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Decision No. 14,805

Appeal of AMERICAN QUALITY BEVERAGES, LLC and TOM'S VENDING from action of the Board of Education of the East Syracuse-Minoa Central School District and Coca-Cola Bottling Company of New York, Inc. regarding exclusive pouring rights.

Appeal of AMERICAN QUALITY BEVERAGES, LLC from action of the Boards of Education of the Cheektowaga-Maryvale Union Free School District, Cleveland Hill Central School District, Kenmore-Tonawanda Union Free School District and Lancaster Central School District, and Coca-Cola Bottling Company of Buffalo, Inc. regarding exclusive pouring rights.

Appeal of AMERICAN QUALITY BEVERAGES, LLC, PATRICIA MacDOWELL, individually and on behalf of her daughter, and LOIS TURNER, individually and on behalf of her grandson, from action of the Board of Education of the City School District of the City of Fulton and Coca-Cola Bottling Company of New York, Inc. regarding exclusive pouring rights.

Appeal of AMERICAN QUALITY BEVERAGES, LLC from action of the Board of Education of the North Syracuse Central School District and Coca-Cola Bottling Company of New York, Inc. regarding exclusive pouring rights.

Appeal of AMERICAN QUALITY BEVERAGES, LLC from action of the Board of Education of the Liverpool Central School District and Coca-Cola Bottling Company of New York, Inc., regarding exclusive pouring rights.

Appeal of AMERICAN QUALITY BEVERAGES, LLC and LORI HALPIN, individually and on behalf of her daughter, from action of the Board of Education of the Webster Central School District, the Rochester Coca-Cola Bottling Corp. and the Town of Webster regarding exclusive pouring rights.

Ross E. Getman, Esq., attorney for petitioners

Ferrara, Fiorenza, Larrison, Barrett & Reitz, P.C., attorneys for respondents Boards of Education of the East Syracuse-Minoa Central School District and the City School District of the City of Fulton, Norman H. Gross, Esq., of counsel

O'Hara & O'Connell, P.C., attorneys for respondent Board of Education of the Liverpool Central School District, Dennis G. O'Hara, Esq., of counsel

Bond, Schoeneck & King, LLP, attorneys for respondent Board of Education of the North Syracuse Central School District, Brian J. Butler, Esq., of counsel

Hodgson Russ Andrews Woods & Goodyear, LLP, attorneys for respondents Boards of Education of the Cheektowaga-Maryvale Union Free School District, Cleveland Hill Union Free School District, Kenmore-Tonawanda Union Free School District and Lancaster Central School District, Jeffrey F. Swiatek, Esq., of counsel

Greene, Hershdorfer & Sharpe, attorneys for Coca-Cola Bottling Company of New York, Inc., and Rochester Coca-Cola Bottling Corporation, Ronald V. Sharpe, Esq., of counsel

Damon & Morey LLP, attorneys for Coca-Cola Bottling Company of Buffalo, Inc., William F. Savino and David S. Widenor, Esqs., of counsel

Charles J. Genese, Town Attorney, attorney for respondent Town of Webster

Decision No. 14,805

(September 4, 2002)

MILLS, Commissioner.--Petitioner American Quality Beverages ("AQB") appeals the entry into multi-year exclusive pouring rights contracts by the nine named boards of education. There is also another petitioner in the East Syracuse-Minoa appeal - a business entity named Tom's Vending, one individual petitioner in the Webster appeal and two individual petitioners in the Fulton appeal. Because the six 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 beverage 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 district"s property. Exclusive pouring rights contracts have already been addressed at length in Appeal of Citizens for Responsible Fiscal and Educational Policy, et al., 40 Ed Dept Rep 315, Decision No. 14,489 ("Citizens"), and many of the issues raised in the instant appeals have already been addressed in a companion consolidated decision (Appeals of AQB, et al., 42 Ed Dept Rep ___, Decision No. _______ ["AQB I"]).

Respondent Board of Education of the East Syracuse-Minoa Central School District ("respondent East Syracuse") executed an exclusive pouring rights contract with Coca-Cola Bottling Company of New York, Inc. ("Coca-Cola") in April 1999. Respondent Board of Education of the North Syracuse Central School District ("respondent North Syracuse") executed an exclusive pouring rights contract with Coca-Cola on July 13, 1998. Respondent Board of Education of the Cleveland Hill Union Free School District ("respondent Cleveland Hill") executed an exclusive pouring rights contract with Coca-Cola Bottling Company of Buffalo, Inc. ("Buffalo Coca-Cola") in September 2000. Respondent Board of Education of the Kenmore-Tonawanda Union Free School District ("respondent Kenmore") executed an exclusive pouring rights contract with Buffalo Coca-Cola in January 2000. Respondent Board of Education of the Lancaster Central School District ("respondent Lancaster") executed an exclusive pouring rights contract with Buffalo Coca-Cola on December 8, 1998. Respondent Board of Education of the Cheektowaga-Maryvale Union Free School District ("respondent Cheektowaga") executed an exclusive pouring rights contract with Buffalo Coca-Cola on July 24, 2000, with an effective date of July 1, 2000. Respondent Board of Education of the Liverpool Central School District ("respondent Liverpool") entered into an exclusive pouring rights contract with Coca-Cola on April 22, 1998. Respondent Board of Education of the City School District of the City of Fulton ("respondent Fulton") executed an exclusive pouring rights contract with Coca-Cola on or about September 21, 2000, but Coca-Cola did not execute the contract until April 17, 2001. Respondent Board of Education of the Webster Central School District ("respondent Webster") executed an exclusive pouring rights contract with the Rochester Coca-Cola Bottling Corp. ("Rochester Coca-Cola") on November 5, 2001.

Petitioners raise a number of substantive challenges to the contracts: 1) that respondents East Syracuse, Fulton, Cheektowaga, Cleveland Hill, Kenmore and Lancaster improperly used a Request for Proposal ("RFP") process under General Municipal Law ("GML") "104-b, rather than a competitive process as required by GML "103, for nonvended items under the contracts; 2) that the exclusive pouring rights contracts are subject to the provisions of Education Law "305(14), and therefore may only be extended annually for a maximum term of 5 years, must be approved by the Commissioner, and are subject to statutory limitations on price increases; 3) that the contracts are not terminable at will by successor boards because the requirement to reimburse unearned commissions impairs the free discretion of the successor boards; 4) that granting an exclusive right to Coca-Cola to sell beverages to non-student groups using 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 Part 23 of the Rules of the Board of Regents; 6) that the financial incentive of commissions for the sale of presweetened beverages violates the districts' obligations under "135.2(a) of the Commissioner"s regulations to provide physical education, health education and recreation in an environment conducive to healthful living; 7) that the contracts executed by several respondents call for promotional activity for Coca-Cola products that violates the New York State Constitution; and 8) that the exclusive pouring rights contract creates a limited public forum for the sale of products in public schools, and thereby creates a constitutional right to nonexclusive access (this is the sole claim raised in the Webster appeal). Petitioners request that I declare the contracts void, enjoin unconstitutional commercial activity, permit competitors to sell products during non-school events after school hours, and order that carbonated soda must be excluded from the commission agreements and that the vending machine panels must be changed. Petitioners further contend that the provision requiring repayment of unearned commissions is null and void, and seek a ruling that Coca-Cola and Buffalo Coca-Cola have forfeited their rights to repayment. Petitioner AQB's requests for interim relief with respect to the East Syracuse, North Syracuse, Cheektowaga, Cleveland Hill, Kenmore and Lancaster contracts were denied on May 1, 2001. AQB"s request for interim relief in the Webster appeal was denied on January 22, 2002.

Respondent boards, Coca-Cola and Buffalo Coca-Cola 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 further assert that the appeal record fails to establish that their contracts resulted in sales in excess of $10,000 per year, thus failing to prove that GML "103 would even be implicated, and that use of the RFP process constitutes substantial compliance with the bidding statutes in any event. 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; 3) that the claims regarding truckload sales and other promotional activities are moot, because the parties have agreed in writing that such provisions in the contracts are null and void following the issuance of Citizens to the extent that the activities would use school district property or staff; and 4) that permitting the school districts to terminate the contracts without repayment of unearned commissions would unjustly enrich the school districts.

Respondent East Syracuse also objects to petitioner's reply, to the extent that a First Amendment constitutional right is raised for the first time in the reply, and also contends that an appeal under Education Law "310 is not the appropriate forum for raising a novel constitutional claim. In the Webster appeal, respondent Webster, the Town of Webster and Rochester Coca-Cola assert that I lack jurisdiction over the sole issue raised in that appeal, a constitutional claim regarding commercial speech in a limited public forum. The Town of Webster also asserts that the Commissioner lacks jurisdiction over the Town, and the appeal should therefore be dismissed as against the Town. I will review these objections together with my review of each claim raised by petitioners.

Petitioners" first claim alleges that East Syracuse, Fulton, Cheektowaga, Cleveland Hill, Kenmore and Lancaster failed to use a competitive bidding process under GML "103, and the contracts are therefore void abinitio. As explained in detail in AQB I, an appeal to the Commissioner of Education pursuant to Education Law "310 to challenge a contract award because of alleged noncompliance with GML "103 must be commenced within 30 days of the date that the award of the contract became final, unless good cause is shown. Except for the appeal against respondent Fulton, which was commenced within 30 days of Coca-Cola"s execution of the agreement, these appeals were all commenced far beyond the 30-day period. Contrary to petitioners' contention, the "continuing wrong" doctrine does not apply to a claim that respondents violated the bidding requirements of GML "103 (see the discussion in AQB I), and petitioners give no other excuse for their delay in commencing these appeals. Thus, except as against respondent Fulton, this claim must be dismissed as untimely.

Respondent Fulton objects to AQB's standing to assert the first claim and I agree that AQB lacks standing to raise this claim. A business entity that cannot establish that it could meet or exceed the RFP bidder qualifications lacks standing to challenge the award of the contract (Transactive Corp. v. DSS, 236 AD2d 48, aff'd, 92 NY2d 579). Respondent Fulton asserts that AQB did not submit a proposal nor does it qualify as a vendor with a full line of beverages as specified in the bid specifications, and AQB does not refute these statements. As AQB did not meet the mandatory bid specifications and did not submit a proposal, it cannot be aggrieved by a contract award to another party regardless of the manner in which the award was granted.

Respondent Fulton has not objected, however, to the standing of the two resident taxpayer petitioners, Patricia MacDowell and Lois Turner, and it has long been recognized that the bidding statutes are intended for the protection of the taxpayers (Jered Contracting Corp. v. NYC Transit Auth., 22 NY2d 187, 193; Appeal of Eastman Kodak Company, 32 Ed Dept Rep 575, Decision No. 12,918).

The record, however, does not establish that sufficient products are purchased pursuant to the contract to subject the agreement to the requirements of GML "103. There are no facts in the record before me to establish any purchases whatsoever under the contract, much less the minimum $10,000 needed to mandate compliance with GML "103. Respondent Fulton also indicates that it has agreed with Coca-Cola to delete the provision in "3(a) concerning the sale and distribution of Coca-Cola"s products "in cafeteria lines of all schools," although no executed amendment was submitted in the record. Petitioners have 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 they have not sustained their burden on this issue. Although this claim is dismissed, I remind districts that contracts that establish the terms for the purchase of products in the amount of $10,000 or more must comply with the requirements of GML "103.

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). I determined in AQB I that "305(14) is not applicable to exclusive pouring rights contracts, because the vendor is not contracting to provide services as a private food service management company, and that determination is equally pertinent here.

The third claim raised by petitioners is that the contracts are not terminable at will by successor boards, because the requirement to repay unearned commissions impairs the successor boards' discretion. Petitioner claims that the contracts are therefore void as a matter of law, and that Coca-Cola is not entitled to repayment of the commissions because it entered into these contracts knowing that this provision violates public policy. 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 (See, Dairylea Coop. v. Walkley, 38 NY2d 6; Saratoga County Chamber of Commerce, Inc. v. Pataki, 275 AD2d 145, 154), but I find that the individual resident taxpayer petitioners in the Fulton appeal assert the same claim and have standing. As to the timeliness of this claim, if a multi-year contract is not subject to termination at the discretion of a successor board, the contract violates public policy (Morin v. Foster, 45 NY2d 287; Matter of Ramapo Carting Corp. v. Reisman, 192 AD2d 922; Matter of Lake v. Binghamton Housing Authority, 130 AD2d 913). At the time a successor board comes into existence, a preexisting multi-year contract that cannot by its terms be terminated by that successor board constitutes a continuing wrong. Therefore, I find the claim by the individual petitioners in the Fulton appeal to be timely.

The Fulton contract provides for an advance payment of $495,000 upon execution, which is deemed to be earned evenly over the 10 year term of the contract ("4[g]). I interpret this provision to mean that the school district earns only $49,500 of the advance payment per year, irrespective of the amount of beverages vended in the district during that year. If the agreement is terminated early by a successor board, the school district must repay a pro rata portion of the advance payment ("22[e]).

I previously addressed the issue of repayment of large advances in Citizens, and expressed deep concern about the potentially coercive effect of long-term contracts that provide for repayment of very large advance payments if a successor board terminates the contract before the expiration date. I listed a number of factors to be considered in evaluating whether the repayment provision creates a prohibitive coercive effect (Citizens, supra at 328-329).

In the instant appeal, respondent Fulton specifically asserts that repayment of the unearned portion of the advance payment will not pose an undue financial burden on the district, in view of the overall size of the district"s budget and the amount of the advance payment earned to date. Petitioners fail to present any grounds, beyond conclusory statements, to contradict respondent's affirmative representation that repayment of the unearned portion of the advance payment would not pose an undue financial burden on the district. As noted above, petitioners bear the burden of demonstrating a clear legal right to the relief requested (8 NYCRR "275.10; Appeal of Reynolds, supra; Appeal of S.H., supra), and have not sustained their burden on this issue.

Although this claim must be dismissed, I am compelled to reiterate the concern I expressed in Citizens that unreasonably large advance payments may effectively foreclose a successor board"s discretion to repay the unearned balance. I again urge school boards to carefully consider the difficulty of repaying unearned advance payments when negotiating such contracts, and accept only payments that are not subject to reimbursement provisions in the event of early termination.

Because I have determined that petitioners have failed to establish that the repayment provision is invalid, and there is no proof in the record that any school district has actually sought to terminate a contract and avoid repayment of the unearned portion of an advance payment, I need not address petitioners' contention that the repayment provisions are void and that respondent districts are not required to repay such funds to Coca-Cola. It is well established that the Commissioner will not render advisory opinions or decide issues that have not yet become justiciable (Appeal of Sheppard, 41 Ed Dept Rep ___, Decision No. 14,643; Appeal of Karpen, 40 id. 199, Decision No. 14,460; Appeal of WNI Sales, 38 id. 822, Decision No. 14,152).

All petitioners, except in the Webster appeal, next claim that granting an exclusive right to Coca-Cola 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 has established any actual personal damage or injury caused by the sale of beverages after school hours to non-students, or identifies any civil, personal or property right that is allegedly violated by the existence of the exclusive pouring rights contract. Petitioners, therefore, have not clearly established that they are aggrieved parties sufficient to confer standing to raise this claim (AQB I, supra).

Petitioner AQB further asserts a First Amendment constitutional right to engage in free competition to market its beverage products to non-school personnel during non-school hours, citing the recent decision by the United States Supreme Court in Good News Club v. Milford Central School, ___ U.S. ___, 121 S.Ct. 2093 (2001). This is the sole claim raised in the Webster appeal, and respondent East Syracuse objects to this claim because petitioner raised it for the first time in its reply in the East Syracuse appeal. Respondents also contend that an appeal before the Commissioner is not the appropriate forum to raise a novel issue of constitutional law, in this case relating to the First Amendment commercial speech rights of a business entity in the context of an exclusive pouring rights contract.

As I already held in AQB I, I will accept the late claim in the East Syracuse appeal because the Good News Club decision was issued after service of the petitions in these appeals. However, I also concluded in AQB I that petitioners" claim regarding commercial free speech under the First Amendment is a novel one that should properly be presented to a court of competent jurisdiction. In light of this disposition, I need not address the Town of Webster"s jurisdictional objection.

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. As noted in AQB I, the business entities AQB and Tom's Vending do not have standing to assert the rights of children attending respondents' schools, but the individual petitioners in the Fulton appeal are the parents of students in district schools and have standing to raise this claim. In AQB I, I determined that a panel containing only a picture of a beverage product and its name/manufacturer did not violate the New York State Constitution or Part 23. However, the Fulton appeal record contains photographs of lighted panels for PowerAde and Fruitopia. The panel for PowerAde contains not only a picture of the product and its name, but also printed information (on the bottle label) that the product is "[t]he official sports drink of the Olympic Games." I cannot discern from the photograph what is written on the bottle of Fruitopia.

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.

I also do not find that the statements on the PowerAde panel violate Article VIII "1 of the New York State Constitution. The minimal statement on the PowerAde panel is merely incidental to the identification of the product, shown by the remainder of the panel (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). However, although I do not find the particular minimal, incidental language on the PowerAde panel to be unconstitutional, districts should consider whether such apparently promotional statements are appropriate to be placed in its schools at all or whether the district should require that only plain, generic panels should be used in its schools.

Petitioners further claim that the financial incentive of commissions for the sale of presweetened beverages violates the districts' obligations under "135.2(a) of the Commissioner"s regulations to provide physical education, health education and recreation in an environment conducive to healthful living. This claim, too, was addressed in AQB I and dismissed, although I noted that school boards have the obligation to consider whether the installation of soft drink vending machines in their schools is in the best interests of their students. In view of this dismissal, I need not address petitioners' standing or the timeliness of this claim.

The final claim raised by petitioner AQB is that the contracts executed by several respondents call for promotional activities for Coca-Cola products that violate the New York State Constitution. For the reasons discussed in AQB I, I find that AQB lacks standing to raise this claim, and the individual petitioners in the Fulton and Webster appeals do not raise this particular issue. 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 the 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. Buffalo Coca-Cola executed amendments with respondents Cheektowaga, Cleveland Hill, Kenmore and Lancaster to prohibit promotions that use school district property or staff, in recognition that such activities were found to be improper in Citizens, and other respondents indicate that they will refrain from activities that contravene the determination in Citizens.

THE APPEALS ARE DISMISSED.

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