FSMA and Auditor Liability: Is the Primus Litigation the Tip of An Iceberg?June 15, 2014
By Ricardo Carvajal –
In a prior posting, we reported on a lawsuit brought by Jensen Farms (Jensen) against its auditor Primus Labs (Primus) alleging that Primus had been negligent in the conduct of its audit – negligence that allegedly contributed to the 2011 outbreak of listeriosis associated with cantaloupes produced by Jensen. Related litigation initiated by victims of the outbreak has begun winding its way through courts in multiple states, and early decisions in those cases suggest that food companies may want to start giving careful consideration to their conduct and use of audits – be they first, second, or third party audits – and how the results of those audits could come back to haunt them in the event of an outbreak.
As a refresher, we begin with a brief recap of events leading up to the 2011 outbreak. In May 2011, Jensen made changes to its processing, purportedly based in part on recommendations made by Bio Food Safety, a Primus contractee. Those changes purportedly resulted in the discontinuance of a chlorine wash. A subsequent audit by Bio Food Safety did not identify the lack of a chlorine wash as a deficiency, and yielded a score of 96%. Around that time, an outbreak was unfolding that would eventually claim an estimated 33 lives and result in 147 hospitalizations. Epidemiological and traceback investigations conducted in the wake of the outbreak led FDA to Jensen in September of that year, and the subsequent investigation resulted in a criminal prosecution and misdemeanor plea (see our previous post here).
Perhaps predictably, Jensen sued Primus for negligence. Also, victims of the outbreak sued Jensen, Primus, Bio Food Safety, and Frontera Produce (the distributor of the cantaloupes), alleging wrongful death based on negligence. That litigation is proceeding in multiple states, including Colorado, Louisiana, and Oklahoma. A threshold question in those cases is whether an auditor owes a duty to consumers (as opposed to owing a duty only to the company being audited). Early decisions are split on that question. One court granted defendants’ motion to dismiss, holding that a third party auditor of an agricultural producer does not owe a duty to consumers, as that would stretch concepts of foreseeability and duty too far. The court found that Primus supplied its audit report to Jensen alone, and there was no evidence of plaintiff’s reliance on the audit report. Further the court found that there was no contract or regulatory requirement that imposed a duty to undergo an audit, and that there was no factual basis indicating what the audit was intended to accomplish. However, a different court denied defendants’ motion to dismiss, holding that consumer injuries are within the scope of an auditor’s duties, and that a negligent audit can foreseeably result in contamination before products enter commerce. That court found that Jensen would not have distributed the cantaloupes if it had failed the audit.
Although preliminary in nature, these decisions suggest that the underlying purpose of an audit could have significant implications for any potential liability that could arise from the conduct of that audit. That could be a noteworthy development, given the potential use of audits to meet obligations arising under the preventive controls and supplier verification provisions of the Food Safety Modernization Act (FSMA). Although it is too soon to know whether or how audit requirements will be incorporated into the final rules implementing those provisions, the Primus litigation suggests that it’s not too soon to be thinking about the purpose of an audit, and whether or how that purpose should be captured in contracts or other documents. It’s also worth considering how the results of an audit might be relied on by the audited company and other parties that might have a stake in the outcome of the audit. These thorny issues could get even thornier as FSMA implementation proceeds.