A California judge handed UPS a major victory Tuesday, ruling to decertify as a class a group of UPS Store franchise owners who sued the shipping giant seven years ago over what they said was a flawed business model.
In granting the company summary judgment, Los Angeles Superior Court Judge William F. Highberger ruled the franchisees, who owned Mail Boxes Etc. stores that were later converted into UPS stores, did not prove the conversions harmed them.
Highberger's ruling comes three days shy of the one-year anniversary where he granted the more than 3,500 Mail Boxes Etc. franchisees class-action status in the lawsuit.
"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," Susan Rosenberg, a UPS spokeswoman, wrote in an e-mail.
"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."
The franchisees vow to appeal.
Joe Wigthman, a franchisee who refused to convert his New York MBE store to the UPS name, said the ruling was expected.
"We're going to appeal it," he said, noting that franchisees in a related lawsuit against UPS appealed four rulings in that case and had lower court rulings overturned.
"The judge rules, we file an appeal and then the ruling is overturned," Wigthman said. "It's the dance in the ongoing saga."
Two key points are at issue: The first involves 175 franchisees, including Wigthman, who did not convert their Mail Boxes Etc. stores to UPS Stores after the shipping giant's $190 million purchase of Mail Boxes Etc. in 2001. UPS didn't require franchisees to convert to the UPS Store nameplate immediately, but when franchise agreements expired, conversion was mandatory as a condition for renewal.
The plaintiffs argue that rebranding the stores destroyed the business model since their customer base was built on the Mail Boxes brand name. Those core 175 franchisees seek an average $1 million in damages per store, plus punitive damages and attorney fees.
The second issue concerns a plaintiffs' claim that UPS failed to supply them with key information about converting to the UPS Store brand. In particular, they highlight a 2006 study that Boston Consulting Group did for UPS examining the profitability of the stores. Though that study identified several strategies for increasing the stores' profitability, it also highlighted problems, such as per-store revenue, slowing new customer growth and the reliance on shipping alone to increase sales.
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