Samica Enterprises v. Mail Boxes Etc. Usa, Inc.

• Citation: 637 F.Supp.2d 712
• Decision Date: 22 December 2008
• Docket Number: Case No. CV 06-2800 ODW (CT).
• Parties: SAMICA ENTERPRISES, LLC, et al., Plaintiffs, v. MAIL BOXES ETC. USA, INC., et al., Defendants.
• Court: U.S. District Court — Central District of California

637 F.Supp.2d 712

SAMICA ENTERPRISES, LLC, et al., Plaintiffs, v. MAIL BOXES ETC. USA, INC., et al., Defendants.

Case No. CV 06-2800 ODW (CT).

United States District Court, C.D. California, Western Division.

December 22, 2008.

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Jonathan Weiss, Jonathan Weiss Law Offices, Los Angeles, CA, L. Michael Hankes, L. Michaelk Hankes Law Offices, Boston, MA, Peter C. Lagarias, Robert S. Boulter, Lagarias and Boulter, San Rafael, CA, for Plaintiffs.

Gregory B. Koltun, Jane H. Barrett, Lawrence R. Katzin, Mark R. McDonald, Saro H. Balian, Morrison and Foerster LLP, Los Angeles, CA, Paul T. Friedman, Morrison & Foerster, San Francisco, CA, Steven M. Kaufmann, Morrison and Foerster, Denver, CO, Peter C. Lagarias, Lagarias and Boulter, San Rafael, CA, for Defendants.

ORDER GRANTING DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT [126, 131]

OTIS D. WRIGHT II, District Judge.

I. INTRODUCTION

On May 9, 2006, over two hundred franchisees, principals and guarantors of "The UPS Store" filed this action against various Mail Boxes Etc., Inc. ("MBE") and United Parcel Service, Inc. entities ("UPS"). Plaintiffs allege they were duped into investing in The UPS Store franchises, which are (allegedly) economically unviable. On October 29, 2007, the court directed each side to select for trial two "Phase I Plaintiffs" (i.e., those who invested in The UPS Store directly) and two Phase II Plaintiffs (those who converted from Mail Boxes Etc.). The Phase I Plaintiffs are "Rayment," Center 4605, and "Thomas," Center 5281 (selected by Plaintiffs), and "Archambault," Center 4942, and "Roat," Center 5145 (selected by Defendants).¹

Mail Boxes Etc., Inc and United Parcel Service, Inc (DE, NY, and OH) (collectively, "Defendants") now move for summary judgment or, in the alternative, partial summary judgment against the Phase I Plaintiffs. Defendants argue there are no genuine disputes of material fact and that they are entitled to judgment as a matter of law on Plaintiffs' (1) Second Claim for breach of contract; (2) Fourth Claim for fraud by omission; (3) Sixth Claim for fraud, deceit, and negligent misrepresentation; (4) Eighth Claim for violation of the California Franchise Investment Law ("CFIL"); (5) Tenth Claim for violation of California Business & Professions Code Section 17200, et seq. and 17500, et seq; (6) Eleventh Claim for violation of non-California franchise and consumer protection statutes; (7) Thirteenth Claim for declaratory relief; and (8) Fourteenth Claim for rescission.

II. FACTS

In 2001, MBE, a wholly-owned subsidiary of UPS, became the franchisor of Mail Boxes Etc. centers. (UF 13.) MBE subsequently offered "The UPS Store" franchises to existing MBE franchisees through a "Gold Shield Amendment" to their existing franchise agreements, and to new franchisees through new franchise agreements. (UF 14.) The Phase I Plaintiffs received Franchise Offering Circulars ("FOCs") and entered into Franchise Agreements ("FAs") with MBE for The UPS Store. (UF 1-12.) Each Plaintiff also entered into a "Contract Carrier Agreement" ("Carrier Agreement") with UPS for UPS shipping services. (UF 2-11.)

The relevant contracts contain various provisions which underlie Plaintiffs' several claims. Pursuant to the "best efforts" provision in the FA, for example, "MBE agree[d] to use best efforts to ensure that its affiliate [UPS] gives Franchisee discounts and incentives on Franchisee's wholesale cost of UPS services." (Joint Stip., ¶¶ 8, 9, Exhs. H, I.) MBE sought and procured "incentives off the retail rate," but it is disputed whether any of the incentives went to the "wholesale cost." (UF 15.)

This provision interplays with another in the Carrier Agreement, which obligates Plaintiffs to accept UPS drop-off packages and prohibits them from "charg[ing] their customers more than the maximum price set by UPS for UPS shipping services." (UF 27.) That agreement also set forth the incentives that UPS would give Plaintiffs and disclosed that "UPS may, in its sole and absolute discretion, modify . . . the wholesale discounts and incentives provided to Participating Franchisee's The UPS Store." (UF 28; Jt. Stip., Ex. G at § 13.B.) Other provisions and facts, including Plaintiffs' fraud allegations, will be discussed as necessary.

III. LEGAL STANDARD

Rule 56 requires summary judgment for the moving party when the evidence, viewed in the light most favorable to the nonmoving party, shows that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Tarin v. County of Los Angeles, 123 F.3d 1259, 1263 (9th Cir.1997). The moving party bears the initial burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). That burden is met by "`showing'—that is, pointing out to the district court—that there is an absence of evidence to support the nonmoving party's case." Id.

Once the moving party meets its initial burden, Rule 56(e) requires the nonmoving party to go beyond the pleadings and identify specific facts that show a genuine issue for trial. Id. at 323-34, 106 S.Ct. 2548; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "A scintilla of evidence or evidence that is merely colorable or not significantly probative does not present a genuine issue of material fact." Addisu v. Fred Meyer, 198 F.3d 1130, 1134 (9th Cir.2000). Only genuine disputes—where the evidence is such that a reasonable jury could return a verdict for the nonmoving party—over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Anderson, 477 U.S. at 248, 106 S.Ct. 2505.

IV. DISCUSSION

Phase I

1. Second Claim: Breach of Contract and Good Faith

Defendants argue they did not breach their contracts by (1) "failing to use their best efforts to secure from UPS adequate discounts," (2) "failing to provide reasonable consultation and advice regarding operation of the center[s]," or (3) otherwise failing to fulfill certain alleged obligations. (4th Compl. ¶¶ 96, 97.)

Best Efforts Provision—against MBE

The provision at issue is found in the Franchise Agreements. It reads: "In reliance on Franchisee's commitment to comply with the designated maximum prices, MBE agrees to use best efforts to ensure that its affiliate [UPS] gives Franchisee discounts and incentives on Franchisee's wholesale cost of UPS services." (Joint Stip., ¶¶ 8, 9, Exhs. H, I, Para. 7. 1b.) This provision is not defined in the relevant contracts, and the parties construe it differently.

Before turning to the parties' arguments, it bears noting that a "best efforts" provision "requires a party to make such efforts as are reasonable in [] light of that party's ability and the means at its disposal and of the other party's justifiable expectations . . . ." 2 Farnsworth on Contracts § 7.17 at 350 (2d ed. 1998); see also Farnsworth, On Trying to Keep One's Promises: The Duty of Best Efforts In Contract Law, 46 U. Pitt. L.Rev. 1, 8 (1984) ("Courts [and Plaintiffs] sometimes confuse the standard of best efforts with that of good faith.... Good faith is a standard that has honesty and fairness at its core and that is imposed on every party to a contract. Best efforts is a standard that has diligence as its essence and is imposed only on those contracting parties that have undertaken such performance. The two standards are distinct and that of best efforts is the more exacting").

Whether a defendant used best efforts under the circumstances is a factual question usually reserved for the jury. U.S. Ecology, Inc. v. State of California, 92 Cal.App.4th 113, 136, 111 Cal.Rptr.2d 689 (2001). Defendants may still prevail on this motion, however, if the relevant facts are undisputed and conclusive or "there is an absence of evidence to support [Plaintiffs'] case." Celotex Corp., 477 U.S. at 325, 106 S.Ct. 2548. To that end, the following facts are uncontroverted: (1) MBE had several discussions with UPS about improving "incentives, pricing, and retail rates;" (2) MBE made "numerous requests to UPS to increase margins and incentives;" and (3) MBE suggested that UPS simplify the rate structure, providing for "incentives [on the] retail rate." (UF 16, 17, 20.) As a result of such efforts, and others, MBE was able to obtain for Plaintiffs the best discounts and incentives of any UPS authorized shipping store. (UF 23.)²

While these facts show that MBE undertook some effort, the question remains: "How hard must one try if one has undertaken to use best efforts?" Farnsworth, 46 U. Pitt. L.Rev. 1, 1. As mentioned above, the answer depends on the terms (and nature) of the agreement, Defendants' ability, and Plaintiffs' justifiable expectations. These factors cut decisively in Defendants' favor. Critically, UPS reserved for "its sole and absolute discretion" the right to "modify" Plaintiffs' incentives. This provision, to which Plaintiffs assented, not only limits MBE's ability to obtain incentives, but it also tempers Plaintiffs' justifiable expectations. Coupled with Defendants' undisputed efforts (and the results obtained), the court cannot but conclude that Defendants fulfilled their obligation. (See also Mot. at 3-5.)

Alternatively, Plaintiffs may not maintain a breach of contract claim based on the "best efforts" provision because they have not raised a genuine issue that UPS would have acted any differently had Defendants exerted greater effort. See Nat'l Data Payment Sys., Inc. v. Meridian Bank, 212 F.3d 849, 854 (3rd Cir.2000) ("Even if [defendant's] actions constituted a default of its best-efforts obligation, [plaintiff] has provided absolutely no evidence that, had [defendant's] behavior been any different, [the desired result would have been obtained]"); see also Cal. Civ Code § 3301...