A Case Study in Franchise Diligence - Crumbl Cookies (Part III)
Part 3 of a 5 part series into Franchise Diligence and important considerations for a prospective franchisee to understand, all through the lens of the latest (2026) Crumbl FDD. Part 3 - "What kind of litigation is present and how do I compare this with the franchisor's disclosures?"
In 2023 Lisa Watson and Angela Keers sued Crumbl.
They filed a class action lawsuit alleging that the way Crumbl’s service fees were displayed and charged when ordering was fraudulent and misleading.
How was this and other litigation matters disclosed in Crumbl's Franchise Disclosure Document (FDD)?
As brief context, and for any franchisees doing diligence, Item 3 of an FDD lists litigation matters a franchisor may be involved with:
.. Is the franchisor suing franchisees?
.. Are franchisees suing the franchisor?
.. Are there any 'Civil actions, other than ordinary routine litigation incidental to the business, which are material in the context of the number of franchisees and the size, nature, or financial condition of the franchise system or its business operations.'
From a diligence perspective it is important to understand the nature of anything listed in Item 3 and the potential implications.
Create an account at Franchise Signal and ask these questions within your Claude workspace - all with the added FDD data (across multiple years) for your prospective brand(s). Download FDDs directly for additional research.
What is interesting about Crumbl is how we see the above mentioned lawsuit disclosed in Item 3, but then go on to see the Item 21 franchisor financial statement footnotes.
In the 2025 FDD (for FY 2024), Crumbl's audited financial statements have a specific footnote for litigation:
'The Company is involved in several legal proceedings. Management, after consultation with legal counsel, determined that the outcome of these proceedings could have a material impact on the Company’s financial position of between $12,650,000 and $35,415,000 as of December 31, 2024.'
Crumbl switched external auditors in this most recent year, and we see a $14M restatement related to prior period litigation accruals. In the 2026 FDD (for FY 2025), we again see a footnote in the franchisor financials:
'The Company is involved in several legal proceedings arising in the normal course of business. These legal proceedings arise from matters including alleged copyright infringement, alleged sales and product matters, and other disputes.'
Crumbl revised litigation accrual down to $6.1M and booked the low end of the range ($6.1M to $17.6M) provided by management's legal counsel.
"So we see Item 3 has a class action lawsuit and Item 21 also mentions multiple legal proceedings?"
This type of question and the cross analysis of Item 3 and Item 21 highlight important diligence considerations and questions to review for franchisees.
At Franchise Signal, we ingest thousands of FDDs to provide structured data, analytics, and YoY delta comparison for hundreds of brands.
Are you cross analyzing Item 21 with Item 3 over multiple FDD years as part of your franchise diligence?
How do Item 3 litigation matters compare by brand across multiple years?
Create an account at Franchise Signal and ask these questions within your Claude workspace - all with the added FDD data (across multiple years) for your prospective brand(s). Download FDDs directly for additional research.
This article is Part 3 of a 5 part Series in a case study on Franchise Diligence. For the full company profile and summary please see this report.
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It is important to note that nothing on this site is investment or legal advice. This site does not constitute full diligence in any way. You should reference the FDD(s) of any brand you are looking at. Franchise Signal may make mistakes. If you are actively considering investing in a franchise you should consult with a franchise attorney.
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