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Fairness of Imposing Statutory Interest Rate on Private Entity Defendants When Rate is Significantly above Existing Market Interest Rates

Posted in Litigation Trends, Massachusetts Courts

 

interest rates for judgments in massachusetts

In Massachusetts, the interest rate for pre-and post-judgment interest is 12%, a number which was last revised in 1982 during the Reagan Administration.   See Mass. Gen. Laws ch. 231,§ 6B.   Massachusetts has not followed the lead of other states and federal district courts which use a floating rate or an economic benchmark for determining what the pre- and post-judgment interest rate should be and although six other states (see list to follow), which had set their interest rate at 12%, have recently lowered the percentage, Massachusetts remains an outlier on this issue.

Here’s a list of the six states that have recently lowered the interest rate for pre- and post-judgments:

At the time that the rate was set at 12%, it may have seemed reasonable given the market interest rates at the time, however given the current economic environment, providing a plaintiff with a significantly above market interest rate by which interest on damages is calculated may not serve the goal of compensating a plaintiff for his or her losses but instead serve to provide a plaintiff with a windfall.  See Sec’y of Admin. & Fin. v. Labor Relations Comm’n, 434 Mass. 340, 346 (2001).  At the time the rate was set it closely tracked the Federal Reserves’ annual one-year constant maturity Treasury Yield Rate of 12.27%, however that rate is currently 0.14%. Although Massachusetts utilizes a floating pre- and post-judgment interest rate and puts a cap on that rate, when calculating interest on damages to be paid by the Commonwealth to injured parties, it has not adopted the same floating rate for damages to be paid by private entities nor does a cap exist for damages to be paid by private entities.  See Mass. Gen. Laws ch. 231, §6I.

The Supreme Judicial Court arguably recently sent a signal to the defense bar that the court may be ready to evaluate the question of applying the 12% pre- and post-judgment interest rate to punitive damages in general when it sought briefs on the issue in the Willie Evans v. Lorillard Tobacco Company, et al. matter, SUCV-2004-02840 (pdf download).  In Lorillard, the jury awarded damages in the amount of $152 million, broken down into $71 million in compensatory damages and $81 million in punitive damages.  The trial judge reduced the compensatory damages to $35 million, but did not reduce the punitive damages award and Lorillard appealed.  Prior to issuing its opinion in Lorillard, the Supreme Judicial Court sought briefs on the question of the constitutionality of imposing the 12% interest rate on the punitive damages award in the case.

Ultimately, because the Supreme Judicial Court vacated the punitive damages award, in its opinion, the Court stated that it did not need to address the “various issues regarding the amount of interest on punitive damages.”  

One of the amicus briefs submitted to the Court was filed by the Massachusetts Defense Lawyer’s Association which included a review of other states and federal courts and their practices for handling pre- and post-judgment interest rates.  It found that MA is among 7 states with a fixed 12% pre- and post-judgment interest rate while there are 27 states that have a rate lower than 12% and 23 states and federal courts that utilize a floating rate. (pdf download). Additionally, it addressed the question of how other states have set out rules that clearly define the purpose for pre- and post-judgment interest, while Massachusetts statutes do not.  It offered examples to the Court of instances where the rate encourages settlements but at the same time limits the punitive nature of having such a high interest rate set by statute.  The brief urged the Court to find that the current rate set in Massachusetts is not only unconstitutional but also violates due process as an excessive punitive award and asked the court to determine a fair rate of interest for the Lorillard case.

The pre- and post-judgment interest rate on damages is the same for both tort and contract actions in MA, but there is an added risk of increased damages in contract actions based on the potential length of time that a plaintiff may be able to claim that damages have accrued from. In Tort actions, the interest on damages may only run from the date of the commencement of an action, however, the date that damages may accrue from can be one of three possible dates, including the date of the alleged breach. In a recent MBA article, MBA article, Matthew R. Fisher an attorney at Mirick O’Connell outlined how the potential rewards to a plaintiff in a contract action for interest on damages from a date as early as when an alleged breach could occur and instructed the plaintiffs’ bar the availability of the pre- and post-judgment interest rate as a potential source of added damages in such cases.

Conclusion

Given the risk of damages in a contract actions running from an even earlier date than the commencement of an action, the defense bar must be aware of the potential “windfall” that plaintiffs may be able to receive if they are successful in obtaining a verdict in their favor. The additional amount of time potentially available to plaintiffs in contract actions is another example of the problematic nature of the high pre- and post-judgment interest rate that is assessed on damages in Massachusetts.

The issue of questioning the fairness of maintaining the current rate of pre- and post-judgment interest remains an open one in Massachusetts.  The Defense Bar must recognize that it is an issue that should be raised throughout a trial so that it can be preserved and raised in an appeal of a damages award, particularly on the issue of the potentially excessive amount of damages that may be owed given the fact that the existing rate is so far above market interest rates.  By preserving the issue for an appeal, the defendants leave open the possibility for the Supreme Judicial Court to potentially weigh in on the issue that it may be ready to more fully evaluate and address

Furthering Asbestos Claims Transparency Act: Discovery of Bankruptcy Claim Information to Avoid Double Compensation

Posted in Asbestos Litigation, Toxic Tort

As previously reported on Defense Litigation Insider, the United States House of Representatives is presently considering the “Furthering Asbestos Claims Transparency (FACT) Act.” (H.R. 982) Since our last report, the bill was approved by the House Judiciary Committee by a 17-14 vote despite efforts to amend its original form.

The bill, introduced by Rep. Blake Farenthold (R-TX) and co-sponsored by Rep. Jim Matheson (D-UT), would require asbestos bankruptcy trusts to file publicly available reports that include demands made against the trusts as well as the names and exposure history of the claimants. Although Congress tracking website, govtrack.us, projects that the bill has only a 14 percent chance of passing, defense attorneys in many jurisdictions can still take steps to pursue the information during litigation.

Bankruptcy claim information is helpful to defense attorneys because, often, plaintiffs in litigation against non-bankrupt asbestos defendants conceal claims made against bankruptcy trusts in an effort to obtain “double compensation.” In many jurisdictions, relief afforded by a bankruptcy trust, if known, would reduce the liability exposure to the non-bankrupt asbestos defendants.

Some jurisdictions have attempted to eliminate the possibility of fraud, abuse, and double compensation legislatively or by judicial order. An Ohio statute, for instance, requires disclosure of bankruptcy claim information. In Delaware, a standing case management order of the Superior Court likewise calls for asbestos plaintiffs to identify bankruptcy trust claims.

If a given jurisdiction does not have a legislative remedy available, many state and federal courts have held that bankruptcy trust claim information is available through discovery. This discovery might include claim forms, which occasionally contain factual allegations that are inconsistent with the plaintiff’s pleadings. The Eastern District of Pennsylvania, home of federal multi-district litigation, has allowed such discovery. So, too, has the State of California.

Conclusion

Defense attorneys must be vigilant in protecting their clients from increased exposure as a result of concealed asbestos claims. Until a national solution is in place, defense attorneys can likely stay on guard of potential double compensation scenarios through focused discovery and subpoena practice.

Minimizing the risk of litigation by complying with the Food Safety Modernization Act

Posted in Uncategorized

As discussed in prior blog posts, the Food Safety Modernization Act (FSMA) aims to prevent contamination of the United States food supply by requiring that food facilities be in compliance with a series of regulations in order to distribute products in the U.S.  The FSMA was signed into law by President Obama on January 4, 2011.    

 The FSMA requires that all food facilities, domestic and foreign, be registered with the US Food and Drug Administration (“FDA”) in order to manufacture, process, pack, or store food for animal or human consumption in the US.[1]  If a facility fails to comply with the registration requirements, products manufactured by foreign facilities will be refused entry into the U.S. and domestic facilities will be unable to legally sell products in interstate commerce.[2]  Every two years, every food facility must renew its registration.[3]  Facilities that registered prior to October 1, 2012 must renew their registration. [4]

The FSMA has granted the FDA greater authority to hold imported foods to the same standard as domestic foods—making it even more difficult for companies who wish to import into the US food from other companies.[5]  Importers are now required to verify that any foreign suppliers have controls in place to guarantee that the food they produce is safe.[6]  Qualified third parties are now able to certify that foreign food facilities are in compliance with U.S. food safety standards.[7]  Foreign facilities that produce foods that are at a high risk of contamination may be required to receive third-party certification or another form of compliance in order to be admitted into the US.[8]  The FDA is able to refuse entry to food from any facility that has denied the FDA inspection access or is located in a country that has denied the FDA access.[9]

Although the FSMA presents challenges to food companies, if companies educate themselves on the registration requirements and pay close attention to their suppliers, they will be in compliance.  Additionally, importers that are offering food from program-certified facilities are able to participate in a program that expedites the process.[10]

Insurers Hold Attorney-Client Privilege in Instances where Bankrupt Corporation with No Officers or Directors is the Insured

Posted in Asbestos Litigation, California Courts, Litigation Trends

Court Ruling

In Melendrez v. Superior Court (download), 214 Cal.App.4th 1343 (2013), the California Court of Appeals, Second District, recently resolved the issue of who may verify discovery responses on behalf of a bankrupt entity with no directors or officers.  The decision also reaffirms prior cases which hold that attorneys cannot waive the attorney-client privilege on behalf of their clients.  Rather, insurers hold the privilege in instances where no corporate representative exists.  If an insurer decides to waive the privilege to allow the attorney to verify responses, the waiver is only for the identity of the sources of the information contained in the responses.

Factual Background

Plaintiffs brought a wrongful death action against numerous defendants in which they alleged that decedent died of mesothelioma as a result of exposure to asbestos.  Defendant Special Electric Company (“SECO”), a manufacturer and supplier of asbestos-containing products and supplier of raw asbestos fibers, had filed for bankruptcy years prior to the instant suit, and as a result of the reorganization, was reduced to a shell for the sole purpose of processing asbestos lawsuits.

Plaintiffs propounded discovery on defendants.  SECO provided unverified responses to Requests for Admissions (“RFAs”), and Plaintiffs moved to deem the RFAs admitted and to compel verifications, as case law provides that unverified responses are tantamount to no response at all.  The trial court denied the motion to deem the RFAs admitted, and at the request of SECO, it deemed the responses verified.  Plaintiff subsequently served SECO with Form Interrogatory 17.1, which requires the responding party to provide substantive responses for all RFAs not unequivocally admitted.  SECO provided substantive, unverified responses to Form Interrogatory 17.1, and Plaintiffs, again, moved to compel verifications.  The trial court again denied Plaintiffs’ motion.  Plaintiffs appealed.

The Court of Appeals Decision

The court distilled the issue in the case to this:

 “‘Who can waive the privilege on behalf of a dissolved corporation with no officers, directors, or employees?’ It may be that although SECO had no officers or directors, a means may have existed by which a director could have been elected or appointed.  If that is not the case, we believe that the privilege, in the somewhat unique circumstances of this case, would have passed to SECO insurers.”

The court noted that Civil Code § 2033.240(b) allows for an attorney acting as an agent of the party to verify responses.  When an attorney does so, however, the party “waives any lawyer-client privilege and any protection for work product . . .concerning the identity of the sources of the information contained in the response.”  The court further recognized that the client corporation is the holder of the attorney-client privilege and an attorney cannot waive the privilege.  That means that although the attorney for a defendant corporation is an agent of the corporation capable of verifying discovery on its behalf, executing a verification requires a limited waiver of the attorney-client privilege, which, the attorney cannot do absent the consent of the client.  This creates a Catch 22 in instances where no corporate officer exists.

The situation is resolved by passing the privilege to the insurer.  The insurer, however, holds the privilege only when the defendant company exists solely as an empty shell to process the actions against it and a director cannot be obtained.  In those instances, the insurer may waive the privilege on behalf of the corporation so that the attorney can verify discovery responses.  Verifying discovery on behalf of a client waives the attorney-client privilege, but only concerning the identity of the sources of information contained in the response.  The court was clear that there would not be any further intrusion into privileged matters and the verifying attorney should not be subject to deposition.

Conclusion

It is important for attorneys and insurers to understand the Melendrez holding, and to whom it may apply.  The court clearly distinguished between dissolved corporations and those that are no longer in existence “in any real sense.” Melendrez only applies to the latter and only if there is no director, officer, or employee available to verify responses.  When those factors are met, which will require a look at the individual corporation’s state laws, insurers need to be aware that they are the holders of the privilege and may have to waive it so that counsel may verify discovery responses.

CALIFORNIA SUPREME COURT PUBLISHES ANOTHER OPINION LIMITING POOL OF DEFENDANTS AVAILABLE TO PLAINTIFFS IN CALIFORNIA ASBESTOS LITIGATION

Posted in Asbestos Litigation, California Courts, Toxic Tort

The California Supreme Court recently resolved conflicting opinions from state appellate intermediary courts on the subject of whether, or under what circumstances, a plaintiff may sue a dissolved out of State corporation in California. In Greb v. Diamond International Company, 56 Cal. 4th 243 (2013) the Court held that dissolved foreign corporations are not subject to suit in California where a direct conflict exists between California Corporations Code Section 2010 (which permits Plaintiffs to sue dissolved corporations for an indefinite period of time), and the corporate survival laws of the dissolved company’s state of incorporation.  See, Greb v. Diamond International Company, 56 Cal. 4th 243 (2013). (pdf download )

Factual Background of Case

In December of 2008, Plaintiff Greb filed an asbestos-related personal injury complaint in San Francisco Superior Court. His Complaint named Diamond International Company, a Delaware Corporation that had filed for dissolution in July of 2005, but which still had funds remaining on its liability insurance policy.

Defendant Diamond International Company, a dissolved Delaware corporation, filed a demurrer to the Complaint on the ground that, under Delaware’s corporate survival law, the action was not permitted because it was initiated more than three years after the corporation was dissolved.  Plaintiffs opposed the demurrer, arguing that California Corporations Code 2010 took precedence over Delaware law, and citing prior appellate court decisions and choice-of-law analysis. (pdf download of North American Asbestos decision)

The trial sustained the demurrer without leave to amend. The Court of Appeal affirmed.

The Supreme Court’s Decision

On final appeal, published February 21, 2013, the California Supreme Court affirmed and held that California Corporations Code Section 2010 only applied to dissolved California Corporations, not to foreign corporations. Notably, the Supreme Court considered and expressly rejected Plaintiffs’ alternative argument that, because Defendant was qualified to and did in fact conduct a large portion of its business prior to dissolution in the State of California, that it was a quasi-California corporation subject to California corporate survival law. In rejecting  Plaintiffs argument the Court stated: “We discern in the statutes no evidence that the Legislature intended…to accomplish the dramatic result ascribed to it by Plaintiffs – essentially, imposing on all…foreign corporations that are qualified to undertake repeated and successive business in California, the burden of complying with all provisions of…[California’s corporation code]…subject to what would often be a difficult choice of law analysis with regard to each California statutory provision that conflicts with a provision governing the corporation in its state of formation. As defendant suggests, such a scheme would require foreign corporations to “follow a litany of requirements regarding various corporate activities that their home state already regulates, creating innumerable, treacherous conflicts of law that the corporation would find impossible to navigate.”

Although not expressly referenced in the opinion, the California Supreme Court issued its ruling in the Greb within weeks of a seemingly related Delaware Court of Chancery decision holding that, even when funds remain on a dissolved Delaware corporation’s insurance policy, a plaintiff may not recover against the policy or initiate suit against the dissolved corporation outside of the time frame contemplated by Delaware’s corporate survival laws.

Conclusion

In recent years the California Supreme Court has published several decisions that are extremely favorable to the asbestos defense practitioner. In 2011 the Supreme Court  limited a plaintiff’s medical expenses to those actually paid by his or her insurance company to a medical provider. (pdf download of Howell v. Hamilton Meats decision) In 2012, the Court held that an equipment manufacturer cannot be held liable for a plaintiff’s exposure to asbestos-containing replacement component parts used with the equipment, where it neither manufactured nor supplied the asbestos containing replacement part involved in the exposure. (pdf download of O’Neil v. Crane Co. decision)

As seen above, the Greb case is the third California Supreme Court decision issued in the past two years limiting either the amount of damages recoverable to an asbestos plaintiff in a civil suit, or the pool of available defendants from which a recovery can be made. Recent decisions from California’s intermediary appellate courts give defense practitioners reason to hope that this trend will continue. (pdf download of Campbell v. Superior Court)

Given the current favorable appellate climate, California defense practitioners should be on the lookout for issues to press on demurrer, summary judgment, or in limine at trial in cases where Plaintiff’s claims against the client are tenuous on issues of jurisdiction and duty.

Getting the Facts: House Considers the “Furthering Asbestos Claims Transparency (FACT) Act” of 2013

Posted in Asbestos Litigation, Litigation Trends, Toxic Tort

Congress

The House of Representatives subcommittee on Regulatory Reform, Commercial and Antitrust Law is currently considering the “Furthering Asbestos Claims Transparency (FACT) Act.”   The bipartisan legislation, introduced by Representatives Blake Farenthold (R-TX) and Jim Matheson (D-UT), aims to bring transparency to federal asbestos bankruptcy trusts. Bill H.R. 982 would require federal asbestos bankruptcy trusts to file quarterly reports concerning claims and other activities with bankruptcy courts. Supporters of the bill state that rooting out fraud and abuse of the asbestos bankruptcy trust system protects the “real victims who desperately need help.”

The “Fact Act” would amend the federal bankruptcy law to require federal asbestos bankruptcy trusts to publicly disclose quarterly reports that contain detailed information regarding the receipt of claims for asbestos-related injuries. The reports would include information regarding the name and exposure history of the claimant, and the basis for any payment made from the trust to the claimant.  The Fact Act would, however, protect disclosure of any confidential medical records and the claimant’s full social security number.

Passage of the Fact Act will better allow defendants to properly assess a plaintiff’s complete exposure history.  Peggy L. Ableman, a retired asbestos trial judge, testified that defendants are “often led to believe – erroneously – that their products were far more responsible for the plaintiff’s disease than what may have been the case, because they have no way of knowing the substance of an individual plaintiff’s claims.” Id (link above).  Having the knowledge of a plaintiff’s complete exposure history will allow defendants to more effectively defend themselves against misleading or erroneous evidence of the potential cause of a plaintiff’s disease.

As asbestos liabilities force more companies to file for bankruptcy, lawmakers are focused on preserving funds for “legitimate victims.” The concern is that secrecy and abuse by claimant’s lawyers undermine the original purpose of the trusts.

“The trust fund system originated to resolve present and future asbestos injury claims for victims deserving of compensation…Unfortunately, the system is susceptible to abuse and payment of fraudulent claims to the detriment of legitimate claimants. This legislation’s transparency measures will protect claimants’ confidentiality while ensuring the continued viability of the asbestos trust fund system.”

The concern over fraudulent asbestos trust activity was recently highlighted in a Wall Street Journal article, which reported discrepancies between claims made to the trusts and claims in state lawsuits. Concerns about fraud with regard to asbestos bankruptcy trusts is not new.  In fact, a similar bill introduced in 2012, never made it out of the Subcommittee on Courts, Commercial and Administrative Law for consideration. We will continue to keep our readers posted on the Fact Act of 2013 to see if this version of the bill can gain any traction among lawmakers.

Free and Clear: Dissolved Delaware Corporation Deemed Not Liable for Asbestos-Related Liabilities More than 10 Years After Dissolution

Posted in Asbestos Litigation, Delaware Courts

Court Ruling

The Delaware Court of Chancery recently took a rare foray into the world of asbestos litigation after it was asked to appoint a receiver to distribute the remaining reserves from casualty insurance policies issued to Krafft-Murphy Company, Inc. (“Krafft-Murphy”) to plaintiffs who allege injury from asbestos-containing products used by Krafft-Murphy.  The Chancery Court, in an opinion dated February 4, 2013 (pdf download available here), concluded that Krafft-Murphy was no longer amendable to suit, as it had been dissolved in 1999.  Consequently, there was no need to appoint a receiver because there were no assets to distribute, as the insurance reserves were not assets of the corporation.  A more detailed summary of the case background and opinion are below.

Factual Background

Krafft-Murphy was incorporated in Delaware in 1952, and performed plastering and insulating services in Maryland, Virginia, and Washington, D.C.  It is alleged that Krafft-Murphy workers used Sprayed Limpet Asbestos as part of their insulating work.  Krafft-Murphy was first a defendant in asbestos personal injury lawsuits in approximately 1989.  Three years later, Krafft-Murphy ceased operations and, in 1999, the company filed a certificate of dissolution, but did not formally adopt a plan of dissolution.  Notwithstanding the fact that Krafft-Murphy has been dissolved, it allegedly still has insurance reserves that could provide payment in the event of a judgment against Krafft-Murphy.   

The Petition for a Receiver

In July 2010, Krafft-Murphy moved to dismiss asbestos personal injury cases pending against it in Maryland on the grounds that it was no longer a legal person pursuant to Delaware law, and, therefore, not amenable to suit.  In response, counsel for plaintiffs in those cases petitioned the Delaware Court of Chancery to appoint a receiver for the purpose of distributing Krafft-Murphy’s unpaid insurance reserves to the current and future claimants against Krafft-Murphy.  The petitioners asserted that the remaining insurance reserves were undistributed assets of Krafft-Murphy and argued that the Delaware Code empowered the Court of Chancery to appoint a receiver for the purpose of distributing those assets. 

Krafft-Murphy opposed the petition on the grounds that unpaid insurance reserves are only an asset of an insured once there has been a judgment against the insured.  Due to the fact that Krafft-Murphy was dissolved and is no longer amendable to suit, there can be no judgment against Krafft-Murphy.  Thus, the insurance reserves are not an asset of the company.

The Chancery Court’s Opinion

The Court agreed with Krafft-Murphy that insurance reserves become an asset of the insured only if and when that insured becomes liable to a third party.  The Court further concluded that Krafft-Murphy was not subject to liability for claims which arose more than 10 years after its dissolution.  As such, the insurance policies do not represent an asset to the corporation with respect to those claims.  Pursuant to Delaware law, the Court held that a dissolved corporation’s liability for claims extends up to 10 years from the date of dissolution.  The Court’s conclusion was based on sections of the Delaware Code that provide for a corporation’s plan of dissolution to account for claims that it anticipates may arise within the following 10 years.  Based on the representations of counsel for Krafft-Murphy that the company did not seek to dismiss any claims filed less than 10 years after dissolution, the Court denied the motion to appoint a receiver.

Conclusion

As more defendants have sought protection from asbestos suits through bankruptcy, plaintiffs have been forced to find new parties against whom to bring these suits.  In just the past five years, hundreds of new defendants have been brought into the asbestos litigation. As the Krafft-Murphy matter demonstrates, it is critical for these new defendants, at the outset, to diligently research whether they have legal defenses to suit which may extricate them from the litigation and save the company from the same fate too many other asbestos defendants have endured.

FSMA: Finally Moving Forward

Posted in Foodborne Illness, FSMA, Litigation Trends

FMSA Moving Forward

In the future, we might look back at 2013 as the year the Food Safety Modernization Act (FSMA) finally got some teeth.  In January, the Food & Drug Administration (FDA) released two long awaited proposed rules, one aimed at food manufacturers and the other at farmers. A third rule is still in the drafting process and will require food importers to comply with United States standards through a stringent verification process.

It has been two years since President Obama signed FSMA into law, but these new rules proposed in January would be the first which actually give the FDA enhanced authority in its efforts to prevent food-borne illness. A major motive behind FSMA and the new rules is to allow the FDA to be proactive, rather than reactive, which, in turn, should lead to a tangible decrease in the number of food-related illnesses.  Presently, one in every six Americans suffers from a food-borne illness annually, with 130,000 requiring hospitalization and 3,000 dying each year.  As a result of these eye popping numbers, and increased media coverage, outbreak awareness and food litigation have exploded in recent years.   From the perspective of attorneys involved in food litigation, there are likely several ways which these new rules will impact current and future client.  Let’s take a closer look:

Rule #1, Manufacturers:

This rule will require food manufacturers to formulate a plan to prevent its food products from causing food-borne illness, as well as a plan to deal with any contamination or outbreak.  The rule also requires that the plan include a detailed strategy related to recall procedures.  Manufacturers will be required to document the plan and keep records to verify that their preventive steps are working. Furthermore, each plan will be evaluated by the FDA, and it will use the plan as a key factor in determining “high risk” facilities, which will be subject to increased inspections.  The new rule also grants audit power to FDA inspectors to confirm compliance with safety standards established in a plan.  Additional scrutiny by the FDA means more opportunity for a problem to be found, which could lead to increased future litigation. As such, compliance with the new rule is of paramount importance to any of your clients who manufacture a food product (which includes products originally manufactured in a foreign country). Your clients must be advised that a well-crafted, detailed plan is essential to both minimize risk of a contamination event, and to reduce the possibility of FDA scrutiny through audits and inspections. 

Also, it may sound obvious, but your clients must be instructed that going forward, they must comply with the plan at all times.  Having a plan is the first step, but that plan must be followed.  It is almost worse for your client to have a plan, if they do not comply with it.  After the rule is formally enacted, it is easy to envision how a plaintiff could exploit any inconsistencies or failure to comply with the plan that your client puts in place.  The idea that a company could not even meet its own expectations and standards would likely have a devastating effect when demonstrated to a jury.

You should also comfort your client and let them know that a thorough plan is not just a way to keep the FDA out of their plants, and prevent unfavorable evidence in litigation, but also a way to protect their customers, their brand, and ultimately their bottom line.  A thorough plan will allow a client to take a close look at their current manufacturing practices and truly evaluate whether they are capable of meeting current demands in a safe manner. Food outbreaks can have devastating effects on a company’s brand name, and bottom line.  For example, during last year’s salmonella outbreak involving Trader Joe’s peanut butter, the FDA halted production at Sunland Inc.’s massive New Mexico plant.  Both the outbreak and the production stoppage was front page news across the country. 

For more information the requirements of this proposed rule, see the following sections of FSMA:  Section 418(b) for the hazard analysis plan requirements; Section 418(c) for the preventive controls requirements; Section 418(d) for monitoring procedures; Section 418(e) for corrective action requirements; Section 418(f) for verification requirements; and Section 418(o) for the recall plan.

Rule #2, Farmers:

This rule will address contaminations related to fruit and vegetables during harvesting.  Essentially, the rule will require increased worker hygiene; regulations for water used on the produce; improved techniques for processing and cleaning equipment; and rules which will ensure that animals are kept away from crops. These rules are clearly a direct result of high profile outbreaks, such as the 2011 Jensen Farms case, which involved listeria contamination in cantaloupes, and which claimed more than 30 lives. In that case, the FDA eventually determined that the listeria resulted from pools of dirty water on the floor at the facility and old, dirty processing equipment. Jensen Farms filed for bankruptcy in May, 2012 and a trust is being established to compensate victims of the outbreak.

The estimated additional costs associated with the implementation of this rule will be $13,000 each year for smaller farms and $30,000 each year for larger farms. Regardless, your clients should be aware that the costs of an outbreak can be much greater.  For example, in 2007 the spinach industry lost an estimated $350 million in sales as a result of an E. coli O157:H7 outbreak associated with bagged spinach traced to a single supplier.

The bottom line is that your agricultural clients must be advised concerning the new rule and you must work with them to create a plan which covers each subsection of the rule.  Any plan you devise with your clients should require comprehensive record keeping, which, if done correctly, will ultimately allow your client to demonstrate a pattern of compliance related to all aspects of the rule.  This will not only help them prevent contamination issues, but will also create a paper trail which will allow the client to better defend itself should a lawsuit arise.   

Wait and See:

Alas, though, we continue to wait.  The FDA originally proposed a comment period on these two rules with a closing date in February, 2013.  But on February 15, 2013, the FDA announced an extension for comments until May 19, 2013.  This has sparked intense criticism that special interest groups have pressured the FDA to delay these rules as long as possible.  Even with this delay, now is the time to prepare your clients for what is likely ahead.  Such preparation will improve their food safety practices and reduce the risk of an outbreak, thus protecting the client’s brand and ultimately its bottom line. 

A Holiday Greeting: From Your Lawyer

Posted in Uncategorized

Happy Holidays from CMJ

It’s Christmas time here in Boston again, and with it comes several holiday traditions and Yule tidings for all to share, including we as attorneys.  In lieu of sending a holiday card to all my friends, clients, and fellow colleagues, I came up with the following e-greeting I would like to share with you, the Defense Litigation Insider readers.

Dear Reader,

With the holidays upon us, I just wanted to take this opportunity to extend some season’s greetings and wishes upon you.  I hope the coming year brings good health, wealth, and happiness upon you.

Sincerely,

Lawyer*

*By acknowledgement and receipt of said electronic greeting, you, the “Reader” hereby agrees to the following terms and conditions:       

  • This electronic greeting and any files or attachments transmitted with it are confidential and intended solely for the use of the individual or entity to whom they are addressed (i.e., “Reader”).  If you have received this greeting in error (i.e., Ebenezer Scrooge) please notify the sender and destroy the original message immediately;
  • Please note that the above holiday e-greeting is purely intended to wish, not force, compel, subject or suggest the ultimate end-user any holiday cheer, happiness, glee, or excitement.  Any derivative enjoyment received by the Reader is purely unintended and by no way the fault of Lawyer;
  • The term “holiday” is meant to include, but not limited to the following religious and secular holidays: Christmas, Hanukah,Kwanza, and Festivus;
  • Any attempt to “wish” does not imply, nor attempt to bestow said feelings of joy, merriment, happiness, Yule tidings, glee, cheer, or holiday-derived excitement upon the Reader;
  • In no way does the “Reader” hold Mr. Lawyer in any way responsible, either implicitly or directly, for any failure of said greeting to properly create or elicit an emotional response in Reader, as there is no warranty of merchantability, implied promise of happiness, or other emotional response guaranteed by reading of said greeting;
  • By the term “upcoming year” Reader hereby acknowledges that in no way does Lawyer means to specifically include the fiscal calendar year and, by receipt of said greeting, “upcoming year” includes but again is not limited to any secular and/or religious calendars, summer or winter solstice observations, or any Aztec-based calendars (whereby said greeting would be held completely null and void as the world will end prior to December 21, 2012), whichever may come first;
  • This greeting was drafted and originally sent in the State of Massachusetts and, as such, should Reader disagree with the content provided in same, Reader hereby agrees to submit to mandatory arbitration at the sole expense of Reader.  Reader further agrees that should an impasse at arbitration to subject of said greeting be met, any future claims created by or derived out of this greeting will be subject to the laws of the state courts of Massachusetts;
  • In no way does the above “greeting” constitute or create an attorney-client relationship.  No such “relationship” is deemed to be formulated, created, extended or implied by the receipt of said correspondence of joyous tidings.  Any and all attempts to suggest otherwise are solely upon the Reader, and Reader waives any privilege Reader may have as a claim against Lawyer for reading of greeting;
  • Lawyer has expressly not used nor implies the use of any secular or religious items, persons, idols or figures in said greeting, including but not limited to: Santa Claus, Jesus, Jolly Saint Nick, Kris Kringle, Lord & Savior, or the Easter Bunny.  Any belief in same or other secular/religious/mythological based person and/or creature is purely at the Reader’s own risk;
  • Any suggestion or bestowed upon wishes of “health, wealth, and happiness” does not imply, and is hereby expressly waived by Lawyer, to actually deliver said “health, wealth and happiness” to the Reader.  Reader is by no means reliant upon Lawyer for any of the above wishes; furthermore, Reader is free to be as “humbug,” irritated, aggravated and stressed as tolerable.  Reader is allowed, to the extent of the laws of Reader’s jurisdiction allows for, to be as cynical, mean, and downright nasty as Reader wants, included but not limited to family, co-workers, in-laws, friends, and significant others;
  • Lawyer reserves his right to delete any and all contents of said greeting at any time, with the exception of the following terms: “Dear Reader,” “Sincerely,” and “Lawyer.”

Lastly, and most importantly, Happy Holidays to all.

FDA Prepares to Release a Regulation on the Labeling of “Gluten-Free” Food by the End of 2012

Posted in False-Labeling Claims, Litigation Trends, Products Liability


Certified Gluten Free Lable

The Food & Drug Administration (FDA) is preparing to release a regulation on the labeling of “gluten-free” food by the end of 2012. Although the regulation will provide much needed guidance to consumers and food manufacturers, it will also establish a standard that food manufactures will need to follow in order to use a “gluten-free” label.  If food manufacturers use the “gluten-free” label without properly following the regulation, they could face lawsuits from consumers purchasing their products.

An increasing number of people in the U.S. follow a gluten free diet.  Gluten is a protein contained in grains such as wheat, barley, rye and triticale.  Packaged Facts, a Maryland based research firm, estimates that U.S. retail sales of gluten-free products in 2010 was $2.3 billion dollars, up from $1 billion dollars in 2006.  The firm projects retail sales of gluten-free food to reach $2.6 billion in 2012, and $5.5 billion in 2015.

Although the recent increase in dollars spent in the gluten-free market presents opportunities to businesses, it also presents risks.  People choose to follow a gluten-free diet for a variety of reasons, and some individuals require that food they consume be prepared in a completely gluten-free environment. If individuals with Celiac disease consume gluten, they may suffer symptoms ranging from gastrointestinal issues to neurological problems and cancer (PDF download). According to a 2010 study, 10% of gluten-free consumers purchase gluten-free products because they or a member of their household have Celiac disease or an intolerance to gluten, wheat or other ingredients. Scientists estimate that approximately 18 million Americans have some degree of gluten sensitivity. This requires that businesses take food labeling and food handling procedures seriously.

Confusion over what is gluten and what type of special handling is required to comply with a “gluten free” label has made the universe of food labels confusing to both gluten-free consumers and manufacturers.  Food labels range from being marked “gluten-free,” “made with no gluten ingredients,” and “manufactured in a gluten-free environment.” Currently, a company can label a product as gluten-free regardless of whether the food has been tested for the presence of gluten.

McDonalds received a great deal of negative publicity in 2006 when the company admitted that the fries they had previously claimed were gluten-free, are actually prepared with an oil that uses hydrolyzed wheat bran.  After an outcry from gluten-free consumers, McDonald’s removed fries from their list of gluten-free options and began labeling them as containing the allergen wheat. Although lab results indicated that no gluten was present in the fries, McDonald’s has not relabeled the fries as gluten-free (and appears to no longer have a gluten-free list at all) possibly out of fear of more lawsuits.

The FDA has twice opened the comment period for the public to weigh in on the agency’s proposed rule on how to label food as gluten-free. The proposed rule may require, among other criteria, that food bearing the claim of gluten-free cannot contain 10 parts per million (ppm) or more of gluten (available testing methods cannot reliably detect the amount of gluten in a food when the level is less than 20 ppm).  76 Fed. Reg. 46671, 46673 (August 3, 2011).  This is also the rule in many European countries. Adopting the same rule in the U.S. could make the process of exporting U.S. manufactured gluten-free products to these countries easier for U.S. manufacturers. U.S. gluten-free consumers could benefit by a broader and easier to navigate market for gluten-free foods, which would include gluten-free food from European countries bearing the same label as U.S. manufactured gluten-free food.

The FDA has set a goal of establishing the regulation on the labeling of “gluten free” food by the end of 2012. Until then, manufacturers are left to decide which label is best to use—leaving gluten-free consumers and manufacturers confused.

We will continue to monitor and report on this issue as well as any further FDA developments.  Should you have a specific question, please feel free to contact us.