What are the implications of the pending litigation involving Bft's parent company, as described in Item 3, for the franchisee's obligations outlined in Item 9?
Bft Franchise · 2025 FDDAnswer from 2025 FDD Document
[Item 3: LITIGATION]
ITEM 3 LITIGATION
Pending Actions Involving Parent, Predecessor or Affiliate
Dance Fitness Michigan LLC, et al. v. AKT Franchise, LLC, et al., filed August 30, 2023 (as amended on November 20, 2023), Superior Court of the State of California, County of Orange, Case No. 30-2023-01345433- CU-AT-CXC (the "AKT Lawsuit"). This action was filed by certain former AKT franchisees and their purported owners after AKT initiated an arbitration against and sought damages from certain of them for breaches of their franchise agreements. In addition to the relief described below, the plaintiffs seek declaratory and injunctive relief to allow them to litigate their claims in this action rather than in the original arbitration proceedings initiated by AKT. In this action, one or more of the following parties: Dance Fitness Michigan LLC, Property Maintenance, Inc., 6pk Mason LLC, 6pk Liberty LLC, Teeny Turner LLC, S2 Fitness Enterprises, LLC, Soros & Associates, LLC, AdEdge Services Inc., Deanna Alfredo, Amanda Davis, Nisha Moeller, Samantha Cox, Suzanne Fischer, Nichole Soros, Michael Soros, Paul Dumas, Jodi Dumas and Laura Hannan (collectively, the "AKT Plaintiffs") assert that one or more of the following parties: AKT Franchise, LLC, AKT Franchise SPV, LLC, Assetco, Xponential, XFI, H&W Franchise Intermediate Holdings LLC, Xponential Intermediate Holdings LLC, H&W Investco LP, H&W Investco II LP, LAG Fit, Inc., MGAG LLC, Anthony Geisler, Mark Grabowski, Melissa
What This Means (2025 FDD)
Based on the 2025 FDD, Item 3 describes pending litigation involving Bft's parent company, Xponential Fitness. The "AKT Lawsuit" involves AKT Franchise, LLC, another Xponential Fitness brand, and former franchisees alleging breaches of their franchise agreements. The plaintiffs in the AKT Lawsuit seek declaratory and injunctive relief to litigate their claims in court rather than in arbitration initiated by AKT. Item 17 states that no party has pending actions, other than routine litigation incidental to the business, which are significant in the context of the number of franchisees and the size, nature or financial condition of the franchise system or its business operations. Item 23 also mentions that the company is subject to normal and routine litigation brought by customers, franchisees, vendors, or others. The company intends to defend itself in any such matters. The company believes that the ultimate determination of liability in connection with legal claims pending against it, if any, will not have a material adverse effect on its business, annual results of operations, liquidity or financial position; however, it is possible that the company's business, results of operations, liquidity, or financial condition could be materially affected in a particular future reporting period by the unfavorable resolution of one or more matters or contingencies during such period.
While the FDD mentions litigation involving Bft's parent company, it does not explicitly detail how this litigation directly impacts a franchisee's obligations as outlined in Item 9. Item 9 typically covers a franchisee's obligations regarding initial and ongoing fees, advertising, and other payments. The FDD does not provide a direct connection between the AKT Lawsuit and these specific financial obligations of a Bft franchisee.
To fully understand the implications of the pending litigation on a franchisee's obligations, a prospective Bft franchisee should seek clarification from the franchisor. Specifically, they should inquire whether the outcome of the AKT Lawsuit could affect the franchisee's financial obligations, the franchisor's ability to support the franchise system, or any other aspect of the franchise agreement outlined in Item 9. Understanding these potential impacts is crucial for making an informed investment decision.