Franchisees Sue UPS Over Conversion to UPS Store
A group of Mail Box Etc. franchise owners have filed suit in California state court alleging that United Parcel Service Inc. (UPS, news) is violating state franchise laws.
Two years ago, UPS bought Mail Boxes Etc. and this year the Atlanta-based shipping company offered franchise holders discounts on shipping services if they would rename their outlets “The UPS Store” and agree to other operating changes.
The suit filed April 25 in California Superior Court in Los Angeles alleges that UPS violated the California franchise investment law by failing to properly register the new franchise and provide store operators with a uniform franchise offering.
It also alleges that UPS made “earnings claims” about The UPS Store without providing franchisees with the backup and disclosure required by California law.
UPS spokesman Norman Black said he was unaware of whether the company had received a copy of the lawsuit, but management had “heard that a small number of franchisees were considering filing a suit.”
Mr. Black said executives were “absolutely confident that UPS has fully complied with all applicable franchise laws in all states.” More than 3,100 of the 3,300 franchise owners in the U.S. already have agreed to the change, he said.
The suit asks the court to enjoin UPS from continuing the store conversions until it complies with franchise law.
Michael Garner, a Minneapolis attorney leading the action against UPS, says franchise agreements can be amended, but that the modifications UPS is making constitute a “new franchise agreement under a different trademark, with a different party and at different terms.”
Howard Spanier, one of the plaintiffs in the suit, and owner of a Mail Boxes Etc. store in Malibu, Calif., said that a major problem with the change is price control. As a Mail Boxes Etc. store, he could set his own prices, but after conversion to a UPS Store, would not be able to.
Mail Boxes Etc. stores benefited from a wholesale pricing deal for UPS shipping services. Merchants were then free to mark up that fee to levels that matched the market they served.
Mr. Spanier’s Malibu store charged relatively more than others because his market was more costly to serve, he said. Mr. Spanier also offered a variety of custom copying, packaging and shipping services as well.
But the UPS Store amendments set maximum prices Spanier could charge on shipping services. It also limited his ability to offer other premium services by shippers such as FedEx Corp. (FDX, news) or Airborne Inc. (ABF, news) .
“UPS wanted uniform pricing and by controlling pricing they are controlling our margins. We would get the same margins as a store in Kansas,” said Mr. Spanier, “but we have to pay rent in Malibu.”
Besides Mr. Spanier, the suit names six other franchise holders as plaintiffs in Ohio, Illinois, New York and Massachusetts.
Dow Jones Newswires
04-29-03 0044ET
Copyright 2003 Dow Jones & Company, Inc. All Rights Reserved.
