UPS Loses Appeal to Franchisees

California Appeals Court Gives Thousands of UPS Franchisees Permission to Move Forward as "Class"

LOS ANGELES (Blue MauMau) - In a press release posted yesterday on Blue MauMau, UPS loses in legal standoff with franchisees, the California Court of Appeals made a ruling that granted franchisees permission to move forward as a "class" instead of filing lawsuits individually. According to this latest strongly worded, 21-page ruling, the trial judge in the Superior Court of Los Angeles County erred in his decision of denying franchisees class certification.

The lawsuit, filed in April 2003, had claims against UPS of intentional misrepresentation and multiple statutory violations relating to UPS's conversion of MBE stores to The UPS Store model, after it purchased the MBE franchise in 2001 for $192 million. UPS sold the idea on the premise of increasing profitability for franchisees. But instead, according to the lawsuit, the conversion ended up moving profits to UPS, not to franchisees.

Howard Spanier, president of The Platinum Shield Association, which represents current and former MBE franchisees in the lawsuit, said franchisees were never provided feasibility studies showing poor store earnings that UPS conducted before converting the MBE model to that of The UPS Store. He said when the conversion took place for those who agreed to it, "the full impact of UPS's scheme was unavoidable and disastrous for many."

The California Court of Appeals stated in its ruling, "We find that the trial court made erroneous assumptions of law finding that individual issues predominated over common issues of law and fact with regard to reliance. Plaintiff (DT Woodard, a California franchisee of the former Mail Boxes Etc which UPS acquired in 2001) has alleged facts which create at least an inference of plaintiff's reliance on defendants' (UPS) representations, which induced plaintiff to agree to amend a franchise agreement."

In now moving forward, if the franchisees are successful, each franchisee class member — over 4,000 — will have the opportunity to rescind its UPS Store contract and to seek damages. Platinum Shield said, "The impact of such a result would be significant to UPS both in terms of lost revenue and destruction of its retail network."

Attorney for Franchisees Responds

In an interview with Miles D. Scully, Gordon & Rees, attorney for franchisee-plaintiffs against UPS's Mail Boxes Etc. division in the national class action lawsuit, he said, "We feel very good about the merits of the class certification." Scully does not feel there is much hope that UPS Stores/MBE will have their case heard on appeal. He said, "The Supreme Court is not obligated to hear it, and it would be rare in these circumstances because it is an unpublished decision. It only hears published decisions and, even then, it would only hear a small fraction of those cases."

Scully feels the ruling is a strong directive. He said, “The trial court was ordered to certify this nationally on every single cause of action. That means all we need to do now is show to a jury that UPS is part of the conversion that misrepresented the facts or violated a couple of different statutes. Relief will then be given to the whole class.”

UPS Response

Although telephone calls were not returned from Norman Black, UPS media communications, or from Rich Kolman, in-house counsel for Mail Boxes Etc., MBE spokesperson Rich Hallabrin was quoted in on-line articles yesterday. He said, "We see this purely as a procedural matter. It does not speak at all to the merits of this case. Once we get to a court of law and are able to present our side of the story, we will prevail."

But Scully feels it is more than just a procedural issue. He said, "I think that having a class certified nationwide is very rare and probably speaks volumes on how the Court of Appeals viewed the merits of this case." But he says, "I wouldn't expect UPS to do anything less than try to put on the best public face for this latest development."