Friendly’s: Litigation & Risk
Full-Service Restaurants · FDD Items 3, 4 & 5
Elevated Risk
2 cases disclosed in FDD Items 3 and 4. Bankruptcy disclosed in Item 4.
FDD Items 3 & 4
Litigation Metrics
- Cases disclosed
- 2
- Total from FDD Items 3 and 4
- Bankruptcy (Item 4)
- Disclosed
- Franchisor or officer bankruptcy
- Verdict score
- 58 / 100
- FranchiseVerdict composite · higher is better
- Rating
- B
- A / B / C / D / F verdict grade
7(a) FOIA data · FY2020–present
SBA Loan Performance
Aggregated from public SBA 7(a) loan disclosures. Charge-off rate is the share of loans that were charged off or settled for less than the full balance.
- Total 7(a) loans
- 37
- Government-backed loans issued
- Charge-off rate
- 6.5%
- vs 16% franchise average
- 5-yr charge-off rate
- N/A
- Defaults
- 2 loans
- Loans charged off or defaulted
- Total loan volume
- $25.5M
- Avg loan size
- $689K
- Participating lenders
- 16
FDD Items 5, 6 & 17: What You Give Up
Contract Risk Indicators
- Mandatory arbitration
- Not required
- You retain the right to sue in court
- Jury trial waiver
- Not waived
- 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
- TX
- State whose law governs disputes. Relevant if you're not based there
Extracted from FDD Item 3
Litigation Detail
1. Franchisor vs. J&B Restaurant Partners et al (Index No. 650080/2023): Settled July 2023 after franchise terminations and declaratory judgment action regarding lease assignments and collateral. 2. SEC v. Sherif Mityas (12-cv-1281): CEO consented to Final Judgment in 2012 for securities violation (Rule 10b-5).
What drove the 58/100 verdict
Risk Score Breakdown
- 01MEDSignificant unit contraction: 95 units represents declining system with only 9.3% YoY growth, suggesting maturity or decline phase
- 02MINORNo financial disclosure: Franchisor does not disclose Item 19 (average unit volumes or net income), making ROI analysis impossible
- 03MEDHigh initial investment ($1.1M–$2.7M) paired with undisclosed profitability creates asymmetric risk
- 04HIGHLitigation history including asset/lease disputes with franchisees and SEC judgment against CEO raises governance concerns
- 05HIGHGoing concern status is False, indicating potential balance sheet or operational sustainability issues
- 06MINOR6% royalty on net sales with high capex requirements typical of casual dining creates margin pressure in low-AUV environments
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.