Posts from: August 2016

Food Safety, Potential Liabilities, and the Impact of New FDA Regulations

Every year, millions of people are affected by food-borne pathogens such as E. coli, salmonella and listeria.  While the most urgent concern in any such situation is the sickened customers’ health, large outbreaks make big news which negatively impacts a food professional’s business and can even destroy it.  In some cases, owners and operators can also face criminal liability.  Understanding food safety liabilities and legal issues and preventing any sort of outbreak – large or small – not only protects consumers but preserves a food service operators reputation and bottom line.

In the U.S., a business is usually strictly liable for selling a contaminated food product.  In other words, an affected customer does not need to prove and identify the particular failure of the business but only needs to prove that the food was contaminated and caused illness.  Given the breadth of food safety regulations, nearly any company in a food supply chain can be held liable.

The FDA Food Safety Modernization Act

Most recently, in April 2016, the Food and Drug Administration (FDA) published the Food Safety Modernization Act (FSMA) rule on Sanitary Transportation of Human and Animal Food.  This rule became effective in June 2016.  The purpose of the regulation is to advance FDA’s efforts to protect foods from farm to table by keeping them safe from contamination during transportation and to create a modern, risk-based framework for food safety. The goal of this rule is to prevent practices during transportation that create food safety risks.  Recognizing that many businesses, particularly small businesses, may need more time to comply with the requirements, the compliance dates are adjusted accordingly. 

Other Food Safety Laws and Regulations

It is not difficult to pin liability on food producers, retailers or foodservice operators.  A claim can be based on the implied warranty that the food was unfit for consumption and the business failed to take reasonable care to ensure it was safe.  There is also a variety of federal regulations relating to facility registration, recordkeeping, labeling, and reporting regarding events involving illness resulting from food-borne contamination.  In addition to FDA’s requirements, food businesses are subject to other federal, state, and local requirements.  

How to Mitigate the Risk and Liability Related to Food Safety Issues

There are several steps and precautions operators can take to reduce the likelihood of food-borne illnesses and to make dealing with a problem easier.  First, businesses should require thorough written contracts that its suppliers comply with safety standards and that everyone in the supply chain have appropriate liability insurance coverage.  In addition, foodservice operators should keep detailed records regarding all food product purchases in order to be able to determine where products came from.  Finally, in addition to getting to know your local rules and regulations, become familiar with the relevant government departments and officials that have jurisdiction over your business.  In the event of a food-borne illness outbreak at your establishment, you will be better able to navigate an investigation and understand what is necessary to mitigate the circumstances.

For further information regarding this topic, please contact:

Jonathan M. Weis at:

jweis@lgattorneys.com or 312-368-0100.

Profit on Foreclosed Property Goes to Lender

A recent decision of the Illinois Appellate Court has held that a lender which obtains title to real property through the foreclosure process is not obligated to offset any deficiency judgement by the amount by which the sales proceeds received by the lender upon subsequent sale of the property to a third party exceeds the price paid by the lender at the foreclosure sale.  In Old Second National Bank v. Jafry, 2016 IL App(2d) 150825, No. 2-15-0825 (June 28, 2016), the court held that loan guarantors remained liable for a deficiency judgment in the amount of $577,876 despite the fact that the lender subsequently sold the property for $1,320,000 after purchasing the property for $900,000 at the foreclosure sale.  In this case, the guarantors argued that the lender received a partial double recovery when it received $420,000 of excess sales proceeds and remained entitled to seek recovery of the full deficiency judgment.

Although the facts of the case seem to lead to the intuitive conclusion that the lender received a windfall, the Court held that the lender’s obtaining title to the property at the foreclosure sale terminated the lender/borrower relationship and that the subsequent sale of the property was an unrelated transaction.  The Court reasoned that a lender should not have the same recovery rights as a third party would have if the third party were the successful purchaser at the foreclosure sale.  Furthermore, the Court reasoned that since a lender cannot seek to increase the deficiency judgment in the event the lender subsequently sells the property for less than the amount paid at the foreclosure sale, that it would be inequitable to deny the lender the ability to make a “profit” if it were fortunate to sell the property for a greater amount.

Although increasing real estate values have reduced the number of foreclosures in the past few years, this decision makes it clear that borrowers and guarantors of defaulted real estate loans cannot simply rely upon increased real estate values to protect them from deficiency judgments in favor of their lenders.  In fact, the Court criticized the guarantors in the Old Second National case for failing to mitigate their exposure to a deficiency judgment by attempting to sell the property themselves in order to reap the benefits of the increase in value.

This case should leave little doubt that both a foreclosing lender and the foreclosed borrower and its guarantors should give careful consideration to determining their respective rights and obligations in a rising real estate market.

For further information regarding the Old Second National case and the rights of lenders, borrowers and guarantors in connection with the foreclosure of real property, please contact:

Jeffrey M. Galkin at:

jgalkin@lgattorneys.com or 312-368-0100.

Morris Saunders to be a Presenter for Three Upcoming National Business Institute Events

Morris Saunders will be a presenter at a seminar titled “Estate Planning: Portability, Basis, Income and Capital Gains Tax, and More” for the National Business InstituteThe seminar will take place on August 25, 2016 in Naperville, Illinois. To register, or for more information please click here.

Morris will also present an Audio Webinar titled “Protecting Assets While Qualifying for Medicaid.” The webinar will take place on October 10, 2016 from 10:00 am to 1:15 pm ET. To register, or for more information please click here.

Finally, Morris will be a presenter at a seminar titled “Trusts 101.” The seminar will take place on November 15, 2016 in Waukegan, Illinois. To register, or for more information please click here.

IRS Announces Attack on Family Business Transfers

On August 2, 2016, the U.S. Department of the Treasury announced a new regulatory proposal to “close a tax loophole that certain taxpayers have long used to understate the fair market value of their assets for estate and gift tax purposes.”

It is common for wealthy taxpayers and their advisors to use certain tax planning tools to take into account “discounts” for such things as lack of marketability and minority interests to effectively lower the taxable value of their transferred assets. These planning tools have been, until now, approved by the IRS and the courts. By taking advantage of these tactics, certain taxpayers or their estates owning closely held businesses or other entities can end up paying less in estate or gift taxes. Treasury’s action will significantly reduce the ability of these taxpayers and their estates to use such techniques solely for the purpose of lowering their estate and gift taxes. These proposed regulations are subject to a 90-day public comment period. The regulations themselves will not go into effect until the comments are carefully considered and then 30 days after the regulations are finalized.

If you were planning to make transfers of closely held business interests, you should consider whether it is appropriate to expedite making those transfers ahead of the effective date of the proposed regulations.

If you have any questions, please contact:

Morris R. Saunders at:

(312) 368-0100 or msaunders@lgattorneys.com.

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