Free Affidavit in Opposition to Motion - District Court of California - California

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 1 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

JOHN J. WALLER, JR. (State Bar No. 094449) JAY STEIN (State Bar No. 141042) Members of FINESTONE & RICHTER, A Professional Corporation 11601 Wilshire Boulevard, Suite 1900 Los Angeles, California 90025 Telephone: (310) 575-0800 Facsimile: (310) 575-0170 E-Mail: [email protected] [email protected] Attorneys for Defendants Stups, Inc. and Stuart Berk

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

) Case No.: 3:08-CV-00491-JAH- POR ) ) Plaintiff, ) ) vs. ) DEFENDANTS' MEMORANDUM OF POINTS ) AND AUTHORITIES IN OPPOSITION TO STUPS, INC. and STUART BERK, ) PLAINTIFF'S MOTION FOR TEMPORARY ) RESTRAINING ORDER ) Defendants. ) ) ) Date: April 1, 2008 ) Time: 2:30 p.m. ) Judge: Hon. John A. Houston ) Place: Courtroom 11 ) MAIL BOXES ETC., INC.,

Defendants Stups, Inc. and Stuart Berk, by and through their attorneys of record herein, hereby submit the following points and authorities in opposition to Plaintiff's Motion for Temporary Restraining Order:
1 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 2 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

I INTRODUCTION The question presented by these proceedings is whether a franchisor opportunity basis of may to unilaterally cure, a terminate, without notice on in and the the

franchisee's and

franchise not

rights

disputed

facts

grounds

specified

Franchise Agreement and then use that purported termination as the sole basis for obtaining post-termination injunctive relief against the franchisee who disputes the propriety of the

franchise termination. In its Notice of Motion and Motion for Temporary

Restraining Order,

Plaintiff Mail Boxes Etc., Inc. ("MBE" or

"Plaintiff") seeks a temporary restraining order "enforcing the binding terms of the Franchise Agreements [sic] between MBE and the Defendants." MBE's Memorandum of Points and Authorities in Support Order of Plaintiff's Application in Inc. for Temporary seeks and Restraining an Stuart order Berk

("TRO

Application"), Stups,

essence, ("Stups") from

restraining
19 20 21

Defendants

("Berk") (collectively owned by MBE.

"Defendants")

using

any

trademark

While Defendants in their own right seek the enforcement of
22

the
23 24

terms

of

the

Franchise

Agreement,

Defendants

oppose

the

issuance of any injunctive orders against them on the grounds that Plaintiff will suffer no immediate and irreparable injury,
25

loss or damage if provisional relief is denied.
26

In addition, unilaterally

having
27 28

breached

the

Franchise

Agreement

by

terminating the franchise granted to Stups without notice and opportunity to cure, and by attempting to improperly circumvent
2 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 3 of 23

1 2 3 4 5 6 7 8 9 10

the

initial

mediation

requirement

imposed

by

the

Franchiser

Agreement, Plaintiff has unclean hands and is not entitled to any post-termination remedy.

II THE FACTS DO NOT SUPPORT PLAINTIFF'S REQUEST FOR INJUNCTIVE RELIEF A. In Agreement The Franchise Obligations. July with 2005, MBE entered into the a 10-year Franchise rights and

Stups,

governing

respective

11

obligations of the parties in connection with the operation of a
12

Mail Boxes Etc. franchise doing business under the name The UPS
13

Store.
14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
1

Stups obligations under the Franchise Agreement were (The parties' Franchise to the Declaration of

guaranteed by Stups' principal, Berk.1 Agreement is attached as Exhibit "A"

Stuart Berk ("Berk Decl., ¶ 3")). start-up $150,000. costs, In Defendants addition,

Between franchise fees and paid MBE approximately Agreement,

initially under the

Franchise

Defendants committed to paying MBE substantial monthly franchise fees and other monies. (Berk Decl., ¶ 3.)

As consideration for becoming a MBE franchisee, MBE granted Stups various rights, including the following: various portions their of MBE's and and UPS's written a license to use property, Stups was

intellectual materials;

including

trademarks

supposed to obtain the benefit of the goodwill associated with

MBE is a wholly owned subsidiary of United Parcel Service of America, Inc. ("UPS"). (See Plaintiff's Rule 7.1 Statement.)
3 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 4 of 23

1 2 3 4 5 6 7

use of MBE's and UPS' brands; access to many of MBE's and UPS' systems for transacting business, including preferred

arrangements for shipping packages via UPS; discounted shipping rates and commissions on UPS shipping transactions processed

through Stups franchise; scheduled daily shipping pick-ups and deliveries at Defendants' UPS Store; use of MBE's and UPS'

shipping materials; the benefits of MBE's and UPS' advertising,
8

marketing
9

and as

promotions; a franchised

the UPS

benefits Store and

associated through internet by

with and

being UPS' and UPS'

identified
10

MBE's

central
11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

call

centers,

directory services

listings; MBE's and

purported access

to the

provided

network of technical and service support to assist Defendants in the operation of their franchise. In reliance upon (Berk Decl., ¶ 3.) Stups of the aforesaid to

MBE's grant to benefits,

franchise,

licenses

and

including

MBE's

promise

perform its obligations to Stups under the Franchise Agreement, Stups also entered into a 10-year lease with a third-party for occupancy of a retail space, which space was located by MBE and into which lease MBE directed Stups and Berk to enter. Decl., ¶ 4.) lease. (Id.) (Berk

Berk was required to personally guaranteed that The financial obligation currently remaining on (Id.)

that lease is at least $226,000.

B.

MBE Breaches and Malperformance of its Obligations to

Defendants.
27

Notwithstanding
28

MBE's

entry

into the

Franchise

Agreement

with Stups, its receipt of both the initial franchise fees and
4 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 5 of 23

1 2 3 4 5 6 7

subsequent monthly franchise payments from Stups, all of which were substantial, and the other benefits that MBE derived from having Stups act as one of its franchisees, throughout the

2½ year duration of Stups' franchise with MBE, MBE engaged in a pattern and practice of breaching its obligations under the

Franchise Agreement and/or poorly performing its obligations to Stups. Those to deficiencies Stups caused in MBE's performance lodge of its of

8

obligations
9 10

Defendants to

a series

complaints about those deficiencies with MBE and UPS, and to make numerous requests to MBE for remedial assistance to attempt
11

to correct or mitigate MBE's and UPS' failures to fully and
12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

properly perform their obligations to Stups. (Berk Decl., ¶ 5.) MBE's chronic breaches of its duties to Defendants and its poor performance and mistreatment of them included the following noteworthy events: 1) property Directing designated Defendants by MBE, to enter into a that lease the of a

notwithstanding

retail

complex in which that space was located was then in foreclosure and/or receivership, and which fact fact was concealed the by MBE from

Defendants undesirable.

which

rendered

property

highly

As a result of its being in foreclosure, necessary

repairs to the overall retail complex were deferred or cancelled by its owner(s) and the condition of the property was allowed to seriously deteriorate. In addition, there was a significant

decline in occupancy of the other retail spaces in the retail complex, which has had a significant adverse impact on Stups' MBE-related business as the flow of customers into the retail
5 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 6 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

complex,

and

into

Stups'

store,

has

thereby

foreseeably

diminished. (Berk Decl., ¶ 5.1.) 2) Failing to install the "UPS Store" signage for months A copy of an email

after MBE's obligation to do so arose.

message from me to Jones Rodney of MBE, dated October 4, 2005, referencing this issue is attached as Exhibit "B" to the Berk Decl., ¶ 5.2. 3) Insisting, through its District Consultant, that Stups

purchase more supplies through MBE at one time than Stups needed in an entire year and a half. (Berk Decl., ¶ 5.3.) 4) Losing, misdelivering or damaging so many packages

sent from or to Stups' UPS Store due to MBE's and/or UPS' errors that Stups' UPS Store experienced a disproportionately high lost and damaged package rate. The lost or damaged package rate that

Stups' UPS Store has experienced has been as high as 1 out of every 163 packages, instead of the expected rate of 1 in 500. (Berk Decl., ¶ 5.4.) 5) UPS Store Chronically failing to pick up packages from Stups' as and when scheduled, including during the busy

Christmas season when a disproportionate amount of a UPS Store's annual volume and profits are made, thereby rendering Stups

unable to meet its obligations to its customers at that critical time. 6) (Berk Decl., ¶ 5.5.) Requiring Stups and other MBE franchisees to accept

and process packages for UPS pick-up from E-Bay customers at a severely discounted commission rate to the franchisee.

Reference to that issue was raised by Defendants in an email message to Steve D'Andrea, copied to Jay Schlessinger and Robert
6 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 7 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Kaufman, dated June 25, 2007, a copy of which is attached as Exhibit "C" to the Berk Decl. (¶ 5.6). 7) Undercutting Stups' and other MBE franchisees'

franchise and license rights by giving better shipping rates and promotional Staples materials to Staples compete stores, with even UPS though Stores those for

stores

directly

MBE's

packaging, shipping and photocopy services. message, dated March 15, 2007,

(A copy of an email sent to MBE

that Defendants

President Stuart Mathis discussing this issue is attached as Exhibit "D" to the Berk Decl. (¶ 5.7).) 8) Undermining Stups' and other MBE franchisees' ability

to earn drop-off commissions on UPS shipments by changing UPS' shipping policies to allow customers to use UPS drop boxes

instead of MBE's UPS Store locations for many UPS deliveries. (A copy of the email message trail discussing this deficiency, bearing dates from January 12, 2008 through January 14, 2008, is attached as Exhibit "E" to the Berk Decl. (¶ 5.8).) 9) Providing increasingly poor franchisee support,

particularly with respect to lost packages and claims, and even making extra demands of Stups' customers for the presentment of claims against UPS or delaying the payment of their claims, even when the packages were specifically insured for such claims and amounts. One example of these problems is reflected in the

email message chain, bearing dates from January 16, 2008 through January 22, 2008, discussing MBE's/UPS' refusal to refund the payment on a package of a Stups customer that was lost for a month, a copy of which is attached as Exhibit "F" to the Berk Decl. (¶ 5.9). Another example is illustrated by the email

7 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 8 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

message, dated May 23, 2007, about delays in paying a claim for lost goods, a copy of which is attached as Exhibit "G" to the Berk Decl. (¶ 5.9). 10) Publishing directions to Stups' store on MBE's website

that were inaccurate and unfamiliar to local residents. (Berk Decl., ¶ 5.10.) 11) Failing to timely place an advertisement for Stups' MBE at first claimed

store in the local telephone directories.

the problem to have arisen because of an alleged failure by Defendants to communicate with MBE, but ultimately acknowledged that the failure was on MBE's end. 12) (Berk Decl., ¶ 5.11.)

Promising, but not performing, for months, and still

not having completed performance of, the mitigation of MBE's agent's error in failing to cause the publication of Stups'

store advertisement in the telephone directories. documented in part by the email messages

This error is starting on

November 14, 2007, and continuing through March 11, 2008, copies of which are collectively attached as Exhibit "H" to the Berk Decl. (¶ 5.12). 13) manager) MBE's District Consultant's that (i.e., Berk the a district 5-hour

purported

requirement

attend

"meeting" of local store operators at a horse race track, even though no business was actually to be transacted at the

gathering. 14)

(Berk Decl., ¶ 5.13.)

MBE's District Consultant's making disparaging remarks (Berk Decl.,

about Berk's caring for his 92-year old mother. ¶ 5.14.)

8 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 9 of 23

1 2 3 4 5 6 7

In the two and a half years Stups has been a franchisee, Defendants complained to MBE multiple times about the foregoing breaches by MBE of its obligations to Stups, but were generally unable to obtain a satisfactory resolution of those issues.

With each successive complaint, however, MBE became increasingly unresponsive and the attitude of its personnel toward Defendants became increasingly disapproving and critical. Despite the many of various that MBE MBE

8

complaints
9

and MBE the

requests never accuracy

for

assistance advised

made or

personnel,
10

once or

Stups of

Berk

disputed
11

legitimacy them.

their

complaints. MBE's

Rather,
12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

MBE

largely

ignored

Notwithstanding

numerous failures to honor its obligations to Stups, to date defendants have not communicated to persons outside of the

MBE/UPS family any of those concerns, disputes or grievances with MBE, nor have Defendants taken any public action adverse to MBE. of Defendants have not misused or made any unauthorized use trademarks or done anything that would materially

MBE's

impair the goodwill associated therewith. engaged in the unauthorized use of

Nor have Defendants information.

confidential

(Berk Decl., ¶ 6.)

C.

The Beginning of MBE's Malevolence Toward Defendants.

The turning point in Stups' relationship with MBE came on March 15, 2007, when Defendants sent an email to MBE's

President, Stuart Mathis, expressing the grievance that MBE was improperly undercutting its franchisees and engaging in unfair and unlawful business practices by giving better shipping rates
9 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 10 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

and marketing materials to Staples stores, even though those Staples stores were in direct competition with MBE franchises, including Stups, and were located within franchisees' exclusive territories. (Berk Decl., ¶ 7; See email message attached as Thereafter, the mediocre

Exhibit "D" to the Berk Decl., ¶ 5.7.)

franchise support Stups had already been receiving became even more anemic and MBE employees became largely unresponsive to Defendants' concerns and requests. Beyond apathy, MBE actually

started looking for things about which to criticize Stups and for ways in which to make Stups' operations more difficult or costly. (Berk Decl., ¶ 8.)

Although Stups' franchise was run consistently pursuant to MBE's standards, MBE supervisors started "nit-picking" ­ trying to find even little things to harass Defendants example, even though cleaned Stups on a had weekly its about. For

storefront MBE

windows

professionally

basis,

supervisors

complained that the windows were dirty and demanded that they be cleaned immediately. To drive up Stups' costs, MBE supervisors

also demanded that Stups' interior store lights all remain on 24 hours per day, seven days per week, even when the store was closed. cent MBE started sending in "mystery customers" with forty jobs sales to see if Stups' all of personnel the would give the the

copy

expected

pitch

about

other

services

franchise offers.

And those "mystery customers" made a point of

coming in when there was a line of packaging customers so that they could then report that they did not receive my "full and undivided attention." seemingly Defendant's explains sending as is of the email by to the

Mr. Mathison

why,

evident

10 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 11 of 23

1 2 3 4 5 6 7 8 9 10

statements in MBE's franchise cancellation letter MBE apparently started collecting a dossier on Defendant Berk. ¶ 8.) (Berk Decl.,

D.

Defendants'

Proposal

that

MBE

Buy

Back

Defendants'

Franchise as a Remedy for MBE's Breaches and Malperformance. MBE's malfeasance and mistreatment of Defendants heightened after Defendants discussed with MBE in January 2008 their utter dissatisfaction with MBE's performance of its obligations and his consequent desire either to have MBE buy back Stups'

11

franchise or to allow them to sell it.
12 13

(Berk Decl., ¶ 8.)

After persistently seeking a meeting on this proposal for two months, finally, MBE personnel informed Berk that there would be
14

a
15 16 17 18 19 20 21 22 23 24 25 26 27 28

meeting

held would

at be

Stups'

store

on

March

13th the

in

which of

a a

resolution

discussed.

However,

promise

meeting about a resolution proved to be a ruse to ensure that Berk was present so that he could be served with a letter from MBE's lawyer purporting to terminate Stups' franchise without notice or opportunity to cure any alleged breach. Don Higginson, ¶ 24 and Exh. A.) (Affidavit of

E. Rights.

MBE's Unlawful Interruption of Defendants' Franchise

Notwithstanding

the

ongoing

negotiations

prompted

by the

termination letter between MBE's lawyer and Defendants' lawyer regarding regarding MBE's the purported of termination of the franchise sale of and the

timing

Defendants'

prospective

11 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 12 of 23

1 2 3 4 5 6 7

franchise, Defendants'

by

the

night to the

of

March

14,

2008,

MBE

disabled thereby

access

MBE/UPS

computer

system,

disabling Stups' access to the MBE/UPS point of sale (i.e., cash register) system, to the MBE/UPS shipping manifest system, to the MBE/UPS administrative system, to Stups' own financial data kept on QuickBooks on said computer system, and Stups' own

email.
8 9

(Affidavit of Don Higginson, ¶ 26.)

MBE's disabling of

Defendants' access to the foregoing systems, equipment and data effectively
10

put

Defendants is

out

of

business.

Moreover, and

Plaintiff's
11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

conduct

denying

Defendants

unfettered use

enjoyment of their substantial investment, is denying Defendants their livelihood and is a continuing interference with

Defendants' relationships with their customers.

III PLAINTIFF BREACHED THE FRANCHISE AGREEMENT BY UNILATERALLY TERMINATING THE FRANCHISE ON IMPROPER AND PRETEXTUAL GROUNDS AND WITHOUT NOTICE AND OPPORTUNITY TO CURE A. California Law Favors Protecting Franchisees From

Summary Terminations of Their Franchise Rights by Franchisors. The California Code Franchise Section Relations et Act, seq., Business governs and the

Professions

20000,

relationship between franchisors and franchisees. "The motivating not purpose behind from the CFRA was of to protect and

franchisees,

franchisors,

contracts

adhesion

abrupt terminations without cause."

Gabana Gulf Distribution,

Ltd., et al. v. GAP International Sales, Inc., 2006 U.S. Dist.
12 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 13 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

LEXIS

59799 (N.D.

California,

2006).

The

Act's purpose "to

protect franchisees" was recognized in

JRS Products, Inc. v.

Matsushita Electric Corp. of America, 115 Cal App 4th 168, at 174 (2004), which amplifies that the Act is "legislation designed to expand, not retract, a franchisee's remedies." Business franchisor and Professions Code a Section 20020 precludes prior to a

from

"terminat[ing]

franchise

the

expiration of its term, except for good cause."

"Good cause" is

defined in that Section as being "the failure of the franchisee to comply with any lawful requirement of the franchise agreement after being given notice thereof and a reasonable opportunity . . . to cure the default." Business instances in and which Professions a Code Section 20021 limits the

franchisor

may

terminate

the

franchise

without notice and opportunity to cure to eleven circumstances: (a) bankruptcy; (b) abandonment of the franchise; (c) mutual agreement to terminate; in (d) if the franchisee made material (e) the

misrepresentations

acquiring

the

franchise;

franchisee's failure to comply with laws governing the operation of the business after being given ten days' notice; (f) multiple non-compliances with the franchise agreement for which notice has previously been given; (g) repeated failures to comply with franchise agreement requirements; (h) the seizure of the

business or business premises; (i) conviction of a felony or other crime relevant to the operation of the franchise; (j) the failure to pay franchise fees after the giving of a five day notice; and (k) the continued operation of the franchise will result in imminent danger to public health or safety.
13 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

None of

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 14 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

those circumstances is applicable to the facts in this case. Moreover, writing, the Act requires all notices as to of be a given in

stating

the

intent to

terminate

particular (Business

date, and stating the reasons for the termination. and Professions Code § 20030.) B. The Franchise Agreement Limits the Grounds

for

the

Termination of Defendants' Franchise Rights. The Franchise Agreement contains a choice of law provision, at 20.1 thereof, requiring the application of the substantive law of California. Relations Thus, Act the provisions the of the California and

Franchise

govern

interpretation

enforcement of the Franchise Agreement. Section 12 of the Franchise Agreement sets forth the

contractual scheme agreed to by the parties for the termination of the parties' Franchise Agreement. grounds for termination of Section 12.1 governs the as its franchisee.

Stups

Section 12.2 restricts MBE's right to terminate the Agreement to termination "only for `cause.'" Section 12.3 requires MBE to

give 30 days written notice and opportunity to cure any default under the Agreement, other than certain limited items of default listed in Section 12.4. that are similar, and but Section 12.4 lists events of default not identical, Section to those set forth in

Business

Professions

Code

20021.

However,

once

again, none of the categories of grounds for which termination without notice or opportunity to cure is applicable to the facts in this case.

14 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 15 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

C.

On its Face, MBE's Termination Letter Fails to Comply

with both the law and the Franchise Agreement. Plaintiff's March 13, 2008 letter, wherein it purports to terminate Defendants' franchise, declared Defendants to be "in material breach" of the Franchise Agreement "as the result of [Defendants'] ongoing pattern of erratic and abusive behavior." The termination letter further states that MBE deems the

foregoing to constitute "an incurable default" justifying its termination of the Franchise Agreement "without further notice from, or other action required by, MBE to cancel [Defendants'] franchise rights to own and operate the Center." (Termination

Letter, Paragraph 1, attached as Exhibit "A" to the Affidavit of Don Higginson.) letter, therein MBE In the seventh paragraph of the Termination that Defendants' of the conduct Franchise referenced Agreement

concludes

violates

Section 12.4(k)

based upon MBE's contention that Defendants' actions "'reflect materially and unfavorably upon the operation and reputation of the Center.'" There notice or is no dispute to that Plaintiff any failed to give any and,

opportunity

cure

alleged

default

therefore, does not seek termination pursuant to the provisions of Business and Professions Code Section 20020 or any section of the Franchise Agreement other than Section 12.4(k). As a

result, MBE's purported termination of Defendants' franchise can only be supported if adequate grounds exist under Section

12.4(k) to terminate Defendants' franchise.

As explained below,

Plaintiff cannot meet its burden in that regard.

15 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 16 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

It

is

evident

from the

face

of

Plaintiff's

Termination

Letter that the conduct that MBE attributes to Defendants, even assuming arguendo that it were true, which it is not (Berk

Decl., ¶¶ 6 and 12), does not properly fit within the "reflects materially and unfavorably upon the operation and reputation of" Defendants' UPS Store or MBE's network of UPS Stores language of Section 12.4(k). As noted above, that is the only section of

the Franchise Agreement that MBE relies upon as grounds for its termination of Defendants' franchise without notice or

opportunity to cure. It is self-evident that an action by Defendants could only violate Section 12.4(k) if the action was made known to or

otherwise published by Defendants to an individual or entity outside of the MBE/UPS family of companies. publication was made by Defendants. However, no such

(Berk Decl., ¶¶ 6 and 12.)

In fact, not a single thing that MBE has complained of is a public act and not a single offending conversation was with any person outside of MBE's/UPS' organization. In this regard it is

noteworthy that MBE does not make any allegation that there was ever any publication by Defendants of any allegedly damaging remarks to any of third-party. the Defendants' As a result, and of the public

"reputation"

franchise

MBE's/UPS'

family of companies cannot have been injured. Of course, Defendants also vehemently reject the factual allegations Termination and characterizations As is set forth by in Plaintiff's accompanying

Letter.

exposed

the

Declaration of Stuart Berk, and the exhibits attached thereto, and as set forth more fully therein, Plaintiff's Termination
16 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 17 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Letter is insidiously dishonest.

In addition to the inaccuracy

of some of the statements ascribed to Defendant Berk in the letter, Plaintiff excerpts a few phrases from lengthy

communications, takes them out of their proper contexts, and strings them together to attempt to manufacture a misleadingly inflammatory connotation. For example, Plaintiff's termination letter portrays Berk as having made allegations of anti-Semitism and discriminatory treatment and as having tried to extort money from MBE for that treatment. A reading of the entire email message from which

those two issues were derived, however, reveals that the two were not connected at all and that Berk's statement about MBE "coming up with money" related to the proposal that he had been making for a while that, given his dissatisfaction with MBE, he proposed to sell the franchise to a third party but, because that was not likely to yield enough money to make him whole from his investment in the franchise, MBE would have to contribute some additional money. There was no "extortion." (Berk Decl.,

¶ 24.6, and Exhibits "J," "K" and"L.") There also was no "terrorist threat." his declaration, and the his statements that As Berk testified in MBE characterizes were as

threats,

reasonable

meaning thereof,

completely

misreported by MBE and its personnel.

Within minutes after the

referenced conversation had taken place, and after he had been accused by MBE of making threats, Berk vehemently and in writing disavowed the accusation by MBE that he had made any threat. In

addition, the next morning, MBE's own security person quickly verified that there had been no threat. (Berk Decl., ¶ 24.3.)

17 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 18 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Nevertheless, weeks later, MBE resurrected that accusation to suit its goal of terminating Defendants' franchise rights

without notice or opportunity to cure under the pretext that he had made various threats to MBE and UPS personnel. At odds with Plaintiff's claim that there is a long history of offensive remarks and behavior by Berk, never once in that time did Plaintiff ever tell Berk that his words or actions were offensive, nor had anyone complained to him or warned him about, his choice of words or actions. or Moreover, contention Plaintiff that never

communicated

any

information

Plaintiff

construed the use of profane language to its employees as a violation of the Franchise Agreement. point is exactly why Business and Of course, this latter Professions Code 20020

requires that notice of all violations not enumerated in Section 20021 be given to the franchisee. In non-exigent circumstances,

it is manifestly unfair to terminate a person's valuable rights without ever first telling them that their conduct constitutes a violation of the franchise agreement.

IV PLAINTIFF'S ACTION TO ENFORCE ITS POST-TERMINATION RIGHTS IS PREMATURE Before Plaintiff may exercise its rights to enforce any of the post-termination provisions of the Franchise Agreement, such as the preclusion post-termination of Stups' use of Plaintiff's trademarks, franchise Plaintiff rights must first demonstrate lawfully that Defendants' That

have

been

terminated.

requirement is a necessary prerequisite for the relief that MBE
18 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 19 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

seeks by its application for a temporary restraining order, but has been given short shrift by Plaintiff, obviously because it lacks a proper basis for its purported termination of

Defendants' franchise. As analyzed above, Defendants' franchise rights have not been properly terminated. Accordingly, all of Plaintiff's

evidence and arguments in its Motion for Temporary Restraining Order concerning use is of of no the the wrongfulness marks that to the of have Defendants' been in postto the

termination Defendants

licensed deciding

relevance

Court

instant motion. Moreover, been properly because Defendants' the franchise rights have not

terminated,

post-termination

trademark

protection issue that is the central focus of MBE's application for a temporary restraining order is not yet ripe for decision. Rather, because the first determination that must be made is whether Defendants' franchise rights have been properly

terminated, an attempt to first mediate that issue is imposed by the Franchise Agreement (Section 20.2). aware, instant Section 20.2 requires it to As Plaintiff is well to mediate the

attempt any other

disputes

before

instituting

legal

action. has not any For

Notwithstanding made any effort

that to

mediation request,

requirement, demand,

Plaintiff or

arrange

conduct

mediation of any of its purported disputes with Defendants. that reason alone, the Court should deny

Plaintiff's

application.

19 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 20 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

V PLAINTIFF'S ACTION TO ENFORCE ITS POST-TERMINATION RIGHTS IS NOT PROPERLY BEFORE THIS COURT Although some post-termination provisions exist in the body of the Franchise Agreement, the operative provisions for

affirmative relief relied on by Plaintiff are contained in the parties' Non-Competition and Non-Solicitation Agreement,

attached to the Franchise Agreement as Exhibit D (Exhibit "C" to the Complaint on file in this action). the Non-Competition jurisdiction and of However, Paragraph 10 of Agreement thereon vests in the

Non-Solicitation any suit brought

exclusive

jurisdiction where the "Center" (i.e., the franchise store) is located. In this of case, the that Franchise location is New York.

Paragraph 20.1(a)

Agreement

specifically

recites that "the Non-Competition and Non-Solicitation Agreement (Exhibit "D" to the Franchise Agreement) shall be deemed made and entered into, and governed and construed under and in

accordance with, the laws of the State that is determined by the `Choice of Law' provision" of that Agreement. Because Stups' Center is located in East Meadow, New York, jurisdiction and venue for claims covered by the Non-Competition Agreement is in New York, not in California.

/// /// ///

20 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 21 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

VI PLAINTIFF'S MOTION FOR TEMPORARY RESTRAINING ORDER MUST BE DENIED BECAUSE PLAINTIFF CANNOT ESTABLISH A STRONG LIKELIHOOD OF SUCCESS ON THE MERITS, IRREPARABLE INJURY, OR EVEN EQUITABLE FACTORS IN ITS FAVOR A plaintiff is not entitled to preliminary injunctive

relief unless it demonstrates a strong likelihood of success on the merits, the the possibility of suffering that the irreparable balancing injury of the

without

injunctive

relief,

hardships favors the Plaintiff, and that it is in the public interest to grant such relief. 636, 639 (9th Cir. 2007). Lands Council v. Martin, 479 F3d

Save Our Sonoran, Inc. v. Flowers,

408 F.3d 1113, 1120 (9th Cir. 2005) For the reasons set forth above, Plaintiff has not, and cannot, demonstrate a strong likelihood of success on the merits inasmuch as it acted patently improper in purporting to

terminate Defendants' franchise rights. those rights lawfully, Plaintiff has

Having not terminated no claim for the

enforcement of any post-termination remedies. It also follows that Plaintiff will suffer no injury if preliminary injunctive relief is denied insofar as Plaintiff has licensed its intellectual is no property improper rights use of to Defendants and,

therefore,

there

those

intellectual

property rights. Indisputably, it is the Defendants who are suffering great hardship, business economic not the Plaintiff. is one Plaintiff's there favor is of and Defendants' disparate Plaintiff-

arrangement and

where in

vastly the

bargaining

power

21 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 22 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13

franchisor.

Defendants, the franchisees, made a comparatively

large investment into this business and depend upon it for their livelihood. And, Plaintiff here has acted malevolently with

respect to Defendants, mistreating them throughout the franchise relationship, wrongfully terminating the Defendants' rights, and shading the truth in its Termination Letter so deviously that all equities preponderate in favor of Defendants.

VII PLAINTIFF'S MOTION MUST BE DENIED It requires little imagination to appreciate that Plaintiff considered Defendant Berk to be a "thorn in its side" because of his various complaints about the poor service Stups was

14

receiving from MBE, the lack of assistance Stups was receiving
15

from MBE, and the threat Berk posed by challenging MBE's scheme
16

of undercutting its UPS Store franchisees by offering better
17

prices to Staples stores, by diverting package drop-off business
18 19 20 21 22 23 24 25 26 27 28

to drop boxes, and by giving deep discounts to E-Bay customers. And, the quickest way to dispose of that "thorn" was to

terminate Defendants' franchise rights with no notice and no opportunity to cure. By filing this action and this motion

seeking to enforce post-termination trademark rights on an ex parte basis, Plaintiff undoubtedly aimed to have this Court

ratify its termination of Defendants' franchise. Plaintiff is not entitled to any post-termination relief, however, because the predicate termination of Stups' MBE

franchise has not been effected, at least not lawfully or as
22 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER

Case 3:08-cv-00491-JAH-POR

Document 7-6

Filed 03/24/2008

Page 23 of 23

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

required

by

the

Franchise

Agreement.

As

a

result,

no

preliminary injunctive relief is appropriate.

DATED:

March 24, 2008

JOHN J. WALLER, JR. JAY STEIN FINESTONE & RICHTER

By:

/s/John J. Waller, Jr. John J. Waller, Jr. Attorneys for Defendants Stups, Inc. and Stuart Berk

F:\CLIENTS\Stups-Berk\Pleadings\TRO Opposition\Memo of Ps and As.doc

23 _________________________________________________________ DEFENDANTS' MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFF'S APPLICATION FOR A TEMPORARY RESTRAINING ORDER