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Medicine Shoppe, Medicap franchisees sue Cardinal Health

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COLUMBUS, Ohio — Medicine Shoppe and Medicap franchise owners have filed a class-action lawsuit against Cardinal Health and its two retail pharmacy subsidiaries over franchise agreement options rolled out last year.

The suit, filed Tuesday in U.S. District Court in the Southern District of Ohio by three Medicine Shoppe and four Medicap franchisees from seven states, alleges "wrongdoing" by Cardinal, Medicine Shoppe and Medicap in attempts to renegotiate franchise agreements in 2009. The franchise owners filing the suit refer to themselves as Franchisees For Fair Value.

Terry Burnside, general manager and senior vice president for Medicine Shoppe and Medicap Pharmacy operations, said in a statement released Tuesday, "We are disappointed that these seven franchisees have taken steps to file a lawsuit that largely addresses past issues and makes claims that we believe have no merit."

Specifically, the suit alleges that franchisees operating "Option 1" stores were offered a new contract for which they had to pay an early termination fee — in some cases $1 million or more — and agree to purchase only from Cardinal for 12 years or more without competitive bidding. The franchise owners claim they were promised the new system would be implemented only if at least 95% of the franchisees adopted it and that Cardinal, after accepting "tens of millions of dollars" in prepaid franchise fees, never reached the 95% level and then started to reduce services across the board.

In addition, franchisees classified as "Option 3" stores elected not to convert to the new system and suffered damages through the reduction of services, the suit claims. The franchisees also allege that Cardinal damaged the overall franchise by introducing a new offer for a flat $499 per month to carry the Medicine Shoppe or Medicap brand, compared with existing agreements that required payments of up to $25,000 per month or more.

Franchisees named in the suit were Buechler Pharmacy Inc. in South Dakota (Medicine Shoppe), Superior Care Pharmacy Inc. in Pennsylvania (Medicap), MS Artesia 742 in California (Medicine Shoppe), Daniel Reif Inc. in Kansas (Medicine Shoppe), Trone Health Services Inc. in Idaho (Medicap), Toni R. Sumpter and Daniel D. Sumpter in Iowa (Medicap), and Marilyn Gaye Moseman and Robert F. Moseman in North Carolina (Medicap).

"As part of our ongoing commitment to support the success of franchisees, last year
Medicine Shoppe proactively implemented new franchise agreement options for Medicine
Shoppe International and Medicap franchisees," Burnside said in the statement. "We openly sought and received substantial input from franchisees, and incorporated their feedback to create new franchise agreement options.

"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," he stated. "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."


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