In April, Christopher Crowley, executive vice president and treasurer of Polar Beverages, was informed that class-action lawsuits had been filed against his family’s business in Massachusetts and Florida. The charge? That Polar’s Diet Orange Dry soda contained dangerous levels of benzene, a chemical compound that has been linked to acute myelogenous leukemia and other ailments.
Crowley was shocked, but a month later, he got some good news. The U.S. Food and Drug Administration confirmed what Polar had already found in its independent testing: the soda contained less than 1 part per billion of benzene. That’s akin to “one small drop of water in an Olympic-size pool,” an FDA official noted. To reach the dangerous levels asserted in the lawsuits — 9.1 parts per billion, well above the federal safe drinking water standard of 5 parts per billion — the beverage had to be heated to a temperature high enough to cause a chemical reaction between ascorbic acid (Vitamin C) and the preservative benzoate salt. Asserts Crowley: “People don’t typically come home and put our products in the oven.”
Maybe not. But the plaintiffs in the Polar case didn’t cease and desist. In fact, the litigants had already broadened their targets to include beverage-industry giant PepsiCo. Other consumer groups followed suit, launching class-actions against Kraft Foods, Safeway, and others, charging that excessive exposure of their products to heat and light could put consumers at risk. (Some have indeed tested above the FDA threshold.) In fact, defense attorneys say benzene-related suits are quickly becoming a favorite of the plaintiff’s bar. The beverage-industry cases aside, “this is the fastest-growing toxic tort we’ve seen in the last few years,” notes David S. Osterman, a partner at McCarter & English.
Concerns about benzene are not new. A benzene scare in the United States in 1990 forced French beverage specialist Perrier to pull 160 million bottles of mineral water off store shelves. While the problem stemmed from negligence in the filtering procedure and not contamination of the spring, the ensuing uproar cost the company its dominance in the market. The oil industry has long battled benzene cases filed by employees, many of whom claim that workplace exposure to the chemical compound made them seriously ill.
But the recent litigation against Polar and other beverage makers worries some CFOs and corporate attorneys. They foresee a flood tide of benzene suits, including cases that have nothing to do with occupational exposure. Last year, for example, a jury in Missouri ordered BP Amoco to pay $13.3 million in compensatory damages after a woman who lived near a refinery died from contact with the chemical. “Plaintiffs are straining to find new benzene exposures,” warns Bruce J. Berger, a partner with Spriggs & Hollingsworth LLP in Washington, D.C. “Then they’re alleging causal connections to diseases that have been plaguing mankind for the duration of time.”
Without a Trace
No wonder the Insurance Information Institute’s (III) chief economist Robert Hartwig dubs benzene “a looming potential liability.” The hydrocarbon compound, which occurs naturally in crude oil but is usually synthesized from petroleum compounds, was first mass-produced for commercial purposes in the 1800s. These days, more than 15 billion pounds of the stuff are produced annually. Found in everything from paint thinners to plastics, benzene is hard to avoid. “Benzene is such a ubiquitous air contaminant,” says David W. Pyatt, principal of Colorado-based Summit Technology, “that people are exposed to it during almost all their daily activities, including pumping gas.”
While the U.S. Department of Health and Human Services classifies benzene as a known carcinogen, questions remain about the level and length of contact needed to actually trigger a malignancy. “The dose makes the poison,” asserts Richard Clapp, professor of public health at Boston University. In the legal arena, however, even trace amounts can generate litigation, with plaintiffs asserting that long-term exposure to minute amounts can do harm. Not all observers agree. “It’s like saying 1 or 2 aspirin can cure a headache,” says one defense attorney, “but 250 can kill you.”
So far, the initial spate of beverage cases has barely passed the filing stage. Many, no doubt, will be settled before getting to court. But Andrew Rainer, a partner at McRoberts, Roberts & Rainer LLP and a lead attorney on the class-action case, contends that most of the litigation could have been avoided entirely. Benzene was first identified as a potential problem in soda in the early 1990s, Rainer says, and there was “a quiet agreement between the [beverage] industry and the FDA to reformulate.”
Many beverage makers did just that. One problem, though, was that not all manufacturers were informed of the deal, and new entrants in the sector were not made aware of the agreement. Despite doubts about the dangers posed by minimal exposure, Rainer maintains that any risk is unacceptable. “There’s no reason consumers should be exposed to carcinogens.”
Toward that end, the plaintiffs and the members of the class are not only seeking recompense, they want beverage makers to remove benzene from their products. Some have. TalkingRain Beverage Co., which was targeted at the same time as Polar Beverages, began pulling sodium benzoate out of its beverages and switching to potassium sorbate in the weeks before the lawsuits were filed.
Reformulation isn’t simple: it can involve a rejiggering of finely tuned manufacturing processes and complex supply chains. Both the Environmental Protection Agency and the National Institute of Occupational Safety and Health Administration have programs to help companies make the switch. And in Massachusetts, the Toxics Use Reduction Institute advises businesses on how to move to safer alternative chemicals. Participants have reported a 50 percent reduction in toxic products or waste over the past 15 years, says director Michael Ellenbecker.
Sue ‘Em All
Still, it may be easier for some companies to simply contest the lawsuits as they crop up. Spriggs & Hollingsworth’s Berger advises managers to be aggressive in defense of benzene-related litigation. “Settling at the beginning [of a case],” he warns, “will feed the fire of the plaintiff’s bar.”
The plaintiff’s bar doesn’t need much encouragement. Consider the case of Bostik Inc., an adhesives maker located in Wauwatosa, Wisconsin. Over the past few years, Bostik has been named six times in benzene-related class-action suits, even though, according to CFO Ken Rader, “we don’t use benzene and we never have.” The problem, he asserts, is that as a member of the chemical industry, Bostik is on “certain lists that get targeted in sweeping class-action litigation.”
Bostik has spent considerable resources fending off the suits. To disprove the allegations, the company spent $100,000 hiring independent labs to test Bostik’s products. It has paid another $20,000 to $50,000 — mostly in legal fees — to ward off each suit. Rader sees no relief in sight. “This [litigation] has all happened in the last three to four years, but started five years ago,” he notes. “It’s an accelerating trend.”
The judiciary may start applying the brakes. Of late, some jurists and lawmakers have taken a dim view of toxic torts (see “The Phantom Epidemic” at the end of this article), a stance that could slow the stampede. In addition, corporate lawyers point out that fundamental differences between asbestos — maybe the ultimate mass tort — and benzene may make benzene allegations more difficult to prove. A single asbestos fiber, for example, is huge compared to a benzene molecule. Benzene is also much more prevalent in the environment, which makes it harder to prove a link between a specific exposure and a specific illness. “The link between asbestos and mesothelioma was accepted by a lot of courts early on,” says attorney Berger. “But you can’t say that leukemia is a signature disease for benzene.”
Still, class-action attorneys are a persistent bunch. What’s more, if benzene litigation fizzles out, tort lawyers may target other actionable substances. There’s no shortage of options, either: scientists report that less than 2 percent of commercially used chemicals have been tested to see if they cause cancer. Says Hartwig: “Trial lawyers are desperately searching for a way to replace the feeding trough that’s been asbestos for the past 25 years.”
Lori Calabro is a deputy editor of CFO.
The Phantom Epidemic
While corporate risk managers brace for a slew of benzene lawsuits, a recent pretrial ruling in Texas may head off some of those potential actions. Last July in Corpus Christi, U.S. District Court judge Janis Graham Jack weighed in on trial preparations that covered 111 consolidated cases of alleged silicosis (a potentially deadly lung disease caused by inhaling fine silica dust). In the 249-page order, Jack wrote a scathing review of the cases and the tactics used by the plaintiffs’ lawyers and expert medical witnesses. The Clinton-appointed judge noted that the silicosis diagnoses appeared to be part of a “phantom epidemic, unnoticed by everyone other than those enmeshed in the legal system.” Jack went on to assert that the 10,000 diagnoses of silicosis appeared to have been “manufactured for money.”
Since then, congressional hearings have been convened to look into whether doctors, medical-screening companies, and attorneys for the plaintiffs committed fraud in orchestrating the silicosis suits. Likewise, the Texas attorney general has opened a grand-jury investigation into the case. Regardless of the outcome, experts say Judge Jack’s watershed order could stifle all sorts of toxic torts, including benzene litigation. Robert Hartwig, chief economist at the Insurance Information Institute, believes that, in the future, plaintiffs’ attorneys in such cases “are going to have to demonstrate that [the plaintiff] in fact suffered physical and financial harm from the exposure.”
The Class Action Fairness Act of 2005 could also dampen enthusiasm for toxic torts. Essentially, the law sets higher standards for the filing of such suits. One example: the legislation requires plaintiffs to be part of a more homogeneous group geographically — that is, two-thirds of the claimants need to be from the same state in order for the class-action to remain at the state level. — L.C.
Benzene isn’t the only commercially used chemical that could trigger mass litigation.
|Diacetyl||Ingredient in popcorn butter. The chemical is said to cause bronchiolitis obliterans, also known as popcorn packers’ lung.||In Missouri alone, six cases have gone to trial, and there have been three confidential settlements, estimated at $53 million.|
|Manganese||Used in welding rods. Some indication that exposure can lead to neurological disorders, such as Parkinson’s disease.||In June, in the first case to go to trial (one that involved a former civilian worker at a Texas naval base), a jury found the welding rods not at issue.|
|Crystalline Silica||Causes silicosis, a lung disease, if inhaled in large amounts or over long periods of time. Found in dusty work environments (foundries, mines, construction sites, shipyards).||The first suit was filed in the 1930s after the dust was found to be deadly. Currently, silicosis litigation is the center of a fraud investigation, since in the past three years many cases involving misdiagnosed individuals were brought to court.|
|Perfluorooctanoic Acid (PFOA)||Polymeric agent used in nonstick and water- and stain-resistant products such as Teflon. PFOA has been linked to cancer.||Since July 2005, 14 class-action suits have been filed. In one case, DuPont paid a settlement of more than $100 million related to PFOA contamination.|
|Acrylamide||Found in French fries and potato chips (and in cigarette smoke and some baked foods). Linked to increased rates of cancer; a known neurotoxin.||To date, a handful of suits have been filed against fast-food companies and potato-chip manufacturers. All are pending.|
|Source: News reports|