University paid Starbucks $30,000 licensing fee, monthly royalties

Citing a secret agreement with Starbucks as grounds for denial of a requested contract, NMU officials failed to comply with the Michigan Freedom of Information Act (FOIA), according to public records experts. The North Wind requested university contracts with Stone Creek Coffee and Starbucks on Friday, Oct. 3. After four business days, NMU officials took a 10-day extension, prolonging the deadline to Friday, Oct. 24. At the deadline, the university insisted it still needed approval from Starbucks before turning over the contracts.

“We are prohibited by a confidentiality clause from producing the Starbucks agreement; however, we are working with the other party to obtain permission to produce the file,” Gavin Leach, the designated university FOIA coordinator and vice president for finance and administration, said in an email to North Wind reporters.

FOIA experts consulted by The North Wind said the university’s reason for not turning over the documents was not a legitimate exemption in the state open records law and that the university is prohibited by state law from entering into any secret agreement with any company.

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“Public bodies cannot enter confidential contracts,” Adam Marshall, the Jack Nelson Legal Fellow at the Reporters Committee for Freedom of the Press, said. “The Michigan Supreme Court has ruled that a public body may not contract away its obligation under the FOIA laws. That contract wouldn’t be allowed.”

In the 2008 Michigan Supreme Court Case, Detroit Free Press, Inc. v. City of Detroit, it was ruled a confidentiality clause does not stand as grounds to deny a FOIA request. The ruling states: “Moreover, a public body may not contract away its obligations under the FOIA.”

Adam Goldstein, an attorney advocate for Student Press Law Center, said the university needed to have responded with a specific exemption when it failed to produce the contracts by the extension deadline. NMU didn’t provide any exemption.

“They need to clarify that they had not entered into a confidential contract,” Goldstein said. “It sounds like what they’re saying is ‘we’ve entered a confidential contract,’ in which case the contract is illegal. The government cannot enter into a contract which agrees to violate a law. Nobody can enter into an illegal contract.”

The university’s 10-day extension ran out Friday, Oct. 24. After the university refused to provide the contract between NMU and Starbucks, The North Wind repeatedly asked under what specific exemption in the FOIA law the university would not release the documents. The university did not provide any. In failing to provide the document within the time period, the university denied the request for the Starbucks contract. According to Michigan law 15.235, Section 5(4), the denial should have included a valid explanation and full explanation of the requestor’s right to appeal the situation or seek judicial review.

After repeated requests, the university released the Starbucks contract on Tuesday, Oct. 28 and stated it had been “working with our legal counsel and the vendor’s legal counsel to obtain permission to release the agreement.”

Leach said he feels he has complied with the Michigan FOIA law, despite the delays.

“I’m shocked and this has never been an issue before, so I’m surprised an issue like this would arise,” Leach said. “I think it’s an issue of a difference in interpretation of the law.”

Leach said he has worked as the FOIA coordinator for many years and although he has no background in law, Leach said he has handled the process over 100 times per year through the university’s general counsel.

Leach insisted he would not produce the contract because of a confidentiality agreement. An earlier Starbucks contract the university signed in 2003 specifically allowed the university to release the contract “to the extent disclosure is required under the Michigan Freedom of Information Act (“FOIA”), provided that the University shall give Starbucks prior written notice of such disclosure.”

However, when the university signed its new agreement with Starbucks in October 2013, that portion of the contract was amended and entirely omitted any reference to the state FOIA laws. It read “… Licensee shall seek, to the extent permitted by law, confidential treatment of the material economic terms of this Agreement, including without limitation, the number of Starbucks stores licensed hereunder, the license fee, the royalty, the advertising fee, the term, renewal term or term of development rights and the prices contained in or calculated…”

The Starbucks contract that the University entered into on October 2013 required a non-compete clause, restricting other vendors from selling coffee. The university also is required to pay a $30,000 one-time licensing fee, a monthly royalty equal to 7 percent of gross revenues, a monthly advertising fee equal to 1 percent of gross revenues and a quarterly advertising fee of not less than 1 percent of the prior quarter’s gross revenues. The contract also requires the personal injury liability insurance with a minimum limit of $5 million dollars per occurrence. The contract expires August, 2023.

The Stone Creek contract, entitled “Coffee Store in a Box Program,” cost the university $425 for two years in the old Jamrich building, $425 for a two year agreement on a Presque Isle location and $745 for a two-year contract with Cafe Libre/Catering.

Andrew Adamski, president of NMU’s Students for Sustainable Living organization, said Starbucks’ monopoly has made it difficult for students.

“There has been discussion by students that they don’t like that there’s only one coffee shop on campus,” Adamski said. “As bad as it is to say, as students we need coffee.Starbucks forming a monopoly on campus, and having to go one mile away to go to another coffee shop is not sustainable.”

The North Wind contacted Starbucks for comment, but the company did not respond.