Recalls continue to be a topic of major concern and discussion for companies in the food and beverage, dietary supplement and cosmetic industries. Recalls can cause severe financial drains, monopolize tremendous amounts of resources, and bring production to a standstill. It is critical that companies are able to properly evaluate the considerations for initiating a recall, understand the ramifications of a recall, and have the ability to implement some preventative measures that can be taken to lessen the impact of a recall.

There were several high profile recalls in 2009, including the wide-spread recall of products containing peanut butter sourced from Peanut Corporation of America that, due to the enormous number and volume of products and brands recalled, rates as one of the largest recalls ever in the United States. The recent announcement by the FDA of a recall of products containing hydrolyzed vegetable protein (HVP) potentially contaminated with salmonella could produce an even wider spanning recall in 2010. The publicity of these recalls has resulted in renewed outcries to give the Food and Drug Administration (“FDA”) mandatory recall authority and legislation pending in both houses of Congress contains provisions granting the FDA such authority. While these mandatory recall provisions may ultimately be stricken from the final bills, FDA Commissioner Margaret Hamburg has made it no secret that she would like to see the FDA vested with such authority. With the increased emphasis that FDA has placed on food safety, including implementation of such programs as the Reportable Food Registry, attention to the recall process is likely only to increase, resulting in more recalls than ever.

The demand for mandatory recall authority brings a common misconception to light. Absent some select circumstances in which the FDA has statutory authority to mandate recalls, recalls of products are “voluntary”, to be initiated by a company responsible for the problem product. While recalls are technically “voluntary” in nature, several factors can contribute to making the “voluntary” process feel very “involuntary”. Once the FDA is made aware of a potential problem with a product, it may send agents out to inspect the manufacturing facilities. A company may receive continuous contacts from the FDA, encouraging the company to initiate a recall. Additionally, repeated inquiries from retail customers and consumers about products receiving intense media scrutiny may leave a company feeling that a recall is the only option.

Any company that has the misfortune of participating in a recall will discover that it can result in huge losses of time, money and reputation. Recall costs from retail customers, refunds to consumers, costs to destroy and replace products, attorneys’ fees and other associated costs rapidly pile up. The ramifications of a recall move up and down the production chain, reaching suppliers, manufacturers, distributors, marketers and other companies. While it is hard to prevent a recall, there are some preventative steps that a company can take to reduce the impact of a future recall. The inclusion of indemnity provisions in agreements with suppliers, manufacturers and distributors can potentially insulate a company if recall situation arises. The evaluation and establishment of internal crisis management and recall procedures will help streamline processes and avoid wasting additional time. A careful examination of insurance policies to ensure that coverages are clear will avoid the surprise of discovering that coverages are excluded for recalls or other similar situations.

In addition to the regulatory concerns associated with a recall, recalling companies must often deal with litigation as well, as foodborne illness litigation has become a big business. A recent report disseminated by Georgetown University estimated the total impact of foodborne illness litigation at $152 billion annually. On the heels of litigation involving the Peanut Corporation of American and Setton Pistachio recall, plaintiffs’ firms are poised to jump on each new press release announcing a recall on the FDA website. Accordingly, Greenberg Traurig should be prepared and is well-situated to provide assistance from both regulatory and litigation perspectives.