PIP and Printing Franchisees Slugging It Out in Courts : Litigation: Group suing franchiser includes four from Orange County. Plaintiffs allege they didn't get promised technical support and advertising.

By JILL BETTNER

April 29, 1993 12 AM PT

TIMES STAFF WRITER

PIP Printing of Agoura Hills, a 1980s franchise success story, is now battling many unhappy buyers of its retail print shops in court.

Before PIP went private in a 1989 leveraged buyout, it was the undisputed leader in the quick-print industry with 1,100 stores. Today, the number of PIP outlets has dwindled to 815, fewer outlets than PIP rivals Sir Speedy, based in Laguna Hills, and Kwik-Kopy Corp. in Houston claim to have.

PIP’s relationship with its franchisees has become increasingly acrimonious. Over the past 18 months, PIP has sued scores of them for alleged non-payment of royalties, according to lawyers for some of these store owners. The company filed a dozen such lawsuits against local PIP store owners last month in Los Angeles Superior Court.

Earlier this month 30 current and former PIP franchisees from California and 13 other states--including four in Orange County--fired back with a suit against the company, also filed in Los Angeles Superior Court.

In their suit, the franchisees charge that PIP has breached franchise contracts by not providing its store owners promised services, such as regional advertising, technical support and equipment financing.

“The first 20 years with PIP were good,” said former Anaheim franchise owner William Koenig. “But things just went downhill after (founder) Bill Levine sold the company. It was bought by a number of people using a great deal of borrowed money, and things just went to pot.”

Koenig, who ran his PIP shop for 24 years, said he started withholding royalties last year, and at the end of the year PIP canceled his franchise. He now operates in the same location as The King’s Press. He said he is one of the former franchise holders being sued by PIP, which is seeking not only past royalties, but also damages for the ex-franchisees’ potential future royalty payments.

PIP’s recent flurry of lawsuits over royalties suggests that the company is strapped for cash, said William Tedards, a Washington lawyer who developed the franchisees’ suit. “PIP still needs money pretty badly from the buyout. Franchisees are their principal source of revenue,” he said. (The franchisees’ case is now being handled by the Los Angeles law firm of Girardi & Keese.)

PIP executives declined requests to be interviewed for this story. A PIP spokeswoman says the company believes that the franchisees’ suit is “totally without merit” and will defend itself vigorously against the charges.

As a private company, PIP no longer releases details of its financial condition. The PIP spokeswoman says that systemwide, PIP outlets had sales last year of $227 million. The company received $16.2 million of revenue, primarily from royalties and franchise sales. In 1988, the last year before the buyout, PIP earned $4.6 million on revenue of $24.6 million.

PIP has also been a target since 1988 of a Federal Trade Commission investigation because of complaints by franchisees. PIP has said it feels that the company hasn’t done anything wrong in connection with that probe. An FTC spokesman said last week that the agency hasn’t taken any public action against the company because of the investigation.

The PIP franchisees’ suit also claims that PIP has used unethical sales tactics to fraudulently induce new franchise purchases and renewals. It alleges that, in an aggressive expansion that began in the mid-1980s, PIP misrepresented the parent company’s financial condition and the sales that prospective buyers could expect.

Among other defendants, the suit names PIP’s new majority shareholder, Kane-Miller Corp., a Tarrytown, N.Y., investment company, and New York-based Citicorp. Kane-Miller led the $68-million leveraged buyout of PIP, then called Postal Instant Press Inc. Citicorp backed the buyout.

In a leveraged buyout, money is borrowed to buy a company and that debt is paid off through the sale of the company’s assets or money generated from operations. As a franchiser, PIP licenses its name and business format in exchange for fees and royalties from franchisees.

The PIP spokeswoman adds that PIP believes that the company has many happy franchisees like Bruce Pansky, whose stores in Downey and South Gate had combined 1992 sales of more than $1.3 million. “It’s unfortunate that some owners haven’t weathered these tough economic times too well,” he said. “My personal opinion is that their businesses are failing and they’re trying to find someone else to blame.”

However, disgruntled PIP franchisees say in their suit that their problems began when the company’s founder, Los Angeles commercial printer William Levine, stepped down in 1985. They say that under Levine, few franchisees failed because he provided them top-notch training and other support that included strong regional advertising.

But after Levine left the company, PIP borrowed to expand. When the company didn’t grow fast enough to pay for that expansion, it stopped making regular technical-support visits to franchisees, eliminated regional advertising and turned up its high-pressure sales tactics, the suit charges. Moreover, PIP didn’t keep pace with competitors who changed their focus to commercial business printing when “desktop publishing” came along. Such technology has made it possible for many people to do high-quality printing using home computers and laser printers.

Instead of helping franchisees install Macintosh computers, which led the desktop revolution, former Del Mar PIP owner John Fish says the company pressured him into buying then-less-versatile IBM computers. “It was a disaster,” Fish said. He and his wife, Kimberly, are the lead plaintiffs in the franchisees’ suit. They say PIP’s misleading sales pitch persuaded them to give up other careers to buy their franchise in 1989. Then the company ignored their pleas for technical help.

Last December, after investing more than $200,000 of their life’s savings in their PIP store with disappointing results, the Fishes said, they dropped the franchise and became independent business printers. John Fish says their store’s new Imageprint sign has “attracted new customers and large commercial jobs we weren’t getting before. When a lot of people see PIP, they think you’re just a copy business.”

PIP hasn’t actively sold new franchises for the past two years. The company’s spokeswoman says that is because PIP has been revising its franchise-offering statement, which discloses risk to potential buyers. The company expects to resume selling franchises in the next few months.

Kane-Miller officials didn’t return phone calls seeking comment. Citibank declined to comment on the ground that it hadn’t been served with a copy of the franchisees’ suit.

Attorney Tedards believes that the PIP legal battle raises important questions for other franchisers and franchisees that could lead to new laws protecting buyers.

Many franchise-buyers sign long-term franchise agreements. PIP’s contracts run for 20 years.

Said Tedards: “Some only half-frivolously analogize this to marriage. The question is who can do what to whom? And what happens when a franchiser, like PIP, changes completely in the middle of the contract?”