Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Office products distributors seek declaration, injunction against franchisor, (May 28, 2015)

By Greg Hammond, J.D.

United Safeguard Distributors Association, Inc. (USDA)—a membership organization composed of Safeguard franchisees and distributors—is seeking declaratory judgment and injunctive relief against franchisor Deluxe Corp. and its subsidiary Safeguard Business Systems, Inc. (SBS). Deluxe and SBS are accused of usurping their distributors’ profits through actions in violation of their distributor agreements (United Safeguard Distributors Association, Inc. v. Safeguard Business Systems, Inc., May 27, 2015).

After taking over SBS in 2004, Deluxe allegedly engaged in a multi-tiered strategy to drive Safeguard distributors out of business. To do this, Deluxe required SBS Distributors to purchase from Deluxe’s preferred suppliers, including Deluxe itself; required “Preferred Suppliers” to pay rebates or “kickbacks” at the expense of the SBS Distributors; imposed a 2 percent rebate from an approved vendor when SBS makes payment within 30 days, at the expense of SBS Distributors; imposed “Billing Only Distributor Paid” fees; increased shipping and handling costs for its own profits unrelated to the expenses of shipping and handling; violated the SBS Distributors’ rights to customer protection; and required a general release from SBS Distributors as a condition of transferring another SBS Distributor’s agreement.

USDA seeks a judicial determination and declaration that: (1) SBS distributors may source safeguard products through any approved vendor and are not required to purchase from Deluxe or preferred suppliers; (2) Deluxe and SBS’ “Billing Only Distributor Paid” fees violate the SBS Distributor Agreements; (3) Deluxe and SBS inflated shipping and handling costs violate the SBS Distributor Agreements; (4) Deluxe and SBS have no right under the SBS Distributor Agreements to obtain “rebates” from any approved vendors; (5) Deluxe and SBS have no right under the SBS Distributor Agreements to impose a 2 percent Net 30 Program on Approved Vendors; (6) Deluxe and SBS’ Business Acquisitions and Merger program, as implemented, violates the SBS Distributors’ rights to Customer Protection; and (7) Deluxe and SBS may not require a general legal release as a condition of transferring the distributorship. In addition, USDA seeks preliminary and permanent injunction, as well as costs, expenses, and attorney fees.

The case number is 2:15-CV-3998.

Attorneys: James M. Mulcahy (Mulcahy LLP) for United Safeguard Distributors Association, Inc.

Companies: United Safeguard Distributors Association, Inc.; Safeguard Business Systems, Inc.; Deluxe Corp.

News: FranchisingDistribution