PCA Investigation: Anatomy of A Recall
FDA has a short video "anatomy of a recall" about the investigation of the Salmonella outbreak and recalls associated with Peanut Corporation of America (PCA). Anyone interested in learning how the federal government (with the help of Minnesota's "Team Diarrhea") goes about a food borne illness investigation and recall should take a look.
.jpg)
Sustainability and Consumer Confidence in Food Safety
For food sellers interested in promoting a “sustainable” brand and inspiring food safety confidence in their consumers, meet Food Alliance. Food Alliance “is a nonprofit organization that certifies farms, ranches and food handlers for sustainable agricultural and facility management practices.” It bills itself as “the most comprehensive certification program for sustainably produced food in North America.”
I’ve recently joined the Food Alliance Board of Directors (in fact, I’m headed to Portland today for a board meeting). My hope is to assist Food Alliance in becoming more widely accepted and mainstream. Credible third-party certification, such as Food Alliance provides, offers a transparent pathway to sustainability of our food supply and consumer confidence in food safety.
Food Alliance takes a holistic approach that is broader and more dynamic than organic certification, which does nothing to address food contamination from pathogens such as Salmonella, E. coli, and Listeria (in fact, many experts believe that organically grown food may be more likely to be contaminated by these pathogens). By way of example, Food Alliance certification standards, among other things, address “soil and water quality,” “ensure the health and humane treatment of animals,” “conserve energy and water,” and “ensure quality control and food handling safety.”
For more on why a holistic, independent third-party certification correlates with food safety (and accompanying consumer confidence), I’d suggest reading this op-ed piece co-authored by Food Alliance Executive Director Scott Exo, which was written earlier this year in the wake of the PCA peanut recall.
Tracking the Food Safety Working Group - More or Less Legal Exposure For Food Sellers?
This week the Obama administration announced the launch of a new website for the recently formed food safety working group. Obama announced the formation of this group in March in the wake of the high-profile food safety issues surrounding PCA peanut products.
This website will assist in tracking the efforts of the working group. As discussed previously on this blog, this group is expected to make recommendations aimed at detection, awareness and government reorganization. Possible examples include increasing funding to states to monitor food-borne illness, combining FDA and USDA food safety efforts, reexamining mandatory recall authority, increasing retail enforcement and implementing more aggressive consumer warnings.
What is not clear is whether the working group will look beyond just detection, awareness and reorganization to bolder initiatives that may result in less consumer illness and less legal exposure for food sellers. Bolder initiatives could include funding for irradiation, consumer food safety education, and fast-track development and implementation of technology that can sample food products for whole colonies of microorganisms.
.bmp)
Nestle's Makes the Very Best Peanut Decision
.jpg)
On Thursday, March 19, the Oversight and Investigations Subcommittee of the House Energy and Commerce Committee held another hearing on Peanut Corporation of America and the Salmonella outbreak. A focus of the hearing was the different choices made by Nestle USA, which had refused to buy PCA peanuts, and the companies testifying at the hearing, including Kellogg and King Nut, which had.
Nestle, when considering buying peanuts from PCA, had sent its own inspectors to PCA's plants. They found, according to a report of the hearing in the Washington Post, some rather damaging items:
rat droppings, live beetles, dead insects and the potential for microbial contamination
Nestle, not surprisingly, declined to buy from PCA.
At the hearing, witnesses from Kellogg and King Nut were questioned as to why they had not done their own inspections, instead relying on inspections by AIB, the American Institute of Baking, which were paid for by PCA, and which apparently tipped PCA about when it was coming.
The question nobody seemed to ask--and no one from Nestle was at the hearing--was why Nestle could not have made the results of its inspection public at the time? If there are "rodent droppings in the break room cabinets", and the company is selling peanuts to other members of the general public, just not through Nestle, isn't this something that should be made known to someone?
One answer lies in the fear of the various torts that come under the heading of "trade libel." Nestle is a big company, and even though it presumably trusts its inspectors (and makes important business decisions based on their reports), it must recognize that it is a potential "deep pocket" for lawsuits. Thus, to report publicly what its inspectors found, or even to make that information avaiable to others in the food industry, is to risk a major lawsuit.
The flip side should also be considered. If you are PCA, and someone broadcasts to the world that you have rat droppings in your break room cabinets, you are likely to experience significant losses, regardless of whether the report is true, and whether the presence of rat droppings in your cabinets affects the actual safety of your food. What we do know is that in 2008 PCA began shipping peanuts that killed people. The rat droppings found in the 2002 Nestle inspection presumably had nothing to do with those deaths, nor are we aware of any deaths or illnesses from PCA peanuts in the interim. Finally, we do not of course know whether there are other suppliers Nestle or others who conducted their own inspections rejected, and what they did with the news of rejection. Nestle, for instance, didn't write off PCA when it rejected it in 2002; it checked out another PCA facility in 2006 (and came to similar conclusions).
Then there is the question of what contractual rights and obligations existed between PCA and Nestle. Did PCA require Nestle to sign a non-disclosure agreement when it allowed it into the plants? Any well-advised company would require such an agreement at the very least to protect proprietary technology. Thus, Nestle may have been contractually bound not to reveal the results of its inspections.
As food safety legislation is being considered, the issue of tort liability and the right to use contracts to silence someone who knows about your dirty facility should be faced. It is not as simple as "all inspections should be public", but it is also unlikely to remain as business as usual. We publicize the results of government restaurant inspections without putting all restaurants that fail to pass inspection out of business.
Georgia is One Step Closer to Tough New Food Safety Law
The Georgia House of Representatives today considers proposed legislation to strengthen food safety rules in that state. Among other things, Senate Bill 80 includes a provision that would require food makers to alert state inspectors within 24 hours if a plant’s internal tests show products are tainted. Experts say no other state has such a rule.
The bill already has passed the Georgia Senate. House approval would mean Georgia Gov. Sonny Perdue soon could sign the bill into law.
The bill was introduced following the salmonella outbreak linked to Peanut Corporation of America. Investigators say the company knowingly shipped salmonella-laced products even after PCA's internal tests showed the products were tainted. State law did not require the company to share those test results.
The Peanut Recall Hits Bird Food
.jpg)
Reuters is reporting that Scotts Miracle-Gro shares dropped today on news that some of its bird food may contain peanut meal that was bought from now-bankrupt Peanut Corporation of America.
A blog called Birdchick reports that many other bird feed companies were able to confirm that they did not include PCA peanut meal in their suet. It also contains a recipe for suet that uses peanut meal you can make at home.
PCA Files for Chapter 7 Bankruptcy
It will come as no surprise that Peanut Corporation of America has filed for bankruptcy protection in the Western District of Virginia.
According to the bankruptcy filing, PCA claims to have debts of only between $1 and $10 million, and between 100 and 199 creditors. My colleagues in our Business Finance and Insolvency group tell me there is little penalty for any inaccuracies in these particular boxes on the cover sheet to a bankruptcy filing.
Two points are critical: they filed for Chapter 7 liquidation, not Chapter 11 reorganization. While voluntary Chapter 7 filings are not typical, they are less unusual than you might think.
The other point comes from a box checked on the cover sheet. It reads, "Debtor estimates that, after any exempt property is excluded and administrative expenses paid, there will be no funds available for distribution to unsecured creditors."
Tort clamants, i.e., the victims and families of victims, are unsecured creditors within the meaning of the Bankruptcy Code. In essence, PCA's assets, such as they are, are being turned over to its banks, and except to the extent of any insurance that may be available, the victims will have no recovery from PCA.
A Nicely Balanced Article from the AP
I came across this article on Google News from Holly Ramer at the AP.
What I liked about the article is that it is not afraid to quote from parents who are still feeding peanut butter to their kids. Among those parents: President Obama and his wife Michelle.
I particularly liked the quote at the bottom of the article from Barry Glassner, author of "The Gospel of Food: Everything You Think You Know About Food is Wrong":
It's very reasonable to take peanut butter off the menu until we knew what was going on, but then it's not anymore.
When I went to find the link to Glassner's book the cover looked very familiar so I checked; it is indeed the book my wife has been captivated by the last few nights.
PCA President Parnell Pleads Fifth Amendment Before House Committee
Stewart Parnell, President and owner of Peanut Corporation of America, appeared before a subcommittee of the House Committee on Oversight and Government Reform today. The hearing did without his testimony, howevver, as he pleaded the Fifth Amendment.
As we try to follow the breaking news (including, sadly, a ninth death linked to the salmonella in PCA peanuts), small things tend to stand out. One of them is that the PCA website, which we have linked to before, contains nothing but press releases, links to outbreak-related websites, and the address of PCA's registered agent for service of process: Ct Corporation System
1201 Peachtree St Ne # 1240, Atlanta, GA 30361
For help in following the story, the AP has posted a nice timeline of events. If we know anything, we know it will need supplementation.
The Human Cost of the Peanut Recall Part Three
This article in today's Seattle Post-Intelligencer is, of course, pretty much self-explanatory. That I've left this side of the tragedy to Part Three is because it's been so hard to face. The article did a great job of handling it, and is a reason I'm going to miss the P-I if, as it is expected to, it folds next month.
PCA Recall - Insurance Lessons for Food Sellers
Bill Marler posted on his blog recently a complaint for declaratory relief filed by an insurer for Peanut Corporation of America (“PCA”). Mr. Marler comments, “Frankly, I read this suit several times and still do not see what the fight is about.” For those who represent commercial insureds in pursuing coverage from their insurers, the suit is no surprise. The suit is likely a function of the fairly limited insurance limits available to PCA, PCA’s tender of both bodily injury and recall expense related claims, possible exclusion for organic pathogens and/or allegations of intentional acts by PCA.
The complaint filed by PCA’s carrier, Hartford Casualty Insurance Company, alleges that PCA had at the time of the outbreak a $1 million primary liability insurance policy and $10 million umbrella insurance policy. Given the high number of probable personal injury claims (some of which will involve wrongful death) and the broad scope of products affected by the recall, claims will far exceed limits available to PCA under the Hartford policies. This outbreak demonstrates why any food manufacturer or seller should carefully consider whether its insurance limits are sufficient. A $10 million policy might have seemed to PCA like a great deal of coverage prior to the outbreak; today, the prevailing perception is that it is totally inadequate.
The complaint also alleges that the Hartford policies included “terms, conditions, exclusions, and limitations including but not limited to those pertaining to . . . coverage for claims arising out of the presence, suspected presence, or exposure to, among other things, bacteria.” The policies are not attached to the complaint. However, the allegation suggests that the Hartford policy might have included an organic pathogens exclusion. If the policy includes such an exclusion, PCA may be without coverage for any claims related to the Salmonella outbreak. The organic pathogens exclusion may exclude any claim for bacterial contamination of food products. As we’ve discussed previously on this blog, every food manufacturer should review its coverage to ensure that its policy does not include an organic pathogens exclusion.
Finally, the quick filing of a declaratory relief complaint by Hartford illustrates why a food seller needs to engage an experienced insurance coverage counsel immediately. Coverage counsel can assist in developing a strategy to pursue and preserve available insurance. Also, in situations such as PCA’s, all communications with insurers should be managed by coverage counsel. From the outset, communications with insurers are critical because they are likely to become relevant to the inevitable coverage disputes with the carriers.
Update on Criminal Risk Management: The Peanut Case
By Guest Blogger Per Ramfjord
In my February 3, 2009 blog entry, I briefly discussed the steps a company should take to avoid criminal prosecution under the Federal Food Drug and Cosmetic Act. The FDA’s criminal investigation of Peanut Corporation of America continues to provide lessons on this subject—in particular, on what not to do.
The enormous public harm caused by the company’s actions, coupled with its seemingly cavalier attitude to contamination already created a high risk of prosecution. But that risk was heightened still further on February 5, 2009, when the FDA issued an amended investigatory report indicating that company management did not initially provide complete and accurate information regarding the testing of contaminated products.
This report and other information disclosed by the FDA shows that PCA management initially told the FDA that the company had shipped products that had tested positive for salmonella only after the products had been retested and it did not appear that they were contaminated. But this information was apparently inconsistent with company records, which, according to the report, showed that the company sometimes shipped products before it even received the positive test results and that, when it did so, it did not always even bother to do re-testing to find out if the positive results were false. This type of inconsistency between management statements and company records is precisely the type of misstep that companies should seek to avoid in a criminal investigation.
The Department of Justice has published its Principles of Federal Prosecution of Business Organizations. According to those Principles, one of the key factors that the government looks to in deciding whether to charge a company criminally is the “corporation’s timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation.” Any statements that are inconsistent with company records or the statements of other company employees are likely to be viewed as a failure to “come clean” under this standard. Indeed, should the government conclude that there was an active effort to conceal negative information, it is likely to go a step further and add charges against company management for false statements or obstruction of justice to the other charges in the underlying case.
Again, this underscores the need to engage in a prompt, thorough and complete investigation as soon as possible when a potential problem arises. Equally important, it shows the need to exercise caution in verifying any statements that are provided to the government, particularly early in an investigation when there is a great deal of pressure—both from the government and the public—to provide an explanation of what happened. Putting too positive a “spin” on the events is virtually certain to backfire, as it appears to have done with PCA management.
Update by Richard Goldfarb
As though to show the truth of what Per wrote, the FBI just announced that it would participate in the investigation of PCA, while the FDA's Office of Criminal Investigations would remain the lead investigative agency.
The Human Cost of the Peanut Recall Part One
.jpg)
The headline in last Friday's Seattle Post-Intelligencer read, "Local Food Banks Go Peanut-Free." A main supplier to food banks in the Puget Sound region, Food Lifeline, has decided to quarantine all peanut products "rather than try to keep up with the flood of U.S. Department of Agriculture or Food and Drug Administration recall alerts."
In a similar story, the Detroit Free Press reports confusion at a Meijer store in Royal Oak, Michigan, where a reporter sought to buy a product containing peanut butter, but the cashier couldn't ring it up. The cashier told the reporter, "Oh, the computer said this one's recalled. It's got that peanut butter in it. I don't know why it's still on the shelf -- shouldn't be, but the computer won't let those through."
As we have previously reported, the FDA has provided some great tools, including a web-widget, and both a list of recalled peanut products and the American Peanut Council has a list of products unaffected by the recall. What the reports out of Seattle and Detroit indicate, however, is that even in a world where information can move at web-speed, there is still wisdom in the old Mark Twain quote, "A lie can travel halfway round the world while the truth is putting on its shoes." When we're talking about what parents are putting in their kids' lunchboxes, the level of certainty required feels very different from any legal standard.
On February 5, Dr. Stephen Sundlof, director of the Center for Food Safety and Applied Nutrition of the FDA, testified before the Senate Agriculture Commmittee. His advice for consumers was cautious in the extreme.
Consumers are urged to check this web page to determine which products have been recalled and to become aware of new recalls as they are announced. Any product that is on the recall list should be disposed of in a safe manner. Consumers are also urged to wash their hands after handling potentially contaminated products. If consumers are unsure whether a peanut-containing product is potentially contaminated, they should avoid consuming it until they obtain more information about the product. Persons who think they may have become ill from eating peanut products are advised to consult their health care providers
(emphasis supplied). When the man in charge of food safety is sending the message to consumers that they should be watching out for themselves, it will be hard for any food bank volunteer or grocery store clerk to do more than what we have seen Food Lifeline and Meijer do.
On a personal note, my wife was a volunteer at the Fremont Public Association food bank (now Solid Ground) for many years. She taught me that peanut butter has always been a critical staple for food banks, providing a good source of protein, particularly to the many food bank customers who don't have cooking facilities, as well as to vegetarians and vegans. There isn't much I can do personally to deal with the problems caused by this crisis, but what I am doing is writing a nice check to Solid Ground.
FDA's Searchable Widget for Peanut Product Recall
UPDATE to the Salmonella-driven peanut product recall: as the number of peanut products recalled continues to rise, the U.S. Food and Drug Administration has created a Web widget that allows users to search for peanut-containing product recalls (see below). The FDA updates the list as it receives new information from companies that have recalled products. As discussed in an earlier article, a list of products that are unaffected by the recall is also available.
Avoiding Criminal Prosecution Under The FFDCA
By guest blogger Per Ramfjord
The FDA’s recent announcement that it is pursuing a criminal investigation of Peanut Corporation of America, arising out of the Salmonella-driven peanut product recall, is sure to raise concerns with executives in food product companies throughout the country. White House Press Secretary Robert Gibbs’s comment that the Obama administration intends to put in place a “stricter regulatory structure” to prevent breakdowns in food safety only heightens that concern.
And looking at the law, there are reasons to be concerned. The Federal Food, Drug, and Cosmetic Act criminalizes under sections 331 and 333 more than two dozen practices, including a host of activities associated with the manufacture or sale of contaminated food products. The potential punishment for such offenses includes corporate fines and the possible imprisonment of executives for up to one year for misdemeanor offenses or up to three years for felony violations. The burden of proof to establish such crimes against corporate executives is very low. For misdemeanor offenses, the government needs to prove only that the violation occurred under the executive’s watch; it need not show that the executive had any actual criminal intent or personal involvement in the violation. For felony violations, the government can prove the required intent simply by showing that a defendant consciously avoided knowledge of the violation or was involved in a prior violation.
So, the question arises, what should companies do to avoid prosecution if they become aware of potential criminal violations? The obvious first step is to stop the offending practice as quickly as possible and to identify and take any available remedial action, up to and potentially including a recall. Although there may be concern that the remedial action or recall may itself draw attention to the problem, the benefits of acting in a manner that the government deems responsible will pay off down the road. The second step is to investigate the violation immediately, with counsel, to develop facts that can help steer the case away from criminal enforcement. The FDA will almost always hold a “Section 305” meeting to allow a company to tell its side of the story before initiating a criminal prosecution. The decision about whether to prosecute will be based on factors such as the nature and seriousness of the offense, the potential deterrent effects of prosecution, and the company’s or individual’s culpability, criminal history, and willingness to cooperate. Uncovering evidence to show that the event in question was isolated in nature, due to unique and excusable circumstances, and not part of a pattern of misconduct or noncompliance is critical to making such a meeting a success and to the company’s overall defense going forward. Finally, an important third step is avoiding pitfalls during the investigation itself that could contribute to the government’s decision to prosecute. The current enforcement atmosphere is one in which the “cover-up” is often deemed worse (and more likely to spark prosecution) than the “crime.” Avoiding any false statements, document destruction, or other actions that the government could construe as constituting obstruction of justice is therefore of vital importance.
In sum, obviously the best way to avoid prosecution is to avoid violations, particularly through adopting policies and procedures that minimize risk. But once a potential violation has been discovered, it is vital to respond quickly and with the benefit of counsel who know and understand the system. While any enforcement proceedings are unfortunate, the prospect of criminal proceedings, with their potential of adverse publicity to the company and incarceration of executives, poses unique problems that require a rapid and focused response.
Upcoming Hot Topics in Food Law Teleconfernce
UPDATE - This panel will address emerging issues related to the recalls and investigations related to the Peanut Corporation of America. The panel includes persons intimately involved with these issues. Anybody with an interest in the peanut recall should register and tune-in.
The American Bar Association is presenting its second Hot Topics in Food Law teleconference on February 10, 2009 at 10am Pacific Time (1pm EST). Anybody connected with the food industry and concerned with risks affecting the industry should consider registering. I have been involved with planning this event. No other use of 60 minutes will give you as much insight into the most current issues in food law. The cost begins at $35 for section of litigation members and ranges to $150 for non-ABA members.
The panel, moderated by Jessie Ziegler at Bass, Berry & Sims, PLC, Nashville, TN, includes the most diverse voices available:
Robert E. Brackett, Ph.D, Senior Vice President and Chief Science and Regulatory Affairs Officer, Grocery Manufacturers Association, Washington, DC
Ricardo Carvajal, Of Counsel, Hyman, Phelps, & McNamara, PC, Washington, DC
Stephen Gardner, Director of Litigation, Center for Science in the Public Interest, Dallas, TX
Sherry A. Marcouiller, Chief Counsel, Food Law, Kraft Foods Global, Inc., Northfield, IL
