February 14, 2009

Peanut Corp Files For Bankruptcy

On Friday, Peanut Corp. of America filed for Chapter 7 bankruptcy amidst a salmonella outbreak that affected a number of consumers.

"It's regrettable, but it's inevitable with the events of last month," said Andrew S. Goldstein, the lawyer who filed the bankruptcy petition.

The salmonella outbreak was traced to the company's facility in Blakely, Ga. 

According to the Food and Drug Administration, inspectors found mold, roaches, filthy equipment and a leaking roof at the plant. 

This week, a second plant in Plainview, Texas was shutdown after tests revealed another possible contamination. 

"The order was issued after dead rodents, rodent excrement and bird feathers were discovered yesterday in a crawl space above a production area," said Texas Health officials.

The company processed peanuts and made peanut butter for bulk distribution, and private companies.

The outbreak has led to more than 2,000 product recalls, and has affected more than 630 people including 9 deaths.

In a Chapter 7 bankruptcy, companies liquidate their assets and distribute the money to creditors.  A trustee is then appointed to oversee the closing of the company.  Peanut Corp. of America has said that its debts and assets both range between $1 million and $10 million.

The company also stated that it considered a Chapter 11 bankruptcy which allows the company to continue but helps in reducing debts.  The board decided to liquidate instead with a Chapter 7 bankruptcy due to recalls being "extremely devastating" to the company's financial well-being.

"It seems reasonable that they may have looked at the situation and concluded that they would not be able to sell enough of their product to be viable," said bankruptcy attorney Norman L. Pernick, of the Cole Schotz law firm.

Beyond the financial trouble, the company could also face a criminal investigation headed by the Federal Bureau of Investigation and the FDA.  Currently, a dozen civil lawsuits have been filed against the company.

Stewart Parnell, president of Peanut Corp., refused to answer questions before the House Energy and Commerce subcommittee this week.  During the hearing emails indicating that Parnell knowingly ordered contaminated products to be shipped were issued as evidence.

Parnell has been advised by his attorneys to abstain from any comments regarding the situation.

The bankruptcy proceedings could postpone any litigation against the company, but food safety lawyers are confident that victims will still be compensated.  Civil lawyers are pushing to a judge to allow the civil lawsuit to continue despite the bankruptcy proceedings.

"Even if Peanut Corp. doesn't have enough insurance and enough assets to cover the damages, King Nut and Kellogg will have to step up," said Bill Marler, an attorney who has filed seven lawsuits against Peanut Corp. for 40 victims.


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