United States v. Am. Mercantile Corp.

• Decision Date: 24 August 2012
• Docket Number: No. 11–2371–STA–cgc.,11–2371–STA–cgc.
• Citation: 889 F.Supp.2d 1058
• Parties: UNITED STATES of America, Plaintiff, v. AMERICAN MERCANTILE CORPORATION, a corporation, Ingredients Corporation of America a/k/a Barzi Brand, a corporation, and Damon S. Arney, an individual, Defendants.
• Court: U.S. District Court — Western District of Tennessee

889 F.Supp.2d 1058

UNITED STATES of America, Plaintiff,

v.AMERICAN MERCANTILE CORPORATION, a corporation, Ingredients Corporation of America a/k/a Barzi Brand, a corporation, and Damon S. Arney, an individual, Defendants.

No. 11–2371–STA–cgc.

United States District Court,

W.D. Tennessee,

Western Division.

Aug. 24, 2012.

David Sullivan, U.S. Department of Justice, Washington, DC, for Plaintiff.

Thomas L. Parker, Michael R. Hess, Baker Donelson Bearman Caldwell & Berkowitz, Memphis, TN, John R. Fleder, Hyman, Phelps & McNamara PC, Washington, DC, for Defendants.

ORDER GRANTING IN PART, DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

S. THOMAS ANDERSON, District Judge.

Before the Court is the government's Motion for Summary Judgment (D.E. # 22) filed on December 12, 2011. Defendants American Mercantile Corporation, Ingredients Corporation of America, and Damon S. Arney have filed a response in opposition to Plaintiff's Motion. The government has filed a reply, and Defendants have filed a sur-reply. For the reasons set forth below, Plaintiff's Motion is GRANTED IN PART, DENIED IN PART. The Court reserves ruling on the permanent injunction sought by the United States, pending a hearing on that issue.

BACKGROUND

The following facts are not in dispute for purposes of this Motion unless otherwise noted. This case involves alleged violations of the Food, Drug, and Cosmetic Act (“FDCA”). Defendant American Mercantile Corporation (“AMC”) is a Tennessee corporation, which currently lists its principalplace of business as 1270 Warford Street, Memphis, Tennessee. (Compl. ¶ 3; Answer ¶ 3; Schafer Decl. ¶ 4; ex. A–1.) Until recently, AMC's principal place of business was located at 1310 Farmville Road, Memphis, Tennessee (“the Farmville Road facility”). (Compl. 3; Answer ¶ 3; Schafer Decl. ¶ 4.) Defendants add that AMC ceased all operations and any other activities at the Farmville Road facility in the spring of 2011. (Arney Decl. ¶¶ 5, 6.)

Defendant Ingredients Corporation of America a/k/a Barzi Brand (“ICA”) is a Tennessee corporation and subsidiary of AMC that currently conducts its operations at 1270 Warford Street, Memphis, Tennessee. (Compl. ¶ 4; Answer ¶ 4; Schafer Decl. ¶ 5 & Ex. A–2.) ¹ ICA previously conducted its operations at 676 Huron Avenue, Memphis, Tennessee (“the Huron Avenue facility”). ( Id.) Defendants add that ICA moved its offices and primary storage facility to Warford Street in the fall of 2010. (Arney Decl. ¶¶ 8, 11.)

Defendant Damon S. Arney (“Arney”) is the owner and president of AMC and ICA. (Compl. 5; Answer ¶ 5; Schafer Decl. ¶ 6.) He is responsible for overseeing all areas of operations and has the duty, power, responsibility, and authority to detect, prevent, and correct the insanitary conditions at AMC and ICA. ( Id.;see also Bradley Decl., ex. B, ¶ 8.)

The parties disagree about the exact nature of each Defendant's enterprise. According to the government, both Defendants receive, process, manufacture, prepare, pack, label, hold, and distribute a wide variety of food products and ingredients, including spices, spice blends, seeds, herbs, and sauces. (Compl. ¶¶ 3–4; Answer ¶¶ 3–4; Schafer Decl. ¶¶ 4–5.) Defendants assert that AMC's primary business is to import and supply bulk botanical products that are then sold to large food or non-food manufacturers. (Arney Decl. ¶ 2.) AMC also sells numerous crude and semiprocessed botanicals to manufacturers that “further process” these materials in order to meet food grade requirements. ( Id. ¶ 7.) By contrast, ICA purports to be primarily a spice manufacturer that produces goods, such as barbecue dry rubs, for sale to customers that then sell the goods in retail distribution or to customers who utilize the spice blends in their cooking or processing operations. ( Id. ¶ 8.) It is undisputed that both corporate Defendants ship their food products and ingredients to sources located outside of the state of Tennessee. (Compl. ¶¶ 7, 11; Answer ¶¶ 7, 11; Schafer Decl. ¶¶ 4–5, 12, 15, 18, 21; exs. A–13, A–20, A–21, A–34, A–35; Bradley Decl. ¶¶ 6–7, 11, 15; exs. B–5, B–8.)

According to the government, Defendants are repeat violators of the FDCA whose unsanitary practices, including the failure to exclude rodents and insects from its facilities and food, have necessitated previous action by this Court.² Therefore, the government seeks summary judgment on the issue of whether Defendants have violated the FDCA and whether a permanent injunction against all Defendants should issue. The injunction proposed by the United States generally would require Defendants to bring their operations into compliance with the FDCA.³ For purposes of its analysis, the Court will review the history of FDA inspections and violations observed at each company's facilities.

I. History of Violations Observed During FDA Inspections of AMC's Farmville Road FacilityA. March 2009 Inspections

The FDA conducted an inspection of AMC's Farmville Road facility between March 10 and 13, 2009. As a result of this inspection, the FDA issued a five-item Form FDA–483, List of Inspectional Observations (“Form FDA–483”). (Schafer Decl. ¶ 13; ex. A–14.) Specifically, the FDA inspectors reported failures to comply with current good manufacturing practice (“cGMP”), including, but not limited to the following:

(a) AMC failed to take effective measures to protect against contamination of food by pests. ( Id.; ex. A–15, pp. 1–21, photos 1–40.) The Form FDA–483 noted the presence of three live rodents and eleven dead rodents on the premises. ( Id.; ex. A–14.) Inspectors also documented rodent excreta pellets (“REPs”) in all areas of the facility as well as live and dead insects in, around, and on containers holding products. ( Id.)

(b) AMC failed to provide adequate screening against pests. ( Id.; ex. A–15, pp. 28–30, photos 53–57.) The Form FDA–483 noted multiple gaps in walls and around the rolldown door to the facility where rodents and pests could enter. ( Id.; ex. A–14.)

(c) AMC failed to provide safety-type lighting fixtures. ( Id.; ex. A–15, pp. 30–31, photos 58–59.) An overhead light fixture in the warehouse was unshielded even though the light hung above an open container of unknown botanical products. ( Id.; ex. A–14.)

(d) AMC failed to maintain fixtures and facilities ( Id.; ex. A–15, p. 31, photo 60).

Specifically, the inspectors found fiberglass insulation hanging from the ceiling above open burlap bales of an unknown botanical product. ( Id.; ex. A–14.)

On March 13, 2009, Defendant Arney addressed a letter to the FDA, stating that the firm was closing the week of March 16, 2009, to correct the violations reported from the inspection. (Schafer Decl. ¶ 13; ex. A–16.) After the voluntarily shutdown, the FDA conducted a follow-up inspection of AMC's Farmville Road facility between March 26 and 27, 2009. ( Id.) FDA investigators issued another five-item Form FDA–483 to Defendants after the March 26 and 27, 2009 inspection, finding similar insanitary conditions despite Defendant AMC and Arney's efforts to clean the facility and promises to correct the violations. (Schafer Decl. ¶ 13; exs. A–17, A–18.)

FDA investigators collected samples during both of the March 2009 inspections of AMC's Farmville Road facility. (Schafer Decl. ¶ 14; exs. A–19, A–20, A–21, A–25). One sample collected during the second inspection was taken from an area AMC claimed to have cleaned. ( Id.) Even so, FDA laboratory analysis confirmed the presence of filth, including rodent and insect filth, in the samples collected before and after cleaning. (Schafer Decl. ¶ 14; exs. A–22, A–23, A–24, A–26; Tucker Decl. ¶ 30.)

B. May 2009 Consent Decree

In May 2009 the U.S. Marshals Service seized adulterated food products at AMC pursuant to a Warrant In Rem issued in United States v. 35/15 kg poly mesh bags, Civ. A. No. 09–2271–SHM/dkv (W.D.Tenn. May 1, 2009) (Consent Decree, ex. C; Schafer Decl. ¶ 7.) Thereafter, Defendant Arney, on behalf of AMC, entered into a Consent Decree of Condemnation (“the Consent Decree”), which was signed by U.S. District Judge Samuel H. Mays, Jr., on June 16, 2009. ( Id.) Under the Consent Decree, AMC admitted and the Court adjudged that food was “held under insanitary conditions whereby it may have been contaminated with filth.” (Consent Decree ¶ 2.) AMC was required to either bring the seized food into compliance (i.e. recondition it) or destroy it. ( Id. ¶ 10.)

AMC attempted to recondition the products; however, its efforts were insufficient. (Schafer Decl. ¶ 7.) Specifically, the FDA investigators conducted a walk through at AMC in July 2009, to determine whether pests had been excluded from the facility, as was required before reconditioning efforts could begin. ( Id. & ex. A–3.) The FDA documented eight separate areas where live insects were present. ( Id.) ⁴ After AMC undertook further cleaning and attempts at reconditioning, a verification sample collected by investigators on October 6, 2009, confirmed the continued presence of insects in the facility, including inside a product that AMC had determined was not contaminated. ( Id.; exs. A–4, A–5, A–6.) FDA's laboratory analysis of the post-seizure verification sample (and sub-samples) confirmed the presence of, among other things: multiple examples of stored product insects; insect larval casts and empty pupal cases; parasitic wasps; and product with insect bore holes. ( Id.; ex. A–6.) Thus, pursuant to the Consent Decree, other than a small number of goods that the FDA allowed AMC to divert to non-food use, the condemned food was ultimately destroyed. (Schafer Decl. ¶ 7; exs. A–7, A–8.) Defendants state that the value of the products AMC destroyed was approximately $800,000. (Arney Decl. ¶ 3.)

C. October 2010 Inspection

The FDA's most recent inspection of AMC's Farmville Road facility was conducted between October 12 and 22, 2010, for the purpose of assessing Defendants' current compliance with the FDCA. (Schafer Decl. ¶ 10; Bradley ...