Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Utah: Derma Pen can’t seek rescission after terminating distribution agreement, (Aug 7, 2014)

By Greg Hammond, J.D.

Derma Pen, LLC, owner of the micro-needling product known as Dermapen, was unable to seek the equitable remedy of rescission after discovering misrepresentations allegedly made by it distributor, 4EverYoung Ltd. In granting 4EverYoung’s partial motion for summary judgment, the federal district court in Salt Lake City determined that several defenses—including full performance, termination, and restoration—bar the company from seeking rescission (Derma Pen, LLC v. 4EverYoung Ltd., August 4, 2014, Nuffer, D.).

Background. Derma Pen and 4EverYoung entered into a distribution agreement for Dermapen in August 2011. However, Derma Pen alleges that 4EverYoung misrepresented its capabilities and position as a distributor of the micro-needling product. Although Derma Pen performed under the agreement through expiration of its two-year term, it sent a letter terminating the agreement. In addition, the company filed suit against 4EverYoung, alleging that it fraudulently induced Derma Pen to enter into the distribution agreement and seeking—in part—rescission of the contract. 4EverYoung moved for summary judgment on the rescission claim.

Rescission. In support of its partial motion for summary judgment, 4EverYoung argued that: the agreement was fully or substantially performed and terminated; Derma Pen failed to timely assert or pursue rescission; and Derma Pen failed to provide timely notice of intent to rescind. The court agreed with the distributor, finding that: (1) there is no purpose in rescinding a contract that was already ended by termination; (2) there is no ground for rescission if the contract was already completely performed; (3) Derma Pen’s actions to continue performing under the contract were inconsistent with the remedy of rescission; (4) the equitable remedy would yield an inequitable result; and (5) Derma Pen failed to give 4EverYoung an opportunity to react by providing notice of intention to rescind. Consequently, 4EverYoung’s partial motion for summary judgment on the rescission claim was granted.

The case number is 2:13-CV-00729-DN-EJF.

Attorneys: J. Mark Gibb (Durham Jones & Pinegar) for Derma Pen, LLC. James E. Magleby (Magleby & Greenwood PC) for 4EverYoung Ltd.

Companies: Derma Pen, LLC; 4EverYoung Ltd.

Cases: FranchisingDistribution UtahNews