Top Mailboxes Etc. Franchisee Forced to Go Independent by UPS

…the franchisees accuse UPS of intentional misrepresentation, concealment and breach of contract, intentionally failing to disclose performance and financial data, in addition to multiple violations of franchisee laws among other allegations. The store owners, who say that UPS is undercutting their profits, claim that the Atlanta-based shipper has made "unabashed and illegal efforts to profit on the backs of their own franchisees."

Platinum Shield Association
November 19, 2006

Top Mailboxes Etc. Franchisee Forced to Go Independent by UPS
Press Release

MALIBU, Calif., Nov. 19 /PRNewswire/ — Howard Spanier, operator of the nation's top sales Mailboxes Etc. (MBE) franchisee in recent years, now faces a major change as United Parcel Service (NYSE: UPS - News) refuses to renew Spanier's franchisee agreement as an MBE and he is forced to become an independent. Spanier observed, "UPS told us back in 2001 that we would always be able to renew as MBE stores, if we wished to do so, but that promise — like a lot of others — was broken by UPS. We all feel abandoned by UPS. It's the business equivalent of walking the plank — jumping into the unknown."

Spanier was forced to become an independent store in October after 18 years when UPS broke their promise and refused to renew his MBE franchisee agreement. His new store is called Malibu Business and Shipping Center, located at 23852 Pacific Coast Highway, Malibu, California. 90265, Telephone 310-456-2733.

"If this was a failing business, I might understand UPS," Spanier said, "but I've been officially recognized as the MBE Franchisee of the Year. Plus, I'm not the only one facing this situation; there are some 30 other MBE owners in the same position, from California to New York — all being told by UPS to accept the unprofitable UPS Store program or go independent. I didn't buy this franchise to go independent. I bought it so I would have the value of my eighteen years of equity in the MBE brand," continued Spanier.

Other MBE franchisees that have been forced to convert to independent status include store owners in Arkansas, Vermont, Ohio, Oregon, Kentucky and Texas, in addition to California. One, Mary Dunseith, of Huntsville, Texas, is a widow caring full-time for her two young grandchildren; her story was covered recently in a national magazine's special feature on non-traditional family situations.

"It's a little scary," Dunseith said, "but as the sole provider for myself and my grandchildren, I don't have any other options right now." Her store, now under the independent name Mary's Pack & Ship in Huntsville, Texas, began operations under its new name in September, even though she, too, would have preferred to remain an MBE franchisee. "I bought this franchise because of the MBE national brand as well as national marketing and franchisee support, and UPS has taken that from me." Dunseith said her customers have expressed their good wishes for her success. However all of us would have preferred to remain as MBE, if that were allowed by UPS," added Dunseith.

Spanier said the acquisition of MBE by UPS in 2001 initially seemed to hold real potential for the franchisee operation, but said the early optimism was quickly replaced by doubt, when they realized UPS had removed most of the profitability from the franchisees. Spanier and some of the 130 other MBE franchisee holders in 2003 formed a group called Platinum Shield Association (PSA) and filed a lawsuit against UPS in Los Angeles Superior Court. PSA's lawsuit is currently set for trial for February 2007. PSA is represented by attorney Miles Scully of Gordon & Rees LLP of San Diego.

According to the complaint, the franchisees accuse UPS of intentional misrepresentation, concealment and breach of contract, intentionally failing to disclose performance and financial data, in addition to multiple violations of franchisee laws among other allegations. The store owners, who say that UPS is undercutting their profits, claim that the Atlanta-based shipper has made "unabashed and illegal efforts to profit on the backs of their own franchisees."

Store owners are seeking compensatory and punitive damages, as well as legal fees and costs. MBE, the UPS subsidiary, is headquartered in San Diego.

BACKGROUND ON THE LAWSUIT
In March, 2002, UPS purchased the assets of Mail Boxes Etc. Corporation for approximately $192 million. At the time, MBE was comprised of 3,400 independent franchise locations in the United States and 1,000 others internationally.

In early 2003, UPS launched the Gold Shield campaign to convert 3,400 United States-based MBE stores into The UPS Stores. UPS, and its wholly-owned MBE, chose not to issue a new Franchisee Offering Circular (FOC) for the Gold Shield program. The FOC is a mandatory disclosure document, which the Federal Trade Commission (FTC) requires to be provided to all potential franchisees to review in order to evaluate the franchise prior to purchase.

Instead, UPS chose a five-page amendment to the 2003 MBE FOC. MBE franchisees involved in the lawsuit claim in addition to other issues, that this failure to issue a new FOC did not comply with the FTC regulations or the California Franchise Investment Law. Approximately 12% of the MBE franchisees rejected the 2003 conversions proposed by UPS.


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Risks: Independent franchisee association, Lawsuit, class action, Breach of contract, Misrepresentations, Opportunism (self-interest with deceit), Independence, forced, United States, 20061119 Top Mailboxes

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