Walgreens, Meritus pharmacy lawsuit settled out of court

A lawsuit filed by a national pharmacy chain against Meritus Medical Center has been settled out of court, according to a filing in federal court.

Walgreen Co., based in Deerfield, Ill., sued Meritus in May in U.S. District Court for the District of Maryland after the hospital opened its own pharmacy for the public. The suit claimed the hospital's new pharmacy broke a contract between the two entities.

A trial on the matter was set for March 22, according to a scheduling order filed in November. But a court filing in late January shows the two parties reached a settlement and that U.S. District Judge Julie R. Rubin had dismissed the case.

Did Meritus file a motion to dismiss the lawsuit?

The settlement order came roughly six months after Meritus filing a motion in June to dismiss the suit.

Back-and-forth court filings between Meritus and Walgreen in June and early July laid out arguments for and against the lawsuit's dismissal. Rubin issued an opinion July 11 siding with Walgreen's argument not to toss the lawsuit.

Background:Walgreens sues Meritus, claiming new pharmacy violates contract; Meritus says it doesn't

In August, Walgreen filed a preliminary injunction and request for a hearing over the Meritus Pharmacy's operation. The hearing was scheduled for Nov. 16, but the court docket indicates Meritus, Walgreen and the judge agreed not to go forward with the hearing and instead proceed to trial in March.

After orders to exchange evidence and depositions through the fall, the docket shows the case was referred to Magistrate Judge Susan K. Gauvey for settlement Dec. 5 and a settlement conference between the parties was scheduled for Jan. 18.

On Jan. 27, Rubin issued the order to dismiss, which stated the case could be reopened "for good cause" within 30 days. Otherwise, "the dismissal shall be with prejudice," meaning Walgreen could not refile the lawsuit in the same federal court.

Details of the settlement were not disclosed.

“The Meritus Pharmacy is open and will continue to stay open for our employees and patients," the hospital said in a statement provided by Jeannie Constable, Meritus corporate communications executive director. "Meritus and Walgreens have resolved the disputes between them, and the litigation has been voluntarily dismissed. Meritus is unable to comment further on this matter.”

Fraser Engerman, a spokesman for Walgreen, confirmed the settlement in an email Thursday night but said the company would not comment further.

Walgreen Co. does business as Walgreens and has a nationwide chain of pharmacies. For nearly a decade, it has operated a pharmacy in Suite 105 of the Robinwood Professional Center at 11110 Medical Campus Road.

The professional center is attached to the hospital.

The Walgreens Pharmacy was open Friday.

What did Walgreen allege Meritus violated in the lawsuit?

Walgreen and Meritus signed a lease in December 2013 for the pharmacy company to operate a store in Suite 105 of the Robinwood Professional Center, according to the lawsuit. At the time, Meritus owned that suite.

The lease stipulates that "no part of the Robinwood medical campus, including the Meritus Medical Center, would be used for the operation of a retail pharmacy," the lawsuit states.

An outpatient retail pharmacy is different from the inpatient hospital pharmacy, which Meritus has long operated to serve people while they are being treated in the facility.

The lawsuit quotes part of the lease agreement. In that section, the landlord (Meritus) agrees that "no portion of the Building which is owned, leased or controlled directly or indirectly by Landlord or any of its parents, subsidiaries or affiliates nor any other buildings on the Robinwood medical campus (including, without limitation, Meritus Medical Center) which are owned, leased or controlled directly or indirectly by Landlord or any of its parents, subsidiaries or affiliates" will be used for a retail pharmacy.

The clause "was intended to protect Walgreens and the Walgreens Pharmacy against competition from other retail pharmacies" and was a "material inducement" for Walgreens to sign the lease and invest in the Robinwood pharmacy.

Last fall, Walgreens learned that Meritus was planning to use some space at the hospital for a retail pharmacy. The lawsuit says the company "advised Meritus that any such second pharmacy" would violate the lease agreement. It says Walgreens asked that Meritus not proceed with those plans.

In December, Meritus sold Suite 105 to Water Street Investments LLC, a Hagerstown-based entity, for $945,000, according to online deed records.

Walgreens' lawsuit charged that the sale "was a bad faith attempt by Meritus to avoid having to comply" with the lease.

Meritus Pharmacy opened in April.

Walgreens asserted in the lawsuit that the restrictive clause is attached to and runs with the property.

How did Meritus respond initially?

In a statement emailed to The Herald-Mail in May, Meritus rejected Walgreens' allegation that it acted in bad faith by selling Suite 105.

"No, we did not act in bad faith," the statement reads. "The sale and assignment were permitted under the contract, and by selling, Meritus exercised a contractual right."

A letter to the editor sent in May to The Herald-Mail by hospital board President Greg Snook described the Meritus Pharmacy as a "small" facility in the hospital lobby intended to "support the prescription needs of our patients and our employees."

"The goal of Meritus Pharmacy is always to provide great service to our patients and ensure those being discharged from the hospital are able to get any prescribed medications before leaving the building," the letter reads.

This article originally appeared on The Herald-Mail: Walgreens lawsuit against Meritus over hospital pharmacy settled