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CA Coop’s Civil Action Against DeCoster Moves Closer to Trial

Before the August 2010 Salmonella Enteritidis (SE) outbreak sickened as many as 62,000 people and led to a recall of more than half a billion eggs, Nucal Foods Inc. and Quality Egg LLC were trading eggs like currency.

Now those two companies are on the opposite sides of a federal civil action that in all likelihood is not going to be settled by trading eggs. In the past 26 months, the litigation has gone through several stages before the U.S. District Court for the Eastern District of California based in Sacramento.

The parties tried to reach a settlement on their own without success. The plaintiff is Nucal Foods Inc., the 50-year-old California agricultural cooperative with 11 family-owed egg production farms and seven processing plants in the area, processes over 7.5 million eggs per day.

Quality Egg LLC is the principal defendant. Others include liability company B, either directly or through ownership in other entities, owned by Austin “Jack” DeCoster. The original complaint named a number of other DeCoster entities, also as defendants. Some of those have been dismissed.

DeCoster, his son Peter and Patsy Larson, chief financial officer for Quality Egg, were also widely reported last year to be possible targets of a federal grand jury in Iowa. However, the only confirmed criminal action involving DeCoster operations involves a former manager who pleaded guilty to conspiracy to bribe a federal egg inspector.

Tony Wasmund will be sentenced on Feb. 12 by U.S. District Judge Mark Bennett in Sioux City, Iowa. Wasmund has been free since entering his plea. The former supervisor for a network of DeCoster companies, he could get up to five years in prison. Wasmund admitted giving another employee $300 out of petty cash to bribe a USDA egg inspector to approve sales of shell eggs that did not meet standards. The bribe occurred several months before the outbreak.

In a series of orders signed Jan. 14 by Judge Kimberly J. Mueller, recently appointed to the federal trial bench by President Barack Obama, the case took several steps nearer to going to a jury trial. A status conference is scheduled for March 7.

According to the original complaint, NuCal did not begin purchasing eggs from the DeCoster production facilities in Iowa, known as Wright County and Hillandale, until May 2010. Those would be the two egg production facilities that in August would be subjects of the largest recall of shell eggs in U.S. history.

NuCal and the DeCoster facilities did their egg trading through an entity known as the Egg Clearinghouse Inc., a commercial exchange. After each ECI transaction, DeCoster’s egg production facilities shipped eggs directly to NuCal in northern California.

Egg Clearinghouse Inc. (EIC) is a not-for-profit corporation that is nationally recognized as an exchange to determine and establish the market value for eggs and egg products. ECI trades numerous categories of eggs and egg products which aid its membership in the marketing of their inventories – be it longs or shorts. EIC members now must adhere to the Food and Drug Administration (FDA) egg rule.

NuCal’s key charge is that neither Wright County nor Hillandale told the California coop that 66 test samples taken at the Iowa facilities had tested positive for Salmonella.

During following weeks, NuCal purchased millions of eggs from the Iowa facilities, including 272,310 dozens of shell eggs from Wright County and 148,485 dozens of shell eggs from Hillandale.

NuCal then sold the eggs it purchased from the Iowa sources and with other eggs to several retailers it supplies.

The parties went through a period in 2011 when they held confidential talks among themselves but they did not reach a settlement.

The orders Judge Mueller signed on Jan. 14 somewhat narrow the issues that may be argued at trial. NuCal negligence claims can proceed where they apply to physical damage to other property, while its express warranty claim was dismissed with prejudice in their entirety.

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