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.

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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. 

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.

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.

Bank of America’s new plan to seek reductions in its legal fees from certain outside law firms has some experts questioning the ethics of this unusual practice.  The bank is seeking a credit on its annual legal fees based on the amount of customer business it sends to the law firms.  According to the report, Bank of American has threatened to stop using law firms that refuse to sign onto the one year deal.

The Bank of America agreement is believed to state that the credit sought is calculated based on the total amount of legal fees passed on to third-party customers.  Bank of America generally does not comment on specific arrangements with its legal providers; however, a source familiar with the agreement said that, the credit being sought is relationship based rather than percentage based.

Cornelius Hurley, Director of the Boston University, Center for Finance, Policy, and Law opines that if the agreement is based on the amount of fees paid by customers, such an arrangement would be unethical and a “form of pay to play for the law firms.”  University of California’s Hastings Law School professor, Geoffrey Hazard explains that the agreement seems to violate the American Bar Association’s rules of Professional Conduct in a least two ways: (1) the bank is getting a reduction in legal fees; (2) and there is a referral in return for money.

Not everyone sees this as an ethical issue.  Thomas Spahn, a commercial litigation partner at McGuireWoods in Virginia, said his law firm accepted the agreement and does not have an issue with it.  He does not share the concern that this arrangement violates the rule that “a lawyer cannot give anything of value” to someone who sends him business.  Spahn’s reasoning is that “most law firms will give benefits to a company that sends them a lot of work, such as free legal seminars or cocktail parties.”  He justified this position by stating that the agreement is sound as long as the credit is not tied to a particular fee.

Bank of America does offer some notice to its customers that it is receiving a benefit.  Hurley feels the notice is “too vague and not a full-fledged disclosure…” and Hazard comments that “it’s getting the reduction that matters, not who knows about it.”

The bank defended the agreement in a statement issued to Corporate Counsel.

 “We do not require clients to retain particular law firms and we are committed to transparency in disclosing fee arrangements, as well as, potential benefits to our company.  We are confident that our agreements with external legal services providers are appropriate.”

Eric Cooperstein, a legal ethics practitioner in Minneapolis, believes this agreement raises serious ethical concerns because the rules do not have an exception for client consent.  “Quite simply, a legal client’s business cannot be bought and sold.”

A summary of the Michael Galliher matter is provided below.

Background Facts:

In August of 2010, Michael Galliher was diagnosed with malignant pleural mesothelioma.  He died just a few months later on February 3, 2011 at the age of 62.  He was survived by a wife of nearly 35 years, a son, and a step-son.  From 1966 until the early 2000s, Mr. Galliher worked at a Borg Warner facility in Mansfield, Ohio that manufactured bathroom fixtures, such as toilets and sinks.[1]  The worked at the Borg Warner facility for the majority of his working life and, aside from a few brake changes and some minor home renovation work, all of his known asbestos exposure occurred there.

Mr. Galliher worked at a number of different locations in the Borg Warner facility.  Most important for the purposes of the case was his time in the cast area, where molds were used to form the bathroom fixtures.  Plaintiffs alleged that talc was applied to the molds in the cast area so that mold could be easily removed from the finished bathroom fixture once it had set.  Plaintiffs also alleged that talc was used in an area of the facility where the glaze was applied to the finished products, called the slip area.  Although Mr. Galliher never personally worked in the slip house, the plaintiff alleged that talc dust from the slip area blew into areas of the plant where Mr. Galliher was working.

Plaintiffs’ Case:

Plaintiffs alleged that industrial talc from RTV’s Gouverneur, New York mine was used at the Borg Warner facility and that Mr. Galliher was exposed to asbestos or asbestiform bodies in that talc, which caused his mesothelioma.  Plaintiffs alleged that the talc that RTV mined in New York and supplied to the Borg Warner facility was a fibrous talc, not a “platy” talc as is used in baby powder, and that the fibrous talc was contaminated with other minerals, such as tremolite and anthophyllite.

A number of experts—both medical and mineralogical—testified on behalf of Plaintiffs.  A fiber digestion analysis was performed on Mr. Galliher’s lung tissue after his death and several of Plaintiffs’ experts, including Dr. Jerrold Abraham, Dr. James Millette, and Sean Fitzgerald (a geologist), reviewed the results of the analysis and concluded that the tremolite, fibrous talc, and anthophyllite fibers that were found in Mr. Galliher’s lung were a “finger print” for dust from talc from Gouverneur, New York.  Dr. Abraham and Dr. Arthur Frank testified that the fibers in RTV’s talc caused Mr. Galliher’s mesothelioma and, in anticipating RTV’s defense that the fibers in the New York mine were so-called cleavage fragments and not true asbestos, concluded that the asbestiform fibers in the talc, whatever their geological label, can cause mesothelioma.  Additionally, Dr. Barry Castleman provided testimony that the dangers of talc to miners and millers was known in the talc industry dating back to the 1930s and 1940s.

The Defense:

RTV countered Plaintiffs’ arguments on two fronts.  First, they argued that Mr. Galliher’s actual exposure to RTV industrial talc was minimal and speculative at best.  He did not testify to working with talc from RTV until after his attorney suggested the name “Vanderbilt” to him at his deposition.  Moreover, RTV took the position that Mr. Galliher’s exposure to its talc was minimal.  RTV alleged that its talc product was not suitable for use on the molds in the cast area because its was a coarse grind and that ay exposure through use of the talc in the slip house, where Mr. Galliher never worked, would have been minimal.

The more technical defense that RTV put on was over the content of the ore that was mined in New York.  RTV called Dr. Mickey Gunter, a geologist, and Drew Van Orden, a mineral engineer, who argued that the talc mined in New York did not contain any asbestos.  They agreed that the talc contained tremolite and anthophyllite, but not in the dangerous asbestiform habit.  Rather, they argued that the fibers that are found in the talc in New York are only “cleavage fragments” that look like fibers because of how the minerals crumble when they are ground, not because they formed that way, as is the case with asbestos.  RTV also called Dr. Victor Roggli who testified that there is no evidence to support the conclusion that cleavage fragments cause mesothelioma.

Verdict:

After deliberating for just a few hours, the jury returned with a verdict of $2,864,583.33 in favor of Plaintiffs.  The verdict consisted of $114,583.33 in medical expenses, $1.25 million for Mr. Galliher’s pain and suffering, and $1.5 million for the loss suffered by Mrs. Galliher.  The jury assigned 100% of the fault to RTV, notwithstanding RTV’s argument that Mr. Galliher’s employer should bear partial responsibility for failing to maintain a safe working environment and not taking action to protect its workers.  The Court dismissed the punitive damages claim prior to the jury’s deliberations.

Conclusion:

It remains to be seen, of course, if the $2.8 million verdict will stand.  As would be expected, there were numerous post-trial motions for relief filed by RTV, including a motion for a new trial and a renewed motion for judgment as a matter of law.  Neither of these motions has yet been decided.  Moreover, there will most likely be appeals filed if the decisions do not go RTV’s way.  Stay tuned to this blog for updates on the case as the motions (and likely appeals) are decided.

Over the course of the last 5 years, I have slowly but surely become engulfed, addicted, and borderline obsessed with this time of year, all thanks to football.  However, unlike many Pats or Giants fans, it’s not because I am anxiously waiting to see “Doctor” Brady go to work on Sunday afternoon and pick apart some defense.  Nope.  The real reason lies in the opportunity to play (and hopefully win) fantasy football leagues.  Here, I am allowed to “draft” NFL quarterbacks, running backs, wide receivers, tight ends and team defenses and use their actual statistics they generate each week to score points in head-to-head match-ups.  Weeks of hard work (i.e., scouting reports, mock drafts, countless arguments with “this guy” or “that guy”) go into my league draft preparation, all for the chance to win a pot of money (usually less that $1000) but, most importantly, the opportunity to trash talk and decimate the competition consisting of co-workers, friends, family members, and even clients.  My life at times even reflects that of “The League” on FX.

Every year around this time I am thoroughly engaged in a multi-billion dollar industry, religiously reading Matthew Berry’s Love/Hate selections each week, (although I can’t say I am always in agreement) or on the RotoWire seeking out what is the best match-up for my fantasy team.  I have even been a part to some major disputes and conflicts – one of which almost tore two lifetime friends apart, all over a 3^rd down running back, and a payout pot of $250.  And this got me thinking.  With the rise of fantasy sports worldwide, one would expect that at some point, somewhere, we are going to see a new breed of litigation sprout up – fantasy sports litigation.  Before you laugh and dismiss the theory, just know that only a few short years ago, MLB players sued fantasy providers based upon their “right of publicity” to their statistics which generated these online games – and lost (pdf download).

FoxBusiness reports that fantasy football generates profits in excess of $1 billion annually.  With figures that high, only one reasonable, natural conclusion can be forthcoming: that fantasy football litigation will eventually ensue.  Crazy thought?  Maybe not.  Already specialty businesses such as trophy companies to fantasy dispute resolution companies exist – see the www.sportsjudge.com if you think I am kidding.  This web site will offer to mitigate any fantasy dispute for a fee.  A lawyer (yes, a lawyer) will then settle your quibble.  Insurance companies too, are getting in on the billion dollar industry.  For example, Fantasy Sports Insurance (FSI) will provide disability coverage on star players (yes, disability coverage), which will protect fantasy owners should their star player go down early (think Tom Brady, 8 minutes into the 2009 season).

Although an individual league may seem miniscule in overall value, the competition, gamesmanship, and the underlying key to many a lawsuit – the justification of knowing you were right – all describe the key personality traits you would expect to find from a fantasy football player.  Coupled with the ever-growing industry as a whole, my bold prediction for this fantasy season is that we will see a lawsuit between former friends – which will transcend hundreds of thousands of dollars in legal fees – this year in the United States.   Although I have not personally handled any litigation in this arena to date, I hear that this guy might be your man…

California’s Secretary of State recently announced that the California Right to Know Labeling Initiative will be Proposition 37 on this November’s state ballot. If passed, this initiative would require labeling by food manufacturers of any genetically modified organisms (GMOs), also known as genetically engineered organisms (GEOs).

GMOs made their first public appearance in 1994, when a tomato became the first genetically engineered product sold. Since then, GMOs have become increasingly more common in everyday products. In fact, the Grocery Manufacturers of America estimates that approximately 70 to 75% of processed foods available in U.S. grocery stores contain a GMO.   Furthermore, the FDA, which oversees product labeling requirements, considers GMOs to be “generally regarded as safe” (GRAS) and does not require that they be identified on product labels.  Nevertheless, despite nearly two decades of main stream retailing, it seems that the American public remains largely unfamiliar with the both the benefits and commonality of GMOs, as well the scientific community’s support for their safety.

How will Prop 37 impact the food manufacturing industry?

Should California vote in favor of Proposition 37, the imposition of similar labeling requirements is likely to follow in other states around the country.  As a result, manufacturers will likely experience increases in operational costs, as they are forced to adjust their manner of handling and preparing their products to account for GMOs.  Furthermore, food companies will also see increased legal costs,  because increased labeling requirements would also increase the potential for litigation, namely false-labeling class actions, which are becoming increasingly more common.  These class actions are not only costly to defend, but also harmful to a food company’s brand.

Where will these impacts manifest?   

• Food producers will need to implement a system for maintaining separate inventories of product, so as not to mix the GMOs and non-GMOs.
• Companies will be forced to amend their HACCP plans to address the handling of GMOs.
• Overhead may increase as a result of inconsistent GMO labeling requirements nationally.
• Companies will be forced to choose between having one label which adheres to each state’s requirements and utilizing different labels depending on the state in which the GMO containing product will be sold.
• In response to potential consumer backlash against products containing GMOs, food manufacturing companies may need to raise the price of their products, discontinue certain brands, or engage in costly marketing campaigns to ensure future profitability.
• Increased labeling requirements would also increase the potential for litigation in the form of false-labeling claims.

In business, smart companies aim to do business ethically and place the health and safety of their consumers first; they have the ability to meet goals while still complying legally with an ever-changing legislative landscape.

What are smart companies in the California food industry doing to prevent consumer backlash and insulate themselves from potential lawsuits in a post-Proposition 37 market?

• Communicating: In-house counsel and litigation counsel should be having frequent conversations regarding the short and long impact of this initiative. Great litigation firms not only understand how legislative changes impact their clients’ ability to remain profitable, but they are proactively providing solutions that address present and future challenges, as well as ensuring that their clients understand the risks and outcomes associated with each.

• Searching for Opportunities: Proposition 37 is an agent of change. Whether that change has a positive or negative impact on a company can depend largely on the ability of the organization’s leadership to seek out opportunities to enhance performance and value. This is another area where outside counsel can be particularly effective by providing in-house training, trend analysis and creative, cost-effective solutions.

• Understanding that Knowledge is Power: In a real-time, social media driven world smart companies are making sure that their websites are not only current but linked across their social media platforms so that brand loyal consumers have easy access to product information that is transparent and accurate.

• Seeing the Bigger Picture: Should Proposition 37 pass, other states may soon follow suit and impose similar labeling requirements which could increase the potential for litigation, including class action law suits. Often these types of suits can be prevented by aggressively and rapidly responding to an initial claim. Make sure your litigation attorneys have an intimate understanding of legal nuances and variances for each state where you do business so that they can respond to any threats immediately and appropriately.

Like the food industry, we will watch carefully this fall to see whether California votes in favor of Proposition 37.  Until then, the authors would be pleased to respond to any questions our readers may have regarding Proposition 37 and the potential impact we believe it could have on the food industry.

• The Massachusetts Payment of Wages Statute (the “Wage Act”) has lately received a great deal of attention from Massachusetts trial and appellate courts.  Although the statute has been in place since 1993, Massachusetts employers have recently faced a marked increase in Wage Act claims, likely due to the availability of treble damages and attorneys fees.  Just in the past year, Massachusetts court rulings have reflected this renewed interest in the Wage Act, as they attempt to define the law and its intricacies. Below is just a sample of Massachusetts courts’ continuing concern with the Wage Act:

Dow v. Casale – Out-of-state Employees.  Superior Court Judge Peter Lauriat recently ruled that an out-of-state employee could bring a valid Wage Act claim against his employers because they were located in Massachusetts.  Plaintiff had been a salesman for Starback Communications, Inc., and lived and worked in Florida.  When the company folded, he sued his employers in Massachusetts for unpaid commissions and wages.  The defendant employers moved for summary judgment, claiming that the Wage Act should not apply to employees outside of the Commonwealth.  Judge Lauriat disagreed, ruling that employees outside of Massachusetts could sue under the Wage Act if they have sufficient contacts with the Commonwealth.  In Dow, the court found that the plaintiff met this burden after considering that he:

• Conducted most business over the internet;
• Was in daily contact with his supervisor in Massachusetts;
• Had customers in Massachusetts;
• Traveled often to Massachusetts;
• Occasionally worked in the same space at the company’s office in Massachusetts;
• Owned business cards bearing the firm’s Massachusetts address; and
• Was required to process all purchase orders through the Massachusetts location.

Moreover, Judge Lauriat ruled that,

“the Wage Act was designed to regulate the actions of Massachusetts employers, regardless of where the employees work,” and offered that “in this age of the ubiquitous Blackberry, IPad [sic] and smartphone, any person can work in any location that has internet access. Were the court to accept [the defendants’] argument, the Wage Act would afford no protection to an employee who conducted the employer’s business anywhere but in Massachusetts.”

Though Judge Lauriat’s expansion of the Wage Act does not hold precedential value, it will at least provide guidance to other trial courts.  As such, Massachusetts employers must be prepared that a court may very well hold that the Wage Act applies to employees located anywhere in the country, so long as their employer is located in Massachusetts and they establish sufficient contacts with the Commonwealth.

Farrell v. Farrell Sports Concepts, et al. – Severance Pay.  Superior Court Judge Garry Inge recently held, in a very controversial opinion, that a fired employee cannot sue his employer for severance pay under the Wage Act.  Previously, in 2003, The Massachusetts Appeals Court held in Prozinski v. Northeast Real Estate Services that severance pay was not available through the Wage Act because it is not expressly mentioned in the statute.  Two years later, the Massachusetts Supreme Judicial Court ruled that the term “wages” could include other types of pay, though it did not specifically address severance pay. One Superior Court judge has previously interpreted that SJC ruling to include severance pay, while other courts, such as the Farrell court have held fast to the Prozinski ruling.  As such, there is a direct conflict which will surely lead to some clarification by the appellate courts.

Meshna, et al. v. Scrivanos – Tipping Policy.  In Meshna, Dunkin’ Donuts employees sued the franchise owner and claimed that her “no-tipping” policy violated the Wage Act.  Superior Court Judge Fabricant disagreed, holding that employers have a valid interest in avoiding the burden of accounting for and allocating tips among their employees.   He also ruled, however, that employers must effectively communicate that policy to customers.  If customers leave tips despite the policy, it would be a violation for the employer to retain those proceeds for herself.  The decision is a clear warning to retail employers that they must clearly communicate any such no-tipping policy to its customers and despite the policy, must properly distribute to employees any tips received.

Keefe v. Enterprise Associates, LLC, et al. – Limited Liability Companies.  Keefe expands the reach of the Wage Act to members of limited liability companies.  The defendants in this case moved to dismiss a Wage Act claim based on language in the statute which specifically creates a presumption of “employer” status in corporate officers, while making no mention of LLC members.  The defendant claimed that the omission was intentional and that LLCs were not intended to be potentially liable under the Wage Act.  Superior Court Judge McIntyre disagreed, and in so doing held that the LLC Act defines LLC members as “persons,” and thus they are subject to the Wage Act’s provisions.  This ruling opens the door for plaintiffs to sue a vast new cohort of employers.

Melia v. Zenhire – Employment Contracts, Forum Selection Clauses.  The Supreme Judicial Court, Massachusetts’ highest appellate court, recently upheld the use of forum selection clauses in employment contracts.  In Melia, the defendant moved to dismiss a Massachusetts Wage Act claim on grounds that an employment contract dictated that the claim be filed inNew York.  The SJC agreed, finding a presumption in the Act that forum selection clauses are enforceable.  The SJC held, however, that a party can rebut such a presumption by showing that:  (1) the Wage Act applies; (2) the selected forum’s choice-of-law rules would select a law other thanMassachusetts; and (3) application of that law would deprive plaintiff of a right guaranteed by the Wage Act.  So, even though the SJC would allow the case to proceed in the selected forum, it has attempted to ensure the protections of the Wage Act are not mitigated. The SJC’s ruling could be a useful tool for employers to try to avoid some of the effects of the Wage Act.

Astonishingly, all of these decisions were issued just within the last year.  As plaintiffs and management-side attorneys continue to battle in the lower courts, the disputes will eventually lead to appellate consideration.  For example, the SJC is currently soliciting amicus briefs in the Dixon v. City of Malden case.  In Dixon, plaintiff brought suit pursuant to the Wage Act for unpaid vacation time.  The issue before the court is whether the defendant’s voluntary payment of three months pay after termination, which was part of a settlement over a disputed employment agreement, served to mitigate his damages.

One thing is clear: the Wage Act has ignited debates across a spectrum of legal issues.  As such, Massachusetts employers must be aware of the constantly changing contours of the Act, and should be prepared for the upward trend in Wage Act claims to continue.

Recently Hannaford’s Markets recalled three meatball products due to possible Lysteria monocytogenes contamination.  The three products, all of which are sold in the deli department, are:

• Homestyle Meatballs with Sauce
• Meatball Panini (cold)
• Meatball Panini (hot)

Hannaford has stores throughout New England, including locations inMassachusetts,New Hampshire andVermont.  All three products are manufactured by Buona Vita, Inc. (Buono Vita).

According to a statement by Buono Vita (PDF download), which is based in Bridgetown, New Jersey, the company decided to voluntarily recall approximately 324,770 pounds of various frozen, ready-to-eat meat and poultry products due to possible Listeria contamination.  The potential contamination was discovered through microbiological testing done by the United States Department of Agriculture’s Food Safety and Inspection Service (FSIS) and the Ohio Department of Agriculture (ODA) at a catering operation in Ohio. A full list of the recalled meats can be found on the USDA’s site.

Symptoms of a Listeria infection include fever, stiff neck, confusion, weakness, vomiting, sometimes preceded by diarrhea.  Certain infected persons can also develop septicemia or meningitis.  While exposure to Listeria may not result in any infection for healthy people, older adults, pregnant women, those with a weakened immune systems, organ transplant patients, as well as those with HIV/AIDS, cancer, end stage renal disease and diabetes are particularly at risk for the infection.

According to Buono Vita, Inc. there have been no reports of injuries or illnesses in connection with this contamination.  The incubation period for the disease can, however, be as much as 70 days.  As a result, it is still possible that consumers could manifest symptoms of Listeriosis.  Fortunately, Buono Vita is proactively working with the FSIS to protect public health by:

1. quickly identifying the potentially contaminated meat;
2. rapidly initiating a voluntary recall; and
3. working effectively with the FSIS to protect consumers against further infection.

Now, Buono Vita must work to identify the source of the Lysteria monocytogenes contamination.  Identification of the source will allow Buono Vita to implement measures aimed at the prevention of any future occurrences and attempt to restore consumer confidence.  In addition, it will also allow Buono Vita to determine whether the contamination was caused by the food handling practices of another entity, such as a supplier to Buono Vita, which may allow it to recover the costs associated with the recall.