In 2009, Walgreens, CVS, Rite Aid, Wal-Mart, Target, Sears, Kroger, and others were defendants in a class action lawsuit filed in Minnesota state court. Similar lawsuits were filed at the same time in Michigan and West Virginia. In the complaint, the plaintiffs alleged that a Minnesota statute, enacted in the late 1970s but never enforced, prohibits pharmacies from making any more profit on generic drugs than they would have made on the sale of the equivalent brand name drugs.

As a group, the pharmacy defendants successfully moved to dismiss three cases. A trial court found that there was no private right of action to enforce the statute at issue, and that the plaintiffs failed to state a claim under the Minnesota Consumer Fraud Act (MCFA). But more recently, in a 2-1 decision the intermediate court of appeals reversed most of the trial court's ruling, finding that the class action plaintiffs can proceed with a claim under the MCFA. 

Last week the Minnesota Supreme Court agreed to hear an appeal of the intermediate court ruling.

MnRA's Involvement

The Minnesota Retailers Association (MnRA), at the direction of its Board, joined other interested partners in support of retail pharmacy defendants in June by petitioning to submit an amicus (or friend of the court) brief. The petition asked for a review of the appellate court's decision based on MnRA's belief that the MCFA should not be applied in this case, and that there is a potentially an impact on other areas of retail if a precedent of applying MCFA in this manner stands.

The Minnesota Supreme Court will hear the case and MnRA will join a group in submitting an amicus brief. That group includes the Retail Litigation Center, National Association of Chain Drug Stores, National Community Pharmacists Association, Independent Pharmacy Cooperative, Thrifty White Pharmacy, Minnesota Pharmacists Association, and Minnesota Chamber of Commerce.

Why Retailers Should Pay Attention

If successful, this lawsuit could result in damages equivalent to all of the "excess" profits each of the defendants made on the sale of generic drugs in the State going back to 2004, and would prevent the same defendants from making such "excess" profits going forward.

Although the current lawsuit is only against the larger chains, the plaintiffs' theory of the case applies equally to smaller chains and independent pharmacies. Also, there are similar statutes in roughly a dozen other states, and a win for plaintiffs in Minnesota likely will embolden the plaintiffs' bar to pursue similar litigation in some or all of those states.
 
In addition, MnRA is concerned that this case will establish precedent where the pricing of other non-pharmacy retail goods and services could be impacted by frivolous claims under the MCFA.

The following commentary by MnRA's Bruce Nustad was published in the Star Tribune August 5, 2013.

Minnesota’s retail economy is important — 788,000 jobs depend on it. But many of those jobs are at risk because of a decades-old loophole that gives out-of-state, online-only retailers an artificial advantage over retailers in our communities. This is a problem that has plagued Minnesota retailers of all sizes, costing us local jobs and economic growth.

In May, following years of bipartisan Internet sales tax collection work by the Minnesota Retailers Association, the Legislature passed and Gov. Mark Dayton signed a new law designed to compel online-only retailers doing business in Minnesota to play by the same rules as local retailers.

But to truly close this loophole and restore basic free-market competition, we need Congress to act.

Some online retailers have made the business decision to sever relationships with Minnesota business partners in order to avoid collecting sales tax on transactions here. Many Minnesota Retailers Association members offer options for businesses dropped from affiliate programs. However, the long-term solution to this problem was endorsed by Amazon in its notice to affiliates ending their relationships — enactment of the federal Marketplace Fairness Act.

The Marketplace Fairness Act, already passed by the U.S. Senate but awaiting action in the U.S. House, represents tax reform that will be good for Minnesota’s retail diversity and our economy. It will end special treatment in the tax code for online retailers and give all businesses a chance to compete on price in a free market.

In a recently unveiled study, former Reagan administration economist Arthur Laffer emphasizes this important step in tax reform as “giving states the power to require online-only retailers to collect sales taxes as part of a transition to a more progrowth tax structure.”

Laffer — famously no fan of taxes — makes the conservative case for closing loopholes and lowering tax rates to spur economic activity and job growth.

Laffer’s study examines potential economic growth resulting from passing the Marketplace Fairness Act, concluding that Minnesota alone could see 24,760 new jobs by 2022 after closing the online sales tax loophole and allowing the state to lower tax rates.

And the Marketplace Fairness Act isn’t just good for Minnesota. Laffer projects an increase in the nation’s prosperity — 1.5 million new jobs in the next 10 years. That adds up to more than $563 billion in added gross domestic product.

Minnesota has done what it can at the state level to help our Main Street retailers. To finish the job, we need the U.S. House of Representatives to act. Laffer has provided a road map to prosperity for our lawmakers: close loopholes, lower tax rates and restore the free market.

The Minnesota Retailers Association (MnRA) is honored to be recognized by Finance & Commerce as a "Leader in Public Policy" at a July 11 event, along with others selected by a panel based on nominations received.

If you are interested in attending the recognition event contact me, Rochelle Westlund, at (651) 227-6631, or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it.. Thank you to Holiday Companies for sponsoring a table at this event.

Click here to read the announcement in Finance & Commerce.