Troubled peanut firm has filed for bankruptcy

WASHINGTON — The peanut company at the center of the nationwide salmonella scare has filed for Chapter 7 bankruptcy protection and will begin liquidating its assets as legal claims pile up against Lynchburg, Va.-based Peanut Corporation of America.

"Given that (Peanut Corp.) is under criminal investigation, I'm not surprised they've gone bankrupt," said Bill Marler, a Seattle lawyer representing 47 clients who are suing the company, including relatives of two people who died after reportedly consuming peanut products tainted with salmonella.

"It's regrettable, but it's inevitable with the events of last month," said Andrew Goldstein, a bankruptcy lawyer in Roanoke, Va., who filed the petition.

The salmonella outbreak was traced to the company's plant in Blakely, Ga., where inspectors found roaches, mold and a leaking roof. A second plant in Plainview, Texas, was shuttered this week after preliminary tests came back positive for possible salmonella contamination.

The outbreak has been suspected of sickening more than 630 people in 44 states, including Washington, and has been linked to nine deaths. It also has led to more than 2,000 product recalls, one of the largest recalls in U.S. history.

Records released during congressional hearings this week showed the company continued to ship its contaminated products even after they tested positive for the deadly bacteria.

Federal investigators are investigating the company's processing facilities in Georgia, Texas and Virginia and its owner Stewart Parnell.

This week, Parnell repeatedly refused to answer questions before the House Energy and Commerce investigations subcommittee about the outbreak.

Companies file Chapter 7 to liquidate their assets and distribute the proceeds to creditors. A trustee is automatically appointed to oversee the wind down, as opposed to a Chapter 11 filing that gives a company breathing room while it tries to reduce debts and continue in business. The company said in the filing that its debt and assets ranged between $1 million and $10 million.

The bankruptcy filing will slow the flood of lawsuits against the company but will not prevent individuals who have been sickened from filing claims, said Marler, who specializes in suits involving food-borne illnesses.

"It just puts everything on hold," he said, adding that he would move to lift the stay of litigation Monday so new claims against the company could be made.

Peanut Corp. carried $24 million worth of personal-liability insurance for the period of the suspected contamination, Marler noted, and those funds cannot be used to pay suppliers or other companies that have had been hit with millions in product-recall costs.

Marler said his clients are also suing King Nut and Kellogg, which used Peanut Corp. products in their own foods.

Material from The Associated Press is included in this report.