Chi-Chi's litigation hinges on company's insurance


PITTSBURGH - How more than 575 people came to eat hepatitis A tainted green onions at a Chi-Chi's restaurant, killing three of them, may be the question driving the handful of lawsuits already filed against the restaurant chain and the scores likely to follow.

However, legal experts said that the real question is this: Does Chi-Chi's have enough insurance to pay fair settlements to victims without attorneys from both sides frittering away the damages?

"In situations where the link between an event and an injury is as strong as it is here and large numbers of people have been affected, it's typically the case that people settle ... in a fashion that fairly compensates those who were made sick and puts the thing behind them," said Patricia Refo, an Arizona attorney who chairs the American Bar Association's litigation section.

The Centers for Disease Control and Prevention said that green onions traced to Mexico spread the virus, though the Food and Drug Administration has not determined how the onions became tainted. But that is largely beside the point, legal experts said.

That's because in a strict liability state like Pennsylvania, a restaurant that serves tainted food is liable even if it did not cause the contamination - much like an auto dealership that sells a car with a defective part.

That does not mean the farm that grew the onions, or the middlemen that shipped or sold them can't also be sued successfully - but Chi-Chi's is the top target because they likely have the deepest pockets, said William Marler, a Seattle attorney who has filed three of the five Chi-Chi's lawsuits so far.

"Chi-Chi's is always on the hook - regardless of whether it's green onions are not" that caused the virus, he said. "Generally speaking, the upstream supplier of tainted products is not going to have much in the way of assets or insurance."

Marler represents some 80 people who contracted hepatitis A or received shots to prevent it after eating at the Beaver County restaurant, about 25 miles northwest of Pittsburgh. The three lawsuits Marler filed have been put on hold by a judge to protect creditors of the bankrupt Louisville, Ky.-based Mexican restaurant chain.

Chi-Chi's filed for Chapter 11 on Oct. 8, citing cash flow problems, a month before the hepatitis outbreak was confirmed. As a result, a judge must approve whether the chain may spend money to settle any cases, and whether new claims can go forward against Chi-Chi's assets. None of the lawsuits filed so far are on behalf of those who died.

Marler was involved in the case when hundreds of people sued the Jack in the Box fast-food chain after it served hamburger tainted with E. coli in 1993, killing three children and sickening hundreds.

That case is "probably the best analogy" of what is likely to happen with the Chi-Chi's litigation, said Chicago attorney Robert Clifford. He led a group of Illinois plaintiffs who settled multimillion-dollar claims after a US Airways Flight from Chicago crashed near Pittsburgh in 1994.

Experts say the Chi-Chi's lawsuits will almost certainly be consolidated, with plaintiffs divided into groups: those with wrongful death claims, those who required organ transplants or serious hospital care, and those sickened for days or weeks who have medical bills and lost wages.

Pittsburgh attorney Robert Peirce, who has filed two suits, said his clients want more than reimbursement for doctor bills and missed work.

"Pain and suffering and loss of enjoyment of life are important," Peirce said. "But I don't want clients looking for some big payday, because that's not what I'm here to do."

Marler said that Jack in the Box wisely offered up front to pay medical bills and some lost wages. Still, the linchpin to settling those lawsuits was $100 million in liability insurance, which let the fast food chain to pay settlements up to $16 million to the dead or seriously ill, and $50,000 to $150,000 to those who spent weeks sick or out of work, Marler said.

"It wasn't like there was 'X' amount of money and the attorneys sat in a dark room and sort of divvied up the money - they did individual mediation" on each claim, Marler said. The attorneys agreed to take 20 percent of any awards as their fee, lower than the 25 to 40 percent fee typically garnered in liability cases.

"If it's managed correctly, I think you could create the legal mechanism (to handle hundreds of Chi-Chi's claims), rather than let the lawyers gobble up all the money with needless expenses," Clifford said.

What's unclear is whether Chi-Chi's has enough insurance to settle the cases in that fashion. Chi-Chi's has stated in bankruptcy documents that it has $51 million - about half as much as Marler believes the company will need.

Chi-Chi's attorney David Ernst of Portland, Ore., refused to discuss liability issues or the likelihood of settlement amounts. But he said that the company is seeking permission from bankruptcy court to spend $500,000 on deductible to free up the liability insurance.

"It is absolutely within the best interests of Chi-Chi's to do right by its customers," Ernst said. "But that (insurance and lawsuit settlement) part of it is not like Jack in the Box case - we have to comply with the bankruptcy court."

If Chi-Chi's does not emerge from Chapter 11, some hepatitis plaintiffs might find themselves waiting in line for pennies on the dollar behind the chain's other creditors, Clifford said.

"If, at the end, you've got a bankrupt defendant who did it, these people are going to get (shortchanged)," he said. "Bad things happen to good people every day in America."