The highest court in New York struck down former mayor Michael Bloomberg’s so-called soda ban last week, saying the city’s health board exceeded its authority when it imposed sugary drink portion limits on the businesses it regulates. In a 4-2 decision, the Court of Appeals held that in adopting the “Sugary Drinks Portion Cap Rule,” the New York City Board of Health engaged in law-making and thus infringed upon the legislative jurisdiction of the City Council of New York.

The ban’s ill-fated journey began in June 2012, when the city’s Department of Health and Mental Hygiene proposed that the Board of Health amend Article 81 of the City Health Code so as to restrict the size of cups and containers used by food service establishments for the provision of sugary beverages. Despite a comment period that indicated significant public concern about the rule, in September 2012 the Board voted to adopt the Department’s recommendation (referred to as the “Portion Cap Rule”), to go into effect March 2013. The Portion Cap Rule prohibited food service establishments from selling sugary drinks in portions larger than 16 ounces, but did not apply to establishments such as supermarkets and convenience stores that are subject to regulation and inspection by the New York State Department of Agriculture and Markets.

In October 2012, six national and statewide not-for-profit and labor organizations commenced a hybrid Article 78 proceeding and declaratory judgment action seeking to invalidate the rule. The action named the Board of Health, as well as the Department of Health and Mental Hygiene and its Commissioner, as respondents. In March 2013, the Supreme Court, New York County granted the petition, declared the Portion Cap Rule invalid, and permanently enjoined respondents from implementing or enforcing it. Supreme Court addressed two arguments raised by petitioners: whether the Board of Health had exceeded its regulatory authority and impermissibly trespassed on legislative jurisdiction, and whether the rule was arbitrary and capricious.

With respect to the first issue, the court surveyed the history of the New York City Charter and reached the conclusion that the elected New York City Council is the sole legislative body in the city, rejecting respondents’ contention that the Board of Health has inherent law-making authority. Regarding the second issue, the court found the rule to be arbitrary and capricious because it applied to some but not all food establishments in the city, and excluded other beverages that have significantly higher concentrations of sweeteners and/or calories.

In reaching its decision, Supreme Court applied the Court of Appeals’ 1987 Boreali v. Axelrod decision, where it was held that the New York State Public Health Council overstepped its regulatory authority when it adopted regulations prohibiting smoking in a wide variety of indoor areas open to the public that had previously been considered, but not adopted, by the State Legislature. Addressing the four considerations the Court of Appeals identified in Boreali, the Supreme Court concluded that each of those factors weighed in favor of invalidating the Portion Cap Rule. The Appellate Division unanimously affirmed Supreme Court’s order, rejecting the contention that the Board has inherent legislative power and finding that the Board violated the state principle of separation of powers. The Appellate Division did not reach the issue of whether the rule was arbitrary and capricious.

The Appellate Division based its decision on an extensive analysis of the four Boreali factors. With respect to the first Boreali factor, relating to whether the agency engaged in the balancing of competing concerns of public health and economic cost, thus acting on its own idea of sound public policy, the Appellate Division found that the Portion Cap Rule is “especially suited for legislative determination as it involves ‘difficult social problems’ which must be resolved by ‘making choices among competing ends,” and thus that the Board impermissibly engaged in policy-making when it adopted the rule.

Regarding the second Boreali factor, whether the agency created its own comprehensive set of rules without benefit of legislative guidance, the Appellate Division concluded that the Board illicitly created the Portion Cap Rule on a “clean slate” and was not merely conducting permissible interstitial rule-making. The court noted that the Board did not dispute that neither the state legislature nor the City Council had ever promulgated a statute defining a policy with respect to excessive soda consumption.

The third Boreali factor relates to whether the challenged rule governs an area in which the legislature has repeatedly tried to reach agreement in the face of substantial public debate and lobbying by interested factions. The Appellate Division noted that both the City and State legislatures had attempted over the years to target sweetened beverages, and that while the Portion Cap Rule employed different means than those considered by the legislative bodies, it pursued the same end, and thus addressed the same policy areas as the proposals rejected by the State and City legislatures.

Lastly, with respect to the fourth Boreali factor, whether the development of the rule required expertise in the field of health, the Appellate Division concluded that the Board had not exercised any special expertise or technical competence in developing the Portion Cap Rule.

The Court of Appeals agreed with the Appellate Division’s analysis. In affirming the Appellate Division’s order, the Court of Appeals reiterated that the City Council is the sole legislative branch of city government, and that the New York City Charter contains no suggestion that the Board of Health has the authority to create laws: “[I]t is clear from the Charter that the Board’s authority, like that of any other administrative agency, is restricted to promulgating rules necessary to carry out the powers and duties delegated to it by or pursuant to federal, state or local law. A rule has the force of law, but it is not a law; rather, it implements or applies law or policy.”

Judge Susan P. Read authored a lengthy dissent (joined by Chief Judge Jonathan Lippman), discussing the Board’s history of rulemaking and arguing that “the board is not required to stay its regulatory hand absent authorization from the council to regulate sugary drinks.” The dissent pointed to the Board’s recent move to ban the use of trans fats in restaurants as evidence of the authority vested upon the Board by the New York State Legislature. However, unlike the Portion Cap Rule, which applied only to certain sellers, the trans fat ban applied to all relevant businesses.  Also, the trans fat ban was ultimately passed by the City Council.

Now that the state’s highest court has reaffirmed that the power to regulate sugary drink consumption is squarely in the City Council’s hands, if there is going to be any further action on this issue it will be up to that legislative body to decide how, if at all, to proceed.  While the Court of Appeals, like the Appellate Division before it, did not strike down the ban based on its arguably arbitrary nature, its most vocal opponents continue to focus on that issue after the ruling came down, particularly the uneven effect the ban could have had on small businesses.  Even if the City Council were to take up the issue, it is likely there will be significant re-writing of the rule’s provisions, given that the majority of council members live in districts housing many small businesses. If and when some version of the rule resurfaces, we here at the Monitor will keep you posted on all developments. Until then, the beverage industry and soda lovers can breathe a Big Gulp of relief.