Sonic Drive-In reached a $4.3 million settlement on October 10 with its customers over the chain’s data security breach in 2017 that exposed customer credit and debit card information at 325 Sonic Drive-In locations. The attack followed a pattern familiar in the retail and restaurant context, where hackers infect the point-of-sale system with malware that copied and transmitted the information from consumers payments cards when used to make a purchase. Plaintiffs filed several class action lawsuits for violations of state consumer protection laws and data breach notification statutes, along with various common law causes of action. The lawsuits were consolidated into a multidistrict litigation proceeding in the Northern District of Ohio in early 2018.
On February 6, the Agriculture Marketing Service (AMS) posted a notice in the Federal Register announcing it will delay further rulemaking on a Federal Milk Marketing Order (FMMO) in California while it awaits the US Supreme Court’s decision in Lucia v. Securities & Exchange Commission. On January 12, 2018, the Supreme Court granted certiorari to resolve a circuit split between the US Court of Appeals for the Tenth Circuit and for the DC Circuit.
Lucia calls into question whether administrative law judges (ALJs) working for the SEC are “inferior officers” under the Constitution and therefore fall under its Appointments Clause, which arguably mandates that ALJs be appointed by the president, a court, or a department head. While the immediate impact on the US Department of Agriculture’s (USDA’s) announcement will frustrate California dairy farmers, the broader impact is that a wide range of administrative proceedings within the USDA have been placed in abeyance pending Supreme Court action.
ALJs at USDA, like many other agencies, are not appointed but are chosen through a somewhat independent merit-based hiring system. If the Supreme Court in Lucia determines that such ALJs still function as government employees, the current selection process would be constitutional. But if it determines that ALJs have the power and responsibilities of “inferior officers,” they must be appointed by the president or an agency head to be constitutional.
An appellate court recently upheld the convictions of former employees of the now defunct Peanut Corporation of America (PCA), affirming what is the longest criminal sentence in a food safety case. Specifically, on January 23 the US Court of Appeals for the Eleventh Circuit unanimously denied the appeals of former PCA president Stewart Parnell, who was sentenced to serve 28 years in prison; his brother and peanut broker Michael Parnell, who was sentenced to serve 20 years; and PCA’s quality assurance director Mary Wilkerson, who was sentenced to serve 5 years.
In 2009, the peanut processing company was identified as the source of a massive salmonella outbreak in the United States, which led to an extensive recall. More than 700 individuals were reported to have salmonella poisoning that was linked to the outbreak, and there were at least nine deaths. On February 13, 2009, PCA ceased all manufacturing and business operations, and filed for Chapter 7 bankruptcy liquidation.
As referenced earlier in this space, the Food Safety and Inspection Service (FSIS) hosted a public meeting on Whole Genome Sequencing (WGS) issues late in October (see meeting agenda). It provided a range of helpful information on the implications of the rapid and ongoing adoption of such technology by FSIS and other actors in the public health community at both federal and state levels. Also, in the nature of such events, it generated questions, particularly with regard to some of the core legal issues that surround WGS adoption.
The US Food and Drug Administration (FDA) opened a public comment period on November 12, 2015, seeking information and comments on use of the term “natural” on food labeling. The comment period was open until May 10, 2016. FDA received over 7,600 comments but has not yet issued any “natural” definition.
Anticipating FDA guidance, many courts stayed class actions involving allegations of the use of “natural” in food products under the primary jurisdiction doctrine, which permits a court to stay a lawsuit if doing so would give an administrative agency the opportunity to resolve the question at issue in the case. Now that it’s been more than a year since the comment period closed, some courts and parties are evaluating whether these cases should remain stayed. Plaintiffs argue that lack of FDA guidance weighs against a continued stay. But the US Congress and FDA made several statements over the past few months supporting food and beverage manufacturers’ requests for extending litigation stays.
On September 22, the US Food and Drug Administration (FDA) moved to dismiss a lawsuit filed by several public interest groups challenging its final rule that outlines how food manufacturers can establish food substances as “generally recognized as safe” (GRAS Rule). The Federal Food, Drug, and Cosmetic Act (FDCA) does not require premarket review by or notification to FDA of substances that are GRAS for their use in food. The GRAS Rule was finalized in August 2016 and sets forth a voluntary process whereby food manufacturers can choose to seek FDA confirmation of their own GRAS conclusions. This GRAS Rule is consistent with the informal process in place since 1997.
In Center for Food Safety v. Price, five advocacy organizations are challenging the GRAS Rule, alleging that it is deficient because it is not a mandatory reporting system. Specifically, the plaintiffs take issue with what they refer to as the “secret GRAS system”; they allege that the GRAS Rule is unconstitutional because it does not require FDA to conduct an independent review of all GRAS conclusions and fails to require food manufacturers to provide FDA or the public with notice of GRAS conclusions. Further details on the allegations in the complaint are available in our May 2017 LawFlash.
On September 22, 2017, the Food Safety and Inspection Service (FSIS) announced its intention to host a public meeting in October to discuss overall federal food safety agency practices as well as plans for collecting and analyzing whole genome sequence (WGS) data of bacteria isolated from official samples, including the state of the science and other issues surrounding use of this technology. Additionally, at the October public meeting, FSIS intends to discuss the agency’s recent experience in using WGS as well as its intention to expand its use in the future.
What is currently unfolding in Texas and Florida is both tragic and unprecedented. Early reports have estimated the reconstruction costs in Texas alone to be around $40 billion dollars. As Texas continues to grapple with the effects of Hurricane Harvey and Florida begins the recovery process, we thought it would be helpful to supply our clients and friends in the food and agricultural sectors with some relevant regulatory information and potential sources of assistance.
Producers and Manufacturers
As a result of the unprecedented rainfall, storm surges, and wind gusts, food production and manufacturing facilities may have been flooded or lost power. In some areas crops as well as processed food may have been submerged in floodwater. Such flooding potentially exposes food products to certain harmful contaminants (e.g., sewage, chemicals, heavy metals, pathogenic microorganisms). As a result, the Food and Drug Administration (FDA) advises that foods exposed to floodwater and perishable foods that are not adequately refrigerated are generally considered adulterated within the meaning of Section 402(a) of the Federal Food, Drug and Cosmetic Act (FDCA) and thus should not enter the human food supply. Individual/case-by-case evaluations are suggested for foods that may not have been completely submerged (e.g., crops as well as grains or similar products stored in bulk containers). Many of you have likely provided a certain level of assurances concerning the regulatory status of your products (i.e., not adulterated) in your contracts. Thus, we take this opportunity to encourage you to be mindful of the impact this aforementioned presumption of adulteration may have on your contracts. We encourage you to conduct additional due diligence and review your standard operating procedures as well as follow current good manufacturing practices for guidance. However, when in doubt, throw it out. The premise behind such an assumption is that both exposure to floodwater and inadequate refrigeration compromise food safety—thus the introduction of an adulterated product into commerce constitutes a violative offense under the FDCA. However, we also note that not all potentially exposed foods are presumed adulterated. FDA has indicated that hermetically sealed (top and bottom double-seam) cans may be reconditioned and relabeled under certain conditions.
For additional FDA information on food safety, please visit FDA’s emergencies website. In a similar vein, owners of meat and poultry producing businesses who have questions or concerns should contact the Food Safety and Inspection Service (FSIS) Small Plant Help Desk by phone at +1.877.FSIS.HELP (+1.877.374.7435) or by email at email@example.com. In addition, the US Department of Agriculture’s (USDA’s) Animal and Plant Health Inspection Service (APHIS) is providing information on its website for farmers, ranchers, and businesses that have been affected by the recent hurricanes.
If you have any specific questions concerning Hurricane Harvey’s impact on your business (e.g., regulatory compliance, cGMP issues), please do not hesitate to contact Kathleen Sanzo or Bob Hibbert from Morgan Lewis’s FDA practice.
Restaurants and Food Retail Establishments
Similarly, FDA advises that restaurants and food retail establishments that have resumed activities do the following:
- Ensure that any rodents/pests that may have entered the facility are no longer present.
- Discard all food and packaging materials that have been submerged in floodwater, unless the food is sealed in a hermetically sealed can that has not been damaged and has its label intact.
- Inspect physical facilities for possible water damage and consult professional service technicians, as needed.
- Verify that all equipment used for food preparation (e.g., cooking, cooling, and reheating) is clearly functioning and properly calibrated prior to use.
- All foods, including raw, fresh, frozen, prepackaged, shelf-stable, and ready-to-eat foods, should only be received from licensed and approved food sources. This includes food distributors and vendors licensed by local or state regulatory food authorities.
It is important to understand that your food supply chain will likely be disrupted. As a result, additional due diligence is necessary to identify existing new sources and these efforts should be documented.
For a complete listing of FDA’s advice for restaurants and food retail establishments and retail food protection, please see FDA’s publication on this topic.
Reports have indicated that more than 1.2 million beef cows may have been affected by Hurricane Harvey. APHIS, working alongside the Texas Animal Health Commission (TAHC), is providing emergency assistance in caring for animals. The TAHC has advised the public to call 211 or to contact the area emergency management department for assistance in finding large or small animal shelter/holding facilities in your area or evacuation area.
If cattle have strayed onto your property, property owners are encouraged to contact the Texas Southwestern Cattle Raisers Association (TSCRA) at +1.817.332.7064 or the TAHC at +1.512.719.0733 or +1.806.354.9335. Under Texas law you may be eligible for reasonable payment for maintenance of or damages caused by the stray livestock. For additional information, contact your local Sheriff’s department.
Disaster Assistance Programs
To assist businesses in their recovery efforts, please find a few federal disaster assistance programs below.
Small Business Administration
The US Small Business Administration (SBA) offers low-interest, long-term loans for losses not fully covered by insurance or other means. Additional information can be found on the SBA website.
The USDA Farm Service Agency (FSA) administers many disaster assistance programs to help producers recover from eligible losses, including the following:
- Emergency Conservation Program: Provides funding to rehabilitate farmland damaged by natural disasters.
- Emergency Forest Restoration Program: Provides payments to eligible owners of rural nonindustrial private forest land to carry out emergency measures to restore forest health on land damaged by natural disaster events.
- Emergency Assistance for Livestock, Honeybees, and Farm-Raised Fish Program: Provides payments to eligible producers of livestock, honeybees, and farm-raised fish to help compensate for losses due to disease (including cattle tick fever) and adverse weather.
- Emergency Farm Loan Program: Provides loans to help producers recover from production and physical losses due to drought, flooding, other natural disasters, or quarantine.
- Livestock Indemnity Program: Provides benefits to livestock producers for livestock deaths in excess of normal mortality caused by adverse weather.
- Noninsured Crop Disaster Assistance Program: Provides financial assistance for noninsurable crop losses due to drought, flood, hurricane, or other natural disasters.
USDA encourages farmers and ranchers to contact their local FSA office to learn what documents they can produce to help the local office expedite assistance, such as farm records, receipts, and pictures of damages or losses.We hope these materials are helpful, and we will continue to monitor ongoing government response to these events.
After years of compliance date delays, New York City and FDA appear to have agreed to begin enforcing rules that would require chain restaurants and other establishments to post certain calorie and nutrition information in their stores on May 7, 2018. FDA has delayed enforcement of its federal menu labeling rule since 2015, and in response to the latest postponement, NYC announced that the city would begin to enforce its own similar menu labeling rules in the interim. However, the city and federal authorities came to an agreement on August 25 when NYC and FDA both agreed to the May 7, 2018 compliance date.
NYC began requiring calorie labeling disclosures in chain establishments when it promulgated its original menu labeling rule in 2008. The city updated the rule, yet deferred its enforcement in anticipation of an impending 2015 compliance date for the federal menu labeling regulation. However, FDA postponed the compliance date of the federal rule three times— first to December 2016, then to May 2017, and finally to May 2018.
On August 14, the federal government, through the Department of Justice (DOJ), filed a Statement of Interest in a lawsuit between a group of food industry trade associations and New York City regarding the city’s food chain menu labeling rule, which requires certain food establishments to post calorie information and other nutritional information. The lawsuit arose following NYC’s announcement in May that it would begin to enforce its own local menu labeling rule after FDA delayed the enforcement date of a similar federal menu labeling regulation for the third time. The trade associations sought an injunction to block NYC from enforcing its rule, and in its recent filing, the DOJ stated its agreement that the NYC rule should be barred on preemption grounds.