• Court Green-Lights Snapple/Big Apple Deal
  • August 10, 2004
  • Law Firm: Manatt, Phelps & Phillips, LLP - Los Angeles Office
  • A New York State judge refused to block the $126 million deal making Snapple the exclusive beverage vendor in New York City municipal buildings.

    As reported in the May 11, 2004 issue of [email protected], City Comptroller William A. Thompson sued the city over the contract in April, saying the bidding process was tainted and seeking a restraining order that would have stopped the installation of Snapple vending machines in city public schools and public buildings. In a July 29 ruling, Supreme Court Justice Richard F. Braun rejected the challenge as improper and insufficient to put the deal on hold.

    But the judge sided with the Comptroller on a key aspect of his challenge. When the city submitted its vending-machine concession agreement to the Franchise and Concession Review Committee (FCRC) for approval, it omitted the portion of the contract dealing with intellectual property -- in this case, the city's name. The agreement grants Snapple the exclusive right to market its products using the city's name. "One practical effect is that the FCRC, when reviewing future contracts as to concessions, will have to do a broader review, and the members of the FCRC, including [the Comptroller], will have more input into the review and approval process for concessions, which is to the public benefit," the judge wrote.

    Both sides claimed victory. Judd Burstein, who represented the Comptroller, characterized the ruling as "complete victory," telling the New York Law Journal that it "completely eviscerates the Mayor's position that he can deal with the city's intellectual property with absolutely no transparent process." In a statement, Corporation Counsel Michael A. Cardozo cast the decision as a win for the Mayor, since the vending contract would remain in place. He said the city would appeal the intellectual property aspect of the ruling.

    The judge said the Comptroller could have successfully challenged the deal on the basis that the Corporation Counsel's Office and the Mayor did not properly certify it before filing it. But the Comptroller did not contest that oversight in his original petition, the judge wrote, hence waiving those objections.

    Snapple is not the first beverage company to strike this type of deal. Coca-Cola is concluding a five-year exclusive contract with the Chicago public schools in which the city generated approximately $4 million a year from sales at 1,500 vending machines in about 540 schools. Chicago is currently soliciting bids for a new beverage contract.

    Significance: Although these deals can be lucrative for companies and cities alike, the Snapple snafu illustrates the complications that can arise from doing business with a public entity.