Sunland Salmonella Saga Provides a Window to FDA Enforcement

A new year is here, and the food industry remains in a sort of regulatory limbo.  Between the FDA’s delay in releasing regulations under the implementation deadlines set forth in the Food Safety Modernization Act (FSMA) and inadequate funding from the government, industry commentators are left to speculate how much the FDA can and will accomplish in the coming year.  However, the recent nationwide Salmonella Bredeney outbreak traced back to peanut butter made by peanut grower Sunland, Inc., shows that the FDA is starting to flex its regulatory muscle.  The FDA’s handling of the situation also provides a framework for how it might resolve FDA violations with offending companies.

Back in September 2012, the FDA and other agencies traced reports of a Salmonella Bredeney outbreak to Trader Joes’ Valencia Creamy Salted Peanut Butter.  The FDA and CDC eventually traced the contamination to Sunland, which makes the Trader Joe’s peanut butter.  Within days, Sunland issued a recall of 240 different products made in its nut butter production facility between March 2010 and September 24, 2012.  Sunland controls an astounding 90% of the nation’s organic peanut harvest.  The CDC reported 42 sick across 20 states.

The FDA conducted a full investigation of the Sunland peanut plant in September and October 2012 and observed numerous safety violations and a history of violations over a period of years.  The FDA’s review of Sunland’s records showed that eleven product lots of nut butter were contaminated with salmonella between June 2009 and September 2012.  Moreover, between March 2010 and September 2012, at least a portion of eight of those product lots were distributed to consumers.  During the FDA’s most recent inspection in connection with the current salmonella outbreak, the FDA found salmonella in twenty environmental samples and thirteen nut butter samples.

On November 26, 2012, the FDA suspended Sunland’s food facility, representing the FDA’s first use of its suspension authority under FSMA.  (In previous posts, we highlighted some of the key features of FSMA, including mandatory recall authority and loosened standards for product seizures.)  The provision related to suspension of registration states:

If the FDA determines that food manufactured, processed, packed, received or held by a facility registered under Section 415 has a reasonable probability of causing serious adverse health consequences or death to humans or animals, the FDA may, by order, suspend the registration of a facility (1) that created, caused or was otherwise responsible for such reasonable probability; or (2) that knew of or had reason to know of such reasonable probability, and packed, received or held such food.

While the suspension order is in effect, no person can import or export food into the United States from Sunland’s facility or otherwise introduce food from its facility into interstate or intrastate commerce in the United States.  Sunland announced on its website that it would take whatever corrective actions that were deemed necessary to resume operations, but it was also expected to avail itself of its statutory right to an informal hearing to challenge the FDA’s action.

However, on December 21, 2012, a New Mexico federal district court judge signed a consent decree pursuant to which the FDA and Sunland resolved their differences.  The FDA agreed to  vacate the suspension order and reinstate Sunland’s registration.  In return, Sunland cannot process or distribute food from its peanut plants until it complies with certain safety requirements in the consent decree and obtains the FDA’s written authorization.  According to the FDA press release:

The consent decree requires that Sunland retain an independent sanitation expert to develop a sanitation control program that the company must then implement. The requirements also include compliance with the cGMP regulations. In addition, for the peanut butter plant, the company must conduct environmental monitoring and testing to ensure that disease-causing organisms are not present in the facility or in its finished foods and must have comprehensive inspections conducted by an independent sanitation expert.

The FDA’s handling of the Sunland salmonella outbreak, including the requirements set forth in the consent decree, should signal the FDA’s expectations with regard to future outbreaks.  As far as what this means for insurance purposes, it will largely depend on the type of policies in place and the nature of the damages sought, both by way of first party and third party claims.  In the third party setting, an issue to watch is how FDA findings may be used in a coverage determination.  In the first party setting, the suspension of a food company’s registration can lead to crippling business interruption and raises the timeless issue as to whether government orders give rise to first party claims in the absence of property damage.

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Posted in Food Safety, Food Safety Modernization Act, Insurance Coverage

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Cozen O’Connor has a national team of attorneys experienced in handling food contamination and product recall coverage matters related to first-party, third-party and specialty policies. The firm also developed a Food, Beverage & Nutritional Products Industry Team to provide advice and counsel to a wide range of companies connected directly and indirectly to the food and beverage industry.
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