The 2014 Farm Bill: "Almost a Miracle" and "Like a Swiss Army Knife"

Some helpful information about the new Farm Bill.  

First, the summary material from the Ag & Food Law Blog, which quotes Rep. Collin Peterson (D-Minn)as saying that getting it passed was "almost a miracle." 

Then, two tools mentioned in their blog post, both from the Department of Agriculture.  First, a summary that is headed with a picture of a Swiss Army knife, accompanied by President Obama's quote that that was what the bill was like.  Second, a webpage from the Economic Research Service, also summarizing the bill and, as their name implies, doing some work on its economic implications.  The first one provides the administration's own take on the bill, what it means and how they interpret it.  The second one includes some more objective infomation, particularly comparing it to the last bill. 

Video Interview: Discussing the FDA's Potential Ban of Trans Fats

Following up on our recent post here on the FDA proposing that trans fats no longer be recognized as "generally accepted as safe" and the potential ensuing ban, I had the opportunity last week to speak with Colin O'Keefe of LXBN on the issue. In the brief interview, I share my thoughts on how the FDA arrived at this point and explain why I believe the industry is prepared for a move away from trans fats. 

FDA Makes Preliminary Determination That Trans Fats Are Not GRAS

Last week, the U.S. Food and Drug Administration (FDA) announced in a Federal Register notice that it has made a preliminary determination that partially hydrogenated oils (PHOs), a major source of artificial trans fat in processed foods, are not generally recognized as safe (GRAS) for use in food. The November 7, 2013 notice includes the opening of a 60-day public comment period.

Under section 409 of the Federal Food, Drug, and Cosmetic Act, any substance intentionally added to food is a food additive subject to premarket approval and review by FDA, with some exceptions. The exceptions include substances “generally recognized as safe,” or GRAS, because they are generally recognized by experts qualified by scientific training and experience to evaluate its safety, as having been adequately shown through scientific procedures (or, in the case of a substance used in food prior to January 1, 1958, through either scientific procedures or experience based on common use in food) to be safe under the conditions of its intended use. PHOs, which are the primary dietary source of industrially-produced trans fat have a history of use as food ingredients and have long been considered GRAS ingredients by the food industry.

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New York "Big Gulp" Ban Bites It For Now

Among the ironies connected to New York's attempt to ban large cups of soda is the fact that the last time I was in the city, before the advent of 7-11 to its precincts, the one thing I really craved was a really large cup of Dr Pepper.  When I visit New York, on business or for pleasure, I typically walk miles and miles, and on a hot day an icy cold cup of soda (I prefer the Diet) is what I need to refresh myself.  I think I found one place that had it, but then again Dr Pepper is less common in the East.

A lot has been written about this ban both before and after a New York Supreme Court judge struck it down on Monday.  Some of it has been fairly misleading and some of it has been relatively accurate.  The case has nothing to do with equal protection under the U.S. Constitution, or indeed the U.S. Constitution at all.  Rather, it was mainly decided based on an interpretation of a document that is, in its origins, older than the Constitution:  the New York City Charter, a document that began in the reign of James II, the man for whom the city and state were named.  Ultimately, the question was not so much the wisdom of the ban, but whether the Board of Health, a body appointed entirely by the Mayor without even City Council ratification, had the power to institute it, or whether that power was held by the City Council or the New York State Legislature, each of which had failed to pass similar legislation.  Unless you are seriously concerned about the separation of powers doctrine under New York law (city or state), the vast majority of the case is of little interest and creates no precedent for what other jurisdictions may or may not do.

Much attention has been given to the judge's alternative ruling that the ban was "arbitrary and capricious" because it covered only some establishments and because it exempted certain drinks.  The former of these is really a question of the authority of the Board of Health, which by a "memorandum of understanding" has ceded jurisdiction over grocery stores and convenience stores, as opposed to restaurants, to the state authorities.  The court hints, however, that one problem with the ban is that that Board of Health did not seek, before imposing it, to coordinate with the state, which the MOU apparently required. 

The latter can certainly be criticized.  If you can get unlimited refills of a 16 ounce cup, have you accomplished anything?  Some would argue that you have.  Alcoholic beverages and milk-based beverages were exempt, which raises other issues.  An article on the Bloomberg website, of all things, suggests that the result of the judge's action might be a broader ban.  The director of the World Health Organization's Orwellian-sounding "Center on Public Health Law and Human Rights" argues that the ban was "legal and right."  Mayor Bloomberg, not surprisingly, vows to succeed on appeal. 

More interesting is the number of different ways in which New York restaurants had chosen to comply with the ban, and the cost of being required to be in a position to comply only to have the ban struck down just before it went into effect.  16 oz. cups were at a premium in the city before the ban was struck down; as the case goes through appeal, there will be more uncertainty about what those subject to the former ban may do, and if the mayor wins on appeal, how quickly they would have to comply with a reintroduced ban. While the organizations that challenged the law clearly had the right to do so, for many New York restaurant owners the real concern is certainty.  They'd rather know what their duties are far in advance of having to implement them because they can't change their practices on a dime.  This appeal doesn't do them any favors at all.

FDA Now Accepting Registration Renewals

This morning, the Food and Drug Administration (FDA) announced that as of 12:01AM this morning, the updated food facility registration system is now accepting food facility registration renewals. The renewal period was expected to open on October 1, 2012, however, FDA delayed the registration after receiving numerous requests from the Grocery Manufacturers Association and other trade associations seeking further guidance in meeting the registration requirements.

Registration renewal is a new requirement mandated by the Food Safety Modernization Act (FSMA). Originally, food facilities were required to register only once. The law now requires that food facilities re-register every 2 years with FDA, during the period beginning on October 1 and ending on December 31 in even numbered years. Even if a food facility is already registered with FDA, the facility is still obligated to renew registrations during the October 1-December 1 timeframe.

To register, update, or renew a registration, food facilities must submit the paper Form 3537 by mail or fax or register online at www.fda.gov/furls. FDA encourages online registration as the least costly, quickest, and most efficient means for food facility registration.

 

Food Security Act Doesn't Apply to Proceeds

The Food Security Act of 1995 is part of a matryoshka of statutes.   In the center is the general rule of 9-320(a) of the UCC, that a buyer in the ordinary course of business takes free of a security interest created by its seller.  The next doll is the Farm Products Exception, which I wrote about here:  except, most notably, in California, the buyer in the ordinary course rule does not apply to a buyer of farm products.  The next doll is the Food Security Act itself:  if you fail to comply with its terms, then the Farm Products Exception does not apply.  Finally, if you do comply, then the Farm Products Exception does apply. 

If that's not entirely clear, don't blame the messenger.

An interesting case out of the U.S. Bankruptcy Court for the Central District of Illinois asked this question:  does the Food Security Act apply to proceeds?  Here are the basic facts of CNH Capital America LLC v. Trainor Grain & Supply Co.:  Both CNH and Trainor had financed crops for farmers named Printz, who are now in bankruptcy.  CNH had the earlier filed financing statement.  Trainor was also the grain elevator which bought the crops.  CNH did not comply with the notice provisions of the Food Security Act.  Trainor had therefore, there was no dispute, purchased the crops free and clear of CNH's lien.  But what about the proceeds?  Trainor simply offset them against its debt and paid nothing to the Printzes.  Would it be able to walk away without paying, despite CNH's earlier filed financing statement?

Your ordinary buyer, when it pays for the crops, is concerned about double payment, which is why it will check the Food Security Act filings or notices of its seller.  In essence, Trainor wasn't making any payment at all; no cash was changing hands.  If it was wrong, it still had its debt.  That probably isn't worth much without collateral and with the farmers in bankruptcy, but also, as a secured party, it was clearly in second position behind another creditor. 

And that, in essence, is what the court held.  The Food Security Act protects a buyer.  If a secured creditor does not comply with its notice provisions (which, in some states like Idaho and Oregon, are essentially the same as for filing a financing statement, while in others, like Washington and, presumably, Illinois, involve actually sending notice to known prospective buyers of the farm products), then the buyer gets full title to the goods.  But what it does not get is priority in proceeds as well. 

Think of it this way:  if there were no Farm Products Exception--the rule that applies to purchasers of every kind of goods except farm products--would a buyer who also had a second security interest be able to take the goods by setting off its debt against the interests of a first priority secured creditor?  I think not, and that is what the court ruled here.

What if Trainor had paid the farmers and the farmers had turned around and paid Trainor in cash?  Under 9-332 of the UCC, unless Trainor and the farmers had been in collusion, Trainor would, outside of bankruptcy, have taken good title to the funds.  Of course, in bankruptcy, this was likely to be a preference and thus recoverable just as the setoff in the actual case was. 

FDA Delays Biennial Food Facility Registration Period

It seems like “delay” has become the word most often associated with the Food Safety Modernization Act (FSMA). Last next, we reported here on the Food Liability Law blog that starting on October 1, 2012, food facilities would be required to begin the biennial re-registration process in order to comply with the provisions of the FSMA. However, it looks like we may have spoken too soon.

On September 28, the Food and Drug Administration (FDA) posted the following on its website:

Biennial Registration Renewal for Food Facilities will not be available on October 1, 2012.  We therefore will not be accepting food facility registration renewals at this time.  Please check FDA’s website at http://www.access.fda.gov at a later date or sign up for FSMA updates to be informed when it becomes available.

FDA decided to delay the registration period mandated by FSMA after receiving numerous requests from the Grocery Manufacturers Association and other trade associations seeking further guidance in meeting the registration requirements.

As noted in our earlier post, FSMA now requires that food facilities re-register every 2 years with FDA. The law states that the registration period will begin on October 1 and end on December 31 during even numbered years.

At this time, FDA is recommending that food companies check the agency’s website to know when the registration renewal will become available.

Are FDA Reinspection Fees An Opportunity?

Fred Degnan, from King & Spalding, led a very insightful presentation on "Responding to Government Investigations and Warning Letters" at the recent ACI food regulatory summit. His presentation led to an interesting discussion about FDA's close out of investigations.

It was generally agreed that the FDA, in essence, is not notifying parties when it has decided to close out an investigation or take no further action. But, as another conference attendee pointed out, reinspection fees under FSMA section 107 may provide an opportunity to determine whether FDA has completed its investigation. If a facility is required to pay the FDA reinspection fees, it seems logical that FDA will have to inform the facility when it has closed the file and is no longer assessing fees. Whether this becomes reality has yet to be seen.

FDA's Right To Photograph In Your Plant

The FDA asserts in its inspection manual its right to photograph in your plant. Yet the FDA does not have statutory authority to photograph. The manual cites the following cases as authority for its right to photograph the inside of a plant: Dow Chem. Co. v. United States, 476 U.S. 227 (1986), and United States v. Acri Wholesale Grocery Co., 409 F. Supp. 529 (S.D. Iowa 1976). But these cases rely on the theory of implied consent or a minimal expectation of privacy. These cases do not hold that FDA has the right to photograph the interior of a food facility when the facility has a strict policy against photography and does not consent to the photography.

So, should you resist FDA's request to photograph?

The first thing you need to do is to ask yourself the following two questions:

  1. Do you have a policy against photography in your plant?
  2. If you do, is the policy strictly enforced?

If the answer to either question is no, then you're on shaky footing in resisting the FDA's request. By not having a policy or by not strictly enforcing the policy, FDA's legal authority based on implied consent is that much stronger.

Assuming your plant does have a no-photography policy that is strictly enforced, you need to assess whether the photography is worth the fight. It may be. Resisting the request for photos may be worthwhile to protect potential disclosure of trade secrets and to prevent out-of-context photographs from being used adversely by FDA. The problem is that the harder you push against FDA, the more likely that it will seek more information and the more likely that it will seek enforcement action.

In a future entry, we'll explore what legal remedies might be available to prevent the FDA from photographing the inside of  your plant.

3 New Ways FDA Will Access Your Records and 5 Things You Can Do About It

The Food Safety Modernization Act ("FSMA") significantly expands the FDA's ability to access a food company’s records.

The expanded authority is found in three places in the statute:

  1. FSMA § 101 amends 31 USC § 350c(a) and allows the FDA to obtain records related not only to a product that the FDA believes "will cause serious adverse health consequences or death to humans or animals" but also those related to "any other article of food" that the FDA believes is "likely to be affected in a similar manner."

This statute may allow FDA to "access and copy" all records in any format and at any location of products that are not known to be contaminated but that might share similar ingredients or be produced in a shared facility or that could otherwise be affected in a "similar manner" as products thought to be contaminated.

Section 101 was effective immediately on FSMA becoming law in January 2011.

  1. FSMA § 103 requires that FDA facilities (with certain exceptions) implement "Hazard Analysis and Risk-Based Preventative Controls." As part of this section, Congress requires the affected FDA facilities to keep "records documenting the monitoring of the preventative controls" and to keep a "written plan that documents and describes the procedures used by the facility to comply with the requirements of this section." Congress requires that these records "be made promptly available" to the FDA upon "oral or written request." The statute also requires that records be kept for at least two years.

Note that unlike in section 101, Congress did not use the term "copy" in section 103. This section instead says that records must "be made promptly available."

The question remains open whether the FDA interprets "be made promptly available" to mean copy and whether such a broad interpretation will be held up by the courts. Section 103 is effective in July 2012.

  1. FSMA § 202 requires the FDA by January 2013 to create a "program for the testing of food by accredited laboratories." By July 2013, section 202 will require testing by an "owner or consignee (i) in response to a specific testing requirement under this Act or implementing regulations, when applied to address an identified or suspected food safety problem; and (ii) as required by the Secretary, as the Secretary deems appropriate, to address an identified or suspected food safety problem.“

Test results from the FDA-accredited lab "shall be sent directly to the [FDA]" unless exempted by regulation.

The big questions under section 202 are whether:

a. Routine product and environmental testing accomplished for the purpose of a food safety plan under section 103 will be considered "in response to a specific testing requirement . . . when applied to address an identified or suspected food safety problem" and

b. The FDA will exempt certain testing records under this provision.

So, what should you do to prepare for the FDA's considerable expansion of its ability to access your records?

Here are five things that a food company should consider:

  1. Understand what records the FDA does not have the right to access (recipes, financial, pricing, research, personnel or certain sales data), and maintain these separate from records the FDA can access.
  2. Create and enforce a document destruction policy that conforms with FSMA.
  3. Create a standard FOIA letter to present to the FDA when it requests letters explaining that it considers information provided to be trade secrets, confidential and proprietary.
  4. Create and train employees on a confidential FDA inspection policy that involves legal counsel and therefore can be cloaked in the attorney-client privilege.
  5. Understand what finished product and environmental testing is needed and not needed for a section 103 food safety plan.

More on FSMA and Food Safety Risk Avoidance

Thank you to Parker Smith & Feek for inviting me to speak to about FSMA and how it’s changing the status quo. My slide-deck can be viewed here.

Following my talk, Marty Bask from Parker Smith & Feek led a very interesting discussion about the pros and cons of product recall and contamination coverage. A link to our recent discussion on this blog on what to ask when purchasing this kind of coverage is here.

Looking for Information and Presentations on FSMA, Recalls and The RFR? Look No Further.

I’ll be speaking at several events over the next two months on the Food Safety Modernization Act (FSMA) and how this comprehensive and far reaching legislation affects the status quo for food companies. Two of these events are free, and all promise to address relevant and critical issues for those involved in the food industry.

a. May 24 at Parker Smith Feek's offices in Bellevue for a discussion of the new FSMA, the Reportable Food Registry and how to survive a food product recall (event was rescheduled from March 22). Registration is free and coming soon. Contact me if you’re interested and I’ll get a spot reserved.

b. April 29 webinar sponsored by AON on FSMA. Link to the free registration is here.

c. May 12-14 Northwest Food Processors Association’s Executive Business Retreat in Coeur d'Alene, Idaho.

d. June 15-16 ACI Food Safety Regulatory Compliance Summit in Chicago. I'll be speaking specifically on "Curtailing Downstream Liability Arising Out of On-Site Inspections: How to Prepare and What to Do Should the Government Come Knocking." If you register by April 15, I can arrange for a discount. Just let me know.

If you can't make these events or would like a customized in-house presentation on FSMA, the Reportable Food Registry, recalls or other food liability topics, please let me know. Also, stay tuned for new blog entries addressing such topics as the Reportable Food Registry (RFR), restaurant menu labeling, and strategies to defeat food marketing/labeling putative class claims.

More on the FSMA and the "Tester Amendment"

Earlier this week, I presented a webinar to the American Cheese Society entitled the "Food Safety Modernization Act and Product Liability." A link to the presentation is here. The presentation covered a number of topics and included a discussion of the so-called "Tester Amendment" to FSMA.

The "Tester Amendment" in section 103 of FSMA "exempts" from the hazard analysis and risk-based preventative controls requirements in section 103 certain "Qualified Facilities." To be a "Qualified Facility" you have to either (1) be a "Very Small Business" or (2) have "Limited Annual Monetary Value of Sales."

FSMA leaves it to FDA to define by regulation a "Very Small Business," so we have little guidance now on what this means.

FSMA does define what it means to have "Limited Annual Monetary Value of Sales":

a. You have average annual sales (over three years) of less than $500,000 (adjusted for inflation); and
b. Your sales to "Qualified End Users" exceed sales to others.

"Qualified End Users" mean consumers or restaurants/retailers located in the same state or within 275 miles from your facility who are selling directly to consumers.

BUT even if you qualify for the exemption to the hazard analysis and risk-based preventative controls, understand that it is not truly an exemption. Even qualified facilities will still have to provide documentation to FDA that either:

a. demonstrates you have “identified potential hazards associated with the food being produced” and “implementing” and “monitoring” preventative controls; or

b. “as specified” by FDA shows compliance with “State, local, county, or other applicable non-Federal food safety law.

A "Qualified Facility" also must provide to FDA “Documentation, as specified by FDA in a guidance document that the facility is a qualified facility.”

Hazard analysis and risk-based preventative controls provision of section 103 of FSMA will become effective in June 2012 irregardless of whether FDA completes its rule-making process.

How Regulatory Changes Affect Litigation Risks

On February 24, 2011, Lee Smith and I presented "How Regulatory Changes Affect Litigation Risks" to the Grocery Manufacturers Association's food litigation conference. A link to the slide-deck can be found here.

We discussed ways that the Reportable Food Registry (RFR) and the Food Safety Modernization Act (FSMA) are affecting litigation now and can be expected to affect litigation in the near term.

In particular, we discussed:

  • Ongoing and pending changes to the RFR
  • FSMA’s grant of records access to FDA
  • Mandatory recall authority and how this may delay certain recalls
  • Suspension of FDA registration
  • Hazard analysis and preventative controls: What are they? How do they differ from HAACP? How they will be effective with or without FDA rulemaking
  • Regulation of chemicals under FSMA (and under proposed changes to TSCA and Proposition 65 in California)
  • Specific things that food sellers should consider now to reduce risk

Let me know if your business is interested in an in-house, customized presentation or training on the RFR and FSMA.

Preparing for FSMA Produce Safety Rules: What "Ag-in-the Middle" Needs to Do

Many who track FDA's implementation of the Food Safety Modernization Act (FSMA) believe that a priority for FDA is Section 105, “Standards for Produce Safety” (FDCA section 419), in particular, the leafy greens regulations.

Farms are exempt under FSMA's produce safety rules if:

(A) during the previous 3-year period, the average annual monetary value of the food sold by such farm directly to qualified end-users during such period exceeded the average annual monetary value of the food sold by such farm to all other buyers during such period; and

(B) the average annual monetary value of all food sold during such period was less than $500,000, adjusted for inflation.

"Qualified End User" is defined as:

(i) the consumer of the food; or

(ii) a restaurant or retail food establishment (as those terms are defined by the Secretary for purposes of section 415) that is located—

(I) in the same State as the farm that produced the food; or

(II) not more than 275 miles from such farm.

The fear among many small farm and "ag-in-the-middle" proponents who are not exempt is that FDA will impose standards similar to those adopted by the National Leafy Greens Marketing Agreement (NLGMA) proponent group. Even the proponent group concedes that "the metrics developed by LGMA are not appropriate in every area and must be modified to address unique risks presented in different regions as well as varying production practices across the country."

Those non-exempt farms who cannot logistically or financially possibly comply with NLGMA metrics should consider the following action steps:

1. Be ready for the rule-making process. Marshal your case why your operation is low risk and should be treated differently from larger-scale operations and for those in California and Arizona the standards were developed for.

2. Start now laying the ground work with your state department of agriculture to seek a state variance for the FDA rules. The FSMA allows that:

A State or foreign country from which food is imported into the United States may in writing request a variance from the Secretary. Such request shall describe the variance requested and present information demonstrating that the variance does not increase the likelihood that the food for which the variance is requested will be adulterated under section 402, and that the variance provides the same level of public health protection . . . .

3. Call your congressional delegation. FDA has significant reporting obligations to Congress, which will have a significant role to play (funding, oversite, etc.) in how the FSMA gets implemented. Start educating your Congress people now on the fears that exist by "ag-in-the-middle" about the produce safety rules.

Why CSPI's Loyalty Card Suit Has No Merit and Does Not Promote Food Safety

Following the playbook it has followed in the past with sodium and other issues, the Center for Science in the Public Interest (CSPI) has filed yet another complaint of very questionable legal merit to promote a policy agenda. This time CSPI seeks to compel all retailers to use loyalty cards as a recall alert system.

Some retailers use their loyalty card systems to alert customers of product recalls. Other retailers do not. Retailers who don't use loyalty cards as a recall alert system may have a variety of legitimate reasons why they don't or can't create the technology that CSPI wants a court to order retailers to implement. For example, some may lack the technological ability, have privacy agreements with customers that do not allow loyalty cards to be used as a recall alert system, or have other legitimate privacy concerns.

Like CSPI's sodium litigation, this complaint has serious flaws. It seeks broad certification of a "nationwide class" of customers who bought recalled products and whom the retailer "did not advise that they had bought Recalled Products." Even supposing that the claims had some legal merit, few "common issues of fact and law" are apparent. State law varies on the type of consumer fraud claims asserted. Some putative class members surely did get notice of the recall (through means other than loyalty cards).

On the merits, the claims are problematic because we suspect that many (and perhaps most) jurisdictions do not recognize a retailer’s affirmative duty to create some technology to alert customers of manufacturers’ recalls. The complaint utterly fails to acknowledge that retailers employ mechanisms other than loyalty cards to assure customers are aware of recalls.

On its face, a claim for breach of the warranty of merchantability is completely incongruent with a request that the court order retailers to employ new technologies. And, a loyalty card is not a good subject to the warranty of merchantability.

What might be most shameful about CSPI's complaint is its conflict with the Food Safety Modernization Act (FSMA), which CSPI purports to support. Section 211 of the FSMA modifies the Reportable Food Registry to enhance consumer notification of Class I recalls by grocery stores. FDA is tasked to, "[n]ot more than 1 year after the date of enactment of the [FSMA,] . . . develop and publish a list of acceptable conspicuous locations and manners" for grocery stores to notify customers of Class I recalls. CSPI (as well as anyone else) will have the opportunity to submit comments to FDA as part of the rule-making process.

Even if CSPI were somehow successful in its litigation, the outcome of the litigation may be supplanted or even in direct conflict with the FDA's rulemaking and the FSMA. Litigation is rarely a productive, efficient or useful way to create industry regulation. Litigation in the wake of legislation creating the actual policy that CSPI seeks to promote seems utterly wasteful and counterproductive.

Proposed Bill Would Eliminate the Corporate and LLC Shield for Many Washington Contracts

Note: This blog entry was  authored by Douglas Batey and originally published on the LLC Law Monitor blog.

The Washington legislature is currently considering a bill that would apparently require any contract that calls for the payment of money by an LLC or corporation, to include an extra signature by an authorized representative that would render the representative personally liable for any amounts due on the contract. HB 1535. In other words, under this bill any LLC or corporation making a contractual commitment that involves the payment of money would have to include a personal guarantee from a natural person.

This would be an extraordinary change to Washington law. No other state has anything comparable in its laws.

The Background. The bill would upend the familiar principle of the law that “when an agent makes a contract on behalf of a disclosed or partially disclosed principal whom he has power to bind, he does not thereby become liable for his principal’s nonperformance.” Griffiths & Sprague Stevedoring Co. v. Bayly, Martin & Fay, Inc., 71 Wn.2d 679 , 686, 430 P.2d 600 (1967). See Restatement (Second) of Agency § 320 (1958).

When an LLC manager (or a corporate officer) signs a contract on behalf of a company, the manager usually signs only as an agent of the company. The fact that the manager is signing as an agent is reflected in the typical signature block:

Acme Corporation


______________________
By: Wile E. Coyote
Vice President of Product Development


Under these well-accepted rules, LLC managers and corporate officers can sign contracts on behalf of their company without fear of becoming personally liable. If the rule were otherwise it would be exceedingly difficult to find a manager willing to sign for an LLC or corporation.

The Bill. The heart of the bill is a requirement that any “business payment contract” must contain an additional signature line, directly following and on the same page as any other signature line that the authorized business representative must sign. The additional signature line must be immediately preceded by the following legend in bold, 14-point or larger typeface:

By signing this contract you, the undersigned, agree to become PERSONALLY LIABLE for any sums due pursuant to this document, regardless of whether you are signing on behalf of a limited liability company, corporation, or nonprofit corporation.

This bill, if passed, will clearly make it difficult for LLCs to find managers willing to sign contracts for their LLC.

Drafting and Interpreting Statutes. The language of HB 1535 has some internal conflicts. I have described above the interpretation that I and other business lawyers that I have talked to have given to the bill. It is possible, however, that it was intended to simply require a warning legend on guarantee contracts, although that is a more difficult interpretation. In any event it needs to be clarified.

It is not an easy thing, to draft statutes so that they are clear, unambiguous and sufficiently detailed. This has repeatedly been driven home to me in my participation on a Bar committee that has reviewed proposed legislation.

HB 1535 is scheduled for public hearing in the Washington legislature’s House Committee on Business & Financial Services at 1:30 p.m. Tuesday, February 1, 2011, in Olympia, Washington. At the hearing I expect we will learn what is behind this bill and what the intent of its sponsors is. More information is available about the bill’s scheduled hearings here.

How the Food Safety Modernization Act Changes the Status Quo

Yesterday (while taking a break from the Sustainable Food Summit in San Francisco), I traveled to Modesto, California to speak to the Manufacturer's Council of the Central Valley. I spoke about the new Food Safety Modernization Act (FSMA).

The focus of my talk was how the FSMA changes the status quo for food businesses. And when I mean changes the status quo, I mean not only what a food company needs to do to comply with the FSMA, but also how the FSMA is likely to affect exposure from recalls and product liability. I also discussed in some detail the dilemmas faced by food businesses and the FDA by the Reportable Food Registry (RFR) and its fallout. Here is a link to my slide deck.

I'm willing to tailor this talk to your company or trade association; just let me know.

Please also consider attending the ABA's Food and Supplements CLE at Coke World Headquarters in Atlanta on February 17. I'll be moderating with Ricardo Carvajal a panel of experts on the FSMA including Robert Brackett (formerly head of CFSAN), Art Liang from CDC, Miriam Guggenheim and Fred Degnan.

At the upcoming GMA food litigation conference in Scottsdale, Arizona, I'll be speaking with my law partner Lee Smith about specific strategies and action steps to take to reduce the increased risks from FDA compliance, and recalls and product liability exposures created by the FSMA and the RFR. We'll also touch on strategies to deal with some current trends in marketing and labeling putative class claims.

It's Official: The Food Safety Modernization Act Is Law. What Food Companies Need to Do Right Now

President Obama signed into law today the Food Safety Modernization Act (FSMA).

Companies with facilities subject to FDA jurisdiction should  take immediate steps to review and, where necessary, modify SOPs, policies and procedures.

For example, given the FDA's expanded access to business records, companies should set SOPs that anticipate (before a crisis occurs) what records they may have to turn over and what they may not. Food companies should take steps to protect confidential and proprietary information.

Companies also should anticipate now how they need to change their policies and approaches to mandatory recalls and whistleblower protections.

These parts of the legislation take effect today:

  • Stronger records access authority by FDA (FSMA § 101)
    • When FDA determines a "reasonable probability" of "serious adverse health consequences"
    • FDA can access records of other food affected in a similar manner
    • But FDA must show proper credentials and provide written notice
  • Mandatory recall authority (FSMA § 206)
    • FDA can order a recall if it finds a "reasonable probability" that
      1. food is adulterated or misbranded; and
      2. there may be serious adverse health consequences
    • FDA has to provide an opportunity for a voluntary recall
    • FDA will provide an informal hearing within two days of the order’s issuance
       
  • Increased frequency of inspections (FSMA § 201)
    • FDA will immediately increase the frequency of inspections
    • FDA will apply a risk-based approach to determine priorities
       
  • Whistleblower protection (FSMA § 402)
    • Protects employees who:
      • Provide information re violation of FDC Act ,
      • Testify, assist or participate in a proceeding re a violation, and/or
      • Object to "activity, policy, practice or assigned task" they "reasonably believe to be a violation"
         
  • Refused admission of imports if foreign facility refuses inspection (FSMA § 306)
    • Foreign establishments must allow entry to U.S. inspectors within 24 hours of requesting entry
    • Or imported food will be refused admission.

Future blog entries will discuss compliance with other provisions of the FSMA scheduled to be phased-in. If you are interested in a more detailed in-house discussion of the FSMA and its effect on your company, please let us know.

Green Chemistry Regulations Delayed

Apparently, according to the San Francisco Chronicle, due to opposition from both the industry and environmental and health groups defending green-chemistry regulations, the state of California failed to meet a deadline to approve the new regulations. Earlier in December, environmentalists and health lobbyists had complained that the rules were watered down and accused Gov. Schwarzenegger of caving into pressure from business and industry (see here and here).

The rules were initially designed to regulate harmful ingredients in hundreds of thousands of products. The regulations were released in June of 2010, and the revisions were extensive, causing the negative comments noted above. The agency has indicated it was striving to concentrate on the biggest impact products, and if it had to postpone approving the final version of the regulations to get it right, it would do so. "We thought it would be better to get it right, rather than just getting it done," said Maziar Movassaghi, the department's acting director. Read more here.

The FDA's Own 30,000 Foot Take on the Food Safety Bill

For what it's worth, this is the link to the FDA's own interpretation of what the new food safety bill means. 

Food Safety Modernization Act Will Become Law and Some Provisions Effective Immediately

This entry has been corrected to reflect that some of the provisions in the Food Safety Modernization Act, most significantly the preventative controls section, will be phased in over time.

Today the House passed and sent to the President for his signature a bill to overhaul the current regulations on food safety, which were established over 70 years ago. Among other things, the bill will impose new record-keeping requirements on companies, require most FDA-regulating entities to maintain food safety plans, require the FDA to develop a traceability pilot project, and give the FDA broad authority to mandate recalls, regulate food and ingredients that are imported, conduct regular inspections of facilities that produce food and impose new fees on the industry.

Some of the provisions of the new law will be effective immediately. If you are an FDA-regulated food grower, processor or seller, compliance with the new law will be critical going forward. You should consult now with your food safety and food regulatory team to determine what your business needs to do to come in compliance.

Food Safety Legislation Back from the Dead

On Friday, S. 510, the food safety bill, was declared dead. Last nite (Sunday), the Associated Press reported the bill may finally pass in the final hours of the 111th Congress. The New York Times report can be linked here. The text of what I understand will be headed to a final vote in the House on Tuesday and signed into law by the President can be linked here.

We'll have more analysis in the days to come. Here's a preview of how the FDA's new mandatory recall power may play out.

What Happens if Food Safety Bill Becomes Law (or Doesn't)?

We're nearly down to the wire on whether the 111th Congress will send S.510, the food safety bill, to the President for signature into law. I'm told it could happen by the weekend.

No matter what happens in Congress, food law is changing and changing faster than it ever has.  The ABA Food Supplements Subcommittee and Products Liability Committee of the Section of Litigation is organizing a day-long CLE February 17 at Coke world headquarters in Atlanta. I'll be co-moderating a panel titled, "What’s New? The Impact of Federal Statutory and Regulatory Reforms on the Food Industry and in Upcoming Litigation."  If you want to know what will happen at the FDA (and other agencies) when food safety legislation passes (or doesn’t), you should be at this CLE. 

Aside from statutory and regulatory reform, other panel discussions will discuss consumer class actions against food companies, the evolving science of food safety, labeling of biologic active foods, and predictions from top in-house counsel.

For those in the industry and serving the industry the conference is a great value (registration as low as $120). Register here. Hope to see you there.

Unintended Consequences of FDA Mandatory Recall Authority?

For years, a debate has raged on the merits of vesting the FDA with mandatory recall powers. Mandatory recall is part of the food safety legislation that may or may not pass in this Congress, so it’s worth discussing. At present, the FDA lacks any power to order a recall. Its only legal authority is administrative detention and seizure.

Many, including some regulators, have argued against mandatory recall because it will result in less and less timely recalls. The argument that mandatory recalls may result in less timely recalls goes as follows:

  1. Under the current system (where FDA lacks mandatory recall authority), the onus is on the food seller to initiate the recall. If it doesn't issue a recall in the face of an FDA request to issue a recall, the food seller faces the dire consequences of FDA's bully pulpit  (press releases from FDA explaining why the food is unsafe) and possibly a seizure order. In the event of foodborne illnesses, ignoring an FDA request may also be grounds for punitive damages under the laws of some states;
  2. Because the onus under the current system is on the food seller (and not the FDA), the FDA frequently defers to the food seller's judgment when the facts surrounding a potential recall remain murky and uncertain. The FDA is not required to make a judgment about a recall and, for political reasons, often refrains from or delays making a decision as to whether to request a recall;
  3. Mandatory recall may reverse the dynamic and remove much of the onus from the food seller and put it on FDA. Mandatory recall may give the food seller cover if it chooses to delay or not issue a recall. If a food seller believes that its product is unlikely to be a threat to human or animal health, it might choose to wait until the FDA orders a recall. Under the current system, most food sellers will err on the side of caution when deciding whether or not to issue a recall. If the facts surrounding a recall are murky or uncertain, a mandatory recall regime may make it more prudent for a seller to wait for the FDA to decide. If the FDA is worried about being too trigger happy or quick to order recalls, a recall that may have been issued routinely under the current system may (ironically) never happen if FDA is vested with mandatory recall authority.


Mandatory recall authority, as its currently written in S. 510, may also change the threshold of when recalls are initiated. The threshold for a recall under sec. 206 of S.510 is described as when "there is a reasonable probability that an article of food . . . is adulterated . . . or misbranded . . . and the use of or exposure to such article will cause serious adverse health consequences or death to humans or animals."

The language of the statute closely follows what the FDA currently defines as a class I recall. But what about situations defined under the current scheme as class II or class III recalls? FDA's definition of a Class II recall is "a situation in which use of or exposure to a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote." A Class III recall is "a situation in which use of or exposure to a violative product is not likely to cause adverse health consequences." Query whether the statute lets foodd sellers off the hook for issuing recalls in Class II or Class III situations?

Note that FDA appears to retain some power even if there is not "reasonable probability" that the product will "cause serious adverse health consequences or death." S. 510 appears to lower the threshold for administrative detention by FDA by removing the condition that the food presents a risk of serious adverse health consequences. And, under S. 510, FDA would continue to have seizure power. The standard for seizure is simply if the food is adulterated or misbranded. One has to wonder whether FDA would use its limited resources on a seizure action in a class II or class III food recall where the chances of serious adverse health consequences are remote or not likely.

Senate Passes Food Safety Legislation, Will It Become Law?

Today, the United States Senate passed the food safety bill, S. 510. If this were to become law (and according to the New York Times , this is a big if), the legislation would impose the most sweeping changes to food regulation in decades.

Among many other things, the bill would allow the FDA to order mandatory recalls, impose new record keeping requirements on businesses and establish stricter import standards. As a consequence, virtually every FDA regulated food manufacturer would have to adjust its approach to food safety, record keeping, supply-chain contracting and government relations. If this legislation becomes law, stay tuned here for in-depth analysis.

FDA Issues Warning on Alcoholic Energy Drinks; States Move to Ban "Blackout in a Can"

Note: The following is authored by guest blogger Jake Storms, from the Alcoholic Beverages Law Blog.

Amidst rising incidences of hospitalizations in college and teenage drinkers linked to consumption of alcoholic energy drinks, the Washington State Liquor Control Board banned their sale effective tomorrow, November 18, 2010. The move came on the heels of a request by Washington Governor Christine Gregoire, whose office stated in a November 10 press release that they were “…particularly concerned that these drinks tend to target young people.”

The Liquor Control Board placed the ban in an emergency ruling which will last for 120 days. During that time, the Liquor Control Board will move to make the ban permanent. Liquor Control Board Chairperson Sharon Foster stated, “[t]he Board is acting in the public safety…the Board is acting now to ensure these products do not contribute to a tragedy before the Food and Drug Administration or Legislature can act.” Earlier this year, the Liquor Control Board had lobbied for State legislative action to ban the sale of caffeinated malt beverages in Washington but those efforts were unsuccessful. A list of particular products affected by the Liquor Control Board’s ruling can be seen here.

Washington’s ban is merely the most recent action in an ever increasing movement by states to control the sale of caffeinated alcoholic beverages. The Oregon Liquor Control Commission Chairman stated in an October press release that, “…alcoholic energy drinks should be removed from the market until further research isdone.” The OLCC also stated that it is currently looking into possible regulatory efforts with the state legislature and is reaching out to community organizations to warn them of the dangers of the beverages.

While California’s Department of Alcoholic Beverage Control has not yet made a statement regarding the drinks, Connecticut announced Monday that it had reached agreements with state distributors to voluntarily stop shipments of caffeinated alcoholic beverages starting December 10, 2010. Michigan has banned one particular brand of caffeinated alcoholic beverage, Four Loko. New York has reached an agreement with Phusion Projects LLC, the manufacturer of Four Loko, to stop sales in the state until “…emerging science, regulatory developments or other relevant changes in circumstances arise." Utah and Oklahoma have followed Washington’s lead in banning the sale of any brands altogether. Massachusetts’ Alcoholic Beverage Control Commission stated that it will file an emergency ruling, similar to Washington’s, on Monday, November 22, 2010.

At the federal level, the Food and Drug Administration (“FDA”) is currently reviewing whether caffeine is a safe additive to alcoholic beverages. A negative finding would essentially ban the sale of caffeinated alcoholic beverages nationwide. It is widely assumed the FDA will, in fact, reach a negative finding. NY Senator Chuck Schumer, who has been lobbying for a ban on the drinks, stated that the FDA decision “…should be the nail in the coffin of these dangerous and toxic drinks.” The FDA decision is expected within the week.

The Food Labeling Provisions of the Health Care Bill: Preliminary Thoughts

You've heard the phrase "buried in the bill," of course.  Section 4205 of the "Patient Protection and Affordable Care Act," the health care reform bill President Obama signed on March 23, 2010, is contained on pages 1206-1214 of a 2407 page bill.  It could hardly be more buried than that.

In very technical terms, Section 4205 inserts a new subclause (H) into Section 403(q)(5) of the Federal Food, Drug and Cosmetic Act, 21 U.S.C. § 343(q)(5), and adds a proviso (referring to the new subclause (H)) in Section 403(q)(5)(A).  Section 403 is entitled "Misbranded Food" and clause (q) is entitled "Nutrition Information."  Previously, subclause (5)(A) has exempted both restaurant food or takeout food from federal nutritional labeling requirements. 

The new statute creates a new regime for labeling, in essence only requiring caloric and other information to be provided by restaurants covered by the act, by vending machines owned by persons covered by the act, and by those who opt in to the act. 

The covered restaurants are those "part of a chain of 20 or more locations doing business under the same name (regardless of the type of ownership of the locations).and offering for sale substantially the same items."  This appears to be intended to cover chain restaurants even if they are franchised, or held in separate subsidiaries. 

The substance required to be disclosed is actually quite discrete.  It must be:

  • In a clear and conspicuous manner
  • Adjacent to the name of the standard menu item
  • Clearly associated with the standard menu item
  • Of the number of calories contained in the standard menu item as usually prepared and offered for sale

In addition, there must be posted prominently on the menu "designed to enable the public to understand, in the context of a total daily diet, the significance of the caloric information provided on the menu."  This would include information about a recommended daily calorie intake. 

Finally, all of the standard information required under clause (q)(1)(C) and (D), meaning the standard information on calories derived from fat, plus total fat, saturated fat, cholesterol, sodium, total carbohydrates, complex carbohydrates, sugars, dietary fiber and total protein,  must be provided somewhere in the restaurant and a prominent, clear and conspicuous sign stating this fact must be on the menu or menu board. 

The caloric disclosure also applies to a salad bar, buffet line, cafeteria line, or similar self-service line, "adjacent to each food offered," on the basis of per displayed food item or per serving. 

Food establishments are required to have a reasonable basis for their nutrient content disclosures.

There will be regulations on how to deal with different flavors or combinations (such as soft drinks from a fountain with many choices or pizza with different toppings).  Regulations can also add to the list of nutrients required to be disclosed. 

Exceptions to the disclosure requirements include items not listed on the menu, such as condiments, daily specials not on the menu for less than 60 days per calendar year, and food that is part of a customary marketing test but for a period of less than 90 days. 

Food from vending machines where the machine does not allow the nutrition facts panel to be seen prior to purchase is required to have "in close proximity to each article of food or the selection button" a clear and conspicuous statement of calories in the article.  Vending machines are covered if they are operated by a person who is in the busienss of owning or operating 20 or more vending machines.

The Secretary of Health and Human Services has one year to propose regulations. 

An important aspect of the  law is its preemption of inconsistent state laws.  This applies to the establishments required to be included, and any others that choose to opt into the program.  Thus, a smaller chain that crosses state lines where the two states have differing disclosure rules can choose to follow the federal rule and thus be able to print and display consistent menus,as well as train their personnel on only one set of rules.  The preemption does not apply to labeling requirements in the nature of warnings concerning the safety of food, presumably including the California warnings about alcohol during pregnancy. 

Until the rules come out, of course, the devil will remain in the details.

Dairy Industry Moving Towards A Sustainable Future: MOU with USDA Signed

By Guest Blogger Joel Dahlgren

The dairy industry continues to move forward with its objectives of creating a sustainable future and of responding to concerns for green house gas emissions. On December 15, 2009, Secretary of Agriculture Tom Vilsack and Thomas Gallagher, CEO of Innovation Center for U.S. Dairy (Innovation Center) and Dairy Management Inc. (DMI) signed a Memorandum of Understanding (MOU) providing for coordination between the USDA and the Innovation Center.

The dairy industry launched a sustainability initiative in 2008. The initiative’s first priority is to reduce greenhouse gas emissions twenty five percent (25%) by the year 2020. Leaders from approximately eighty percent (80%) of the dairy chain – including farmers, cooperatives, processors and manufacturers – have endorsed this commitment.

The Memorandum of Understanding establishes a relationship reflecting the commitment of the USDA and the Innovation Center to create a sustainable future for the dairy industry. Two goals are recited in the Memorandum of Understanding. First, the parties will work toward reducing green gas emissions as described above. Second, the parties will accelerate and streamline the process for adopting anaerobic digesters by U.S. dairy producers through USDA programs.

Click here for the Innovation Center’s website.

Food Liability 2010: More of the Same and Landmark Change?

We’re in the “crystal-ball” season—time to look forward and assess what’s coming in 2010 and beyond. The most likely scenario: more of the same and landmark change.

More of the Same

The last few years have seen growth in both the number of food-borne illnesses detected and the variety of foods affected. This is because more resources are being put into detection (though the CDC recently reported an overall decline in epidemiological capacity by the states) and technology is continuing to advance (think Next Generation Sequencing). There’s little reason to believe these trends will abate in 2010. Expect more outbreaks. Expect to hear about recalls of products not previously implicated in food-borne illness.

Landmark Change

Nobody doubts that we’re in the midst of the most significant legislative and regulatory changes in food safety in generations. Most believe that Congress will pass some form of food safety legislation (e.g., S 510 or HR 2749) in the new year. It will likely include the most comprehensive food safety reform in decades. Among other things, this legislation is likely to give FDA mandatory recall power and great authority for risk-based inspections, and require FDA to create a traceability program.

FDA and USDA are already pushing the boundaries of their current authority to become more aggressive on food safety and labeling enforcement. Examples include USDA moving toward classification of Salmonella as an adulterant, more aggressive rules on ground beef safety, and increased retail enforcement. FDA is already studying how traceability could work, being more aggressive in identifying products and retailers in the event of recalls, reexamining the effectiveness of current nutritional labeling requirements, and investigating whether front of pack nutrition labeling (FOP) practices need to be regulated.

And on the heels of legislative reform and increased regulatory enforcement come the lawyers. Action by the government creates new avenues for the plaintiffs’ bar. Food litigation will likely increase in prevalence both in product liability claims (i.e., food contamination) and in putative consumer fraud class claims into 2010 and beyond.

Hungry for Change: ABA Journal on Food Safety Reform and Its History

Kristin Choo has written a piece for the ABA Journal tracking the history of food safety regulation, recent outbreaks and current legislation pending in Congress. I am grateful to be mentioned in the piece. The article can be found at this link.

 Ms. Choo writes:

Litigation is likely to increase as a pumped-up FDA, an arm of the Department of Health and Human Services, identifies more outbreaks of food-borne illness and collects more evidence about their causes. Meanwhile, many companies are likely to struggle, at least initially, with stricter requirements to develop safety plans, disclose business records when outbreaks occur and improve procedures for tracing products, according to Kenneth M. Odza, a member of Stoel Rives in Seattle, who litigates food safety cases and writes a blog on the subject.

Ms. Choo also includes a summary of information (see below) derived from CDC documented outbreaks (two or more people with the same illness after eating the same contaminated food) from 1990 to 2006 broken down by category of food. Note that nearly 50% of illnesses documented are from produce or "multi-ingredient."  Produce and "multi-ingredient" account for about twice the number of illnesses as beef and poultry combined.
 

Category Outbreaks Illnesses
Beef 518 14,191
Beverages 101 3,640
Breads and Bakery 179 4,904
Dairy 221 6,364
Eggs 351 11,143
Game 28 193
Luncheon and Other Meats 196 7,108
Multi-Ingredient 1,054 30,254
Pork 233 6,954
Poultry 620 18,906
Produce 768 35,060
Seafood 1,140 11,809
Other 369

183