FDD Items 3 & 4 · 2022 filing
System4 litigation history
What System4 disclosed about lawsuits, arbitrations and bankruptcy in the 2022 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
- 12
- Item 3, as counted in the filing
- Largest disclosed settlement
- $79K
- As stated in Item 3
- Bankruptcy (Item 4)
- None
- Franchisor, parent, predecessor or officer
- Filing year
- 2022
- Disclosures cover the prior ten years
Extracted from the 2022 Franchise Disclosure Document
Item 3: litigation
Two concluded cases involving System4, LLC: (1) Edson Teles Machado, et al v. System4, LLC and Master Franchisee NECCS, Inc. - purported class action in Norfolk County Massachusetts Superior Court (Civil Action No. 10-00555) alleging breach of franchise agreements, fraud, and employee misclassification. Massachusetts SJC ruled arbitration clause enforceable on April 13, 2015. Case dismissed by AAA on September 14, 2017. (2) Luis Ribeiro v. System4, LLC - AAA arbitration (Case No. 01-15-0003-8637) commenced June 12, 2015. Arbitrator found System4 liable for misclassification on August 23, 2016. Final Award of $78,558.77 issued February 17, 2017. System4 filed Application to Vacate Arbitration Award in U.S. District Court for District of Massachusetts (Civil Action No. 1:17-cv-10455) on March 17, 2017.
Disclosure signals that moved the score
How this shows up in the verdict
- 12 litigation matters in a 55-unit system (high relative load)
- Misclassification/fraud arbitrations + state securities matter
- No bankruptcy or going-concern; Item 19 disclosed
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?