Mail Boxes Etc Franchisees Head to Trial with Crucial Exhibits in Hand

LOS ANGELES – As Mail Boxes Etc. franchisees prepare for their long-awaited trial set for August 3, new documents and testimony have surfaced in exhibits that may shed a brighter light on the intricacies of the dispute. As in similar lawsuits against the United Parcel Service franchisor, the MBE franchisees are claiming the shipping giant withheld crucial information and made misrepresentations in persuading them to convert to its new concept, The UPS Store, following its acquisition of Mail Boxes Etc. in 2001. Significant segments of the trial will focus on the actual construction of the contracts between the parties, and how those agreements were interpreted and negotiated.

According to court records, on June 5, H. Scott Sirlin of Gordon & Rees filed the Offer of Proof and Proposed Exhibit List in Los Angeles Superior Court on behalf of his franchisee clients in the Morgate LLC v. Mail Boxes Etc. The exhibits consist of thousands of pages of documents including the massive franchise disclosure documents, numerous depositions of key players, retail strategy reports, the UPS asset purchase agreement, Gold Shield test program agreements and results, MBE/UPS operations manuals, contract carrier agreements and the franchisor’s extensive report from Boston Consulting Group determining the health of the franchise system.

This latest filing lists the legal principles governing inferences, interpretation and construction in the franchise structure.  It states, “Inference of fact plays an important part in the interpretation and construction of contracts.” Some of the facts relevant to contract interpretation are given, concluding that under the Mail Boxes Etc. franchise agreement the franchisor and franchisees built Mail Boxes Etc. into the largest and most successful mail and shipping business in the world with over 4500 store in place worldwide by 2000.  United Parcel Service, Inc. (UPS), a Mail Boxes Etc. vendor, acquired the Mail Boxes Etc. franchisor in 2001 and suddenly and unilaterally imposed drastic changes to the franchise agreement that destroyed the Mail Boxes Etc. brand, took away the independence of the franchisees to set price and select vendors, and changed the franchise business plan from a multi-shipping model to one that mandated shipping through UPS.

Expert witness Edward Kushell will testify that the renewal clause is allegedly used in the industry to induce franchisees to make the long-term commitment to build the franchise. Testimony will attempt to show that the right to renew  is used to induce franchisees to make substantial investments in their franchises, the system and the brand name by creating an expectation that the franchisees would be able to operate their franchises long enough to recoup their investments. Kushell will further testify that the right to renew is coupled with the right to transfer in order to induce franchisees to make the long-term commitment to their franchises and the system by building a long-term value in their franchises which they can realize by selling or transferring it in the future.

Franchisee plaintiffs will also give live testimony claiming they were induced to make long-term commitments to building the MBE system as a result of the franchise renewal clause and their right to transfer their units.

Franchisees are also awaiting a court order certifying a national class of plaintiffs consisting of approximately 3,500 Mail Boxes Etc. franchisees who converted to The UPS Store as part of the Gold Shield program. The national class of plaintiffs alleges fraud by defendants Mail Boxes Etc. and UPS.

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