Wednesday, May 13, 2009

Nestlé Threatens to Sue New York

The controversy over the implementation of the expansion of the state's bottle law was complicated this week as the Nestlé company circulated a draft complaint that outlined the details of its planned legal challenge of the expansion of deposits to water. The demand that all deposit containers have a "NY" only label and UPC code is the heart of the threatened lawsuit.

The complaint, drafted by Kilpatrick Stockton, LLP, states flat ot that the requirement for this type of labeling is a direct violation of the constitution's Commerce Clause: "The most obvious constitutional defect with the amended Bottle Bill is its flatly unconstitutional regulation of commerce occurring in other states. It is well settled that the "dormant" Commerce Clause "precludes the application of a state statute to commerce that takes place wholly outside the State's borders, whether or not the commerce has effects within the State." Healy v. Beer Institute, 491 U.S. 324, 336 (1989).

How does the amended bill do this? "The direct-indeed intended, intended-effect of this New York-exclusive labeling provision is to control commerce occurring wholly in other states by prohibiting the sales in those states of a product that otherwise lawfully could be sold there."

The threatened legal action goes on to question other aspects of the new bottle law-particularly the inclusion of plain water, but not, "water to which a sugar has been added." But the challenge is both real as well as credible; and yesterday the governor appeared to recognize this as his office began circulating new amendments-one of which is the elimination of this restrictive labeling clause.

This is precisely the crux of the Kruger introduced senate bill that will be moved next week in Albany (Destito is carrying the bill in the Assembly). Still quick action needs to be taken, and next week is the deadline if something is to be done before the June 1st deadline; and that implementation date is also moved in the Kruger bill-to October of this year.

However, the governor has also proposed a two level handling fee change that would give smaller stores-under 10,000 sq. ft.-a 3 and a half cent fee; while reducing the fee to larger stores to only two cents. This measure is designed to reduce costs for bottlers and beer wholesalers who are going to be losing their unredeemed deposits. It's hard to see where the support for this is going to be coming from in the full legislature.

What we predict, is that the proposed Kruger-initiated changes will be enacted so that the state can avoid the Nestlé legal action; which doesn't preclude additional changes before the new October inception date arrives. All in all, a mess has been created that needs to be promptly cleaned up in order to avoid chaos.