Food Safety Bill Passes Senate

An update on the food safety legislation, which we posted about last week.

The Senate passed the Food Safety Modernization Act by a vote of 73-25. The chamber rejected a series of final amendments. One of them would have replaced the entire bill with a more modest version authored by Sen. Tom Coburn, R-Okla.; it failed by a 62-36 vote. 

Despite bipartisan support for an overhaul of FDA’s authority to regulate food, the bill faces an uncertain future since it appears there is insufficient time for a conference to reconcile the House and Senate versions.The Senate legislation differs from the House version in several respects, including the fees the FDA can charge, regulation of small food businesses and farms, and frequency of required inspections. It may be that the House will vote to pass the Senate version.  There is also some concern that the Senate invaded the tax authority that belongs to the House when it included revenue-raising fees in the Senate bill.

The expanded inspections and recall authority may lead to additional litigation down the road involving the food industry.

MDL Court in Peanut Butter Litigation Grants Multiple Summary Judgments For Defense

The MDL court overseeing the coordinated federal litigation stemming from a 2007 peanut butter recall recently granted summary judgment to the defendant manufacturer ConAgra Foods in multiple cases.  See Southern v. ConAgra Foods Inc., MDL 1845, No. 09-1544  (N.D. Ga. 9/29/10).

Readers may recall that in 2007, ConAgra Foods Inc. recalled jars of Peter Pan and Great Value peanut butter that were made at its Georgia plant, after the CDC and FDA observed a possible association between these products and reports of salmonella poisoning.  As part of the recall, ConAgra instructed consumers to discard the jar but to save the lid, which contained the product code identifying when and where the peanut butter was manufactured.  After the recall, multiple consumers sued ConAgra, alleging they had contracted salmonella after eating either Peter Pan or Great Value peanut butter. The lawsuits were consolidated in an MDL in the Northern District of Georgia.

To prove causation, each plaintiff must show that it is more likely than not that contaminated peanut butter caused his or her illness. The best way to show that peanut butter is contaminated with Salmonella is to test the peanut butter itself, said the court. The fact that the peanut butter was recalled here does not mean that it was contaminated. In fact, most of the recalled peanut butter was completely free of Salmonella contamination. During discovery, accordingly, ConAgra asked the plaintiffs to provide the product code for the peanut butter that allegedly caused their illnesses. It also asked the plaintiffs whether they submitted a blood, urine, or stool sample to a doctor for testing. Because the symptoms of Salmonellosis are similar to those of other common gastrointestinal illnesses, these samples were important in determining causation, said defendant.

Here, the 19 plaintiffs could not establish causation, as a matter of law. First, they could not show that the peanut butter they ate was manufactured by ConAgra at the Sylvester plant during the outbreak.  Plaintiffs did not know the product codes from their peanut butter. Without these numbers, which indicate when the peanut butter was manufactured, it was impossible to know whether the peanut butter was at risk of contamination.

Second, the plaintiffs did not provide enough evidence to show that they contracted Salmonellosis shortly after eating the peanut butter. Symptoms alone are not enough to permit a reliable diagnosis of this disease because the symptoms of Salmonellosis – usually diarrhea, abdominal cramps, and fever – are more commonly associated with viruses, parasites, fungi, other bacteria, toxins, and various chronic diseases. Indeed, the CDC estimates that nearly 300 million cases of diarrhea and related gastrointestinal symptoms occur each year of other causes. A positive blood, urine, or stool sample is the best way to show that Salmonella caused a plaintiff’s illness. A proper differential diagnosis by a physician who examined and treated a plaintiff during his illness may also support a finding of causation in some cases, said the court.  

But none of the plaintiffs here provided evidence of a differential diagnosis or a positive blood, urine, or stool culture. None of the plaintiffs' available medical records indicated that the plaintiffs’ doctors considered and excluded other causes or performed any form of differential diagnosis or diagnostic tests. To the contrary, the records showed that most plaintiffs did not even visit the doctor until several months after eating the allegedly contaminated peanut butter.

Without more, concluded the court, no reasonable jury could find that it was more likely than not that
contaminated peanut butter caused the plaintiffs’ alleged illnesses.

 

 

Democrats Release Discussion Draft of FDA Bill

Five Democratic Congressmen released a discussion draft of possible legislation that would alter the powers of the U.S. Food and Drug Administration.  The bill would increase FDA's authority and funding to regulate the importation of foreign-manufactured drugs, and also give the FDA the authority to mandate recalls for unsafe drugs.

Rep. John D. Dingell, Chairman Emeritus of the Energy and Commerce Committee, Rep. Henry A. Waxman, Chairman of the Energy and Commerce Committee, Rep. Frank Pallone, Chairman of the Subcommittee on Health, and Rep. Bart Stupak, Chairman of the Subcommittee on Oversight and Investigations, released a discussion draft proposal, which builds on H.R. 759, the Food and Drug Globalization Act, which was introduced by Dingell, Pallone and Stupak last year.

The discussion draft calls for "parity" between foreign and domestic drug facility inspections, would increase the number of pre-approval drug inspections, and would prohibit the importation of drugs into the United States lacking appropriate documentation of safety.  The legislation would also require manufacturers to take steps to ensure the safety of their supply chain.

The sponsors noted that the byproduct of Internet communications and a rapidly-evolving international marketplace is an increase in the purchase of medications from foreign sources. Cong. Pallone claimed that, “One of the downsides is quality control and one of the dangers is the threat to the health and safety of consumers. We need to find the best ways to vest the FDA with the ability and the authority to ensure the safety of medications consumed by Americans.”

Cong. Waxman said he would work with the FDA "and all stakeholders to move this legislation forward as soon as possible." But the current Congress is heading home for the November elections, and the measure's fate is unclear if Republicans take control of the House next year.

FDA Risk Communication Advisory Committee To Hold Food Meeting

FDA has announced a forthcoming meeting of the Risk Communication Advisory Committee.  This advisory committee provides advice and recommendations to the agency on a variety of regulatory issues. The meeting will be held on August 13, 2009, from 8 a.m. to 5 p.m. and August 14, 2009, from 8 a.m. to 2 p.m.

The Committee will discuss FDA’s external research on, and internal assessment of,  communications about food safety problems. This discussion will address research on consumer
knowledge of food recalls and plans for how to monitor communication effectiveness during the course of a recall. The goal of the discussion is to advise FDA on developing more effective communication strategies. The Committee will discuss FDA's external research on, and internal assessment of, communications about food safety problems. This discussion will address research on consumer knowledge of food recalls and plans for how to monitor communication effectiveness during the course of a recall. 

 

As background for this topic, the FDA directs the public to following sites:
FDA Peanut Product website.

 


•2006 FDA/FSIS Food Safety Survey Top-line Report

•Rutgers University Food Recall Surveys – Consumer Responses to Food Recalls: 2008 National Survey Report
Public Response to the Salmonella Saintpaul Outbreak of 2008
Public Response to the Contaminated Spinach Recall of 2006

Readers of MassTortDefense are well aware of the signifcant food recall issues, and subsequent litigation, in recent years.
 

Risk Management Article: China Manufacturing Risks

MassTortDefense has posted about the recalls of products made in China, and ways product sellers can mitigate the risks of that happening, here and here. A recent article in Risk Management Magazine offers another, broader, perspective on this. (Kent Kedl, Risk Strategies for the Chinese Market , published by the Risk and Insurance Management Society, which targets corporate risk managers.) At bottom, it is risk management to avoid a potential mass tort.


First, plan Strategy before Structure. In recent years, the Chinese government has changed its investment regulations to allow --and even encourage-- a variety of business arrangements, from strategic partnerships to wholly foreign-owned enterprises, to full acquisitions. RM suggests that companies coming to China must first ignore the "how" of structure and first focus on the "why" of their strategic intent for China: What products will have the most play? What segments of the market should they target? What distribution channels should they use? Who will be the major competition and how can they structure a defensible and sustainable value proposition?

Second, they advise companies to Get Close to the Market. Clearly, there are Chinese factories that have had quality issues, but the fact remains that there are millions of products coming out of China every month, most of which have no problems whatsoever. Maybe, then, the question should be how best to manage product quality, because someone is doing it right. Kedl and RM suggest that foreign companies need to manage their vendors on an ongoing basis. Meet with suppliers; validate the supply chain; don’t worry about price and on-time delivery to the exclusion of all else. Companies sourcing from China should consider putting their own people on the ground to manage their supply chain, establish and monitor their own quality systems, and maintain ongoing relationships with the vendors. This approach may raise a company's fixed costs but, in the long run, may greatly lower the risk associated with having products made in an emerging market.


Third, recognize that Relationships Matter. Early successful foreign entrants to China worked hard to build a relationship network for themselves. As China has developed a more credible legal framework and a more predictable market environment, however, foreign companies too often have believed they no longer need that social network and that, instead, they can do it on their own. RM suggests that may be a mistake.

Recalls of Products Made in China (Part II)

In the previous post, MassTortDefense began exploration of some of the issues associated with the "year of China recalls."  During fiscal year 2007, the CPSC announced 473 recalls, of which 288 were from China.

We continue in Part Two with some practical tips that may be considered to mitigate the risks of using China-based suppliers.

TO DO LIST

U.S. products sellers have to respond with proactive planning:

Testing and Sampling
A report from two Canadian researchers notes that since 1988, a majority of recalls of toys were related to design issues as opposed to poor manufacturing. But, assuming a prudent design, adherence to specifications becomes the focus. US importers have at times in the past chosen products from a showroom, such as in Hong Kong. At other times, products from China are purchased through one or several middlemen, with the ultimate U.S. buyers having little information about the manufacturing or QC of the products.  And importers have relied on purchase orders - a looming battle of the forms scenario -- rather than on a comprehensive contract.

Now, companies may need to turn to be more involved in the process upstream. Random sampling rather than relying on test certificates from their sellers may be wise. Companies may need to negotiate vendor and supply contracts to require those counterparts to test products for compliance with specifications and U.S. regulations. Such a compliance program may include third-party testing and a system to track products in the retail stream of commerce. If self-testing is employed, it may be prudent to have it conducted by a group of employees incentivized to make the testing accurate and thorough.  Companies need to ensure that they have strong process controls at the key risk points of the distribution chain. QC can involve early warning systems, and includes making corrections, documenting results. The timing and scheduling of QC interventions may need to be modified. Even "sealed" products may need to be randomly inspected.

Management

There can be surprisingly high management turnover rates in China, and local management is often the source of fraud when it occurs. Multi-national product sellers may explore returning to use of expatriate management where possible, although they may lack the level of understanding of the local environment.   Importers may also seek to get a better sense of the sub-contracting activities of their suppliers.  Indeed, tracking vendors, subs, and components supplied for the product can be important, even as the supply chain is a moving target.

Note, in this setting, it may be a mistake to leave negotiations and contract management to less senior people. The audit structure employed by management should also be of a design to detect and deter fraud and nepotism at the local management level. This may require not only more inspectors, but a different kind of inspector/on the ground agent.

Risk Sharing
Contracts can be both a risk reduction and dispute resolution mechanism. It is imperative that the contract clearly lay out responsibilities and rights on QC, specifications, delivery, testing, sub-contractors, performance milestones.  U.S. companies are seeking to add arbitration clauses to new contracts, and as existing supply deals expire. Arbitration in a forum that Chinese courts will recognize may be a means to share the burden of a potential recalls, which for the most part has fallen on U.S. importers. China does not generally recognize ad hoc arbitrations. Some importers are looking at CIETAC, the China International Economic and Trade Arbitration Commission as a possibility.  In a CIETAC arbitration, there will still be limited discovery, and short document-focused hearings. Another possibility is the Hong Kong International Arbitration Center.

Companies may think about choice if language provisions in their arbitration clauses, the nationality of the arbitrators, discovery rights, injunctive relief the parties consent to. Choice of law clauses are also key in renegotiated contracts.

Importers are also seeking bonding from their Chinese partners as a way of ensuring financial sharing of the cost of recalls.


The most important kind of risk sharing, however, may be the risk of non-payment, which is only viable when the U.S. importer has good knowledge of the supply chain -- who are the suppliers, and what are they supplying.

It may increasingly make sense to provide for litigation support in the contract, so that the U.S. importer has access to needed records and witnesses should legal issues arise.

Many companies have a crisis management team in place, trained to handle problems with their products, should any arise.  The team may include legal, HR, PR, QC, and regulatory members.

Recalls of Products Made in China (Part I)

The Cook County, Illinois Circuit Court gave preliminary approval recently to a proposed settlement related to RC2 Corporation’s recall of toys tainted with lead. (A hearing on final approval is set for August.) The settlement relates to claims of consumers who purchased a recalled Thomas & Friends Wooden Railway product. This is another step towards resolution of one of the major 2007 recalls of toys made in China.

RC2 Corporation had announced last summer that it was voluntarily recalling five toys from the Thomas & Friends Wooden Railway product line due to levels of lead in surface paint that may exceed U.S. Consumer Product Safety Commission requirements. There have been no reports of illness or injury related to any of the recalled toys.

This is a good reminder to readers of MassTortDefense concerning the risks of outsourcing to China, and an opportunity to comment on mitigation of those risks.

The Year of the China Recall

The year 2007 has been dubbed the year of China recalls because of the significant recalls of toys with lead, as well as tainted pet food, and toothpaste with chemical contamination. In fact, toy recalls had been stable (at about 30 per year) until 2007, which saw a huge spike in toy recalls to more than 80, involving 25 million units. [There have been about 50 already in 2008.]

Overall product recalls have been on the rise for several years. China’s share of total product recalls in the U.S. rose significantly (to about 67% overall), and China accounted for about 98% of all toy recalls in 2007. As recently as 1999, China accounted for less than half of U.S. toy recalls. Overall U.S. imports from China have increased steadily, and China supplies most of our imported toys, but recently the recalls of China-made toys has outpaced the increases in imports of toys.

And the presence of lead was the leading cause of products made in China being recalled. Overall, lead-focused recalls increased 10x in the last 4 years.

The number of products removed from the European Union market in 2007 increased by 53 percent, with more than half of the items coming from China. The EU notes that toys were the products most often removed from markets in the 27 EU member states. About 80 percent of all toys sold in Europe come from a Chinese manufacturing facility. (The EU has a rapid alert system known as RAPEX. The RAPEX report on goods pulled from the market in 2007 can be found  here.


IMPACT OF RECALLS

Recalls have direct and indirect costs to product sellers. The costs of notice, labor costs, disposal costs, lost inventory value, refunds and repair costs, and legal fees are some of the direct costs. Indirect costs include bad publicity, damage to goodwill and reputation, loss of sales, increased production costs and testing costs in the future, diversion of management and employees from normal duties, potential legal liability (personal injury, medical monitoring, punitive damages), and increased insurance premiums. The recall may spawn shareholder derivative lawsuits if the stock price is affected by the recall. An interesting report from Lucy Allen at NERA looks at the market cap impact of recalls. Government fines are possible. The CPSC recently issued a $1 million civil penalty against athletic-shoe maker Reebok International Ltd. related to company-issued charm bracelets with toxic levels of lead. It is not unusual for recalls to cost companies tens of millions of dollars.

REGULATION
Congress has already taken steps in response to the spate of recalls. The House passed the Consumer Product Safety Modernization Act, H.R. 4040, in December, and the Senate passed its own CPSC Reform Act, S.2663 in March. The two bills will be reconciled, and the CPSC budget, staff, and enforcement powers will be increased. Both bills mandate reduction of the amount of lead in toys; third-party testing of certain children's products; raise allowable penalties for violations; and give state attorneys general enforcement authority. Empowering state attorneys general is likely to generate more enforcement claims against companies, as state AGs have been willing to take an aggressive stand on other recent issues, beginning with tobacco. This provision might also undermine uniformity of enforcement of the CPS Act. State attorney generals may simply create a confused patchwork of standards.

The Senate provision would require the CPSC to post on Internet-searchable database the reports it receives about product-related injuries. This seems of limited use to the average consumer, but may encourage additional litigation; just like plaintiffs’ attempt with ADE reports in pharmaceutical litigation, this could be misused in product liability litigation.


WHAT CAN BE DONE
In some quarters, there is a notion that the market will force China to make improvements in quality control to avoid a repeat of the year of recalls. That is, if the products cannot be trusted, then importers will stop buying them. But the fact remains that regulation of product safety in China is not as advanced as it is in Europe and the United States. In essence the growth of their economy may have outpaced their ability to regulate product quality control.

Is there an ability to hold the Chinese companies accountable for the QC issues? Frequently, mass litigation arising from a large product recall will involve numerous parties within the chain of distribution, if not originally, then through indemnification and contribution claims. The original manufacturer of the allegedly defective product rarely is not involved. But plaintiff attorneys/consumers rarely try to pursue Chinese companies, forcing the U.S. importer/seller to try to pursue them.  But U.S. companies invariably may have difficulty pursuing the chain to a Chinese company that doesn't have assets or an office in the United States. Most Chinese companies have no assets in the United States, and will ignore U.S. complaints.

In the case of Menu Foods, the pet food manufacturer whose China-sourced ingredients allegedly contaminated dozens of brands of American pet food, several putative class-action suits were filed. See In re Pet Food Products Liability Litig., MDL No. 1850. But the Chinese defendants reportedly have not responded.

  • There can be issues of personal jurisdiction. Asahi Metal Indus.. Co. v. Superior Court of Calif., 480 U.S. 102 (1987)(plurality suggesting that placement of product in stream of commerce, without more, may not be the substantial connection between defendant and forum state necessary for finding of minimum contacts). 
  • Second, especially if the manufacturer is state owned, Chinese defendants may also assert defenses based on principals of sovereign immunity and international comity. Service of a Chinese company must be conducted in accordance with the Hague Convention, which can be cumbersome. Authorities in China frequently cannot locate the accused companies because the firms are often dissolved and the factories are under new ownership.
  • Discovery is extremely limited in China. Even if a damage award is entered against a Chinese company, enforcement of the judgment may be impossible if the Chinese company does not have significant assets in the U.S.. There is no treaty between China and the United States that requires reciprocal enforcement of judgments. (Although a U.S. judgment may not be enforced in China, there may be assets of the Chinese company in other countries that enforce U.S. judgments...worth thinking about)

 

How about suits in China? Its nearly infeasible to file a lawsuit against a Chinese company in China. It can be impossible to get an expert to testify. There is limited discovery, if any. There is tolerance or lenient views of perjury.  Precedent can be irrelevant. The damages obtainable are often insufficient, with lost profits seemingly a lost concept. There are a variety of practical realities that favor the “home team.”  Foreign lawyers typically cannot be utilized.

More of what can be done in the next posting.