WALGREEN CO v. CITY

• Decision Date: 08 June 2010
• Docket Number: No. A123891.,A123891.
• Citation: 185 Cal.App.4th 424,110 Cal.Rptr.3d 498
• Court: California Court of Appeals Court of Appeals
• Parties: WALGREEN CO., Plaintiff and Appellant, v. CITY AND COUNTY OF SAN FRANCISCO et al., Defendants and Respondents.

185 Cal.App.4th 424

110 Cal.Rptr.3d 498

WALGREEN CO., Plaintiff and Appellant,

v.CITY AND COUNTY OF SAN FRANCISCO et al., Defendants and Respondents.

No. A123891.

Court of Appeal, First District, Division 3, California.

June 8, 2010.

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Gibson, Dunn & Crutcher LLP, Daniel M. Kolkey, San Francisco, Brett H. Oberst, Los Angeles, and Rebecca Justice Lazarus, San Francisco, for Plaintiff and Appellant.

Dennis Herrera, City Attorney, Wayne Snodgrass and Vince Chhabria, Deputy City Attorneys, for Defendants and Respondents.

Francisco J. Silva, San Bernardino, and Long X. Do, for California Medical Association and San Francisco Medical Society as Amicus on behalf of Defendants and Respondents.

McGUINESS, P.J.

In this appeal we consider a challenge to an ordinance enacted by the City and County of San Francisco (the City) banning the sale of tobacco products in certain retail establishments that contain a pharmacy. The ordinance is premised on the notion that a retail store conveys tacit approval of tobacco use when it sells prescription drugs as well as tobacco products. Appellant Walgreen Co. (Walgreens) contends the ordinance violates the equal protection clauses of the federal and state constitutions, arguing there is no rational basis for prohibiting its stores with pharmacies from selling tobacco products while allowing such sales at “general grocery” stores and “big box” stores that contain pharmacies. Walgreens also claims the ordinance must be invalidated because the City's Office of Economic Analysis (OEA) abused its discretion by failing to prepare a report on the economic impact of the legislation, a purported violation of voter-enacted Proposition I.

We conclude the OEA's failure to prepare an economic impact report does not permit an interested party such as Walgreens to invalidate a duly enacted ordinance. The cause of action premised on failure to comply with Proposition I therefore fails as a matter of law. However, we agree with Walgreens that its complaint adequately states a cause of action alleging an equal protection violation. The issue is a close one only because the deferential rational basis test guides our equal protection analysis. Nevertheless, even under that deferential standard, the challenged distinction among stores containing licensed pharmacies is not fairly related to the object of the prohibition on sales of tobacco products. There is no rational basis to believe the supposed implied message conveyed by selling tobacco products at a Walgreens that has a licensed pharmacy in the back of the store is different in any meaningful way from the implied message conveyed by selling such products at a supermarket or big box store that contains a licensed pharmacy. Accordingly, we reverse in part the judgment of the trial court sustaining the City's demurrer without leave to amend.

Factual and Procedural Background

The legislation challenged in this appeal, City Ordinance No. 194-08 (hereafter the ordinance), amended the San Francisco Health Code to provide that “No person shall sell tobacco products ^{[ 1 ]} in a pharmacy, except as provided in [San Francisco Health Code] Sec. 1009.93.” (S.F. Health Code, § 1009.92.) The term “pharmacy” is defined in the ordinance to refer to the entire retail establishment that includes the portion normally referred to as a pharmacy, giving rise to some confusion in terminology. ² TO AVOID CONFUSION and be consistent with the language of the ordinance, we shall refer to the section of a retail establishment in which a licensed pharmacist prepares and sells prescription pharmaceuticals as a “ licensed pharmacy,” in contrast to the entire store containing a licensed pharmacy, which the ordinance labels a “pharmacy.” The prohibition on sales of tobacco products is not limited to the licensed pharmacy portion of a store but instead applies to the establishment as a whole.

In addition to traditional independent pharmacies, which sell little more than prescription drugs, over-the-counter medications, and personal care items, the term “pharmacy” encompasses chain stores, supermarkets, and big box stores that sell a variety of products such as food, beverages, paper goods, and miscellaneous items in addition to prescription drugs. However, although a “general grocery store” ³ or a “big box store” ⁴ that contains a licensed pharmacy qualifies as a “pharmacy” under the ordinance, the ordinance specifically excludes these establishments from the prohibition on sales of tobacco products. (S.F. Health Code, § 1009.93.) As a result, the ordinance prohibits a Walgreens that contains a licensed pharmacy from selling tobacco products but imposes no such limitation on a Safeway supermarket or a Costco big box store that contains a licensed pharmacy.

The legislative findings associated with the ordinance cite the adverse health effects associated with tobacco use. The principal finding upon which the ordinance is premised states: “Through the sale of tobacco products, pharmacies convey tacit approval of the purchase and use of tobacco products. This approval sends a mixed message to consumers who generally patronize pharmacies for health care services.”

As further support for the ordinance, the City's Board of Supervisors (Board of Supervisors or Board) also found that “[p]harmacies and drugstores are among the most accessible and trusted sources of health information among the public,” and that “[c]linicians can have a significant effect on smokers' probability of quitting smoking.”

As reflected in the legislative findings, various medical and pharmaceutical organizations advocate prohibiting sales of tobacco products in pharmacies. Among the organizations supporting such a prohibition are the Tobacco Education and Research Oversight Committee for California, the American Pharmacists Association, the California Pharmacists Association, and the California Medical Association. As far back as 1970 the American Pharmaceutical Association declared that “mass display of cigarettes in pharmacies is in direct contradiction to the role of a pharmacy as a public health facility.”

As support for distinguishing between chain drugstores, ⁵ on the one hand, and general grocery stores and big box stores on the other hand, the ordinance contains a finding that prescription drug sales comprise a much larger part of the business of chain drugstores, as follows: “Prescription drug sales for chain drugstores represent a significantly higher percentage of total sales than for grocery stores and big box stores that contain pharmacies. According to the 2007 Rite Aid Annual Report, prescription drug sales represented 63.7% of total sales in fiscal 2007. Walgreen's 2007 Annual Report documented prescription sales as approximately 65% of net sales that year. Pharmacy sales at Safeway have been estimated at 7.5% of annual volume. Costco's prescription sales generated 1.5% of total revenue in 2002.”

During public hearings on the ordinance, one of it main proponents, Dr. Mitchell Katz, the City's Director of Public Health, addressed why the legislation was directed at only certain stores containing licensed pharmacies. Dr. Katz explained: “Well, you know, shouldn't you include all stores [containing licensed pharmacies]. If you're going to do this, you know, let's be fair, look at all stores. But I ask you, in your own experience, if we stop people going into a Walgreens, going into a Rite-Aid, going into one of these independent pharmacies and said, What kind of store are you going into? [T]hey would say, Pharmacy. If you stop someone going into a supermarket, and [say], What kind of store are you going into? [E]ven a supermarket that has a drugstore, they'd say, I'm going into a supermarket. And that's the social perceptibility difference.... You can see as a total of sales that Walgreens, Rite-Aid, and the two chain stores, [pharmacy sales are] their major line of work, and to me that makes a big difference in terms of how those establishments are viewed by vulnerable adolescents.”

When asked during a Board of Supervisors meeting why the legislation did not cover all stores containing a pharmacy, Dr. Katz responded as follows: “What I was trying to do in our work in fashioning the legislation was focusing on the group where I thought the case was strongest. We all go to supermarkets. We all go to warehouse stores. They get a cross section of people. We teach our children that supermarkets, wholesale stores, they're places you to go to buy everything. When it comes [to] pharmacies, I feel that our children, our teenagers get a different message.... What we're trying to say is these places market themselves as health-promoting businesses. They're not Walgreens General Store. They're not Rite Aid. They're Walgreens pharmacy. They're Rite Aid pharmacy. The [‘P]harmacy America [T]rusts' and so it sends a very different message. Certainly in the future if we have success and I believe we would, just like San Francisco was the leader and then broaden [ed] the legislation ... around second hand smoke.... [W]e focus on that group we thought was most compelling.”

On September 8, 2008, Walgreens filed a complaint seeking to invalidate the ordinance. Walgreens also moved for a preliminary injunction to prevent the ordinance from taking effect. The trial court denied the application for a preliminary injunction on September 30, 2008. The ordinance took effect the following day. Walgreens thereafter filed a first amended complaint (hereafter the complaint).

The complaint contains three causes of action. The first and second causes of action allege violations of the equal protections clauses of the United States and California Constitutions, respectively. Walgreens alleges the ordinance “prohibits some retail establishments with [licensed] pharmacies from selling tobacco products, but arbitrarily...