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

Walgreen Co. has sued Meritus Medical Center, claiming the hospital's new pharmacy breaks a contract between the two entities.

The company also alleges that Meritus last year sold the suite where the Walgreens store is located in "a bad faith attempt" to avoid having to comply with the contract.

Meritus maintains that it did not act in bad faith, but "in accordance with the legal contract between Meritus Health and Walgreens."

The response is in a letter that was sent to Herald-Mail Media's editor and signed by Greg Snook, chairman of the Meritus board of directors. The letter was published Monday in The Herald-Mail.

"Meritus Health believes that any actions taken by the hospital to support our patients and employees were done in accordance with the contract and in furtherance of our mission," the letter states.

"We hold high respect for the legal process, and as such, we can’t share all of the details during this phase of the process."

Walgreen Co., based in Deerfield, Ill., 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.

According to court documents, the lawsuit was filed last week in U.S. District Court for the District of Maryland. Meritus officials said they received formal notification of the lawsuit last week.

What does Walgreens allege?

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

Meritus Pharmacy opened in April.

Walgreens asserts that the restrictive clause is attached to and runs with the property.

It also charges that Walgreens has suffered "lost revenues and loss of its investment in the continued operation of the Walgreens Pharmacy" because of the Meritus Pharmacy.

The company also is asking that Meritus be ordered to stop operating the pharmacy and not allow any other retail pharmacy, except Walgreens, to operate at the medical campus.

It also seeks "an award of money damages for losses caused to date by the operation of the Meritus Pharmacy, and the costs and attorneys’ fees incurred in prosecuting this action."

What does Meritus say?

In a statement emailed Friday morning, 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. "

The letter to the editor describes 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.

Home sales: Interest rate hikes, demand for housing send market into 'uncharted waters,' Realtor says

Hager Hall's future: Sale pending for restaurant, nightclub, event center complex in Hagerstown

A life of songs: After 83 years, Rohrersville's music man bids the band farewell

The letter states that the "local, nonprofit hospital and health system is rooted firmly on a foundation of trust and transparency with our community." Given that, the board members "feel it is important to share" that Walgreen Co. had sued Meritus Medical Center.

"Our position on this matter is simple: we acted in accordance with the legal contract between Meritus Health and Walgreens, and in good faith, and our intent in developing the Meritus Pharmacy was, and is, to serve our community," the letter states.

Mike Lewis covers business, the economy and other issues. Follow Mike on Twitter: @MiLewis.

This article originally appeared on The Herald-Mail: Walgreens sues Meritus, saying new pharmacy breaches contract