Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Utah: Franchisor’s lawsuit against franchisee of head lice clinics moves forward, (May 16, 2025)

By Brian Craig, J.D.

The court declined to dismiss the case or transfer venue, instead enforcing a valid forum selection in the franchise agreement.

Concluding that a forum selection clause contained in franchise and consulting agreements were valid and that personal jurisdiction exists, the federal district court in Utah has held that a Utah-based franchisor can proceed with its lawsuit in Utah against a Michigan-based franchisee that owns head-lice treatment clinics. The court concluded that the franchisor Larada Sciences, Inc., doing business as Lice Clinics of America, can move forward with the action seeking a judicial declaration against the Michigan-based franchisee, The MIH Group, LLC (Larada Sciences, Inc. v. The MIH Group, LLC, No. 2:24-cv-00414-TS-CMR (D. Utah May 14, 2025)).

A franchisor for head-lice treatment clinics, Larada Sciences, Inc. doing business as Lice Clinics of America, sued a franchisee based on Michigan, The MIH Group, LLC (“MIH”), in the federal district court in Utah. The franchisee operates seven or eight of the approximately 125 franchisee-owned lice treatment clinics franchised by Lice Clinics of America. The clinics provide screening, diagnosis, and treatment for people dealing with head lice.

The parties entered into a series of franchise agreements beginning in July 2014. In 2024, while still operating as a franchisee on a month-to-month basis, MIH informed the franchisor of its intention to terminate six of its franchise agreements and to compete with the franchisor by continuing to operate its Michigan and Ohio lice treatment clinics after the franchise relationship ended.

The franchisor filed suit, seeking a declaratory judgement affirming that the franchise agreements are valid and enforceable, and that MIH may not compete with Lice Clinics of America or disseminate its proprietary information, trades secrets, or goodwill. The franchisee filed a motion to dismiss arguing that the forum selection clauses in the parties’ franchise and consulting agreements are unenforceable and that the court should either dismiss the case or transfer it to the district court for the Eastern District of Michigan.

Forum selection. The court first concluded that the forum selection clause in the franchise agreements are enforceable. Utah law requires that an agreement as to the place of an action to be given effect unless it is unfair or unreasonable. In this case, the franchise agreements state that jurisdiction and venue shall be in a court in Salt Lake County, Utah. The franchisee argued that Utah is an inconvenient forum based upon Michigan’s strong public policy against forum selection clauses. The court held that this failed to meet the high inconvenience standard to negate a forum selection clause.

The franchisee did not submit any other facts showing that the forum selection clauses are otherwise unfair or unreasonable. The court found no allegations that this case presents unusual circumstances that would outweigh the controlling weight ordinarily given to a valid forum selection clause. Thus, the court denied the motion to transfer venue.

Personal jurisdiction. Because the court concluded that the forum selection clause is valid, the court denied the motion to dismiss the case based on lack of personal jurisdiction against the franchisee. The court found that there is a rational nexus between the litigation and the State of Utah. Therefore, it was proper to exercise personal jurisdiction over the franchisee under the forum selection clause.

Declaratory Judgment Act. Finally, the court declined to dismiss the case under the Declaratory Judgment Act. A declaratory judgment action is proper when the case would settle some dispute which affects the behavior of the defendant toward the plaintiff and the court proceeded to analyze several relevant factors. Here, if the court granted declaratory judgment, the franchisor would likely file breach of contract and other related claims, as such, this factor weighed in favor of declining jurisdiction, the court opined.

Turning to the second factor, whether a contract is enforceable may add clarity to the parties’ relationship in that if there are valid, enforceable contracts, their relationship is defined via the terms of those contracts. Accordingly, this factor weighed in favor of exercising jurisdiction.

As to the remaining factors, there was nothing to suggest that the franchisor was engaged in “procedural fencing” nor was there anything suggesting a declaration from the court would interfere with or affect any other present proceeding. Overall, the relevant factors weighed in favor of exercising jurisdiction, the court concluded.

The Case is No. 2:24-cv-00414-TS-CMR.

Judge: Stewart, T.

Attorneys: Douglas C. Smith (Lewis Brisbois Bisgaard & Smith LLP) for Larada Sciences Inc. Robert B. Cummings (Spencer Fane LLP) for The MIH Group, The LLC.

Companies: Larada Sciences Inc.; The MIH Group, The LLC

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