The “All Natural” class action litigation in California has continued into 2012, as expected. The claims in California are being filed under California’s consumer-friendly unfair competition law (or UCL), which is codified in sections 17200 and 17500 of the California Business & Professions Code, and the Consumer Legal Remedies Act (CLRA).
Given the costs and risks associated with UCL and CLRA class actions, many companies are getting pro-active and are carefully analyzing their labels. The challenge for such companies, however, is that these lawsuits are not limited to labels that contain the words “All Natural.” They fall into several broad categories.
First, there has been litigation over products that are marketed as being healthy but contain allegedly unhealthy ingredients, such as trans fat, saturated fat, high-fructose corn syrup or sugar. Consumer protection class actions may also arise like a claim for a defective product-- where an otherwise healthy product experiences a manufacturing, packaging or storage deviation that takes its ingredients outside of the representations made on the label and subjects the manufacturer to litigation over “deceptive labeling” practices.
Second, there has been litigation over products that claim to be “All Natural” or “100% Natural” that allegedly contain GMOs or other synthetic or artificial ingredients. The types of ingredients that have been challenged by plaintiffs include:
ascorbic acid (vitamin C)
beta-carotene (vitamin A)
calcium pantothenate (vitamin B5)
folic acid (a B vitamin)
soy proteins (from hexane)
Of course, many of these ingredients are used frequently in products and there is no evidence that they are harmful. But given the California Supreme Court’s recent finding that “labels matter” (as opposed to product quality), plaintiffs are seizing on the opportunity to claim that something that has been processed or contains any “artificial” ingredient cannot possibly be “All Natural.”
Third, there has been litigation over claims about the quality of ingredients, such as “100% Pure” claims on orange juice or coconut water labels.
Finally, there has been litigation over products that have unsubstantiated health benefit claims, such as “proven to reduce cholesterol,” “supports digestion, . . . metabolism, . . .[and] liver function,” “supports immunity,” “reduces risk of chronic diseases,” “promotes healthy joints,” or otherwise.
In the current environment (with the lack of guidance from FDA and various court rulings that have struck down motions to dismiss), companies cannot afford to ignore the risk of litigation. The important thing for companies to take away from the morphing UCL class action litigation in California is that a cursory review of product labels is no longer enough to help ensure loss prevention. The product, whether labeled “All Natural” or not, should be reviewed carefully as the litigation theories in California broaden. Indeed, as noted above, many of the class action lawsuits in California involve claims other than “All Natural.” Companies should conduct an intensive review of product ingredients (and consider testing) to ensure compliance with labeling regulations and to assess whether the ingredients and labeling claims are likely to result in unwanted attraction from the plaintiffs’ bar.
The Alert, which is linked above, provides background information regarding "All Natural" class action litigation in California. It also discusses why the authors believe that class action litigation in this area will persist in 2012. Finally, the Alert concludes with suggestions for companies that have litigation risks regarding "All Natural" claims associated with their products.
Here is a link to my article, "FDA's Reportable Food Registry Profoundly Impacts Litigation and the Food Industry," posted this week by the American Bar Association's Litigation Section (Products Liability). The article is a follow-on to lively discussions over the litigation impacts of the federal Reportable Food Registry ("RFR") at the ABA’s recent Food & Supplements CLE at Coca-Cola World Headquarters in Atlanta. The RFR was created by Congress as part of the Food and Drug Administration ("FDA") Amendments Act of 2007 and requires that a company submit a report to the FDA within 24 hours of discovering reportable adulterated food.
Two hot-button issues discussed at the ABA CLE (and in the ABA article) were whether the FDA (1) intends to use the RFR as an enforcement as well as an informational tool, and (2) will move toward the concept of "control" and away from "possession" in interpreting one of the key exceptions to the reporting requirement.
Stoel Rives food liability attorney Ken Odza discussed with NutraIngredients-USA.com the significance of a rise in activism from consumer lobby groups combined with food manufacturers pushing the envelope with more aggressive health claims. General Mills recently lost its bid to invalidate class action certification at the Eleventh Circuit of Appeals in a Florida lawsuit involving digestive claims for Yo-Plus, a probiotic yoghurt product.
Odza said that plaintiff attorneys who have made fortunes out of asbestos and pharmaceutical lawsuits are now turning their attention to the food industry, and predicted that “these kind of [health claims] are going to explode.” He added that the Yo-Plus case was “pretty unusual” in that it wasn’t prompted by an investigation by the FDA (Food and Drug Administration) or the FTC (Federal Trade Commission). “Usually you see a warning letter rapidly followed by a class action piggy-backing off of that.”
“Class Action Lawsuits Set to Explode in Health Claims Arena” was published by NutraIngredients-USA.com, April 1, 2011.
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.
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.
April 8, 2011 – Scott Rickman from Del Monte, Lara White from Adams and Reese, and I will be talking at the Defense Research Institute (DRI) food law break-out. This event is held in conjunction with the DRI annual product liability conference in New Orleans.
Click here for the complete manuscript that we’ve prepared to accompany our presentation. The manuscript summarizes some of the most significant and recent rulings concerning putative class claims arising from labeling and marketing of food products. The manuscript also offers suggestions on possible strategies to defeat these claims.
The type of claims discussed involves small-dollar state law “fraud” claims aggregated over millions of products sold. The common fact pattern is this: plaintiffs challenge the labeling or marketing of a food product, alleging that consumers would not have purchased the product or paid the price they did had they known the “truth” behind the representations made. Often, the plaintiffs’ strategy is to achieve class certification and then leverage the threat of a judgment into a settlement that involves a handsome payment of attorneys’ fees.
Recently, we’ve seen a trend toward legal action for labeling and/or marketing claims of products in the “natural” area and those touting health benefits. In many of these cases, preemption has not been successful to knock out claims in their entirety. State law varies considerably, and this can often work to the advantage of a food company. When that doesn’t work and when a jurisdiction doesn’t require an individualized showing of causation or reliance, here’s an alternative strategy to dismiss claims at an early stage:
- In states where plaintiffs need not show individualized reliance/causation, they may still have to demonstrate that an objectively reasonable consumer would have been damaged by the marketing/advertising campaign.
- The Supreme Court in Iqbal/Twombly said that a court must disregard conclusory allegations and scrutinize the complaint’s factual allegations to determine whether it nudges the alleged wrong-doing “across the line from conceivable to plausible.” The complaint must have meat on its bones. In the case of a consumer fraud class complaint, the plaintiffs’ counsel, to survive a motion to dismiss, must include references to evidence or other substantiation for the claim such as consumer surveys or perhaps a government finding.
- Without a strong factual basis as to how an “objectively reasonable consumer” might behave, consumer fraud/unfair trade practices putative class claims concerning the marketing of a food product may be in jeopardy.
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.
Cheesemakers have endured a string of bad publicity recently over food safety. Cheesemakers, especially raw milk cheesemakers, are in the cross hairs of the FDA, the media, retailers and plaintiffs’ lawyers such as Bill Marler. I was interviewed last week on FDA seizure issues by the Pacific Northwest Cheese Project. Click here for the PowerPoint slides from my presentation to the American Cheese Society's annual meeting last August entitled "Product Liability - Protect Yourself and Protect Your Business."
Marler Clark clients and the owners of the restaurant that sold MarlerClark's clients food they claim was contaminated with E.coli O111 joined forces against the restaurant's insurer. In the end, the peronsal injury plaintiffs and the restaurant insured convinced the United States District Court for the Northern District of Oklahoma on a Rule 56 summary judgment motion that a single E.coli outbreak constituted at least two separate "occurrences" under a commercial general liability insurance policy ("CGL") issued to the restaurant. The result was another $1 million in coverage available to pay claims. A copy of the court's opinion can be linked here.
The primary policy at issue limited the amount of insurance available to $1 million per occurrence ($2 million products-completed operations aggregrate). According to the court, the policy defined an "occurrence" as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” According to court's summary of the state health department's findings, the outbreak at issue included 341 persons, 60 confirmed, and 94 probable. The "point source outbreak" was from the Country Cottage restaurant. Though 21 persons did not dine at the restaurant, they were believed to be exposed at a church tea catered by the restaurant.
The court concluded that under Oklahoma law there are "two distinct places of injury and thus, two separate occurrences." The court explained that:
Looking for “the same temporal and spatial parameters” of an occurrence, the Court finds that the undisputed facts at least establish two separate occurrences of E. coli-induced illness covered under the policies: that resulting from the negligent contamination of food prepared and served at the Country Cottage restaurant and that resulting from the negligent contamination of food prepared and served at the Church Tea. Regardless of any temporal overlap between these two occurrences, the geographical distinction between the physical location of Country Cottage restaurant in Locust Grove, Oklahoma, and that of the Free Will Baptist Church in Broken Arrow, Oklahoma where the Church Tea took place is appreciable and, appreciatively, concrete.
For MarlerClark clients and the injured plaintiffs, the end result is another $1 million available to settle their claims. But is this a good result for the restaurant owners? The answer is maybe. Insureds should understand that the result may be a double-edged sword. On the one hand, another $1 million in indemnity is available to protect the owners' personal assets. On the other hand, if the insured had a large deductible or self-insured retention ("SIR"), two occurrences could mean two deductibles or two SIRs that need to be paid by the insured.
So why would an insured ever have a high deductible or SIR? The answer is that many food manufacturers and retailers maintain a high deductible or SIR in order to control the defense and settlement of the case and not hand over control to the insurer at the outset. Often, the insured's objective is to resolve the case in a way that best protects the client’s business and brand going forward. A conflict with the insurer arises because the insurer's objective is to resolve the case for the fewest dollars possible (combined payment of defense costs plus indemnity paid to the allegedly injured consumer).
The FDA recently took the relatively unusual step of obtaining a court-issued warrant to seize all cheese products at Estrella Family Creamery, a small, family-owned artisan cheese maker in Washington State. According to the United States Attorney's Office for the Western District of Washington, "the FDA asked Estrella to recall all cheese products. The company refused." The FDA requested the recall after both products and the manufacturing environment at Estrella tested positive for Listeria. A copy of the FDA form 483 report immediately pre-dating the recall request is here.
As the Estrella situation illustrates, the FDA is not just focused on large-scale manufacturing. As the FDA and USDA move to more risk-based allocation of resources, they are increasingly concerned about smaller operations and retail. Below are issues any food manufacturer must tackle when it comes to Listeria (much of this also applies to other food-borne pathogens).
What is Listeria?
Listeria monocytogenes is a bacterium that causes listeriosis, which primarily affects persons of advanced age, pregnant women, newborns, and adults with weakened immune systems. Though it affects only a small portion of the population, Listeria is the most deadly food-borne pathogen in the United States, killing 20-30% of all those who become seriously ill.
What should you do if your product tests positive for Listeria?
Assemble your well-rehearsed crisis management team immediately if a product tests positive (or if a regulator believes that your product may be contaminated). Members of the crisis management team; food safety personnel; company executives; and representatives from accounting, legal, supply chain, sales and customer service all are essential in the decision making process below.
Can you trace back and isolate contamination?
Quality assurance and food safety personnel need to answer trace-back issues as soon as possible. Can you determine the source of the contamination? Is it limited to one lot or a single day of production? How often are production facilities sanitized? How often are production surfaces swabbed for Listeria? Does the production facility re-use contaminated product from shift to shift?
Will you have to issue a recall?
Both the FDA and USDA lack mandatory recall authority. Though, as Estrella learned, the agencies do have the bully pulpit and the ability to get a court order to seize products. Because of the high mortality rate, regulators (federal and state) take any positive Listeria test result in food products extremely seriously.
If the food is considered a ready-to-eat product (RTE), a positive Listeria test will almost invariably lead to the FDA or USDA requesting a class I recall.
Even for a non-RTE food, a positive Listeria test will lead to a requested recall. If the agencies believe that the cooking instructions are clear, are easily followed by consumers and, if followed, will kill the bacterium, then the recall may be considered class II.
A primary difference between class I and II is that the class I recall will result in much greater publicity. For FDA-regulated facilities, a class I recall also triggers reporting and notification requirements under the Reportable Food Registry (RFR).
What does the Reportable Food Registry require?
RFR requires FDA-registered facilities to report to the FDA portal within 24 hours when there is a "reasonable probability that an article of food will cause serious adverse health consequences." As part of the report, information must be submitted "one step back and one step forward" in the supply chain. Once a report is submitted, the FDA will promptly alert your customers of the "reasonable probability" that your product will result in "adverse health consequences or death." If suppliers and customers are also FDA facilities, the FDA will also pressure those companies to report to the portal.
The ticking of the RFR's 24-hour reporting deadline forces a company to make snap decisions that might affect its entire business. While RFR reports can be amended or withdrawn based on new information, in the world of food products, the bell can almost never be unrung. A more lengthy discussion of the RFR can be found here.
How do you marshal your case with the regulators?
Assuming that you have information showing that contamination is limited (or non-existent), how do you convince the regulators? The FDA and USDA’s concern is public health (and politics). The regulators’ concern is not for your business.
Providing information to the regulators in a manner they perceive as credible, prompt and transparent is critical. Once the regulators lose confidence in your company's credibility and competence, the game may be over. In most cases, the most effective way to marshal your evidence is a well-prepared and credentialed crisis management team (e.g., food safety, quality assurance, supply chain, accounting, sales, legal, media, etc.).
I've been invited to speak this Friday at the University of Oregon School of Law's symposium entitled "Cultivating Our Future: New Landscapes in Food and Agricultural Law and Policy" as a part of the "Food for Thought - Strategies for Advocacy" panel.
I'll outline a series of tools food lawyers can and should use to assist their clients in responding to significant consumer claims. I'll explain:
1. How a client can determine whether a claim has merit,
2. What should be done the moment any significant claim is received,
3. The importance of determining a trial strategy at the earliest possible moment, and
4. The three types of consumer claims seen most often and how to respond to each.
An advance copy of my slide-deck can be found here.
Click on the image below to view the slide-deck from the presentation that I recently gave with Scott Rickman from Del Monte at ACI’s summit on Food Safety and Regulatory Compliance in Chicago. The ACI summit was a nice introduction to food regulation byFDA, USDA, FTC, EPA and DHS. Our presentation was intended to start from the premise that the job of a food lawyer (whether inside or outside counsel) does not end at ensuring regulatory compliance. Products that are regulatory-compliant may still be subject to putative class claims.
As we've discussed previously in this blog, the Supreme Court's plausibility pleading standard, as articulated in the Iqbal and Twombly cases often provides a rapid (and relatively inexpensive) pathway to defeat consumer fraud claims.
At the ACI food regulatory conference last week, we discussed a strategy to take advantage of the plausibility pleading standard in jurisdictions that have liberal class certification standards.
In states where individualized reliance or causation is required to make out consumer fraud or unfair trade practices claims, defendants’ first line of attack may be class certification. But where individualized reliance and/or causation is not required, courts will often deny class certification under Rule 23(b) because common issues of law or fact do not predominate over individual issues.
So here's a strategy in jurisdictions where a defeat of class certification may not work:
- In states where plaintiffs need not show individualized reliance/causation, they may still have to demonstrate that an objectively reasonable consumer would have been damaged by the marketing/advertising campaign.
- The Supreme Court in Iqbal/Twombly said that a court must disregard conclusory allegations and scrutinize the complaint's factual allegations to determine whether it nudges the alleged wrong-doing "across the line from conceivable to plausible." The complaint must have meat on its bones. In the case of a consumer fraud class complaint, plaintiffs’ counsel, to survive a motion to dismiss, should need to include references to evidence or other substantiation for the claim such as consumer surveys or perhaps a government finding.
- Without a strong factual basis as to how an "objectively reasonable consumer" might behave, consumer fraud/unfair trade practices putative class claims concerning the marketing of a food product may be in jeopardy. Defendants should take advantage and seek dismissal at the outset of the case.
Stoel Rives was a sponsor of this year's GMA food litigation conference in Austin from February 22 to 25. The slide deck from Ken Odza's presentation on consumer fraud class claims can be viewed by clicking on the image to the left.
Some of the takeaways from my presentation and those by others at the conference include:
- Assure Marketing Is in Sync with R&D (to Avoid Exposure from Consumer Fraud Class Claims) (Ken Odza, Paul Benson, Richard Fama)
The point was underscored in several presentations that exposure on consumer fraud class claims often comes from unsupported marketing claims (health claims in particular). Marketing departments should make sure not only that claims are supported but that the supporting research is not contradicted by other credible internal or external research.
Iqbal/Twombly Makes FRCP 12(b)(6) Motions More Attractive (Ken Odza, Richard Famas)
The Supreme Court has overruled the Conley standard on Rule 8 notice pleading. "Plausibility" is the new pleading standard on a Rule 12(b)(6) motion to dismiss. If the operative allegations are not factually specific and the complained-of-conduct can be explained by another obvious reason, the complaint may be dismissed.
Class Certification in Consumer Fraud Cases Not Likely If Individualized Reliance/Causation Need to Be Proven (Ken Odza)
A court should deny class certification in a consumer fraud case under the FRCP 23(b) "predominance" standard (1) when the proposed class includes multiple states with materially different statutes or (2) where the applicable state law requires an individualized showing of reliance/causation for each class member.
- Inexorable Pursuit of Zero, and the EPA Asserting Itself in Food Safety (Scott Rickman, Bob Brackett)
As technology improves and chemicals can be detected at lower and lower levels, regulators are looking at stricter standards and lower thresholds. EPA, for example, has a renewed emphasis on risk assessments that will inevitably affect food regulation.
- FALCPA Does Not Apply to Restaurants, but "Allergen-Free" and "Gluten-Free" Claims Must Be Supported (Joseph Bottiglieri)
- Pros and Cons Of MDLs (Paul LaScala)
Paul La Scala provided a thorough and thoughtful analysis of the pros and cons of Multi-District Litigation (MDL) from a defendant's perspective.
- FDA Recall Procedures Manual Is a Great Resource and Can Be Found Online (Tom Mazziotti)
The FDA's regulatory procedures manual (or at least the chapters related to recalls) should be mandatory reading as part of any company’s recall preparedness program.
- Class Actions and Mass Torts on the Rise Internationally with More Countries Passing Plaintiff-Friendly Laws (Greg Fowler)
American companies selling products abroad need to be aware of and prepared for litigation abroad with rules that are increasingly unfriendly to business.
American Conference Institute (ACI) recently held its latest conference on food-borne illness litigation. The conference has been a fairly intimate gathering of the nation’s lawyers, insurers and experts involved with food-borne illness litigation.
This year, I had the privilege of moderating an in-house counsel “think tank.” The panel was composed of lawyers from a nice cross-section of food businesses: Yum Brands, Hormel, Fresh Express and SUPERVALU (though for each, food-borne illness litigation is a rare event) A slide-deck from the panel can be found here.
Also among the presenters at this year’s conference were Center for Disease Control’s (CDC) Dr. Arthur Liang and USDA/FSIS representative Dr. Dan Engeljohn. Both presentations provided fascinating insight into changes afoot in food safety enforcement and policy at the federal level. Here are some of the take-aways:
• “Outbreaks Waiting to Be Discovered” – Dr. Liang opined that, based on surveilled illnesses, most food-borne illness outbreaks are not presently discovered. He believes that recent data shows that there are perhaps 2-3 times more outbreaks nationally than what’s been uncovered over the last few years.
• Food Safety Progress Being Undone by Retail Deli Operations – FSIS says there has been a “steady increase in risky behavior at the retail level.” According to Dr. Engeljohn, budget authority is being sought to intervene with retailers, particularly smaller supermarket deli operations.
• Negative Tested Product Can Be Considered Adulterated - FSIS will be issuing a policy soon that for the first time will consider a “negative tested product to be determined adulterated” under circumstances where an associated product tested positive for pathogens.
• Non-0157 STECs - FSIS will be finalizing methodology to detect non-0157 Shiga Toxin-Producing Escherichia coli (STEC).
When a food-borne illness outbreak happens, few food companies (especially those whose brand is at stake) want an unfamiliar defense lawyer who has little knowledge about food-borne illness responding to claims asserted against them. Unless a food company maintains a high, self-insured retention or has the lawyer of its choosing preselected, its insurer might appoint on the food company’s behalf low-cost defense counsel ill-equipped to respond to the claims and protect the brand.
Commercial General Liability insurance and Products liability insurance commonly maintained by food companies to protect them from the risks of food-borne illness outbreak usually will not cover the damage an outbreak can have on a company’s brand, stock value or sales. Lawyers appointed by insurers may have little understanding of the insured’s business or the impact the outbreak can have on its brand. Unlike in other areas, such as securities litigation, insurers are not as likely to have a panel or preapproved list of experienced food liability lawyers ready to deploy.
What a food company should consider before a food-borne illness outbreak happens:
1. Identify lawyers who are:
A. Familiar with (or will pledge on their dime to learn) the food company's business and brands;
B. Experienced in responding to consumer claims and food-borne illness; and
C. Knowledgeable about potential expert witnesses (about both those that the company will hire and those that plaintiffs will hire).
For companies with active crisis management plans , these lawyers likely have already been identified and included on the crisis management team.
2. Work with your broker, insurance coverage lawyer and preselected defense lawyer(s) to get preapproval of your chosen lawyers and agreement on their fees
For the sake of the business relationship (and self-interest), many insurers may agree to preapproval. Consider seeking preapproval at the time of renewal when a commercial insured may have the most leverage with an insurer.
For those with preapproved defense counsel, please consider sharing your experiences and insights. Comment or email.
Challenges of a Lanham Act Injunction in Food Cases: Lessons from an Advertising Battle Between Two Major Consumer Products Companies
The recent decision in Stokely-Van Camp, Inc. v. Coca-Cola Co. (i.e., Gatorade vs. Powerade) illustrates the hurdles a company has to overcome to convince a court to stop a competitor from using arguably false advertising. Stokely-Van Camp, Inc. (“SVM”) was challenging advertising that compared Powerade ION4 to Gatorade Thirst Quencher.
Judge John G. Koeltl of the Southern District of New York characterized the case as “an advertising battle between two major consumer products companies over one company’s comparison of its beverage to human sweat.”
Following a two-day preliminary injunction hearing, the court denied a request to enjoin various advertising claims about Powerade ION4. Ultimately, to succeed, SVM, makers of Gatorade, had to show (1) likelihood of irreparable harm and (2) either a likelihood of success on the merits or serious questions going to the merits that were sufficient to make them fair grounds for litigation, with a balance of hardships tipping decidedly in its favor.
As with any request for a preliminary injunction, this is a difficult standard to meet. Personal experience is that no matter the legal standards, judges often revert to the “is a building going to collapse?” gut-check approach.
“Unclean hands” are also a big deal when it comes to injunctions. Courts are very reluctant to grant injunctive relief if they get a sense that the moving party is itself guilty of the acts it complains of.
In the SVM case, the court came down against SVM on the second prong concerning the merits of its Lanham Act false advertising and trademark dilution claims. The court ruled that the claims were moot (because Coca-Cola already dropped the aggrieved advertising campaign), nonactionable puffery or, for the implied falsity claims, not supported by extrinsic evidence.
The court went further in addressing irreparable harm. Even if SVM’s claims were merited, the court did not believe SVM was entitled to a presumption of irreparable harm, because Coca-Cola discontinued the comparison ads. The court also found SVM’s arguments of a public health risk unconvincing.
Perhaps the most interesting lesson is the court’s final conclusion of law that SVM had “unclean hands.” Even if SVM’s injunction motion had met the legal standard, fatal to its motion would have been that “SVC complains about Coca-Cola’s claims regarding the presence of calcium and magnesium in Powerade ION4, but it has made virtually identical claims about calcium and magnesium in its own Gatorade Endurance Formula.”
The court concluded by saying, “SVC cannot, having jumped on the bandwagon of calcium and magnesium first, now jump off and claim that Coca-Cola must get off too.”
Thought to be the first putative class action against a restaurant chain related to disclosure of sodium content on menus, Center for Science in the Public Interest (CSPI) has filed what appears to be a test case against Denny’s. Best guess is the case will fail on its merits (though for CSPI, success in litigation may not be the point).
The case, DeBenedetto v. Denny’s Corporation, asserts claims under New Jersey law for consumer fraud, N.J.S.A. 56:8-1, et seq., and breach of the implied warranty of merchantability under the New Jersey U.C.C., N.J.S.A. 12A:2-314(1)-(2). The theory advanced in CSPI’s complaint is that consumers have been “duped” about sodium content and that the “ordinary consumer, unschooled in nutrition and perhaps preoccupied with other matters, would not reasonably expect to encounter these high levels of sodium in one meal.”
Big incongruency in the complaint is that Denny’s does disclose sodium content in its meals. CSPI admits that Denny’s provides this information both online and in store pamphlets, but it complains that the information is “incomprehensible.” A review of Denny’s online disclosures shows a detailed nutritional chart, including sodium levels for every item on its menu. Here's an excerpt of Denny's online disclosures:
But, CSPI's complaint does not really seem to be that disclosures are not clear enough. Indeed, CSPI argues that regardless of such disclosures by restaurants, studies show that “almost no one reads the nutrition information . . . .”
What CSPI is really saying is that sellers of salty foods (not unlike foods contaminated with E. coli) are strictly liable no matter the disclosures. If this were the law (which as of now, it is not), few restaurants (or food manufacturers) would be exempt from paying the medical bills of their customers who develop heart disease. No doubt CSPI's real goal is "regulation through litigation" and the jury is still out whether CSPI's penchant for the court system will affect change.
False advertising claims under the Lanham Act and corresponding state law claims for food companies can be tough going. Many intersect issues regulated by the FDA under the Federal Food, Drug, and Cosmetic Act (FFDCA). No private right of enforcement of the FDA regulations exists. Only the FDA is allowed to bring a legal action to enforce its regulations. Lanham Act claims are generally barred where private litigants ask the court to determine preemptively how the FDA will interpret its own regulations.
Now comes the recent decision in POM Wonderful LLC v. Ocean Spray Cranberries, Inc. POM is aggrieved because Ocean Spray markets pomegranate and cranberry blended juices though, according to POM, the juices are “almost entirely comprised of apple and grape juice.” POM is alleging Lanham Act false advertising claims and California state law false advertising and unfair competition claims.
The court denied a Rule 12(b)(6) motion to dismiss. Threading the needle, the Court found that the claims were not seeking FFDCA enforcement. According the Court, POM’s claims are not for “mislabeling,” but for false advertising and promotion. The court determined it would not have to interpret FDA regulations and that “POM’s Lanham Act claim ‘extend beyond the packaging and name . . . to its advertising and marketing including . . . website.” Applying similar logic, the court found that the FFDCA did not preempt POM’s state law claims.
Lesson from the POM court: Whether one food company can bring false advertising claims against another depends in part on whether a court believes that the claims are focused on non-FFDCA-regulated issues such as advertising, websites, social media or other marketing efforts.
Council to Improve Foodborne Outbreak Response (“CIFOR”) has published new guidelines designed to help local, state and federal agencies to improve their response to outbreaks. I became aware of this (again) through Ricardo Carvajal, who was a reviewer for the guidelines, and his firm’s FDA Law Blog. I agree with Ricardo that while the guidelines are designed for public agencies they have value for food businesses.
According to CIFOR, “[t]he guidelines are intended to give all agencies a common foundation from which to work and to provide examples of the key activities that should occur during the response to outbreaks of foodborne disease.”
Anticipating how the public health agency will behave will not only assist in crisis management, but it may also prevent the crisis. As discussed previously in this blog, one of the benefits of good crisis management is the ability to reach out and offer assistance to the investigating public health agencies. Keeping current on protocols that we can expect agencies to follow is a good practice.
The guidelines are also of some value to litigators. In the face of an outbreak investigation, they provide tools to assess the merits of the agency investigation. While it is always difficult to challenge a public health agency’s findings (no matter how flawed), the guidelines may help.
Preventing "Piercing of The Veil" - Practical Tips For Food Companies - Introduction (part I of III)
By guest blogger Jerry Chiang
In starting any business enterprise, especially in the food industry, incorporating the business as a corporation or limited liability company is as important as having a good product or solid business plan. Incorporation is essential because it shields owners from the liabilities of their business. A lawsuit against the business will not impact the personal assets of the business owners because the law recognizes the corporation or limited liability company as a distinct and separate entity.
Incorporation by itself, however, is not enough. In order for the liability shield to remain in place, or for the law to continue to recognize the corporation or limited liability company as a separate entity, the entity’s owners need to observe certain formalities. If the owners are not careful, the law may treat the entity and the owners as one and the same and disregard the corporate entity. This is commonly referred to as “piercing the corporate veil.”
Over the next few days, this blog will give you an overview of what the courts look at when they decide whether to disregard a business entity and find its owners liable. We’ll also provide a list of dos and don’ts to help you avoid losing your liability shield.
Article 2 of the Uniform Commercial Code contains powerful tools for buyers and sellers of food and other goods. A recent case out of the Georgia Supreme Court emphasizes the critical gatekeeper function of the scope section of Article 2, Section 2-102. This section provides:
Unless the context otherwise requires, this Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.
Prior case law has generally distinguished between contracts whose primary purpose is the sale of goods or services. For instance, when you deal with a roofing contractor, are you buying the shingles or the installation services?
In Olé Mexican Foods, Inc. v. Hanson Staple Co. (Ga. April 28, 2009), the parties disputed whether certain packaging had met contract specifications. Without lawyers present, they negoiated a handwritten settlement agreement. The agreement included a provision whereby the buyer
would “purchase a minimum of $130,000 worth of current inventory from” [seller] and would “test the remainder of inventory and ... purchase additional inventory if it meets quality expectations.”
On a motion to enforce the settlement agreement, buyer got the court to agree that "that such purchases would “be governed by the Georgia Uniform Commercial Code [UCC], and [buyer] shall retain the right to reject [seller's product pursuant to the Georgia [UCC].”
The Georgia Court of Appeals reversed and the Georgia Supreme Court upheld the intermediate appellate court's decision. The reasoning was that the purpose of the settlement agreement was not the sale of goods, but the settlement of a dispute over the sale of goods.
The fact that the document at issue is labeled “agreement reached in settlement” “is a good barometer of the parties’ intentions. Though the label that contracting parties affix to an agreement is not necessarily determinative of the agreement’s predominant purpose, it can constitute potent evidence of that purpose.”
Citing a number of cases, the court held that where the purpose was settlement, it would be wrong to treat the case instead as a sale of goods, bringing in the implied warranties that the language of the parties' settlement indicated should not apply to the mandatory purchase of goods pursuant to the settlement.
one reason why the court’s holding is so clearly correct is that a contrary holding would essentially eviscerate the purpose of this particular settlement: since one of the central disputes in the underlying litigation was whether Hanson’s goods were merchantable within the meaning of the Uniform Commercial Code, and since the case was settled rather than having this issue decided by the court, applying the implied warranty of merchantability to the settlement agreement would almost certainly require the parties to relitigate the question of merchantability.
When settling a case involving goods that are alleged not to conform to the contract, then, it is often the case that the terms of the settlement might involve future shipments. It is therefore critical to recognize that the question of whether implied warranties and other Article 2 default terms should be addressed by the parties directly in the contract, and not left for later interpretation by a court. In this case, the parties settled without the benefit of counsel, and it is not inconceivable that each had a different take on whether the default warranties would apply. It is also conceivable that neither gave the question a moment's thought until their respective lawyers looked over their handiwork
Which is another reason to have the advice of counsel when settling a case.
University of Nebraska has posted video on its website from the entire three days of the 2009 Governor’s Conference on Ensuring Food Safety. You can view my presentation on Defending Liability in Foodborne Illness Outbreaks. More important, you view the presentations of Dr. Andrew Benson and the other scientists who offer fascinating insights into the latest developments driving the science of food safety.
For lawyers and insurance adjustors, compartmentalizing food-borne illness claims is easy. They often see their jobs solely as minimizing the tort liability and legal fees. In my experience, attorneys and adjustors often fail to appreciate how outbreaks can affect a client’s (or even a whole industry’s) business going forward. Often, the long-term business losses of a food-borne illness outbreak, recall, or government alert are not insured.
There is no better example of how a nationally reported food-borne illness outbreak can affect an entire industry (or even an entire category of food products) than the 2006 E. coli spinach outbreak. Two new studies published by the Agriculture & Applied Economics Association (AAEA) in its Choices magazine analyze consumer information and studies in the wake of the spinach outbreak.
Among the highlights from the first study, “Public Response to Large-Scale Produce Contamination” by Carra Cuite and William K. Hallman, were findings that Americans were more aware of advisories beginning than ending. For example, 87% of spinach consumers knew about the outbreak, but more than six weeks after the FDA had lifted its spinach warnings “almost half (45%) of people who were aware of the spinach recall were not confident that the recall had ended.”
A second study entitled “E. coli Outbreaks Affect Demand for Salad Vegetables” was authored by Faysal Fahs, Ron C. Mittelhammer, and Jill J. McCluskey. It examines the cumulative effects that sequential outbreaks can have on consumer demand and concludes that “the empirical results suggest that the subsequent outbreaks had a greater impact on the consumption of salad vegetables than the first.”
For food companies the lesson is this:
A lawyer’s role in responding to a food product crisis is important. But the roles of others, such as public relations experts, may be as important or more important in preserving the business. Make sure your lawyer (and your insurer) understands that the world may not revolve around simply resolving the tort claims as economically as possible.
USDA’s Be Food Safe Twitter Feed circulated its Fact Sheet titled “Beef . . . from Farm to Table.” First published a few years ago, this might be of interest to businesses involved in the sale, marketing, labeling, and/or packaging of beef. The article is a helpful primer on the history of beef, current industry practices, USDA’s role in inspection, consumer trends, cooking times, storage times, and food-borne illnesses associated with beef.
Click here for the slides from a presentation I gave recently with Shawn Stevens entitled "Practical Advice for Litigating the Case: Retaining Experts, Assessing Damages and Planing Trial Strategy." Two threads of my part of the presentation were organization and relationships (I believe that these were also central to Obama's campaign hence the campaign log).
In the coming months, I intend to use this blog to continue my series on the anatomy of complex, multi-party consumer based claims. Building organization and relationships will be discussed heavily as central to positioning a case succussfully for trial (and settlement).
At a recent presentation, Dr. Alan Melnick, a public health officer in both Oregon and Washington, provided a useful list of alternative causes of symptoms to consider when someone claims a food-borne illness. Other causes of symptoms that might be confused for food-borne illness include (but may not be limited to):
- Irritable bowel syndrome (IBS)
- Inflammatory bowel disease
- Antibiotic use
- Gastro-intestinal surgery or radiation
- Malabsorption syndromes
- Immune deficiency
Another practical piece of advice offered by Dr. Melnick: When assessing a food-borne illness claim, determine whether the incubation period is compatible with the illness. Incubation periods (along with other useful information) were provided by Dr. Melnick (relying upon the CDC) as follows:
1-6 hours (vomiting); 6-24 hours (diarrhea)
|Nausea and vomiting or colic and diarrhea||24 hours (short form); 24-48 hours (long form)||Soil organism found in raw, dry and processed foods, e.d. rice|
|Campylobacter||2-10 days; usually 2-5 days||Diarrhea, cramps, fever and vomiting; diarrhea may be bloody||2-10 days||Raw and undercooked poultry, unpasteurized milk, water|
|Clostridium botulinum (botulism)||2 hours to 8 days; usually 12-48 hours||Vomiting, diarrhea, blurred vision, double vision, difficulty swallowing, descending muscle weakness||Variable (days to months)||Home-canned food, improperly canned commercial foods|
|Clostridium perfringens||6-24 hours||Cramps, diarrhea||24-48 hours||Meats, poultry, gravy; foods kept warm|
|Enterro-hemorrhagic E. coli, including E. coli O157:H7 and other Shiga toxin-producing E. coli (STEC)||1-10 days; usually 3-4 days||Diarrhea, frequently bloody; abdominal cramps (often severe); little or no fever; 5-10% develop Hemolytic-uremic syndrome (HUS) and average of 7 days after onset, when diarrhea is improving (more common in children, elderly and immune-compromised)||5-10 days||Ground beef, unpasteurized milk and juice, raw fruits and vegetables, contaminated water, sprouts, person to person|
|Listeria||9-48 hours for GI symptoms; 2-6 weeks for invasive disease||Fever, muscle aches and nausea or diarrhea; pregnant women may have flu-like illness and stillbirth; elderly, immune-compromised and infants infected from mother can get sepsis and meningitis||Variable||Fresh soft cheeses, unpasteurized or inadequately pasteurized milk, ready-to eat deli meats and hot dogs|
|Salmonella||6 hours to 10 days; usually 5-48 hours||Nausea, diarrhea, cramps, fever||4-7 days||Poultry, eggs, meat, unpasteurized milk or juice, raw fruits and vegetables (e.g., sprouts), person to person|
|Shigella||12 hours to 6 days; usually 2-4 days||Abdominal cramps, fever and diarrhea; stool may contain blood and mucus||4-7 days||Contaminated food or water, raw foods touched by food workers, raw vegetables, egg salads, person to person|
|Staph (toxin)||30 minutes to 8 hours; usually 2-4 hours||Nausea, cramps, vomiting, diarrhea||24-48 hours||Custards, cream fillings, potato or egg salad, sliced meats|
|Vibrio cholerae||1-5 days||Profuse watery diarrhea and vomiting, severe dehydration||3-7 days||Contaminated water and shellfish, street vended food|
|Vibrio parahaemolyticus||4-30 hours||Watery diarrhea, abdominal cramps, nausea, vomiting||2-5 days||Undercooked or raw seafood (fish and shellfish)|
|Vibrio vulnificus||1-7 days||Vomiting, diarrhea, abdominal pain; more severe in patients with liver disease or who are immune-compromised; can cause invasive infection (sepsis)||2-8 days||Raw seafood, particularly oysters, harvested from warm coastal waters|
|Yersinia||1-10 days; usually 4-6 days||Appendicitis-like symptoms (diarrhea and vomiting, abdominal pain)||1-3 weeks||Undercooked pork, unpasteurized milk, contaminated water|
I had the privilege of participating as a speaker at the Billable Hour CLE held recently at Seattle University School of Law. As an “outside” counsel, here were some of the most significant things I learned:
1. Clients may find the billable-hour system “frustrating.” Though for complex matters, lawyers and clients have to discover the perfect alternative.
2. For business clients, tension exists between alternative fee arrangements, such as fixed fee or contingent fee, and value received. Clients worry about whether alternative fee arrangements will yield lower-quality services and attorney windfalls.
3. For complex litigation (what I do), budgeting early and often is key. Some businesses require monthly budget updates. Designing realistic budgets and tracking those budgets as close to real-time as possible may be key.
4. In-house counsel have clients who are often more demanding than may be apparent to outside counsel. Outside counsel should recognize that their value is measured in large part by the degree to which they help in-house counsel make their own clients happy.
5. Business clients are very concerned about lawyer-firm staffing inefficiencies. Clients do not want to subsidize excessive salaries for new attorneys (often more than salaries for experienced in-house lawyers). Clients are also concerned that senior lawyers may be billing for tasks more appropriately accomplished by less-senior lawyers.
6. “Experts” in the legal profession expect the harsh economics of 2009 to be the best bet in decades for seeing significant change in the industry and the billable-hour paradigm.
December 4-5 is the American Conference Institute’s 2nd National Forum on Food-Borne Illness Litigation. The first forum turned out to be a very engaging and diverse forum (e.g. plaintiffs lawyers, industry lawyers, top state and federal officials) on emerging issues in food-borne illness. I will be one of the many speakers. Ralph Weber, an accomplished trial lawyer from Wisconsin, and I will be offering "practical advice for litigating the case, retaining experts, assessing damages and planning a trial strategy." The focus of my presentation will be a discussion of how to develop trial strategy and themes at the earliest possible point, selection of experts and assessment of damages.
I’d urge anybody involved in dealing with risks from food-borne illness think about attending. If you register, mention the promotion code 724L09.S and you’ll get $200 off the conference price. Hope to see you there.
As restaurant chains operating in King County, Washington are readying to comply with the new menu labeling law, serious questions arise. Does each menu item have to be sent to an expensive lab for testing? How accurate does the nutritional information need to be? How does a restaurant account for the inevitable variables of made-to-order meal preparation (an extra tablespoon of cooking oil can add 120 calories to a dish)? Does a restaurant that complies with the King County law open itself to consumer labeling claims because its nutritional information cannot be 100 percent accurate?
According to the Seattle Post Intelligencer (“PI”), the question concerning the tools that can be used by a restuarant chain to determine nutritional information may have been resolved in King County. The article reports that restaurant chains in King County have been given authority to “use nutritional software to calculate what was in each menu item rather than the pricey proposition of sending every dish off to a laboratory.”
What is not clear are what protections against consumer protection/tort liability a restaurant may have for “the natural variations that come with cooking restaurant food” or the variability between laboratory analysis and nutritional software. As one restaurateur said, “If you’re working by hand and making pasta, putting in cream and tossing in things as you go, it’s probably fairly close, but there are going to be variances because it’s not prepackaged . . . . Even if you’re cutting a meatloaf, if the specifications [sic] on the meatloaf is 12 ounces and (instead) cuts 13 ounces, it’s going to be off by 6 to 8 percent.”
Legal liability from variables in restaurant cooking is “not a theoretical fear.” As pointed out by the PI, “Applebee’s is facing a $5 million lawsuit over just that issue, after an independent lab found more calories and fat in a menu item than the chain’s nutritional information claimed.” One of the complaints filed against Applebee’s was by a person from the Seattle area.
Serious hurdles exist for any plaintiff’s attorney to prove liability and damages or certify as a class a nutritional labeling case against a restaurant:
1. Menu labeling suits are based on the theory that the nutritional information disclosed was 80, 90 or even 95 percent accurate and not 100 percent accurate. Does a reasonable consumer really believe that nutritional labeling of restaurant menu items has no room for error? Given the inherent and obvious variabilities involved, isn’t 80, 90 or 95 percent accuracy for nutritional information reasonable?
2. Even more significant, how does a plaintiff prove causation? Obesity, heart disease and other medical problems are complex medical problems. Even the medical community does not agree on causes of obesity. Surely, obesity , diabetes, and heart problems can't stem from a single meal or even a series of meals from just one restaurant that was 5 percent off in its estimate of nutritional information.
3. Even if liability can be established, class certification seems dubious. How can issues of liability or damages, which by definition vary with each person, ever be considered “common” or “typical” among a vast group of customers sufficient to justify class certification?
As we have seen over and over again in recent legal history, none of these barriers will deter every lawyer. The potential recovery and the targets (i.e. large restaurant chains) are too big not to try. Already, multiple putative class actions have been filed against Applebee’s.
Practically, several things should happen to protect restaurants doing their best to disclose nutritional information to their customers. First, restaurants should be advised to make sure their customers appreciate the variabilities and room for error in their nutritional information. The better a restaurant can prove that a plaintiff was not reasonable in reliance on 100 percent accuracy, the better its chance of having the plaintiff’s claims dismissed.
Second, there should be a legislative solution. The state legislature should exempt from the state consumer protection statute claims for nutritional labeling that meet an accepted standard. Why should restaurants that make their best efforts to disclose nutritional information to their customers be penalized? Without legislation, tort law and consumer protection statutes have the perverse effect of discouraging restaurants from providing disclosures to their customers.
A little off topic - I've been asked to speak at an upcoming CLE program at Seattle University Law School entitled "The Billable Hour: An Examination of Compensation." For those responsible for legal budgets (whether an in-house lawyer managing a budget or an outside lawyer like myself who is working within a budget), this promises to be a provocative conversation. According to the SU Law School online flyer:
"there has been a growing concern that the demands of increased billable hours [are] having unintended consequences and compromising the health and well-being of lawyers and the communities they service. At the same time, time-based billing practices can raise ethical questions and create perverse disincentives."
My own take, and I'm looking forward to what others think, is that lawyers and clients should regularly assess how they measure the value of their relationship. The billable hour is one of many available "tools" and continues to be among the most viable and ethical. Problems arise when lawyers and clients rely on the hourly billing format in a vacuum.
For example, an hourly billing arrangment without an agreed budget frequently leads to disintegration of client-lawyer relationships. Similarly, an hourly billing arrangment without agreement by the lawyer and the client about WHO is doing the billing leads to problems.
Outside lawyers and firms also shouldn't treat the hourly billing arrangement as a religon. For some clients and projects, straight hourly billing may not make sense. Other arrangments such as flat-fee billing, incentive billing, blended rates, etc. may make more sense for both the client and law firm.
Recently, I’ve received several requests for resources explaining the anatomy of a food-borne illness claim. In other words, what events can be expected, and when? What can or should a company (in particular the legal department) do in response to a claim?
Part I – Notice of an Outbreak (and Possible Claims)
First off, don’t panic. Your company’s crisis management team (which has been well-rehearsed for this scenario) should convene action upon the first notice of a possible outbreak—even before verification and before claims are apparent. Food safety experts should contact the health departments that may have identified the outbreak. Together with the legal, sales and quality assurance departments, your food safety experts should be involved in a full investigation of the possible outbreak. The earlier the intervention, the greater the possibility of collecting key information that may be useful in determining whether your company is linked to the outbreak and pinpointing other possible sources of the outbreak. Public relations experts should also be consulted at the first possible moment.
Checklist for the legal department:
- Log events, actions and communications. This is critical for responding to government agencies and to claims.
- Record all reported injuries. Collecting information about potential claims early is a key to mitigating those claims and future legal costs.
- Notify insurers. Insurance companies require prompt notice; insurers may also have assets available for crisis response.
- Document the investigation. Litigation may be protracted, and a well-documented investigation may be key to the company’s defense.
- Institute a litigation “hold” on the destruction of any company documents or emails. Don’t turn a bad situation into a nightmare; spoliation claims can take on a life of their own.
- Retain product samples for future testing. This may be critical to support experts’ opinions at trial and to preserve claims against suppliers.
- Review and retain vendor/supplier documents. Recovery against suppliers could be as important as or more important than insurance recovery.
- Assess the merits of a consumer hotline. It could be helpful in disseminating accurate information to consumers (inaccurate or conflicting information can lead to litigation) and in collecting information about the pool of potential plaintiffs.
- Assess the merits of a consumer/vendor reimbursement program. Like having a consumer hotline, providing immediate reimbursement could help dampen the volume of future plaintiffs.
Stay tuned for Part II – Receipt of the Demand Letter.
An upcoming panel discussion at the Nutritional Law Symposium in Utah and a call from a reporter about the Maple Leaf Foods issue in Canada have me thinking a lot about crisis management. How a business responds at the outset of an alleged food-borne outbreak determines its fate in many ways.
Implementing a strategy from the start is a must to minimize the impact of a crisis. Yet the million- or billion-dollar question is, how do you develop the right save-the-business strategy when events are overwhelming and occurring at light speed? You need to bring together quality assurance, legal and food safety personnel (epidemiologists, microbiologists and other food safety experts) who can respond immediately to find the source of the outbreak and work with public health officials. A business must ascertain at the earliest possible moment the source and scope of the crisis. Once a business understands whether an outbreak is limited to a particular outlet or product line, and how many people might be affected, it can formulate a public relations, recall and legal strategy to limit exposure.
The key is execution. Everyone on the crisis management team must work in sync and understand their roles. And the secret to execution is preparation. Long before a crisis, a team (usually a combination of personnel from outside and inside the business) should be in place, rehearsed and ready. History is full of lessons: Some businesses executed crisis management well and emerged from dire crises stronger than before; others were unprepared, and their brands have long been forgotten.
In the article, appears the following:
"The Canadian Double-Down"
"At a January 2008 products liability symposium, a well-regarded New York City plaintiffs’ attorney stood before a room of lawyers and in-house counsel. The topic of his presentation was, in part, to forecast the next direction of mass tort litigation. His message to those listening was clear. 'Canada is next.' "
The article goes on to explain that the threshold for mass tort class actions in Canada may now be lower than in the U.S.: "in certifying the class, the [Canadian] court was not troubled by the fact that class members could not prove a present physical injury or a 'foreseeable and recognizable psychiatric illness' as a result of the alleged product defect."
The bottom line advice in the Bloomberg article, as it has been in this blog, is that businesses (especially those in the food industry) need to continue to re-double efforts at risk avoidance and crisis management. As courts outside the U.S. become more open to mass tort claims, exposure for businesses selling products internationally only amplifies.
Personal injury and economic damage claims await for the FDA and CDC to determine causation. Produce industry, particularly in Mexico, stands to suffer long lasting injury.
Whether or not your business stands to be impacted (or has been impacted) by the current outbreak, now is a great time to review and rehearse your crisis management plan. I recommend that your team include the following (whether in-house personnel or outside consultants):
- Scientific - Epidemiology, Microbiology, Infectious Disease - Quantifies risks, assists public health officials and supports litigation;
- Accounting - Estimates costs of response options and manages system for customer reimbursement;
- Public Relations - Coordinates all internal and external communications and develops a plan to limit impact to the brand;
- Quality Assurance - Assists in conducting traceback;
- Sales and Marketing - Notifies suppliers and buyers, monitors recall effectiveness and coordinates product returns;
- Legal - Assists with fact investigations, assists coordination with regulatory officials, addresses liability issues, deals with issues of insurance coverage and prepares for litigation;
- COORDINATOR/TEAM LEADER - selecting a member of the team that can bridge a diversity of disciplines and demonstrate leadership is critical.
Because the defendant food seller’s actions may not be relevant, litigated issues frequently center on “causation” (i.e. was the plaintiff’s alleged illness caused by the defendant’s product). From the defense perspective, the plaintiff’s deposition and discovery of plaintiff’s food history and other possible sources of exposure are often key to assessing causation. Oregon’s “shotgun questionnaire” used by its public health investigators provides a great outline.
Given the limited resources of most state and local health departments, I have always believed there is little to lose by offering the assistance of credible and known epidemiologists, microbiologists, etc. Additional resources in an outbreak investigation (and, therefore, additional investigation) can mean the difference between the health department pointing at your client and the health department pointing at another source. Several other defense lawyers, and, surprisingly, state health department officials, agreed. Examples of successful early intervention were elicited.