Lawsuit: Coke School Soda Contracts Illegal

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Lawsuit nearing decision argues that Coca-Cola's "pouring rights" contracts are not just bad policy, but are illegal for numerous independent reasons under settled law.

Individual taxpayers and residents have joined American Quality Beverages, the maker of the sports drink Z'lektra, to challenge the legality of soda contracts at schools. The "pouring rights" contracts require a company to sell soda before it is allowed to compete to sell healthful beverages on school property.

In July 1998, the New York State Education Department approved a contract drafted by Coca-Cola and the first school district. Since then, an estimated 70 school districts in New York State have entered into such an agreement. Last September, Commissioner of Education Richard P. Mills upheld the legality of the contract at Fulton City School District in Upstate New York. That determination is now on appeal in New York State Supreme Court in Albany. Petitioners allege that the Commissioner's determination is contrary to the Education Law governing after-hours use of school property, the New York State Constitution which prohibits public property being used for nonschool purposes to benefit a private corporation, the state law that governs the competitive bidding of public contracts, and the regulation prohibiting commercialism on school property. AQB's founder, Larry Alibrandi, says "It's certainly not a new principle that the purchase of beverages has to be competitively bid. Yet the School Districts have simply overlooked the requirement and have turned it upside down and on its head. Indeed, School Districts such as Fulton have been requiring that a company sell soda before it can compete to sell beverages on school property -- which is the exact opposite of sound public policy." Under the ten year contract between Coca-Cola and the School District, even nonstudent groups using school property for nonschool purposes must purchase only Coca-Cola products. The District will receive a commission on those sales only once 1.7 million units of Coca-Cola Products are sold. If the District sells over 1.7 million units, the District will receive a 35% on bottled carbonated drinks, 30% for sports drinks, fruit drinks, and bottled waters, and 25% on sales of Minute Maid juices. The District will receive the highest commission on the least healthful products. School Districts around the state and country are having to choose whether to sell and promote soda to schoolchildren, or whether instead to sell only more healthful alternatives. Buffalo City School District, for example, elected to go soda free this Spring in a $4 million deal. The New York City and Philadelphia School Districts have decided to ban soda in their public schools. These 10-year exclusive contracts requiring that soda be sold ensure that school districts will keep selling soda into the next decade. Under the terms of the Fulton contract, if a future Board of Education in the future elects to stop selling soda (and not renew the contract), the contract requires that the School District will have to pay back the money that the contracting board in the first year received and spent. The taxpayers and residents argue that such a provision is illegal and unenforceable. "Requiring booster clubs, parents, and members of the community using school property to purchase a product from a particular supplier violates the New York State Constitution," AQB's attorney Ross Getman argues. Getman points to cases involving yearbook photographers and class ring salesmen where the Commissioner found that a parent could not be required to buy from a particular vendor. It is naive to think, Petitioners note, that the money is coming from a soft drink company. Instead, the money under such agreements is coming from parents, students, teachers and members of the public who purchase beverages. Parents may or may not know how their kids are spending their lunch money or other money they are given. Attorney Getman argues that the New York State Constitution and Education Law embody the principle that a school district, if it chooses, may close the door to all outside organizations, but if it opens the door it must treat alike all organizations in the same category. The parents also challenge the 6-foot-high point-of-sale displays on the vending machines which use fluorescent lighting. They argue that such signage is just as illegal as a 6-foot high neon sign advertising a candy bar brand. According to a public announcement in March 2001, the Coca-Cola Company urged its bottlers to replace the signage on its vending machines with noncommercial signage graphics featuring fitness-oriented activities. Many school districts, however, have not asked that the commercial signage be replaced. The parents argue that the law requires that a School District use noncommercial signage. Alibrandi explains: "We specifically design our great tasting sports drinks to be nutritious by adding B vitamins and key minerals -- helping student athletes prevent dehydration. Almost every week we hear about the obesity epidemic among our school children. Then our school district superintendents and school boards vote in favor of these contracts. Where's the leadership?" "The head of the New York City School District and the Philadelphia City School District have put the 'leader' back in leadership and they are national heros." New York State Dairy Foods, Inc., an association that includes milk producers and distributors, supports AQB's efforts. Bruce Krupke, Executive Director, says: "These agreements prevent milk producers from selling other beverages. Recently, when vending machines selling milk have been put in schools, sales have taken off. Other beverage makers are just asking for the right to compete to sell healthful beverages without being required to promote soda to schoolchildren."
Additional Contact:Ross E. Getman, Esq.