• Judge Refuses To Bar Snapple From NYC Buildings
  • May 9, 2004
  • Law Firm: Reed Smith LLP - Pittsburgh Office
  • Snapple Beverage Corp. has begun installing vending machines in New York City buildings, pursuant to a $126 million agreement naming Snapple as an exclusive beverage vendor for all city public buildings. The action comes after a New York trial judge refused to grant an injunction sought by the city's comptroller.

    Judge Richard Braun of the New York Supreme Court, the state's lowest court, refused to block implementation of the deal struck between Snapple and the New York City Marketing Development Corporation. The judge stated that Comptroller William Thompson did not prove the city would suffer irreparable harm, or that he likely would win.

    But the distribution agreement may not be a done deal. The judge set a May 13 hearing in the suit filed by Comptroller Thompson against Mayor Michael Bloomberg and the city seeking a declaratory judgment that the Snapple contract may not be implemented. Thompson's complaint can be viewed at http://www.comptroller.nyc.gov/. Snapple also was named a party to the suit because its contract rights are at issue.

    In September, the city's Marketing Development Corporation (MDC) signed an agreement with Snapple (owned by Cadbury-Schweppes) granting the company the exclusive, five-year, right to sell water, ice tea and Yoo-hoo brand chocolate drink in vending machines throughout city property.

    Thompson's primary stated objection involves joint marketing provisions of the contract, by which the MDC agreed to allow Snapple to use the city's name and advertise on city property. In his suit, the comptroller claims that although the MDC submitted the vending portion of the agreement to the city's Franchise and Concessions Review Committee (FCRC) for review and approval as required by the New York City's charter, the MDC specifically omitted the marketing provisions from FCRC review.

    "No one has the right to sell the use of the City's name without public disclosure, review and debate," Thompson stated in a news release.

    In the complaint, Thompson cites a charter provision requiring contracts that contain "grants of concessions of City property to private parties for private use" be approved by the FCRC. Thompson argues the MDC was wrong to classify only the vending portion of the agreement as a "concession." He quotes language from the MDC's Chief Marketing Officer, Joseph M. Perello, that " ' [t]he City's brand is a valuable property, just like a City park or building, and its worth can be enhanced or diminished by an association.' "

    Thompson has refused to register the Snapple contract, the final step in the city procurement process. Among the remedies Thompson seeks is a declaratory judgment that the charter provision requiring FCRC approval "refers to the use of all types of City-owned property, including intangible property such as intellectual property."

    Snapple's agreement with the city is further complicated by a related deal the company struck last fall with the New York City Department of Education to supply city schools with water and fruit juice. In his complaint regarding the city vending deal, Thompson cited an audit conducted by his office critical of the bidding process that led to the school agreement. For example, other potential DOE vendors were not told about the possibility of a DOE contract leading to a city-wide contract, according to Thompson's suit.

    Mayor Bloomberg has ordered the city vending contract be implemented, and has noted the city intends to strike similar arrangements with carbonated beverage suppliers.

    Why This Matters: The Snapple deals illustrate the possible complications involved in the implementation of marketing agreements with public entities. But such deals can be lucrative. Chicago, Cleveland, Los Angeles and Miami are reported to be negotiating or considering programs similar to New York's to help alleviate budget shortfalls. In creating these arrangements, it's important to understand the political and administrative process required to close and implement such deals.