Sunday, August 31, 2014

New York City Sugary Drink Regulation

In September 2012, New York City's Board of Health prohibited the sale of sugary drinks larger than 16 ounces in restaurants and some other venues such as movie theaters, fast food restaurants, and cafeterias that it inspects.  Five years earlier, in 2007, the same agency required restaurants to remove trans fats from their menus.  The regulation would have taken effect 6 months after its adoption with a 9 month grace period before restaurants would face $200 fines. 

The large sugary drink ban only applied to sellers that were inspected and graded by the city health department.  Hence, supermarkets, vending machines, and convenience stores (7-11 included) were not covered by the ban.  The regulation also did not ban refills.  The regulation defined sugary drinks as those with more than 25 calories per 8 ounces that were sweetened by the manufacturer or mixed with a caloric sweetener.  This definition did not include pure fruit juice, fruit smoothies, drinks that are more than 50% milk (milkshakes and some coffee drinks if more than 50% milk), and calorie free diet sodas or alcoholic drinks. 
Various groups filed suit to invalidate the regulation.  These plaintiffs included 1) the New York Statewide Coalition of Hispanic Chambers of Commerce representing approximately 25 smaller chambers and 200,000 Hispanic businesses, 2) the New York Korean-American Grocers Association representing about 4,000 Korean-American grocery, deli, and store owners in the New York area, 3) the Soft Drink and Brewery Workers Union with about 3,600 members engaged in hauling, warehousing, and distributing alcoholic and soft drinks, 4) the National Association of Theatre Owners of New York State, 5) the National Restaurant Association, and 6) the American Beverage Association.

The Supreme Court, the trial court in New York, ruled that the regulation constituted lawmaking which is improper by an administrative agency and that it was arbitrary and capricious.  In New York and other states administrative agencies are part of the executive branch of government.  The executive branch is not permitted to exercise the powers of the other branches.  In other words administrative agencies, as members of the executive branch, cannot engage in lawmaking as that is an power exclusive to the legislative branch.  However, the legislature may delegate powers to an agency which it may then use to make administrative regulations through the rule making process.  Yet, the legislature cannot delegate its full lawmaking power.  The main separation of powers case in New York is Boreali v. Axelrod, 71 N.Y.2d 1 (1987) which dealt with an indoor smoking ban in specified buildings passed by the Public Health Council after the legislature failed to pass similar legislation. 

Four factors are considered in determining if the separation of powers doctrine requires invalidating a regulation.  These are 1) whether the regulation is based on concerns not related to the stated purpose of the regulation such exemptions created based on economic, political, or social concerns, 2) was the regulation created on a clean slate creating its own set of comprehensive rules without legislative guidance, 3) did the regulation intrude on an ongoing legislative debate, and 4) did the regulation require the exercise of expertise and technical competence by the body passing the legislation.  As to the first factor the trial court found that the regulation did not pass the test as it was "laden with exceptions based on economic and political concerns" in that it made a political decision not to seek an agreement with other regulating agencies that covered convenience stores like 7-11 and indications that it balanced public health considerations against economic ones. 

For the second factor the plaintiffs argued that the regulation was created from a clean state whereas the defendants argued that it was not created on a clean slate, but rather on the broad authority delegated to the Board of Health. The court found that the broad powers given the Board of Health in the city charter dating back to 1698 were limited to preventing and protecting against "communicable, infectious, and pestilent diseases."  There is no power for the Board to ban food items for the purpose of "controlling chronic disease" and its power to regulate the food supply is limited to when the city faces an imminent danger due to disease.  The trial court held that the power exercised by Board in this case actually belongs exclusively to the City Council as the legislative body of the City of New York.  Hence the regulation violated the second factor of Boreali

For the third factor the plaintiffs argued that the New York City Council had rejected three resolutions to tax, prohibit food stamp usage, and place warning labels on sugary beverages and the New York Assembly considered bills to regulate and tax sugary beverages without passing them.  The defendants countered that the New York City Council and the state legislature had not entertained measures limiting portion sizes.  The court rejected this argument as "a distinction without a difference" and ruled that there was an ongoing debate in the legislature and city council about the obesity issue and sugary drinks. 

The plaintiffs argued that the fourth factor regarding expertise and technical competence was lacking as the rule was drafted by the mayor's office rather than the Board and passed by the Board without any substantive changes.  The defendants argued that a memorandum issued after the public hearing addressed scientific studies and utilized the Board's expertise and technical competence.  The court held that it was not necessary for the Board to write the regulation to exercise their expertise or technical competence and that it could be met by the hearings or debates prior to passage.  The court found that the memorandum was sufficient for the Board to satisfy and meet the fourth factor in the Boreali analysis.

Overall the trial court found that the regulation did not pass the Boreali test and would "not only violate the separation of powers doctrine, it would eviscerate it."  The court noted that the defendant's interpretation of its authority would leave the Board's "authority to define, create, mandate, and enforce limited only by its own imagination."

The plaintiffs also argued that the regulation was unreasonable, arbitrary, and capricious under Article 78.  For reasonableness the trial court noted that the agency only had to demonstrate a reasonable basis for the rule which the court held that it did in addressing the rising obesity rate in New York City.  An administrative action is arbitrary and capricious if it is without a foundation in fact.  The court noted that the regulation lends itself to uneven enforcement on  a city block and in the city as a whole and that the loopholes defeat the stated purpose of the rule in that it applies to some, but not all food establishments, it excludes beverages with higher concentrations of sugar sweeteners or calories, and does not limit refills.  This, the court concluded, was arbitrary and capricious.  This ruling was appealed.

 The New York Court of Appeals, the court of last resort in New York, struck down the regulation on the basis that the New York Board of Health exceeded its authority in adopting the regulation in that it infringed on the legislative power of the City Council of New York. The court held that "[b]y choosing among competing policy goals, without any legislative delegation or guidance, the Board engaged in law-making and thus infringed upon the legislative jurisdiction of the City Council of New York."

Agency Action:

Regulation Section 81.53 : (See page 38).

Supreme Court (Trial Court in New York):

Court Opinion:

Supreme Court Appellate Division (Intermediate Appellate Court in New York):

Court Opinion:  (Beginning on Page 47).

New York Court of Appeals (Highest Appellate Court in New York):

Court Opinion: