PLEASE NOTE: To protect your safety in response to the threats of COVID-19, we are offering our clients the ability to meet with us in person, via telephone or through video conferencing. Please call our office to discuss options.

Has Debt Taken
Over Your Life?

E. coli outbreak leads to bankruptcy of soy butter manufacturer

Many factors can force a person or business into bankruptcy. A recent Chapter 7 filing involving a Kentucky-based food manufacturer highlights this fact and provides a devastating irony: the seller of a peanut-free peanut butter called “I. M. Healthy” has been forced to file a business bankruptcy under Chapter 7 because its product has been found to be contaminated with the bacillus E. coli

SoyNut Butter Co. markets a brand of soy nut butter that is advertised as “peanut free.” The company purchases the product in bulk from Dixie Dew Products, a firm located in Kentucky. On March 30, 2017, the United States Food & Drug Administration suspended the registration of Dixie Dew because an inspection of its manufacturing facility showed “insanitary [sic] conditions that could lead to contamination with E. Coli.”

SoyNut filed a petition under Chapter 7 of the Bankruptcy Act seeking protection from lawsuits brought by thirty-two persons who claim that they were sickened by eating its contaminated soy nut butter. According to a report from the Centers for Disease Control and Prevention, 26 of the persons infected were children, and 12 persons required hospitalization. Soynut’s bankruptcy petition states that the company had $2.8 million in revenue in 2016 but that it now faces liabilities between $1 million and $10 million stemming from the lawsuits. The company states that it has assets valued at less than $50,000 and that it has 100 to 199 creditors. Lawyers for some of the existing plaintiffs were also expecting Dixie Dew to file a bankruptcy petition in the next few months.

Filing bankruptcy is a common strategy for companies that face an unexpected flood of claims from an allegedly defective product. Any businessperson who faces a similar problem may wish to consider consulting a knowledgeable bankruptcy attorney about the wisdom of filing a bankruptcy petition and other strategies for minimizing the impact of the claims.

Source: Glenview Patch, “After E. Coli Outbreak Glenview-Based SoyNut Butter Files For Bankruptcy,” Jonah Meadows, May 18, 2017

FindLaw Network