Decision No. 14,804
Appeal of AMERICAN QUALITY BEVERAGES, LLC from action of the Board of Education of the East Greenbush Central School District and The Pepsi Bottling Group, Inc. regarding exclusive pouring rights.
Appeal of AMERICAN QUALITY BEVERAGES, LLC from action of the Board of Education of the Phoenix Central School District and The Pepsi Bottling Group, Inc. regarding exclusive pouring rights.
Appeal of AMERICAN QUALITY BEVERAGES, LLC from action of the Board of Education of the Mexico Central School District and The Pepsi Bottling Group, Inc. regarding exclusive pouring rights.
Appeal of AMERICAN QUALITY BEVERAGES, LLC from action of the Board of Education of the Greece Central School District and The Pepsi Bottling Group, Inc. regarding exclusive pouring rights.
Appeal of AMERICAN QUALITY BEVERAGES, LLC, TOM'S VENDING, DAVID YACANO, individually, MARY NIEDZWIECKI, as a parent and individually, and CLINT NIEDZWIECI, individually, from action of the Board of Education of the Westhill Central School District and The Pepsi Bottling Group, Inc. regarding exclusive pouring rights.
Ross E. Getman, Esq., attorney for petitioners
Ferrara, Fiorenza, Larrison, Barrett & Reitz, P.C., attorneys for respondent Board of Education of the East Greenbush Central School District, Norman H. Gross, Esq., of counsel
O'Hara & O'Connell, P.C., attorneys for respondent Board of Education of the Phoenix Central School District, Dennis G. O'Hara, Esq., of counsel
Mowry & Mowry, attorneys for respondent Board of Education of the Mexico Central School District, John Michael Mowry, Esq., of counsel
Wayne A. Vander Byl, Esq., attorney for respondent Board of Education of the Greece Central School District
Bond, Schoeneck & King, LLP, attorneys for respondent Board of Education of the Westhill Central School District, Brian J. Butler, Esq., of counsel
Featherstonhaugh, Wiley & Clyne, LLP, attorneys for The Pepsi Bottling Group, Inc., Randall J. Ezick, Esq., of counsel
Decision No. 14,804
(September 4, 2002)
MILLS, Commissioner.--Petitioner American Quality Beverages, LLC ("AQB") appeals the entry into multi-year exclusive pouring rights contracts by the five named boards of education. There are also four other petitioners in the Westhill appeal, a business entity named Tom's Vending and three individuals: Mary and Clint Niedzwiecki, and David Yacano. Because the five appeals raise similar claims and issues of law, they are consolidated for decision. The appeals must be dismissed.
The consolidated appeals address the statutory and constitutional validity of certain exclusive pouring rights contracts executed by the respondent boards of education. Such contracts grant exclusive rights to a vendor to supply beverages (generally including soft drinks, fruit juices, ready to drink tea products, sports drinks and other beverages, but generally excluding coffee, tea or milk) to all school facilities in the district, and all concessions, vending areas, and other areas of the school's property. I previously addressed exclusive pouring rights contracts at length in Appeal of Citizens for Responsible Fiscal and Educational Policy, et al., 40 Ed Dept Rep 315, Decision No. 14,489 ("Citizens"). The instant appeals raise several issues not previously addressed in Citizens.
Respondent Board of Education of the East Greenbush Central School District ("respondent East Greenbush") executed an exclusive pouring rights contract with The Pepsi Bottling Group, Inc. ("Pepsi") on September 16, 1999. Respondent Board of Education of the Phoenix Central School District ("respondent Phoenix") entered into an exclusive pouring rights contract with Pepsi effective July 1, 1999. Respondent Board of Education of the Mexico Central School District ("respondent Mexico") executed an exclusive pouring rights contract with Pepsi on April 1, 1999. Respondent Board of Education of the Greece Central School District ("respondent Greece") executed an exclusive pouring rights contract with Pepsi on January 12, 2001. Respondent Board of Education of the Westhill Central School District ("respondent Westhill") executed an exclusive pouring rights contract with Pepsi on or about March 12, 1999.
Petitioners raise a number of substantive challenges to the contracts: 1) that respondents Greece and East Greenbush improperly used a Request for Proposal process under General Municipal Law ("GML") "104-b rather than a competitive bid process as required by GML "103; 2) that the pouring rights contracts are subject to the provisions of Education Law "305(14), and therefore are subject only to annual extensions for a maximum term of 5 years, must be approved by the Commissioner, and are subject to pricing limitations; 3) that the multi-year contracts signed by respondents East Greenbush, Mexico, Phoenix and Greece are not terminable at will by successor boards, and are therefore void; 4) that granting an exclusive right to Pepsi to sell beverages to non-student groups using the school facilities after school hours violates Article VIII "1 of the New York State Constitution; 5) that the lighted panels on the beverage vending machines in the schools violate Article VIII "1 and also 8 NYCRR Part 23; 6) that the financial incentive of commissions for the sale of presweetened beverages violates the districts' obligations under 8 NYCRR "135.2(a) to provide physical education, health education and recreation in an environment conducive to healthful living; and 7) that the contracts executed by respondents Mexico and Phoenix call for promotional activity for Pepsi products that violates the New York State Constitution. Petitioners request an order: 1) directing that vendors be permitted to sell competitive products for non-school events after school hours; 2) declaring the contracts void or subject to the limitations of Education Law "305(14); 3) ordering the exclusion of carbonated soda from the scope of commission contracts to comply with 8 NYCRR "135(a); and 4) ordering the vending machine panels to be changed. Petitioner AQB's request for interim relief with respect to the East Greenbush contract was denied on April 5, 2001, and petitioner's request for interim relief with respect to the Mexico contract was denied on May 1, 2001.
The respondent boards and Pepsi contend that the exclusive pouring rights contracts comply with all applicable laws, and that they properly followed the mandates of the General Municipal Law. Respondents East Greenbush and Greece assert that petitioner AQB fails to establish that their contracts resulted in sales in excess of $10,000 per year, thus failing to prove that GML "103 is implicated. Respondents also raise several procedural objections: 1) that the petitions are untimely because the appeals were commenced more than 30 days after execution of the contracts; 2) that petitioners lack standing to pursue the claims raised in the appeals; and 3) that the petitions are vague and fail to provide a clear and concise statement of claim as required by "275.10 of the Commissioner's Regulations. Respondent Westhill further objects to the alleged resident taxpayer status of Mary and Clint Niedzwiecki and David Yacano, and contends that the petition is not properly verified because only AQB verified the petition and, since it allegedly lacks standing, the verification is null and void.
I will first address the procedural objections regarding taxpayer status and verification. I accept the assertion of resident taxpayer status for Mary Niedzwiecki and David Yacano. Respondent Westhill's objection to their residency within the district is based solely upon information and belief rather than any established facts, and is insufficient to overcome the direct declarations by these petitioners that they are residents and taxpayers of the district. Clint Niedzwiecki does not purport to be a resident, only an instructor at a Westhill school and user of school property after hours, so he is not accorded resident taxpayer status. I also reject respondent Westhill's contention that AQB's verification of the petition is null and void. Section 275.5 of the Commissioner's regulations requires that the petition be verified by the oath of at least one of the petitioners. AQB is unquestionably a petitioner, and the regulation does not require that the verifying petitioner must ultimately be successful or even have standing to bring the appeal (Appeals of Branch, et al., 41 Ed Dept Rep ___, Decision No. 14,704). I further reject the contention that the petitions are not clear and concise. Petitioners sufficiently stated their claims, and respondents were adequately apprised of the claims raised by petitioners and were able to respond to the allegations (Appeal of Vigliotta, 40 Ed Dept Rep 344, Decision No. 14,493; Appeal of Brown, 38 id. 816, Decision No. 14,151).
Respondents further contend that petitioners lack standing to assert the claims raised in the petitions, and that the appeals are untimely because they were commenced more than 30 days after execution of the contracts. Petitioners assert, however, that the claimed errors are continuing wrongs that occurred within 30 days of the appeals, and that the appeals are therefore timely. Petitioners do not otherwise offer any excuse for initiating these appeals more than 30 days after the respective contracts became final. I will review both the timeliness and standing objections when reviewing each claim raised by petitioners.
The first claim raised by petitioner AQB is that respondents Greece and East Greenbush failed to use a competitive bidding process under GML "103. These claims must be dismissed as untimely. An appeal to the Commissioner of Education pursuant to Education Law "310 must be initiated within 30 days of the action or decision complained of (8 NYCRR "275.16). An appeal challenging a contract award because of alleged noncompliance with GML "103 must be commenced within 30 days that the award of the contract became final (seeAppeals of Lombardo, 38 Ed Dept Rep 730, Decision No. 14,128; Appeal of McDougall, et al., 37 id. 611, Decision No. 13,941; Appeal of Eastman Kodak Company, 32 id. 575, Decision No. 12,918). The courts have consistently followed the same approach, that the statute of limitations for challenging the award of a contract commences upon award or execution of the contract when the administrative determination becomes final, rather than treating an allegedly improper award as creating a continuing wrong (see, e.g., Matter of Fawcett v. City of Buffalo, 275 AD2d 954; Matter of Villella v. Department of Transportation, 142 AD2d 46).
Petitioner's argument that the alleged violations constitute a "continuing wrong" (citing, interalia, Appeal of Sadue-Sokolow, 39 Ed Dept Rep 6, Decision No. 14,155, and Appeal of Aarseth, 32 id. 506, Decision No. 12,901) is misplaced. The continuing wrong doctrine applies when the ongoing action is itself an unlawful action, such as unlawful appointments to a district's shared decision-making team (Appeal of Sadue-Sokolow, supra) or certain ongoing expenditures under an austerity budget that did not comply with the law (Appeal of Aarseth, supra). The doctrine does not apply where the specific action being challenged is a single action or decision and the resulting effects are not intrinsically unlawful (seeAppeals of Simpson, et al., 40 Ed Dept Rep 5, Decision No. 14,402). Exclusive pouring rights contracts have been found not to be inherently unlawful (Citizens, supra), and therefore the continuing wrong doctrine does not apply. Because this competitive bidding claim is dismissed as untimely, I need not address petitioner AQB's standing to raise this claim.
Petitioners' second claim, raised in all five appeals, is that the exclusive pouring rights contracts are subject to the provisions of Education Law "305(14). As resident taxpayers, Mary Niedzwiecki and David Yacano unquestionably have standing to raise this issue with respect to the Westhill appeal because it involves contractual commitments by respondent Westhill.
In Citizens, I stated that authority to enter into exclusive pouring rights contracts was implicitly granted by Education Law "915. Education Law "1709(22), which authorizes a board of education to provide cafeteria or restaurant service for its students and teachers, would also authorize the addition of beverage vending machines as an adjunct to its cafeteria or beverage service within the constraints of "915 and other food and nutrition laws, and would also authorize the purchase of beverage products to be used in the school nutrition programs (Citizens, supra).
Petitioners contend that contracts authorized by "1709(22) also require compliance with "305(14), which imposes a requirement for Commissioner's approval of contracts, annual renewals and limitations on the term of the contract, and limitations on annual price increases. I disagree. The reference in Citizens to "1709(22) indicated that the express statutory authority to provide a cafeteria or restaurant service demonstrates the implicit authority for a board of education to decide what food and beverage products to provide and to contract for the provision of such products in connection with the food service. Education Law "305(14), as relevant here, applies to "all contracts to provide, maintain and operate cafeteria or restaurant service by a private food service management company" (emphasis added). There is no evidence in the record before me whatsoever to indicate that Pepsi was contracting to provide services as a private food service management company, and I conclude that "305(14) is not applicable to the exclusive pouring rights contracts at issue in this appeal. In view of this conclusion, I need not address the standing of petitioners AQB or Tom's Vending to raise this claim or the timeliness of the claim.
The third claim raised by petitioner AQB is that the contracts executed by respondents East Greenbush, Mexico, Phoenix and Greece are not terminable at will by successor boards and are thus void as a matter of law. I find that petitioner AQB lacks standing to raise this claim, as it is not within the zone of interest of the principle that one board may not bind successor boards (Dairylea Coop. v. Walkley, 38 NY2d 6; Saratoga County Chamber of Commerce, Inc. v. Pataki, 275 AD2d 145, 154), and there are no resident taxpayer petitioners in the appeals against Greece, Mexico, Phoenix and East Greenbush. Although this claim must be dismissed, I remind these four respondents that Citizens discusses the need to include a provision that subsequent boards may terminate the contract at will, or the contract will violate the public policy principle against binding successor boards.
All petitioners claim that granting an exclusive right to Pepsi to sell beverages to non-student groups using school facilities after school hours violates Article VIII "1 of the New York State Constitution. No petitioner except Clint Niedzwiecki claims to use the school facilities for non-school use after school hours. An individual may not maintain an appeal pursuant to Education Law "310 unless aggrieved in the sense that she or he has suffered personal damage or injury to her or his civil, personal or property rights (Appeal of Thomas, 41 Ed Dept Rep ___, Decision No. 14,622; Appeal of Ramirez, 40 id. 163, Decision No. 14,449; Appeal of Floramo, 39 id. 389, Decision No. 14,269). Only persons who are directly affected by the action being appealed have standing to bring an appeal (Appeal of Floramo, supra). Mr. Niedzwiecki claims only that he is "affected" by the lack of competition in beverage sales for non-school activities. He does not claim any actual personal damage or injury caused by the contract, or identify any civil, personal or property right that is allegedly violated by the existence of the exclusive pouring rights contract. Petitioner has the burden of demonstrating a clear legal right to the relief requested (8 NYCRR "275.10; Appeal of Reynolds, 41 Ed Dept Rep ___, Decision No. 14,604; Appeal of S.H., 40 id. 661, Decision No. 14,578), and Mr. Niedzwiecki has not clearly established that he is an aggrieved party sufficient to confer standing to raise this claim.
Petitioner AQB asserts, in its replies in the Greece and Westhill appeals, a constitutional right to engage in free competition to non-school personnel during non-school hours based upon the United States Supreme Court decision in Good News Club v. Milford Central School, 533 U.S. 98, 121 S.Ct. 2093 (2001). AQB argues that offering products for sale on school property constitutes commercial speech, and that the First Amendment requires non-exclusive opportunity for all entities to express that commercial speech on school property. Respondent Westhill objects to this claim, because AQB raised it for the first time in its reply. The purpose of a reply is to respond to procedural defenses or new material contained in an answer (8 NYCRR ""275.3 and 275.14). It is not meant to buttress allegations in the petition or add assertions or exhibits that should have been part of the petition (Appeal of O'Herron, 41 Ed Dept Rep ___, Decision No. 14,591; Appeal of Denise W., 40 id. 503, Decision No. 14,538; Appeal of Krantz, 38 id. 485, Decision No. 14,077). Although this claim is raised for the first time in the reply, the Supreme Court's decision in Good News Club was not issued until June 2001, subsequent to service of the petitions in all five of these consolidated appeals, and could not have been raised earlier. I will therefore accept this new claim raised in the reply (See Appeal of Instone-Noonan, 39 Ed Dept Rep 413, Decision No. 14,275).
Respondent Westhill further argues that an appeal to the Commissioner is not the appropriate forum to raise a novel issue of constitutional law, specifically, in this case, a claim relating to the First Amendment commercial speech rights of a business entity in the context of an exclusive pouring rights contract. I must agree. It has consistently been recognized that a novel claim of constitutional dimension should properly be presented to a court of competent jurisdiction rather than raised for the first time in an appeal pursuant to Education Law "310 (Appeal of A Student Suspected of Having a Disability, 41 Ed Dept Rep ___, Decision No. 14,655; Appeal of Finkel, 41 id. ___, Decision No. 14,619). AQB has not provided any case law to indicate that the United States Supreme Court or a New York federal or State court has addressed the issue of whether an exclusive contract, procured through a public competitive process, may create a limited public forum for the sale of products in a public school, and whether competitors of the winning contractor may assert a constitutional right to equal access to the rewards of the contract obtained by the winning contractor.
The fifth claim raised by petitioners is that the lighted panels on the beverage vending machines in the schools violate Article VIII "1 of the New York State Constitution and Part 23 of the Rules of the Board of Regents. AQB and Tom's Vending lack standing to raise this claim on behalf of district residents or students attending the respondents" schools (Appeal of Schiavi, 40 Ed Dept Rep 615, Decision No. 14,569; Appeal of Farago, 40 id. 168, Decision No. 14,450; Appeal of Ogbunugafor, 38 id. 105, Decision No. 13,994, aff'd, 279 AD2d 738), but I find that Clint Niedzwiecki, a resident taxpayer of the Westhill district, and Mary Niedzwiecki, a resident taxpayer and parent of a child attending a Westhill school, have standing to assert the claim. I also find that this claim is not time-barred, because Part 23 prohibits school districts from permitting commercial advertising by electronic media. This claim therefore alleges a new violation each time a student is exposed to the alleged advertising.
In Citizens, I was unable to determine whether such vending machine panels comply with Part 23 because there was no description of the panels in the record. In the instant appeals, petitioners in the Westhill appeal did not provide pictures of the lighted panels. However, petitioner AQB provided pictures of "Pepsi" soda vending machine panels in the Phoenix and East Greenbush petitions. Based upon these two pictures, I must conclude that the use of a lighted product panel on a vending machine, containing only a photograph of an actual bottle of Pepsi soda with the name Pepsi written on it does not violate either the State Constitution or 8 NYCRR Part 23. The vending machines are placed in the schools pursuant to an executed contract, for which respondent boards have secured what they judge to be reasonable and adequate compensation pursuant to a competitive process provided for in the General Municipal Law. The vending machines are the mechanism by which the vendor provides the service contracted for by respondent boards. Any advertising effect of the panels would be incidental to the services and products provided pursuant to the contract, and such incidental benefit to the vendor would not violate the Constitution (Murphy v. Erie County, 28 NY2d 80; Imburgia v. City of New Rochelle, 223 AD2d 44; Tribeca Community Assoc., Inc. v. NYS Urban Development Corp., 200 AD2d 536).
Furthermore, I do not find that the lighted panels constitute "commercial promotional activity" within the meaning of Part 23. Part 23 prohibits commercial promotional activity that is "conveyed to students electronically through such media as, but not limited to, television and radio" (8 NYCRR "23.2). A lighted vending machine panel, where the picture can be seen even if not backlit by electric lights, is not the type of electronic medium that is addressed by Part 23. It is not an electronic communicative medium that is directly transmitting commercial messages to students electronically. Instead, the panels are static pictures that are simply illuminated by lights behind the panels. The electronic lighting is not itself transmitting any content. The vending machine panel therefore does not violate the provisions of Part 23.
Petitioners further claim that the financial incentive of commissions for the sale of presweetened beverages violates the districts' obligations under 8 NYCRR "135.2(a) to provide physical education, health education and recreation in an environment conducive to healthful living. I find that this claim is timely because, if the contention is correct, respondents would have an ongoing responsibility under "135.2(a) that would be violated each time a student purchased a presweetened beverage. Although petitioners AQB and Tom's Vending lack standing to bring such a claim on behalf of the students (Appeal of Schiavi, supra; Appeal of Farago, supra), individual petitioner Mary Niedzwiecki has standing to raise the claim in the Westhill appeal since she is the parent of a student in the Westhill schools.
This claim must be dismissed. Section 135.2 of the Commissioner's Regulations establishes general curriculum requirements for educational programs in health education, physical education and recreation. It does not establish requirements for food service or levels of nutrition, nor does the regulation require that every single item that might be considered unhealthful must be removed from a school building. The regulation simply cannot be stretched to establish a premise that the presence of any item or condition within a school building, or receipt of commissions for vended sales of presweetened products, that may be considered by any proponent as "unhealthy" is a violation of "135.2(a). The regulation also does not purport to prohibit an activity that the Legislature has found to be permissible within schools, such as the sale of presweetened foods and beverages during certain periods of the school day (Education Law "915; Citizens, supra). However, although sale of presweetened beverages is not prohibited by law, each school board has the obligation to consider whether the installation of soft drink vending machines in their schools, especially elementary schools, is in the best interests of district students' physical health and fitness.
The final claim raised by petitioner AQB is that the contracts executed by respondents Phoenix and Mexico call for promotional activities for Pepsi products that violate the New York State Constitution. For the reasons discussed above, I find that AQB lacks standing to raise this claim, and I therefore need not determine whether the claim is time-barred. Although the claim is dismissed, I remind school districts of the constitutional limitations of using school personnel and resources to promote private commercial products. In Citizens, I stated that the use of school premises and staff to facilitate the sale or distribution of a vendor's products violates Article VIII "1 of the New York State Constitution because such activities promote private benefit without a proper school district purpose or legislative authorization.
Exhibit B to the Phoenix contract with Pepsi provides for activities such as a truckload sale twice a year and "On Bottle" promotions (this activity is not described in the contract). Respondent Phoenix states that it has not engaged in this promotional activity, has no plans to do so in the future, and will not engage in any activity contrary to the Commissioner's ruling in Citizens. Exhibit B of the contract executed by respondent Mexico similarly contains provision for promotional activities. Respondent Mexico adopted a resolution on March 23, 2001, to make the activities in Exhibit B optional or to eliminate them as may be agreed upon by Pepsi. However, irrespective of the agreement of Pepsi, respondent Mexico is not permitted to engage in promotional activities of the kind that were found improper in Citizens.
I have reviewed the parties" remaining contentions and find that they have no merit.
Although I am constrained to dismiss AQB"s contention that the lighted panels on the vending machines violate Part 23 of the Rules of the Board of Regents, I urge school boards to consider whether they want such panels to appear in their schools, or whether they prefer more generic panels that do not include specific product names. School boards should carefully consider the effect of product-specific panels on the school environment, and determine whether it is in the best interests of the district to restrict the use of lighted vending machine panels to generic panels that simply give notice of the type of product being vended.
THE APPEAL IS DISMISSED.
END OF FILE