April 16, 2026|Franchise Frontlines
April 16, 2026 | U.S. District Court, Western District of Texas | Preliminary Approval Order
Executive Summary
In an order preliminarily approving a class action settlement, the Western District of Texas addressed claims that a fitness franchisor misled investors regarding the sustainability of its franchise-driven growth model. Plaintiffs alleged that F45 Training Holdings, Inc. overstated key growth metrics, relied on undisclosed franchisee financing practices, and presented an overly optimistic picture of its expansion through multi-unit development agreements. Defendants denied the allegations and asserted, among other defenses, that any losses were attributable to broader market factors and negative causation. The court did not reach the merits of those claims, but concluded that the proposed settlement was sufficiently fair, reasonable, and adequate to warrant preliminary approval under Rule 23(e).
Relevant Background
F45 operates a global fitness franchise system built on a technology-enabled platform and a model centered on rapid studio expansion. Prior to and following its 2021 initial public offering, the company reported growth through metrics such as “Total Franchises Sold,” “New Franchises Sold,” and “Initial Studio Openings.” These metrics captured both traditional franchise agreements and multi-unit development agreements, under which operators committed to opening multiple locations over time.
Plaintiffs alleged that these metrics did not accurately reflect the underlying health of the system. According to the complaint, the company counted multi-unit development agreements as “sales” regardless of whether the franchisee ultimately opened studios, and later modified definitions of studio openings in a manner that allowed reporting of locations that had not yet generated meaningful revenue. Plaintiffs further alleged that the franchisor facilitated or relied upon financing arrangements that enabled franchisees to commit to large development pipelines without sufficient capital or operational capacity.
The complaint also alleged that the company failed to disclose that key territories had already been allocated to large franchisees, limiting future expansion opportunities, and that certain franchise-related fees were waived or modified to sustain growth. When financing arrangements deteriorated and development slowed, the company announced significant reductions in projected studio openings and franchise sales, reduced revenue guidance, workforce reductions, and leadership changes. The company’s stock price declined significantly following these disclosures.
After motion practice, discovery, and mediation, the parties reached a proposed settlement providing for a $10.5 million recovery for the class. The court preliminarily approved the settlement and certified a settlement class, finding that the requirements of Rule 23 were satisfied and that the proposed resolution warranted further consideration at a final approval hearing.
Decision
The court’s decision focused on whether the proposed settlement met the requirements for preliminary approval under Federal Rule of Civil Procedure 23(e). Applying the Rule 23(a) and 23(b)(3) standards, the court found that the proposed class satisfied numerosity, commonality, typicality, and adequacy, and that common issues predominated over individual ones. The court also determined that a class action was a superior method for resolving the claims given the number of investors and the nature of the alleged misstatements.
Turning to the settlement itself, the court concluded that the proposal was the product of arm’s-length negotiations and that the relief provided was within a range that could be considered reasonable at the preliminary stage. The court noted that plaintiffs’ damages analysis estimated significantly higher maximum exposure, but also recognized the defendants’ asserted defenses, including challenges to causation and the risk of reduced recoverable damages. The settlement amount, representing a portion of estimated recoverable damages, was deemed sufficient to justify notice to the class and further proceedings.
The court emphasized that its ruling did not resolve the merits of the underlying claims or the validity of the alleged misstatements. Instead, the decision reflected a preliminary determination that the settlement warranted consideration and that class members should be notified and given an opportunity to object or opt out before final approval.
Looking Forward
Although the court did not adjudicate the underlying allegations, the litigation provides a practical illustration of how franchise system growth strategies may be scrutinized in a securities context. In particular, the case highlights the potential significance of how franchisors define and report system growth metrics. Metrics that aggregate executed agreements, development commitments, and operational locations may be interpreted differently by investors and, if not clearly defined, may create risk in public disclosures.
The allegations also underscore the attention that may be given to multi-unit development structures. While such arrangements can support rapid expansion, they may also introduce variability depending on franchisees’ ability to finance and execute development obligations. Where growth projections rely heavily on these agreements, courts and litigants may examine the assumptions underlying those projections and the extent to which they are supported by actual performance.
The case further illustrates how franchisee financing practices may factor into broader assessments of system stability. Allegations that financing mechanisms supported expansion without corresponding operational capacity may influence how growth narratives are evaluated, particularly where changes in financing availability affect system performance.
For franchisors, the decision serves as a reminder that public-facing disclosures and internal growth metrics should be aligned and consistently defined. While the litigation arises in the securities context, the underlying themes—growth reporting, development pipelines, and franchisee performance—are common to many franchise systems. Careful consideration of how these elements are described and supported may help mitigate risk in both regulatory and litigation settings.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
