The Battle over Food-Related Liability

Part One of this article in last month's issue discussed the litigation faced by manufacturers and purveyors of food. Part Two herein addresses the relevant legislation.

In the Legislative Trenches

As if litigation were not enough, food producers also confront new legislation that will further bureaucratize the production and marketing of food. A number of cities, counties and states have enacted new food statutes, but the more significant impact appears to flow from proposed federal food safety bills.

One of the provisions of the Patient Protection and Affordable Care Act requires chain restaurants and similar establishments to provide the calorie count for each menu item, as well as a “succinct statement concerning daily caloric intake.” 21 U.S.C. ' 343(q)(5)(H). More complete nutritional information must be provided for each menu item in a written form. While restaurant trade associations have supported this bill as a way to preempt multiple, conflicting state and local laws, it remains unclear that providing calorie information has a significant impact on buying decisions. What is clear is that the tremendous cost of ascertaining the calorie content of each menu item, reconfiguring or reprinting menus and menu boards, and staying on top of menu changes, will be passed along to consumers, whether they purchase a triple bacon cheeseburger or a salad. See 75 FR 68361-01 (estimating that the average cost of calorie and nutritional analysis per menu item will be $269 and that the annual cost of record keeping for chain restaurants alone will exceed $16 million).

Expansive New Requirements

In a classic case of punishing the innocent for the wrongdoing of a few, the House has passed, and the Senate is considering, a bill imposing expansive new requirements and potential penalties for all American food facilities. The House version, H.R. 2749, known as the “Food Safety Enhancement Act,” requires most non'USDA-inspected food producers, importers, processors, handlers, distributors and non-retail sellers to register annually, conduct a periodic hazard analysis, implement a plan to minimize identified hazards, keep extensive records about the product and facility, create a food defense plan to minimize the risk of intentional contamination, undergo regular inspections, notify the FDA of any adulteration of food products, and voluntarily recall food or implement an FDA's order to stop production or recall food. A facility's registration can be suspended for a violation of the Act that could result in serious adverse health consequences or death to humans or animals. The bill increases civil penalties to $20,000 per violation for an individual, up to a total of $50,000 per proceeding and $250,000 per violation for a corporation, up to a total of $1 million per proceeding. It also proposes criminal penalties of up to ten years' imprisonment for certain violations. In addition, new fees would be authorized to support an increased enforcement function for the FDA.

The Senate version, S. 510, the “Food Safety Modernization Act,” contains many of the same provisions. Unlike the House version, S. 510 does not permit the FDA Commissioner to delegate the power to suspend a registration or force a recall, and does allow an expedited, if informal, hearing of registration suspension. S. 510 also requires the creation of scientifically supportable minimum standards for the safe production and harvesting of raw fruits and vegetables. Although the Senate bill lacks the criminal penalties for violations, Sen. Patrick Leahy's (D-VT) “Food Safety Enforcement Act,” S. 3669, fills that void by proposing penalties consistent with H.R. 2749.

Enormous Impacts

The goal of creating a safer food supply is unquestionably admirable. However, the impacts of these bills are not well considered. While larger companies may already have some of these measures in place, smaller companies are likely to feel the brunt of the costs these bills will generate. Query whether research demonstrates that the benefits to society will outweigh the costs to small and mid-sized companies, especially those that serve economically disadvantaged communities.

Moreover, H.R. 2749 expressly reserves the right to bring a private right of action based on violations of the bill, and S. 510 does not prohibit doing so. Absent a bar against statutory private actions, these bills invite substantial new litigation costs for all food producers. From a product liability perspective, these bills could provide plaintiffs with mounds of additional data and multiple potential statutorily-based claims to pursue.

Regulating Food Distribution

Regulatory activity concerning food is also picking up at every level of government. Despite the preemptive prohibition of the National Labeling Education Act, governments have adopted regulations like New York City's requirement that calories be posted on menus of chain restaurants with 15 or more establishments nationally. www.nyc.gov/html/doh/downloads/pdf/public/notice-adoption-hc-art81-50.pdf (last accessed March 18, 2011). New York City staved off a First Amendment challenge to its menu labeling regulation, New York State Restaurant Ass'n v. New York City Board of Health, 556, F.3d 114 (2nd Cir. 2009), which has encouraged other jurisdictions to pass similar, though not necessarily identical, regulations. The FDA's new rule would, at least, standardize the multiplicity of conflicting regulations now being passed or implemented. 21 U.S.C. ' 343(q)(5)(H).

In the States

State regulatory activity is generating litigation as companies and industries push back against increasingly detailed and restrictive rules. For example, the Sixth Circuit U.S. Court of Appeals has found unconstitutional a state regulation that prohibited dairies from labeling their milk with the claim, “This milk is from cows not supplemented with rbST,” a synthetic growth hormone. International Dairy Foods/Organic Trade Association v. Boggs, 2010 WL 3782193 (6th Cir. Sept. 30, 2010). The Second U.S. Circuit Court of Appeals earlier struck down a New York law that required milk producers that use rbST in milk production to disclose that fact on milk packaging. International Dairy Foods Association v. Amestoy, 92 F.3d 67 (2nd Cir. 1996). The proliferation of different and sometimes conflicting regulations and judicial interpretations thereof can only confuse food industry members and the consuming public.

Some also allege a new trend in informal reguation through enforcement. POM Wonderful LLC has sued the Federal Trade Commission, claiming just that. POM Wonderful LLC v. The Federal Trade Commission, No. 1:10-cv-01539 (D.D.C. Sept. 13, 2010). POM Wonderful asserts that the FTC is using its authority to sue to prevent false advertising in order to impose a restrictive new “standard” governing advertising claims that a food prevents or cures disease. The company seeks a declaratory judgment that the FTC has violated the Administrative Procedure Act and the U.S. Constitution by effectively promulgating a new rule that would prevent POM Wonderful from claiming that its pomegranate juice benefits human health.

Conclusion

In addition to the obvious hurdles presented by plaintiffs who distort traditional causes of action and legislatures or regulators moving to create expansive new regulatory schemes, food producers must also cope with a serious breach of consumer trust, particularly involving produce and beef. Advocates have painted a grim and cynical picture of the way that food is mass-produced and marketed in this country, a picture that is particularly compelling to jurors who have never had any personal connection with how and where food is grown. These challenges call for a new and broader food product defense strategy that involves not only the courtroom, but also public education, company compliance and responsibility programs, effective self-regulation, legislative action, and media relations.

Sarah (“Sally”) L. Olson, a member of this newsletter's Board of Editors, is a partner in the Litigation Department of Wildman, Harrold, Allen & Dixon, LLP, in Chicago. Ms. Olson represents manufacturing companies and, through trade associations, industries facing litigation, legislative change, or regulatory action in relation to the design, manufacture, marketing, and distribution of their products.

Part One of this article in last month's issue discussed the litigation faced by manufacturers and purveyors of food. Part Two herein addresses the relevant legislation.

In the Legislative Trenches

As if litigation were not enough, food producers also confront new legislation that will further bureaucratize the production and marketing of food. A number of cities, counties and states have enacted new food statutes, but the more significant impact appears to flow from proposed federal food safety bills.

One of the provisions of the Patient Protection and Affordable Care Act requires chain restaurants and similar establishments to provide the calorie count for each menu item, as well as a “succinct statement concerning daily caloric intake.” 21 U.S.C. ' 343(q)(5)(H). More complete nutritional information must be provided for each menu item in a written form. While restaurant trade associations have supported this bill as a way to preempt multiple, conflicting state and local laws, it remains unclear that providing calorie information has a significant impact on buying decisions. What is clear is that the tremendous cost of ascertaining the calorie content of each menu item, reconfiguring or reprinting menus and menu boards, and staying on top of menu changes, will be passed along to consumers, whether they purchase a triple bacon cheeseburger or a salad. See 75 FR 68361-01 (estimating that the average cost of calorie and nutritional analysis per menu item will be $269 and that the annual cost of record keeping for chain restaurants alone will exceed $16 million).

Expansive New Requirements

In a classic case of punishing the innocent for the wrongdoing of a few, the House has passed, and the Senate is considering, a bill imposing expansive new requirements and potential penalties for all American food facilities. The House version, H.R. 2749, known as the “Food Safety Enhancement Act,” requires most non'USDA-inspected food producers, importers, processors, handlers, distributors and non-retail sellers to register annually, conduct a periodic hazard analysis, implement a plan to minimize identified hazards, keep extensive records about the product and facility, create a food defense plan to minimize the risk of intentional contamination, undergo regular inspections, notify the FDA of any adulteration of food products, and voluntarily recall food or implement an FDA's order to stop production or recall food. A facility's registration can be suspended for a violation of the Act that could result in serious adverse health consequences or death to humans or animals. The bill increases civil penalties to $20,000 per violation for an individual, up to a total of $50,000 per proceeding and $250,000 per violation for a corporation, up to a total of $1 million per proceeding. It also proposes criminal penalties of up to ten years' imprisonment for certain violations. In addition, new fees would be authorized to support an increased enforcement function for the FDA.

The Senate version, S. 510, the “Food Safety Modernization Act,” contains many of the same provisions. Unlike the House version, S. 510 does not permit the FDA Commissioner to delegate the power to suspend a registration or force a recall, and does allow an expedited, if informal, hearing of registration suspension. S. 510 also requires the creation of scientifically supportable minimum standards for the safe production and harvesting of raw fruits and vegetables. Although the Senate bill lacks the criminal penalties for violations, Sen. Patrick Leahy's (D-VT) “Food Safety Enforcement Act,” S. 3669, fills that void by proposing penalties consistent with H.R. 2749.

Enormous Impacts

The goal of creating a safer food supply is unquestionably admirable. However, the impacts of these bills are not well considered. While larger companies may already have some of these measures in place, smaller companies are likely to feel the brunt of the costs these bills will generate. Query whether research demonstrates that the benefits to society will outweigh the costs to small and mid-sized companies, especially those that serve economically disadvantaged communities.

Moreover, H.R. 2749 expressly reserves the right to bring a private right of action based on violations of the bill, and S. 510 does not prohibit doing so. Absent a bar against statutory private actions, these bills invite substantial new litigation costs for all food producers. From a product liability perspective, these bills could provide plaintiffs with mounds of additional data and multiple potential statutorily-based claims to pursue.

Regulating Food Distribution

Regulatory activity concerning food is also picking up at every level of government. Despite the preemptive prohibition of the National Labeling Education Act, governments have adopted regulations like New York City's requirement that calories be posted on menus of chain restaurants with 15 or more establishments nationally. www.nyc.gov/html/doh/downloads/pdf/public/notice-adoption-hc-art81-50.pdf (last accessed March 18, 2011). New York City staved off a First Amendment challenge to its menu labeling regulation, New York State Restaurant Ass'n v. New York City Board of Health, 556, F.3d 114 (2nd Cir. 2009), which has encouraged other jurisdictions to pass similar, though not necessarily identical, regulations. The FDA's new rule would, at least, standardize the multiplicity of conflicting regulations now being passed or implemented. 21 U.S.C. ' 343(q)(5)(H).

In the States

State regulatory activity is generating litigation as companies and industries push back against increasingly detailed and restrictive rules. For example, the Sixth Circuit U.S. Court of Appeals has found unconstitutional a state regulation that prohibited dairies from labeling their milk with the claim, “This milk is from cows not supplemented with rbST,” a synthetic growth hormone. International Dairy Foods/Organic Trade Association v. Boggs, 2010 WL 3782193 (6th Cir. Sept. 30, 2010). The Second U.S. Circuit Court of Appeals earlier struck down a New York law that required milk producers that use rbST in milk production to disclose that fact on milk packaging. International Dairy Foods Association v. Amestoy , 92 F.3d 67 (2nd Cir. 1996). The proliferation of different and sometimes conflicting regulations and judicial interpretations thereof can only confuse food industry members and the consuming public.

Some also allege a new trend in informal reguation through enforcement. POM Wonderful LLC has sued the Federal Trade Commission, claiming just that. POM Wonderful LLC v. The Federal Trade Commission, No. 1:10-cv-01539 (D.D.C. Sept. 13, 2010). POM Wonderful asserts that the FTC is using its authority to sue to prevent false advertising in order to impose a restrictive new “standard” governing advertising claims that a food prevents or cures disease. The company seeks a declaratory judgment that the FTC has violated the Administrative Procedure Act and the U.S. Constitution by effectively promulgating a new rule that would prevent POM Wonderful from claiming that its pomegranate juice benefits human health.

Conclusion

In addition to the obvious hurdles presented by plaintiffs who distort traditional causes of action and legislatures or regulators moving to create expansive new regulatory schemes, food producers must also cope with a serious breach of consumer trust, particularly involving produce and beef. Advocates have painted a grim and cynical picture of the way that food is mass-produced and marketed in this country, a picture that is particularly compelling to jurors who have never had any personal connection with how and where food is grown. These challenges call for a new and broader food product defense strategy that involves not only the courtroom, but also public education, company compliance and responsibility programs, effective self-regulation, legislative action, and media relations.

Sarah (“Sally”) L. Olson, a member of this newsletter's Board of Editors, is a partner in the Litigation Department of Wildman, Harrold, Allen & Dixon, LLP, in Chicago. Ms. Olson represents manufacturing companies and, through trade associations, industries facing litigation, legislative change, or regulatory action in relation to the design, manufacture, marketing, and distribution of their products.