The agreement, which also involves attorneys representing Chi-Chi's creditors and the restaurant's primary insurer, Arch Specialty Insurance Group, would set up a 45-day window during which 202 people who have attorneys and plan to sue -- and any others who have yet to -- would submit their pending lawsuits to nonbinding mediation.
Those plaintiffs who can't settle in mediation would be freed to file a lawsuit in an attempt to get damages from Chi-Chi's and its insurers.
Chi-Chi's bankruptcy attorney, Alan Friedman, didn't immediately return a call for comment yesterday, but his name is on a copy of the agreement The Associated Press obtained yesterday that will be submitted to U.S. Bankruptcy Judge Charles G. Case II in Delaware.
The mediation agreement is necessary because Louisville, Ky.-based Chi-Chi's filed for Chapter 11 bankruptcy protection in early October, citing cash flow problems, before the outbreak became known. A corporation under Chapter 11 protection can't be sued without the bankruptcy court's approval, because its assets are being protected so its creditors can be paid.
State health officials say at least 660 people were infected, including three who died, in an outbreak traced to tainted green onions served at the restaurant, about 25 miles northwest of Pittsburgh, from late September through early November.
William Marler, a Seattle-based attorney who specializes in tainted food lawsuits, said he's been working for two months with Chi-Chi's and their creditors "to come up with some methodology for people who want to get their claims settled." Marler represents 67 people who intend to sue Chi-Chi's, while a consortium of Western Pennsylvania attorneys represents 135 others.
So far, the bankruptcy court has let only one lawsuit go forward against Chi-Chi's. It was filed by Richard Miller of Beaver County, who needed a life-saving liver transplant and has more than $500,000 in medical bills.
Chi-Chi's has said in court documents that it has $51 million in liability insurance.
Marler said the agreement was reached, in part, because if the total claims against Chi-Chi's exceed its insurance, the chain's assets -- which could be used to pay bankruptcy creditors -- could be targeted in lawsuits.
"The creditors are concerned that the $51 million isn't enough [to cover the hepatitis A lawsuits] and they want to have some ability to at least keep track of the settlements," Marler said.
Under the mediation system, potential lawsuits settled for $35,000 or less will be paid from $500,000 in self-insurance the restaurant chain has or a $1 million Arch Specialty policy, without further review from the bankruptcy court. Chi-Chi's will agree to seek the bankruptcy judge's approval of settlements of more than $35,000.
Retired U.S. District Judge Donald E. Zeigler and his law partner, Tom Cooper, of Pittsburgh, will mediate the cases.
If Chi-Chi's or its insurer aren't able, or allowed by the bankruptcy court, to pay a claim, the plaintiff is free to sue Chi-Chi's and its insurers for damages.
The mediation agreement is designed to pay claims over and above the out-of-pocket claims that Chi-Chi's has been paying for several weeks.
The restaurant chain said Saturday that it has paid out less than $1 million to cover those expenses -- such as doctor bills or insurance co-payments by those sickened. About 200 people have filed for out-of-pocket expenses and about 75 percent of those claims have been processed.