Small Franchise Owner Goes Against UPS Goliath

The Real Life of a Seasoned Mail Boxes Etc. Franchise Owner: His Story of a Buyout, Revenue Loss and a Drawn-Out Lawsuit

FRESNO, Calif. (Blue MauMau) - Dale Martinez has seen his business change for the worse since Mail Boxes Etc. began converting franchised units in 2003 to The UPS Store. "We're hanging on at this point," says Martinez, "but to keep the other stores going, we will probably sell one of the four sometime this spring.”

For Martinez, there were no good options when the franchise chain was sold to United Parcel Service. The UPS Store model that the franchisor was pushing did not look viable. On the other hand, the franchisor did not want him to stay with Mail Box Etc.'s (MBE's) tried and true model that had enabled him to build four successful franchise units within just a few years. The franchisor said the MBE mail service model was dying and could not be fixed, nor would he be able to renew. Owners who stayed with the old brand would not be allowed to sell, transfer or renew their franchise. Worse yet, the agreement had a non-compete clause that restricted him from going independent after the end of his contract.

MBE had strongly pressured franchise owners with expiring franchise agreements to either close down or convert to The UPS Store brand and model. With two 10-year franchise agreements that were about to expire, Mr. Martinez was forced to decide quickly on the viability of the new business model that went with United Parcel Service’s acquisition of the MBE packaging and shipping franchise chain.

Due Diligence Showed New Model Profitability Unknown

Changes required by the new franchisor were considerable, so MBE had set up pilot areas called the Gold Shield Program to help show old MBE franchisees the merits of the new model.

No stranger to sober and thoughtful due diligence, Martinez explains his investigation, “I had the opportunity to visit Phoenix and Seattle Gold Shield test sites (stores running under a new and a considerably more expensive UPS Store business model). I randomly selected different centers to get a feel of how they were doing financially."

He discovered a model that was doubtful. “It sounded like the owners of the test centers were trained what to say from Corporate (the franchisor’s head office) because their messages sounded strangely consistent,” says Martinez. "Generally, they would rationalize their sizable investments with comments like, ‘UPS is a global brand name,’ ‘if we don't change we'll have to change later,’ or ‘if we don't sign now we'll lose $12,000 transition (an incentive from the new company to get MBE franchisees to convert) from MBE to The UPS Store.’ I didn't hear any of the owners stating they were more profitable."

The UPS Store policy of not allowing franchisees to stay with the MBE model forced the two stores with expiring franchise agreements to turn independent. Other franchisees also wanted back what they had bought into. Four lawsuits based on the forced conversion of the Mail Boxes Etc. centers to The UPS Store model were filed against UPS by various store owner groups representing hundreds of franchise owners across the country .

The name of Martinez's two stores was changed from Mail Boxes Etc. to Pack & Ship Authority. The initials of the stores, PSA, ironically also stood for the Platinum Shield Association, an independent franchisee group that is helping Martinez and other franchisees in a tooth-and-nail fight with The UPS Store franchisor.

Judge Finds Heavy-Handed Tactics by Franchisor Disagreeable

Even if it means addition investment for franchisees, The UPS Store thinks the franchise agreement covers them well in their right to sell the MBE marks and to upgrade the model.

"Not in any major, material way,” respond some franchisees.

The UPS Store/MBE franchisor thinks otherwise and has taken strong steps in achieving what it thinks best for the network.

In early 2006 the company took the aggressive step of seeking temporary restraining orders (TRO) in some 13 federal jurisdictions against Dale Martinez and 12 other franchisees around the country. UPS claimed that the former MBE franchisees violated the MBE trademark because existing yellow page ads still linked these independent stores with MBE. The franchisor wanted TROs issued to force an immediate closure of the independent stores.

But Fresno-based U.S. District Court Judge Oliver Wanger dismissed the UPS action against Martinez and his group. As noted in the court proceedings, Judge Wanger expressed his displeasure with the franchisor's counsel, stating, “There’s no basis to issue a TRO today. This looks like an ambush.” (Click on picture to read court transcript, pdf.)

Bob Einhorn, an attorney specializing in franchisee issues for law firm Zarco Einhorn Salkowski & Brito P.A., is not involved in these disputes. But he observes, "The franchisees have a mountain to climb, given the vast resources of United Parcel Service and UPS's apparent willingness to use heavy-handed litigation tactics such as issuing numerous TROs on what appears to be very thin evidence of trademark infringement. Judge Wanger's comments demonstrate how UPS was seeking to ambush franchisees who have limited resources. The court did not appreciate it."

Martinez Sees Some Success

The small business owner and his fellow MBE franchisees at Platinum Shield Association, an independent organization that looks out for the interests of MBE franchise owners, are seeing some legal successes in their lawsuits against UPS.

Howard Spanier, president of Platinum Shield, comments about the significance of this win. “UPS subsequently lost or withdrew each of these TRO motions in all 13 federal jurisdictions.”

There have been other wins too. Los Angeles Superior Court Judge Wendall Mortimer, Jr. denied United Parcel Service the ability to place a media gag order on 160 Mail Boxes Etc. and The UPS Store franchisees who are in the midst of suing UPS. The courts also ruled that many separate franchisees could file in a class action, which was certified by California’s Court of Appeals in October of last year.

In regard to these franchisee wins, the franchisor is silent. When asked, Mail Boxes Etc.'s public relations spokesperson, Rich Hallibran, stated, "It is company policy not to discuss ongoing litigation." But Mr. Hallibran made comments recently on a favorable ruling for the franchisor by California appellate court in San Diego against another group of MBE franchisees filing a lawsuit, IAMCO.

The group is not giving up. IAMCO’s attorney has said the case will be appealed.

With all of these franchisee groups in lawsuits against Mail Boxes Etc. and The UPS Store, franchisee attorney Einhorn gives caution. "It looks like there are a lot of pieces of litigation in The UPS Store franchise system. It would behoove the franchisees to proceed with these cases coordinating and cooperating with each other. Adverse rulings may harm the entire group. But unfortunately, favorable rulings from small, fractured groups may not help everyone out as much."

Coping with the Long Battle

It is no easy thing for a little David to fight against a corporate Goliath like UPS in long legal battles.

Business has been tough. Martinez elaborates about his woes, "To keep the other stores going, we will probably sell one of the four sometime this spring."

Other Platinum Shield Association members have also been forced to sell property, mortgage their homes and make other financial sacrifices to keep their stores open and fund their legal effort.

“I cashed in my retirement plan and we have reduced our workforce to keep the stores open and to keep the lawsuit alive,” Martinez says.

To make matters worse, after his business and financial troubles began, his health deteriorated.

Mr. Martinez has been hospitalized twice. Where no problems were there before, he found himself in the emergency room for a rapid heartbeat. He was hooked up to monitors, intravenous tubes and shunts as a possible heart attack patient, which thankfully turned out not to be the case.

Besides high blood pressure and stress, marital problems also went along with the financial problems. Then there were depression, cold sweats, sleepless nights and nightmares.

Martinez and his stressed-out family are learning to cope.

“We had a family meeting and determined to put responsibility where it should rest. That is with UPS and MBE. We realized it is they, and not us, who are at fault. So we let go and let God handle [the outcome of] MBE and UPS. What we have in our power to do is get ourselves in better physical, mental and spiritual shape.”

Looking to the future, Dale Martinez hopes the lawsuit will give him and his colleagues at Platinum Shield Association their day in court. In the meantime he tries to remain upbeat and continues to work with family to provide customers the service he has always prided himself on.

Additional readings:

• California Superior Court Rules for Franchisor Mail Boxes Etc.
• Mail Boxes Etc - UPS Store
• UPS Loses Appeal to Franchisees
• Michigan Investigation Persists on UPS Measuring Devices
• UPS Store Independent Association Sends Invitation to Franchisee Council
• Franchisees React to UPS Convention: "It's All About Them, Not Us"
• UPS Store Owners Angry
• AAFD Gives UPS Store Franchise Agreement Poor Grade
• Franchisees Protest at UPS Shareholders Meeting