Foodmaker settles E. coli contamination lawsuit

Nation's Restaurant News, March 9, 1998 by Richard Martin

Ex-supplier Vons Cos. receives large, unspecified libel payment as a result of defamation, trade libel claims

SAN DIEGO -- All but ending Foodmaker Inc.'s prolonged bout with food-poisoning litigation, the company said it received $58.5 million to settle corporate claims stemming from a deadly E. coli bacterial epidemic in 1993 that was linked to Foodmaker's Jack in the Box chain.

However, sources familiar with the settlement said a principal contributor, The Vons Cos., itself received a large but unspecified payment as a result of claims against Foodmaker for defamation and trade libel.

Foodmaker said it would net about $30 million after paying taxes and litigation costs it incurred as both a plaintiff and defendant in the now-nullified "hamburger patty cases," which merged complaints and countersuits by Foodmaker, former meat processor Vons, various Jack in the Box franchisees and several beef suppliers.

San Diego-based Foodmaker, whose 1,330-unit Jack in the Box system is the fastfood industry's sixth-largest burger chain, is "very happy to see this behind us," said company spokeswoman Shirley Gines. "Now we can look forward to growing the company," she added, citing plans to open 100 new branches this year, after adding 75 units last year and 26 the year before.

Foodmaker, which previously settled four wrongful death claims and about 85 other personal-injury cases involving more than 500 people, said only one other epidemic-related injury claim against it, for $10,000, remains unresolved. Prior individual settlements by Foodmaker had run as high as $15.6 million and were covered, at least in part, by a $100 million liability policy.

The Vons Cos., now a subsidiary of Safeway Inc., said its payment to Foodmaker included funds "received by Vons in settlement of its affirmative claims" plus contributions from insurance companies and other unidentified parties. It said the net cash amount to be paid by Vons was "a small portion" of the total amount.

A source close to Vons said its previous charge that Foodmaker defamed and libeled the meat processor "produced substantial payments" to Vons.

Neither Vons nor Foodmaker would comment specifically about terms of the settlement or the parties' comparative liability or sources of all the funds received. However, Debra Lambert, corporate director of public affairs for Pleasanton, Calif.-based Safeway, said Vons' cross complaint against Foodmaker "was part of the whole process." She said Vons' settlement reflected the company's desire "to avoid the risks and costs of a long jury trial."

Asserting that a dangerous strain of E. coli should not have been present in meat patties supplied to Jack in the Box, Foodmaker sued Vons following the burger-borne epidemic in 1993.

Traced to tainted, undercooked patties, the outbreak sickened hundreds of people in five Western states, caused lasting kidney damage and other disabilities among several survivors and was blamed for the deaths of four children -- a San Diego girl and three youngsters in the Pacific Northwest.

In countersuing Foodmaker and three Jack in the Box franchisees, Vons charged defamation and trade libel and claimed that Jack in the Box had breached its duties by not cooking the burger patties according to state requirements for minimal temperatures. The processor also charged that Foodmaker itself had purchased and shipped the meat to Vons from third-party firms and had not required Vons to test for dangerous pathogens.

Separately, 85 Jack in the Box franchisees not implicated in E. coli transmissions sued Foodmaker, Vons and other suppliers for damages resulting from lost business. Those claims later were assigned by the franchisees to Foodmaker and became part of its case against Vons.

Other parties involved in the "hamburger patty" litigation included Beef Packers Inc., Cattleman's Choice, Fresno Meat Co., Monfort Inc., Orleans International Inc., RBR Meat Co., Service Packing Co. and Westland Inc. Jack in the Box franchisees involved in the case were Washington Restaurant Management Inc., Seabest Foods Inc. and a franchise group controlled by the Fischbein family.

The settlement came in the wake of a U.S. Supreme Court decision last October that removed the last remaining obstacle to a combining of all corporate complaints in a single case. That was accomplished when the court refused to hear an appeal by former Jack in the Box franchisee WRMI, which unsuccessfully sought to overturn the California Supreme Court's order that the company defend itself in Los Angeles against Vons' charges.

Although Vons appeared to have significant factual leverage on its side -- for example, Jack in the Box had been found by health officials to have ignored repeated cooking-temperature warnings and had not obliged Vons to test meat -- the out-of-court settlement came as no surprise to legal experts.

"Insurance companies pay all the time on claims that they might conceivably win, because of the cost of litigation," said Daniel E. Lazaroff, a professor at Loyola Law School in Los Angeles. Although Lazaroff said he was unfamiliar with specifics of the hamburger-patty cases, he said settlements of business lawsuits often occur "partly because of expediency and partly because of concern a jury or judge would not agree" with a litigant's complaint or defense.