As readers are undoubtedly aware, the Centers for Disease Control (CDC) issued a Food Safety Alert (Alert) on November 20 due to a multistate outbreak of E. coli-related infections linked to romaine lettuce. The CDC alert associated the product with 32 illnesses and 13 hospitalizations. Further, it advised consumers not to consume any romaine lettuce and advises retailers and restaurants not to serve or sell it. By rendering such products unsellable, the alert raised immediate questions concerning the identity of parties forced to bear the risk of loss. The issue has been addressed by the US Department of Agriculture’s (USDA) Perishable Agricultural Commodities Act (PACA) Division through FDA Advisory Alert on Romaine Lettuce and the PACA (PACA Announcement).
Summary of PACA Announcement
The PACA Announcement highlighted two factors that are important in identifying the parties forced to bear the risk of loss: timing of the alert and terms of the sale. For instance, if the alert was issued before shipment, the risk of loss remains with the seller and the buyer may have a claim against the seller for breach of the warranty of merchantability, and could reject the produce, if the seller decided not to recall the product as a result of the alert. If an alert is used after a buyer received and accepted the produce, the risk of loss is shifted to the buyer, who may have to pay for the produce. In situations where the alert is issued while the product is in transit, which party bears the risk of loss is dependent on the contract terms. For products shipped on FOB contract, the risk of loss passes from the seller to the buyer once the seller delivers the produce to the transportation carrier. On the other hand, where the contract terms of sale are “delivered,” the risk of loss is not transferred from the seller to the buyer until the product is delivered to the contract destination.
While the PACA Announcement addresses some common contractual questions raised when an alert is issued for a food product, it presented an interesting conundrum for alerts that do not specify a geographical source for the outbreak. By alerting consumers not to eat any lettuce and advising retailers and restaurants not to serve or sell it, the initial alert effectively rendered all romaine lettuce in the United States adulterated and unmerchantable. While a subsequent alert issued on November 26 by the CDC and a November 30 alert issued by the Food and Drug Administration narrowed the scope of the outbreak to the Central Coastal growing regions of northern and central California, required certain information to be included on the product label (eg, harvest location, harvest date, hydroponically/greenhouse grown), and indicated that romaine lettuce outside of the affected regions need not be avoided. The economic impact of these public health alerts on the romaine industry between November 20 and November 26 is unmistakable and potentially significant.
Based on the above discussion, responsible parties are encouraged to review and update as necessary the terms and conditions of their commercial contracts to ensure that the allocation of the risk of loss is acceptable from a business perspective. Further, particular attention should be given to the timing of an alert or other government advisory warnings as this could also have serious implications on a party’s contractual and financial responsibilities.