Monster Beverage, AG Schneiderman Fight Over Energy Drinks, Alcohol

Three years ago, the office of New York Attorney General Eric Schneiderman asked Monster Beverage Corp. to turn over documents related to the advertising, marketing and sale of its energy drinks.

Although Monster characterized the 2012 subpoena as “patently overbroad and burdensome," Monster still produced hundreds of thousands of pages of documents under a modified agreement, according to court papers. New York officials issued a second subpoena last summer, seeking additional documents and the testimony of an employee in Florida who oversees the activities of college students who promote Monster on campus.

Arguing Schneiderman has exceeded his authority, Monster moved in September 2014 to quash the second subpoena in the Supreme Court of New York. Debra James, a state judge, heard oral arguments in March but has yet to make a ruling.

Schneiderman’s office cited evidence last October in court papers that Monster has engaged in illegal activity by encouraging college kids—including underage students—to mix their energy drinks with booze.

“We had a pre-rush party at our house with at least 300 people. We had four kegs, two trash cans of jungle juice and five cases of Monster," Schneiderman’s office quoted a Monster college student ambassador as reporting to the company. “Many Monsters were used for shooters and chasers."

The New York officials referenced emails and photos that show “Monster was fully aware of and condoned binge and underage drinking, including by 18- and 19 year-old college freshmen, at college parties where Monster was promoted and consumed in conjunction with alcohol."

Monster, which labeled its energy drinks as dietary supplements until 2012, argued it hasn’t done anything illegal and that there is no basis for issuance of the second subpoena.

“No Federal or New York State law or regulation makes it illegal to sell Monster, or market it to any age group," Monster declared in its Sept. 8, 2014 petition to quash the second subpoena. “Nor is there anything illegal about promoting the sale of Monster as a mixer with alcohol."

Monster and Schneiderman’s office both declined to comment on the dispute.

Corona, California-based Monster, whose 2014 gross sales rose 9.3 percent to US$2.8 billion, likely faces an uphill battle quashing the subpoena, according to two lawyers who are not involved in the case.

The “standard for supporting AG subpoenas is very much in favor of the AG, so it will be challenging," said David Biderman, a partner in the Los Angeles and San Francisco offices of Perkins Coie, a law firm with offices across Asia and the United States, in an emailed statement.

Schneiderman, who has launched a wide-ranging investigation of the supplement industry, has gained a reputation as a hard-hitting attorney general. But Monster is no lightweight either. On the opposite coast, the company has been fighting San Francisco’s city attorney Dennis Herrera, who claimed in a 2013 lawsuit that Monster had mislabeled its products as supplements and failed to disclose health risks that energy drinks pose to youngsters.

"Schneiderman has proved to be very, very aggressive and that without opining on the merits of the [Monster] case, we would expect that to be hotly litigated," Biderman said.

Rick Collins, a founding partner of the New-York based law firm Collins, McDonald & Gann, said Schneiderman “may well be in over his head."

“The sense I get is this is a fishing expedition where the state attorney general suspects some level of wrongdoing and is just demanding every document imaginable to see if there is any evidence of it," said Collins, a former Nassau County, New York prosecutor, in a phone interview. “He is a state attorney general who has jumped into the deep water of the pool of federal regulatory law."

In its annual regulatory filing with the Securities and Exchange Commission, Monster said it doesn’t know what, if any, action Schneiderman may take against the company.

Any official action taken by Schneiderman against Monster could spur private litigation against the energy drink maker, Collins said. Plaintiffs’ lawyers have been known to run to the courthouse after a state or federal government agency makes a pronouncement. For instance, four national retailers— GNC, Target, Walgreens and Walmart—were sued in class-action litigation after Schneiderman alleged in February that a number of supplements sold by them were contaminated and failed to contain the labeled herbs.

“If there is information in the documents that the AG is seeking that indicates an intentional marketing plan directed at young adults [and] teenagers that in any way encourages or is designed to encourage the consumption of Monster along with alcohol, to me there is a significant product liability risk," said Marc Ullman, a partner with New York-based Ullman, Shapiro & Ullman, a law firm specializing in food, drug and cosmetic law.

“This is something I have been expressing concern about for several years," Ullman said in a phone interview. “The nightmare scenario being some underage freshman goes to a frat party, drinks a six pack and because he still has to get himself home, chugs a couple of Monsters or other energy drinks, gets in their car and now they are drunk and wired."

“That scenario," Ullman continued, “is why the regulators have been expressing concern about the potential marketing to college students in the context of alcohol consumption."