It’s the law

Can competitors sue implicated grower?
Shortly after news of the E. coli outbreak related to spinach
began to surface in October 2006, the media attention and public
reaction forced several growers into making the difficult and
costly decision to
”
voluntarily
”
recall their products from the marketplace or to
”
voluntarily
”
plow under their spinach fields in the name of food safety.
These precautionary measures, although seemingly necessary, forced
those who made them to face significant economic hardship.
Can competitors sue implicated grower?

Shortly after news of the E. coli outbreak related to spinach began to surface in October 2006, the media attention and public reaction forced several growers into making the difficult and costly decision to “voluntarily” recall their products from the marketplace or to “voluntarily” plow under their spinach fields in the name of food safety. These precautionary measures, although seemingly necessary, forced those who made them to face significant economic hardship.  

At the time of the outbreak, most agricultural insurance companies offered recall insurance. However, many of the companies involved in the outbreak did not have such coverage. Despite the lack of recall insurance, some growers may begin to evaluate ways to recover some of the losses caused by the “voluntary” recalls and “voluntary” crop destruction.

Can a grower who is forced to recall or otherwise destroy his product due to an outbreak sue the implicated competitor to recover damages?

A third party grower, forced to suffer economic damages because of the public response to an outbreak caused by an unrelated party, probably wouldn’t be successful in attempting to recover from a grower implicated in the outbreak. Assuming there was no oral or written contract between growers requiring that they provide untainted spinach to consumers and suppliers, there could be no breach of contract claim. Assuming also that the third party grower did not purchase any of the tainted spinach, there is no applicable breach of warranty claims. In addition, a third party grower seeking to recover lost profits probably could not succeed in a products liability claim because there has been no physical injury sustained by the claimant.

A third party grower-claimant would have the highest likelihood of recovering damages under a claim of negligence; however such a claim would be unlikely. California courts have established that in order to succeed on a claim for negligence, a grower would have to show the source of the outbreak owed its market competitors a duty of care and that it breached that duty when it provided tainted spinach to consumers and/or suppliers. Further, the third party claimant would have to prove that as a result of this action, it incurred damages for which it could be compensated. Duty and causation would be the biggest hurdles to a third party claimant seeking to recover based on a negligence claim

What duties would one grower owe to a market competitor?

California courts have held that people should be held responsible not only for the result of their voluntary acts, but also for injuries to others which are caused due to a lack of ordinary care or skill in undertaking such acts. In some cases, the courts have also established that people have a duty not to act so negligently as to disregard the threat their actions pose to others.

In terms of a third party grower recovering lost profits due to the negligent acts of another, no California court has ever held that market competitors owe each other a duty to conduct business in a way that protects each other’s expected profits.  Further, public policy dictates that such a duty would be impossible to fulfill. 

Courts are willing to establish exceptions when enforcing a duty owed by a party would be against public policy. Public policy exceptions are established based on a variety of factors such as the foreseeability of harm to the plaintiff, the certainty of claimant’s injury, the relation between the source’s conduct and claimant’s injury, the moral blame attached to the defendant’s conduct, the desire to prevent future harm, the potential burden on the source, and the availability and cost of insurance for the risk involved.

Imposing a duty upon a grower to protect the expected profits of its market competitors could potentially result in massive numbers of lawsuits based on any act by a seller, defensible or not, which may have lead to a downturn in the industry, would inevitably give rise to numerous lawsuits by all market competitors. The California court system could not handle such an increase in the number of lawsuits it hears.

Do the Good Agricultural Practices (“GAPs”), in place at the time of the outbreak, establish a duty owed by growers to their market competitors and if so, could violation of the GAPs support a negligence claim by a market competitor?

Since the outbreak, the California agricultural industry has begun to design industry-wide growing standards to ensure the safety of food supplies grown within the state, at the time of the E. coli outbreak attributed to spinach, growers were adhering to a set of GAP standards. GAPs are a set of baseline standards developed by the industry to provide growers and processors with guidance on certain practices intended to ensure the safety of agricultural products. Adherence to the GAPs was voluntary.

A third-party spinach grower may argue that the grower breached its duty by failing to adhere to the GAPs established by the industry and in effect at the time of the outbreak.  However, the development and implementation of the GAPs were not established for the protection of other industry members’ profits. They were implemented in response to bacteria outbreaks caused by consumption of certain food products for the protection of consumers from such microbial contamination. Even if the source did breach a duty, the duty breached was owed to consumers, not to its fellow spinach growers.

This column is the work product of Lombardo & Gilles, LLP, which has offices in Hollister and Salinas. Paul Rovella is a lawyer with Lombardo & Gilles, LLP, specializing in agribusiness matters and can be reached at 1-888-757-2444 or [email protected]. Mail your questions to Jeff Gilles, “It’s the Law,” c/o The Pinnacle, 380 San Benito St., Hollister, CA 95023 or contact Jeff at 1-888-757-2444 or [email protected].