Triple Z Postal Servs., Inc. v. United Parcel Serv., Inc., 2006 NY Slip Op 52202(U) (N.Y. Sup. Ct. 11/24/2006), 118057/05.
| Decision Date | 24 November 2006 |
| Docket Number | 118057/05. |
| Citation | 2006 NY Slip Op 52202(U) |
| Parties | TRIPLE Z POSTAL SERVICES, INC., Plaintiff, v. UNITED PARCEL SERVICE, INC., MAIL BOXES, ETC., INC., ATLANTIC MAILBOXES, INC. and TRIPP SINGER, Defendants. |
| Court | New York Supreme Court |
GUARARRA & ZAITZ, By: Michael Guararra, Michael M. Zaitz, New York, NY, For Plaintiff.
On the Brief DLA PIPER RUDNICK GRAY, CARY US LLP, By: Stephen P. McLaughlin, Robin C. TarrGail Rodgers, New York, NY, For Defendants United Parcel Service, Inc. and Mail Boxes, Etc., Inc.
At Oral Argument, Morrison & Foerster, By: James M. Bergin, New York, NY.
O'HARE PARNAGIAN, By: Robert A.. O'Hare, Jr., Michael G. Zarocostas, New York, NY, For Defendants Atlantic Mailboxes, Inc., and Tripp Singer.
Motion sequence numbers 001 and 002 are consolidated herein for disposition.
Plaintiff Triple Z Postal Services, Inc. (Triple Z), a New York corporation, and a franchisee, doing business as a Mailboxes, Etc. (MBE) store in Manhattan, seeks $4,000,000 in compensatory damages, plus punitive damages against franchisor Mailboxes, Etc., Inc., (MBE, Inc.), MBE, Inc.'s parent corporation, United Parcel Service, Inc. (UPS), the "Manhattan Area Franchise Representative" for MBE, Inc., Atlantic Mailboxes, Inc. (Atlantic) and Atlantic's president, Tripp Singer (together, the Atlantic Defendants).1 Plaintiff also seeks a declaration that it has the right to renew the term of its franchise agreement with MBE without adopting the "the Gold Shield Amendment [or the] Gold Shield Program, or converting its MBE Store to a UPS Store" (Complaint, ¶ 213).
All of the defendants move to dismiss the complaint based on the California forum selection and mediation clauses in the franchise agreement executed by plaintiff and MBE (the Franchise Agreement or Agreement) (CPLR 3211 [a] [1]). In the alternative, defendants move to dismiss the complaint for failure to state a cause of action (CPLR [a] [7]).
Plaintiff seeks damages from the defendants for what it claims were their respective parts in UPS's plan to destroy the MBE franchise system by imposing upon it a change in its business model designed to benefit only UPS, and to enhance UPS's ability to compete against its industry rival, Federal Express. Plaintiff alleges that on or about April 20, 2001, UPS acquired the MBE franchise system through MBE, Inc., the wholly-owned subsidiary UPS created for the acquisition (Complaint, ¶¶ 9-10). Plaintiff alleges that UPS acquired the MBE franchise system after determining that the cost of creating its own retail shipping network would be prohibitively high (id., ¶ 28). At the end of 2001, the MBE franchise system was generating over $1.6 billion in annual sales and had grown to over 4,500 domestic and international MBE stores (id., ¶ 24).
According to the plaintiff, in or around March 2001, the initial investment for a new MBE store, as set forth by MBE, Inc., was between $100,000 and $200,000 (Complaint, ¶ 30). In or around October 2001, plaintiff's president, Howard Zaitz, made an inquiry to MBE, via the Internet, regarding the availability of MBE store franchises (id., ¶ 31). Sometime after making the inquiry, Howard Zaitz, and his son, Michael Zaitz, met with Singer. As previously mentioned, Singer is, and also was then, the president of Atlantic, which is the Franchise Area Representative of Manhattan for MBE (id., ¶¶ 35-36).
At the meeting, Singer outlined the process of establishing an MBE store in Manhattan, explaining, among other things, that a prospective franchisee had to sign a letter of intent to purchase an MBE stores, pay a $7,500 fee with the application and, within a year after the signing of the letter of intent, obtain Singer's approval of a physical location for the store (Complaint, ¶ 38). Singer also explained that he, as the Manhattan Area Franchise Representative, would not approve the location of any new MBE store if he felt that doing so would harm the business of an existing Manhattan store, and that in the event that Michael Zaitz became an MBE franchisee, he would apply the same consideration to him (id., ¶¶ 41-44). Singer further stated that his assessment of the Manhattan market was that it could support no more than 50 MBE stores without having a significant negative effect on the business of the existing Manhattan MBE Franchisees (id., ¶ 45). Singer, however, did not reveal that Atlantic's arrangement with MBE "was such that it was contractually required to establish a certain number of new MBE [S]tores per year" (Complaint, ¶ 46).
There were several additional meetings with the Zaitz' and during one of them Singer mentioned that MBE had recently been acquired by UPS and that the acquisition would benefit MBE franchisees because UPS, having spent millions to acquire the MBE network, would have an interest in ensuring the health of the MBE stores (Complaint, ¶¶ 48-50). Singer stated that one such benefit would be that UPS would offer the MBE stores wholesale shipping rates that were even lower than the wholesale shipping rates that UPS was currently offering to MBE franchisees (id., ¶ 51).
Thereafter, Howard and Michael Zaitz each signed a letter of intent to establish an MBE store in Manhattan, and paid the $7,500.00 application fee (Complaint, ¶ 52). Approximately seven months later, on June 5, 2002, on behalf of Triple Z, Howard Zaitz, as President, and Michael Zaitz, as Vice President, executed the Franchise Agreement with MBE, Inc. (id., ¶ 61).
In or around April 2003, UPS and MBE, Inc. allegedly implemented a change in the MBE, Inc. business model called the "Gold Shield Program" (Gold Shield or the Gold Shield Program). Gold Shield was offered to MBE, Inc. franchisees (MBE Stores or MBE Franchisees) nationally, through an amendment to their respective franchise agreements. The overwhelming majority of the MBE Franchisees accepted the Gold Shield Program amendment and re-branded their MBE Stores as UPS Stores (Complaint, ¶ 154). At the initial April 7, 2003 Gold Shield implementation date, 13 of the 42 MBE Franchisees with stores in Manhattan amended their contracts with MBE, Inc. to adopt the Gold Shield Program and became UPS Stores, and 29 did not (id., ¶ 165).
As part of the Gold Shield Program, the MBE Franchisees were required both to amend their respective franchise agreements with MBE and to enter into a carrier contract with UPS pursuant to which UPS provided the MBE Franchisees with certain reduced prices for its services (see Complaint, ¶¶ 101-102, 114). The MBE Franchisees that accepted Gold Shield were also required to charge consumers set, lower, prices (see Complaint, ¶¶ 101-106).
Prior to the these changes, UPS and MBE allegedly made presentations to the MBE Franchisees about Gold Shield in October 2002, and February through April 2003. During these presentations, UPS represented that according to its field testing, UPS Store-branded test stores " outperformed the other test markets'" and that test stores that had implemented the Gold Shield business model, and were branded as the "UPS Store" had shipped the greatest number of packages (Complaint, ¶¶ 69-90, 124-126).
Essentially, plaintiff complains that the presentations were misleading in various ways and that none of the MBE Franchisees was given the raw data used to create the slides presented to them,2 at a February presentation, which contained statistical information about test store shipping volume (Complaint, ¶¶ 121-132). In addition, because Manhattan MBE Stores incur certain higher costs, and are not similarly situated to the sample test stores used by UPS, plaintiff alleges that the volume-driven, lower prices Gold Shield business model is not superior for Manhattan MBE Stores, and in fact is injurious to their profits, and that UPS Stores generate substantially less "free" cash flow and net profits than similarly situated MBE Stores (id., ¶¶ 92, 101-107, 173-175, 205).
On April 7, 2003, UPS and MBE issued a press release stating that more than 3,000 United States MBE Stores would begin re-branding to "The UPS Store" (Complaint, ¶ 154). Plaintiff believes that at least that many stores did re-brand (ibid.). In addition, during 2003, UPS conducted national advertising campaigns advertising that "Mail Boxes Etc." is now the UPS Store, highlighting UPS Stores' low shipping prices (id., ¶ 158).
Plaintiff did not amend its contract with MBE, Inc. to accept the Gold Shield Program amendment, and continues to operate as an MBE Store in Manhattan. Plaintiff alleges that the defendants failed, prior to plaintiff's June 5, 2002 execution of the Franchise Agreement, to disclose to it: the pendency of the Gold Shield Study; "that UPS believed that the MBE Store business model was broken'"; and that UPS intended to implement Gold Shield, or a substantially similar program (Complaint, ¶ 284).
Plaintiff further alleges that UPS, through its control of MBE, Inc., caused and intentionally procured MBE, Inc.'s breach of the Franchise Agreement through numerous activities wherein UPS directed MBE, Inc. to run its business so as to prefer and promote the UPS brand, and UPS, over the MBE brand. Specifically, plaintiff alleges that UPS, through its control of [MBE, Inc.]:
"caused and intentionally procured [MBE, Inc.'s] breach of [the Franchise Agreement] through, inter alia:
ú the implementation of the Gold Shield program and resulting conversion [of] over 3000 MBE Stores to UPS Stores;
ú [MBE, Inc.'s] promotion of the UPS Stores, through national advertising campaigns at the expense, and to the detriment of, the MBE Stores;
ú The creation of links on the [MBE, Inc.] website to the UPS site, wherein only the UPS Stores are promoted;
ú directing that [MBE, Inc.'s] call center should direct customers to a UPS Store even when an MBE Store was closer to the customer's location ú directing that the royalty payments formerly designated for...
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