A Manhattan appellate panel on Tuesday unanimously upheld a lower court ruling blocking New York City Mayor Michael Bloomberg's controversial restrictions on the sale of sugary drinks in containers larger than 16 ounces, an attempt to curb obesity.

The appellate judges concluded that the executive branch lacked the authority to unilaterally adopt a policy requiring the consent of the City Council.

"Like Supreme Court, we conclude that in promulgating this regulation, the Board of Health failed to act within the bounds of its lawfully delegated authority. Accordingly, we declare the regulation to be invalid, as violative of the principle of separation of powers," Justice Dianne Renwick (See Profile) of the Appellate Division, First Department, wrote for the panel in New York Statewide Coalition of Hispanic Chambers of Commerce v. New York City Department of Health and Mental Hygiene, 653584/12.

The Bloomberg administration vowed to seek leave to appeal to the Court of Appeals.

Corporation Counsel Michael Cardozo said in a statement "we firmly disagree" with the decision, adding "there is broad precedent for the Board of Health to adopt significant measures to protect New Yorkers' public health."

Bloomberg called the ruling a "temporary setback" in "the fight against the obesity epidemic." He said that since the ban was first halted in March "more than 2,000 New Yorkers have died from the effects of diabetes."

The law was challenged by a coalition of Hispanic Chambers of Commerce; the New York Korean-American Grocers Association; the Soft Drink and Brewery Workers Association, Local 812, International Brotherhood of Teamsters; the National Restaurant Association; the National Association of Theatre Owners of New York State; and the American Beverage Association.

"We are pleased that the lower court's decision was upheld," the American Beverage Association said in a statement. "With this ruling behind us, we look forward to collaborating with city leaders on solutions that will have a meaningful and lasting impact on the people of New York City."

Justices David Friedman (See Profile), Rosalyn Richter (See Profile) and Paul Feinman (See Profile) joined Renwick in the ruling, which affirmed Manhattan Supreme Court Justice Milton Tingling Jr.'s (See Profile) March decision released the day before the ban was to go into effect (NYLJ, March 12).

The appellate panel heard oral arguments on June 11.

At issue in the hotly contested so-called "soda ban"—formally called the Sugary Drinks Portion Cap Rule—are the roles of the Department of Health and Mental Hygiene and the Board of Health.

The Department of Health is an administrative agency in the executive branch that is tasked with the supervision and regulation of, as Renwick put it, "all matters affecting health in the City, including conditions hazardous to life and health."

The Board of Health is an 11-member panel with the ability to amend the city health code "with respect to all matters to which the power and authority" of the Department of Health extend.

Shortly after Bloomberg announced the proposed ban in May 2012, 14 City Council members expressed opposition to it and asked that it be put up for a council vote. None occurred.

Prodded by the mayor, the Board of Health voted to adopt the ban in September 2012, and the suit was filed soon after.

The rule targeted consumption of non-diet soft drinks, sweetened teas, sweetened black coffee, hot chocolate, energy drinks, sports drinks and sweetened juices. It did not cover alcoholic beverages, milkshakes, fruit smoothies, mixed coffee drinks, mochas, lattes and 100 percent fruit juices.

Restaurants, delis, fast-food franchises, movie theaters, stadiums and street carts had to abide by the ban but grocery stores, convenience stores, corner markets and gas stations were among the businesses exempted.

The difference in enforcement arose from a 2010 memorandum of understanding between the Department of Health and the state's Department of Agriculture and Marketing that delineated which "food service establishments" would be subject to local inspection.

When Tingling ruled on the case, he acknowledged obesity was a "serious issue," but faulted the Board of Health for overreach and questioned the "arbitrary and capricious consequences" that would come with enforcing what he called a selective ban.

Policy Decision

Renwick, in her decision, did not reach the plaintiffs' assertions that the ban was arbitrary and capricious. Instead, she focused on whether it violated the separation of powers. To make the analysis, she looked to the state Court of Appeals' 1987 ruling, Boreali v. Axelrod, 71 NY2d 1.

The Boreali court held that rules promulgated by the state Public Health Council about smoking in most public places were invalid.

Although the state's Public Health Law allowed the council to regulate public health matters, the high court said "the agency stretched that statute beyond its constitutionally valid reach when it used the statute as a basis for drafting a code embodying its own assessment of what public policy ought to be."

The Boreali court used four factors in its analysis.

The first pertained to whether the agency balanced competing public health concerns and economic costs "acting solely on [its] own ideas of sound public policy." The second factor questioned whether the agency was writing on "a clean slate" rather than filling in a law's details. The third factor questioned whether the regulations pertained to issues that lawmakers tried and failed to address in the face of "substantial public debate." The fourth examined if the regulations required health expertise.

The city argued that Boreali did not apply here because the Board of Health had the authority, under the city charter, to regulate "all matters affecting the health of the City."

But Renwick said this showed a "fundamental misunderstanding" of an administrative agency's power, noting the board derived its authority from the City Council.

Furthermore, all four Boreali factors were present here, said Renwick. For instance, in regard to the first factor balancing of health and economic concerns—and "acting solely" on its views of "sound public policy"—she found that the Board of Health did not do so here.

Thus, Renwick said the board did not act "solely with a view toward public health considerations" when adopting the ban.

Indeed, she said, the ban's "selective restriction" revealed the health of city residents was not the board's "sole concern."

"By enacting a compromise measure—one that tempered its strong health concerns with its unstated but real worries about commercial well-being, as well as political considerations—the Board necessarily took into account its own non-health policy considerations," said Renwick.

Further, by voting for the ban, she said the board decided "as a threshold matter, that health concerns outweigh the cost of infringing on individual rights to purchase a product that the Board has never categorized as inherently dangerous. As the intense public debate on the ban bears out, this threshold decision to regulate a particular food is inherently a policy decision."

Renwick also said the board "wrote on a clean slate" rather than to "fill a gap." Because the Board of Health did not deem soda consumption "a health hazard per se, the Board of Health's action in curtailing its consumption was not the kind of interstitial rule making intended by the legislature."

She also noted that members of both the City Council and state Legislature had previously tried to target sweetened beverages to no avail.

"This is a strong indication that the legislature remains unsure of how best to approach the issue of excessive sugary beverage consumption," said Renwick.

She stressed the decision was not meant to curtail the Department of Health's "legitimate powers" and was not meant to "express an opinion on the wisdom of the soda consumption restrictions, provided they are enacted by the government body with the authority to do so."

Assistant corporation counsel Fay Ng represented the city before the panel.

Richard Bress of Latham & Watkins argued for the American Beverage Association.