FDD Items 3 & 4 · 2026 filing
Koala Insulation litigation history
What Koala Insulation disclosed about lawsuits, arbitrations and bankruptcy in the 2026 Franchise Disclosure Document. Item 3 lists the material legal actions a franchisor must report; Item 4 covers bankruptcy. This is the franchisor's own disclosure, not a court record, and not legal advice.
Items 3 & 4 at a glance
What the filing discloses
- Cases disclosed
- 2
- Item 3, as counted in the filing
- Largest disclosed settlement
- None stated
- Bankruptcy (Item 4)
- None
- Franchisor, parent, predecessor or officer
- Filing year
- 2026
- Disclosures cover the prior ten years
Extracted from the 2026 Franchise Disclosure Document
Item 3: litigation
1) Salim Makhlouf and Lotus & The Rooster Holdings Company v. Koala Insulation Franchisor LLC (AAA Case 01-25-0003-1584) - arbitration alleging misrepresentations and failure to provide training; company filed counterclaims. 2) Koala Insulation Franchisor LLC v. Lotus & The Rooster Holdings Company and Salim Makhlouf (No. 1:25-cv-01008 M.D. Pa.) - enforcement of restrictive covenants and post-term obligations.
Disclosure signals that moved the score
How this shows up in the verdict
- Active litigation with founder-level stakeholder (Salim Makhlouf/Lotus & The Rooster) alleging misrepresentation and inadequate training—suggests systemic franchisor issues
- Going Concern status is FALSE, raising questions about franchisor financial viability and ability to support franchisees
The verdict grade is FranchiseVerdict's editorial assessment across SBA loan performance, unit growth, revenue and disclosure signals. It is not investment advice.
Before you weigh a lawsuit
How to read Item 3
A franchisor must disclose pending actions and any material civil action involving the franchise relationship, plus convictions or civil judgments for fraud, unfair or deceptive practices, or franchise-law violations, going back ten years. A case the franchisor brought against a franchisee counts too. Item 3 does not include every dispute: settled claims below the materiality line and matters resolved in private arbitration can be absent.
Questions worth asking current and former franchisees, using the contact list in Item 20:
- Were you, or anyone you know in the system, party to a dispute with the franchisor?
- Was it resolved by settlement, arbitration or a court, and on what terms?
- Has the number of disputes gone up or down since you signed?