ABC Files Motion to Dismiss BPI's Defamation Lawsuit

A few months ago, I wrote about a $1.2 billion defamation lawsuit filed by Beef Products, Inc. (BPI), a South Dakota-based meat processor, against ABC News Inc. found here. The most recent development in the case occurred on October 31 when lawyers for ABC filed a motion to dismiss.

In September, BPI, along with Technology, Inc. and Freezing Machines, Inc., collectively filed suit against American Broadcasting Companies Inc., ABC News Inc., ABC news anchor Diane Sawyer and ABC correspondents Jim Avila and David Kerley in Circuit Court in Union County, South Dakota claiming that ABC’s news coverage of lean finely textured beef (LFTB), or what became infamously known by the nickname “pink slime,” was defamatory and ultimately devastating for the company’s reputation and business. Since being filed, the case has been removed (PDF) to the U.S. District Court for the District of South Dakota. The complaint also named as defendants Gerald Zirnstein, the U.S. Department of Agriculture (USDA) microbiologist who called the product “pink slime,” Carl Custer, former federal food scientist, and Kit Foshee, a former BPI quality assurance manager who was interviewed by ABC.

Earlier this year, on March 7, 2012, ABC began reporting during its World News program that much of the ground beef we buy at the supermarket contains the product that the industry calls LFTB and others call “pink slime.” Over the next month, ABC continued to report on the story, both online and on its television news programs.

In its later complaint, BPI alleged that the news agency, in reporting on LFTB, had knowingly and intentionally published false and disparaging statements regarding BPI and its product and improperly interfered with BPI’s business relationships. BPI argued that the statements made by ABC were not only inconsistent with information provided to them by BPI but were also contradictory to the findings of the USDA’s Food Safety and Inspection Service (FSIS), the Food and Drug Administration (FDA), food safety organizations, and many beef industry experts. BPI claimed that ABC’s news reports constituted common law defamation, product disparagement, and tortious interference. In addition, BPI alleged a cause of action under South Dakota’s statutory Agricultural Food Products Disparagement Act (AFPDA).

Most recently, on October 31, 2012, lawyers for ABC News submitted a motion to dismiss BPI’s lawsuit (PDF). In its memorandum in support of the motion to dismiss, ABC asserts that none of BPI’s claims are viable. Specifically, ABC argues that BPI cannot state a claim under South Dakota’s AFPDA, because that law only authorizes an action for statements that question the safety of a product. ABC claims that it did not question the safety of the product as BPI claims, but instead stated that LFTB is safe to eat.

Secondly, ABC maintains that BPI cannot state a claim for product disparagement because “any such claim is preempted by AFPDA, and because the ABC News reports would not be actionable under traditional common law standards in any event.” For instance, ABC explains:

[R]eporting that critics call LFTB pink slime is not actionable: that term, while unflattering, does not convey false facts about the color or texture of LFTB and is precisely the kind of “imaginative expression” and “rhetorical hyperbole” that is constitutionally protected. And the ABC News reports cannot reasonably be understood to imply that LFTB is “not safe for public consumption” or “not nutritious.” The reports repeatedly state that LFTB is “safe to eat,” though “not as nutritious as ground beef” a viewpoint BPI does not challenge. BPI’s other claims are based on quibbles with specific language that do not affect the “substance” or “gist” of the reports.

Lastly, ABC states that BPI’s claims of libel and of tortious interference with business relationships both fail. A decision on the motion is currently pending.

Nationwide Beef Processor, AFA, to Sell All Assets in Bankruptcy

AFA Investment Inc., and its affiliates, including AFA Foods, American Foodservice Corporation, United Food Group, LLC, and American Fresh Foods (together “AFA”) have requested that the Bankruptcy Court overseeing their Chapter 11 cases approve procedures for a sale of all of their assets. The sale process was a condition required by AFA’s lenders to continue financing the companies in bankruptcy.

AFA reports that 98 potential buyers have surfaced so far and that 36 have executed nondisclosure agreements. However, none have yet been chosen by AFA as a “stalking horse” bidder, so the sale process is being conducted, at least for now, as an open or “naked” auction.

 

A hearing on the requested procedures is set for May 8, 2012. AFA’s proposed procedures include: 

·         AFA will have until May 29, 2012 to obtain one or more letters of intent. 

·         Potential bidders would have until noon on June 11, 2012 to submit “qualified bids.”

·         If more than one qualified bid is received, an auction will be held at 10:00 a.m. on June 12, 2012, at the office of AFA’s counsel in Delaware.

·         AFA would have until 24 hours before the auction to choose a stalking horse against which other bidders would compete at the auction. If a stalking horse is chosen, a copy of the proposed asset purchase agreement will be filed with the Bankruptcy Court. A stalking horse may be provided with certain “bid protections” if approved by the Bankruptcy Court, including topping fees, asset mix requirements (to deter piecemeal purchases), and minimum overbids.

·         Qualified bids must include, among other things:  (a) a list of assets to be purchased, (b) the purchase terms, (c) a form of asset purchase agreement (or a redline against any stalking horse agreement), (d) a waiver of financing and due diligence contingencies, (e) an irrevocable offer until the earlier of July 25, 2012 or two business days following a sale; (f) a commitment to close by June 22, 2012; (g) a commitment to prepare evidence necessary to prove good faith under the Bankruptcy Code; (h) evidence of the buyer’s ability to provide adequate assurance of performance of any contracts to be assumed as part of the sale; and (i) a deposit of 10% of the proposed purchase price.

·         Due diligence is available upon execution of an acceptable nondisclosure agreement and proof of financial ability to close.

 

Parties have until April 30, 2012 to file any objections to the procedures.

 

If you are interested in participating in the sale process or would like a full copy of the proposed bidding procedures, please contact Brandy Sargent at (503) 294-9888 or David Levant at (206) 386-7601.

Nationwide Beef Processor Seeks Bankruptcy Protection Citing "Pink Slime" Furor

AFA Investment Inc. and its affiliates, including AFA Foods, American Foodservice Corporation, United Food Group, LLC, and American Fresh Foods (together "AFA"), one of the largest ground beef processors in the United States, have filed for Chapter 11 bankruptcy protection.

AFA cited growing negative publicity over the use of boneless lean beef trimmings (identified as "lean finely textured beef" or "pink slime" in some articles) as well as lower retail demand for beef products, costly product testing programs, and a change of customer base from foodservice to retail customers as events causing the filing.

Ron Allen, AFA's Interim CEO, stated that the companies have hired an investment banker to market their assets and plan to idle their Los Angles, California processing facility this week.  AFA reported consolidated booked asset value of $219 million against $197 million of liabilities.  The companies currently have 850 full-time employees and operate facilities in Georgia, New York, Pennsylvania, and Texas, in addition to the California facility. 

AFA requested approval of $60 million in "Debtor in Possession Financing" to be advanced by the companies' current first-priority lenders.  One lending covenant would require AFA to file a motion to sell all of the companies' assets within the next 14 days. AFA also requested permission to continue to honor customer programs including rebates and returns, to pay certain "critical vendors" immediately, and to institute procedures for receiving and handling priority claims of vendors under the Bankruptcy Code.

The AFA bankruptcy follows news last week that other beef processors are reducing production in the wake of the furor and reported uncertainty in futures markets and auction prices.

Check back at the blog for additional information regarding the AFA bankruptcy as it becomes available.