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 (litigation) & 4 (bankruptcy) at a glance

What the filing discloses

Cases disclosed: 12; Item 3, as counted in the filing

Largest settlement, franchisor's own cases: None stated

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.

Item 3 (litigation) · 12 matters disclosed

Litigation cases

The franchisor

Concluded (11)

Luis Ribeiro v. System4, LLC
judgment
Brought by a franchisee · filed 2015-06-12 · American Arbitration Association · 01-15-0003-8637
“… American Arbitration Association. Case No. 01-15-0003-8637, an arbitration proceeding commenced on June 12, 2015.The Claimant alleged that he was a putative class member in the Machado case and was asserting his claims in arbitration by reason of the April 13, 2015 decision of the SJC.”Page 9 of the 2022 FDD, Item 3
Outcome: “The motion to vacate was denied, and System4 paid the award of $78,558.77. Marilinda Cruz v System4, LLC, American Mediation Association, (No Case Number Assigned), pending as of March 25, 2016.”
Edson Teles Machado, et al v. System4, LLC, et al
dismissed
Brought by a franchisee · filed 2010 · Norfolk County Massachusetts Superior Court · Civil Action No. 10-00555
“… Norfolk County Massachusetts Superior Court, Civil Action No. 10-00555, styled as a purported class action complaint against System4, LLC”Page 8 of the 2022 FDD, Item 3
Outcome: “The case was dismissed by the AAA on September 14, 2017. Luis Ribeiro v. System4, LLC, American Arbitration Association.” (page 9)
In The Matter of System4, LLC
concluded
Government or regulatory action · filed 2007 · Securities Commissioner of Maryland · 2007-0235
“… Administrative Proceeding before the Securities Commissioner of Maryland, Case No. 2007-0235.”Page 10 of the 2022 FDD, Item 3
Outcome: “On May 30, 2007, the Commissioner and System4 agreed to enter into a consent order whereby System4, without admitting or denying any violations of the law, agreed to: immediately cease from the offer and sale of Master franchises in the State of the Maryland; amend its franchise offering in”
Amarido Luis Arujo v System4, LLC
concluded
American Mediation Association
“… American Mediation Association, (No Case Number Assigned), pending as of March 25, 2016.”Page 10 of the 2022 FDD, Item 3
George Lopez v System4, LLC
concluded
American Mediation Association
“… American Mediation Association, (No Case Number Assigned), pending as of March 25, 2016. The AAA closed this case on September 14, 2017.”Page 10 of the 2022 FDD, Item 3
Glaucia Santos and Luiz Carlos Santos v System4, LLC
concluded
American Mediation Association
“… American Mediation Association, (No Case Number Assigned), pending as of March 25, 2016.”Page 10 of the 2022 FDD, Item 3
Helio De Oliveira and Rosani De Oliveira v System4, LLC
concluded
American Mediation Association
“… American Mediation Association, (No Case Number Assigned), pending as of March 25, 2016.”Page 10 of the 2022 FDD, Item 3
Iracema Tramontim v System4, LLC
concluded
American Mediation Association
“… American Mediation Association, (No Case Number Assigned), pending as of March 25, 2016.”Page 10 of the 2022 FDD, Item 3
Juan Carlos Martinez v System4, LLC
concluded
American Mediation Association
“… American Mediation Association, (No Case Number Assigned), pending as of March 25, 2016.”Page 10 of the 2022 FDD, Item 3
Petter Bruno De Souza v System4, LLC
concluded
American Mediation Association
“… American Mediation Association, (No Case Number Assigned), pending as of March 25, 2016.”Page 10 of the 2022 FDD, Item 3
Poliane Santos and Stenio Ferreira v System4, LLC
concluded
American Mediation Association
“… American Mediation Association, (No Case Number Assigned), pending as of March 25, 2016.”Page 10 of the 2022 FDD, Item 3

Status not stated in the filing (1)

Marilinda Cruz v System4, LLC
American Mediation Association
“… American Mediation Association, (No Case Number Assigned), pending as of March 25, 2016. The Claimant's allegations were substantially similar to those alleged in”Page 9 of the 2022 FDD, Item 3

Item 3 lists the litigation the franchisor must disclose; a matter against a parent, an affiliate or a named officer is not a matter against the franchisor, and pending claims are allegations, not findings.

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?

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