California Superior Court Rules for Franchisor Mail Boxes Etc.

Franchise Agreements Were Not Violated When UPS Had Mail Boxes Etc. Stores Rebrand to The UPS Store

SAN DIEGO, Calif. (Blue MauMau) - California's Superior Court in San Diego ruled in summary judgment that the Independent Association of Mailbox Center Owners (IAMCO), a group of Mail Box Etc. franchise owners, could not prove that their franchisor Mail Boxes Etc. Inc. (MBE) violated any California commerce laws or terms of the franchise agreement when the franchisor required their franchise owners to upgrade trademarks to The UPS Store.

On October 18 Judge Linda Quinn ruled that the MBE franchisees (plaintiffs) had shown no breach by the franchisor of the franchise agreement or California commercial law. In a 5 page memo, the Judge replies to the charges in paragraph after paragraph, "plaintiffs cannot prove," "plaintiffs lack standing" and "there is no evidence."

A summary judgement is granted when a court makes a determination that a full trial is not necessary, often because of a lack of material fact.

In response to the court ruling, Rich Hallabrin, public relations spokesperson for Mail Boxes Etc., stated, "this is the first ruling we've had that speaks to the merits of the case and not to procedural matters." "This ruling substantiates what we've maintained all along - that the Gold Shield program (a project of converting MBE stores to The UPS Store) was legal and fell within our rights as the franchisor," he continued.

Some of Judge Quinn's statements are listed below and can be read in full in the attachment, Summary Judgment, IAMCO vs Mail Boxes Etc. USA Inc. (5 pg pdf file).

• "Plaintiffs cannot prove any breach from failing to renew the franchise agreements on substantially similar terms or from requiring renewal as The UPS Store"
• "Plaintiffs cannot prove any breach regarding advertising."
• "Plaintiffs cannot prove any breach regarding support obligations to the franchisees."
• "Plaintiffs cannot prove any breach of any contractual duty regarding their exclusive territories."
• "Plaintiffs concede defendant James Amos is not a party to the franchise agreements."
• "Plaintiffs concede defendant 'MBE, Inc. has in fact assumed the liabilities as the franchisor' thus plaintiffs have no basis to contend defendant UPS should be treated as having assumed those liabilities."

Attorneys for IAMCO could not be reached to comment on the decision.

Jonathan Solish, a franchise attorney with the Santa Monica, California office of Bryan Cave LLP, observes, "the franchise relationship is established by contract. Courts are not set up to make better deals for the parties, but only to interpret what the contract means in the context of a particular dispute. Franchisors generally retain a contractual right to sell or assign, which means that they have the express right to bring in someone else to take their place. A court, in interpreting that right, has little choice but to enforce it."

"Companies are routinely bought and sold in our economy and there is a high likelihood that a franchisee may be dealing with an entirely different organization during the course of the contract relationship," says Solish. "The purchaser is still bound by the terms of the original contract so the contract is not breached by the transfer."

Paul Steinberg, a New York-based franchise attorney, adds, "In what is generally considered a state that has pretty liberal courts, even California stresses the importance of what is in the franchise agreement."

One bit of forceful wording was Judge Quinn's statement, "the Old MBE (franchisor), if it had wanted, could have abandoned or diluted the trademark."

Such a statement is a reminder that under state commercial law franchisors have no obligation to keep or manage trademarks to the benefit of their franchisees. Trademarks are theirs to do with as they see fit. On the other hand, franchise owners must update trademarks when the franchisor requires it.

Again, Solish interjects, "The point the court is making is that, under the agreement, the marks belong to MBE."

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Other readings:

• Michigan Investigation Persists on UPS Measuring Devices
• Franchisees Protest at UPS Shareholders Meeting
• Franchisees React to UPS Convention: "It's All About Them, Not Us"