Food Liability Law Blog

More on Melamine . . .

KMODZA@stoel.com (Kenneth Odza) — Fri, 21 Nov 2008 08:16:21 -0800

I was interviewed recently by Food Innovation Weekly on “Melamine, Recalls and Crisis Management.” This question-and-answer article discusses how the waves of melamine issues circling the globe affect the way a company should think about crisis management. I suspect that we’re not done hearing about melamine contamination and that the scope of fraud has yet to be fully uncovered. Some of the more interesting issues are safe dosage levels, product testing and what companies should or should not disclose to consumers.

Registration Still Open For The ACI Food-Borne Illness Litigation Conference in Scottsdale

KMODZA@stoel.com (Kenneth Odza) — Thu, 20 Nov 2008 09:29:15 -0800

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.

Nitty-Gritty on Menu Labeling Regulations and What Can Be Done to Stem Consumer Litigation

KMODZA@stoel.com (Kenneth Odza) — Wed, 12 Nov 2008 21:04:37 -0800

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.

Breakthrough in Detection of BSE (a.k.a. "Mad Cow Disease")

KMODZA@stoel.com (Kenneth Odza) — Wed, 12 Nov 2008 08:31:15 -0800

No food-borne illness induces consumer fear like Bovine Spongiform Encephalopathy (BSE a.k.a. "Mad Cow Disease"). The beef industry in particular has gone to great lengths to take preventative steps against the introduction of BSE into U.S. herds. A big problem in controlling BSE is that it’s difficult to detect. The only detection method currently available involves the slaughter of a suspect animal and a series of not very reliable tests.

Now comes word that researchers at Cornell University have devised a “tuning fork” method that may detect BSE at the prion level:

Harold Craighead and colleagues at Cornell University have developed nanoscale resonators, which are tiny devices that function like tuning forks by changing pitch with increased mass. When prions bind to the resonator’s silicon sensor, it changes the vibrational resonant frequency of the device. In experimental trials, the sensor detected prions at concentrations as low as two nanograms per milliliter, the smallest levels measured to date.

Though still a while away from practical application, the technology may have dramatic effects on the ability to ensure the safety of the nation’s beef supply. The BSE “tuning fork” is a good example of yet another new technology industry that the government can use to ensure food safety and consumer confidence.

Farming and safe handling practices alone cannot provide the level of assurance that consumers demand in their food supply. Tuning fork, irradiation, and better bacteria detection are all vital tools that industry, government, and consumers need to embrace.

Preparation for Melamine Issues- Updating Crisis Management Plans and Insurance Coverage

KMODZA@stoel.com (Kenneth Odza) — Fri, 07 Nov 2008 09:12:46 -0800

While largely under the radar in the American press due to the compelling election cycle and historical meltdown in the financial markets, the news out of China concerning melamine has gone from bad to worse. Concern about Chinese dairies has morphed into a global crisis affecting what seems like an infinite number of products tainted with melamine.

Melamine has been intentionally introduced into animal feed, dairy products, pet food and other products because it can make diluted or poor-quality products appear to be higher in protein by elevating the total nitrogen content detected by some simple protein tests. Already, the FDA has identified a wide variety of products affected in the first wave of concerns about Chinese dairy products.

How should a food manufacturer or retailer prepare for a melamine issue? Any food company that imports any food ingredient or product from Asian markets should be concerned, and its first steps should be to update its crisis management plan and rehearse a melamine recall.

Food companies should also review with coverage counsel and their brokers whether they have—or can obtain—insurance coverage for financial exposure from melamine tainted products. Financially, a food company will be affected by a melamine issue in at least three ways: recall costs, loss of business and personal injury/consumer fraud claims. Standard comprehensive general liability (“CGL”) insurance may not cover any of these exposures. Most CGL policies do not cover recall costs. While recall and property insurance policies are available, the coverages offered by these policies also may be problematic.

Even personal injury or consumer fraud claims might be denied by CGL insurers. For example, many CGL policies will only provide coverage for occurances that arise out of events that are “accidental.” “Accident” is commonly defined as “a sudden, unforeseen or unintended event.” Even though a food company may have no knowledge of an upstream supplier’s fraudulent acts, some insurers are sure to argue that claims arising from products intentionally tainted by melamine are not covered.

The insurer's argument denying coverage is not a slam dunk and may not prevail. But, the key is to avoid (or minimize) the dispute with the insurer. To the extent possible, when placing insurance, a food company should obtain a representation or endorsement from its insurer that coverage will be extended to claims arising from melamine-tainted food.

Change You Can Expect: What President Obama May Do About Food-Borne Illness Surveillance

KMODZA@stoel.com (Kenneth Odza) — Thu, 06 Nov 2008 08:28:53 -0800

The Obama administration has promised sweeping changes in all corners of the federal government. We can expect the new President to push an ambitious legislative and administrative law agenda in 2009. What does this mean for food regulation? A partial answer may be gleaned by looking at the Improving Food-borne Illness Surveillance and Response Act of 2008, a bill Obama introduced last summer after he become the presumptive Democratic nominee.

Some things of note:

1. The bill appears targeted in large part on increasing the government’s “capacity” for detection of food-borne illness—both by increasing cooperation between local, state and federal agencies and by enhancing detection capability through proliferation of cutting-edge technology. The bill proposes $25 million in block grants to state and local agencies. As we've said before in this space, better detection capacity correlates to more detected outbreaks. More detected outbreaks translates to more food-borne illness claims and affects everyone in the food industry (especially restaurants and those selling fresh produce).

2. One of the five goals of the bill is to “Strengthen oversight of food safety at the retail level.” I’m unclear on exactly what is meant by this goal. Does this mean, for example, that Obama might be interested in granting FSIS the jurisdiction to inspect supermarket delis or butchers?

3. Also of interest is what does not seem to be included in the bill. Specifically, the two most talked about (and controversial) federal food safety reform ideas: (1) mandatory recall authority and (2) merger of FSIS and FDA food safety programs. Should we read into the bill that President-Elect Obama does not support these reforms? Time will tell. All that is certain is that change is coming . . .

Another Reminder Why Indemnification and Insurance Requirements Are Important

KMODZA@stoel.com (Kenneth Odza) — Fri, 31 Oct 2008 11:34:23 -0800

Last month, a state judge in Minnesota awarded summary judgment to a lettuce supplier of restaurants associated with an E. coli outbreak in 2006. The restaurant supplier brought suit against its suppliers. The suit appears to have been based at least in part on an indemnification agreement between Vistar (which delivered lettuce to restaurants) and Bix (which supplied lettuce to Vistar). According to the court, the agreement required Bix to “indemnify and hold harmless the Buyer and its customers from any claim, demand, loss, damage, liability, cost and expense, directly or indirectly, arising out of, or in connection with, or resulting from, the willful or negligent acts or omissions of the seller . . . sold by the Seller . . . to the buyer.”

Vistar, according to the court, “delivered sealed packages” of lettuce to the restaurants and did not process the product. Bix “both processed the lettuce (chopped it up) and packaged the lettuce.”

The court granted summary judgment to Vistar for two reasons:

(1) Vistar was the “classic passive seller in the chain of distribution” and therefore was not a manufacturer under Minnesota law; and

(2) The language of the indemnity “is clear, inclusive, and unequivocal,” and “Vistar’s tender of the claims against it to Bix should be honored.”

As to the latter reason, the court found relevant that “Bix has $2,000,000 in direct coverage and $10,000,000 in excess coverage insurance that would cover the claims made against it.”

A couple of observations:

1. Importance of Being Named an Additional Insured – Surprisingly, it does not appear from the judge’s decision that Bix was required to name Vistar as an additional insured. Had Bix’s carrier named Vistar as an additional insured, Vistar could have recovered against Bix’s insurer directly. Requiring a supplier to provide insurance (and verifying that the supplier has named you as an additional insured without unacceptable conditions) is a relatively easy, yet important step to protect your business.

2. Liberal Reading of Indemnity Clause – The court says that the indemnity obligation, which requires “willful or negligent acts or omissions,” is “clear, inclusive and unequivocal.” Yet the court found no “willful or negligent act or omissions” on the part of Bix. In fact, commenting on Bix’s own motion for summary judgment requesting that the court rule it too is not liable as a matter of law, the court said that Bix’s “argument is not without merit.” Not all courts may interpret this indemnification clause so favorably in the absence of a supplier’s negligence. This is yet another reason to ensure that your supplier has provided adequate insurance.

More on Supply Chain Verification and Crisis Management

KMODZA@stoel.com (Kenneth Odza) — Fri, 17 Oct 2008 15:58:01 -0800

Food Safety Magazine’s latest issue focuses on “Industry in Crisis Mode.” The issue includes an article by Shaun Kennedy, director of the National Center for Food Protection and Defense (NCFPD). Mr. Kennedy provides a good overview of the elements of a supply chain verification program that any food seller should consider.

Mr. Kennedy acknowledges that costs for third-party audits, fixing supply chain problems, and establishing traceability can be high. To justify costs, he points to the recent experience of Maple Leaf Foods. According to Mr. Kennedy, Maple Leaf Foods incurred “direct costs to the company of over $20 million. The shareholder costs are even greater with its stock price having dropped by over 20% by the end of August since the announcement of the recall, a shift of over $200 million.” These costs do not include anything to compensate possible tort victims or to respond to inevitable products liability litigation (whether merited or not).

Court to Rule on Consumers' Expectations For Organic Cosmetics

KMODZA@stoel.com (Kenneth Odza) — Thu, 16 Oct 2008 15:21:59 -0800

Dr. Bronner’s Magic Soaps (“Dr. Bronner’s”) received a favorable ruling recently in its suit against competitors that it believes are misleading consumers by labeling cosmetic products as “Organic”. Part of Dr. Bronner’s claim appears to be that “Organic” standards established by the U.S. Department of Agriculture (“USDA”) set the bar for consumer expectations of "Organic" cosmetic products. The USDA’s National Organic Program (“NOP”) standards, according to the USDA, do not apply to “cosmetics, body care, or personal care products”. Dr. Bronner’s argues in its complaint that “[p]ersonal care products labeled as in compliance with ‘Organic’ or ‘Made with Organic [up to three specified ingredients]’ under the NOP criteria reflect basic organic consumer expectations . . . .” (Brackets in original.)

Last week, a California Superior Court in San Francisco overruled the demurrer of Ecocert France (SAS) and Ecocert, Inc. A demurrer is essentially a request made to a court, asking it to dismiss a lawsuit on the grounds that no legal claim is asserted.

According to Dr. Bronner’s, the “Court turned aside the defendants’ arguments that Dr. Bronner’s, in its complaint filed with the Court, had not sufficiently spelled out how actual consumers, the company and competition in the organic personal care industry have been hurt by the defendants’ deceptive practices.” The court’s ruling does not necessarily mean that Dr. Bronner’s is likely to succeed, only that it has articulated colorable claims. The court did not rule on the merits of these claims.

This case should be watched closely by those in cosmetics and food industries. Dr. Bronner’s claims turn, at least in part, on its view of “consumer expectations.” Do consumers have expectations as to what “Organic” means? Does it mean something different for cosmetic products? These are just a few of the significant questions that may be addressed in the litigation.

Salmon Labeling Probably Headed to Supreme Court

KMODZA@stoel.com (Kenneth Odza) — Mon, 13 Oct 2008 13:10:12 -0800

The U.S. Supreme Court signaled last week that it may review a California Supreme Court decision finding that federal law does not preempt claims for violations of state consumer protection laws concerning “selling artificially colored farmed salmon without disclosing to . . . customers the use of color additive.” Following a petition for certiorari filed in April, the Supreme Court issued an order last week inviting the Solicitor General “to file a brief in this case expressing the views of the United States.”

The Bush administration generally favors federal preemption of state consumer protection laws. Most Supreme Court watchers believe that the Court will grant certiorari if the Solicitor General advocates doing so. This case, if considered by the Supremes, is sure be significant with wide ranging implications for consumer protection claims concerning food product labeling.

The Billable Hour

KMODZA@stoel.com (Kenneth Odza) — Tue, 07 Oct 2008 12:51:45 -0800

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.

Some In The Plaintiffs' Bar Favor Irradiation

KMODZA@stoel.com (Kenneth Odza) — Mon, 06 Oct 2008 17:13:36 -0800

As previously discussed on this blog, the FDA recently approved irradiation for iceberg lettuce and spinach. We pointed out that "irradiation may provide an added level of protection from food-borne illnesses such as salmonella and E. coli. When used in combination with other state-of-the-art food handling practices, irradiation should dramatically reduce the chances of transmitting food-borne illnesses to consumers."

Now, it appears that at least some in the plaintiffs' community agree that irradiation of fresh produce may be a good thing. Bill Marler, one of the leading plaintiffs' attorneys in the food liability area, is running a series of in-depth pieces on his blog on irradiation.

Mr. Marler's conclusion in part II of his series echoes what we've posted in this blog :"In summary, food irradiation is not a 'silver bullet' for food safety. However, the increasing problem of illnesses and deaths associated with consumption of fresh produce, including lettuce and spinach, emphasizes the need for an intervention."

Forest Through the Trees: Lessons from a Crisis Management Case Study

KMODZA@stoel.com (Kenneth Odza) — Thu, 02 Oct 2008 08:00:00 -0800

There was a nice article in the Canadian legal publication Law Times about the aftermath of the Maple Leaf Foods recall. The article praises Maple Leaf Foods for taking quick steps to salvage consumer confidence in the face of a Listeria outbreak across Canada. Specifically, the article discusses how Maple Leaf Foods CEO Michael McCain “immediately took responsibility for the plant outbreak.”

McCain is quoted as saying that “[g]oing through the crisis there are two advisors I’ve paid no attention to. The first are the lawyers, and the second are the accountants . . . . It’s not about money or legal liability, this is about being accountable for providing consumers with safe food.”

Yet the author of the Law Times article interviewed a Canadian corporate communications expert who noted that “McCain likely did listen to legal counsel.” The expert said that McCain’s “statement was an acknowledgment that if limiting legal liability was the main objective of the company’s response, it would be near impossible to restore its reputation.”

“‘The whole reason that Maple Leaf has been successful, and even though the recall has cost them $20 million in product [recalls], [is that] their reputation is intact,’” the expert is quoted as saying.

Finally, the best quote from the article: “[L]awyers need to understand that legal liability isn’t the only factor to consider in a crisis. But that’s not an easy pill for many lawyers to swallow. They believe future litigation is prejudiced if a CEO makes an apology, says [the expert].”

California Menu Labeling Laws--Restaurants Beware of Asking What Your Customer Wants!

KMODZA@stoel.com (Kenneth Odza) — Wed, 01 Oct 2008 12:38:54 -0800

Yesterday, California became the first state in the Union to write into law menu labeling requirements. Like municipal ordinances recently enacted in New York City and Seattle, the California law requires certain “chain” restaurants to disclose nutritional information and calorie content information for certain items.

The law, to be phased in between 2009 and 2011, applies to restaurant chains with at least 20 locations that “offer for sale substantially the same menu items, or operates as a franchised outlet of a parent company . . . with the same name in the state that offer for sale substantially the same menu items.”

The new California law reads like a lawyer’s dream. Numerous exemptions are granted for certain grocery stores, “certified farmer’s markets” and others. Exemptions are also created to the exemptions. For example, “separately owned food facilities to which this section otherwise applies that are located in the grocery store” are not included in the “grocery store” exemption. To further add to the confusion, “grocery store” is defined to include convenience stores, though the law fails explain what that means. Does this mean that the law applies to a hamburger chain restaurant but not to the neighboring chain “convenience store” that sells the same hamburger but also a quart of milk? Does this make any sense? Won’t this statutue almost certainly generate significant litigation?

The labeling requirements apply to “standard menu items,” which are defined as “a food or beverage item offered for sale by a food facility through a menu, menu board, or display tag at least 180 days per calendar year . . . .” Yet a “standard menu item” does not include “a food item that is customized on a case-by-case basis in response to an unsolicited customer request.” What does "unsolicited customer request" mean? What about a sandwich shop that offers nearly infinite combinations of products? According to SUBWAY, “there are more than two million different sandwich combinations available" its menu.

Aside from being riddled with ambiguities, inconsistencies and impossible-to-interpret language, this blog has previously made the case that menu regulation should be the domain of uniform federal law and not inconsistent, piecemeal local ordinances. The California law is yet another argument in favor of federal preemption.

Section one of the California law cites national obesity statistics from the Centers for Disease Control and the federal Nutritional Labeling and Education Act of 1990. Nothing about this bill is specific to California. Because the law only applies to large restaurant chains, its impact is mostly on large national or regional companies. Ironically, the California legislature understood the problem of inconsistent regulation and chose to preempt all local and municipal regulation of restaurant menus. If menu regulation is an issue that needs regulation (and there are many good arguments why it does not), it should be taken up by Congress, the FDA and the USDA, not states or local municipalities.

Lessons from Toxic Rice and Chinese Dairies - Threats From Bioterrorism and Supplier Fraud

KMODZA@stoel.com (Kenneth Odza) — Fri, 26 Sep 2008 12:34:36 -0800

Manufacturer fraud and bioterrorism should be on the radar screen for any food producer. Apart from the meltdown in the U.S. financial markets and presidential politics, the big news this week is toxic rice from Southeast Asia and melamine-tainted dairy products from China. Both crises were caused by intentional contamination of food products by raw-materials suppliers with the apparent motivation to defraud food manufacturers and sellers.

Both (especially melamine-tainted dairy products) are causing a worldwide health scare and crisis in consumer confidence. Consumers outside of China may not be at serious risk, because the melamine-tainted dairy products are not sold as pure dairy products. Outside of China, Chinese dairy products are used only in small quantities as ingredients in products such as candy and coffee. U.S. and European Union consumers are at risk only when consuming unusually large quantities of these “nondairy” products.

Yet the consumer crisis inside and outside of China could have ameliorated dramatically but for failures in crisis management. Even the presumably government-controlled Chinese press understands this: “Crisis management is closely related to the brand and credibility of an enterprise, but many Chinese enterprises have not developed the capability to react properly when a crisis emerges . . . .”

Consistent with Western principles of crisis management, Chinese experts, according to the Chinese press, opine that “one principle of crisis management is to take a responsible attitude immediately and in a sincere manner, which is of great help for enterprises to rebuild their credibility.”

The press in China points to a company named Sanlu and concludes that “Sanlu, the center of the scandal, provided a bad example of crisis management. When it was first exposed, Sanlu refused to take the blame and passed the buck to innocent dairy farmers, which ignited great anger nationwide. . . . Sanlu didn’t openly admit its products were toxic until Sept. 11. It eventually recalled baby formula manufactured on and before Aug. 6. The scandal led to the fall of chairwoman Tian and the disappearance of all dairy products bearing the brand of Sanlu.”

Anatomy of a Food-Borne Illness Claim - Part I

KMODZA@stoel.com (Kenneth Odza) — Fri, 19 Sep 2008 08:30:40 -0800

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.

New York Times on Nutraceuticals

KMODZA@stoel.com (Kenneth Odza) — Wed, 17 Sep 2008 14:15:02 -0800

The New York Times has a piece on nutraceuticals that caught my eye as an example of the news media’s skepticism about fortified food. The article begins:

“O[ff] the coast of Peru swim billions of sardines and anchovies: oily, smelly little fish, rich in nutritious omega-3 fatty acids. Their spot on the food chain is low; many will be caught, ground up, and fed as fishmeal to bigger animals.

“But a few have a more exalted destiny: to be transported, purified and served at North American breakfast tables in the form of Tropicana Healthy Heart orange juice and Wonder Headstart bread. These new products promise to deliver the health benefits of fish oil without the smell and the taste — without, in fact, the fish.”

But the article’s author, Julia Moskin, without citation or attribution, poses these loaded questions: “Are we really that close to a world in which food functions as a nutrient delivery system, made possible by microencapsulation and fine-spray coating? And what would this mean for food and human nutrition?”

In the end, Ms. Moskin’s piece appears full of cynicism and doubt about the industry. She writes off nutraceuticals as a cheap marketing ploy:

“[W]ith recent rising costs in raw materials, flavorings and transport, many food companies are refocusing their research and development; instead of adding expensive ingredients like sun-dried tomatoes or honey-roasted almonds to existing products, the search is on for inexpensive ‘value-added’ products that customers will pay extra for.”

Ms. Moskin does quote claims made by the industry but notes that university scientists disagree with the claims—implying that these scientists must be right because they are not employed by industry.

To me, the article demonstrates the need for the industry to invest in more independent research and verification. As the nutraceuticals industry matures and grows, claims by industry will be met with growing suspicion and, inevitably, assertions of “consumer fraud.” Consumers may believe health claims by small health food companies that they “trust.” But once those same companies (and their industries) grower larger, people by their nature become more skeptical.

"Organic Pathogens Exclusion"

KMODZA@stoel.com (Kenneth Odza) — Wed, 10 Sep 2008 16:35:16 -0800

Insurers are making efforts to exclude food-borne illness claims from coverage under comprehensive general liability (“CGL”) policies. The "Organic Pathogens Exclusion" is a good example.

While a claim for food-borne illness may normally be covered by a CGL policy, if you have an organic pathogens exclusion, your insurer will not provide a defense and will not cover your losses if your business is sued as a result of a food-borne illness.

Organic pathogens exclusions can take multiple forms. Some policies include an endorsement that excludes any “loss” for “any actual, alleged or threatened exposure to, existence of, presence of, ingestion of, inhalation of or contact with any biological agents.” “Biological agents” are usually defined to include things like bacteria, viruses or other pathogens (whether or not a microorganism).

Other policies simply include an endorsement providing that “this policy does not insure any loss, damage, claim, cost, expense, fine, penalty or other sum either directly or indirectly arising out of, relating to or caused by an “organic pathogen.” These policies generally define “organic pathogen” to mean “any organic irritant or contaminant, including but not limited to fungus, bacteria, virus, or other microorganism of any type, including but not limited to their byproducts such as spores or mycotoxin, or any hazardous substance as classified by the EPA.”

Any business involved in food production should take notice. Insurers are actively marketing policies with organic pathogen exclusions to food businesses whose greatest liability exposure may be food-borne illness. Careful and regular review of insurance policies and coverages is essential.

Dos and Don'ts for Executives Managing a Crisis

KMODZA@stoel.com (Kenneth Odza) — Wed, 03 Sep 2008 13:32:41 -0800

As discussed frequently in this blog, management of an outbreak at its inception determines the course of the crisis (and, in some cases, the fate of the company).

The Globe and Mail, in its ongoing coverage of the Maple Leaf Foods Listeria outbreak, today published a helpful punch list of 15 dos and don’ts for corporate executives managing a food-borne outbreak.

The last two items on the list may be the least obvious but are among the most important:

“14. Do make a list of the five questions you would least like to be asked and be prepared to answer them, since somebody will undoubtedly ask them.
“15. Do set up a rumour control hotline or website if rampant speculation could fuel the crisis.”

A hotline for collecting consumer information and complaints can be valuable. It allows the company not only to get control over and manage misinformation (the point being made in the Globe and Mail), but also to gather information about how many people the outbreak affects and who has fallen ill. Even more important, a hotline may enable the company to direct ill people to appropriate medical treatment, minimizing or even eliminating litigation.

Tuna's Not Just for Breakfast Anymore - Third Circuit Refuses FDA's Pleas for Federal Preemption

KMODZA@stoel.com (Kenneth Odza) — Tue, 02 Sep 2008 09:00:00 -0800

By Guest Blogger Amena Jefferson (Stoel Rives Summer Associate and UW law student)

Federal preemption is on the table once again. The U.S. Court of Appeals for the Third Circuit recently decided Fellner v. Tri-Union Seafoods, No. 07-1238, 2008 WL 3842925 (3d Cir. Aug. 19, 2008). In this case, the plaintiff allegedly fell ill from mercury poisoning after consuming canned tuna “almost exclusively” for five years (1999-2004). The plaintiff sought recovery under the New Jersey Product Liability Act for Tri-Union’s failure to warn of the risks posed by methylmercury in its canned tuna.

The FDA previously issued a consumer advisory and a backgrounder about the risk of mercury in tuna. In 2004, while a similar lawsuit was pending in California (People v. Tri-Union Seafoods), the FDA sent a letter to the attorney general of California noting that state warning claims are preempted because the “existence of the lawsuit would ‘frustrate the FDA’s carefully considered federal approach’” to methylmercury content in tuna. A California court determined, based on the FDA’s action, that claims under California Proposition 65 were preempted by federal law.

The Third Circuit disagreed. It reversed the district court’s ruling that the state claims are preempted, and instead concluded that no preemption exists because FDA advisories on tuna and methylmercury are not “law.” The appellate court concluded that the FDA letter merits “a particularly low level of deference” because it is not “the product of an agency proceeding.” Yet, the the Third Circuit never indicated how a warning could have been issued without running afoul of the FDA and federal law, other than to say that a warning “could have specified that the risks become material only with frequent tuna consumption, and that moderate fish consumption offers positive health benefits.”

So how does this make sense? On the one hand, the FDA specifically said it intended to preempt state law; on the other, the court said it didn’t. The decision opens the door for even more confusing and conflicting local and state labeling requirements. Can this kind of confusion and conflict promote customer safety? Why is the Third Circuit going out of its way to disagree with the FDA and side with a person choosing a canned-tuna-only diet? Are state tort laws really meant to protect someone who makes this kind of extreme dietary choice?