WASHINGTON - The peanut company at the center of the nationwide salmonella scare has filed for Chapter 7 bankruptcy protection and will begin liquidating its assets as a crush of legal claims pile up against Lynchburg, Va.-based Peanut Corp. of America.
"Given that PCA is under criminal investigation, I'm not surprised they've gone bankrupt," said Bill Marler, a Seattle-based lawyer representing 47 clients who are suing the company, including family members of two victims who died after reportedly consuming peanut products tainted with salmonella.
Companies that PCA supplied with peanut products have also gone to court against it, and PCA's insurer, Hartford Casualty Insurance Co., has filed a lawsuit in an effort to limit its liability.
PCA's products have been linked to nine deaths and 636 cases of food poisoning in 44 states, and more claims expected to follow. Records released last week during congressional hearings showed the company continued to ship its contaminated products even after they tested positive for deadly bacteria.
Federal investigators are probing the company's processing facilities in Georgia, Texas and Virginia as well as PCA's owner, Stewart Parnell.
"PCA was hoping to be able to reorganize, but the events and actions of the last several weeks led it to conclude that wouldn't be possible," said Andrew Goldstein, the company's bankruptcy attorney. "This will give rise to the orderly liquidation of the company's assets."
The bankruptcy filings show that the company carries debt with 100 to 199 creditors and faces $1 million to $10 million in liabilities. Company assets are also listed at $1 million to $10 million.
"Sometime in the next 15 days, we'll file something more specific, but that information is still being developed," Goldstein said.
The bankruptcy filing will slow the flood of lawsuits against the company but will not prevent individuals who have been sickened from filing claims, said Marler, who specializes in litigation involving food-borne illnesses. "It just puts everything on hold," he said, adding that on Monday he would move to lift the stay of litigation so that new claims could be made.
"Until the stay is lifted, they can't be sued," Marler said.
PCA carried $24 million worth of personal liability insurance for the period of the alleged contamination, Marler noted, and those funds cannot be used to pay suppliers or other companies who have had been hit with millions in product-recall costs. More than 2,000 food products linked to PCA's peanuts have been taken off the market in one of the largest food recalls in U.S. history.
Marler said his clients are also suing King Nut and Kellogg, which used PCA products in their foods.
The company began as a family business in 1977, and Parnell, his father and two younger brothers turned the struggling peanut roasting operation into a $30 million operation before selling it in 1995.
But in 2000, Stewart Parnell bought a peanut plant in Texas, and a year later he bought back the Blakely, Ga., operation after teaming with a financial backer, David Royster III of Shelby, N.C.
It all came crashing down when federal investigators identified the Georgia plant as the source of the salmonella outbreak, and questions began emerging about how the company operated its plants.
The company faced more scrutiny once it was revealed that its Texas plant, which opened in March 2005 and was run by a subsidiary, Plainview Peanut Co., was not inspected by state health officials until after problems at the Georgia plant. Samples from the Texas plant showed possible contamination.
The Associated Press contributed to this article.