Rite Aid action ended

Judge in Florida dismisses state suit over prices for drugs

'Important decision for us'

Ruling surprises attorney general

appeal is planned

February 24, 2000|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

A lawsuit that accused Rite Aid Corp. of overcharging uninsured customers for prescription drugs has been dismissed by a Florida court.

The Florida attorney general's office had charged the nation's third biggest drugstore chain with deceptive trade practices, civil theft and racketeering. The state alleged that Rite Aid pharmacists charged 29,000 uninsured customers -- including many elderly and minority patients-- higher prices than others in Florida stores over more than two years.

But a Tallahassee circuit court found that Rite Aid has violated no laws, rules or regulations.

"The plaintiff has failed to show that the defendant's pricing method constitutes an unfair or deceptive act or practice," Circuit Judge Nikki Ann Clark said in a Friday decision that the company announced yesterday.

The judge noted that industries such as commercial airlines and hotels also use nonuniform pricing, in which consumers in 'different circumstances pay different amounts for the same services. To misrepresent a price, a pharmacist would have had to quote an incorrect or inaccurate price or have failed to disclose the actual price, the court said.

"It would be an important decision for us at any time, regardless of what's going on with the company right now," Sarah Datz, a company spokeswoman, said yesterday. "We've always believed our pricing practices are fair and legal."

The Florida attorney general's office was surprised by the court's ruling, Mary Leontakianakos, chief of the economic crime section, said.

The state intends to file a motion for reconsideration on Monday because it has new evidence that Rite Aid misrepresented prices to consumers. "I would expect to bargain with a used car salesman, but not with a pharmacist,'' Leontakianakos said.

When the suit was filed, the state said Rite Aid faced maximum penalties of more than $2 billion.

Rite Aid no longer runs stores in Florida. And the company changed is pricing system in June 1998 and now uses a centralized computer system that dictates pricing, Datz said.

Dismissal of the lawsuit will help ease the financial challenges facing Rite Aid's new top management team, which has been in place since December, as it works to turn around the chain, analysts said.

"It was a potentially big negative that seems to have evaporated,'' said Sheldon Grodsky, director of research for Grodsky Associates Inc. in South Orange, N.J. "Last year, Rite Aid was a bad news company. This news about the Florida lawsuit came in the late stages of bad news and was almost another nail in the coffin."

The suit was filed in September, becoming another thorn in a tumultuous year of financial woes that sent the company's stock tumbling more than 80 percent last year.

In October, the company had announced it would revise its financial statements, slash past profit by $500 million and sell assets to pay down a burdensome debt. Amid those revelations, the chain underwent a management shakeup as former Chairman and Chief Executive Officer Martin L. Grass resigned.

The new management team, led by former Kroger Co. executive Robert G. Miller, is working on improving performance of weaker stores on the West Coast rather than trying to sell them, Datz said.

This year, Rite Aid stock has been further pummeled, first last month when the chain delayed the release of several financial reports until July, then again last week after a newspaper report that the company was being investigated for criminal fraud in its past accounting practices.

Datz said the company has no comment on whether the U.S. attorney's office is investigating, although it is cooperating fully with an investigation by the U.S. Securities and Exchange Commission.

Yesterday, shares of Rite Aid rose $1, to close at $7.75.

Analysts said Rite Aid faces larger woes, such as inability to sell assets, management turmoil, debt lead and accounting problems.

The lawsuit "was never particularly a huge, huge operating issue," said James Kumpel, vice president of health care research for Raymond James. "I don't think investors paid all that much attention to it. In the scheme of things, this was yet another reason not to like the stock, but not the mechanism for driving shareholder value."

But, he added, "It's good to see it's effectively done. That's probably the right decision."

Bloomberg News contributed to this article.

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