Attorney Argues 'Evolution, Not Revolution' in UPS Trial
BREAKING: LOS ANGELES – The first day of trial began this morning with the Mail Boxes Etc. franchise owners facing off with their replacement franchisor in Morgate v United Parcel Service, alleging that UPS broke the franchise agreement by dismantling an existing owner-operated franchise structure after its takeover of Mail Boxes, Etc.
Correspondent Cynthia Cohen, Ph.D., of Courtroom View Network, reported during the lunch break that Judge William Highberger of the Superior Court of California at Los Angeles focused on the threshold of what the franchise owner and franchisor signed in the franchise contract. Michael Aguirre, the attorney representing the franchise licensees took the morning in replying and building his case that the franchisees who owned Mail Boxes Etc (MBE) stores had a right to renew, but were not obliged to "give up MBE citizenship." He argued that the franchise renewal was to be "evolutionary," and not “revolutionary.”
Aguirre then showed slide after slide highlighting dramatic changes between franchise agreement clauses.
The judge asked the franchisee attorney about the concept of the “System” and commented that Mail Boxes Etc. was not a focused shipping service provider (like the UPS Store).
Another person in attendance emailed Blue MauMau that right before breaking for lunch, Aguirre commented how it was strange that the franchisor performed due diligence for one week on the acquisition, but didn’t hire attorneys or others on what it would mean to franchisees. And yet those representing the firm wrote down that they understood that they would have to contend with franchisee unrest and conflict over the acquisition.
Read much fuller details reported by Cynthia Cohen of Courtroom View Network as she sits in on the hearing and then blogs about it during lunch and at the end of each trial day in Los Angeles. ($25 subscription fee required to have access to all of the blogs)
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The judge made it very clear that his decision will be reviewed by the Court of Appeal. For that reason, I believe that he will find a way to side with the Franchisees. UPS will then have to pick up most of the tab for the appeal. The judge sees his role as summarizing the case and creating a record for the Court of Appeal. The Court of Appeal will consider the matter and render a decision by the end of next year.
The Judge stated that "I don’t know if I agree with you and if I don’t find Badie on all fours you are going to lose".
So this case will basically fall on if the Judge feels that if the credit card card case falls in the same realm as this case. And that may be a big stretch.
I think the case could easily go either way and I would bet towards the defendents at this point.
I did hear the judge saying that he didn't see badie lining up on all fours. I thought he said if I am to to buy Badie as an argument he would have to line on on all fours. ( paraphrasing) maybe i missed something??
Then all the zees can go on with their lives. Learn from this and become better and wiser.
The point that is being missed is this. Every MBE franchisee from the early 1980's on, had experienced rebranding and had seen it succeed. Those owners adapted and saw their network grow to 3500 stores by 2003. Healthy growth in my opinion. But corporate had always been honest with them about the evolution of that growth and rebranding. UPS rebranded dishonestly. When they presented the slideshows for Goldsheild to convince the owners to rebrand in 2003, they knowingly left out information that might have influenced many an owner to do otherwise. Those owners were lawfully entitled to make an informed decision. If they decided to continue with UPS's version of rebranding their product, with that information on the table, so be it. But they were denied that opportunity.
I don't think UPS ever heard of it or they would have talked to some of the MBE owners during their due diligence. No effort was made to support franchisees. If this isn't bait and switch, I don't know what is. How can you not listen to your number 1 and Number 2 MBE Franchisees in the country and say you went through the due diligence process. If it took one week, the goal was to close as fast as possible. UPS did not follow through on its obligation of higher sales to each store. Just look at the consultants report. The goal was to profit from the stores at their expense. Why own a franchise when you have no competitive edge in marketing or pricing and paying a royalty fee un top of that. Your Franchisor should be helping you with your business and not being your biggest predatory competition. UPS should stop the BS and get real. The system was to profit from the the stores in 10 years. Whoever was left would become dringop off centers. Free storage and rent for UPS. What a great deal. The owners that didn't make might be alone in a trailer park thinking about how this happened to them. With so many lawsuits from the stores, there has to be fraud and material misrepresentation imbedded in the system. There was no safeguards ungainst conflicts of interest. UPS pushed it's products on the stores. If the customers were large and profitable enough they even had a sales team to solicit and take your best customers. Why not bring this up in court. I'm sure there's alot of owners out there that will testify this happened to them.
This is the biggest myth of all. They had a plan in place for eight years and were just waiting for the opportune time to spring the trap. Unfortunately, this is not what this mini trial is all about.
The mini trial is about one issue. What does the contract say. There is no question that the contract says that upon renewal that one must sign the then existing contract for new MBE franchisees.
The question is whether or not under law, the judge must consider the totality of the contract, the intent of the parties and interpert any ambiguity in favor of the signing franchisees and against the drafters of the contract and those parties who want to enjoy the fruits of that contract to the detriment of the parties who were obviously in an inferior bargaining position in a take it or leave it contract.
The question at this time becomes whether or not the contract was ambiguis when considered in its entirety.
A lot of the other issues would be issues at a jury trial which would consider the damages done. This mini trial is focused on one simple issue. What were the rights of renewal.....
I think today will be a turning point. I hope our attorney's rebuttal puts a big dent in the defense arguments of yesterday!
You can't take the part you like and ignore the parts you don't like. Contracts are read as totalities/entireties.
There is another part of the contract dealing with names and identities (intellectual property). That permits the francisor to do whatever he wants. The presence of those provisions in a contract do not make the contract ambiguous.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
This point about "taking the contract in totality" was EXACTLY the point made by Mr. Aguire. True, some parts did say that the then MBE could do whatever changes they wanted to, but those sections of the contract did not jive with other "promises" made elsewhere in the contract. This is the jist of the "Badie" case, and it was part of Mr Aguiers argument! Mr Solomon is right on when he says "Contracts are read as totalities/entireties", and Mr Aguire argued just that point! Thanks Mr. Solomon...were you in the courtroom, perhaps attending "incognito"?
There were other legalities pertaining to contract law , issues that arose in court. Terms like "illusory", something about "unequal power" between the contractor/contractee, intent of the contract as taken in its' entirety, etc.. Mr. McDonald also put up a slide defining the basic tenents of a contract, and reiterated them to Judge Highberger (something I would have thought might make him mad...you know, reminding a Judge about a basic legal tenant such as defining what a contract is)! McDonald also pressed the Judge as to the propriety of Mr. Aguires presentation...he seemed to be telling/complaining/instructing Judge H. about his even allowing for the line of argument being presented by the plaintiffs, as if it had no bearing on the legal question being heard, which was very narrow. I don't know if that went over well with Judge Highberger, but, hey, what do I know about how far an attorney can go in "politely" telling a judge that he is allowing things into the argument that are irrelevent...basically telling the judge, "hey, stupid, why are you even hearing that (plaintiffs') line of argument when it is not pertainent to the law being argued ... or even proper to allow it"? It was one of a number of times where Judge Highburger seemed to "evil eye" and "smack down" Mr. McDonalds seeming attack on the Judges' legal judgement, or understanding of the rules of evidence as they applied to the particular point of law being argued in this case (yes/no MBE could change the name/brand/system) ! Could you comment? P.S. Mr. Aguire seemed much more nuanced and experienced in how to interact with the judge. He seemed much more the "diplomat" and praiseful of the judge! Is that not what you want to be...VERY RESPECTFUL while not looking like you are "kissing arse"? This was a talent displayed by Mr Aguire, and he seemed much more understanding of the proper way to interact with a judge (so as not to disenfranchise him) than did Mr McDonald! Does this help an attorneys case? How much? To me, it seemed quite interesting to watch the personal interactions between the bench and the attnys! Could you comment on this, too?
They are written by lawyers and like any profession whether it be medical, real estate they have their own language. Lawyers are taught to make a killer sound innocent. They are capable of writing contracts where people do not understand the implications. Even some lawyers cannot understand it.
What is amazing is even in a credit card contract people do not understand it. There must be a reason Obama has insisted that credit card contracts needs to be written where common layman can understand the contracts.
How Courts Interpret Ambiguous Contracts
But the question remains; what was ambiguous?
prove that it is ambiguous. That is a threshold issue.
One provision says the franchisee gets renewal rights (subject to his acceptance of the terms of the contract then being offered by the franchisor to new franchisees). That reservation is convenienntly omitted by the person posting here about fiduciary dities and ambiguities.
Another provision says that the franchisor owns all rights to all intellectual property relating to the franchise relationship, including the right to change names; and including another provision that provides that name changes do not constitute a breach of contract by the franchisor (in most franchise agreements today).
Another provision states that the franchisor may assign its interests without consent of the franchisee.
There are also other provisions in every franchise contract that may appear to read upon each other, depending upon the circumstance to which they are being applied at any given moment.
But claiming that there is an ambiguity doesn't mean there is an ambiguity. The court will decide that issue first.
If there is a situation in which the franchisor can be proved to have abused its position in a way that violates the rights of the franchisees (as per the terms of the agreement), the party claiming abuse has to prove that also.
The fact that a judge may not have summarily dismissed a case and is letting it go to trial is not a signal that anyone is about to win anything. It means that the judge is going to let the record get filled with the admissible evidence and then will sort it all out and give an ultimate ruling/let a jury give an ultimate ruling.
People tend to get way ahead of themselves and see victories long before victories actually happen. No one can say today how this case will come out. Wishful thinking abounds on all sides.
Even the best lawyers sometimes don't win a case. Show me a lawyer who never lost a case and I'll show you a lawyer who never tried a case.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Michael Webster,
If the Franchise agreement says that MBE center means a franchised postal, packaging, business communication retail service center operated under the marks and in orccordans=ce with the system pursuant to a validly existing Franchise agreement.
If Mail Boxes Etc, USA, Inc a california Corporation owned the Marks and had valid (interm) Franchise agreements with franchisee in the brand of MBE, and still owned the brand marks of MBE why would they not be in breach.
I favour this argument, that upon renewal the trademarks that had the letters "MBE" had to be offered, unless it was impossible, or there was a breach of contract. What other trademarks Mail Boxes Etc, USA might have also leased or owned is not relevent without explicit reservation language in franchise contract.
But the defendants still have to show that they modified the MBE marks, and not that Mail Boxes Etc, USA obtained new trademarks which were not modifications of the trademarks with "MBE" in them.
On a summary basis, however, I am not as crazy about the systemic change argument. I wasn't at the hearing, so I am just giving my sense of the how the arguments were reported.
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Is there any difference in interpretation of fa under us vs canadian law that would modify or change your argument.
Guest asks: "Is there any difference in interpretation of fa under us vs canadian law that would modify or change your argument. "
No, there may different contracts in the US for the MBE's that would make me change my mind. But the pure contractual analysis should be the same.
Nor do I think, at this point, the more substantive duty of faith in Ontario Franchise law would make a difference.
Either judge focusses on the breach of contract, failure to renew the trademarks with "MBE" in them still controlled by Mail Boxes Etc, USA or focusses on the systemic change argument. I like the first argument, and hesitate on the second. The breach of contract is simple: renew my trademarks license; since you offering those trademarks to the franchisees outside of North America, your refusal to renew my trademarks license is a breach of the franchise contract. This seems very straightforward.
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Would this not have to be the stradegy from the very beginning of the lawsuit ? Wouldn't this decision dictate what causes of action you had etc I guess you can tell I am not a lawyer
Thanks.
Richard
Are you referring to franchise agreements in general or THIS SPECIFIC 1993 MBE FRANCHISE AGREEMENT?
all of which have the same provisions when it comes to the boilerplate issues. 1983 is early on for modern boilerplate in franchise agreements, but renewal, IP ownership rights and assignability of franchisors' interests are all areas in which the language has not materially changed from then to now.
Everyone needs to cool it and wait for the court to decide what the court will decide. Intent of the parties evidence will not be admitted unless there is first a finding that the contract is ambiguous. The contract is probably not ambiguous, so people will probably not be allowed to testify that they intended anything other than what the contracts say explicitly in their own wording.
In most jurisdictions, if the language as written is capable of being given a cogent meaning, there is no ambiguity.
I know everyone is all pent up like a high school girl having her first sexual esperience. But excitement has to await the court's rulings.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
If the contract "permits the franchisor to do whatever he wants" why did the Judge allow a trial?
in any state or under federal law. A franchise agreement relationship is just like any other commercial agreement in every jurisdiction in the United States.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
in 1993 Charlie Either, a UPS employee was put into MBE management. UPS gave MBE a 25 million bridge infusion of money. They had a 17 % stake in the company. This would surely explain the 2000 image change of the MBE even before the UPS take over of MBE in 2001. I am sorry the purchase of the franchisor. It would also explain the ownership of the intent of the 1993 franchise agreement. I keep wondering, how would UPS ever know the intent of the parties involved when the 1993 franchise agreement was written. Tony Desio who was head and part creator of MBE concept (system) is on record saying that the clause pretaining to changing of the mark was there incase they had a challenger to their registered trademark and not their for revolutionary change of the MBE system. Now he was party to the 1993 franchise. He knew the intent of the parties, he was party to the agreement.
and leaves out information that would affect many of the owners. UPS deserves to pay. It is not evolution it is misrepresentation. Let the revolution continue till justice becomes a reality. Evolution? Total crap.
If the franchisees sign a contract that allows a muffler shop chain to reinvent its chain to whatever - say ice cream shops, then isn't revolution in rebranding contractually enforcable?
If the contract doesn't prevent it, there's certainly no law against having an ability to enforce a muffler shop franchise to become an ice cream shop.
Besides, isn't that part of the reason one buys a franchise -- trust in the board and professionals who run the franchisor. One buys having a sense of trust that if those professionals have to reinvent your business, that they have the wherewithall to do so. Right?
What's wrong? You're kidding, right? If you sell your product on your own dime, go ahead make any changes you want.
The issues you raise have little to do with branding. You are confusing contractural terms with marketing issues. Yes, the franchisor can make changes to the marks, logo, identity. Changing the complete business model is not stated in the FOC. If the franchisor was attempting to reserve this specific right, than that should have been clearly stated in the FOC. Something like:
'We reserved the right to change to business model, market niche, product/services provided, equipment needed, training required, identity ...to anything we want, without the approval or consultation with our franchisees, regardless of the effects these changes may have on franchisees..."
You seem to believe that since the franchisor used words like 'may', 'could' they were implying what the statement above actually states. That is the problem with contract law, today. The meaning of the whole contract can be turned on the current interpretation of a single word! Can someone tell me why, in contract law, the courts take the position of allowing 'interpretation' of a contract instead of taking the position that, unless something is stated openly, with specifics, it cannot be interpreted to 'mean' anything else ?( this would apply to either party)
James Amos, then current president of MBE, stated in a printed interview, that the change to the franchisees would be completely transparent. He specifically stated ' the franchisee would simply close one night as MBE and open the next morning as a UPS Store, nothing about the business would change...' When the President of a company makes such statements, shouldn't there be accountability for that misrepresentation?
"....isn't that part of the reason one buys a franchise -- trust in the board and professionals who run the franchisor. One buys having a sense of trust that if those professionals have to reinvent your business, that they have the wherewithall to do so...."
Trust? The franchisor abuses the trust relationship with franchisees from the beginning of the sales process. They write FDD's in a language that is deceptive, deliberatley vague and completely one sided. They they blame the franchisee with not having done their "due diligence" when a problem occurs. Countless numbers of franchisees have consulted attorneys, accountants, etc only to be told by these advisors that the contract looked "ok". Unless you hire a franchise lawyer, with a trained eye for spotting loopholes benefitting only the franchisor, you are getting less than expert advice. Few people would know this and yet paid for what they thought was competent advice.
Trusting the franchisor to " have the wherewithall to do so" is just too funny! Let's cite just a few recent franchisor actions :
All of the folks involved in these activities are supposedly 'experts'. In the case of UPS/MBE, they only new employees/executives come directly from UPS, with NO understanding or experience in franchising or retail businesses. These folks proudly say they all started as package handlers and earned their credentials from UPS. That makes them experts at what?
Enough of my rant. I just couldn't let your statements go unchallenged.
Which gives the zor the right to do anything or nothing. Another red flag in my book. You will find those kind of words usually when it refers to the zee in the FDD.
Example: You COULD be the next winner of Publisher's Clearing House. You MAY become the next millionaire. Those words mean nothing.
In an FDD: For as long as we we maintain the System Website, we SHALL have the right to use the Marketing Fund's assets to develope, maintain and update the System Website. We periodically MAY update and modify the System Website.
How much does a web-site cost to maintain? This gives the zor permission not to do anything. If you ask where has the marketing fund gone? They always say to maintain the company web-site.
"...regardless of the effect these changes MAY have on franchisees."
I believe those words are unethical because it puts the zees at an disadvantage. Just read an FDD and you will find them everywhere when pretaining to the zee. When it comes to the zor it is concrete. Many people will not catch those important words.
The courts need to deem such a contract unenforceable and misleading. Grossly one-sided. In every case it is set up to harm the zee and it is undoubtly unethical.
If a franchisor wishes to re-brand in a revolutionary rather than evolutionary way, as per your suggestion from a Muffler shop to an Ice cream shop there is a lot more to consider than "do they have the wherewithal to do it".
Any agreement a business person enters into is based on a series of understandings. Even if a franchisor may have the ability to change the entire contract does not mean that they really have the right to do so.
If I bought a muffler shop because I love to work on cars and my muffler business is the perfect business to past on to my son who also likes cars then having someone turn it into an Ice cream shop changes everything. Even if there is tons more money to be made in the Ice cream business, I may not be cut out for it. The folks who choose to invest in the Muffler shop franchise did so for a whole host of reasons. Most importantly, the trust they placed in the franchisor was based on that franchisors ability to lead in the Muffler business. What would a muffler franchisor know about ice cream? Why would one trust that they could make this switch into a new business model? What would this switch do to the franchisees plans for the future?
Similarly, when UPS systematically destroyed the MBE brand in the US and forced its franchisees to become UPS stores one must ask: What happens to the franchisees? Why are they changing a business model that works? What evidence is there that the new business model is better?
The real question here is this:
Would YOU buy ANY franchise if you knew that in a few years the Franchisor would abandon the Business model he sold you and embark on a completely new and untried scheme?
I'm sure the franchisor will argue that companies must have the ability to reinvent the brand to stay competitive.
But how far? Let's say a franchisor, like Blockbuster Rentals, is on the edge of bankruptcy. Its brick and mortar franchised stores struggle with plummeting profits. They are losing against new technologies that deliver online movies. Blockbuster arranges for Circle K to acquire the firm that has the franchise agreements and trademarks. It then tells its franchises to dig deep and invest their own money to have their movie rental shops become a "lucrative" convenience stores.
Blockbuster, and then later new franchisor Circle K, might even argue that it's only stretching the brand, an evolution, since Blockbuster originally sold candy in their movie rental locations anyway.
On the other hand, what if it is a much smaller change is made such as providing an extra row for software games? Where are the boundaries?
Bob asks: "Blockbuster, and then later new franchisor Circle K, might even argue that it's only stretching the brand, an evolution, since Blockbuster originally sold candy in their movie rental locations anyway."
Well, again it depends upon the language of the contract. As Richard and I discussed before, in the Church's Chicken and Popeye case, since the language of franchise contract explicitly allowed a takeover of the brand by a competitor, and the franchisee unsuccessfully tried to negotiate the clause away, the franchisee had no legal recourse when his brand was taken over.
It all depends on the language - but again, I am not in favour of the evolution/revolution of the business model argument.
The deal was to get MBE trademarks at the end of the term, upon renewal. Those trademarks were around, given out franchisees outside of North America, and so the failure to get the MBE trademarks upon renewal was a breach of contract. The MBE trademarks are simply the trademarks listed in the US Trademark Office, and not the trademarks that the MBE franchisor.
The MBE trademarks were not modified, were available, and the current MBE franchise contract which licensed these trademarks to people outside of North America was not offered as an option. Further, MBE did not have in its franchise agreement, the ability to withdraw from markets and not offer renewals.
This is a simple breach of contract case, but to get caught up in the evolution or revolution of the business model is a mistake, in my opinion - at least with respect to the renewal clause.
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
You know your franchisor has forced you to go too far in rebranding...
If I may join in...
You know your franchisor has forced you to go too far in rebranding...
Good point. Most of the time when you think of rebranding you think of what Target did. Or you think of Federal Express changing to FedEX or Kentucky Fried Chicken to KFC.
You could even argue your example about Blockbuster to Circle K would have more legs to stand on since Blockbuster stores or 80% corporate owned.
But in this particular example (mbe ups) the lack of favorable research and moreso evidence of negative research, looks more like UPS's trial & error on the zees dime.
system stuff is similar to canadian store stuff
I want to move on... We have an easy win if we ever get to the jury with our facts intact
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