San Francisco - Walgreens tries to convince court it's a grocery store..

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March 13, 2010 - In a challenge to a San Francisco law that bans tobacco sales at drug stores, three California appeal court justices on Wednesday, March 10th looked like they wanted to avoid ruling on Walgreens' constitutional argument that the city is violating equal protection rights.

Instead, the First District Court of Appeal panel appeared more interested in whether a drug store that sells food is really a grocery store that would be exempt.

Walgreen Co. - company description: It operates more than 7,000 drugstores in 50 states, the District of Columbia, Guam, and Puerto Rico, as well as two mail-order facilities. Prescription drugs account for about two-thirds of sales; the rest comes from general merchandise, over-the-counter medications, cosmetics, and groceries. (Company Dwescription: Walgreen Co. - Deerfield, IL United States)

The local ordinance, which took effect in 2008, bans tobacco sales in San Francisco at drug stores but not at supermarkets or stores like Costco. The city has contended that the sale of tobacco by health-promoting businesses sends a mixed message about cigarettes. (Walgreen: San Francisco’s Tobacco Ban Is Unfair..)

San Francisco Superior Court Judge Peter Busch granted the city's demurrer (formal objection to an opponent's pleadings) to Walgreens' suit in 2008. (San Francisco - Judge threw out a Walgreens attempt to stop the ban of tobacco sales in pharmacies..)

Right away on Wednesday, March 10th Justice William McGuiness pointed to Walgreens' complaint, which says that it meets the four necessary criteria for being classified as a grocery store. Soon after, Justice Stuart Pollak ran with that point. "If in fact Walgreens comes within each of four criteria of those who are exempted from the statute, the equal protection argument disappears," Pollak said.

Gibson, Dunn & Crutcher partner Daniel Kolkey argued that exempting big box stores or grocery stores, which often also have pharmacies, is arbitrary and violates equal protection. In court papers in Walgreen Co. v. City and County of San Francisco, A123891, Walgreens contended that the ordinance would cost it nearly 9 percent of its nonpharmacy sales and millions of dollars in annual profits.

Wayne Snodgrass of the city attorney's office argued in court papers that the Board of Supervisors could rely on common experience -- the perception of drug stores and their health-promoting mission -- to form the rational basis for distinguishing them from grocery stores. In court, he also argued that the supervisors might have been trying to mitigate job losses at grocery stores or prevent Costco from relocating outside the city. "These types of concerns are the bread and butter of local government," Snodgrass said.

In trying to figure out whether there is a rational basis for letting Safeway sell cigarettes but not Walgreens, Pollak said, "what we're comparing is very ephemeral [short lived]." Given "modern marketing," he said, some stores are a cross between a drug store and a grocery store, and there's no clear line: "It's very hard to think of a product I can buy at Walgreens that I can't buy at Safeway and vice versa."

Kolkey urged the court "not to get hung up" on whether Walgreens counts as a grocery store since, he argued, it was clear that San Francisco intended to include the company in its drug store cigarette sales ban no matter what. "Throughout the legislative history, it was all about Walgreens," he said. "An ordinance designed to avoid an implied message doesn't pass the smell test. If it doesn't pass the smell test, it certainly doesn't pass the rational basis test."

Reference: Calif. Justices Wonder: Is Walgreens a Grocery Store?, Kate Moser, The Recorder, Law.com, 3/11/2010.

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