COLUMBUS, Ohio Seven franchisees representing more than 600 retail pharmacies are filing a class-action lawsuit against Medicine Shoppe International, Medicap Pharmacies and parent company Cardinal Health over a set of new franchise agreement options introduced in July 2009, according to court documents.
In a suit filed Tuesday in the U.S. District Court for the Southern District of Ohio, the franchisees, calling themselves Franchisees for Fair Value, allege that Cardinal tried to renegotiate franchise agreements whereby so-called “Option 1” stores were offered a new contract for which they would have to pay an early termination fee of $1 million or more and agree to purchase only from Cardinal for 12 years or more without competitive bidding. They allege that though Cardinal promised to adopt the policy only if 95% of stores accepted it, the company took in “tens of millions” of dollars in prepaid franchise fees, never reaching the 95% mark, and then began reducing services across the board.
Other stores, known as “Option 3” stores, declined to accept the new offering and allege that they incurred damages through an “arbitrary” reduction in services. They say that MSI and Cardinal damaged the overall franchise by offering a flat monthly fee of $499, despite existing agreements that require payments of up to $25,000 per month to carry the Medicine Shoppe or Medicap brand.
MSI and Medicap general manager Terry Burnside said in a statement that the case had “no merit” and was based on past issues.
“Because we respect our franchisees autonomy as business owners, Medicine Shoppe empowered franchisees to select which of the options made the most sense for their businesses, including the choice to stay with their current agreement,” Burnside said. “We firmly believe that our franchise options are fair and equitable and that franchisees were provided full opportunity to determine which option would be most beneficial for their business.”
Franchisees named in the suit were MSI franchisees South Dakota-based Buechler Pharmacy, Superior Care Pharmacy, California-based MS Artesia 742 and Kansas-based Daniel Reif Inc., and Medicap franchisees Idaho-based Trone Health Services, Iowa residents Toni and Daniel Sumpter and North Carolina residents Marilyn and Robert Moseman.