NABP Legal Briefs: Where There's Smoke, There's Sales

September 24, 2010 10:49 AM

Originally published in the October 2010 NABP Newsletter

By Dale J. Atkinson, JD

Boards of pharmacy enforce the practice acts and other legislation relevant to the licensure of pharmacies and pharmacists, among numerous other responsibilities. Occasionally, legislation outside the practice acts may affect and impose certain requirements or restrictions on licensees. While not always within the jurisdiction or enforcement responsibilities of the pharmacy board, federal, state, or local legislation is sometimes worthy of attention and analyses. Consider the following.

San Francisco City Ordinance No. 194-08 (ordinance) amended the local health code to provide that “No person shall sell tobacco products in a pharmacy except as provided in [citation to section of the health code].” The term “pharmacy” was subject to some confusion but ultimately was determined to refer to the entire retail establishment including that portion of the store referred to as a pharmacy. Of course, in addition to independent pharmacies, which predominantly sell prescription drugs, over-the-counter medications, and personal care products, there exist chain stores, supermarkets, and big box stores that sell a wide variety of products in addition to prescriptions.

However, although such grocery or big box stores contain and qualify as pharmacies as defined, the ordinance specifically excludes such establishments from the prohibition on sales of tobacco products. As a result, the ordinance prohibits Walgreens stores that contain a licensed pharmacy from selling tobacco products. Conversely, the ordinance imposes no such limitations on a Safeway supermarket or Costco big box store that contains a licensed pharmacy.

The premise of the ordinance is based upon the principal conclusions that pharmacies convey tacit approval of the purchase and use of tobacco products through their availability and sale on the premises. Because patrons generally patronize pharmacies for health care products and services, the sale of tobacco products at these premises sends mixed messages. As further support for the ordinance, the city noted that pharmacies and drugstores are “among the most accessible and trusted sources of health information among the public” and that “clinicians can have a significant effect on smokers’ probability of quitting smoking.” As a basis for distinguishing between drug stores and grocery stores that contain a pharmacy, the ordinance concludes that prescription drug sales for chain drug stores comprise a much larger portion of the business than grocery or big box store sales. Statistics found that in 2007 prescription sales for Rite Aid constituted 63.7% of total sales and for Walgreens, 65% of total sales. Pharmacy sales at Safeway were estimated at 7.5% and for Costco, 1.5% of total sales for 2002.

In September 2008, Walgreens filed a complaint in state court seeking to invalidate the ordinance, as well as moving for a preliminary injunction to prevent the ordinance from taking effect. The trial court denied the motion for injunctive relief and the ordinance became effective on October 1, 2008. Walgreens then filed an amended complaint seeking to invalidate the ordinance.

In its complaint, Walgreens alleged that the ordinance violated the equal protection clauses of the United States and California constitutions. It stated that the ordinance arbitrarily prohibits some retail establishments from selling tobacco products while allowing others to engage in such sales in violation of equal protection guarantees. Walgreens also argued that the city failed to undertake an economic impact study addressing the material impact the ordinance may have on the city as required under a voter adopted proposition. Walgreens noted that it operates licensed pharmacies in 52 of its 54 full service stores in the city and, similar to the exempt grocery and big box stores, the pharmacies are located in the back of its stores and tobacco products are sold in the front of the stores. Walgreens asserts that its stores are similar in all relevant respects to the 12 grocery and one big box store in the city, yet such stores are exempt from the prohibitions of the ordinance.

In defense, the city argued that the ordinance passes constitutional muster as the exemption of the grocery and big box store is rationally related to the legitimate governmental interests at stake. The trial court agreed with the city and sustained the dismissal motions of the city without leave to amend the complaint. The city motions argued that there is no basis to endure a trial on the merits regarding the ordinance. Walgreens appealed the lower court rulings to the appellate court.

On appeal, Walgreens argued that the challenged ordinance violates the equal protection clauses of the state and federal constitutions. Under both constitutions, equal protection provides that persons shall not be denied equal protection under the law and stands for the principal that similarly situated persons shall receive like treatment. It should be noted that a corporation is considered a person and subject to constitutional guarantees of equal protection.

To successfully argue an equal protection claim, Walgreens must first show that the ordinance affects two or more similarly situated groups in an unequal manner. The city concedes that all retail pharmacy establishments are similarly situated. The court next determined what level of scrutiny must be applied to the ordinance to assess its enforceability. There are three levels of scrutiny to potentially be applied based upon the class of impacted individuals. Laws that impact a suspect classification or fundamental interests are subject to strict scrutiny and can be upheld only if they are necessary to achieve a compelling state interest. Laws based upon gender are subject to intermediate level or scrutiny. Finally, most legislation is subject to scrutiny determining whether the law bears a rational relationship to a legitimate state purpose. Both Walgreens and the city agree that the rational relationship test is appropriate in this case.

The court noted a presumption of constitutionality of the law (in this case the ordinance) and requires merely that “distinctions drawn . . . bear some rational relationship to a conceivable legitimate state purpose.” While a conceivable state purpose may provide leeway in interpreting the constitutionality of a law, “[s]tatutory distinctions resting on ‘speculative possibility’ do not satisfy the requirements of equal protection.”

The court turned its attention to whether there exists a rational basis for exempting general grocery and big box stores that contain licensed pharmacies from the ban on sales of tobacco products that are applicable to all other retail establishments containing licensed pharmacies. The court recognized the legitimate municipal objectives of discouraging smoking and promoting the health concerns of the state.

The city defends the distinction by asserting that the adopters of the ordinance “rationally could have concluded that the sale of cigarettes by stores like Walgreens sends the message about cigarettes more strongly than does the sale of cigarettes by big box stores or grocery stores that contain pharmacies. In rejecting this argument, the court agreed with Walgreens that the implied message from the sale of tobacco products from either type of establishment is the same.

Further, the court agreed that the Walgreens stores met the four criteria defining a grocery store which included: (1) exceed 5,000 gross square feet; (2) offer a diverse variety of unrelated products; (3) prepare no food for immediate consumption; and (4) market all merchandise at retail process. Comparing Walgreens and grocery stores to previously litigated hotels and motels, the court held Walgreens and grocery stores to be similarly situated.

The court also noted that the city based its distinction upon greater sales of prescription drugs by Walgreens-type stores as compared to grocery or big box stores. But the court questioned why the message concerning health factors and the safety of tobacco products would be subject to differing interpretations based upon the percentage of sales of prescription drugs. The court concluded that the “purported implied message conveyed by a pharmacy that sells tobacco products does not justify the ordinance’s distinction among general grocery stores, big box stores, and all other stores containing licensed pharmacies.”

The court held that Walgreens’ complaint adequately states a cause of action for a violation of the equal protection provisions of the US and California constitutions. Thus, the appellate court reversed the lower court dismissal of the complaint related to the constitutional claims. Regarding the claims that the city failed to undertake an economic impact study addressing the material impact the ordinance may have on the city as required under a voter adopted proposition, the court upheld the dismissal without leave to amend. As a consequence of this decision, the matter will be remanded back to the lower court for a trial on the merits.

The matter will eventually be tried on the merits and, if the ordinance is upheld, boards of pharmacy must consider the impact of the law on the regulatory community. From the perspective of the boards of pharmacy, issues may arise as to the impact of the licensure of pharmacies and/or pharmacists for entities and individuals found to violate the law. Of course, the ordinance is premised upon the existence of and messages sent by the presence of a pharmacy in the establishment. An analysis of the practice act and regulations will determine whether activities “outside” the pharmacy (but within the store) give rise to administrative consequences for noncompliance. Walgreen Co. v City and County of San Francisco, 2010 WL 2280818 (App. Ct. CA 2010)