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LOS ANGELES – The UPS Store / Mail Boxes Etc franchisees filed a notice of appeal last week while still licking their wounds from a devastating blow from a California court. The judge decertified their collective claims as a “class” group.
In the franchisees’ lawsuit against franchisor United Parcel Services, they claim The UPS Store business model presented to them after UPS took over in 2001 was flawed, causing irreparable harm to their stores.
Last month, Los Angeles Superior Court Judge William F. Highberger granted summary judgment to the shipping giant, ruling that franchisees who owned Mail Boxes, Etc. stores that later converted to The UPS Store system, had not proven to the court that they were harmed by the conversion. A year ago, he had granted 3,500 MBE franchisees class-action status in the lawsuit.
The lawsuit presents two main allegations.
The first involves 175 franchisees who remained as MBE stores, rather than convert to The UPS Store model after United Parcel Service purchased Mail Boxes Etc. for $190 million in 2001. Although storeowners were allowed to operate under the MBE name until their franchise agreements expired, they were then required by UPS to convert as a condition of their renewal. Many of those operators were eventually forced out financially or through the court system.
Plaintiffs are seeking an average of $1 million in damages per store, plus punitive damages and attorney fees and costs.
Second, the franchise owners claim that UPS did not provide them with key information regarding the UPS Store brand, some related to test marketing programs it performed at franchisees’ centers in different states after the acquisition. A 2006 Boston Consulting Group study that was commissioned by UPS surfaced in 2008, revealing problems with the new business. It showed the chain’s difficulty with store profitability and decreased customer traffic. Judge Highberger later released 15 pages of the sealed BCG report, which was presented as evidence at the trial. One segment of the study showed “77 percent of The UPS Stores were operating at either an at risk or worse status.”
Although Mail Boxes Etc/The UPS Store corporate office did not return a phone call prior to publishing, after the decision a spokesperson commented in an email: "This ruling is a complete victory for MBE and UPS and concludes the class litigation brought by the franchisees who converted to the UPS Store. MBE and UPS are confident that, if the class plaintiff decides to file an appeal, the appellate court will agree with the trial judge that there is no merit to the class claims."
Joe Wightman, an MBE franchisee, who refused to transform his store to the UPS model, said he was not surprised by the ruling and it had already been appealed. He stated in an ajc.com article that franchisees in a related lawsuit against UPS appealed four rulings. The franchisees succeeded in having the lower court rulings overturned. He said, "The judge rules. We file an appeal and then the ruling is overturned. It's the dance of an ongoing saga."
Attorney Amy Darby of Gordon & Rees, representing the franchisee plaintiffs, did not return a phone call prior to publishing.