Litigation & Risk

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Elevated Risk

19 cases disclosed in FDD Items 3 and 4.

Source: FDD Items 3–5

FDD Items 3 & 4

Litigation Metrics

Cases disclosed
19
Total from FDD Items 3 and 4
Bankruptcy (Item 4)
—
Franchisor or officer bankruptcy
Overall risk score
56 / 100
FranchiseVerdict composite
Rating
MODERATE
STRONG / MODERATE / CAUTION / AVOID

FDD Items 5, 6 & 17 — what you give up

Contract Risk Indicators

Mandatory arbitration
Required
Disputes resolved outside court — limits your legal options
Jury trial waiver
Waived
You give up the right to a jury trial
Non-compete
2 yrs
Post-termination restriction on similar businesses
Franchisor can compete
Yes
Franchisor can open competing locations in or near your territory
Right of first refusal
Yes
Franchisor can match any purchase offer when you try to sell
Governing law
New Jersey
State whose law governs disputes — relevant if you're not based there

What drove the 56/100 rating

Risk Score Breakdown

  1. 01HIGHCEO has 1999 criminal conviction for credit card fraud, raising integrity concerns for a cash-based closet organization business
  2. 02HIGHMultiple ongoing lawsuits involving breach of duty, fraud, and registration violations across Clozetivity and affiliated brands (Frost Shades, Dryer Vent Squad, Patch Boys) suggest systemic corporate governance issues
  3. 03MEDNet income not disclosed despite $512k average revenue claim — inability or unwillingness to provide profitability data is a major transparency red flag
  4. 04MEDEscalating royalty structure ($400→$2,000/month by year 4) combined with undisclosed net income makes ROI calculation impossible and suggests revenue extraction model
  5. 05HIGHGoing Concern = False indicates potential financial instability at corporate level despite 119.2% YoY unit growth (which may reflect aggressive recruiting masking unit attrition)
  6. 06HIGHLitigation involves both franchisees AND affiliated brands, suggesting pattern of disputes with business partners; claims include registration violations (FTC compliance risk)
  7. 07MINORHigh franchise fee ($39k) + escalating royalties on unknown profitability = aggressive capital extraction with asymmetric information favoring franchisor

Severity inferred from FDD text — not a regulatory or legal classification

Litigation data from FDD Items 3, 4, and 5. SBA data from public 7(a) FOIA records (FY2020–present). Not legal advice — consult a franchise attorney before signing any franchise agreement.