Tag Archives: produce lawyer

My Company is Involved in a Foodborne Illness Outbreak… What do I do?

My phone rings the other day and I look at the number… I did not recognize it.  Of course, I answer the phone with a friendly, “Good morning, this is Jason.”  Just that quickly I am connected to a conference room filled with concerned produce company executives with little  time for pleasantries.  I quickly discover that the company is involved in a foodborne illness outbreak and has several concurrent fires to put out.  Against this back drop, the questions start flying:

  • Do I have to give the government copies of my customer list?
  • Do I have to allow the government to take pictures of my product, operation, etc.?
  • Do I have any rights when it comes to a government inspection?
  • What do I need to say or not say to my customers?
  • Is there something we should be doing that we are not?
  • Does my insurance policy cover this?
  • Do I have enough insurance?
  • Does it matter that the contaminated product was not ours?
  • Do we have any exposure here?
  • What should we be doing right now to mitigate our exposure to any type of litigation?
  • What should we be doing to protect our brand identify and the company name?

Grappling with any one of these questions while you are watching a foodborne illness outbreak unfold in real-time is both difficult and time sensitive.  In an ideal world, you would have a crisis management plan ready to be pulled off the shelf and executed upon.  Moreover, the company’s employees would be similarly prepared as they would have received re-occurring training on the company’s crisis management policies and procedures.

The reality for most produce companies is much different…  Under a sales driven business model, it is far to common for produce companies to rely on the food safety promises of third parties (many of which are not readily capable of verification) and for product testing to be too heavily focused on good arrival standards, which are governed by the relevant sales contracts.  Against this back drop, even successful produce companies find themselves in uncharted waters when they are thrust into the middle of a foodborne illness outbreak and forced to handle all the related media exposure, demands from government investigators and other unanticipated events.

So What Should You Do? (Top 10)

  1. Seek the advice of an experienced food law attorney of your chosing! 
  2. Through either your attorney or your company, have strategic partners identified and available for you to call upon for assistance.  This will help ensure that the crisis management activities of your company does not preclude the company from continuing its “normal” business operations.
  3. Don’t write anything or say anything that you do not want to see in the media.
  4. Know your rights and proactively manage any and all government inspections or requests for information.
  5. Prepare and implement a public relations plan designed to address at least two main target audiences: (i) your customers and (ii) the public.
  6. Initiate the audits necessary to both identify the source of the problem (contaminated product) and to trace all of the contaminated product that flowed through your company or which may still be in your company.
  7. Be aware of cross contamination issues…
  8. Know how to properly document all of the processes mentioned above.
  9. Know how to properly destroy contaminated food.
  10. Conduct a review of all relevant insurance policies, supply contracts and other documents that may contain contractual obligations the company must comply with during the crisis.  (i.e. are you obligated to notify your insurance carrier of the problem within a certain period of time?)

As you can see from the foregoing list, there are many things a produce company needs to know and do in order to protect itself (as best it can) from the fall out associated with a foodborne illness outbreak.  Many of these things can and should be prepared in anticipation of a foodborne illness incident that we all hope never occurs, but there are also many things that can be done and should be done as the event unfolds.

Again, if you find yourself in the middle of a foodborne illness outbreak or related recall you would be well advised to seek the advice of an experienced food law attorney of your choosing.  As we know from witnessing the Jensen Farms outbreak, few companies are adequately prepared to deal with these types of situations and that could lead to the demise of your company.  Of course, time is always of the essence in these types of cases.

Wrongful death cases related to foodborne illnesses cost the food industry billions of dollars each year and very few, if any, companies responsible for the problem live to tell the story.  Why?  Frankly this is the way juries like it when it comes to food safety and public health.  Accordingly, these types of cases are often won or lost before a civil action is ever filed.

Indiana Cantaloupes Linked to Multistate Salmonella Outbreak

As reported by Food Safety News and other sources:

“A multistate outbreak of Salmonella Typhimurium linked to cantaloupes grown in southwestern Indiana has killed two people in Kentucky and sickened 141 people nationwide, the Kentucky Department for Public Health and the Indiana State Department of Health have confirmed….”

See Salmonella Outbreak Linked to Indiana Cantaloupes

31 people have been hospitalized, according to the U.S. Food and Drug Administration.

A total of 20 states have been affected by the outbreak, FDA reports. Illnesses by state are as follows: Alabama (7), Arkansas (3), California, (2), Georgia (1), Illinois (17), Indiana (13), Iowa (7), Kentucky (50), Michigan (6), Minnesota (3), Missouri (9), Mississippi (2), New Jersey (1), North Carolina (3), Ohio (3), Pennsylvania (2), South Carolina (3), Tennessee (6), Texas (1) and Wisconsin (2).

Other reports indicate that there are currently 141 illnesses linked to the Indiana Cantaloupe Outbreak.  See Cantaloupe, a Deadly Fruit – Again.

As of the date/time of this posting, the identify of the farm or source of the outbreak has not been disclosed, but we do know the farm is located in Southwest Indiana.  Similarly, we do not know the name(s) of the grocery store(s) that sold the Cantaloupe to the public.  The investigation continues…

Important New Bankruptcy Filings!

Please take note of the following two new food industry bankruptcies:

Cascade Ag. Services, Inc. d/b/a Pleasant Valley Farms, which filed a voluntary petition for chapter 11 bankruptcy protection in the Western District of Washington on August 13, 2012.  A review of the bankruptcy petition shows estimated assets between $10 MM and $50M with estimated liabilities within the same range.  By way of example, the claims of the top 20 largest creditors range from $2 MM to $119k.

California Organics LLC, which filed a voluntary petition for chapter 11 bankruptcy protection in the Northern District of California on  August 13, 2012.  A review of the bankruptcy petition shows estimated assets between $1 MM and $10M with estimated liabilities within the same range.  By way of example, the claims of the top 20 largest creditors range from $325K to $13k.

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

Burch Farms – Melons Recalled After FDA Discovers Listeria

In a recent online article The Packer reported that:

“Listeria contamination is confirmed at the Burch Farms melon packing facility in Faison, N.C., according to the Food and Drug Administration.”

FDA officials also said the Listeria finding spurred Burch to expand its recall to include all cantaloupe and honeydew melons shipped this season. No illnesses have been reported in relation to the recalled melons.

“This recall expansion is based on the FDA’s finding of Listeria monocytogenes (L. mono) on a honeydew melon grown and packed by Burch Farms. The recall expansion is also a result of the agency’s finding of L. mono in the environment of the firm’s packing facility,” according to the notice.

FDA finds Listeria at Burch Farms

Food Safety News also picked up on this breaking news and reported as follows:

According to FDA, the recalled whole cantaloupes are identified by a red label reading Burch Farms referencing PLU # 4319. All cantaloupes involved in the recall were grown by Burch Farms, however some of the cantaloupes may have been identified with a “Cottle Strawberry, Inc.” sticker referencing the same PLU, but Cottle Strawberry, Inc. did not grow or process the recalled cantaloupe.

FDA said that honeydew melons involved in the recall expansion “do not bear any identifying stickers and were packed in cartons labeled melons.”

The melons were shipped to distributors in 18 states — Florida, Georgia, Illinois, Kentucky, Massachusetts, Maryland, Maine, Michigan, North Carolina, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, South Carolina, Virginia, Vermont and West Virginia — but distributors in those states may have further distributed them to other states.

FDA Issues Update on Burch Farms Melons Recall

Midwest Produce Conference + Expo

I wanted to personally thank everyone who came out to Michael Jordan’s Steak House and joined Freeborn & Peters LLP’s Food Industry Team for a cocktail reception following the Midwest Produce Conference + Expo.  For those of you who could not join us, please look for us at the upcoming PMA Fresh Summit Convention this October!

Chicago Bankruptcy Judge Dismisses the Complaint of a PACA Trust Creditor Who Sought to Prevent the Discharge of a PACA Trust Debt

On July 30, 2012, Judge Wedoff (U.S. Bankruptcy Judge in the Northern District of Illinois) issued a Memorandum of Decision in a personal chapter 7 bankruptcy case that addressed a very critical issue:

“Whether a person subject to the PACA trust who fails to secure payment for commodities that the trust encompasses incurs a debt excepted from discharge in bankruptcy…”

Relying heavily on Follett Higher Education Group, Inc. v. Berman (In re Berman), 629 F.3d 761, 767-69 (7th Cir. 2011)(tracing the history of decisions interpreting statutory provisions excepting debts from discharge based on a breach of fiduciary duty), Judge Wedoff said:No! See In re Jose Bolanos (N.D. IL) Adv. No. 11-A-2398.

As a prelude to this discussion, it is important to know, as Judge Wedoff pointed out, that “[a] number of courts have advanced a different interpretation of a PACA trustee’s fiduciary obligations for purposes of § 523(a)(4), holding the language of the PACA statute does impose a technical trust. See, e.g., E. Armata, Inc. v. Parra (In re Parra), 412 B.R. 99, 105 (Bankr. E.D.N.Y. 2009); A.J. Rinella & Co., Inc. v. Bartlett (In re Bartlett), 397 B.R. 610, 620 (Bankr. D. Mass. 2008); KGB Int’l, Inc. v. Watford (In re Watford), 374 B.R. 184, 190 (Bankr. M.D.N.C. 2007).

Case Summary:

The trust imposed on purchasers of agricultural commodities is set out in § 499e(c)(2) of PACA.  It states that

[p]erishable agricultural commodities received by a commission merchant, dealer, or broker in all transactions, and all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held by such commission merchant, dealer, or broker in trust for the benefit of all unpaid suppliers or sellers  of  such  commodities  or  agents  involved  in  the transaction, until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers, sellers, or agents.

7 U.S.C. § 499e(c)(2). The regulations implementing PACA provide that “[t]rust assets are to be preserved as a non-segregated ‘floating’ trust” and that“[c]ommingling of trust assets is contemplated.” 7 C.F.R. § 46.46(b) (2010).  Based on this and Follett Higher Education Group, Inc. v. Berman (In re Berman), 629 F.3d 761, 767-69 (7th Cir. 2011), the Balanos court articulated two main reasons for holding that a  fiduciary capacity under § 523(a)(4) does not exist under the PACA.

First, a PACA trust does not put the purchaser in a fiduciary capacity under the 7th Circuit’s interpretation of § 523(a)(4) and PACA does not create an arrangement akin to an express trust.  The Court went on to say that, there is no property of the seller that the buyer is required to keep safely segregated, and ownership of the property is not intended to remain with the seller.  To the contrary the commodity buyer under PACA is fully expected to sell the property covered by the trust.  Under PACA, there is no requirement for segregation; the trust “floats” on all of the assets held by the purchaser. Accordingly, the PACA trust effectively functions as a lien, assuring payment for the goods shipped to and sold by the purchaser.

Second, the relationship between buyer and seller of agricultural commodities does not reflect any disparity of knowledge or power that would give rise to an implied fiduciary capacity in the buyer. Unlike lawyers and bank officers, the buyer of agricultural commodities has no particular expertise or authority relative to the seller. Indeed, the seller may be a substantial agribusiness and the buyer an individual with limited income.  The rationale for imposing the PACA trust has nothing to do with the power and knowledge of the participants in the sale transaction but rather with the nature of the commodities being sold, reflecting an intent on the part of Congress to give the seller a right to payment ahead of a buyer’s other secured creditors:

Due to a large number of defaults by the purchasers, and the sellers’ status as unsecured creditors, the sellers recover, if at  all, only after banks and other lenders who have obtained security interests in the defaulting purchaser’s inventories, proceeds, and receivables. See JSG Trading Corp. v. Tray–Wrap, Inc., 917 F.2d 75, 77 (2d Cir. 1990); H.R.Rep. No. 543, at 3, reprinted in 1984 U.S.C.C.A.N. at 406–07.  In order to redress this imbalance, Congress added Section 499e(c) to PACA, Pub.L. No. 98–273, 98 Stat. 165 (1984), which impresses a trust in favor of the sellers on the inventories of commodities.  H.R.Rep. No. 543, at 4, reprinted in 1984 U.S.C.C.A.N. at 407.

Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1067 (2d Cir. 1995).

Critical Note: It is important to note that the facts of this case were unique in that the Court merely dismissed an adversary complaint seeking to prevent Mr. Bolanos from discharging a PACA debt.  The Court raised this issue on its own as Mr. Bolanos apparently defaulted and otherwise failed to appear and defend himself in the adversary proceeding.  As a result, the Court’s ruling merely tested the allegations of the adversary complaint itself (as a matter of law) and is not a decision issued after a full trial on the merits.

PACA Proofs of Claim Due in the Adams Produce Bankruptcy

For those interested, the PACA Claims Procedure Order entered in the Adams Produce Bankruptcy established August 3, 2012 (Today!) as the deadline to file all PACA proofs of claim .  Any party that fails to file their PACA proof of claim by will be forever barred from asserting a PACA claim.

All PACA Trust Creditors must file a  PACA proof of claim no later than today, Friday, August 3, 2012. 

Once all of the PACA claims are asserted, the parties will begin the process of identifying the valid claims and eliminating all others.  Afterwards, the real amount of the PACA trust debt will be known and distributions will follow shortly thereafter.  As with most PACA cases, the validation process is critical because all of the Debtor’s unsecured creditors are waiting to see if there will be enough assets left to pay administrative claims and other unsecured obligations.   The answer to this question will come in the next few months.

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On July 16, 2012, a civil action was filed in Florida against On The Beach Brokers, Inc. in an effort to collect approximately $19,690.00 in an alleged PACA trust debt.

On July 16, 2012, a civil action was filed in Georgia against TJ Produce, Inc. in an effort to collect approximately $120,540.00 in alleged PACA trust debt.

On July 23, 2012, a civil action was filed in Puerto Rico against Luna Commercial Corp. in an effort to collect approximately $21,750.00 in alleged PACA trust debt.  

On July 24, 2012, a civil action was filed in Maryland against Evergreen Supermarket, Inc. in an effort to collect approximately $10,800.00 in an alleged PACA trust debt.

On July 31, 2012, a civil action was filed in Maryland against Tamburo, Inc. in an effort to collect approximately $6,400.00 in an alleged PACA trust debt.

On August 1, 2012, a civil action was filed in Washington against Walla Walla Gardeners’ Association, Inc. in an effort to collect approximately $19,850.00 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.

Personal Liability Under PACA: Exposure for Non-Shareholding Officers

On August 2, 2012, the U.S. Court of Appeals for the 6th Circuit issued an unpublished decision that discussed, inter alia, personal liability under the Perishable Agricultural Commodities Act (“PACA”).  Specifically, the 6th Cir. addressed the issue of whether an individual could be held personally liable under PACA absent a showing of “active wrongdoing.”  The Court said: YES! See Arava USA, Inc. v. Karni Family Farm, LLC, 6th Cir. Case No. 11-1944.

In this case, the 6th Circuit found that an individual (who was an officer of the company, but not a shareholder) could be prosecuted personally for any shortfall in the company’s ability to fully satisfy it’s PACA trust obligations.

In so doing, the 6th Cir. agreed with the District Court (W.D. Mich.) and noted that thenon-shareholding officer at issue was not a statutory trustee of the PACA trust.  However, the 6th Cir. further held:

[b]ut that does not mean that [an individual] cannot be personally liable for interfering with [a PACA trust beneficiary’s] receipt of trust assets.  Ordinary principles of trust law apply to statutory trusts created by the Act. See Owner Operator Indep. Drivers Ass’n, Inc. v. Comerica Bank (In re Arctic Exp. Inc.), 636 F.3d 781, 798 (6th Cir. 2011).  This court has held that, where an officer causes a corporate trustee to commit a breach of trust, the beneficiary of the trust may sue the officer personally for the loss.  See Capitol Indemnity Corp. v. Interstate Agency, Inc. (In re Interstate Agency, Inc.), 760 F.2d 121 (6th Cir. 1985).  This liability arises not because the officer is a trustee or because of a piercing of the corporate veil, but rather because the officer himself has committed a tort against the trust’s beneficiary. Id. at 125.  The law of trusts is clear that “a beneficiary who is entitled to immediate distribution of . . . property may bring an action against a third party [i.e., not the trustee] who has damaged that property or interfered with its delivery to the beneficiary.” Restatement (Third) of Trusts § 107 cmt. c(1).  (emphasis added).

Every court of appeals to consider this issue has held that a corporate officer may be held personally liable under the Act.  See Coosemans Specialities, Inc. v. Gargiulo, 485 F.3d 701, 705–06 (2d Cir. 2007) (collecting cases from the First, Second, Third, Fifth, Seventh, and Ninth Circuits).   We now join them and hold that “individual shareholders, officers, or directors of a corporation who are in a position to control [statutory] trust assets,” and who fail to preserve those assets, may be held personally liable under the Act. Sunkist Growers, 104 F.3d at 283. Where the officer has “fail[ed] to maintain” the assets of a § 499e trust, trust law allows an unpaid produce seller to sue that officer in his personal capacity. 7 U.S.C. § 499b(4).

Critical Point

The thrust of this case is that you do not have to be a shareholder of a produce company to be exposed to PACA trust liability.  The proper test for determining liability is control over the PACA trust assets and how your actions affected the PACA trust beneficiary’s ability to receive full payment promptly.

PACA Trust Litigation Alert

PACA Trust Litigation Alert

PACA Trust Litigation Alert

On July 10, 2012, AMK Foodservices, Inc. d/b/a Kaney Foods filed for Chapter 11 bankruptcy protection.  In this case, the debtor recently filed a motion seeking to approve a PACA claims procedure.  This motion is currently pending before the court, but no hearing date has been set yet.

Please check your A/R to see if this case affects you.  If it does, please do not wait to assert your rights.