Walgreens Sued over Home Drug Testing Kit Consignment Contract

On Thursday a complaint was filed in the Southern District of California by Pharmatech, a pharmaceutical company specializing in the creation of home drug testing kits, against Walgreens, a pharmacy retailer. The case is regarding a consignment sale contract that Pharmatech alleges has been breached materially.

The consignment contract between Walgreens and Pharmatech made the Pharmatech testing products available for sale in Walgreen’s stores with Pharmatech receiving payment within 60 days of the sale of the testing kits, the complaint explained. The arrangement permitted a discount for the advertising and marketing efforts made by Walgreens and offered a profit sharing percentage after the direct payment to Pharmatech.

In March 2020, Walgreens allegedly reached out to Pharmatech and asked them to guarantee an amount of product two times the amount previously supplied under the contract. Pharmatech agreed to increase production, only for Walgreens to send a notice to cancel in April 2020, effective in October 2020. During the entire notice period, Walgreens continued to demand the increased production numbers. Then at the end of the notice period, instead of selling through the remaining product as per the contract, Walgreens purportedly returned the unsold product. However, the unsold product was not the most recent shipments from Pharmatech, but instead were previous unsold units from as far back as 2016 and heavily damaged. Pharmatech also alleged failure to pay for units that were sold during the notice period.

Pharmatech is suing for breach of contract, breach of the covenant of good faith and fair dealing, negligent misrepresentation, conversion, and accounts stated. They are represented by Witham Mahoney & Abbott