Franchise 101: When Franchisees Comb-Out; and The Unearthed FDD
Franchisor 101: When Franchisees Comb-Out
A Utah federal court denied a motion by Larada Sciences, Inc. (“LCA”), a franchisor of lice clinics, for a preliminary injunction preventing a former LCA franchisee, The MIH Group, LLC (“MIH”), from operating competing lice treatment clinics in the same locations as their former franchised clinics.
MIH and LCA entered into six franchise agreements in 2014 for the operation of LCA branded lice clinics in Michigan, Ohio, and Florida. After the franchise agreements expired, MIH operated the franchised locations on a month-to-month basis.
In January 2024, MIH informed LCA of its intent to terminate the six franchise agreements and continue operating its clinics in the former franchised locations under the name “Rapunzel’s Lice Boutiques.” LCA filed suit in June 2024, alleging that MIH breached the non-compete and other provisions in the franchise agreements by continuing to use LCA’s proprietary information, trade secrets, and goodwill.
In August 2025, LCA moved for a preliminary injunction to prohibit MIH from using LCA’s proprietary information and from competing while the litigation was pending.
LCA alleged that a preliminary injunction was necessary because MIH’s continued operation damaged the goodwill of LCA’s franchise system, created unfair competition, and set a precedent to other franchises that they could likewise operate outside of LCA’s system. The court held that LCA’s claims were speculative, unsupported by evidence, and failed to meet its burden to establish that LCA would likely suffer irreparable harm absent a preliminary injunction.
The court reasoned that LCA waited nearly 20 months after learning of the alleged breaches and competing businesses and over a year after filing its lawsuit, before seeking injunctive relief against MIH, both of which were inconsistent with any claim of urgency or continuing harm.
The court also found that the other preliminary injunction factors weighed against LCA. It found no “clear and unequivocal” likelihood of success for LCA, since MIH questioned the enforceability of the non‑compete provisions and alleged LCA’s own non‑performance. The balance of hardships favored MIH, which showed it would likely be forced to shut down its business if enjoined, whereas LCA’s alleged harm consisted primarily of lost franchise fees and speculative competitive injury. Finally, the court held that the public interest favored preserving competition and consumer choice.
Franchisors should seek advice from franchise counsel the moment a former franchisee breaches the non-compete or other post-termination provisions of the franchise agreement to ensure the franchisor takes every precaution and action to protect the franchisor’s proprietary information, trade secrets, and the goodwill of its brand at the earliest opportunity.
Larada Sciences, Inc. v. MIH Group, LLC, No. 2:24-cv-00414-TS (D. Utah Feb. 18, 2026)
Franchisee 101: The Unearthed FDD
A California federal court denied a franchisee’s motion for summary judgment on its California Franchise Investment Law (“CFIL”) claims and denied the franchisee’s request to add new affirmative defenses.
In May 2022, Badger Daylighting Corp. (“BDC”), a franchisor of excavating businesses, entered into a franchise agreement with Dig Alert Done Right, LLC (“DADR”). The franchise agreement granted DADR the right to solicit and sell hydro-excavation services in fourteen California counties. The franchise was limited to projects affiliated with the International Brotherhood of Electrical Workers.
In November 2023, BDC issued a notice of default to DADR, alleging that DADR breached the franchise agreement by pursuing work outside the scope of the franchise agreement and failing to pay the required fees.
In June 2024, BDC filed suit against DADR alleging breach of the franchise agreement and over a million dollars in damages. DADR answered and asserted counterclaims, alleging that BDC breached the franchise agreement first. More than a year after the pleadings and discovery closed, DADR moved to amend its answer to add seven new affirmative defenses.
In support of its motion, DADR alleged that the new affirmative defenses were based on BDC’s Franchise Disclosure Document (“FDD”), which DADR alleged it did not receive until four months before the close of discovery. The court denied DADR’s motion, finding that DADR had no good cause for DADR’s untimeliness in amending its answer, since the record already established that DADR received the same FDD in 2022 before executing the franchise agreement.
The court also denied DADR’s motion for summary judgment that sought to invalidate the franchise agreement relating to alleged violations of the CFIL.
First, DADR alleged that BDC violated the CFIL, which exempts franchisors from registration requirements if the franchisor satisfies certain net worth benchmarks. DADR alleged that BDC did not provide them with the required financial statements or an unconditional guaranty as required by the statute. The court found summary judgment was inappropriate because there was a genuine dispute of material fact on this issue, since DADR’s principal confirmed receipt of the statements and guaranty before signing the franchise agreement.
Second, DADR alleged that BDC violated the CFIL by making misleading statements or omitting material facts in the FDD. Specifically, DADR alleged: (1) that its territory of potential customers was limited despite the FDD stating that “there are no limitations on customers to whom you may sell,” (2) that BDC failed to disclose that it lacked prior business experience in “minority-diversity-veteran-set-aside” work, and (3) that BDC misrepresented its willingness to provide pre- and post-opening assistance to DADR and permit DADR to use BDC’s trademarks.
The court denied summary judgment on all three alleged misrepresentations, noting that (1) BDC had disclosed to DADR before signing the franchise agreement that the territory was restricted to diversity veteran work, (2) that BDC had never sold a franchise premised on diversity veteran work, and (3) in order to assert misrepresentation DADR had to prove that BDC had no intention of performing and found that DADR failed to offer any evidence of BDC’s failure to perform.
Franchisees should contact franchise counsel before entering into a franchise agreement, not only to determine whether the franchisor has prepared their FDD in compliance with applicable law, but also to ensure franchisees understand their obligations under the agreement to avoid any misunderstanding of their obligations.
Badger Daylighting Corp. v. Dig Alert Done Right, LLC, No. 2:24-cv-1678-JDP (E.D. Cal. Feb. 18, 2026)