Monthly Archives: May 2012

Food Borne Illness Liability Forces Jensen Farms to File for Ch. 11 Bankruptcy Protection

On May 25, 2012, Jensen Farms, which is a general partnership, filed for Ch. 11 bankruptcy protection in Colorado.  With a list of the 20 largest creditors dominated by contingent, unliquidated and disputed estate claims, it is clear that wrongful death claims and other food safety related liabilities played a major role in the demise  of Jensen Farms.

The Produce News reported that Jensen Farms filed bankruptcy with $4.8 million in revenues in 2011, $2.1 million in current assets, $2.5 million in liabilities and an outstanding A/R from Frontera Produce in excess of $1.6 million.  The article went on to report that the bankruptcy should free up millions of dollars in insurance money to help fund settlements in numerous Listeria related wrongful death actions.  The Produce News – Jensen Farms Files for Bankruptcy Protection

This case will be closely watched as it is a glaring example of how important food safety issues are to the very sustainability and viability of a food company’s operations! 

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On May 22, 2012, a civil action was filed in Hawaii against Paradise Corner LLC in an effort to collect approximately $164,950.00 in an alleged PACA trust debt.  

On May 23, 2012, a civil action was filed in California against Santanas Grill, Inc. d/b/a Fresh MXN Food in an effort to collect approximately $64,000.00 in alleged PACA trust debt.  

On May 24, 2012, a civil action was filed in Alabama against Atlanta Tomato LLC in an effort to collect approximately $492,890.00 in an alleged PACA trust debt. 

Please check your A/R to see if these cases affect you.  If they do, please do not wait to assert your rights.

Judge Rejects Deal from Adams Produce, PNC Bank and Pro*Act

On May 21, 2012, Judge Mitchell of the U.S. Bankruptcy Court for the Northern District of Alabama rejected a proposed settlement in the Adams Produce Bankruptcy, which the Court identified as a case of “national interest.”

On May 22, 2012, The Packer published an article outlining Judge Mitchell’s reasons for rejecting the proposed settlement, which can be found here:

Judge Rejects Deal from Adams Produce, PNC Bank and Pro*Act

Echoing Jason Klinowski and Brian Jackiw of Freeborn & Peters’ objections to the proposed settlement, the Court cited the “lack of financial statements,” the lack of “schedules, statement of affairs and a full creditors’ matrix.”  As key reasons the Court would not approve the proposed settlement.  The Court went further to say that “we know very little about this company” and we are only “three weeks and three days into this case.”  Simply put, settlement was both premature and overreaching given the timing and all of the conditions contained in the proposal.

Judge Mitchell, agreeing with counsel from Freeborn & Peters, also took issue with the liability releases contained in the proposed settlement agreement.  Specifically, the Court noted that the “deal would have benefitted PNC Bank because it would get other creditors off the books, clearing the way for it to receive payment on a $5 million lien it claims to have against Adams Produce.”    Jason Klinowski and Brian Jackiw of Freeborn & Peters were not willing to allow their clients to sign away their future rights and the Court clearly agreed!

Jason Klinowski Quoted in The Packer’s Updated Article on Adams Produce

The Packer quoted Jason Klinowski in its 5/18/2012 updated article discussing the battle over a proposed settlement in the Adams Produce bankruptcy case, which involves the Debtor, PNC Bank and certain PACA creditors.

See:  Future Recovery Rights at Heart of PACA Case

Jason Klinowski and Brian Jackiw of Freeborn & Peters LLP are leading the opposition to the proposed settlement on behalf of several other PACA trust creditors.  Steve Leara and Jay Clark of Wallace, Jordan, Ratliff & Brandt LLC are an important part of the PACA creditors’ opposition to the proposed settlement and have filed their client’s opposition jointly with Klinowski and Jackiw.   Similarly, Jason Read of Rynn & Janowsky LLP and Howard Spector of Spector & Johnson PLLC have each filed pleadings in opposition to the proposed settlement.

Oral arguments in this highly publicized case will be held on Monday, May 21, 2012 at 10:30 a.m. in the U.S. Bankruptcy Court for the Northern District of Alabama, which is located in Birmingham, Alabama. 

FSMA Update: FDA Releases New Information Related to Food Facility Registration

The FDA recently published information answering two frequently asked questions:

QUESTION:  Does the Food Safety Modernization Act require a food facility to submit additional information to FDA in order for the facility to receive a food facility registration number?

ANSWER:  Yes!  Section 102 of FSMA amends section 415(a)(2) of the Federal Food, Drug, and Cosmetic Act by requiring food facilities to submit registrations to FDA containing additional information. Specifically, registrations are required to contain the e-mail address for the contact person of the facility, or for a foreign facility, the email address of the United States agent for the facility, and an assurance that FDA will be permitted to inspect the facility at the times and in the manner permitted by the FD&C Act. Additionally, if determined necessary by FDA, registrations are required to contain information regarding other applicable food categories, as determined appropriate by FDA, for foods manufactured/processed, packed, or held at registering facilities.

QUESTION: Will food facilities already registered with FDA under section 415 of the FD&C Act be required to renew their registrations during the October 1 – December 2012 registration renewal period? 

ANSWER:  Yes!  All facilities that are required to register must renew their registrations during the period beginning on October 1 and ending on December 31 of each even-numbered year. The first registration renewal cycle will be held from October 1 to December 31, 2012. Registrants are required to submit registrations to FDA containing the new information added by section 102 of FSMA. As new requirements and guidance go into effect related to facility registration renewal, FDA will post the information on this FSMA website.

As always, more information may be found at: Food Safety Modernization Act – FAQ Page

Jason Klinowski Quoted in The Packer’s Recent Article on Adams Produce

 

The Packer quoted Jason Klinowski in its 5/17/2012 article discussing the rapidly unfolding battle over a proposed settlement in the Adams Produce bankruptcy case.

See:  Adams Produce: Bankruptcy Deal Could Hamper PACA Creditors

Jason Klinowski and Brian Jackiw of Freeborn & Peters LLP are leading the opposition to the proposed settlement on behalf of several PACA trust creditors.

Jason Klinowski Cited in The Produce News’ Recent Article on Adams Produce

The Produce News quoted Jason Klinowski in its 5/17/2012 article discussing the rapidly unfolding battle over a proposed settlement in the Adams Produce bankruptcy case.

See:  Creditors Battling Over Potential Adams Produce Settlement

Jason Klinowski and Brian Jackiw of Freeborn & Peters LLP are leading the opposition to the proposed settlement on behalf of several PACA trust creditors.

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On May 10, 2012, a civil action was filed in New York against Sun East Trading Corp. in an effort to collect approximately $198,650.00 in an alleged PACA trust debt.  Importantly, the Court recently entered a Temporary Restraining Order in this case.

On May 10, 2012, a civil action was filed in Washington against Seven Stars Fruit Company LLC in an effort to collect approximately $1,467,950.00 in alleged PACA debt.  

On May 15, 2012, a civil action was filed in Maryland against Blue Ocean Enterprises LLC t/a The Family Market in an effort to collect approximately $236,000.00 in an alleged PACA trust debt.  Importantly, the Court recently entered a Temporary Restraining Order in this case. 

On May 15, 2012, a civil action was filed in New York against J. NY Produce, Inc. in an effort to collect approximately $48,000.00 in an alleged PACA trust debt.  Importantly, the Court recently entered a Temporary Restraining Order in this case.

Please check your A/R to see if these cases affect you.  If they do, please do not wait to assert your rights.

Should a Company’s Failure to Comply with Food Safety Programs or Laws be Deemed an Unfair Trade Practice?

The Packer recently reported that the “CaliforniaCantaloupe Advisory Board is establishing the state’s first mandatory food safety program implemented by a commodity board.”  Although the actual details are still in the works, Steve Patricio, chairman of the California Cantaloupe Advisory Board, stated that “we have existing assessments and revenue we can convert to food safety” and “there will be an additional assessment, probably as high as two cents a carton.”   California Cantaloupe Food Safety Program Article – The Packer 

According to the article, the proposed Cantaloupe safety program utilizes USDA inspectors under the supervision of the California Department of Food and Agriculture (“CDFA”).  This is important because the CDFA stated that:

“noncompliance with the coming food safety metrics would amount to an unfair trade practice.”    

Under California law, 

“a marketing order may contain provisions which relate to the prohibition of unfair trade practices. In addition to the unfair trade practices now prohibited by law, applicable to the processing, distribution, or handling of any commodity within this state, the director may include in any marketing order which is issued provisions that are designed to correct any trade practice which affects the processing, distributing, or handling of any commodity within this state which the director finds, after a hearing upon the marketing order in which all interested persons are given an opportunity to be heard, is unfair and detrimental to the effectuation of the declared purposes of this chapter.” 

California Food and Agricultural Code Section 58890.  The foregoing means that the parties to a marketing agreement or other similar arrangement can agree that certain conduct shall be deemed a violation of California law.

Taken as a whole, the members of the California Cantaloupe industry, who make up approximately 70% of the domestic Cantaloupe supply, are working together to accomplish two significant goals.  See Leafy Green Marketing Agreement Article  The first is to promote and ensure food safety, which is great!  The second is to ensure that no one Cantaloupe grower is able to obtain a competitive price advantage over the other by electing not to incur the costs associated with a mandatory food safety program, which was reported to be approximately two cents per carton.  This is a good idea!

The PACA prohibits certain types of conduct by fruit and vegetable buyers and sellers as unfair trade practices.  Some examples of unfair trade practices include failing to make full payment promptly for produce purchases, misbranding or mislabeling of produce, making false and/or misleading statements in connection with produce transactions, and employing individuals under employment restrictions that were responsibly connected with a PACA violator firm.  What you don’t see addressed here is the subject of food safety and the unfair advantages associated with non-compliance with food safety laws.   Maybe it should… 70% of the Cantaloupe industry seems to think so! 

But, what the PACA does give the suppliers of perishable agricultural commodities (“Produce”) is the right to obtain trust protection on the sums “owing in connection” with their transactions in produce.   7 U.S.C. 499e(c)(2).  The cost of food safety (i.e. the two-cent per carton assessment discussed above) is a sum owning in connection with a company’s transactions in produce.  The cost of compliance with food safety programs and laws help ensure the safety of the produce itself and that serves the public interest. 

As such, the cost of food safety compliance should be considered an inseparable part of a company’s transactions in produce and it should be invoiced as such.  Any company that has ever been on the wrong side of a foodborne illness issue or incurred the costs associated with a major recall can attest to the fact that the cost of prevention is far less than the alternative, which often includes brand identity damage, loss of goodwill in the marketplace and litigation costs.   Moreover, as we see from the premiums placed on most organic products, consumers will seek out and pay for safer products.

FSMA: Comment Period Opened on Food Facility Information Collection Program

The Food and Drug Administration (FDA) recently announced an opportunity for public comment on the proposed collection of certain information by the Agency.  This notice solicits comments on the information collection provisions of FDA’s program of voluntary submission of food facility profile information and the new Form FDA 3797, which may be submitted electronically via the FDA Industry Systems Website. 

Under the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (Pub. L. 107-188) (the “Bioterrorism Act”) FDA was further authorized to improve the ability of the United States to prevent, prepare for, and respond to bioterrorism and other public health emergencies. The Bioterrorism Act added section 415 of the FD&C Act (21 U.S.C. 350d), which requires domestic and foreign facilities that manufacture, process, pack, or hold food for human or animal consumption in the United States to register with FDA.  (emphasis added).  FDA regulations at 21 CFR 1.230 through 1.235 set forth the procedures for registration of food (including animal food/feed) facilities.

The types of information the FDA proposes to collect in its voluntary food facility profile includes, among other things:

  • The facility type (i.e. manufacturer/processor, re-packer/packer, warehouse/holding facility)
  • The products and related hazards (i.e. biological, physical, chemical), along with preventive control measures associated with said products
  • Facility information (i.e. food safety training, facility size, number of employees, operational schedule, etc.)

With respect to the collection of information, FDA invites comments on the following topics: (1) whether the proposed collection of information is necessary for the proper performance of FDA’s functions, including whether the information will have practical utility; (2) the accuracy of FDA’s estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques, when appropriate, and other forms of information technology.

The deadline to submit either electronic or written comments on the collection of information summarized above is July 10, 2012.  Please take full advantage of this opportunity.  These rules will affect how the industry operates and establishs another key standards against which a food facility will be measured.  As such, it is important to voice your concerns to the FDA during these comment periods.