Two Stories from China on the Same Day (with an update)
The curious juxtaposition of these two stories from China on the same day is striking.
In the first story, two men were sentenced to death for purposely poisoning the food in a snack bar in Shenzhen City with sodium nitrite. It appears that a deal to develop a skating rink was contingent on removing a popular marketplace, and the ringleaders decided the best way to do that was to poison people at the marketplace, which they did in February 2008. Two people died and 61 others were poisoned. Those sentenced to die were the ones who administered the poison. The manager who masterminded the plan was sentenced to life in prison and the developer of the skating rink was sentenced to fifteen years in prison.
Meanwhile, just yesterday, in Harbin, 57 people at a shopping center got food poisoning from eating a popular Chinese snack food called malatang. The verdict: poisoning from nitrite. It makes you wonder if someone wanted to put a skating rink in there, too.
UPDATE 2/26/09: Make that three stories. Today CNN is reporting that 14 people in Guangzhou were poisoned from a dish of stir-fried pig's liver.
Washington Consumer Protection Law
The ABA Section of Litigation, Products Liability Committee will soon publish its 50-state survey on consumer protection statutes. Bryan Anderson and I coauthored the chapter for the state of Washington. As described in our article, Washington’s Consumer Protection Act, RCW 19.86.010, et seq., is quite broad:
The Act is modeled after federal statutes, primarily the Federal Trade Commission Act, the Sherman Act, and sections of the Clayton Act. The purpose of the CPA is “to protect the public and foster fair and honest competition.” RCW 19.86.910. The CPA is “a carefully drafted attempt to bring within its reaches every person who conducts unfair or deceptive acts or practices in any trade or commerce.” Short v. Demopolis, 691 P.2d 163 (Wash. 1984) (emphasis in original). It is to be “liberally construed that its beneficial purposes may be served.” RCW 19.86.920.
Standing is also quite broad, allowing a party without monetary damages to bring suit:
The Washington Supreme Court has recognized that the use of the term “injured” in this statutory provision “makes clear that no monetary damages need be proven” to have a cognizable claim under the CPA, and that “nonquantifiable injuries, such as loss of goodwill[,] would suffice. . . .” Nordstrom, Inc. v. Tampourlos, 733 P.2d 208, 211 (Wash. 1987).
In fact, the Washington Supreme Court held that “a physician whose reputation is injured has standing to sue a drug company which engaged in an unfair or deceptive trade practice by failing to warn the physician of the dangers of its drug about which it had knowledge.” Wash. State Physicians Ins. Exch. & Ass’n v. Fisons Corp., 858 P.2d 1054, 1060 (Wash. 1993).
Another interesting development discussed in the article is that the “Supreme Court of Washington recently invalidated a class-action waiver in an arbitration clause of a contract for cellular telephone service, explaining that ‘without class actions, consumers would have far less ability to vindicate the CPA.’” Scott v. Cingular Wireless, 161 P.3d 1000 (Wash. 2007)
Senator Durbin Likely to Introduce New Food Safety Legislation
The National Grain and Feed Association has reported to its members that Senator Richard Durbin (D-IL), is likely to reintroduce food safety legislation next week. Senator Durbin has introduced similar bills in prior Congresses. Likely, co-sponsors include Senator Edward M. Kennedy, chairman of the Senate Health, Education, Labor & Pensions (HELP) committee, and Republican Sens. Richard Burr of North Carolina, Lamar Alexander of Tennessee and Judd Gregg of New Hampshire. According to NGFA, the bill would require participants in the food chain to develop food safety plans to identify hazards that could adversely affect human or animal health.
Because of the peanut butter recall, there may be an attempt to take the bill straight to the Senate floor, bypassing committee hearings.
The Peanut Recall Hits Bird Food
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Reuters is reporting that Scotts Miracle-Gro shares dropped today on news that some of its bird food may contain peanut meal that was bought from now-bankrupt Peanut Corporation of America.
A blog called Birdchick reports that many other bird feed companies were able to confirm that they did not include PCA peanut meal in their suet. It also contains a recipe for suet that uses peanut meal you can make at home.
PCA Files for Chapter 7 Bankruptcy
It will come as no surprise that Peanut Corporation of America has filed for bankruptcy protection in the Western District of Virginia.
According to the bankruptcy filing, PCA claims to have debts of only between $1 and $10 million, and between 100 and 199 creditors. My colleagues in our Business Finance and Insolvency group tell me there is little penalty for any inaccuracies in these particular boxes on the cover sheet to a bankruptcy filing.
Two points are critical: they filed for Chapter 7 liquidation, not Chapter 11 reorganization. While voluntary Chapter 7 filings are not typical, they are less unusual than you might think.
The other point comes from a box checked on the cover sheet. It reads, "Debtor estimates that, after any exempt property is excluded and administrative expenses paid, there will be no funds available for distribution to unsecured creditors."
Tort clamants, i.e., the victims and families of victims, are unsecured creditors within the meaning of the Bankruptcy Code. In essence, PCA's assets, such as they are, are being turned over to its banks, and except to the extent of any insurance that may be available, the victims will have no recovery from PCA.
A Nicely Balanced Article from the AP
I came across this article on Google News from Holly Ramer at the AP.
What I liked about the article is that it is not afraid to quote from parents who are still feeding peanut butter to their kids. Among those parents: President Obama and his wife Michelle.
I particularly liked the quote at the bottom of the article from Barry Glassner, author of "The Gospel of Food: Everything You Think You Know About Food is Wrong":
It's very reasonable to take peanut butter off the menu until we knew what was going on, but then it's not anymore.
When I went to find the link to Glassner's book the cover looked very familiar so I checked; it is indeed the book my wife has been captivated by the last few nights.
PCA President Parnell Pleads Fifth Amendment Before House Committee
Stewart Parnell, President and owner of Peanut Corporation of America, appeared before a subcommittee of the House Committee on Oversight and Government Reform today. The hearing did without his testimony, howevver, as he pleaded the Fifth Amendment.
As we try to follow the breaking news (including, sadly, a ninth death linked to the salmonella in PCA peanuts), small things tend to stand out. One of them is that the PCA website, which we have linked to before, contains nothing but press releases, links to outbreak-related websites, and the address of PCA's registered agent for service of process: Ct Corporation System
1201 Peachtree St Ne # 1240, Atlanta, GA 30361
For help in following the story, the AP has posted a nice timeline of events. If we know anything, we know it will need supplementation.
The Human Cost of the Peanut Recall Part Three
This article in today's Seattle Post-Intelligencer is, of course, pretty much self-explanatory. That I've left this side of the tragedy to Part Three is because it's been so hard to face. The article did a great job of handling it, and is a reason I'm going to miss the P-I if, as it is expected to, it folds next month.
The Human Cost of the Peanut Butter Recall Part Two
According to a Bloomberg report, over 100 companies, including Kellogg Company., The Kroger Co., and Unilever plc expect to post losses as a result of the Peanut Company of America debacle. Although it is not specified in the article, I presume these are mainly public companies who have statutory obligations to post information about their expected losses. A CNN report suggests, however, that the real cost may be far greater.
What CNN's story indicates is that even though there is no evidence to suggest that there is anything wrong with peanuts, peanut butter or peanut butter-based products sourced from anywhere other than PCA's facility, consumers are becoming extra cautious and in many cases avoiding peanut butter altogether. It quotes Dr. Douglas Powell, an associate professor at Kansas State University and the creator of the International Food Safety Network as well as the less formal but more memorably named Barfblog. Dr. Powell sympathized with the consumers who aren't buying peanut butter.
If you're a parent packing a lunch and you have all the hectic things going on in the morning, is it really realistic to say, hey, before you put that peanut snack cracker individually wrapped item into your kid's lunch, you're going to go onto the Internet and check a Web site? I think that's a bit much. I think it's prudent to avoid this stuff until we see where this is going.
I expressed similar sentiments in a recent blog entry, so I am not disagreeing with Dr. Powell. Certainly, no one should eat, or give to anyone else to eat, anything that about which they have reason to be concerned as to its safety.
The question is: what should responsible people be saying? The CNN report quotes from spokespeople for ConAgra Foods, the makers of Peter Pan peanut butter, and J.M. Smucker, the makers of Jif peanut butter, in each case describing how their peanut butter products do not and have not used products from PCA. As USA Today reports that PCA's Plainview, Texas plant is shut down after inspectors found salmonella there, and amidst reports we have already blogged about indicating that PCA's actions were exactly the sort that lead to criminal prosecutions, what is the responsible course for dealing with this crisis?
The 100 public companies Bloomberg referred are, I would ask you to remember, the mere tip of the iceberg. Peanut butter products are sold at every mom and pop grocery store, every convenience store, nearly anywhere that sells food. Kellogg's, I dare say, can absorb its losses. In these days when thousands are losing their jobs daily where there is no highly-publicized recall adding to the current economic woes, how many more will be thrown out of work because of lost sales of peanut butter products that are not subject to suspicion?
In subsequent entries, we will be exploring some of the legal consequences of product recalls, as affected buyers try to recover their losses up the distribution chain.
PCA Recall - Insurance Lessons for Food Sellers
Bill Marler posted on his blog recently a complaint for declaratory relief filed by an insurer for Peanut Corporation of America (“PCA”). Mr. Marler comments, “Frankly, I read this suit several times and still do not see what the fight is about.” For those who represent commercial insureds in pursuing coverage from their insurers, the suit is no surprise. The suit is likely a function of the fairly limited insurance limits available to PCA, PCA’s tender of both bodily injury and recall expense related claims, possible exclusion for organic pathogens and/or allegations of intentional acts by PCA.
The complaint filed by PCA’s carrier, Hartford Casualty Insurance Company, alleges that PCA had at the time of the outbreak a $1 million primary liability insurance policy and $10 million umbrella insurance policy. Given the high number of probable personal injury claims (some of which will involve wrongful death) and the broad scope of products affected by the recall, claims will far exceed limits available to PCA under the Hartford policies. This outbreak demonstrates why any food manufacturer or seller should carefully consider whether its insurance limits are sufficient. A $10 million policy might have seemed to PCA like a great deal of coverage prior to the outbreak; today, the prevailing perception is that it is totally inadequate.
The complaint also alleges that the Hartford policies included “terms, conditions, exclusions, and limitations including but not limited to those pertaining to . . . coverage for claims arising out of the presence, suspected presence, or exposure to, among other things, bacteria.” The policies are not attached to the complaint. However, the allegation suggests that the Hartford policy might have included an organic pathogens exclusion. If the policy includes such an exclusion, PCA may be without coverage for any claims related to the Salmonella outbreak. The organic pathogens exclusion may exclude any claim for bacterial contamination of food products. As we’ve discussed previously on this blog, every food manufacturer should review its coverage to ensure that its policy does not include an organic pathogens exclusion.
Finally, the quick filing of a declaratory relief complaint by Hartford illustrates why a food seller needs to engage an experienced insurance coverage counsel immediately. Coverage counsel can assist in developing a strategy to pursue and preserve available insurance. Also, in situations such as PCA’s, all communications with insurers should be managed by coverage counsel. From the outset, communications with insurers are critical because they are likely to become relevant to the inevitable coverage disputes with the carriers.
Update on Criminal Risk Management: The Peanut Case
By Guest Blogger Per Ramfjord
In my February 3, 2009 blog entry, I briefly discussed the steps a company should take to avoid criminal prosecution under the Federal Food Drug and Cosmetic Act. The FDA’s criminal investigation of Peanut Corporation of America continues to provide lessons on this subject—in particular, on what not to do.
The enormous public harm caused by the company’s actions, coupled with its seemingly cavalier attitude to contamination already created a high risk of prosecution. But that risk was heightened still further on February 5, 2009, when the FDA issued an amended investigatory report indicating that company management did not initially provide complete and accurate information regarding the testing of contaminated products.
This report and other information disclosed by the FDA shows that PCA management initially told the FDA that the company had shipped products that had tested positive for salmonella only after the products had been retested and it did not appear that they were contaminated. But this information was apparently inconsistent with company records, which, according to the report, showed that the company sometimes shipped products before it even received the positive test results and that, when it did so, it did not always even bother to do re-testing to find out if the positive results were false. This type of inconsistency between management statements and company records is precisely the type of misstep that companies should seek to avoid in a criminal investigation.
The Department of Justice has published its Principles of Federal Prosecution of Business Organizations. According to those Principles, one of the key factors that the government looks to in deciding whether to charge a company criminally is the “corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation.” Any statements that are inconsistent with company records or the statements of other company employees are likely to be viewed as a failure to “come clean” under this standard. Indeed, should the government conclude that there was an active effort to conceal negative information, it is likely to go a step further and add charges against company management for false statements or obstruction of justice to the other charges in the underlying case.
Again, this underscores the need to engage in a prompt, thorough and complete investigation as soon as possible when a potential problem arises. Equally important, it shows the need to exercise caution in verifying any statements that are provided to the government, particularly early in an investigation when there is a great deal of pressure—both from the government and the public—to provide an explanation of what happened. Putting too positive a “spin” on the events is virtually certain to backfire, as it appears to have done with PCA management.
Update by Richard Goldfarb
As though to show the truth of what Per wrote, the FBI just announced that it would participate in the investigation of PCA, while the FDA's Office of Criminal Investigations would remain the lead investigative agency.
Irradiation as a Part of Food Safety Reform?
In the wake of the latest Salmonella recall, Congress is holding well-publicized food safety hearings, and food safety may be rising on the priority list of the Obama administration. One question that arises is whether the perceived crisis in food safety will lead lawmakers and the public to revisit the option of food irradiation. The New York Times recently ran a nice piece on the topic. The article begins:
Before the recent revelation that peanut butter could kill people, even before the spinach scare of three summers ago, the nation’s food industry made a proposal. It asked the government for permission to destroy germs in many processed foods by zapping them with radiation.
That was about nine years ago, in the twilight of the Clinton administration. The government has taken limited action since.
The article quotes Suresh Pillai, director of the National Center for Electron Beam Research at Texas A&M University, as saying “It’s unnecessary for people to be getting sick today with pathogens in spinach or pathogens in peanut butter.” He describes the potential for irradiation of food as “humongous” and says that “[w]e have the technologies to prevent this kind of illness.”
As discussed previously on this blog, irradiation has wide support in the food industry and even has the support of plaintiffs’ lawyers such as Bill Marler, who has written a lengthy three-part series on the topic.
The question may not be whether irradiation is another tool that can prevent food-borne illness, but rather why is irradiation not being used on a wide-scale. Mr. Pillai likened fears of irradiation to “early phobias about the pasteurization of milk.” Aside from lengthy delays in FDA approval, consumer fear may be the problem. The only solutions may lie in (1) a joint effort between industry and lawmakers to educate the public on the benefits and safety of food irradiation, and (2) action by Congress and the FDA to help provide industry with the resources and political cover to begin using irradiation on a wide scale.
The Human Cost of the Peanut Recall Part One
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The headline in last Friday's Seattle Post-Intelligencer read, "Local Food Banks Go Peanut-Free." A main supplier to food banks in the Puget Sound region, Food Lifeline, has decided to quarantine all peanut products "rather than try to keep up with the flood of U.S. Department of Agriculture or Food and Drug Administration recall alerts."
In a similar story, the Detroit Free Press reports confusion at a Meijer store in Royal Oak, Michigan, where a reporter sought to buy a product containing peanut butter, but the cashier couldn't ring it up. The cashier told the reporter, "Oh, the computer said this one's recalled. It's got that peanut butter in it. I don't know why it's still on the shelf -- shouldn't be, but the computer won't let those through."
As we have previously reported, the FDA has provided some great tools, including a web-widget, and both a list of recalled peanut products and the American Peanut Council has a list of products unaffected by the recall. What the reports out of Seattle and Detroit indicate, however, is that even in a world where information can move at web-speed, there is still wisdom in the old Mark Twain quote, "A lie can travel halfway round the world while the truth is putting on its shoes." When we're talking about what parents are putting in their kids' lunchboxes, the level of certainty required feels very different from any legal standard.
On February 5, Dr. Stephen Sundlof, director of the Center for Food Safety and Applied Nutrition of the FDA, testified before the Senate Agriculture Commmittee. His advice for consumers was cautious in the extreme.
Consumers are urged to check this web page to determine which products have been recalled and to become aware of new recalls as they are announced. Any product that is on the recall list should be disposed of in a safe manner. Consumers are also urged to wash their hands after handling potentially contaminated products. If consumers are unsure whether a peanut-containing product is potentially contaminated, they should avoid consuming it until they obtain more information about the product. Persons who think they may have become ill from eating peanut products are advised to consult their health care providers
(emphasis supplied). When the man in charge of food safety is sending the message to consumers that they should be watching out for themselves, it will be hard for any food bank volunteer or grocery store clerk to do more than what we have seen Food Lifeline and Meijer do.
On a personal note, my wife was a volunteer at the Fremont Public Association food bank (now Solid Ground) for many years. She taught me that peanut butter has always been a critical staple for food banks, providing a good source of protein, particularly to the many food bank customers who don't have cooking facilities, as well as to vegetarians and vegans. There isn't much I can do personally to deal with the problems caused by this crisis, but what I am doing is writing a nice check to Solid Ground.
FDA's Searchable Widget for Peanut Product Recall
UPDATE to the Salmonella-driven peanut product recall: as the number of peanut products recalled continues to rise, the U.S. Food and Drug Administration has created a Web widget that allows users to search for peanut-containing product recalls (see below). The FDA updates the list as it receives new information from companies that have recalled products. As discussed in an earlier article, a list of products that are unaffected by the recall is also available.
Is More Bad By-Products News Coming for Biofuels Producers?
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2008 was a terrible year for makers of ethanol and biodiesel. Huge spikes in the prices of raw materials, natural gas and transportation and drops in the prices they received for their main products have driven many of them to cut back production, shutter plants or even seek bankruptcy protection. In additiion, U.S. biodiesel producers saw themselves faced with an antidumping investigation by the EU that might affect their export market.
If you thought it couldn’t get any worse, hang on.
The National Grain and Feed Association reports that at the International Feed Expo in Atlanta on January 27, Dr. Daniel McChesney of the Food and Drug Administration spoke about studies the agency has reviewed concerning distillers’ grains, the main by-product of ethanol, and glycerin, the main by-product of biodiesel. The information presented by the FDA’s Center for Veterinary Medicine is of concern to anyone in the biofuels industry, as well as anyone who feeds livestock or purchases, processes or consumes meat and poultry.
The FDA has tested 45 samples of distillers’ grains from ethanol plants and in over half of them detected antibiotics, including virginiamycin, erythromycin and tylosin. NGFA later learned that the concentration of those antibiotics exceeded the level (0.5 ppm) from a letter of no objection relating to virginiamycin issued in 1993 to the predecessor of Philbro Animal Health. There are no safe levels established for the other two antibiotics in feed grain. The FDA has 15 more samples to test and intends to make its final report available this summer.
With regard to biodiesel-derived glycerin, Dr. McChesney stated that the FDA does not consider it to be GRAS, or generally recognized as safe, for use as animal feed. Two issues raised concerns:
· Many samples contained more methanol than the 150 ppm level recognized as safe for animal feed; and
· Samples contained salt in concentrations as high as 16,500 ppm.
Accordingly, the FDA will be conducting a safety review of glycerin as a by-product of biodiesel. This will focus on the type of feedstock used, the manufacturing process and how the glycerin is introduced into feed.
Developing markets for by-products has been a significant challenge for the emerging biofuels industry. The latest news of the FDA’s concerns about both distillers’ grains and glycerin will increase those challenges in an already difficult environment.
Avoiding Criminal Prosecution Under The FFDCA
By guest blogger Per Ramfjord
The FDA’s recent announcement that it is pursuing a criminal investigation of Peanut Corporation of America, arising out of the Salmonella-driven peanut product recall, is sure to raise concerns with executives in food product companies throughout the country. White House Press Secretary Robert Gibbs’s comment that the Obama administration intends to put in place a “stricter regulatory structure” to prevent breakdowns in food safety only heightens that concern.
And looking at the law, there are reasons to be concerned. The Federal Food, Drug, and Cosmetic Act criminalizes under sections 331 and 333 more than two dozen practices, including a host of activities associated with the manufacture or sale of contaminated food products. The potential punishment for such offenses includes corporate fines and the possible imprisonment of executives for up to one year for misdemeanor offenses or up to three years for felony violations. The burden of proof to establish such crimes against corporate executives is very low. For misdemeanor offenses, the government needs to prove only that the violation occurred under the executive’s watch; it need not show that the executive had any actual criminal intent or personal involvement in the violation. For felony violations, the government can prove the required intent simply by showing that a defendant consciously avoided knowledge of the violation or was involved in a prior violation.
So, the question arises, what should companies do to avoid prosecution if they become aware of potential criminal violations? The obvious first step is to stop the offending practice as quickly as possible and to identify and take any available remedial action, up to and potentially including a recall. Although there may be concern that the remedial action or recall may itself draw attention to the problem, the benefits of acting in a manner that the government deems responsible will pay off down the road. The second step is to investigate the violation immediately, with counsel, to develop facts that can help steer the case away from criminal enforcement. The FDA will almost always hold a “Section 305” meeting to allow a company to tell its side of the story before initiating a criminal prosecution. The decision about whether to prosecute will be based on factors such as the nature and seriousness of the offense, the potential deterrent effects of prosecution, and the company’s or individual’s culpability, criminal history, and willingness to cooperate. Uncovering evidence to show that the event in question was isolated in nature, due to unique and excusable circumstances, and not part of a pattern of misconduct or noncompliance is critical to making such a meeting a success and to the company’s overall defense going forward. Finally, an important third step is avoiding pitfalls during the investigation itself that could contribute to the government’s decision to prosecute. The current enforcement atmosphere is one in which the “cover-up” is often deemed worse (and more likely to spark prosecution) than the “crime.” Avoiding any false statements, document destruction, or other actions that the government could construe as constituting obstruction of justice is therefore of vital importance.
In sum, obviously the best way to avoid prosecution is to avoid violations, particularly through adopting policies and procedures that minimize risk. But once a potential violation has been discovered, it is vital to respond quickly and with the benefit of counsel who know and understand the system. While any enforcement proceedings are unfortunate, the prospect of criminal proceedings, with their potential of adverse publicity to the company and incarceration of executives, poses unique problems that require a rapid and focused response.
Another High-Profile California Labeling Case
Center for Science in the Public Interest (CSPI) recently filed a putative class action in federal court in the Northern District of California claiming that Glacéau’s VitaminWater is mislabeled under California law. This suit comes on the heels of the recent Ninth Circuit decision that remanded the Gerber foods case. We previously discussed the Gerber case on this blog and how it presents “serious questions as to whether there are any clearly defined legal standards as to when a food label is misleading and when it’s not.”
The VitaminWater case appears to raise similar issues. CSPI fails to point to anything directly in VitaminWater’s labeling or advertising that is actually incorrect. Instead, CSPI asserts that “the central message” of VitaminWater’s labeling “is that drinking VitaminWater is good for one’s health.” CSPI asserts this is misleading because “VitaminWater is loaded with sugar” and as a result “may actually harm consumers’ health.” CSPI also faults the product labeling because it fails to disclose that Glacéau, the company that manufactures VitaminWater, was purchased by a soft drink manufacturer.
